FinanceLooker

Excrept from filing document 2024-09-30

The aggregate market value of the voting common stock held by non affiliates of the Registrant on March 28 2024 based on the closing price on that date of 21 46 per share on the Nasdaq Global Select Market which was retroactively adjusted for the 1 for 2 reverse stock split effected on April 4 2024 was 447 799 672 For the purposes of calculating this amount only all directors and executive officers of the Registrant have been treated as affiliates There were 22 329 852 shares of the Registrant s common stock 0 001 par value per share outstanding as of November 12 2024
Portions of the Registrant s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the Registrant s 2025 Annual Meeting of Stockholders which will be filed subsequent to the date hereof are incorporated by reference into Part III of this Form 10 K Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the Registrant s fiscal year ended September 30 2024
All statements contained herein other than historical facts may constitute forward looking statements These statements may relate to among other things our future operating results our business prospects and the prospects of our portfolio companies actual and potential conflicts of interest with Gladstone Management Corporation the Adviser our investment adviser and its affiliates the use of borrowed money to finance our investments the adequacy of our financing sources and working capital and our ability to co invest among other factors In some cases you can identify forward looking statements by terminology such as estimate may might believe will provided anticipate future could growth plan project intend expect should would if seek possible potential likely or the negative or variations of such terms or comparable terminology These forward looking statements involve known and unknown risks uncertainties and other factors that may cause our actual results levels of activity performance or achievements to be materially different from any future results levels of activity performance or achievements expressed or implied by such forward looking statements Such factors include 1 changes in the economy and the capital markets including stock price volatility inflation rising interest rates and risks of recession 2 risks associated with negotiation and consummation of pending and future transactions 3 the loss of one or more of our executive officers in particular David Gladstone Terry Lee Brubaker or Robert L Marcotte 4 changes in our investment objectives and strategy 5 availability terms including the possibility of interest rate volatility and deployment of capital 6 changes in our industry interest rates exchange rates or the general economy 7 our business prospects and the prospects of our portfolio companies 8 the degree and nature of our competition 9 changes in governmental regulation tax rates and similar matters 10 our ability to exit investments in a timely manner 11 our ability to maintain our qualification as a regulated investment company RIC under Subchapter M of the Internal Revenue Code of 1986 as amended the Code and as a business development company BDC under the Investment Company Act of 1940 as amended the 1940 Act and 12 those factors described herein including Item 1A Risk Factors of this Annual Report on Form 10 K this Annual Report We caution readers not to place undue reliance on any such forward looking statements Actual results could differ materially from those anticipated in our forward looking statements and future results could differ materially from historical performance We have based forward looking statements on information available to us on the date of this Annual Report Except as required by the federal securities laws we undertake no obligation to publicly update or revise any forward looking statements whether as a result of new information future events or otherwise after the date of this Annual Report Although we undertake no obligation to revise or update any forward looking statements whether as a result of new information future events or otherwise you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the U S Securities and Exchange Commission s SEC from time to time including quarterly reports on Form 10 Q and current reports on Form 8 K The forward looking statements contained in this Annual Report are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933 as amended the Securities Act
In this Annual Report the Company we us and our refer to Gladstone Capital Corporation and its wholly owned subsidiaries unless the context otherwise indicates Dollar amounts in tables except per share amounts are in thousands unless otherwise indicated
Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30 2001 We are an externally managed closed end non diversified management investment company that has elected to be treated as a BDC under the 1940 Act In addition we have elected to be treated for tax purposes as a RIC under the Code We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States U S
As of September 30 2024 shares of our common stock trade on the Nasdaq Global Select Market Nasdaq under the trading symbol GLAD and our 7 75 Notes due 2028 the 2028 Notes trade on Nasdaq under the ticker symbol GLADZ Our 6 25 Series A Cumulative Redeemable Preferred Stock the Series A Preferred Stock our 3 75 notes due 2027 the 2027 Notes and our 5 125 notes due 2026 the 2026 Notes are not listed or traded on any exchange or automated quotation system
The outstanding shares and per share amounts of the Company s common stock in this Annual Report have been retroactively adjusted for the 1 for 2 reverse stock split the Reverse Stock Split effected on April 4 2024 effective April 5 2024 for trading purposes for all activity prior to that date unless stated otherwise
We are externally managed by the Adviser an investment adviser registered with the SEC and an affiliate of ours pursuant to an investment advisory and management agreement as amended and or restated from time to time the Advisory Agreement The Adviser manages our investment activities We have also entered into an administration agreement with Gladstone Administration LLC the Administrator an affiliate of ours and the Adviser whereby we pay separately for administrative services the Administration Agreement Each of the Adviser and the Administrator are privately held companies that are indirectly owned and controlled by David Gladstone our chairman and chief executive officer Mr Gladstone and Terry Lee Brubaker our chief operating officer also serve on the board of directors of the Adviser the board of managers of the Administrator and as executive officers of the Adviser and the Administrator The Administrator employs among others our chief financial officer and treasurer chief valuation officer chief compliance officer general counsel and secretary who also serves as the president of the Administrator and their respective staffs The Adviser and Administrator have extensive experience in our lines of business and also provide investment advisory and administrative services respectively to our affiliates including Gladstone Commercial Corporation Gladstone Commercial a publicly traded real estate investment trust Gladstone Investment Corporation Gladstone Investment a publicly traded BDC and RIC Gladstone Land Corporation a publicly traded real estate investment trust Gladstone Land and Gladstone Alternative Income Fund a registered non diversified closed end management investment company that operates as an interval fund Gladstone Alternative with Gladstone Land Gladstone Commercial and Gladstone Investment collectively the Affiliated Public Funds In the future the Adviser and Administrator may provide investment advisory and administrative services respectively to other funds and companies both public and private
The Adviser was organized as a corporation under the laws of the State of Delaware on July 2 2002 and is an SEC registered investment adviser under the Investment Advisors Act of 1940 as amended The Administrator was organized as a limited liability company under the laws of the State of Delaware on March 18 2005 The Adviser and Administrator are headquartered in McLean Virginia a suburb of Washington D C at 1521 Westbranch Drive McLean Virginia 22102 The Adviser also has offices in other states
Our investment objectives are to 1 achieve and grow current income by investing in debt securities of established lower middle market companies which we generally define as companies with annual earnings before interest taxes depreciation and amortization EBITDA of 3 million to 25 million in the U S that we believe will provide stable earnings and cash flow to pay expenses make principal and interest payments on our outstanding indebtedness and make
distributions to stockholders and 2 provide our stockholders with long term capital appreciation in the value of our assets by investing in equity securities in connection with our debt investments that we believe can grow over time to permit us to sell our equity investments for capital gains To achieve our objectives our primary investment strategy is to invest in several categories of debt and equity securities with each investment generally ranging from 8 million to 40 million although investment size may vary depending upon our total assets or available capital at the time of investment We lend to borrowers that need funds for growth capital to finance acquisitions or to recapitalize or refinance their existing debt facilities We seek to avoid investing in high risk early stage enterprises Our targeted portfolio companies are generally considered too small for the larger capital marketplace We expect that our investment portfolio over time will consist of approximately 90 0 debt investments and 10 0 equity investments at cost As of September 30 2024 our investment portfolio was made up of approximately 90 1 debt investments and 9 9 equity investments at cost
We invest by ourselves or jointly with other funds and or management of the portfolio company depending on the opportunity In July 2012 the SEC granted us an exemptive order the Co Investment Order that expanded our ability to co invest under certain circumstances with certain of our affiliates including Gladstone Investment Gladstone Alternative and any future BDC or registered closed end management investment company that is advised or sub advised if it controls the fund by the Adviser or any combination of the foregoing subject to the conditions in the Co Investment Order We believe the Co Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies If we are participating in an investment with one or more co investors whether or not an affiliate of ours our investment is likely to be smaller than if we were investing alone
In general our investments in debt securities have a term of no more than seven years accrue interest at variable rates generally based on one month term Secured Overnight Financing Rate SOFR and to a lesser extent at fixed rates We seek debt instruments that pay interest monthly or at a minimum quarterly may have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity Generally success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company typically from an exit or sale Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid together with the principal at maturity This form of deferred interest is often called paid in kind PIK interest
Typically our equity investments consist of common stock preferred stock limited liability company interests or warrants to purchase the foregoing Often these equity investments occur in connection with our original investment recapitalizing a business or refinancing existing debt
Since our initial public offering in 2001 and through September 30 2024 we have invested in approximately 277 different companies We expect that our investment portfolio will primarily include the following three categories of investments in private companies operating in the U S
We seek to invest a portion of our assets in secured first lien debt securities also known as senior loans senior term loans lines of credit and senior notes Using its assets as collateral the borrower typically uses first lien debt to cover a substantial portion of the funding needs of the business These debt securities usually take the form of first priority liens on all or substantially all of the assets of the business First lien debt securities may include investments sourced from the syndicated loan market
We seek to invest a portion of our assets in secured second lien debt securities also known as subordinated loans subordinated notes and mezzanine loans These secured second lien debt securities rank junior to the secured borrowers first lien debt securities and may be secured by second priority liens on all or a portion of the assets of the business Additionally we may receive other yield enhancements in addition to or in lieu of success fees such as warrants to buy common and preferred stock or limited liability interests in connection with these second lien secured debt securities Second lien debt securities may include investments sourced from the syndicated loan market
In some cases we will purchase equity securities which consist of preferred and common equity or limited liability company interests or warrants or options to acquire such securities and are in combination with our debt investment in a business Additionally we may receive equity investments derived from restructurings on some of our existing debt investments In some cases we will own a significant portion of the equity and in other cases we may have voting control of the businesses in which we invest
Under the 1940 Act we may not acquire any asset other than assets of the type listed in Section 55 of the 1940 Act which are referred to as qualifying assets and generally include each of the investment types listed above unless at the time the
We expect that most if not all of the debt securities we acquire will not be rated by a credit rating agency Investors should assume that these loans would be rated below investment grade quality Investments rated below investment grade are often referred to as high yield securities or junk bonds and may be considered higher risk as compared to investment grade debt instruments In addition many of the debt securities we hold may not amortize prior to maturity
We seek to achieve a high level of current income and capital gains through investments in debt securities and preferred or common stock that we generally acquire in connection with buyouts and other recapitalizations The following investment policies along with these investment objectives may not be changed without the approval of our board of directors the Board of Directors
As of September 30 2024 our investment portfolio consisted of investments in 49 companies located in 22 states across 13 different industries with an aggregate fair value of 796 3 million The five largest investments at fair value as of September 30 2024 totaled 232 7 million or 29 2 of our total investment portfolio
To originate investments the Adviser s investment professionals use an extensive referral network comprised primarily of private equity sponsors private credit managers venture capitalists leveraged buyout funds investment bankers attorneys accountants commercial bankers and business brokers The Adviser s investment professionals review information received from these and other sources in search of potential financing opportunities If a potential opportunity matches our investment objectives the investment professionals will seek an initial screening of the opportunity with our president Robert L Marcotte to authorize the submission of an indication of interest IOI to the prospective portfolio company If the prospective portfolio company passes this initial screening and the IOI is accepted by the prospective company the investment professionals will seek approval to issue a letter of intent LOI to the prospective company from the Adviser s investment committee which currently is comprised of David Gladstone Terry Lee Brubaker Robert L Marcotte Laura Gladstone and John Sateri If this LOI is issued then the Adviser and Gladstone Securities LLC Gladstone Securities collectively the Due Diligence Team will conduct a due diligence investigation and create a detailed profile summarizing the prospective portfolio company s historical financial statements industry competitive position and management team analyzing its conformity to our general investment criteria The investment professionals then present this profile to the Adviser s investment committee which must approve each investment
We have identified certain characteristics that we believe are important in identifying and investing in prospective portfolio companies The criteria listed below provide general guidelines for our investment decisions although not all of these criteria may be met by each portfolio company
Our investment philosophy places a premium on fundamental analysis from an investor s perspective and has a distinct growth and income orientation We typically invest in companies that generate growing sales and cash flow to provide some assurance that they will be able to service their debt and deleverage over time We do not expect to invest in start up companies or companies with what we believe to be cyclical industries or speculative business plans
We typically require that the businesses in which we invest have experienced management teams or a hiring plan in place to install an experienced management team We also require the businesses to have proper incentives in place to induce management teams to succeed and align with our interests as an investor including having significant equity or other interests in the financial performance of their respective companies
We seek to invest in businesses that have a differentiated product or service and significant relative market share within their respective markets and that we believe have the strategy and resources to take advantage of the expected growth in their market We seek businesses that demonstrate significant competitive advantages versus their competitors which we believe will help to protect their market positions and profitability
The projected enterprise valuation of the business based on market based comparable cash flow multiples is an important factor in our investment analysis in determining the collateral coverage of our debt securities
The Due Diligence Team conducts what we believe are extensive evaluation and due diligence investigations of our prospective portfolio companies and investment opportunities The due diligence investigation typically begins with a review of publicly available information followed by in depth business analysis including any of the following
Upon completion of a due diligence investigation and a decision to proceed with an investment the Adviser s investment professionals who have primary responsibility for the investment present the investment opportunity to the Adviser s investment committee The investment committee then determines whether to pursue the potential investment Prior to the closing of an investment additional due diligence may be conducted by the Adviser or on our behalf by attorneys independent accountants and other outside advisers as appropriate
We also rely on the long term relationships that the Adviser s investment professionals have with leveraged buyout funds private credit managers investment bankers commercial bankers private equity sponsors attorneys accountants and business brokers In addition the extensive direct experiences of our executive officers and managing directors in the operations of lower middle market companies and providing debt and equity capital to lower middle market companies plays a significant role in our investment evaluation and assessment of risk
Once the Adviser has determined that an investment meets our standards and investment criteria the Adviser works with the management of that company the private equity firm or ownership group controlling any prospective borrower and other capital providers to structure the transaction in a way that we believe will provide us with the greatest opportunity to maximize our return on the investment while providing appropriate incentives to the shareholders and management of the company As discussed above the capital classes through which we typically structure a deal include secured first lien debt secured second lien debt and preferred and common equity or equivalents Through its risk management process the Adviser seeks to limit the downside risk of our investments by
We expect to hold most of our debt investments until maturity or repayment but may sell our investments including our equity investments earlier if a liquidity event takes place such as the sale or recapitalization of a portfolio company Occasionally we may sell some or all of our investment interests in a portfolio company to a third party in a privately negotiated transaction to manage our credit or sector exposures or to enhance our portfolio yield
A large number of entities compete with us and make the types of investments that we seek to make in lower middle market privately owned businesses Such competitors include other BDCs registered investment companies private investment funds and other financing sources including traditional financial services companies such as commercial banks Many of our competitors are substantially larger than we are and have considerably greater funding sources or are able to access capital more cost effectively In addition certain of our competitors may have higher risk tolerances or different risk assessments which could allow them to consider a wider variety of investments serve a broader customer base and establish a greater market share Furthermore many of these competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the regulatory requirements we must comply with as a publicly traded company However we believe that we have the following competitive advantages over many other providers of financing to lower middle market companies
Our Adviser has a separate investment committee for the Company and each of the Affiliated Public Funds The Adviser s investment committee for the Company is comprised of Messrs Gladstone Brubaker Marcotte and Sateri and Ms Gladstone each of whom have a wealth of experience in our area of operation Ms Gladstone and Messrs Gladstone Brubaker and Sateri also serve on the Adviser s investment committee for the other Affiliated Public Funds Ms Gladstone has over 20 years of experience in investing in middle market companies and continues to hold the role of managing director with the Company and the Adviser Each of Messrs Gladstone Marcotte and Sateri have over 30 years of experience in investing in middle market companies and with operating in the BDC marketplace in general Messrs Gladstone and Brubaker also have principal management responsibility for the Adviser as its executive officers and have worked together at the Gladstone Companies for more than 20 years Mr Brubaker has over 30 years of experience in acquisitions and operations of companies These five individuals dedicate a significant portion of their time to managing our investment portfolio Our senior management has extensive experience providing capital to lower middle market companies In addition we have access to the resources and expertise of the Adviser s investment professionals and support staff who possess a broad range of transactional financial managerial and investment skills
The Adviser seeks to identify potential investments through active origination and due diligence and through its dialogue with numerous private equity firms and other members of the financial community with whom the Adviser s investment professionals have long term relationships We believe that the Adviser s investment professionals have developed a broad
network of contacts within the investment commercial banking private equity and investment management communities and that their reputation experience and focus on investing in lower middle market companies enables us to source and identify well positioned prospective portfolio companies that provide attractive investment opportunities Additionally the Adviser expects to generate information from its professionals network of accountants consultants lawyers and management teams of portfolio companies and other contacts to support the Adviser s investment activities
In making its investment decisions the Adviser focuses on the risk and reward profile of each prospective portfolio company seeking to minimize the risk of capital loss without foregoing the potential for capital appreciation We expect the Adviser to use the same investment philosophy that its professionals use in the management of the other Affiliated Public Funds and to commit resources to manage downside exposure The Adviser s approach seeks to reduce our risk in investments by using some or all of the following approaches
Unlike private equity and private credit funds that are often organized as finite life partnerships generally seven to ten years we are not subject to standard periodic capital return requirements These structures often force private equity and private credit funds to seek returns on their investments by causing their portfolio companies to pursue mergers public equity offerings or other liquidity events more quickly than might otherwise be optimal or desirable potentially resulting in a lower overall return to investors and or an adverse impact on their portfolio companies In contrast we are an exchange traded corporation of perpetual duration We believe that our flexibility to make investments with a long term view and without the capital return requirements of traditional private investment vehicles provides us with the opportunity to achieve greater long term returns on invested capital
We believe our management team s broad expertise and years of combined experience enable the Adviser to identify assess and structure investments successfully across all levels of a company s capital structure and manage potential risk and return at all stages of the economic cycle We are not subject to many of the regulatory limitations that govern traditional lending institutions such as banks As a result we are flexible in selecting and structuring investments adjusting investment criteria and transaction structures and in some cases the types of securities in which we invest We believe that this approach enables the Adviser to craft a financing structure which best fits the investment and growth profile of the underlying business and yields attractive investment opportunities that will continue to generate current income and capital gain potential throughout the economic cycle including during turbulent periods in the capital markets
The Adviser s investment professionals actively oversee each investment by continuously evaluating the portfolio company s performance and although generally not expected to control such companies or become involved in day to day operations will work collaboratively with the portfolio company s management either at the portfolio company s request or in connection with any board observer rights to identify and incorporate best resources and practices that help us achieve our projected investment performance
The Adviser s investment professionals monitor the financial performance trends and changing risks of each portfolio company on an ongoing basis to determine if each company is performing within expectations and to guide the portfolio
company s management in taking the appropriate courses of action The Adviser employs various methods of evaluating and monitoring the performance of our investments in portfolio companies which can include the following
As a BDC we make available significant managerial assistance as defined in the 1940 Act to our portfolio companies and provide other services other than such managerial assistance to such portfolio companies Neither we nor the Adviser currently receive fees in connection with the managerial assistance we make available At times the Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance Such services may include i assistance obtaining sourcing or structuring credit facilities long term loans or additional equity from unaffiliated third parties ii negotiating important contractual financial relationships iii consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties and iv taking a primary role in interviewing vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members The Adviser non contractually unconditionally and irrevocably credits 100 of any fees received for such services against the base management fee that we would otherwise be required to pay to the Adviser as discussed below in
However pursuant to the terms of the Advisory Agreement a small percentage of certain of such fees is retained by the Adviser in the form of reimbursement at cost for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies
The following is a general description of the Policy that the professionals of the Adviser and Administrator with oversight and direction from our chief valuation officer an employee of the Administrator that reports directly to our Board of Directors collectively the Valuation Team use each quarter to determine the fair value of our investment portfolio In accordance with the 1940 Act our Board of Directors has the ultimate responsibility for reviewing the good faith fair value determination of our investments for which market quotations are not readily available based on our Policy and for overseeing the Valuation Designee The Adviser values our investments in accordance with the requirements of the 1940
Act and accounting principles generally accepted in the U S GAAP There is no single standard for determining fair value especially for privately held businesses as fair value depends upon the specific facts and circumstances of each individual investment Each quarter our Board of Directors reviews the Policy to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently With respect to the valuation of our investment portfolio the Valuation Team performs the following steps each quarter
using techniques such as total enterprise value yield analysis market quotes and other factors including but not limited to the nature and realizable value of the collateral including external parties guaranties any relevant offers or letters of intent to acquire the portfolio company and the markets in which the portfolio company operates
Preliminary valuation conclusions are then discussed amongst the Valuation Team and with our management and documented for review by our Board of Directors Fair value determinations and supporting material are sent to the Board of Directors in advance of its quarterly meetings
The Valuation Committee of the Board of Directors comprised entirely of independent directors meets to review the valuation determinations and supporting materials discusses the information provided by the Valuation Team determines whether the Valuation Team has followed the Policy and reviews other facts and circumstances including current valuation risks conflicts of interest material valuation matters appropriateness of valuation methodologies back testing results price challenges overides and ongoing monitoring and oversight of pricing services After the Valuation Committee concludes its meeting it and the chief valuation officer representing the Valuation Designee present the Valuation Committee s findings on the Valuations Designee s determinations to the entire Board of Directors so that the full Board of Directors may review the Valuation Designee s determined fair values of such investments in accordance with the Policy
Fair value measurements of our investments may involve subjective judgment and estimates Due to the uncertainty inherent in valuing these securities the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed Our net asset value NAV could be materially affected if the determinations regarding the fair value of our investments are materially
In 2006 we entered into the Advisory Agreement which was most recently amended and restated in April 2022 In accordance with the Advisory Agreement we pay the Adviser fees as compensation for its services consisting of a base management fee and an incentive fee On July 9 2024 our Board of Directors including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party unanimously approved the renewal of the Advisory Agreement through August 31 2025 Mr Gladstone our chairman and chief executive officer controls the Adviser The Board of Directors considered the following factors as the basis for its decision to renew the Advisory Agreement 1 the nature extent and quality of services provided by the Adviser to our shareholders 2 the investment performance of the Company and the Adviser 3 the costs of the services to be provided and profits to be realized by the Adviser and its affiliates from the relationship with the Company 4 the extent to which economies of scale will be realized as the Company and the Affiliated Public Funds grow and whether the fee level under the Advisory Agreement reflects the economies of scale for the Company s investors 5 the fee structure of the advisory and administrative agreements of comparable funds 6 indirect profits to the Adviser created through the Company and 7 in light of the foregoing considerations the overall fairness of the advisory fees paid under the Advisory Agreement
Based on the information reviewed and the considerations detailed above our Board of Directors including all of the directors who are not interested persons as that term is defined in the 1940 Act concluded that the investment advisory fee rates and terms are fair and reasonable in relation to the services provided and approved the Advisory Agreement as being in the best interests of our stockholders
The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1 75 computed on the basis of the value of our average total assets at the end of the two most recently completed quarters inclusive of the current quarter which are total assets including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period Our Board of Directors may as it has for the years ended September 30 2024 2023 and 2022 accept a non contractual unconditional and irrevocable credit from the Adviser to reduce the annual 1 75 base management fee on syndicated loan participations to 0 5 to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations
Additionally pursuant to the requirements of the 1940 Act the Adviser makes available significant managerial assistance to our portfolio companies The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance The Adviser non contractually unconditionally and irrevocably credits 100 of these fees against the base management fee that we would otherwise be required to pay to the Adviser however pursuant to the terms of the Advisory Agreement a small percentage of certain of such fees is retained by the Adviser in the form of reimbursement at cost for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies Loan servicing fees that are payable to the Adviser pursuant to our revolving line of credit with KeyBank National Association KeyBank as administrative agent lead arranger and lender as amended and restated from time to time our Credit Facility are also 100 credited against the base management fee as discussed below
The incentive fee consists of two parts an income based incentive fee and a capital gains based incentive fee The income based incentive fee rewards the Adviser if our quarterly net investment income before giving effect to any incentive fee exceeds 1 75 of our net assets 2 0 during the period from April 1 2020 through March 31 2023 which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually due but not payable during the period at the end of the immediately preceding calendar quarter adjusted appropriately for any share issuances or repurchases during the period the hurdle rate The income based incentive fee with respect to our pre incentive fee net investment income is generally payable quarterly to the Adviser and is computed as follows
100 0 of our pre incentive fee net investment income with respect to that portion of such pre incentive fee net investment income if any that exceeds the hurdle rate but is less than 2 1875 2 4375 during the period from April 1 2020 through March 31 2022 and 2 50 from April 1 2022 through March 31 2023 of our net assets adjusted appropriately for any share issuances or repurchases during the period in any calendar quarter and
20 0 of the amount of our pre incentive fee net investment income if any that exceeds 2 1875 2 4375 during the period from April 1 2020 through March 31 2022 and 2 50 from April 1 2022 through March 31 2023 of our net assets adjusted appropriately for any share issuances or repurchases during the period in any calendar quarter
The second part of the incentive fee is a capital gains based incentive fee that is determined and payable in arrears as of the end of each fiscal year or upon termination of the Advisory Agreement as of the termination date and equals 20 0 of our net realized capital gains as defined below as of the end of the fiscal year In determining the capital gains based incentive fee payable to the Adviser we calculate net realized capital gains at the end of each applicable year by subtracting the sum of our cumulative aggregate realized capital losses and our entire portfolio s aggregate unrealized capital depreciation from our cumulative aggregate realized capital gains For this purpose cumulative aggregate realized capital gains if any equals the sum of the differences between the net sales price of each investment when sold and the original cost of such investment since inception Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment when sold is less than the original cost of such investment since inception The entire portfolio s aggregate unrealized capital depreciation if any equals the sum of the difference between the valuation of each investment as of the applicable calculation date and the original cost of such investment At the end of the applicable fiscal year the amount of capital gains that serves as the basis for our calculation of the capital gains based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses less the entire portfolio s aggregate unrealized capital depreciation if any If this number is positive at the end of such fiscal year then the capital gains based incentive fee for such year equals 20 0 of such amount less the aggregate amount of any capital gains based incentive fees paid in respect of our portfolio in all prior years No capital gains based incentive fee has been recorded or paid since our inception through September 30 2024 as cumulative unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses
In accordance with GAAP a capital gains based incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation and depreciation If such amount is positive at the end of a period then GAAP requires us to record a capital gains based incentive fee equal to 20 0 of such amount less the aggregate amount of actual capital gains based incentive fees paid in all prior years If such amount is negative then there is no accrual for such period GAAP requires that the capital gains based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation as a capital gains based incentive fee would be payable if such unrealized capital appreciation were realized There can be no assurance that such unrealized capital appreciation will be realized in the future No GAAP accrual for a capital gains based incentive fee has been recorded from our inception through September 30 2024
Our Board of Directors accepted non contractual unconditional and irrevocable credits from the Adviser to reduce the income based incentive fee to the extent net investment income did not cover 100 0 of distributions to common stockholders for the years ended September 30 2024 and 2022 which credits totaled 0 2 million and 0 4 million respectively There were no such credits during the year ended September 30 2023
The Adviser also services the loans held by our wholly owned subsidiary Gladstone Business Loan LLC Business Loan the borrower under our Credit Facility in return for which the Adviser receives a 1 5 annual fee payable monthly based on the monthly aggregate outstanding balance of loans pledged under our Credit Facility Since Business Loan is a consolidated subsidiary of ours and the total base management fee paid to the Adviser pursuant to the Advisory Agreement cannot exceed 1 75 of total assets less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period during any given calendar year we
treat payment of the loan servicing fee pursuant to our Credit Facility as a pre payment of the base management fee under the Advisory Agreement Accordingly these loan servicing fees are 100 non contractually unconditionally and irrevocably credited back to us by the Adviser
We reimburse the Administrator pursuant to the Administration Agreement for our allocable portion of the Administrator s expenses incurred while performing services to us which are primarily rent and salaries and benefits expenses of the Administrator s employees including our chief financial officer and treasurer chief compliance officer chief valuation officer and general counsel and secretary who also serves as the Administrator s president and their respective staffs
Our allocable portion of the Administrator s expenses are generally derived by multiplying the Administrator s total expenses by the approximate percentage of time during the current quarter the Administrator s employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator On July 9 2024 our Board of Directors including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party approved the renewal of the Administration Agreement through August 31 2025
Mr Gladstone also serves on the board of managers of our affiliate Gladstone Securities a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation Gladstone Securities is 100 indirectly owned and controlled by Mr Gladstone and has provided other services such as investment banking and due diligence services to certain of our portfolio companies for which Gladstone Securities receives a fee Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non contractual unconditional and irrevocable credits against the base management fee or incentive fee For additional information refer to Note 4
This is a general summary of certain material U S federal income tax considerations applicable to us to our qualification and taxation as a RIC for U S federal income tax purposes under Subchapter M of the Code and to the ownership and disposition of our shares This summary does not purport to be a complete description of all of the tax considerations relating thereto In particular we have not described certain considerations that may be relevant to certain types of stockholders subject to special treatment under U S federal income tax laws This summary does not discuss any aspect of state local or foreign tax laws or the U S estate or gift tax Stockholders are urged to consult their tax advisors regarding their particular situations and the possible applicability of federal state local non U S or other tax laws and any proposed tax law changes
a corporation or other entity treated as a corporation for U S federal income tax purposes created or organized in or under the laws of the United States or any state thereof of the District of Columbia
a trust if a court within the United States is able to exercise primary supervision over its administration and one or more U S persons as defined in the Code have the authority to control all of its substantial decisions or if the trust has a valid election in effect under applicable U S Treasury regulations to be treated as a domestic trust for U S federal income tax purposes or
To qualify for treatment as a RIC under Subchapter M of the Code we must generally distribute to our stockholders for each taxable year at least 90 0 of our taxable ordinary income plus the excess of our realized net short term capital gains over our realized net long term capital losses Investment Company Taxable Income We refer to this as the annual distribution requirement We must also meet several additional requirements including
At least 90 0 of our gross income for each taxable year must be from dividends interest payments with respect to securities loans gains from sales or other dispositions of securities or other income including certain deemed inclusions derived with respect to our business of investing in securities and net income derived from an interest in a qualified publicly traded partnership
As of the close of each quarter of our taxable year 1 at least 50 of the value of our assets must consist of cash cash items U S government securities the securities of other regulated investment companies and other securities to the extent that a we do not hold more than 10 of the outstanding voting securities of an issuer of such other securities and b such other securities of any one issuer do not represent more than 5 of our total assets and 2 no more than 25 of the value of our total assets may be invested in the securities other than U S government securities or the securities of other regulated investment companies of i one issuer ii two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses and iii one or more qualified publicly traded partnerships
If we were to fail to meet the income diversification or distribution tests described above we could in some cases cure such failure including by paying a fund level tax paying interest making additional distributions or disposing of certain assets If we were ineligible to or otherwise did not cure such failure or were otherwise unable to qualify for treatment as a RIC we would be subject to U S federal income tax on all of our taxable income at the regular corporate income tax rate and would be subject to any applicable state and local taxes even if we distributed all of our Investment Company Taxable Income to our stockholders We would not be able to deduct distributions to our stockholders nor would we be required to make such distributions for U S federal income tax purposes Distributions would be taxable to our stockholders as ordinary dividend income and subject to certain limitations under the Code would be eligible for the current maximum rate applicable to qualifying dividend income of individuals and other non corporate U S stockholders to the extent of our current or accumulated earnings and profits Subject to certain limitations under the Code corporate distributees would be eligible for the dividends received deduction if applicable Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder s adjusted tax basis and then as capital gain If we fail to meet the RIC requirements for more than two consecutive years and then seek to requalify as a RIC we generally would be subject to corporate level U S federal income tax on any unrealized appreciation with respect to our assets unless we make a special election to pay corporate level U S federal income tax on any such unrealized appreciation during the succeeding five year period
If we qualify as a RIC and meet the annual distribution requirement we will not be subject to U S federal income tax on the portion of our Investment Company Taxable Income and net capital gain realized net long term capital gain in excess of realized net short term capital loss that we timely distribute or are deemed to timely distribute to our stockholders If we fail to distribute in a timely manner an amount at least equal to the sum of 1 98 0 of our ordinary income for the calendar year 2 98 2 of our net capital gains for the one year period ending on October 31 of the calendar year or November 30 or December 31 of that year if we are permitted to elect and so elect and 3 any income realized but not distributed in the preceding period to the extent that income tax was not imposed on such amounts less certain reductions as applicable together the excise tax distribution requirements we will be subject to a 4 nondeductible federal excise tax on the portion of the undistributed amounts of such income that are less than the amounts required to be distributed based on the excise tax distribution requirements For the calendar years ended December 31 2023 2022 and 2021 we did not incur any excise taxes As of September 30 2024 our capital loss carryforward was 47 4 million
If we acquire debt obligations that i were originally issued at a discount ii bear interest at rates that are not either fixed rates or certain qualified variable rates or iii are not unconditionally payable at least annually over the life of the obligation we will be required to include in taxable income each year a portion of the original issue discount OID that accrues over the life of the obligation Additionally PIK interest which is computed at the contractual rate specified in a loan agreement and is added to the principal balance of a loan is also a non cash source of income that we are required to include in taxable income each year Both OID and PIK income will be included in our Investment Company Taxable Income even though we receive no cash corresponding to such amounts As a result we may be required to make additional distributions corresponding to such OID and PIK amounts in order to satisfy the annual distribution requirement and to continue to qualify as a RIC or to avoid the imposition of federal income and excise taxes In this event we may be required to sell investments or other assets to meet the RIC distribution requirements For the year ended September 30 2024 we recorded 0 4 million of OID income and the unamortized balance of OID investments as of September 30 2024
For any period during which we qualify as a RIC for U S federal income tax purposes distributions to our stockholders attributable to our Investment Company Taxable Income generally will be taxable as ordinary income to our stockholders to the extent of our current or accumulated earnings and profits We first allocate our earnings and profits to distributions to our preferred stockholders if any and then to distributions to our common stockholders based on priority in our capital structure Any distributions in excess of our earnings and profits will first be treated as a return of capital to the extent of the stockholder s adjusted basis in his or her shares of stock and thereafter as capital gain Distributions of our long term capital gains reported by us as such will be taxable to our stockholders as long term capital gains regardless of the stockholder s holding period of the stock and whether the distributions are paid in cash or invested in additional stock Corporate U S stockholders generally are eligible for the 50 dividends received deduction with respect to ordinary income dividends received from us but only to the extent such amount is attributable to dividends received by us from taxable domestic corporations
A RIC that has two or more classes of stock generally is required to allocate to each class proportionate amounts of each type of its income such as ordinary income capital gains qualified dividend income and dividends qualifying for the dividends received deduction based upon the percentage of total distributions paid to each class for the tax year Accordingly for any tax year in which we have common shares and preferred shares we intend to allocate capital gain distributions distributions of qualified dividend income and distributions qualifying for the dividends received deduction if any between our common shares and preferred shares in proportion to the total distributions paid to each class with respect to such tax year
Any distribution declared by us in October November or December of any calendar year payable to our stockholders of record on a specified date in such a month and actually paid during January of the following year will be treated as if it were paid by us and received by our stockholders on December 31 of the previous year In addition we may elect in accordance with Section 855 a of the Code to relate a distribution back to the prior taxable year if we 1 declare such distribution prior to the later of the extended due date for filing our return for that taxable year or the 15
day of the ninth month following the close of the taxable year 2 make the election in that return and 3 distribute the amount in the 12 month period following the close of the taxable year but not later than the first regular distribution payment of the same type following the declaration Any such election will not alter the general rule that a stockholder will be treated as receiving a distribution in the taxable year in which the distribution is made subject to the October November December rule described above
If a common stockholder participates in our opt in dividend reinvestment plan then the common stockholder will have their cash dividends and distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends and distributions Any distributions reinvested under the plan will be taxable to the common stockholder to the same extent and with the same character as if the common stockholder had received the distribution in cash The common stockholder will have an adjusted basis in the additional common shares purchased through the plan equal to the dollar amount that would have been received if the U S stockholder had received the dividend or distribution in cash unless we were to issue new shares that are trading at or above net asset value in which case the U S stockholder s basis in the new shares would generally be equal to their fair market value The additional common shares will have a new holding period commencing on the day following the day on which the shares are credited to the common stockholder s account The plan agent purchases shares in the open market in connection with the obligations under the plan
A U S stockholder generally will recognize taxable gain or loss if the U S stockholder sells or otherwise disposes of the shares of our common stock Any gain arising from such sale or disposition generally will be treated as long term capital gain or loss if the U S stockholder has held the shares for more than one year Otherwise it will be classified as short term capital gain or loss However any capital loss arising from the sale or disposition of shares of our stock held for six months or less will be treated as long term capital loss to the extent of the amount of capital gain dividends received or undistributed capital gain deemed received with respect to such shares All or a portion of any loss realized upon a taxable disposition of shares will be disallowed under the Code s wash sale rule if other substantially identical shares are
purchased within 30 days before or after the disposition In such a case the basis of the newly purchased shares will be adjusted to reflect the disallowed loss Under the tax laws in effect as of the date of this filing individual U S stockholders are subject to a maximum federal income tax rate of 20 on their net capital gain i e the excess of realized net long term capital gain over realized net short term capital loss for a taxable year including any long term capital gain derived from an investment in our shares Such rate is lower than the maximum rate on ordinary income currently payable by individuals Corporate U S stockholders currently are subject to federal income tax on net capital gain at the same rates applied to their ordinary income Capital losses are subject to limitations on use for both corporate and non corporate stockholders Certain U S stockholders who are individuals estates or trusts generally are also subject to a 3 8 Medicare tax on among other things dividends on and capital gain from the sale or other disposition of shares of our stock
We may be required to withhold U S federal income tax i e backup withholding from all taxable distributions to any non corporate U S stockholder i who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or ii with respect to whom the Internal Revenue Service IRS notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect An individual s taxpayer identification number is generally his or her social security number Any amount withheld under backup withholding is allowed as a credit against the U S stockholder s federal income tax liability provided that proper information is timely provided to the IRS
Sections 1471 1474 of the Code and the U S Treasury and IRS guidance issued thereunder collectively FATCA generally require that we obtain information sufficient to identify the status of each shareholder under FATCA or under an applicable intergovernmental agreement an IGA between the United States and a foreign government If a shareholder fails to provide the requested information or otherwise fails to comply with FATCA or an IGA we may be required to withhold under FATCA at a rate of 30 with respect to that shareholder on ordinary dividends it pays The IRS and the Department of Treasury have issued proposed regulations providing that these withholding rules will not apply to the gross proceeds of share redemptions or capital gain dividends we pay If a payment is subject to FATCA withholding we are required to withhold even if such payment would otherwise be exempt from withholding under the rules applicable to foreign shareholders described above e g interest related dividends In addition subject to certain exceptions this legislation also imposes a 30 withholding on payments to foreign entities that are not financial institutions unless the foreign entity certifies that it does not have a greater than 10 U S owner or provides the withholding agent with identifying information on each greater than 10 U S owner Depending on the status of a non U S stockholder and the status of the intermediaries through which they hold their shares non U S stockholders could be subject to this 30 withholding tax with respect to distributions on their shares and proceeds from the sale of their shares Under certain circumstances a non U S stockholder might be eligible for refunds or credits of such taxes
We will send to each of our U S stockholders after the end of each calendar year a notice providing on a per share and per distribution basis the amounts includible in the U S stockholder s taxable income for such year as ordinary income and as long term capital gain if any In addition the U S federal tax status of each year s distributions will generally be reported to the IRS including the amount of dividends if any eligible for the preferential rates applicable to long term capital gains
We are a closed end non diversified management investment company that has elected to be regulated as a BDC under Section 54 of the 1940 Act As such we are subject to regulation under the 1940 Act The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than interested persons as defined in the 1940 Act In addition the 1940 Act provides that we may not change the nature of our business so as to cease to be or to withdraw our election as a BDC unless approved by a vote of a majority of outstanding voting securities as defined in the 1940 Act
In general a BDC must have been organized and have its principal place of business in the U S and must be operated for the purpose of making investments in qualifying assets as described in Sections 55 a 1 through a 3 of the 1940 Act
Under the 1940 Act a BDC may not acquire any asset other than assets of the type listed in Section 55 a of the 1940 Act which are referred to as qualifying assets unless at the time the acquisition is made qualifying assets other than certain interests in furniture equipment real estate or leasehold improvements Operating Assets represent at least 70 0 of total assets exclusive of Operating Assets The types of qualifying assets in which we may invest under the 1940 Act include the following
Securities purchased in transactions not involving any public offering from the issuer of such securities which issuer is an eligible portfolio company An eligible portfolio company is generally defined in the 1940 Act as any issuer which
Pursuant to Section 61 a 3 of the 1940 Act we are permitted to issue multiple classes of senior securities representing indebtedness However pursuant to Section 18 c of the 1940 Act we are permitted to issue only one class of senior securities that is stock In either case we may only issue such senior securities if such class of senior securities after such issuance has an asset coverage as defined in Section 18 h of the 1940 Act of at least 150
In addition our ability to pay dividends or distributions other than dividends payable in our common stock to holders of any class of our capital stock would be restricted if our senior securities representing indebtedness fail to have an asset coverage of at least 150 measured at the time of declaration of such distribution and accounting for such distribution The 1940 Act does not apply this limitation to privately arranged debt that is not intended to be publicly distributed unless this limitation is specifically negotiated by the lender In addition our ability to pay dividends or distributions other than dividends payable in our common stock to our common stockholders would be restricted if our senior securities that are stock fail to have an asset coverage of at least 150 measured at the time of declaration of such distribution and accounting for such distribution If the value of our assets declines we might be unable to satisfy these asset coverage requirements To satisfy the 150 asset coverage requirement in the event that we are seeking to pay a distribution we might either have to i liquidate a portion of our portfolio to repay a portion of our indebtedness or ii issue common stock This may occur at a time when a sale of a portfolio asset may be disadvantageous or when we have limited access to capital markets on agreeable terms In addition any amounts that we use to service our indebtedness or for offering costs will not be available for distributions to our stockholders If we are unable to regain the requisite asset coverage through these methods we may be forced to suspend the payment of such dividends or distributions
A BDC generally must make available significant managerial assistance to issuers of certain of its portfolio securities that the BDC counts as a qualifying asset for the 70 0 test described above Making available significant managerial
assistance means among other things any arrangement whereby the BDC through its directors officers or employees offers to provide and if accepted does so provide significant guidance and counsel concerning the management operations or business objectives and policies of a portfolio company Significant managerial assistance also includes the exercise of a controlling influence over the management and policies of the portfolio company However with respect to certain but not all such securities where the BDC purchases such securities in conjunction with one or more other persons acting together one of the other persons in the group may make available such managerial assistance or the BDC may exercise such control jointly
beginning on page 21 of this Annual Report together with all of the other information included in this Annual Report and the other reports and documents filed or furnished by us with the SEC for a more detailed discussion of the principal risks as well as certain other risks that you should carefully consider before deciding to invest in our securities
Our portfolio is concentrated in a limited number of companies and industries which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns
Any inability to renew extend or replace our Credit Facility on terms favorable to us or at all could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders
We are subject to restrictions that may discourage a change of control Certain provisions contained in our articles of incorporation and Maryland law may prohibit or restrict a change of control and adversely impact the price of our common stock
The Adviser is not obligated to provide a credit of the base management fee or incentive fee which could negatively impact our earnings and our ability to maintain our current level of distributions to our stockholders
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations or the operations of businesses in which we invest a compromise or corruption of our confidential
We and all of the Gladstone Companies have adopted a code of ethics and business conduct applicable to all of the officers directors and personnel of such companies that complies with the guidelines set forth in Item 406 of Regulation S K and Rule 17j 1 of the 1940 Act As required by the 1940 Act this code establishes procedures for personal investments restricts certain transactions by such personnel and requires the reporting of certain transactions and holdings by such personnel This code of ethics and business conduct is publicly available on the Investors section of our website under Governance Governance Documents at
Appendix A to the code of ethics and business conduct is our insider trading policy We intend to provide any required disclosure of any amendments to or waivers of the provisions of this code by posting information regarding any such amendment or waiver to our website or in a Current Report on Form 8 K
We and the Adviser have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws and our Board of Directors is required to review these compliance policies and procedures annually to assess their adequacy and the effectiveness of their implementation We have designated a chief compliance officer John Dellafiora Jr who also serves as chief compliance officer for all of the Gladstone Companies
We do not currently have any employees and do not expect to have any employees in the foreseeable future Currently services necessary for our business are provided by individuals who are employees of the Adviser and the Administrator pursuant to the terms of the Advisory Agreement and the Administration Agreement respectively We expect that 25 to 30 full time employees of the Adviser and the Administrator will spend substantial time on our matters during the remainder of calendar year 2024 and all of calendar year 2025 As of September 30 2024 the Adviser and the Administrator collectively had 73 full time employees A breakdown of these employees is summarized by functional area in the table below
The Adviser and the Administrator aim to attract and retain capable advisory and administrative personnel respectively by offering competitive base salaries and bonus structure and by providing employees with appropriate opportunities for professional growth
We file with or furnish to the SEC copies of our annual report on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K proxy statements and other information meeting the information requirements of Section 13 a or 15 d of the Securities Exchange Act of 1934 as amended the Exchange Act and make such reports and any amendments thereto available free of charge through the Investors section of our website at
as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC Information contained on our website is not incorporated by reference into this Annual Report The SEC also maintains a website that contains reports proxy and information statements and other information regarding issuers that file electronically with the SEC at
You should carefully consider these risk factors together with all of the other information included in this Annual Report and the other reports and documents filed by us with the SEC The risks set out below are not the only risks we face Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance If any of the following events occur our business financial condition results of operations and cash flows could be materially and adversely affected If that happens the trading price of our securities and the NAV of our common stock could decline and you may lose all or part of your investment The risk factors described below are the principal risk factors associated with an investment in our securities as well as those factors generally associated with an investment company with investment objectives investment policies capital structure or trading markets similar to ours
The market in which we operate is affected by a number of factors that are largely beyond our control but can nonetheless have a potentially significant negative impact on us These factors include among other things
Changes in these factors are difficult to predict and a change in one factor could affect other factors which could result in adverse effects to our business results of operations financial condition and cash flows
Given the volatility and dislocation that the capital markets have experienced from time to time many BDCs have faced and may in the future face a challenging environment in which to raise capital We may in the future have difficulty accessing debt and equity capital and a severe disruption in U S or global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business financial condition results of operations and cash flows In addition significant changes in the capital markets have had and may in the future have a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments An inability to raise capital and any required sale of our investments for liquidity purposes or failure of our portfolio companies to realize liquidity events could have a material adverse impact on our business financial condition results of operations or cash flows
Certain of our portfolio companies are in industries that have been and in the future may be impacted by inflation such as consumer goods and services and manufacturing Our portfolio companies may not be able to pass on to customers increases in their costs of operations which could greatly affect their operating results impacting their ability to repay our loans In addition any projected future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments Any decreases in the fair value of our investments could result in future realized or unrealized losses and therefore reduce our net assets resulting from operations
One of the factors that influences the price of our securities is the distribution yield on our securities as a percentage of the price of our securities relative to market interest rates An increase in market interest rates may lead prospective purchasers of our securities to expect a higher distribution yield In addition higher interest rates have increased our borrowing costs As a result higher market interest rates could cause the market price of our securities to decrease
Generally interest rate fluctuations and changes in credit spreads on floating rate loans may have a negative impact on our investments and investment opportunities and accordingly may have a material adverse effect on our rate of return on invested capital our net investment income our NAV and the market price of our securities As interest rates increase generally the cost of borrowing under our Credit Facility increases which may affect our ability to make new investments on favorable terms or at all A substantial portion of our debt investments have variable interest rates that reset periodically and are generally based on SOFR As interest rates increase the operating performance of certain of our portfolio companies has been affected by increasing debt service obligations and therefore may affect our results of operations In addition to the extent that further increases in interest rates make it difficult or impossible to make payments on outstanding indebtedness to us or other financial sponsors or refinance debt that is maturing in the near term some of our portfolio companies may be unable to repay such debt at maturity and may be forced to sell assets undergo a recapitalization or seek bankruptcy protection Elevated interest rates could also cause borrowers to shift cash from other productive uses to the payment of interest which may have a material adverse effect on their business and operations and could over time lead to increased defaults Additionally as interest rates increase and the corresponding risk of a default by borrowers increases the liquidity of higher interest rate loans may decrease as fewer investors may be willing to purchase such loans in the secondary market in light of the increased risk of a default by the borrower and the heightened risk of a loss of an investment in such loans Decreases in credit spreads on debt that pays a floating rate of return would have an impact on the income generation of our floating rate assets Trading prices for debt that pays a fixed rate of return tend to fall as interest rates rise Trading prices tend to fluctuate more for fixed rate securities that have longer maturities If interest rates remain elevated or rise again in the future it could have a negative effect on our investments which could negatively impact our operating results financial condition and cash flows
Conversely reduced interest rates including recent rate decreases will result in a decrease in our total investment income unless offset by interest rate floors or an increase in the spread of our debt investments with variable interest rates In addition our net investment income could decrease if there is no reduction or credit to the base management or incentive fees that we pay to the Adviser or if we are unable to refinance our fixed rate debt obligations or issue new fixed rate debt at lower rates In addition when interest rates decline borrowers may refinance their loans at lower interest rates which could shorten the average life of the loans and reduce the associated returns on the investment as well as require the Adviser and its investment professionals to incur management time and expense to re deploy such proceeds including on terms that may not be as favorable as our existing loans
We anticipate using a combination of equity and long term and short term borrowings to finance our investment activities As a result a portion of our income will depend upon the spread between the rate at which we borrow funds and the rate at which we loan these funds An increase or decrease in interest rates could reduce the spread between the rate at which we invest and the rate at which we borrow and thus adversely affect our profitability if we have not appropriately hedged against such event Alternatively interest rate hedging arrangements may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio
As of September 30 2024 based on the total principal balance of debt outstanding our portfolio consisted of approximately 93 9 of loans at variable rates with floors and approximately 6 1 at fixed rates
As of September 30 2024 we did not have any hedging arrangements such as interest rate hedges in place While hedging arrangements may insulate us against adverse fluctuations in interest rates they may also limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio Adverse developments resulting from changes in interest rates or any future hedging transactions could have a material adverse effect on our business financial condition and results of operations Our ability to receive payments pursuant to a hedging arrangement is linked to the ability of the counter party to that hedging arrangement to make the required payments To the extent that the counter party to the hedging arrangement is unable to pay pursuant to the terms of the agreement we may lose the hedging protection of the arrangement
Also the fair value of certain of our debt investments is based in part on the current market yields or interest rates of similar securities A change in interest rates could have a significant impact on our determination of the fair value of these debt investments In addition a change in interest rates could also have an impact on the fair value of any hedging arrangements then in effect that could result in the recording of unrealized appreciation or depreciation in future periods Therefore adverse developments resulting from changes in interest rates could have a material adverse effect on our business financial condition results of operations and cash flows Refer to
There is competitive pressure in the BDC and investment company marketplace for first and second lien secured debt which can result in reduced yields on investment A large number of entities compete with us and make the types of investments that we seek to make in lower middle market companies We compete with public and private buyout funds public and private credit funds and other BDCs commercial and investment banks commercial financing companies and to the extent that they provide an alternative form of financing hedge funds Many of our competitors are substantially larger and have considerably greater financial technical and marketing resources than we do For example some competitors may have a lower cost of funds and access to funding sources that are not available to us In addition some of our competitors may have higher risk tolerances or different risk assessments which would allow them to consider a wider variety of investments and establish more relationships than us Furthermore many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC The competitive pressures we face could have a material adverse effect on our business financial condition and results of operations Also as a result of this competition we may not be able to take advantage of attractive investment opportunities from time to time and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objectives We do not seek to compete based on the interest rates we offer and we believe that some of our competitors may make loans with interest rates that will be comparable to or lower than the rates we offer We may lose investment opportunities if we do not match our competitors pricing terms and structure However if we match our competitors pricing terms and structure we may experience decreased net interest income and increased risk of credit loss
Our portfolio companies may have fewer resources than larger businesses and thus any economic downturns or recessions are more likely to have a material adverse effect on them When the economy contracts the financial results of lower middle market business like those in which we invest could experience deterioration or limited growth from current levels which could ultimately lead to difficulty in meeting their debt service requirements and an increase in defaults Consequently for any portfolio company that is adversely impacted by an economic downturn or recession its ability to repay our loan or engage in a liquidity event such as a sale recapitalization or initial public offering would be diminished
Our strategy includes providing financing to portfolio companies that typically do not have readily available access to financing While we believe that this provides an attractive opportunity for us to generate profits this may make it difficult for the portfolio companies to repay their loans to us upon maturity A
borrower s ability to repay its loan may be adversely affected by numerous factors including the failure to meet its business plan a downturn in its industry or negative economic conditions including those created by the current market environment Deterioration in a borrower s financial condition and prospects usually will be accompanied by deterioration in the value of any collateral and a reduction in the likelihood of us realizing on any guaranties we may have obtained from the borrower s management As of September 30 2024 our loans to B T Group Acquisition Inc B T Group Edge Adhesives Holdings Inc Edge Adhesives and WB Xcel Holdings LLC WB Xcel were on non accrual status with a cost basis of 28 3 million or 4 1 of the cost basis of all debt investments in our portfolio and a fair value of 12 8 million or 1 9 of the fair value of all debt investments in our portfolio For any loans that are placed on non accrual status we cannot assure you that our efforts to improve profitability and cash flows of these companies will prove successful In some of our portfolio companies we expect to be subordinated to a senior lender and our interest in any collateral would accordingly likely be subordinate to another lender s security interest
Because our target portfolio companies are lower middle market businesses they tend to be more vulnerable to competitors actions supply chain issues and market conditions as well as general economic downturns In addition our portfolio companies often face intense competition including competition from companies with greater financial resources more extensive development manufacturing marketing and other capabilities and a larger number of qualified managerial or technical personnel
Because we seek to invest in privately owned businesses there is generally little or no publicly available operating and financial information about our potential portfolio companies As a result we rely on our officers the Adviser and its employees Gladstone Securities and certain consultants to perform due diligence investigations of these portfolio companies their operations and their prospects We may not learn all of the material information we need to know regarding these businesses through our investigations to make a well informed investment decision
We expect that our portfolio companies may have significant variations in their operating results may from time to time be exposed to litigation may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence may require substantial additional capital to support their operations to finance expansion or to maintain their competitive position may otherwise have a weak financial position or may be adversely affected by changes in the business cycle Our portfolio companies may not meet net income cash flow and other coverage tests typically imposed by their senior lenders A borrower s failure to satisfy financial or operating covenants imposed by senior lenders could lead to defaults and potentially foreclosure on its senior credit facility which could additionally trigger cross defaults in other agreements If this were to occur it is possible that the borrower s ability to repay any of our loans would be jeopardized
Typically the success of a lower middle market business also depends on the management talents and efforts of one or two persons or a small group of persons The death disability or resignation of one or more of these persons could have a material adverse impact on our certain of our portfolio companies and in turn on us
While we focus on stable companies with proven track records we may make loans to new companies that meet our other investment criteria Portfolio companies with limited operating histories will be exposed to all of the operating risks that new businesses face and may be particularly susceptible to among other risks market downturns competitive pressures and the departure of key executive officers
Typically a lower middle market private business cannot or will not expend the resources to have its debt securities rated by a credit rating agency We expect that most if not all of the debt securities we acquire will be unrated Investors should assume that these loans would be at rates below investment grade quality Investments rated below investment grade are often referred to as high yield securities or junk bonds and may be considered high risk as compared to investment grade debt instruments
ay be subject to restrictive financial and operating covenants and the leverage could impair these companies ability to finance their future operations and capital needs As a result these companies flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited Further a
Some of our portfolio companies may operate in regulated industries and or provide services to federal state or local governments or operate in industries that provide services to regulated industries or federal state or local governments any of which could lead to delayed payments for services or subject the company to changing payment and reimbursement rates or other terms
The majority of our portfolio investments are and we expect will continue to be in the form of securities that are not publicly traded The fair value of securities and other investments that are not publicly traded may not be readily determinable In valuing our investment portfolio several techniques are used including a total enterprise value approach a yield analysis market quotes and independent third party assessments A third party valuation firm provides estimates of fair value on our proprietary debt investments Another third party valuation firm is used to provide valuation inputs for our significant equity investments including earnings multiple ranges as well as other information In addition to these techniques other factors are considered when determining fair value of our investments including the nature and realizable value of the collateral including external parties guaranties any relevant offers or letters of intent to acquire the portfolio company and the markets in which the portfolio company operates
Fair value measurements of our investments may involve subjective judgments and estimates and due to the inherent uncertainty of determining these fair values the determination of fair value may fluctuate from period to period Additionally changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned Further such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities and any investments that include OID or PIK interest may have unreliable valuations because their continuing accruals require ongoing judgments about the collectability of their deferred payments and the value of their underlying collateral If we were required to liquidate a portfolio investment in a forced or liquidation sale we could realize significantly less than the value at which it is recorded
A substantial portion of our portfolio investments are securities for which market quotations are not readily available In connection with the determination of the fair value of these securities our Valuation Team prepares portfolio company valuations based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company The participation of the Adviser s investment professionals in our valuation process and Mr Gladstone s pecuniary interest in the Adviser may result in a conflict of interest as the management fees that we pay our Adviser are based on average gross assets less uninvested cash or cash equivalents from borrowings and adjusted appropriately for any share issuances or repurchases during the period
We generally make investments in private companies whose securities are not traded in any public market Substantially all of the investments we presently hold are and the investments we expect to acquire in the future will be subject to legal and other restrictions on resale and will otherwise be less liquid than publicly traded securities The illiquidity of our investments may make it difficult for us to quickly obtain cash equal to the value at which we record our investments if the need arises This could cause us to miss important investment opportunities to the extent we do not have other sources of capital available In addition if we are required to liquidate all or a portion of our portfolio quickly we may record substantial realized losses upon liquidation We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we the Adviser the Administrator or our respective officers employees or affiliates have material non public information regarding such portfolio company
When we are a debt or minority equity investor in a portfolio company which we expect will generally be the case we may not be in a position to control the entity and its management may make decisions that could decrease the value of our investment
Most of our investments are and we anticipate that most of our investments will continue to be either debt or minority equity investments in our portfolio companies Therefore we generally will not be involved in the day to day operations and decision making of our portfolio companies even though we may have board observation rights and our debt agreement may contain certain restrictive covenants As a result we are and will remain subject to the risk that a portfolio company may make business decisions with which we disagree and the shareholders and management of such company may take risks or otherwise act in ways that do not serve our best interests As a result a portfolio company may make decisions that could decrease the value of our debt investments
Our strategy in part includes making debt and minority equity investments in companies in connection with acquisitions buyouts and recapitalizations which subjects us to the risks associated with change in control transactions Change in control transactions often present a number of uncertainties Companies undergoing change in control transactions often face challenges retaining key employees and maintaining relationships with customers and suppliers While we hope to avoid many of these difficulties by participating in transactions where the management team is retained and by conducting thorough due diligence in advance of our decision to invest if our portfolio companies experience one or more of these problems we may not realize the value that we expect in connection with our investments which would likely harm our operating results financial condition and cash flows
We invest primarily in debt securities issued by our portfolio companies In some cases portfolio companies will be permitted to have other debt that ranks equally with or senior to the debt securities in which we invest By their terms such debt instruments may provide that the holders thereof are entitled to receive payment of interest and principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest Also in the event of insolvency liquidation dissolution reorganization or bankruptcy of a portfolio company holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment Furthermore in the case of debt ranking equally with debt securities in which we invest we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency liquidation dissolution reorganization or bankruptcy of a portfolio company
In addition even though we have structured some of our investments as senior loans if one of our portfolio companies were to go bankrupt depending on the facts and circumstances including the extent to which we actually provided managerial assistance to that portfolio company a bankruptcy court might re characterize our debt investments and subordinate all or a portion of our claims to that of other creditors After repaying such senior creditors such portfolio company may not have any remaining assets to use to repay its obligation to us We may also be subject to lender liability claims for actions taken by us with respect to a borrower s business in instances in which we exercised control over the borrower or as a result of actions taken in rendering significant managerial assistance
In addition to risks associated with delays in investing our capital we are also subject to the risk that investments we make in our portfolio companies may be repaid prior to maturity For the year ended September 30 2024 we received unscheduled repayments of investments totaling 124 2 million We will generally first use any proceeds from prepayments to repay any borrowings outstanding on our Credit Facility In the event that funds remain after repayment of our outstanding borrowings then we will generally reinvest these proceeds in government securities pending their future investment in new debt and or equity securities These government securities will typically have substantially lower yields than the debt securities being prepaid and we could experience significant delays in reinvesting these amounts In addition
once the proceeds have been reinvested in new portfolio companies the yields on such new investments may also be lower than the yields on the debt securities being repaid As a result our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us Additionally prepayments could negatively impact our return on equity which could result in a decline in the market price of our common stock
Our portfolio is concentrated in a limited number of companies and industries which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns
As of September 30 2024 we had investments in 49 portfolio companies of which our five largest investments comprised approximately 232 7 million or 29 2 of our total investment portfolio at fair value A consequence of a concentration in a limited number of investments is that the aggregate returns we realize may be substantially adversely affected by the unfavorable performance of a small number of such investments or a substantial write down of any one investment Beyond our regulatory and income tax diversification requirements we do not have fixed guidelines for industry concentration and our investments could potentially be concentrated in relatively few industries In addition while we do not intend to invest 25 0 or more of our total assets in a particular industry or group of industries at the time of investment it is possible that as the values of our portfolio companies change one industry or a group of industries may comprise in excess of 25 0 of the value of our total assets As of September 30 2024 our largest industry concentrations of our total investments at fair value were in diversified conglomerate service companies representing 22 5 diversified conglomerate manufacturing companies representing 20 1 and aerospace and defense companies representing 19 2 Therefore we are susceptible to the economic circumstances in these industries and a downturn in one or more of these industries could have a material adverse effect on our results of operations and financial condition
We may make investments in securities of foreign companies Investing in foreign companies may expose us to additional risks not typically associated with investing in U S companies These risks include changes in exchange control regulations political and social instability expropriation imposition of foreign taxes less liquid markets and less available information than is generally the case in the United States higher transaction costs less government supervision of exchanges brokers and issuers less developed bankruptcy laws difficulty in enforcing contractual obligations lack of uniform accounting and auditing standards and greater price volatility
In addition any investments that we make that are denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies Among the factors that may affect currency values are trade balances the level of short term interest rates differences in relative values of similar assets in different currencies long term opportunities for investment and capital gains and political developments We may employ hedging techniques to minimize these risks but we cannot assure you that we will in fact hedge currency risk or that if we do such strategies will be effective
We invest in common and other equity securities of portfolio companies The returns on common stock have historically been significantly more volatile than fixed income securities The value of such equity securities which oftentimes are not publicly traded or liquid will rise and fall in response to the activities of the company that issued the securities general market conditions and or specific economic or political conditions The equity securities that we acquire may fail to appreciate or may decline in value
Because preferred stock represents an equity ownership interest in a company and is typically subordinated to bonds and other debt instruments in a company s capital structure in terms of priority to corporate income they are generally subject to greater credit risk than those debt instruments Accordingly their value usually will react more strongly than bonds and other debt instruments to actual or perceived changes in a company s financial condition or prospects or to fluctuations in the equity markets Preferred stockholders generally have no voting rights or their voting rights are limited to certain extraordinary transactions or events Unlike interest payments on debt securities preferred stock dividends are payable only if declared by the issuer s board of directors Preferred stock also may be subject to optional or mandatory redemption provisions
Currently all of our investments involve private securities In connection with the disposition of an investment in private securities we may be required to make representations about the business and financial affairs of the underlying portfolio company typical of those made in connection with the sale of a business We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us
In the course of investing in and providing significant managerial assistance to certain of our portfolio companies certain persons employed by the Adviser may serve as directors on the boards of such companies To the extent that litigation arises out of our investments in these companies or otherwise even if without merit we or such employees may be named as defendants in such litigation which could result in additional costs including defense costs and the diversion of management time and resources We may be unable to accurately estimate our exposure to litigation risk if we record balance sheet reserves for probable loss contingencies As a result any reserves we establish to cover any settlements or judgments may not be sufficient to cover our actual financial exposure which may have a material impact on our results of operations financial condition or cash flows
While we believe we would have valid defenses to potential claims brought due to our investment in any portfolio company and will defend any such claims vigorously we may nevertheless expend significant amounts of money in defense costs and expenses Further if we enter into settlements or suffer an adverse outcome in any litigation we could be required to pay significant amounts In addition if any of our portfolio companies become subject to direct or indirect claims or other obligations such as defense costs or damages in litigation or settlement our investment in such companies could diminish in value and we could suffer indirect losses Further these matters could cause us to expend significant management time and effort in connection with assessment and defense of any claims
As a BDC we are required to carry our investments at market value or if no market value is ascertainable at fair value We will record decreases in the market values or fair values of our investments as unrealized depreciation Since our inception we have at times incurred a cumulative net unrealized depreciation of our portfolio Any unrealized depreciation in our investment portfolio could result in realized losses in the future and ultimately in reductions of our income available for distribution to stockholders in future periods
In addition to regulatory limitations on our ability to raise capital our Credit Facility contains various covenants which if not complied with could accelerate our repayment obligations under the facility thereby materially and adversely affecting our liquidity financial condition results of operations and ability to pay distributions
We will have a continuing need for capital to finance our investments As of September 30 2024 we had 70 6 million in borrowings at cost outstanding under our Credit Facility which provides for maximum borrowings of 293 7 million with a revolving period end date of October 31 2025 the Revolving Period End Date Our Credit Facility permits us to fund additional loans and investments as long as we are within the conditions set forth in the credit agreement Our Credit Facility contains covenants that require our wholly owned subsidiary Business Loan to maintain its status as a separate legal entity prohibit certain significant corporate transactions such as mergers consolidations liquidations or dissolutions and restrict material changes to our credit and collection policies without lenders consent The Credit Facility also limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income net capital gains and amounts deemed to have been paid during the prior year in accordance with Section 855 a of the Code We are also subject to certain limitations on the type of loan investments we can make including restrictions on geographic concentrations sector concentrations loan size interest rate type payment frequency and status average life and lien property Our Credit Facility further requires us to comply with other financial and operational covenants which obligate us to among other things maintain certain financial ratios including asset and interest coverage and a minimum number of 25 obligors in the borrowing base Additionally we are required to maintain i a minimum net worth defined in our Credit Facility to include any outstanding mandatorily redeemable preferred stock of 325 0 million plus 50 0 of all
equity and subordinated debt raised after May 13 2021 less 50 of any equity and subordinated debt retired or redeemed after May 13 2021 which equates to 418 8 million as of September 30 2024 ii asset coverage with respect to senior securities representing indebtedness of at least 150 or such percentage as may be set forth in Section 18 of the 1940 Act as modified by Section 61 of the 1940 Act and iii our status as a BDC under the 1940 Act and as a RIC under the Code Continued compliance with the covenants in our Credit Facility depends on many factors some of which are beyond our control
Any unrealized depreciation in our portfolio may increase in future periods and threaten our ability to comply with the minimum net worth covenant and other covenants under our Credit Facility Our failure to satisfy these covenants could result in foreclosure by our lenders which would accelerate our repayment obligations under the facility and thereby have a material adverse effect on our business liquidity financial condition results of operations and ability to pay distributions to our stockholders
Any inability to renew extend or replace our Credit Facility on terms favorable to us or at all could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders
If our Credit Facility is not renewed or extended by the Revolving Period End Date all principal and interest will be due and payable on or before October 31 2027 Subject to certain terms and conditions our Credit Facility may be expanded to a total of 350 0 million pursuant to an accordion feature However if additional lenders are unwilling to join the facility on its terms we will be unable to expand the facility and thus will continue to have limited availability to finance new investments under our Credit Facility There can be no guarantee that we will be able to renew extend or replace our Credit Facility by the Revolving Period End Date on terms that are favorable to us if at all Our ability to expand our Credit Facility and to obtain replacement financing at or before the Revolving Period End Date will be constrained by then current economic conditions affecting the credit markets In the event that we are not able to expand our Credit Facility or to renew extend or refinance our Credit Facility by the Revolving Period End Date this could have a material adverse effect on our liquidity and ability to fund new investments our ability to make distributions to our stockholders and our ability to qualify as a RIC under the Code
If we are unable to secure replacement financing we may be forced to sell certain assets on disadvantageous terms which may result in realized losses and such realized losses could materially exceed the amount of any unrealized depreciation on these assets as of our most recent balance sheet date which would have a material adverse effect on our results of operations In addition to selling assets or as an alternative we may issue equity in order to repay amounts outstanding under our Credit Facility Depending on the trading prices of our common stock such an equity offering could have a substantial dilutive impact on our existing stockholders interest in our earnings assets and voting interest in us If we are not able to renew extend or refinance our Credit Facility prior to its maturity it could result in significantly higher interest rates and related charges and may impose significant restrictions on the use of borrowed funds to fund investments or maintain distributions to stockholders
There can be no assurance that we will be able to raise additional capital through issuing equity or debt in the near future However our business requires a substantial amount of cash to operate and grow We may acquire such additional capital from the following sources
We may issue senior securities representing indebtedness such as borrowings under our Credit Facility and our notes payable and senior securities that are stock such as preferred stock up to the maximum amount permitted by the 1940 Act The 1940 Act currently permits us as a BDC to issue such senior securities in amounts such that our asset coverage as defined in Section 18 h of the 1940 Act is at least 150 on such senior security immediately after each issuance of such senior security As a result of issuing senior securities in whatever form we will be exposed to the risks associated with leverage Although borrowing money for investments increases the potential for gain it also increases the risk of a loss A decrease in the value of our investments will have a greater impact on the value of our common stock to the extent that we have borrowed money to make investments There is a possibility that the costs of borrowing could exceed the income we receive on the investments we make with such borrowed funds In addition our ability to pay distributions issue senior securities or repurchase shares of our common stock would be restricted if the asset coverage on each of our senior securities is not at least 150 If the aggregate value of our assets declines we might be unable to satisfy that 150 requirement To satisfy the 150 asset coverage requirement in the event that we are seeking to pay a distribution we might either have to i liquidate a portion of our loan portfolio to repay a portion of our indebtedness or ii issue common stock This may occur at a time when a sale of a portfolio asset may be
disadvantageous or when we have limited access to capital markets on agreeable terms In addition any amounts that we use to service our indebtedness pay dividends on our preferred stock or for offering expenses will not be available for distributions to common stockholders Furthermore if we have to issue common stock at below NAV per common share any non participating stockholders will be subject to dilution as described below Pursuant to Section 61 a 3 of the 1940 Act we are permitted to issue multiple classes of senior securities representing indebtedness However pursuant to Section 18 c of the 1940 Act we are permitted to issue only one class of senior securities that are stock
Because we are constrained in our ability to issue debt or senior securities for the reasons given above we are dependent on the issuance of equity as a financing source If we raise additional funds by issuing more common stock the percentage ownership of our common stockholders at the time of the issuance would decrease and our existing common stockholder may experience dilution In addition under the 1940 Act we will generally not be able to issue additional shares of our common stock at a price below NAV per common share to purchasers other than to our existing common stockholders through a rights offering without first obtaining the approval of our stockholders and our independent directors If we were to sell shares of our common stock below our then current NAV per common share such sales would result in an immediate dilution to the NAV per common share This dilution would occur as a result of the sale of common shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a common stockholder s interest in our earnings and assets and voting percentage than the increase in our assets resulting from such issuance For example if we issue and sell an additional 10 0 of our common stock at a 5 0 discount to NAV a common stockholder who does not participate in that offering for its proportionate interest will suffer NAV dilution of up to 0 5 or 5 per 1 000 of NAV This imposes constraints on our ability to raise capital when our common stock is trading below NAV per common share As noted above the 1940 Act prohibits the issuance of multiple classes of senior securities that are stock
We financed certain of our investments with borrowed money and capital from the issuance of senior securities which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us
The use of leverage including through the issuance of senior securities that are debt or stock magnifies the potential for gain or loss on amounts invested and if we incur additional leverage this potential will be further magnified As of September 30 2024 we incurred leverage through the Credit Facility the Series A Preferred Stock the 2026 Notes the 2027 Notes and the 2028 Notes From time to time we intend to incur additional leverage to the extent permitted under the 1940 Act The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities In the future we may borrow from and issue senior securities to banks and other lenders Holders of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders and we would expect such holders to seek recovery against our assets in the event of a default
The hypothetical return to common stockholders is calculated by multiplying our total assets as of September 30 2024 by the assumed rates of return and subtracting all interest on our debt to be paid during the 12 months following September 30 2024 and then dividing the resulting difference by our total net assets attributable to common stock as of September 30 2024 Based on 812 5 million in total assets 70 6 million drawn on our Credit Facility at cost 150 0 million in our 2026 Notes payable at cost 50 0 million in our 2027 Notes payable at cost 57 0 million in our 2028 Notes payable at cost 8 7 million in our Series A Preferred Stock at cost and 470 9 million in net assets each as of September 30 2024
Based on an aggregate outstanding indebtedness of 336 3 million at cost as of September 30 2024 and the effective annual cash interest rate of 6 0 as of that date our investment portfolio at fair value would have had to produce an annual return of at least 2 5 to cover annual interest payments on the outstanding debt
To maintain our qualification as a RIC we must meet income source asset diversification and annual distribution requirements The annual distribution requirement is satisfied if we distribute at least 90 0 of our Investment Company Taxable Income to our stockholders on an annual basis Because we use leverage we are subject to certain asset coverage ratio requirements under the 1940 Act and could under certain circumstances be restricted from making distributions necessary to qualify as a RIC Warrants we receive with respect to debt investments generally create OID which we must recognize as ordinary income over the term of the debt investment Similarly PIK interest which is accrued generally over the term of the debt investment but not paid in cash is recognized as ordinary income Both OID and PIK interest will increase the amounts we are required to distribute to maintain our RIC status Because such OIDs and PIK interest will not produce distributable cash for us at the same time as we are required to make distributions we will need to use cash from other sources to satisfy such distribution requirements For the year ended September 30 2024 we recognized 0 4 million of OID income and the unamortized balance of OID investments as of September 30 2024 totaled 0 6 million As of September 30 2024 we had eight investments which had a PIK interest component and we recorded PIK interest income of 5 7 million during the year ended September 30 2024 We collected 0 2 million in PIK interest in cash for the year ended September 30 2024 Additionally we must meet asset diversification and income source requirements at the end of each calendar quarter If we fail to meet these tests we may need to quickly dispose of certain investments to prevent the loss of RIC status Since most of our investments will be illiquid such dispositions if even possible may not be made at prices advantageous to us and may result in substantial losses If we fail to qualify as a RIC as of a calendar quarter or annually for any reason and become fully subject to U S federal corporate income tax the resulting corporate taxes could substantially reduce our net assets the amount of income available for distribution and the actual amount distributed Such a failure would have a material adverse effect on us and our common stock
Some of our debt investments may include success fees that would generate payments to us if the business is ultimately sold Because the satisfaction of these success fees and the ultimate payment of these fees is uncertain we generally only recognize them as income when the payment is received Success fee amounts are characterized as ordinary income for tax purposes and as a result we are required to distribute such amounts to our stockholders in order to maintain RIC status
As a BDC we may not acquire any assets other than qualifying assets unless at the time of and after giving effect to such acquisition at least 70 of our total assets exclusive of Operating Assets are qualifying assets as defined in Section 55 a of the 1940 Act
We believe that most of the investments that we may acquire in the future will constitute qualifying assets However we may be precluded from investing in what we believe to be attractive investments if such investments are not qualifying assets for purposes of the 1940 Act If we do not invest a sufficient portion of our assets in qualifying assets we could violate the 1940 Act provisions applicable to BDCs As a result of such violation specific rules under the 1940 Act could prevent us for example from making follow on investments in existing portfolio companies which could result in the dilution of our position or could require us to dispose of investments at disadvantageous times in order to come into compliance with the 1940 Act If we need to dispose of such investments quickly it could be difficult to dispose of such investments on favorable terms We may not be able to find a buyer for such investments and even if we do find a buyer we may have to sell the investments at a substantial loss Any such outcomes would have a material adverse effect on our business financial condition results of operations and cash flows
If we do not maintain our status as a BDC we would be subject to regulation as a registered closed end investment company under the 1940 Act As a registered closed end investment company we would be subject to substantially more regulatory restrictions under the 1940 Act which would significantly decrease our operating flexibility In addition any such failure to maintain our status as a BDC could cause an event of default under out outstanding indebtedness which could have a material adverse effect on our business financial condition or results of operations
We are subject to restrictions that may discourage a change of control Certain provisions contained in our articles of incorporation and Maryland law may prohibit or restrict a change of control and adversely impact the price of our common stock
Our Board of Directors is divided into three classes with the term of the directors in each class expiring every third year At each annual meeting of stockholders the successors to the class of directors whose term expires at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election After election a director may only be removed by our stockholders for cause Election of directors for staggered terms with limited rights to remove directors makes it more difficult for a hostile bidder to acquire control of us The existence of this provision may negatively impact the price of our securities and may discourage third party bids to acquire our securities This provision may reduce any premiums paid to stockholders in a change in control transaction
These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder Thereafter any business combination with the interested stockholder must be recommended by our Board of Directors and approved by the affirmative vote of at least 80 0 of the votes entitled to be cast by holders of our outstanding shares of common stock and preferred stock voting together as a single class and two thirds of the votes entitled to be cast by holders of our common stock other than shares held by the interested stockholder These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders interest These provisions of Maryland law do not apply however to business combinations that are approved or exempted by our Board of Directors prior to the time that someone becomes an interested stockholder
Our articles of incorporation permit our Board of Directors to issue up to 50 0 million shares of capital stock In addition our Board of Directors without any action by our stockholders may amend our articles of incorporation from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue Our Board of Directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences conversion or other rights voting powers restrictions limitations as to distributions qualifications and terms or conditions of redemption of any such stock Thus our Board of Directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock Preferred stock could also have the effect of delaying deferring or preventing a change in control of us including an extraordinary transaction such as a merger tender offer or sale of all or substantially all of our assets that might provide a premium price for holders of our common stock
We may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy the asset coverage tests under the provisions of the 1940 Act that apply to BDCs
Regulations governing our operation as a BDC and RIC will affect our ability to raise and the way in which we raise additional capital or borrow for investment purposes which may have a negative effect on our growth As a result of the annual distribution requirement to qualify as a RIC we may need to periodically access the capital markets to raise cash to fund new investments We may issue senior securities representing indebtedness including borrowing money from banks or other financial institutions or senior securities that are stock such as preferred stock only in amounts such that our asset coverage on each senior security as defined in the 1940 Act equals at least 150 after each such incurrence or issuance Further we may not be permitted to declare a dividend or make any distribution to our outstanding stockholders or repurchase shares until such time as we satisfy these tests Our ability to issue different types of securities is also limited Compliance with these requirements may unfavorably limit our investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend As a BDC therefore we may issue equity at a rate more frequent than our privately owned competitors which may lead to greater stockholder dilution We have incurred leverage to generate capital to make additional investments If the value of our assets declines we may be unable to satisfy the asset coverage test under the 1940 Act which could prohibit us from paying distributions and could prevent us from qualifying as a RIC If we cannot satisfy the asset coverage test we may be required to sell a portion of our investments and depending on the nature of our debt financing repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous
We are dependent upon our key management personnel and the key management personnel of the Adviser particularly David Gladstone Terry Lee Brubaker and Robert L Marcotte and on the continued operations of the Adviser for our future success
We have no employees Our chief executive officer chief operating officer chief financial officer and treasurer and the employees of the Adviser do not spend all of their time managing our activities and our investment portfolio We are particularly dependent upon David Gladstone Terry Lee Brubaker and Robert L Marcotte for their experience skills and networks Our executive officers and the employees of the Adviser allocate some and in some cases a material portion of their time to businesses and activities that are not related to our business We have no separate facilities and are completely reliant on the Adviser which has significant discretion as to the implementation and execution of our business strategies and risk management practices We are subject to the risk of discontinuation of the Adviser s operations or termination of the Advisory Agreement and the risk that upon such event no suitable replacement will be found We believe that our success depends to a significant extent upon the Adviser and that discontinuation of its operations or the loss of its key management personnel could have a material adverse effect on our ability to achieve our investment objectives
The Adviser experiences competition in attracting and retaining qualified personnel particularly investment professionals and senior executives and we may be unable to maintain or grow our business if we cannot attract and retain such personnel The Adviser s ability to attract and retain personnel with the requisite credentials experience and skills depends on several factors including its ability to offer competitive wages benefits and professional growth opportunities The Adviser competes with investment funds such as private equity funds and mezzanine funds and traditional financial services companies for qualified personnel many of which have greater resources than us Searches for qualified personnel may divert management s time from the operation of our business Strain on the existing personnel resources of the Adviser in the event that it is unable to attract experienced investment professionals and senior executives could have a material adverse effect on our business
The Adviser can resign on 60 days notice and we may not be able to find a suitable replacement within that time resulting in a disruption in our operations that could adversely affect our financial condition business and results of operations
The Adviser has the right to resign under the Advisory Agreement at any time upon not less than 60 days written notice whether we have found a replacement or not If the Adviser resigns we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days or at all If we are unable to do so quickly our operations are likely to experience a disruption our financial condition business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our common stock may decline In addition the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Adviser and its affiliates Even if we are able to retain comparable management whether internal or external the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business financial condition results of operations and cash flows
The Adviser s liability is limited under the Advisory Agreement and we are required to indemnify our investment adviser against certain liabilities which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account
The Adviser has not assumed any responsibility to us other than to render the services described in the Advisory Agreement and it will not be responsible for any action of our Board of Directors in declining to follow the Adviser s advice or recommendations Pursuant to the Advisory Agreement the Adviser and its officers managers partners agents employees controlling persons members and any other person or entity affiliated with the Adviser will not be liable to us for their acts under the Advisory Agreement absent willful misfeasance bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations under the Advisory Agreement We have agreed to indemnify defend and protect the Adviser and its officers managers partners agents employees
controlling persons members and any other person or entity affiliated with the Adviser with respect to all damages liabilities costs and expenses arising out of or otherwise based upon the performance of any of the Adviser s duties or obligations under the Advisory Agreement or otherwise as an investment adviser for us and not arising out of willful misfeasance bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations under the Advisory Agreement These protections may lead the Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account
The management compensation structure that has been implemented under the Advisory Agreement may cause the Adviser to invest in high risk investments or take other risks In addition to its management fee the Adviser is entitled under the Advisory Agreement to receive incentive compensation based in part upon our achievement of specified levels of income In evaluating investments and other management strategies the opportunity to earn incentive compensation based on net investment income may lead the Adviser to place undue emphasis on the maximization of net investment income at the expense of other criteria such as preservation of capital maintaining sufficient liquidity or management of credit risk or market risk in order to achieve higher incentive compensation Investments with higher yield potential are generally riskier or more speculative This could result in increased risk to the value of our investment portfolio
In addition the Adviser will receive a capital gains incentive fee based in part upon net capital gains realized on our investments Unlike the portion of the incentive fee based on income there is no hurdle rate applicable to the incentive fee based on capital gains As a result the Adviser may seek to invest more capital in investments that are likely to result in capital gains as compared to income producing securities This practice could result in us investing in more speculative securities than would otherwise be the case which could result in higher investment losses particularly during economic downturns
The Advisory Agreement entitles the Adviser to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our investment income for that quarter before deducting incentive compensation net operating losses and certain other items above a threshold return for that quarter When calculating our incentive compensation our pre incentive fee net investment income excludes realized and unrealized capital losses that we may incur in the fiscal quarter even if such capital losses result in a net loss on our statement of operations for that quarter Thus we may be required to pay the Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter
That part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been accrued but not yet received in cash such as debt instruments with PIK interest or OID If a portfolio company defaults on a loan it is possible that such accrued interest previously used in the calculation of the incentive fee will become uncollectible Consequently we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a clawback right against the Adviser Our OID investments totaled 56 9 million as of September 30 2024 at cost For the year ended September 30 2024 we recognized 0 4 million of OID income and the unamortized balance of OID investments as of September 30 2024 totaled 0 6 million As of September 30 2024 we had eight investments which had a PIK interest component and we recorded PIK interest income of 5 7 million during the year ended September 30 2024 We collected 0 2 million in PIK interest in cash for the year ended September 30 2024
The Adviser s failure to identify and invest in securities that meet our investment criteria or perform its responsibilities under the Advisory Agreement would likely adversely affect our ability for future growth
Our ability to achieve our investment objectives will depend on our ability to grow which in turn will depend on the Adviser s ability to identify and invest in securities that meet our investment criteria Accomplishing this result on a cost effective basis will be largely a function of the Adviser s structuring of the investment process its ability to provide competent and efficient services to us and our access to financing on acceptable terms The Adviser s senior management team has substantial responsibilities under the Advisory Agreement In order to grow the Adviser will need to hire train supervise and manage new employees successfully Any failure to manage our future growth effectively would likely have a material adverse effect on our business financial condition and results of operations
Our executive officers and directors and the officers and directors of the Adviser serve or may serve as officers directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by our affiliates Accordingly they may have obligations to investors in those entities the fulfillment of which might not be in our or our stockholders best interests For example Mr Gladstone our chairman and chief executive officer is the chairman of the board and chief executive officer of each of the Gladstone Companies In addition Mr Brubaker our chief operating officer is the vice chairman and chief operating officer of the Adviser and Administrator Mr Marcotte is an executive vice president of the Adviser While portfolio managers and the officers and other employees of the Adviser devote as much time to the management of us as appropriate to enable the Adviser to perform its duties in accordance with the Advisory Agreement the portfolio managers and other of the Adviser s officers may have conflicts in allocating their time and services among us on the one hand and other investment vehicles managed by the Adviser on the other hand These activities could be viewed as creating a conflict of interest insofar as the time and effort of the portfolio managers and the officers and employees of the Adviser will not be devoted exclusively to our business but will instead be allocated between our business and the management of these other investment vehicles Moreover the Adviser may establish or sponsor other investment vehicles which from time to time may have potentially overlapping investment objectives with ours and accordingly may invest in whether principally or secondarily asset classes we target While the Adviser generally has broad authority to make investments on behalf of the investment vehicles that it advises the Adviser has adopted investment allocation procedures to address these potential conflicts and intends to direct investment opportunities to us or the Affiliated Public Fund with the investment strategy that most closely fits the investment opportunity Nevertheless the management of the Adviser may face conflicts in the allocation of investment opportunities to other entities it manages As a result it is possible that we may not be given the opportunity to participate in certain investments made by other funds managed by the Adviser In certain circumstances we may make investments in a portfolio company in which one of our affiliates has or will have an investment subject to satisfaction of any regulatory restrictions and where required to the prior approval of our Board of Directors As of September 30 2024 our Board of Directors has approved the following types of co investment transactions
Our affiliate Gladstone Commercial may under certain circumstances lease property to portfolio companies that we do not control We may pursue such transactions only if i the portfolio company is not controlled by us or any of our affiliates ii the portfolio company satisfies the tenant underwriting criteria of Gladstone Commercial and iii the transaction is approved by a majority of our independent directors and a majority of the independent directors of Gladstone Commercial We expect that any such negotiations between Gladstone Commercial and our portfolio companies would result in lease terms consistent with the terms that the portfolio companies would be likely to receive were they not portfolio companies of ours
We may invest simultaneously with our affiliates Gladstone Investment and or Gladstone Alternative in senior loans in the broadly syndicated market whereby neither we nor any affiliate has the ability to dictate the terms of the loans
Pursuant to the Co Investment Order under certain circumstances we may co invest with Gladstone Investment Gladstone Alternative and any future BDC or closed end management investment company that is advised by the Adviser or sub advised by the Adviser if it controls the fund or any combination of the foregoing subject to the conditions included therein
Certain of our officers who are also officers of the Adviser may from time to time serve as directors of certain of our portfolio companies If an officer serves in such capacity with one of our portfolio companies such officer will owe fiduciary duties to stockholders of the portfolio company which duties may from time to time conflict with the interests of our stockholders
In the course of our investing activities we will pay base management and incentive fees to the Adviser and will reimburse the Administrator for certain expenses it incurs As a result investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses resulting in among other things a lower rate of return than one might achieve through our investors themselves making direct investments As a result of this arrangement there may be times when the management team of the Adviser has interests that differ from those of our stockholders giving rise to a conflict In addition as a BDC we make available significant managerial assistance to our portfolio companies and provide other services to such portfolio companies While neither we nor the Adviser currently receives fees in connection with managerial assistance the Adviser and Gladstone Securities have at various times provided other services to certain of our portfolio companies and received fees for these other services
The Adviser is not obligated to provide a credit of the base management fee or incentive fee which could negatively impact our earnings and our ability to maintain our current level of distributions to our stockholders
The Advisory Agreement provides for a base management fee based on our total assets and an incentive fee which consists of two parts an income based incentive fee and a capital gains based incentive fee Our Board of Directors has historically accepted and may accept in the future quarterly or annual non contractual unconditional and irrevocable credits to reduce the annual base management fee Further our Board of Directors has accepted on a quarterly basis non contractual unconditional and irrevocable credits from the Adviser to reduce the income based incentive fee to the extent net investment income did not cover 100 0 of distributions to common stockholders Any waived fees may not be recouped by the Adviser in the future However the Adviser is not required to issue these or other credits of fees under the Advisory Agreement and to the extent our investment portfolio grows in the future we expect these management and incentive fees will increase If the Adviser does not issue these credits in future quarters it could negatively impact our earnings and may compromise our ability to maintain our current level of distributions to our stockholders which could have a material adverse impact on our stock price
Our business model is dependent upon developing and sustaining strong referral relationships with investment bankers business brokers and other intermediaries and any change in our referral relationships may impact our business plan
We are dependent upon informal relationships with investment bankers business brokers and traditional lending institutions to provide us with deal flow If we fail to maintain our relationship with such funds or institutions or if we fail to establish strong referral relationships with other funds we will not be able to grow our portfolio of investments and fully execute our business plan
The fact that our base management fee is payable based upon our total assets which would include any investments made with proceeds of borrowings may encourage the Adviser to use leverage to make additional investments Under certain circumstances the use of increased leverage may increase the likelihood of default which would disfavor holders of our securities Given the subjective nature of the investment decisions made by the Adviser on our behalf we will not be able to monitor this potential conflict of interest
We intend to distribute at least 90 0 of our Investment Company Taxable Income to our stockholders by paying monthly distributions We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year to year increases in cash distributions Furthermore we expect to retain some or all net realized long term capital gains by first offsetting them with realized capital losses and secondly through a deemed distribution to supplement our equity capital and support the growth of our portfolio although our Board of Directors may determine in certain cases to distribute these gains to our common stockholders In addition our Credit Facility restricts the amount of distributions we are permitted to make We cannot assure you that we will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions
The investments we make in accordance with our investment objectives may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal Our investments in portfolio companies may be highly speculative and therefore an investment in our securities may not be suitable for someone with lower risk tolerance
Quarterly our Board of Directors declares monthly distributions based on then current estimates of taxable income for each fiscal year which may differ and in the past have differed from actual results Because our distributions are based on estimates of taxable income that may differ from actual results future distributions payable to our stockholders may also include a return of capital Moreover to the extent that we distribute amounts that exceed our current and accumulated earnings and profits these distributions constitute a return of capital to the extent of the common stockholder s adjusted tax basis in its shares of our common stock A return of capital represents a return of a stockholder s original investment in
shares of our common stock and should not be confused with a distribution from earnings and profits Although return of capital distributions may not be taxable such distributions may increase an investor s tax liability for capital gains upon the sale of shares of our common stock by reducing the investor s tax basis in its shares of our common stock Such returns of capital reduce our asset base and also adversely impact our ability to raise debt capital as a result of the leverage restrictions under the 1940 Act which could have material adverse impact on our ability to make new investments
Shares of closed end investment companies frequently trade at a discount to NAV per common share Since our inception our common stock has at times traded above NAV and at times below NAV per share This characteristic of shares of closed end investment companies is separate and distinct from the risk that our NAV per share will decline As with any stock the price of our common stock will fluctuate with market conditions and other factors If shares are sold the price received may be more or less than the original investment Whether investors will realize gains or losses upon the sale of shares of our common stock will not depend directly upon our NAV but will depend upon the market price of the shares at the time of sale Since the market price of our common stock will be affected by such factors as the relative demand for and supply of the shares in the market general market and economic conditions and other factors beyond our control we cannot predict whether the shares will trade at below or above our NAV
Under the 1940 Act we are generally not able to issue additional shares of our common stock at a price below NAV per share to purchasers other than our existing stockholders through a rights offering without first obtaining the approval of our common stockholders and our independent directors Additionally when our common stock is trading below its NAV per share our dividend yield may exceed the weighted average returns that we would expect to realize on new investments that would be made with the proceeds from the sale of such stock making it unlikely that we would determine to issue additional shares in such circumstances Thus for as long as our common stock may trade below NAV we will be subject to significant constraints on our ability to raise capital through the issuance of common stock Additionally an extended period of time in which we are unable to raise capital may restrict our ability to grow and adversely impact our ability to increase or maintain our distributions
The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future and rank pari passu with or equal to all outstanding and future unsecured indebtedness issued by us and our general liabilities total liabilities less debt
The Notes are not secured by any of our assets or any of the assets of our subsidiaries As a result the Notes are subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future or any indebtedness that is initially unsecured to which we subsequently grant security to the extent of the value of the assets securing such indebtedness In any liquidation dissolution bankruptcy or other similar proceeding the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors including the holders of the Notes In addition the Notes rank pari passu with or equal to all outstanding and future unsecured unsubordinated indebtedness issued by us and our general liabilities total liabilities less debt
The Notes are obligations exclusively of the Company and not of any of our subsidiaries None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future Except to the extent we are a creditor with recognized claims against our subsidiaries all claims of creditors of our subsidiaries will have priority over our equity interests in such subsidiaries and therefore the claims of our creditors including holders of the Notes with respect to the assets of such subsidiaries Even if we are recognized as a creditor of one or more of our subsidiaries our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims Consequently the Notes are structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish As of September 30 2024 there was 70 6 million outstanding under the Credit Facility Borrowings under the Credit Facility are the obligation of Business Loan and are structurally senior to the Notes In addition our subsidiaries may incur substantial additional indebtedness in the future all of which would be structurally senior to the Notes
The indentures under which the Notes were issued offer limited protection to holders of the Notes The terms of the indentures do not restrict our or any of our subsidiaries ability to engage in or otherwise be a party to a variety of corporate transactions circumstances or events that could have an adverse impact on your investment in the Notes In particular the terms of the indenture and the Notes do not place any restrictions on our or our subsidiaries ability to
issue securities or otherwise incur additional indebtedness or other obligations including 1 any indebtedness or other obligations that would be equal in right of payment to the Notes 2 any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the value of the assets securing such debt 3 indebtedness that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and 4 securities indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18 a 1 A as modified by Section 61 a 2 of the 1940 Act or any successor provisions whether or not we continue to be subject to such provisions of the 1940 Act which generally prohibit us from incurring additional debt or issuing additional debt or preferred securities unless our asset coverage as defined in the 1940 Act equals at least 150 after such incurrence or issuance
pay dividends on or purchase or redeem or make any payments in respect of capital stock or other securities ranking junior in right of payment to the Notes including preferred stock and any subordinated indebtedness other than dividends purchases redemptions or payments that would cause our asset coverage to fall below the threshold specified in Section 18 a 1 B as modified by Section 61 a 2 of the 1940 Act or any successor provisions giving effect to any no action relief granted by the SEC to another BDC and upon which we may reasonably rely or to us if we determine to seek such similar SEC no action or other relief permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18 a 1 B as modified by Section 61 a 2 of the 1940 Act in order to maintain the BDC s status as a RIC under Subchapter M of the Code
In addition the indenture with respect to the 2028 Notes does not require us to make an offer to purchase the 2028 Notes in connection with a change of control or any other event whereas under the terms of the respective indentures governing the 2026 Notes and the 2027 Notes the holders of the 2026 Notes and the 2027 Notes respectively may require us to repurchase 100 of such notes upon the occurrence of a Change of Control Repurchase Event which would occur upon certain changes of control that result in a downgrade in such notes below investment grade
Furthermore the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes including significant adverse changes in our financial condition results of operations or credit ratings if any as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth revenues income cash flow or liquidity
Our ability to recapitalize incur additional debt including additional debt that matures prior to the maturity of the Notes and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes including additional covenants and events of default The issuance or incurrence of any such debt with incremental protections could affect the market for trading levels and prices of the Notes
We have not listed and do not intend to list in the future the 2026 Notes and 2027 Notes on any securities exchange or for quotation of the Notes on any automated dealer quotation system Although the 2028 Notes are listed on Nasdaq they may trade at a discount to their purchase price depending on prevailing interest rates the market for similar securities our credit ratings our financial condition performance and prospects general economic conditions or other relevant factors Accordingly we cannot assure you that a liquid trading market will develop and or be maintained for any of the Notes that a holder will be able to sell its Notes at a particular time or that the price received when a holder sells its Notes will be favorable To the extent an active trading market does not develop or is not maintained the liquidity and trading price for the Notes may be harmed Accordingly the holder of a Note may be required to bear the financial risk of an investment in the Notes for an indefinite period of time
Any default under the agreements governing our indebtedness including a default under the Credit Facility or other indebtedness to which we may be a party that is not waived by the required lenders or holders and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of such notes If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness or if we otherwise fail to comply with the various covenants including financial and operating covenants in the instruments governing our indebtedness we could be in default under the terms of the agreements governing such indebtedness In the event of such default the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable together with accrued and unpaid interest the lenders under the Credit Facility or other debt we may incur in the future could elect to terminate their commitments cease making further loans and institute foreclosure proceedings against our assets and we could be forced into bankruptcy or liquidation If our operating performance declines we may in the future need to refinance or restructure our debt including the Notes sell assets reduce or delay capital investments seek to raise additional capital or seek to obtain waivers from the required lenders under the Credit Facility or other debt that we may incur in the future to avoid being in default If we are unable to implement one or more of these alternatives we may not be able to meet our payment obligations under the Notes or our other debt If we breach our covenants under the Credit Facility or other debt and seek a waiver we may not be able to obtain a waiver from the required lenders or holders If this occurs we would be in default under the Credit Facility or other debt the lenders or holders could exercise their rights as described above and we could be forced into bankruptcy or liquidation If we are unable to repay debt lenders having secured obligations including the lenders under the Credit Facility could proceed against the collateral securing the debt Because the Credit Facility has and any future credit facilities will likely have customary cross default provisions if the indebtedness under the Notes or the Credit Facility or under any future credit facility is accelerated we may be unable to repay or finance the amounts due
The 2026 Notes and the 2027 Notes may be redeemed in whole or in part at any time or from time to time at the Company s option prior to maturity at par plus a make whole premium if applicable In addition the 2028 Notes may be redeemed in whole or in part at any time at our option on or after September 1 2025 If prevailing rates are lower at the time of redemption and we redeem the Notes you likely would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes being redeemed
We may not be able to repurchase the 2026 Notes or 2027 Notes upon a Change of Control Repurchase Event as defined in the indenture governing such Notes because we may not have sufficient funds We would not be able to borrow under our Credit Facility to finance such a repurchase of the 2026 Notes or 2027 Notes and we expect that any future credit facility would have similar limitations Upon a Change of Control Repurchase Event holders of the 2026 Notes or 2027 Notes may require us to repurchase for cash some or all of such Notes at a repurchase price equal to 100 of the aggregate principal amount of the Notes being repurchased plus accrued and unpaid interest to but not including the repurchase date The terms of our Credit Facility also provide that certain change of control events will constitute an event of default thereunder entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility Our failure to purchase such tendered Notes upon the occurrence of such Change of Control Repurchase Event would cause an event of default under the indenture governing the Notes and a cross default under the agreements governing the Credit Facility which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately If the holders of the 2026 Notes or 2027 Notes exercise their right to require us to
repurchase such Notes upon a Change of Control Repurchase Event the financial effect of this repurchase could cause a default under our current and future debt instruments and we may not have sufficient funds to repay any such accelerated indebtedness
A downgrade suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes or change in the debt markets could cause the liquidity or market value of the Notes to decline significantly
Any credit rating assigned to us or the Notes represents an assessment by the assigning rating agency of our ability to pay our debts when due Consequently real or anticipated changes in our credit ratings will generally affect the market value of the Notes These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the Notes Credit ratings are paid for by the issuer and are not a recommendation to buy sell or hold any security and may be revised or withdrawn at any time by the issuing organization in its sole discretion
There is currently no public market for our Series A Preferred Stock and we do not intend to apply to list the Series A Preferred Stock on a national securities exchange or to include the Series A Preferred Stock for listing on any national securities market Unless shares of the Series A Preferred Stock are listed on a national securities exchange holders of shares of Series A Preferred Stock may be unable to sell them at all or if they are able to only at substantial discounts from the liquidation preference of such shares Even if the Series A Preferred Stock is listed on Nasdaq or another national securities exchange following the termination of any share repurchase program there is a risk that such shares may be thinly traded and the market for such shares may be relatively illiquid compared to the market for other types of securities with the spread between the bid and asked prices considerably greater than the spreads of other securities with comparable terms and features Also since the Series A Preferred Stock does not have a stated maturity date you may be forced to hold your Series A Preferred Stock with no assurance as to ever receiving the liquidation preference of such shares
Although dividends on the Series A Preferred Stock are cumulative our Board of Directors must approve the actual payment of the dividends Our Board of Directors can elect at any time or from time to time and for an indefinite duration not to pay any or all accrued dividends Our Board of Directors could elect to suspend dividends for any reason and may be prohibited from approving dividends in the following instances
Except in limited circumstances including those related to us maintaining the asset coverage required by Sections 18 and 61 of the 1940 Act we at our option may not redeem shares of the Series A Preferred Stock prior to the earlier of 1 the one year anniversary of the earlier of a December 31 2026 unless earlier terminated or extended by our Board of Directors or b the date on which all 6 000 000 shares of Series A Preferred Stock are sold the Series A Termination Date and 2 January 1 2027 However after such date we may redeem the shares of Series A Preferred Stock at any time after such date and may do so at a time that is unfavorable to holders of the Series A Preferred Stock We may have an incentive to voluntarily redeem the Series A Preferred Stock if market conditions allow us to issue other Preferred Stock or debt securities at a dividend or interest rate that is lower than the dividend rate on the Series A Preferred Stock
Your option to request that your shares of Series A Preferred Stock be repurchased is subject to a 5 quarterly limitation the continuation of the share repurchase program and our availability of funds and may also be limited by law
We will only repurchase in each quarter up to 5 of our then outstanding Series A Preferred Stock by number of shares outstanding calculated as of the end of the previous calendar quarter As a result depending on the amount of repurchase requests a stockholder s repurchase request may not be fulfilled in the amount requested In addition our Board of Directors may terminate or suspend the share repurchase program at any time for any reason in its sole and absolute discretion Therefore our obligation to repurchase shares at the request of a holder of Series A Preferred Stock is limited to the extent our Board of Directors suspends or terminates the optional repurchase right for any reason including after delivery of a stockholder repurchase request but prior to the corresponding stockholder repurchase date Our obligation to repurchase shares at the option of a holder of Series A Preferred Stock is also limited to the extent that our Board of Directors determines in its sole and absolute discretion that we do not have sufficient funds available to fund any such repurchase or we are restricted by applicable law from making such repurchase If you deliver a request to repurchase your shares of Series A Preferred Stock but our Board of Directors determines we do not have sufficient funds available to fund such repurchase even if there is sufficient funding as determined under applicable law only a portion if any of your shares of Series A Preferred Stock may be repurchased
Our ability to pay dividends on and or repurchase shares of Series A Preferred Stock may be limited by Maryland law the 1940 Act and the terms of our debt facilities as well as future agreements we may enter
Under Maryland law a corporation may pay dividends on and repurchase stock as long as after giving effect to the dividend payment or repurchase the corporation is able to pay its debts as they become due in the usual course of business the equity solvency test or except in limited circumstances the corporation s total assets exceed the sum of its total liabilities plus unless its charter permits otherwise the amount that would be needed if the corporation were to be dissolved at the time of the dividend payment or repurchase to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the dividend or whose stock is being repurchased the balance sheet solvency test If we are insolvent at any time when a repurchase of shares of Series A Preferred Stock is desired or required to be made we may not be able to effect such repurchase Furthermore the terms of our debt facilities may restrict our ability to repurchase shares of Series A Preferred Stock for cash during an event of default and we expect to enter agreements in the future that may similarly restrict our ability to repurchase in cash in such instances
In addition under the 1940 Act we may not 1 declare any dividend with respect to any shares of preferred stock if at the time of such declaration and after giving effect thereto our asset coverage with respect to any of our borrowings that are senior securities representing indebtedness as defined in the 1940 Act would be less than 150 or such other percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing indebtedness of a BDC as a condition of declaring dividends on its preferred stock or 2 declare any other distribution on the preferred stock or purchase or redeem preferred stock if at the time of the declaration or redemption and after giving effect thereto our asset coverage with respect to such borrowings that are senior securities representing indebtedness would be less than 150 or such other percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing indebtedness of a BDC as a condition of declaring distributions purchases or redemptions of its shares
Our Board of Directors intends to pay distributions on the Series A Preferred Stock monthly in arrears on or about the fifth day of each month for dividends accrued the previous month or such later date as our Board of Directors may designate in an amount equal to 1 5625 per share per year However our Board of Directors has ultimate discretion to determine the amount and timing of these distributions In making this determination our Board of Directors will consider all relevant factors including the amount of cash available for distribution capital expenditure and reserve requirements and general operational requirements We cannot assure you that we will consistently be able to generate sufficient available cash flow to fund distributions on the Series A Preferred Stock at the stated dividend rate nor can we assure you that sufficient cash will be available to make distributions to you We cannot predict the amount of distributions you may receive and we may be unable to pay distributions over time Our inability to acquire additional investments or operate profitably may have a negative effect on our ability to generate sufficient cash flow from operations to pay distributions on the Series A Preferred Stock
If you elect to participate in the Share Repurchase Program the cash payment that you receive as a result of your optional repurchase request may be a substantial discount to the price that you paid for the shares of Series A Preferred Stock
The cash payment that stockholders who request to have their shares of Series A Preferred Stock repurchased will receive will be at a substantial discount if such request is made within three years of the purchase date Repurchases under the share repurchase program for the Series A Preferred Stock will be at a price per share equal to the liquidation preference of the Series A Preferred Stock plus accrued and unpaid dividends except that shares that have been outstanding for less than one year will be subject to an early repurchase discount of 10 or at a price of 22 50 per share shares that have been outstanding for at least one year but less than two years will be subject to an early repurchase discount of 6 or at a price of 23 50 per share and shares that have been outstanding for at least two years but less than three years will be subject to an early repurchase discount of 3 or at a price of 24 25 per share If you request to have your shares repurchased such request could cause you to lose a substantial portion of your investment
Inflation is the reduction in the purchasing power of money resulting from the increase in the price of goods and services Inflation risk is the risk that the inflation adjusted or real value of an investment or the income from that investment will be worth less in the future As inflation occurs the real value of the Series A Preferred Stock and dividends payable on such Shares declines
The Series A Preferred Stock will pay dividends at a fixed dividend rate Prices of fixed income investments vary inversely with changes in market yields The market yields on securities comparable to the Series A Preferred Stock may increase which could result in a decline in the value or secondary market price of the Series A Preferred Stock
Given the potential for redemption of the Series A Preferred Stock at our option commencing with the earlier of 1 first anniversary of the Series A Termination Date and 2 January 1 2027 holders of such Shares may face an increased reinvestment risk which is the risk that the return on an investment purchased with proceeds from the sale or redemption of the Series A Preferred Stock may be lower than the return previously obtained from the investment in such shares
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations or the operations of businesses in which we invest a compromise or corruption of our confidential information and or damage to our business relationships all of which could negatively impact our business financial condition and operating results
Maintaining our network security is of critical importance because our systems store highly confidential financial models and portfolio company information Although we have implemented and will continue to implement security measures our technology platform may be vulnerable to intrusion computer viruses ransomware attacks phishing schemes or similar disruptive problems caused by cyber attacks A cyber incident is considered to be any adverse event that threatens the confidentiality integrity or availability of our information resources or those of our portfolio companies These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems or those of our portfolio companies for purposes of misappropriating assets stealing confidential information corrupting data or causing operational disruption The result of these incidents may include disrupted operations misstated or unreliable financial data liability for stolen assets or information costs to repair system damage increased cybersecurity protection and insurance costs litigation and damage to our business relationships or those of our portfolio companies As our and our portfolio companies reliance on technology has increased so have the risks posed to our information systems both internal and those provided to us by third party service providers and the information systems of our portfolio companies We have implemented processes procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions but these measures as well as our increased awareness of the nature and extent of a risk of a cyber incident do not guarantee that a cyber incident will not occur and or that our financial results operations stock price or confidential information will not be negatively impacted by such an incident In addition any such incident disruption or other loss of information could result in legal claims or proceedings liability under laws that protect the privacy of personal information and regulatory penalties disrupt our operations and damage our and our Adviser s reputations resulting in a loss of confidence in our services and our Adviser s services which could adversely affect our business
We are dependent on information systems and systems failures could significantly disrupt our business which may in turn negatively affect the market price of our common stock and our ability to pay dividends
Our business is dependent on our and third parties communications and information systems Any failure or interruption of those systems including as a result of the termination of an agreement with any third party service providers could cause delays or other problems in our activities Our financial accounting data processing backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business There could be
Recent technological advances in artificial intelligence and machine learning technology or Machine Learning Technology pose risks to us and our portfolio companies We and our portfolio companies could be exposed to the risks of Machine Learning Technology if third party service providers or any counterparties use Machine Learning Technology in their business activities We and the Adviser are not in a position to control the use of Machine Learning Technology in third party products or services Use of Machine Learning Technology could include the input of confidential information in contravention of applicable policies contractual or other obligations or restrictions resulting in such confidential information becoming part accessible by other third party Machine Learning Technology applications and users Machine Learning Technology and its applications continue to develop rapidly and we cannot predict the risks that may arise from such developments
Machine Learning Technology is generally highly reliant on the collection and analysis of large amounts of data and it is not possible or practicable to incorporate all relevant data into the model that Machine Learning Technology utilizes to operate Certain data in such models will inevitably contain a degree of inaccuracy and error and could otherwise be inadequate or flawed which would be likely to degrade the effectiveness of Machine Learning Technology To the extent we or our portfolio companies are exposed to the risks of Machine Learning Technology use any such inaccuracies or errors could adversely impact us or our portfolio companies
Changes in laws or regulations governing our operations or changes in the interpretation thereof and any failure by us to comply with laws or regulations governing our operations may adversely affect our business
We and our portfolio companies are subject to regulation by laws at the local state and federal levels These laws and regulations as well as their interpretation may be changed from time to time Accordingly any change in these laws or regulations or their interpretation or any failure by us or our portfolio companies to comply with these laws or regulations may adversely affect our business For additional information regarding the regulations to which we are subject see
Our business including that of our portfolio companies may face public scrutiny related to environmental social and governance ESG activities A variety of organizations measure the performance of companies on ESG topics and the results of these assessments are widely publicized Adverse incidents with respect to ESG activities could impact the value of our brand our relationship with future portfolio companies the cost of our operations and relationships with investors all of which could adversely affect our business and results of operations
Additionally new regulatory initiatives related to ESG that are applicable to us and our portfolio companies could adversely affect our business The SEC has adopted rules that among other matters establish a framework for reporting of climate related risks and other ESG related rules have been proposed and these or similar rules may be adopted in the
future Compliance with these rules may be onerous and expensive Further compliance with any new laws regulations or disclosure obligations increases our regulatory burden and could make compliance more difficult and expensive affect the manner in which we or our portfolio companies conduct our businesses and adversely affect our profitability
Climate change is widely considered to be a significant threat to the global economy Our business operations and our portfolio companies may face risks associated with climate change including risks related to the impact of climate related legislation and regulation both domestically and internationally risks related to climate related business trends such as the process of transitioning to a lower carbon economy and risks stemming from the physical impacts of climate change such as the increasing frequency or severity of extreme weather events and rising sea levels and temperatures
We may experience fluctuations in our quarterly and annual operating results due to a number of factors including among others variations in our investment income the interest rates payable on the debt securities we acquire the default rates on such securities variations in and the timing of the recognition of realized and unrealized gains or losses the level of our expenses the degree to which we encounter competition in our markets and general economic conditions including the impacts of public health emergencies or elevated interest rates The majority of our portfolio companies are in industries that are directly impacted by inflation such as manufacturing and consumer goods and services Our portfolio companies may not be able to pass on to customers increases in their costs of production which could greatly affect their operating results impacting their ability to repay our loans In addition any projected future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments Any decreases in the fair value of our investments could result in future realized and unrealized losses and therefore reduce our net assets resulting from operations As a result of these factors results for any period should not be relied upon as being indicative of performance in future periods
Public health threats such as pandemics may disrupt the operations of the businesses in which we invest Such threats can create economic and political uncertainties and can contribute to global economic instability In the event of a future public health threat our portfolio companies may face limitations on their business activities for an unknown period of time including shutdowns that may be requested or mandated by governmental authorities or that they may experience disruptions in their supply chains or decreased consumer demand Certain of our portfolio companies have experienced increases in health and safety expenses payroll costs and other operating expenses and future increases are possible These adverse economic impacts may decrease the value of the collateral securing our loans in such portfolio companies as well as the value of our equity investments In addition these adverse impacts could cause certain of our portfolio companies to have difficulty meeting their debt service requirements which in turn could lead to an increase in defaults and or could diminish the ability of certain of our portfolio companies to engage in liquidity events These negative impacts on our portfolio companies and their performance may reduce the interest income we receive and or increase realized and unrealized losses related to our investments which may in turn adversely impact our business financial condition or results of operations
Our Adviser and Administrator have implemented ongoing processes that are designed to continually identify assess manage monitor and mitigate the dynamic and evolving material risks to us from cybersecurity threats Our Adviser s and Administrator s resource management information technology IT and compliance departments work in conjunction with an independent third party information technology service provider ISP engaged by our Adviser to manage our information technology strategy The ISP regularly performs cyber assessments and assist our Adviser and Administrator
in monitoring our cyber and information security programs The ISP proposes recommendations for improvements to our Adviser s Head of Resource Management Director of IT and Chief Compliance Officer CCO which then are considered by other relevant officers of our Adviser and Administrator before implementation
In addition regular ongoing cybersecurity threat risk assessments which also cover third party business applications are performed throughout the year and reported to our officers and Board of Directors by our CCO no less than quarterly Cybersecurity risks are assessed in general as part of the overall enterprise risk management for us but also specifically between the ISP and our Adviser and Administrator in monitoring and determining not only the risks but also in assessing corresponding processes and procedures to mitigate those risks appropriately
Our ISP constantly monitors information technology risk and cybersecurity threats globally When risks are detected the Director of IT Head of Resource Management and CCO consult with the ISP to assess if the risk is a cybersecurity threat to our information technology systems or data If a risk to our information systems or data is identified we through our Adviser and Administrator work in conjunction with the ISP to implement recommended processes improvements or safeguards to our systems or processes to address the risks as needed Relevant examples of such efforts include but are not limited to
Contractually we require the ISP to annually provide a third party report on its systems and on the suitability of the design and operating effectiveness of its controls relevant to information and cyber security In addition to the ongoing dialogue and technology interaction between the director of IT our Adviser and Administrator and the ISP any significant findings in these reports are shared with us including our Board of Directors and other officers to enhance ongoing monitoring and assessment of our information technology and cybersecurity risk management
Our Adviser and Administrator also regularly trains employees working on our behalf on the evolving threats and educates them on cybersecurity risks to provide an additional protection barrier through end user knowledge
Notwithstanding our risk management and strategy described above we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us We are not currently aware of any known cybersecurity risks that may materially impact our operations and we may not be able to determine the likelihood of such risks See
Risk Factors Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations or the operations of businesses in which we invest a compromise or corruption of our confidential information and or damage to our business relationships all of which could negatively impact our business financial condition and operating results
Our Board of Directors is actively engaged in overseeing our cybersecurity and information security program Our Board of Directors receives regular reports during board meetings from our CCO on our and our Adviser s and Administrator s efforts concerning information security and addressing information technology and cybersecurity risks no less than quarterly and regularly receives updates from third parties on various business risks which include cybersecurity matters The reports are distributed to our Board of Directors and our CCO engages in detailed discussions with the independent board members during the independent members session The reports cover potentially material cybersecurity threats
facing us as well as key risks and mitigation efforts undertaken by us and our Adviser and Administrator As significant threats or events are identified by management or the ISP between regular reporting periods our CCO will inform our Board of Directors immediately and keep it informed as to the developments of assessing the risks mitigating efforts and potential disclosure Appropriate members of management and third party providers will be involved as deemed necessary based on the potential impact
Our Head of Resources Management who is also a member of our Board of Directors and our CCO lead our cybersecurity program Our Head of Resources Management has more than 30 years of overall experience and more than 20 years directly assessing and managing our cyber information technology and human resources systems and the associated security concerns Our CCO has more than 30 years of overall experience as a CPA with more than 15 years managing information technology systems and databases and more than 15 years supporting our Adviser s and Administrator s resource management department This includes identifying assessing mitigating and monitoring cyber information security risks Our Director of IT has over 20 years of experience in IT with a focus in the implementation of information security projects to enhance organizations resilience against emerging threats and has collaborated closely with security vendors partners to contain and address cybersecurity incidents These managers as well as other management personnel attend various professional continuing education programs which include cybersecurity matters Certain members of our Board of Directors have or previously held positions with other companies including other public companies that involved managing risks associated with their cyber and information technology systems
We do not own any real estate or other physical properties material to our operations The Adviser is the current leaseholder of all properties in which we operate We occupy these premises pursuant to the Advisory and Administration Agreements with the Adviser and Administrator respectively
Our common stock is traded on Nasdaq under the symbol GLAD The following table reflects by quarter the high and low intraday sales prices per share of our common stock on the Nasdaq the high and low intraday sales prices as a percentage of NAV per share and quarterly distributions declared per common share for each fiscal quarter during the last two completed fiscal years and the current fiscal year through November 12 2024
NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low intraday sales prices The NAVs per share shown are based on outstanding shares at the end of each period
The premiums discounts set forth in these columns represent the high or low as applicable intraday sale prices per share for the relevant quarter minus the NAV per share as of the end of such quarter and therefore may not reflect the premium discount to NAV per share on the date of the high and low intraday sales prices
Per share data has been adjusted on a retroactive basis to reflect the 1 for 2 reverse stock split the Reverse Stock Split effected on April 4 2024 effective April 5 2024 for trading purposes for all activity prior to that date as described in See Note 2
We generally intend to distribute in the form of cash distributions a minimum of 90 0 of our Investment Company Taxable Income if any on a quarterly basis to our stockholders in the form of monthly distributions We generally intend to retain some or all of our long term capital gains if any but generally intend to designate the retained amount as a deemed distribution after giving effect to any prior year realized losses that are carried forward to supplement our equity capital and support the growth of our portfolio However in certain cases our Board of Directors may choose to distribute our net realized long term capital gains if any by paying a one time special distribution Additionally our Credit Facility contains a covenant that limits distributions to our stockholders on an annual basis to the sum of our net investment income net capital gains and amounts deemed to have been paid during the prior year in accordance with Section 855 a of the Code
The following graph shows the total stockholder return on an investment of 100 in cash on September 30 2019 for i our common stock ii the Nasdaq s 100 total return index Nasdaq 100 TR iii the Standard Poor s 500 total return index the S P 500 TR and iv the Standard and Poor s BDC index S P BDC The graph and other information furnished under the heading Stock Performance Graph shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that we specifically incorporate it by reference and shall not be deemed to be soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under or to the liabilities of Section 18 of the Exchange Act
The returns on each investment assume reinvestment of dividends This stock performance graph and the related textual information are not necessarily indicative of future performance Per share data has been adjusted on a retroactive basis to reflect the Reverse Stock Split effected on April 4 2024
The following table is intended to assist you in understanding the costs and expenses that an investor in the Company will bear directly or indirectly We caution you that some of the percentages indicated in the table below are estimates and may vary Except where the context suggests otherwise whenever this Annual Report contains a reference to fees or expenses paid by us or the Company or that we will pay fees or expenses stockholders will indirectly bear such fees or expenses The following annualized percentages were calculated based on actual expenses incurred in the quarter ended September 30 2024 and average net assets for the quarter ended September 30 2024
The amounts set forth in this table do not reflect the impact of any sales load sales commission or other offering expenses borne by the Company and its stockholders If applicable the prospectus or prospectus supplement relating to an offering of our common stock will disclose the offering price and the estimated offering expenses and total stockholder transaction expenses borne by the Company and its common stockholders as a percentage of the offering price In the event that shares of our common stock are sold to or through underwriters the applicable prospectus or prospectus supplement will also disclose the applicable sales load
The expenses of the dividend reinvestment plan if any are included in stock record expenses a component of other expenses If a participant elects by written notice to the plan agent prior to termination of his or her account to have the plan agent sell part or all of the shares held by the plan agent in the participant s account and remit the proceeds to the participant the plan agent is authorized to deduct a transaction fee plus per share brokerage commissions from the proceeds The participants in the dividend reinvestment plan will bear a pro rata share of brokerage commissions incurred with respect to open market purchases if any See
In accordance with our Advisory Agreement our annual base management fee is 1 75 0 4375 quarterly of our average gross assets which are defined as total assets of the Company including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases In accordance with the requirements of the SEC the table above shows the Company s management fee as a percentage of average net assets attributable to common shareholders For purposes of the table the gross base management fee has been converted to 3 07 of the average net assets as of September 30 2024 by dividing the total dollar amount of the management fee by our average net assets The base management fee for the quarter ended September 30 2024 before application of any credits was 3 5 million From time to time the Adviser has non contractually unconditionally and irrevocably agreed to reduce the 1 75 base management fee on syndicated loan participations to 0 5 to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations For the quarter ended September 30 2024 this credit to the base management fee was 18 thousand
Under the Advisory Agreement the Adviser has provided and continues to provide managerial assistance to our portfolio companies It may also provide services other than managerial assistance to our portfolio companies and receive fees therefor Such services may include i assistance obtaining sourcing or structuring credit facilities long term loans or additional equity from unaffiliated third parties ii negotiating important contractual financial
relationships iii consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties and iv primary role in interviewing vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members Generally at the end of each quarter 100 0 of the fees for such services are non contractually unconditionally and irrevocably credited against the base management fee that we would otherwise be required to pay to the Adviser however a small percentage of certain of such fees primarily for valuation of the portfolio company is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser For the quarter ended September 30 2024 the base management fee credit was 0 4 million See
The Adviser services administers and collects on the loans held by Business Loan in return for which the Adviser receives a 1 5 annual loan servicing fee payable monthly by Business Loan based on the monthly aggregate balance of loans held by Business Loan in accordance with the Credit Facility For the quarter ended September 30 2024 the total loan servicing fee was 2 2 million The entire loan servicing fee paid to the Adviser by Business Loan is generally non contractually unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser since Business Loan is a consolidated subsidiary of the Company and overall the base management fee including any loan servicing fee cannot exceed 1 75 of total assets including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings during any given fiscal year pursuant to the Advisory Agreement See
In accordance with our Advisory Agreement the incentive fee consists of two parts an income based fee and a capital gains based fee The income based fee is payable quarterly in arrears and equals 20 0 of the excess if any of our pre incentive fee net investment income that exceeds a 1 75 quarterly 7 0 annualized hurdle rate of our net assets 2 0 quarterly and 8 0 annualized during the period from April 1 2020 through March 31 2023 subject to a catch up provision measured as of the end of each calendar quarter The catch up provision requires us to pay 100 0 of our pre incentive fee net investment income with respect to that portion of such income if any that exceeds the hurdle rate but is less than 125 0 of the quarterly hurdle rate or 2 1875 2 4375 during the period from April 1 2020 through March 31 2022 and 2 50 during the period from April 1 2022 through March 31 2023 in any calendar quarter 8 75 annualized 9 75 annualized during the period from April 1 2020 through March 31 2022 10 0 annualized during the period from April 1 2022 through March 31 2023 The catch up provision is meant to provide the Adviser with 20 0 of our pre incentive fee net investment income as if a hurdle rate did not apply when our pre incentive fee net investment income exceeds 125 0 of the quarterly hurdle rate in any calendar quarter 8 75 annualized 9 75 annualized during the period from April 1 2020 through March 31 2022 and 10 0 annualized during the period from April 1 2022 through March 31 2023 The income based incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash Our pre incentive fee net investment income used to calculate this part of the income based incentive fee is also included in the amount of our gross assets used to calculate the 1 75 base management fee see footnote 4 above The capital gains based incentive fee equals 20 0 of our net realized capital gains since our inception if any computed net of all realized capital losses and unrealized capital depreciation since our inception less any prior payments and is payable at the end of each fiscal year We have not recorded any capital gains based incentive fee from our inception through September 30 2024 The income based incentive fee for the quarter ended September 30 2024 was 2 7 million
From time to time the Adviser has non contractually unconditionally and irrevocably agreed to waive a portion of the incentive fees to the extent net investment income did not cover 100 0 of the distributions to common stockholders during the period The incentive fee credit for the quarter ended September 30 2024 was 0 1 million There can be no guarantee that the Adviser will continue to credit any portion of the fees under the Advisory Agreement in the future
Includes our overhead expenses including payments under the Administration Agreement based on our projected allocable portion of overhead and other expenses estimated to be incurred by the Administrator in performing its obligations under the Administration Agreement for the current fiscal year See
Total annualized gross expenses based on actual amounts incurred for the quarter ended September 30 2024 except as set forth in footnote 10 would be 62 6 million After all non contractual unconditional and irrevocable credits described in footnote 4 footnote 5 and footnote 6 above are applied to the base management fee the loan servicing fee and the incentive fee total annualized expenses based on actual amounts incurred for the quarter ended September 30 2024 would be 51 5 million or 11 39 as a percentage of net assets
The following examples demonstrate the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock In calculating the following expense amounts we have assumed we would have no additional leverage and that our quarterly operating expenses would remain at the levels set forth in the table above and are gross of credits to any fees The amounts set forth below do not reflect the impact of sales load or offering expenses to be borne by the Company or its stockholders In the prospectus supplement relating to an offering of securities pursuant to the applicable prospectus the examples below will be restated to reflect the impact of the estimated offering expenses borne by the Company and its stockholders and if applicable the impact of the applicable sales load
The examples below and the expenses in the table above should not be considered a representation of our future expenses and actual expenses including the cost of debt incentive fees if any and other expenses may be greater or less than those shown While the example assumes as required by the SEC a 5 annual return our performance will vary and may result in a return greater or less than 5
While the example assumes as required by the SEC a 5 annual return our performance will vary and may result in a return greater or less than 5 Additionally we have assumed that the entire amount of such 5 annual return would constitute ordinary income as we have not historically realized positive capital gains computed net of all realized capital losses on our investments Because the assumed 5 annual return is significantly below the hurdle rate of 7
that we must achieve under the Advisory Agreement to trigger the payment of an income based incentive fee we have assumed for purposes of this example that no income based incentive fee would be payable if we realized a 5 annual return on our investments
While the example assumes reinvestment of all dividends and distributions at NAV participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the dividend payable to a participant by the average cost of shares of our common stock purchased in the open market in the period beginning on or before the payment date of the distribution and ending when the plan agent has expended for such purchases all of the cash that would have been otherwise payable to participants See
For purposes of this example we have assumed that the entire amount of such 5 annual return would constitute capital gains and that no accumulated capital losses or unrealized depreciation exist that would have to be overcome first before a capital gains based incentive fee is payable
Information about our senior securities is shown in the following table for the audited periods as of our last ten fiscal years The information has been derived from our audited financial statements for each respective period which have been audited by PricewaterhouseCoopers LLP our independent registered public accounting firm The report of our independent registered public accounting firm PricewaterhouseCoopers LLP on the senior securities table as of September 30 2024 is included elsewhere in this Annual Report
Asset coverage ratio for a class of our senior securities representing indebtedness means the ratio of the value of our total assets less all liabilities and indebtedness not represented by senior securities to the aggregate amount of senior securities representing indebtedness and asset coverage ratio for a class of our senior securities that are stock means the ratio of the value of our total assets less all liabilities and indebtedness not represented by senior securities to the aggregate amount of senior securities representing indebtedness plus the aggregate involuntary liquidation preference of a class of senior security that is stock Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness
Only applicable to our Term Preferred Stock 6 125 notes due 2023 the 2023 Notes 5 375 notes due 2024 the 2024 Notes and 7 75 notes due 2028 the 2028 Notes because the other senior securities are not registered for public trading Average market value per unit is the average of the closing prices of the securities on the Nasdaq during the last 10 trading days of the period Average market value per unit for our Series 2024 Term Preferred Stock for September 30 2017 is the average of the closing prices of the shares on the Nasdaq during the last seven trading days of the period as the stock began trading on September 21 2017
In May 2014 we issued 2 440 000 shares of 6 75 Series 2021 Term Preferred Stock the Series 2021 Term Preferred Stock through a public offering and subsequent exercise of an overallotment option In September 2017 we voluntarily redeemed all outstanding shares of our Series 2021 Term Preferred Stock and therefore had no Series 2021 Term Preferred Stock outstanding at September 30 2017
In September 2017 we issued 2 070 000 shares of 6 0 Series 2024 Term Preferred Stock through a public offering and subsequent exercise of an overallotment option In October 2019 we voluntarily redeemed all outstanding shares of our Series 2024 Term Preferred Stock
In November 2018 we completed a public debt offering of 57 5 million aggregate principal amount of the 2023 Notes inclusive of the overallotment option In January 2021 we voluntarily redeemed all of the 2023 Notes
In October 2019 we completed a public debt offering of 38 8 million aggregate principal amount of the 2024 Notes inclusive of the overallotment option In November 2021 we voluntarily redeemed all of the 2024 Notes
and the notes thereto contained elsewhere in this Annual Report Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition results of operations or percentage relationships for any future periods Except per share amounts dollar amounts in the tables included herein are in thousands unless otherwise indicated
We were incorporated under the Maryland General Corporation Law on May 30 2001 We operate as an externally managed closed end non diversified management investment company and have elected to be treated as a BDC under the 1940 Act In addition for federal income tax purposes we have elected to be treated as a RIC under the Code To continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment we must meet certain requirements including certain minimum distribution requirements
We were established for the purpose of investing in debt and equity securities of established private businesses operating in the U S Our investment objectives are to 1 achieve and grow current income by investing in debt securities of established lower middle market companies in the U S that we believe will provide stable earnings and cash flow to pay expenses make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and 2 provide our stockholders with long term capital appreciation in the value of our assets by investing in equity securities in connection with our debt investments that we believe can grow over time to permit us to sell our equity investments for capital gains To achieve our investment objectives our primary investment strategy is to invest in several categories of debt and equity securities with each investment generally ranging from 8 million to 40
million although investment size may vary depending upon our total assets or available capital at the time of investment We expect that our investment portfolio over time will consist of approximately 90 0 debt investments and 10 0 equity investments at cost As of September 30 2024 our investment portfolio was made up of approximately 90 1 debt investments and 9 9 equity investments at cost
We focus on investing in lower middle market companies which we generally define as companies with annual earnings before interest taxes depreciation and amortization of 3 million to 25 million in the U S that meet certain criteria including the following the sustainability of the business free cash flow and its ability to grow it over time adequate assets for loan collateral experienced management teams with a significant ownership interest in the borrower reasonable capitalization of the borrower including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and to a lesser extent the potential to realize appreciation and gain liquidity in our equity position if any We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities We seek to avoid investing in high risk early stage enterprises Our targeted portfolio companies are generally considered too small for the larger capital marketplace
We invest by ourselves or jointly with other funds and or management of the portfolio company depending on the opportunity In July 2012 the SEC granted us the Co Investment Order that expanded our ability to co invest under certain circumstances with certain of our affiliates including Gladstone Investment a BDC also managed by the Adviser Gladstone Alternative an interval fund also managed by the Adviser and any future BDC or registered closed end management investment company that is advised or sub advised if it controls the fund by the Adviser or any combination of the foregoing subject to the conditions in the Co Investment Order We believe the Co Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies If we are participating in an investment with one or more co investors whether or not an affiliate of ours our investment is likely to be smaller than if we were investing alone
In general our investments in debt securities have a term of no more than seven years accrue interest at variable rates generally based on one month Term SOFR and to a lesser extent at fixed rates We seek debt instruments that pay interest monthly or at a minimum quarterly may have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity Generally success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company typically from an exit or sale Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid together with the principal at maturity This form of deferred interest is often called PIK interest
Typically our equity investments consist of common stock preferred stock limited liability company interests or warrants to purchase the foregoing Often these equity investments occur in connection with our original investment recapitalizing a business or refinancing existing debt
From our initial public offering in August 2001 through September 30 2024 we have made 667 different loans to or investments in 277 companies for a total of approximately 2 8 billion before giving effect to principal repayments on investments and divestitures
During the year ended September 30 2024 we invested 53 3 million in four new portfolio companies and extended 124 4 million in investments to existing portfolio companies In addition we received a total of 136 3 million in combined net proceeds and principal repayments from portfolio company exits and principal repayments by existing portfolio companies during the year ended September 30 2024
In November 2023 we invested 11 0 million in Quality Environmental Midco Inc Quality through secured first lien debt and preferred equity We also extended Quality a 2 0 million secured first lien line of credit commitment which was unfunded at close In February 2024 we invested an additional 5 0 million in Quality
In November 2023 we extended Cafe Zupas an existing portfolio company a new 10 5 million secured first lien delayed draw term loan commitment which was unfunded at close We funded 1 4 million on the delayed draw term loan in December 2023 In addition our existing term loan was paid down by 7 3 million
In December 2023 we invested an additional 7 0 million in Salt Straw LLC an existing portfolio company through preferred equity We also increased our delayed draw term loan commitment to Salt Straw LLC by 2 9 million
In March 2024 we received net cash proceeds of 8 4 million from the sale of Trowbridge Chicago LLC Trowbridge an existing portfolio company In conjunction with the sale we received 0 2 million in prepayment fees and recorded a net realized gain of 0 2 million on our equity In September 2024 our remaining debt investment in Trowbridge paid off at par for net cash proceeds of 0 3 million
In April 2024 we invested 7 3 million in Total Access Elevator LLC Total Access through secured first lien debt and common equity We also extended Total Access a 3 0 million line of credit commitment and a 2 5 million delayed draw term loan commitment both of which were unfunded at close
In April 2024 our debt investment in Giving Home Healthcare LLC Giving Home paid off at par for net cash proceeds of 29 7 million including a 0 9 million prepayment penalty We also exercised our warrant position for common equity in Giving Home which we continue to hold and received a 2 5 million distribution associated with this investment
In July 2024 we invested an additional 6 5 million in Turn Key Health Clinics LLC Turn Key an existing portfolio company through secured first lien debt We also extended Turn Key an additional 2 0 million line of credit commitment which was funded in July 2024
In September 2024 we invested an additional 13 5 million in Arc Drilling Holdings LLC an existing portfolio company through secured first lien debt and common equity We also extended Arc Drilling an additional 4 0 million line of credit commitment and funded 0 9 million under the line of credit at close
We have been able to meet our capital needs through extensions of and increases to our line of credit under the Credit Facility and by accessing the capital markets in the form of public equity offerings of common stock and public and private debt offerings We have successfully extended the Credit Facility s revolving period multiple times most recently to October 2025 and currently have a total commitment amount of 293 7 million We sold 476 138 and 8 774 101 common shares under our at the market program during the years ended September 30 2024 and 2023 respectively In August 2023 we completed an offering of 57 0 million aggregate principal amount of the 2028 Notes In November 2021 we completed a private placement of 50 0 million aggregate principal amount of the 2027 Notes Refer to
Although we were able to access the capital markets historically and in recent years market conditions may affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity in the future When our common stock trades below NAV per common share our ability to issue equity is constrained by provisions of the 1940 Act which generally prohibits the issuance and sale of our common stock below NAV per common share without first obtaining approval from our stockholders and our independent directors other than through sales to our then existing stockholders pursuant to a rights offering On September 30 2024 the closing market price of our common stock was 24 05 per share a 13 6 premium to our September 30 2024 NAV per share of 21 18
Our ability to seek external debt financing to the extent that it is available under current market conditions is further subject to the asset coverage limitations of the 1940 Act which require us to have an asset coverage as defined in Sections 18 and 61 of the 1940 Act of at least 150 on our senior securities representing indebtedness and our senior securities that are stock
On April 10 2018 our Board of Directors including a required majority as such term is defined in Section 57 o of the 1940 Act thereof approved the modified asset coverage requirements set forth in Section 61 a 2 of the 1940 Act As a result the Company s asset coverage requirements for senior securities changed from 200 to 150 effective April 10 2019
Interest income increased by 12 4 for the year ended September 30 2024 as compared to the prior year Generally the level of interest income from investments is directly related to the principal balance of our interest bearing investment portfolio outstanding during the period multiplied by the weighted average yield The weighted average principal balance of our interest bearing investment portfolio for the year ended September 30 2024 was 665 5 million compared to 626 5 million for the year ended September 30 2023 an increase of 39 0 million or 6 2 The weighted average yield on our interest bearing investments is based on the current stated interest rate on interest bearing investments which increased to 13 9 for the year ended September 30 2024 compared to 13 3 for the year ended September 30 2023 inclusive of any allowances on interest receivables made during those periods The increase in the weighted average yield was driven mainly by increases in interest rates
As of September 30 2024 our loans to B T Group Edge Adhesives and WB Xcel were on non accrual status with a cost basis of 28 3 million or 4 1 of the cost basis of all debt investments in our portfolio and a fair value of 12 8 million or 1 9 of the fair value of all debt investments in our portfolio As of September 30 2023 our loan to Edge Adhesives was on non accrual status with a cost basis of 6 1 million or 0 9 of the cost basis of all debt investments in our portfolio and a fair value of 2 9 million or 0 5 of the fair value of all debt investments in our portfolio
Other income decreased by 2 3 during the year ended September 30 2024 as compared to the prior year period primarily due to a 0 6 million decrease in success fees received and a 0 1 million decrease in dividend income year over year partially offset by a 0 7 million increase in prepayment fees received year over year
As of September 30 2024 our investment in Antenna Research Associates Inc represented 11 4 of the total investment portfolio at fair value As of September 30 2023 no single investment represented greater than 10 of the total investment portfolio at fair value
Expenses net of any non contractual unconditional and irrevocable credits to fees from the Adviser increased 5 1 million or 11 3 for the year ended September 30 2024 as compared to the prior year This increase was primarily due to a 2 0 million increase in the net base management fee a 1 0 million increase in the net incentive fee and a 0 9 million increase in interest expense
Total interest expense on borrowings and notes payable increased by 0 9 million or 4 2 during the year ended September 30 2024 as compared to the prior year This increase was driven primarily by a shift in the composition of our debt outstanding Interest expense on notes payable increased by 3 9 million period over period with the issuance of our 2028 Notes in August 2023 Interest expense on our Credit Facility decreased by 3 0 million period over period driven primarily by a decrease in the weighted average balance outstanding on our Credit Facility partially offset by an increase in the effective interest rate on our Credit Facility and an increase in unused commitment fees period over period The effective interest rate on our Credit Facility including unused commitment fees incurred but excluding the impact of deferred financing costs was 11 0 during the year ended September 30 2024 compared to 8 0 during the prior year The increase in the effective interest rate was driven primarily by an increase in unused commitment fees The weighted average balance outstanding on our Credit Facility was 70 6 million during the year ended September 30 2024 as compared to 133 7 million in the prior year a decrease of 47 2
The net base management fee earned by the Adviser increased by 2 0 million or 23 6 during the year ended September 30 2024 as compared to the prior year resulting from an increase in average total assets subject to the base management fee and a decrease in credits to the base management fee from the Adviser for new deal origination fees year over year
The income based incentive fee increased by 1 2 million or 11 3 for the year ended September 30 2024 as compared to the prior year primarily due to an increase in pre incentive fee net investment income coupled with an increase in net assets which drives the hurdle rate
Average total assets subject to the base management fee is defined as total assets including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings valued at the end of the two most recently completed quarters within the respective years and adjusted appropriately for any share issuances or repurchases during the period
For the year ended September 30 2023 we recorded a net realized gain on investments of 12 3 million which resulted primarily from a 5 9 million realized gain recognized on the sale of our investment in Targus Cayman HoldCo Ltd Targus a 4 1 million realized gain recognized on our investment in Leeds Novamark Capital I L P Leeds and a 3 7 million realized gain recognized on our investment in PIC 360 LLC
During the year ended September 30 2024 we recorded net unrealized appreciation of investments in the aggregate amount of 42 7 million The net realized gain loss and unrealized appreciation depreciation across our investments for the year ended September 30 2024 were as follows
The primary driver of net unrealized appreciation of 42 7 million for the year ended September 30 2024 was improvement in the financial and operational performance of certain of our portfolio companies partially offset by the
decrease in comparable transaction multiples used to estimate the fair value of certain of our other portfolio companies and the decline in the financial and operational performance of certain of our other portfolio companies
During the year ended September 30 2023 we recorded net unrealized depreciation of investments in the aggregate amount of 11 0 million The net realized gain loss and unrealized appreciation depreciation across our investments for the year ended September 30 2023 were as follows
The primary driver of net unrealized depreciation of 11 0 million for the year ended September 30 2023 was the reversal of unrealized appreciation associated with the exit of our investment in Targus the reversal of unrealized appreciation associated with our investment in PIC 360 and the sale of underlying assets within Leeds as well as the decrease in comparable transaction multiples used to estimate the fair value of certain of our other portfolio companies and the decline in the financial and operational performance of certain of our other portfolio companies
As of September 30 2024 the fair value of our investment portfolio was greater than its cost basis by approximately 25 2 million and our entire investment portfolio was valued at 103 3 of cost as compared to cumulative net unrealized depreciation of 17 5 million and a valuation of our entire portfolio at 97 6 of cost as of September 30 2023
The comparison of the fiscal year ended September 30 2023 to the fiscal year ended September 30 2022 can be found in our Annual Report on Form 10 K for the fiscal year ended September 30 2023 as filed with the SEC on November 13 2023 located within
Our cash flows from operating activities are primarily generated from the interest payments on debt securities that we receive from our portfolio companies as well as net proceeds received through repayments or sales of our investments We utilize this cash primarily to fund new investments make interest payments on our Credit Facility and notes payable make distributions to our stockholders pay management and administrative fees to the Adviser and Administrator and for other operating expenses
Net cash provided by operating activities for the year ended September 30 2024 was 3 2 million as compared to net cash used in operating activities of 10 9 million for the year ended September 30 2023 The change was primarily due to an increase in repayments and net proceeds from sales year over year Repayments and net proceeds from sales were 140 2 million during the year ended September 30 2024 compared to 125 5 million during the year ended September 30 2023
As of September 30 2024 we had loans to syndicated participations in or equity investments in 49 companies with an aggregate cost basis of approximately 771 0 million As of September 30 2023 we had loans to syndicated participations in or equity investments in 51 companies with an aggregate cost basis of approximately 722 3 million
Net cash used in financing activities for the year ended September 30 2024 was 2 3 million which consisted primarily of 43 1 million in distributions to common shareholders partially offset by 22 8 million in net borrowings on our Credit Facility 11 0 million in gross proceeds from the issuance of common stock and 7 8 million in net proceeds from the issuance of preferred stock
Net cash provided by financing activities for the year ended September 30 2023 was 10 2 million which consisted primarily of 87 4 million in gross proceeds from the issuance of common stock and 57 0 million in gross proceeds from the issuance of notes payable partially offset by 94 0 million in net repayments on our Credit Facility and 35 4 million in distributions to common shareholders
Net cash provided by financing activities for the year ended September 30 2022 was 77 7 million which consisted primarily of 91 3 million in net borrowings on our Credit Facility and 50 0 million in gross proceeds from the issuance of notes payable partially offset by 38 8 million used in the redemption of our 2024 Notes and 27 3 million in distributions to common shareholders
To qualify to be taxed as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders we are required to distribute to our stockholders on an annual basis at least 90 0 of our Investment Company Taxable Income Additionally our Credit Facility has a covenant that generally restricts the amount of distributions to stockholders that we can pay out to be no greater than our aggregate net investment income net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855 a of the Code
In accordance with these requirements during the year ended September 30 2024 we paid monthly cash distributions of 0 165 per common share These distributions totaled an aggregate of 43 1 million In October 2024 our Board of Directors declared a monthly distribution of 0 165 per common share for each of October November and December 2024 In November 2024 our Board of Directors declared a supplemental distribution of 0 40 per common share payable in December 2024 Our Board of Directors declared these distributions to our stockholders based on our estimates of our Investment Company Taxable Income for the fiscal year ended September 30 2025
For the fiscal years ended September 30 2024 and September 30 2023 our current and accumulated earnings and profits exceeded common stock distributions declared and paid and in accordance with Section 855 a of the Code we elected to treat 6 6 million and 5 0 million respectively of the first common distributions paid to common stockholders in the subsequent fiscal year as having been paid in the prior year For the fiscal year ended September 30 2022 distributions
We paid monthly cash dividends of 0 130208 per share to holders of our Series A Preferred Sock for each month from January through September during the year ended September 30 2024 which totaled an aggregate of 0 2 million In October 2024 our Board of Directors declared monthly cash dividends of 0 130208 per share to holders of our Series A Preferred stock for each of October November and December 2024 Dividend payments to our preferred stockholders are included in preferred stock dividends on our
For federal income tax purposes the dividends paid by us to preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and profits and is reported after the end of the calendar year based on tax information for the full fiscal year
Our common stockholders who hold their shares through our transfer agent Computershare Inc Computershare have the option to participate in a dividend reinvestment plan offered by Computershare as the plan agent This is an opt in dividend reinvestment plan meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock Common stockholders who do make such election will receive their distributions in cash Common stockholders who receive distributions in the form of stock will be subject to the same federal state and local tax consequences as stockholders who elect to receive their distributions in cash The common stockholder will have an adjusted basis in the additional common shares purchased through the plan equal to the amount of the reinvested distribution The additional shares will have a new holding period commencing on the day following the date on which the shares are credited to the common stockholder s account Computershare purchases shares in the open market in connection with the obligations under the plan
Our shelf registration statement on Form N 2 File No 333 275934 the 2024 Registration Statement which was declared effective on January 17 2024 permits us to issue through one or more transactions up to an aggregate of 700 0 million in securities consisting of common stock preferred stock subscription rights debt securities and warrants to purchase common stock or preferred stock As of September 30 2024 we had the ability to issue up to 689 0 million in securities under the 2024 Registration Statement
In August 2024 we entered into an equity distribution agreement with Jefferies LLC and Huntington Securities Inc the 2024 Sales Agreement under which we have the ability to issue and sell from time to time shares of our common stock with an aggregate offering price of up to 150 0 million in an at the market offering the 2024 ATM Program During the year ended September 30 2024 we sold 476 138 shares of our common stock under the 2024 Sales Agreement at a weighted average price of 23 10 per share and raised 11 0 million of gross proceeds Net proceeds after deducting commissions and offering costs borne by us were approximately 10 8 million As of September 30 2024 we had a remaining capacity to sell up to an additional 139 0 million of our common stock under the 2024 ATM Program
We anticipate issuing equity securities to obtain additional capital in the future However we cannot determine the timing or terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us or at all To the extent that our common stock trades at a market price below our NAV per share we will generally be precluded from raising equity capital through public offerings of our common stock other than pursuant to stockholder and independent director approval or a rights offering to existing common stockholders
On May 13 2021 we through Business Loan entered into a sixth amended and restated credit agreement with KeyBank as administrative agent lead arranger managing agent and lender the Adviser as servicer and certain other lenders party thereto the Credit Facility
As of September 30 2024 our Credit Facility had a total commitment amount of 293 7 million with an accordion feature that permits us to increase the size of the facility to 350 0 million The Credit Facility has a revolving period end date of October 31 2025 and a final maturity date of October 31 2027 at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date The interest rate margin is 3 00 during the revolving period and 3 50 thereafter in each case plus a 10 basis point SOFR credit spread adjustment
Interest is payable monthly during the term of our Credit Facility Available borrowings are subject to various constraints imposed under our Credit Facility based on the aggregate loan balance pledged by Business Loan which varies as loans are added and repaid regardless of whether such repayments are prepayments or made as contractually required Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank and with The Bank of New York Mellon Trust Company N A as custodian KeyBank which also serves as the trustee of the account generally remits the collected funds to us once a month
Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity prohibit certain significant corporate transactions such as mergers consolidations liquidations or dissolutions and restrict material changes to our credit and collection policies without the lenders consents Our Credit Facility generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855 a of the Code Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility including restrictions on geographic concentrations sector concentrations loan size payment frequency and status average life portfolio company leverage and lien property Our Credit Facility further requires Business Loan to comply with other financial and operational covenants which obligate Business Loan to among other things maintain certain financial ratios including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base
Additionally we are required to maintain i a minimum net worth defined in our Credit Facility to include any outstanding mandatorily redeemable preferred stock of 325 0 million plus 50 0 of all equity and subordinated debt raised after May 13 2021 less 50 of any equity and subordinated debt retired or redeemed after May 13 2021 which equates to 418 8 million as of September 30 2024 ii asset coverage with respect to senior securities representing indebtedness of at least 150 or such percentage as may be set forth in Section 18 of the 1940 Act as modified by Section 61 of the 1940 Act and iii our status as a BDC under the 1940 Act and as a RIC under the Code
As of September 30 2024 and as defined in our Credit Facility we had a net worth of 723 9 million asset coverage on our senior securities representing indebtedness of 243 6 and an active status as a BDC and RIC In addition as of September 30 2024 we had 33 obligors in our Credit Facility s borrowing base and we were in compliance with all of our Credit Facility covenants Refer to Note 5
In August 2023 we completed an offering of 57 0 million aggregate principal amount of 7 75 Notes due 2028 the 2028 Notes for net proceeds of approximately 55 1 million after deducting underwriting discounts commissions and offering expenses borne by us The 2028 Notes are traded under the ticker symbol GLADZ on the Nasdaq Global Select Market The 2028 Notes will mature on September 1 2028 and may be redeemed in whole or in part at any time or from time to time at our option on or after September 1 2025
In November 2021 we completed a private placement of 50 0 million aggregate principal amount of 3 75 Notes due 2027 the 2027 Notes for net proceeds of approximately 48 5 million after deducting initial purchasers costs commissions and offering expenses borne by us The 2027 Notes will mature on May 1 2027 and may be redeemed in whole or in part at any time or from time to time at the Company s option prior to maturity at par plus a make whole premium if applicable
In April 2022 pursuant to the registration rights agreement we entered into in connection with the 2027 Notes we conducted an exchange offer through which we offered to exchange all of our then outstanding 2027 Notes the Restricted Notes that were issued on November 4 2021 for an equal aggregate principal amount of our new 3 75 Notes due 2027 the Exchange Notes that had been registered with the SEC under the Securities Act The terms of the Exchange Notes
are identical to those of the Restricted Notes except that the transfer restrictions and registration rights relating to the Restricted Notes do not apply to the Exchange Notes and the Exchange Notes do not provide for the payment of additional interest in the event of a registration default
In December 2020 we completed an offering of 100 0 million aggregate principal amount of 5 125 Notes due 2026 the 2026 Notes for net proceeds of approximately 97 7 million after deducting underwriting discounts commissions and offering expenses borne by us In March 2021 we completed an offering of an additional 50 0 million aggregate principal amount of the 2026 Notes for net proceeds of approximately 50 6 million after adding premiums and deducting underwriting costs commissions and offering expenses borne by us The 2026 Notes will mature on January 31 2026 and may be redeemed in whole or in part at any time or from time to time at the Company s option prior to maturity at par plus a make whole premium if applicable The 2026 Notes bear interest at a rate of 5 125 per year Interest is payable semi annually on January 31 and July 31 of each year which equates to approximately 7 7 million per year
In October 2019 we completed an offering of 38 8 million aggregate principal amount of 5 375 Notes due 2024 the 2024 Notes inclusive of the overallotment option exercised by the underwriters for net proceeds of approximately 37 5 million after deducting underwriting discounts commissions and offering expenses borne by us On November 1 2021 we voluntarily redeemed the 2024 Notes with an aggregate principal amount outstanding of 38 8 million The 2024 Notes would have otherwise matured on November 1 2024
The indenture relating to the 2028 Notes the 2027 Notes and the 2026 Notes contains certain covenants including i an inability to incur additional debt or issue additional debt or preferred securities unless the Company s asset coverage meets the threshold specified in the 1940 Act after such borrowing ii an inability to declare any dividend or distribution except a dividend payable in our stock on a class of our capital stock or to purchase shares of our capital stock unless the Company s asset coverage meets the threshold specified in the 1940 Act at the time of and giving effect to such declaration or purchase and iii if at any time we are not subject to the reporting requirements of the Exchange Act we will provide the holders of the 2028 Notes the 2027 Notes and the 2026 Notes as applicable and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements
We generally recognize success fee income when the payment has been received As of September 30 2024 and 2023 we had off balance sheet success fee receivables on our accruing debt investments of 5 8 million and 4 0 million or approximately 0 26 per common share and 0 18 per common share respectively that would be owed to us generally upon a change of control of the portfolio companies Consistent with GAAP we generally have not recognized our success fee receivables and related income in our Consolidated Financial Statements until earned Due to the contingent nature of our success fees there are no guarantees that we will be able to collect all of these success fees or know the timing of such collections
We have lines of credit delayed draw term loans and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn Since these commitments have expiration dates and we expect many will never be fully drawn the total commitment amounts do not necessarily represent future cash requirements We estimate the fair value of the combined unused lines of credit the unused delayed draw term loans and the uncalled capital commitment as of September 30 2024 and 2023 to be immaterial
Excludes our unused line of credit commitments unused delayed draw term loans and uncalled capital commitments to our portfolio companies in an aggregate amount of 57 6 million at cost as of September 30 2024
Includes estimated interest payments on our Credit Facility 2028 Notes 2027 Notes and 2026 Notes The amount of interest expense calculated for purposes of this table was based upon rates and balances as of September 30 2024
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities including disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported Actual results could differ materially from those estimates under different assumptions or conditions We have identified our investment valuation policy which has been approved by our Board of Directors as our most critical accounting policy which is described in Note 2
included elsewhere in this Annual Report for additional information regarding fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification Topic 820
The Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and in some instances used as inputs in our valuation techniques Generally we through the Adviser participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements Using these statements or comparable information and board discussions the Adviser calculates and evaluates certain credit statistics
The Adviser risk rates all of our investments in debt securities The Adviser does not risk rate our equity securities For syndicated loans that have been rated by an SEC registered Nationally Recognized Statistical Rating Organization NRSRO the Adviser generally uses the average of two corporate level NRSRO s risk ratings for such security For all other debt securities the Adviser uses a proprietary risk rating system While the Adviser seeks to mirror the NRSRO systems we cannot provide any assurance that the Adviser s risk rating system will provide the same risk rating as an NRSRO would for these securities The Adviser s risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default The Adviser s risk rating system uses a scale of 0 to 10 with 10 being the lowest probability of default It is the Adviser s understanding that most debt securities of medium sized companies do not exceed the grade of BBB on an NRSRO scale so there would be no debt securities in the middle market that would meet the definition of AAA AA or A Therefore the Adviser s scale begins with the designation 10 as the best risk rating which may be equivalent to a BBB from an NRSRO however no assurance can be given that a 10 on the Adviser s scale is equal to a BBB or Baa2 on an NRSRO scale The Adviser s risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold
The following table reflects risk ratings for all proprietary loans in our portfolio as of September 30 2024 and 2023 representing approximately 99 5 and 98 2 respectively of the principal balance of all debt investments in our portfolio at the end of each period
The following table reflects the risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO as of September 30 2024 and 2023 representing approximately 0 5 and 1 3 respectively of the principal balance of all debt investments in our portfolio at the end of each period
The following table reflects the risk ratings for all syndicated loans in our portfolio that were not rated by an NRSRO as of September 30 2023 representing approximately 0 5 of the principal balance of all debt investments in our portfolio at the end of the period
We intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for federal income tax purposes and also to limit certain federal excise taxes imposed on RICs Refer to Note 10
Market risk includes risks that arise from changes in interest rates foreign currency exchange rates commodity prices equity prices and other market changes that affect market sensitive instruments The prices of securities held by us may decline in response to certain events including those directly involving the companies whose securities are owned by us conditions affecting the general economy overall market changes including due to inflation local regional or global political social or economic instability and interest rate fluctuations
The primary risk we believe we are exposed to is interest rate risk Because we borrow money to make investments our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we
invest those funds As a result there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income We use a combination of debt and equity capital to finance our investing activities We may use interest rate risk management techniques from time to time to limit our exposure to interest rate fluctuations Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act
All of our variable rate debt investments have rates generally associated with the current SOFR rate As of September 30 2024 our portfolio of debt investments on a principal basis consisted of the following
To illustrate the potential impact of changes in market interest rates on our net increase in net assets resulting from operations we have performed the following hypothetical analysis which assumes that our balance sheet and contractual interest rates remain constant as of September 30 2024 and no further actions are taken to alter our existing interest rate sensitivity
Although management believes that this analysis is indicative of our existing interest rate sensitivity it does not adjust for potential changes in credit quality size and composition of our loan portfolio on the balance sheet and other business developments that could affect net increase in net assets resulting from operations or otherwise impact our results or operations Accordingly actual results could differ significantly from those in the hypothetical analysis in the table above
We may also experience risk associated with investing in securities of companies with foreign operations Some of our portfolio companies have operations located outside the U S These risks include fluctuations in foreign currency exchange rates imposition of foreign taxes changes in exportation regulations and political and social instability
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Securities Exchange Act of 1934 Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets 2 provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of our assets that could have a material effect on our financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Therefore even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation
Under the supervision and with the participation of our management we assessed the effectiveness of our internal control over financial reporting as of September 30 2024 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission COSO in
We have audited the accompanying consolidated statements of assets and liabilities including the consolidated schedules of investments of Gladstone Capital Corporation and its subsidiaries the Company as of September 30 2024 and 2023 and the related consolidated statements of operations of changes in net assets and of cash flows for each of the three years in the period ended September 30 2024 including the related notes and financial statement schedule listed in the index appearing under Item 15 a 2 collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of September 30 2024 and 2023 and the results of its operations changes in its net assets and its cash flows for each of the three years in the period ended September 30 2024 in conformity with accounting principles generally accepted in the United States of America
We have also previously audited in accordance with the standards of the Public Company Accounting Oversight Board United States the consolidated statements of assets and liabilities including the consolidated schedules of investments of the Company as of September 30 2022 2021 2020 2019 2018 2017 2016 and 2015 and the related consolidated statements of operations changes in net assets and cash flows for the years ended September 30 2021 2020 2019 2018 2017 2016 and 2015 none of which are presented herein and we expressed unqualified opinions on those consolidated financial statements In our opinion the information set forth in the Senior Securities table of the Company for each of the ten years in the period ended September 30 2024 appearing on pages 53 54 under Item 5 of this Form 10 K is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s consolidated financial statements based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud The Company is not required to have nor were we engaged to perform an audit of its internal control over financial reporting As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting Accordingly we express no such opinion
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our procedures included confirmation of securities owned as of September 30 2024 and 2023 by correspondence with the custodian agent banks and portfolio company investees when replies were not received we performed other auditing procedures We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that i relates to accounts or disclosures that are material to the consolidated financial statements and ii involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described in Notes 2 and 3 to the consolidated financial statements the Company held 796 22 million of total level 3 investments at fair value as of September 30 2024 Management uses significant unobservable inputs in estimating the fair value of its level 3 investments including i with respect to investments valued using a total enterprise value portfolio company earnings before interest taxes depreciation and amortization EBITDA and EBITDA multiples revenue and revenue multiples or a discounted cash flow analysis using estimated risk adjusted discount rates ii with respect to investments valued using a yield analysis a modified discount rate and iii with respect to investments valued using market quotations for which a limited market exists the lower indicative bid price in the bid to ask price range The principal considerations for our determination that performing procedures relating to the valuation of level 3 investments is a critical audit matter are i the significant judgment by management to determine the fair value of these level 3 investments using a total enterprise value or yield analysis due to the use of significant unobservable inputs which in turn led to a high degree of auditor judgment subjectivity and effort in performing procedures and evaluating audit evidence related to the EBITDA and EBITDA multiples and revenue and revenue multiples used in a total enterprise value and the modified discount rate used in a yield analysis and ii the audit effort involved the use of professionals with specialized skill and knowledge
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included among others either i testing management s process for determining the fair value estimate including testing the completeness and accuracy of data provided by management evaluating the appropriateness of management s valuation methods and evaluating the reasonableness of the EBITDA and EBITDA multiples and revenue and revenue multiples used in a total enterprise value and the modified discount rate used in a yield analysis by considering current and past performance of the investment consistency of the unobservable inputs with external market data and evidence obtained in other areas of the audit and management s historical forecasting accuracy or ii the involvement of professionals with specialized skill and knowledge to assist in developing an independent fair value estimate for certain level 3 investments and comparison of management s estimate to the independently developed estimate Developing an independent fair value estimate involved testing the completeness and accuracy of data provided by management and independently developing significant unobservable inputs related to the modified discount rate for those investments valued using a yield analysis and the EBITDA and EBITDA multiples or revenue and revenue multiples for those investments valued using a total enterprise value
Issued and outstanding shares of common stock and net asset value per share have been adjusted on a retroactive basis to reflect the 1 for 2 reverse stock split the Reverse Stock Split effected on April 4 2024 Refer to Note 2
In October 2022 our investment in Targus Cayman HoldCo Ltd was sold for net proceeds of approximately 8 0 million resulting in a realized gain of approximately 5 9 million As part of the proceeds we received an interest in B Riley Financial Inc 6 75 senior notes in the amount of 2 4 million
Certain of the securities listed in this schedule are issued by affiliate s of the indicated portfolio company The majority of the securities listed totaling 714 4 million at fair value are pledged as collateral under our revolving line of credit as described further in Note 5
Under the Investment Company Act of 1940 as amended the 1940 Act we may not acquire any non qualifying assets unless at the time such acquisition is made qualifying assets represent at least 70 of our total assets As of September 30 2024 our investment in Leeds Novamark Capital I L P Leeds is considered a non qualifying asset under Section 55 of the 1940 Act Such non qualifying assets represent less than 0 1 of total investments at fair value as of September 30 2024
Unless indicated otherwise all cash interest rates are indexed to one month Secured Overnight Financing Rate SOFR or S which was 4 85 as of September 30 2024 If applicable paid in kind PIK interest rates are noted separately from the cash interest rate Certain securities are subject to an interest rate floor The cash interest rate is the greater of the floor or SOFR plus a spread Due dates represent the contractual maturity date
Where applicable aggregates all shares of a class of stock owned without regard to specific series owned within such class some series of which may or may not be voting shares or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase
There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity which must occur no later than May 9 2024 or two years after all outstanding leverage has matured
Non Control Non Affiliate investments as defined by the 1940 Act are those that are neither Control nor Affiliate investments and in which we own less than 5 0 of the issued and outstanding voting securities
Control investments as defined by the 1940 Act are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company which may include owning with the power to vote more than 25 0 of the issued and outstanding voting securities
Unless indicated otherwise all of our investments are valued using Level 3 inputs within the Financial Accounting Standards Board FASB Accounting Standard Codification ASC Topic 820 Fair Value Measurements and Disclosures ASC 820 fair value hierarchy Refer to Note 3
Cumulative gross unrealized depreciation for federal income tax purposes is 66 1 million cumulative gross unrealized appreciation for federal income tax purposes is 85 8 million Cumulative net unrealized appreciation is 19 7 million based on a tax cost of 776 5 million
Certain of the securities listed in this schedule are issued by affiliate s of the indicated portfolio company The majority of the securities listed totaling 628 3 million at fair value are pledged as collateral under our revolving line of credit as described further in Note 5
Under the Investment Company Act of 1940 as amended the 1940 Act we may not acquire any non qualifying assets unless at the time such acquisition is made qualifying assets represent at least 70 of our total assets As of September 30 2023 our investments in Leeds Novamark Capital I L P Leeds and Funko Acquisition Holdings LLC Funko are considered non qualifying assets under Section 55 of the 1940 Act Such non qualifying assets represent less than 0 1 of total investments at fair value as of September 30 2023
Unless indicated otherwise all cash interest rates are indexed to one month Secured Overnight Financing Rate SOFR or S which was 5 32 as of September 30 2023 If applicable paid in kind PIK interest rates are noted separately from the cash interest rate Certain securities are subject to an interest rate floor The cash interest rate is the greater of the floor or SOFR plus a spread Due dates represent the contractual maturity date
The Company has entered into an agreement that entitles it to the last out tranche of the first lien secured loans whereby the first out tranche will receive priority as to the last out tranche with respect to payments of principal interest and any other amounts due thereunder
Where applicable aggregates all shares of a class of stock owned without regard to specific series owned within such class some series of which may or may not be voting shares or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase
There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity which must occur no later than May 9 2024 or two years after all outstanding leverage has matured
Non Control Non Affiliate investments as defined by the 1940 Act are those that are neither Control nor Affiliate investments and in which we own less than 5 0 of the issued and outstanding voting securities
Control investments as defined by the 1940 Act are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company which may include owning with the power to vote more than 25 0 of the issued and outstanding voting securities
Unless indicated otherwise all of our investments are valued using Level 3 inputs within the Financial Accounting Standards Board FASB Accounting Standard Codification ASC Topic 820 Fair Value Measurements and Disclosures ASC 820 fair value hierarchy Refer to Note 3
Our investment in Funko was valued using Level 2 inputs within ASC 820 of the fair value hierarchy Our common units in Funko are convertible to class A common stock in Funko Inc upon meeting certain requirements Fair value was based on the closing market price of
Cumulative gross unrealized depreciation for federal income tax purposes is 56 9 million cumulative gross unrealized appreciation for federal income tax purposes is 33 7 million Cumulative net unrealized depreciation is 23 2 million based on a tax cost of 728 0 million
Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30 2001 and completed an initial public offering on August 24 2001 The terms the Company we our and us all refer to Gladstone Capital Corporation and its consolidated subsidiaries We are an externally managed closed end non diversified management investment company that has elected to be treated as a business development company BDC under the Investment Company Act of 1940 as amended the 1940 Act and are applying the guidance of the Financial Accounting Standards Board FASB Accounting Standards Codification ASC Topic 946 Financial Services Investment Companies ASC 946 In addition we have elected to be treated for U S federal income tax purposes as a regulated investment company RIC under the Internal Revenue Code of 1986 as amended the Code We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States U S Our investment objectives are to 1 achieve and grow current income by investing in debt securities of established lower middle market companies which we generally define as companies with annual earnings before interest taxes depreciation and amortization EBITDA of 3 million to 25 million in the U S that we believe will provide stable earnings and cash flow to pay expenses make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and 2 provide our stockholders with long term capital appreciation in the value of our assets by investing in equity securities in connection with our debt investments that we believe can grow over time to permit us to sell our equity investments for capital gains
Gladstone Business Loan LLC Business Loan a wholly owned subsidiary of ours was established on February 3 2003 for the sole purpose of holding certain investments pledged as collateral under our line of credit The financial statements of Business Loan are consolidated with those of Gladstone Capital Corporation
We are externally managed by Gladstone Management Corporation the Adviser an affiliate of ours and an SEC registered investment adviser pursuant to an investment advisory and management agreement as amended and or restated from time to time the Advisory Agreement Administrative services are provided by Gladstone Administration LLC the Administrator an affiliate of ours and the Adviser pursuant to an administration agreement the Administration Agreement Refer to Note 4
In accordance with Article 6 of Regulation S X we do not consolidate portfolio company investments Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies codified in ASC 946 we are precluded from consolidating any entity other than another investment company except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries
The outstanding shares and per share amounts of the Company s common stock in this Annual Report have been retroactively adjusted for the 1 for 2 reverse stock split the Reverse Stock Split effected on April 4 2024 effective April 5 2024 for trading purposes for all activity prior to that date unless stated otherwise
Control investments are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company which may include owning with the power to vote more than 25 0 of the issued and outstanding voting securities of such portfolio company
We consider all short term highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents Cash is carried at cost which approximates fair value We place our cash with financial institutions and at times cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit We seek to mitigate this concentration of credit risk by depositing funds with major financial institutions
We record our investments at fair value in accordance with the FASB ASC Topic 820 Fair Value Measurements and Disclosures ASC 820 and the 1940 Act Investment transactions are recorded on the trade date Realized gains or losses are generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized and include investments charged off during the period net of recoveries Unrealized appreciation or depreciation primarily reflects the change in investment fair values including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized
Our board of directors the Board of Directors has approved investment valuation policies and procedures pursuant to Rule 2a 5 under the 1940 Act the Policy and in July 2022 designated the Adviser to serve as the Board of Directors valuation designee Valuation Designee under the 1940 Act
In accordance with the 1940 Act our Board of Directors has the ultimate responsibility for reviewing the good faith fair value determination of our investments for which market quotations are not readily available based on our Policy and for overseeing the Valuation Designee Such review and oversight includes receiving written fair value determinations and supporting materials provided by the Valuation Designee in coordination with the Administrator and with the oversight by the Company s chief valuation officer collectively the Valuation Team The Valuation Committee of our Board of Directors comprised entirely of independent directors meets to review the valuation determinations and supporting materials discusses the information provided by the Valuation Team determines whether the Valuation Team has followed the Policy and reviews other facts and circumstances including current valuation risks conflicts of interest material valuation matters appropriateness of valuation methodologies back testing results price challenges overrides and ongoing monitoring and oversight of pricing services After the Valuation Committee concludes its meeting it and the chief valuation officer representing the Valuation Designee present the Valuation Committee s findings on the Valuation Designee s determinations to the entire Board of Directors so that the full Board of Directors may review the Valuation Designee s determined fair values of such investments in accordance with the Policy
There is no single standard for determining fair value especially for privately held businesses as fair value depends upon the specific facts and circumstances of each individual investment In determining the fair value of our investments the Valuation Team led by the chief valuation officer uses the Policy and each quarter the Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently
A third party valuation firm generally provides estimates of fair value on our debt investments The Valuation Team generally assigns the third party valuation firm s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company The Valuation Team corroborates this third party valuation firm s estimates of fair value using one or more of the valuation techniques discussed below The Valuation Team s estimate of value on a specific debt investment may significantly differ from the third party valuation firm s When this occurs our Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and the Valuation Committee reviews whether the Valuation Designee s determined fair value is reasonable in light of the Policy and other relevant facts and circumstances
We may engage other independent valuation firms to provide earnings multiple ranges as well as other information and evaluate such information for incorporation into the total enterprise value TEV of certain of our investments Generally at least once per year we engage an independent valuation firm to value or review the valuation of each of our significant equity investments which includes providing the information noted above The Valuation Team evaluates such information for incorporation into our TEV including review of all inputs provided by the independent valuation firm The Valuation Team then presents a determination to our Valuation Committee as to the fair value Our Valuation Committee reviews the determined fair value and whether it is reasonable in light of the Policy and other relevant facts and circumstances
In determining the fair value using a TEV the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors the portfolio company s ability to make payments and other specific portfolio company attributes the earnings of the portfolio company the trailing or projected twelve month revenue or EBITDA EBITDA multiples obtained from our indexing methodology whereby the original transaction EBITDA multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA multiples from recent sales to third parties of similar securities in similar industries a comparison to publicly traded securities in similar industries and other pertinent factors The Valuation Team generally reviews industry statistics and may use outside experts when gathering this information Once the TEV is determined for a portfolio company the Valuation Team generally allocates the TEV to the portfolio company s securities based on the facts and circumstances of the securities which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure Generally the Valuation Team uses TEV to value our equity investments and in the circumstances where we have the ability to effectuate a sale of a portfolio company our debt investments When there is equity
TEV is primarily calculated using EBITDA and EBITDA multiples however TEV may also be calculated using revenue and revenue multiples or a discounted cash flow DCF analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk adjusted discount rates which incorporate adjustments for nonperformance and liquidity risks
The Valuation Team generally determines the fair value of our debt investments for which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use including estimated remaining life current market yield current leverage and interest rate spreads This technique develops a modified discount rate that incorporates risk premiums including increased probability of default increased loss upon default and increased liquidity risk Generally the Valuation Team uses the yield analysis to corroborate both estimates of value provided by our third party valuation firm and market quotes
For our investments for which a limited market exists we generally base fair value on readily available and reliable market quotations which are corroborated by the Valuation Team generally by using the yield analysis described above In addition the Valuation Team assesses trading activity for similar investments and evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable Typically the Valuation Team uses the lower indicative bid price IBP in the bid to ask price range obtained from the respective originating syndication agent s trading desk on or near the valuation date The Valuation Team may take further steps to consider additional information to validate that price in accordance with the Policy For securities that are publicly traded the Valuation Team generally bases fair value on the closing market price of the securities we hold as of the reporting date For restricted securities that are publicly traded the Valuation Team generally bases fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction which includes consideration of the nature and term to expiration of the restriction and the lack of marketability of the security
For equity investments in other funds for which we cannot effectuate a sale of the fund the Valuation Team generally determines the fair value of our invested capital at the net asset value NAV provided by the fund Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par value The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity
In addition to the valuation techniques listed above the Valuation Team may also consider other factors when determining the fair value of our investments including the nature and realizable value of the collateral including external parties guaranties any relevant offers or letters of intent to acquire the portfolio company timing of expected loan repayments and the markets in which the portfolio company operates
Fair value measurements of our investments may involve subjective judgments and estimates and due to the uncertainty inherent in valuing these securities the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed Our NAV could be materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities Additionally changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned Further such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities If we were required to liquidate a portfolio investment in a forced or liquidation sale we could realize significantly less than the value at which it is recorded
Interest income including the amortization of premiums acquisition costs and amendment fees the accretion of original issue discounts OID and paid in kind PIK interest is recorded on the accrual basis to the extent that such amounts are expected to be collected Generally when a loan becomes 90 days or more past due or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations we will place the loan on non accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent to pay contractual amounts due However we remain contractually entitled to this interest Interest payments received on non accrual loans may be recognized as income or applied to the cost basis depending upon management s judgment Generally non accrual loans are restored to accrual status when past due principal and interest are paid and in management s judgment are likely to remain current or due to a restructuring such that the interest income is deemed to be collectible As of September 30 2024 our loans to B T Group Acquisition Inc Edge Adhesives Holdings Inc and WB Xcel Holdings LLC were on non accrual status with a cost basis of 28 3 million or 4 1 of the cost basis of all debt investments in our portfolio and a fair value of 12 8 million or 1 9 of the fair value of all debt investments in our portfolio As of September 30 2023 our loan to Edge Adhesives Holdings Inc was on non accrual status with a cost basis of 6 1 million or 0 9 of the cost basis of all debt investments in our portfolio and a fair value of 2 9 million or 0 5 of the fair value of all debt investments in our portfolio
We currently hold and we expect to hold in the future some loans in our portfolio that contain OID or PIK provisions We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation PIK interest computed at the contractual rate specified in a loan agreement is added to the principal balance of a loan and recorded as income over the life of the obligation Thus the actual collection of PIK income may be deferred until the time of debt principal repayment To maintain our ability to be taxed as a RIC we may need to pay out both OID and PIK non cash income amounts in the form of distributions even though we have not yet collected the cash on either
As of September 30 2024 and 2023 we held two and four OID loans respectively We recorded OID income of 0 4 million 0 2 million and 0 5 million during the years ended September 30 2024 2023 and 2022 respectively The unamortized balance of OID investments as of September 30 2024 and 2023 totaled 0 6 million and 0 7 million respectively As of each of September 30 2024 and 2023 we had eight investments which had a PIK interest component We recorded PIK interest income of 5 7 million 3 6 million and 4 2 million during the years ended September 30 2024 2023 and 2022 respectively We collected 0 2 million 1 1 million and 2 4 million of PIK interest in cash during the years ended September 30 2024 2023 and 2022 respectively
We record success fees as income when earned which often occurs upon receipt of cash Success fees are generally contractually due upon a change of control in a portfolio company typically resulting from an exit or sale and are non recurring
We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration
Deferred financing and offering costs consist of costs incurred to obtain financing including lender fees and legal fees Certain costs associated with our Credit Facility as defined below are deferred and amortized using the straight line method which approximates the effective interest method over the term of our Credit Facility s revolving period Costs associated with the issuance of our notes payable are presented as discounts to the principal amount of the notes payable and are amortized using the straight line method which approximates the effective interest method over the term of the notes Refer to Note 5
We are party to the Advisory Agreement with the Adviser which is indirectly owned and controlled by our chairman and chief executive officer In accordance with the Advisory Agreement we pay the Adviser fees as compensation for its services consisting of a base management fee and an incentive fee Additionally we pay the Adviser a loan servicing fee as compensation for its services as servicer under the terms of our revolving line of credit with KeyBank National Association KeyBank as administrative agent lead arranger and lender as amend and or restated from time to time our Credit Facility These fees are accrued at the end of the quarter when the services are performed and generally paid the following quarter
We are also party to the Administration Agreement with the Administrator which is indirectly owned and controlled by our chairman and chief executive officer whereby we pay separately for administrative services Refer to Note 4
We intend to continue to qualify for treatment as a RIC under subchapter M of the Code which generally allows us to avoid paying corporate income taxes on any income or gains that we distribute to our stockholders We
requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more likely than not of being sustained by the applicable tax authorities Tax positions not deemed to satisfy the more likely than not threshold would be recorded as a tax benefit or expense in the current fiscal year We have evaluated the implications of ASC 740 for all open tax years and in all major tax jurisdictions and determined that there is no material impact on our accompanying
Distributions to stockholders are recorded on the ex dividend date We are required to pay out at least 90 0 of our Investment Company Taxable Income as defined below which is generally our net ordinary income plus the excess of our net short term capital gains over net long term capital losses for each taxable year as a distribution to our stockholders in order to maintain our ability to be taxed as a RIC under Subchapter M of the Code It is our policy to pay out as a distribution up to 100 0 of those amounts The amount to be paid is determined by our Board of Directors each quarter and is based on the annual earnings estimated by our management Based on that estimate a distribution is declared each quarter and is paid out monthly over the course of the respective quarter Refer to Note 9
Our transfer agent Computershare Inc offers a dividend reinvestment plan for our common stockholders This is an opt in dividend reinvestment plan meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock Common stockholders who do not make such election will receive their distributions in cash Common stockholders who receive distributions in the form of stock will be subject to the same federal state and local tax consequences as stockholders who elect to receive their distributions in cash As plan agent Computershare Inc purchases shares in the open market in connection with the obligations under the plan
Measurement of Equity Securities Subject to Contractual Sale Restrictions ASU 2022 03 which clarifies the measurement and presentation of fair value for equity securities subject to contractual restrictions that prohibit the sale of the equity security ASU 2022 03 is effective for annual reporting periods beginning after December 15 2023 including interim periods within those fiscal years with early adoption permitted Our early adoption of ASU 2022 03 did not have a material impact on our financial position results of operations or cash flows
In accordance with ASC 820 the fair value of each investment is determined to be the price that would be received for an investment in a current sale which assumes an orderly transaction between willing market participants on the measurement date This fair value definition focuses on exit price in the principal or most advantageous market and prioritizes within a measurement of fair value the use of market based inputs over entity specific inputs ASC 820 also establishes the following three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date
inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets and inputs that are observable for the financial instrument either directly or indirectly for substantially the full term of the financial instrument Level 2 inputs are those in markets for which there are few transactions the prices are not current little public information exists or instances where prices vary substantially over time or among brokered market makers and
inputs to the valuation methodology are unobservable and significant to the fair value measurement Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team s assumptions based upon the best available information
When a determination is made to classify our investments within Level 3 of the valuation hierarchy such determination is based upon the significance of the unobservable factors to the overall fair value measurement However Level 3 financial instruments typically include in addition to the unobservable or Level 3 inputs observable inputs or components that are actively quoted and can be validated to external sources The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement Investments in funds measured using NAV as a practical expedient are not categorized within the fair value hierarchy
As of September 30 2024 all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy except for our investment in Leeds Novamark Capital I L P Leeds which was valued using NAV as a practical expedient As of September 30 2023 all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy except for our investment in Funko Acquisition Holdings LLC Funko which was valued using Level 2 inputs and our investment in Leeds which was valued using NAV as a practical expedient
We transfer investments in and out of Level 1 2 and 3 of the valuation hierarchy as of the beginning balance sheet date based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period During the years ended September 30 2024 and 2023 there were no investments transferred into or out of Levels 1 2 or 3 of the valuation hierarchy
Fair value was determined based on the closing market price of shares of Funko Inc our units in Funko can be converted into common shares of Funko Inc at the reporting date less a discount for lack of marketability as our investment was subject to certain restrictions
The following table presents our portfolio investments valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as of September 30 2024 and 2023 by caption on our accompanying
Excludes our investments in Leeds and Funko with fair values of 0 2 million and 22 thousand respectively as of September 30 2023 Leeds was valued using NAV as a practical expedient and Funko was valued using Level 2 inputs
In accordance with ASC 820 the following table provides quantitative information about our Level 3 fair value measurements of our investments as of September 30 2024 and 2023 The table below is not intended to be all inclusive but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity related calculations for the particular input
Fair value as of September 30 2024 excludes our investment in Leeds with fair value of 38 thousand Fair value as of September 30 2023 excludes our investments in Leeds and Funko with fair values of 0 2 million and 22 thousand respectively Leeds was valued using NAV as a practical expedient as of both September 30 2024 and 2023 and Funko was valued using Level 2 inputs as of September 30 2023
Fair value measurements can be sensitive to changes in one or more of the valuation inputs Changes in discount rates EBITDA or EBITDA multiples or revenue or revenue multiples each in isolation may change the fair value of certain of our investments Generally an increase decrease in market yields discount rates or a decrease increase in EBITDA or EBITDA multiples or revenue or revenue multiples may result in a decrease increase respectively in the fair value of certain of our investments
The following tables provide the changes in fair value broken out by security type during the years ended September 30 2024 and 2023 for all investments for which we determine fair value using unobservable Level 3 inputs
Includes increases in the cost basis of investments resulting from new portfolio investments accretion of discounts PIK and other non cash disbursements to portfolio companies as well as decreases in the cost basis of investments resulting from principal repayments or sales the amortization of premiums and acquisition costs and other cost basis adjustments
As of September 30 2024 and 2023 we held 47 and 47 proprietary investments with an aggregate fair value of 792 9 million and 695 1 million or 99 6 and 98 6 of the total portfolio at fair value respectively The following significant proprietary investment transactions occurred during the year ended September 30 2024
In November 2023 we invested 11 0 million in Quality Environmental Midco Inc Quality through secured first lien debt and preferred equity We also extended Quality a 2 0 million secured first lien line of credit commitment which was unfunded at close In February 2024 we invested an additional 5 0 million in Quality through new secured first lien debt and preferred equity and increased the secured first lien line of credit commitment to 3 0 million
In November 2023 we extended Cafe Zupas an existing portfolio company a new 10 5 million secured first lien delayed draw term loan commitment which was unfunded at close We funded 1 4 million on the delayed draw term loan in December 2023 In addition our existing term loan was paid down by 7 3 million
In December 2023 we invested an additional 7 0 million in Salt Straw LLC an existing portfolio company through preferred equity We also increased our delayed draw term loan commitment to Salt Straw LLC by 2 9 million
In March 2024 we received net cash proceeds of 8 4 million from the sale of Trowbridge Chicago LLC Trowbridge an existing portfolio company In conjunction with the sale we received 0 2 million in prepayment fees and recorded a net realized gain of 0 2 million on our equity In September 2024 our remaining debt investment in Trowbridge paid off at par for net cash proceeds of 0 3 million
In April 2024 we invested 7 3 million in Total Access Elevator LLC Total Access through secured first lien debt and common equity We also extended Total Access a 3 0 million line of credit commitment and a 2 5 million delayed draw term loan commitment both of which were unfunded at close
In April 2024 our debt investment in Giving Home Healthcare LLC Giving Home paid off at par for net cash proceeds of 29 7 million including a 0 9 million prepayment penalty We also exercised our warrant position for common equity in Giving Home which we continue to hold and received a 2 5 million distribution associated with this investment
In July 2024 we invested an additional 6 5 million in Turn Key Health Clinics LLC Turn Key an existing portfolio company through secured first lien debt We also extended Turn Key an additional 2 0 million line of credit commitment which was funded in July 2024
In September 2024 we invested an additional 13 5 million in Arc Drilling Holdings LLC an existing portfolio company through secured first lien debt and common equity We also extended Arc Drilling an additional 4 0 million line of credit commitment and funded 0 9 million under the line of credit at close
As of September 30 2024 and 2023 we held two and four syndicated investments with an aggregate fair value of 3 3 million and 9 7 million or 0 4 and 1 4 of the total portfolio at fair value respectively The following significant syndicated investment transactions occurred during the year ended September 30 2024
As of September 30 2024 our investment portfolio consisted of investments in 49 portfolio companies located in 22 states in 13 different industries with an aggregate fair value of 796 3 million The five largest investments at fair value as of September 30 2024 totaled 232 7 million or 29 2 of our total investment portfolio as compared to the five largest investments at fair value as of September 30 2023 totaling 176 9 million or 25 1 of our total investment portfolio As of September 30 2024 and 2023 our average investment by obligor was 15 7 million and 14 2 million at cost respectively
Receivables from portfolio companies represent non recurring costs incurred on behalf of such portfolio companies and are included in other assets on our accompanying Consolidated Statements of Assets and Liabilities We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined based upon management s judgment that the portfolio company is unable to pay its obligations We write off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible As of September 30 2024 and 2023 we had gross receivables from portfolio companies of 1 7 million and 0 8 million respectively The allowance for uncollectible receivables was 75 thousand and 9 thousand as of September 30 2024 and 2023 respectively
We have been externally managed by the Adviser pursuant to the Advisory Agreement since October 1 2004 pursuant to which we pay the Adviser a base management fee and an incentive fee for its services On July 9 2024 our Board of Directors including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party unanimously approved the renewal of the Advisory Agreement through August 31 2025
We also pay the Adviser a loan servicing fee for its role of servicer pursuant to our Credit Facility The entire loan servicing fee paid to the Adviser by Business Loan is non contractually unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser since Business Loan is a consolidated subsidiary of ours and overall the base management fee including any loan servicing fee cannot exceed 1 75 of total assets including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings during any given fiscal year pursuant to the Advisory Agreement
Two of our executive officers David Gladstone our chairman and chief executive officer and Terry Lee Brubaker our chief operating officer serve as directors and executive officers of the Adviser which is 100 indirectly owned and controlled by Mr Gladstone Robert Marcotte our president also serves as executive vice president of private equity debt of the Adviser Michael LiCalsi our general counsel and secretary who also serves as the Administrator s president general counsel and secretary is also the executive vice president of administration of our Adviser
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings valued at the end of the two most recently completed quarters within the respective years and adjusted appropriately for any share issuances or repurchases during the period
The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1 75 computed on the basis of the value of our average total assets at the end of the two most recently completed quarters inclusive of the current quarter which are total assets including investments made with proceeds of borrowings less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period
Additionally pursuant to the requirements of the 1940 Act the Adviser makes available significant managerial assistance to our portfolio companies The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance Such services may include i assistance obtaining sourcing or structuring credit facilities long term loans or additional equity from unaffiliated third parties ii negotiating important contractual financial relationships iii consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties and iv taking a primary role in interviewing vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members The Adviser non contractually unconditionally and irrevocably credits 100 of any fees for such services against the base management fee that we would otherwise be required to pay
to the Adviser however pursuant to the terms of the Advisory Agreement a small percentage of certain of such fees totaling 8 thousand 0 and 8 thousand for the years ended September 30 2024 2023 and 2022 respectively was retained by the Adviser in the form of reimbursement at cost for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies
Our Board of Directors accepted a non contractual unconditional and irrevocable credit from the Adviser to reduce the annual base management fee on syndicated loan participations to 0 5 to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations for each of the years ended September 30 2024 and 2023
The Adviser also services the loans held by Business Loan the borrower under the Credit Facility in return for which the Adviser receives a 1 5 annual fee payable monthly based on the aggregate outstanding balance of loans pledged under our Credit Facility As discussed in the notes to the table above we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre payment of the base management fee under the Advisory Agreement Accordingly these loan servicing fees are 100 non contractually unconditionally and irrevocably credited back to us by the Adviser
The incentive fee consists of two parts an income based incentive fee and a capital gains based incentive fee The income based incentive fee rewards the Adviser if our quarterly net investment income before giving effect to any incentive fee exceeds 1 75 2 0 during the period from April 1 2020 through March 31 2023 of our net assets which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually due but not payable during the period at the end of the immediately preceding calendar quarter adjusted appropriately for any share issuances or repurchases during the period the hurdle rate The income based incentive fee with respect to our pre incentive fee net investment income is generally payable quarterly to the Adviser and is computed as follows
100 0 of our pre incentive fee net investment income with respect to that portion of such pre incentive fee net investment income if any that exceeds the hurdle rate but is less than 2 1875 2 4375 during the period from April 1 2020 through March 31 2022 and 2 50 from April 1 2022 through March 31 2023 of our net assets adjusted appropriately for any share issuances or repurchases during the period in any calendar quarter and
20 0 of the amount of our pre incentive fee net investment income if any that exceeds 2 1875 2 4375 during the period from April 1 2020 through March 31 2022 and 2 50 from April 1 2022 through March 31 2023 of our net assets adjusted appropriately for any share issuances or repurchases during the period in any calendar quarter
The second part of the incentive fee is a capital gains based incentive fee that is determined and payable in arrears as of the end of each fiscal year or upon termination of the Advisory Agreement as of the termination date and equals 20 0 of our net realized capital gains as defined herein as of the end of the fiscal year In
determining the capital gains based incentive fee payable to the Adviser we calculate net realized capital gains at the end of each applicable year by subtracting the sum of our cumulative aggregate realized capital losses and our entire portfolio s aggregate unrealized capital depreciation from our cumulative aggregate realized capital gains For this purpose cumulative aggregate realized capital gains if any equals the sum of the differences between the net sales price of each investment when sold and the original cost of such investment since inception Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment when sold is less than the original cost of such investment since inception The entire portfolio s aggregate unrealized capital depreciation if any equals the sum of the difference between the valuation of each investment as of the applicable calculation date and the original cost of such investment At the end of the applicable fiscal year the amount of capital gains that serves as the basis for our calculation of the capital gains based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses less the entire portfolio s aggregate unrealized capital depreciation if any If this number is positive at the end of such fiscal year then the capital gains based incentive fee for such year equals 20 0 of such amount less the aggregate amount of any capital gains based incentive fees paid in respect of our portfolio in all prior years No capital gains based incentive fee has been recorded or paid since our inception through September 30 2024 as cumulative unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses
In accordance with GAAP a capital gains based incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation and depreciation If such amount is positive at the end of a period then GAAP requires us to record a capital gains based incentive fee equal to 20 0 of such amount less the aggregate amount of actual capital gains based incentive fees paid in all prior years If such amount is negative then there is no accrual for such period GAAP requires that the capital gains based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation as a capital gains based incentive fee would be
payable if such unrealized capital appreciation were realized There can be no assurance that such unrealized capital appreciation will be realized in the future No GAAP accrual for a capital gains based incentive fee has been recorded from our inception through September 30 2024
Our Board of Directors accepted non contractual unconditional and irrevocable credits from the Adviser to reduce the income based incentive fee to the extent net investment income did not 100 0 cover distributions to common stockholders for the years ended September 30 2024 and 2022 which credits totaled 0 2 million and 0 4 million respectively There were no such credits during the year ended September 30 2023
We have entered into the Administration Agreement with the Administrator to provide administrative services We reimburse the Administrator pursuant to the Administration Agreement for the portion of expenses the Administrator incurs while performing services for us The Administrator s expenses are primarily rent and the salaries benefits and expenses of the Administrator s employees including our chief financial officer and treasurer chief compliance officer chief valuation officer and general counsel and secretary who also serves as the Administrator s president general counsel and secretary and their respective staffs Two of our executive officers David Gladstone our chairman and chief executive officer and Terry Lee Brubaker our chief operating officer serve as members of the board of managers and executive officers of the Administrator which is 100 indirectly owned and controlled by Mr Gladstone Another of our officers Michael LiCalsi our general counsel and secretary serves as the Administrator s president as well as the executive vice president of administration for the Adviser
Our allocable portion of the Administrator s expenses is generally derived by multiplying the Administrator s total expenses by the approximate percentage of time during the current quarter the Administrator s employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator On July 9 2024 our Board of Directors including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party approved the renewal of the Administration Agreement through August 31 2025
Gladstone Securities LLC Gladstone Securities a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation which is 100 indirectly owned and controlled by Mr Gladstone our chairman and chief executive officer has provided other services such as investment banking and due diligence services to certain of our portfolio companies for which Gladstone Securities receives a fee Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non contractual unconditional and irrevocable credits against the base management fee or incentive fee Gladstone Securities received fees from portfolio companies totaling 0 4 million 0 8 million and 1 1 million during the years ended September 30 2024 2023 and 2022 respectively
We entered into a dealer manager agreement the Dealer Manager Agreement with Gladstone Securities pursuant to which Gladstone Securities serves as our exclusive dealer manager in connection with the offering of our Series A Preferred Stock as defined in Note 6
Under the Dealer Manager Agreement Gladstone Securities provides certain sales promotional and marketing services to us in connection with the offering of the Series A Preferred Stock the Series A Offering and we pay Gladstone Securities i selling commissions of up to 7 0 of the gross proceeds from sales of Series A Preferred Stock in the offering and ii a dealer manager fee of up to 3 0 of the gross proceeds from sales of Series A Preferred Stock in the offering Gladstone Securities may in its sole discretion reallow a portion of the dealer manager fee to participating broker dealers in support of the Series A Offering The terms of the Dealer Manager Agreement were approved by our board of directors including its independent directors During the year ended September 30 2024 we paid Gladstone Securities selling commissions and dealer manager fees totaling 0 9 million related to the offering of Series A Preferred Stock which are netted against gross proceeds from the sales There were no such fees paid in the prior year
In addition to the above fees other operating expenses due to the Adviser as of September 30 2024 and 2023 totaled 52 thousand and 65 thousand respectively In addition net expenses payable to Gladstone Investment Corporation for reimbursement purposes which includes certain co investment expenses totaled 75 thousand and 19 thousand as of September 30 2024 and 2023 respectively These amounts are generally settled in the quarter subsequent to being incurred and are included in other liabilities on the accompanying
On May 13 2021 we through Business Loan entered into a sixth amended and restated credit agreement with KeyBank as administrative agent lead arranger managing agent and lender the Adviser as servicer and certain other lenders party thereto the Credit Facility
As of September 30 2024 our Credit Facility had a total commitment amount of 293 7 million with an accordion feature that permits us to increase the size of the facility to 350 0 million The Credit Facility has a revolving period end date of October 31 2025 and a final maturity date of October 31 2027 at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date The interest rate margin is 3 00 during the revolving period and 3 50 thereafter in each case plus a 10 basis point SOFR credit spread adjustment
Available borrowings are subject to various constraints imposed under our Credit Facility based on the aggregate loan balance pledged by Business Loan which varies as loans are added and repaid regardless of whether such repayments are prepayments or made as contractually required
Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank KeyBank is also the trustee of the account and generally remits the
Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity prohibit certain significant corporate transactions such as mergers consolidations liquidations or dissolutions and restrict material changes to our credit and collection policies without the lenders consent Our Credit Facility also generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855 a of the Code Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility including restrictions on geographic concentrations sector concentrations loan size payment frequency and status average life and lien property Our Credit Facility further requires Business Loan to comply with other financial and operational covenants which obligate Business Loan to among other things maintain certain financial ratios including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base
Additionally we are required to maintain i a minimum net worth defined in our Credit Facility to include any outstanding mandatorily redeemable preferred stock of 325 0 million plus 50 0 of all equity and subordinated debt raised after May 13 2021 less 50 of any equity and subordinated debt retired or redeemed after May 13 2021 which equates to 418 8 million as of September 30 2024 ii asset coverage with respect to senior securities representing indebtedness of at least 150 or such percentage as may be set forth in Section 18 of the 1940 Act as modified by Section 61 of the 1940 Act and iii our status as a BDC under the 1940 Act and as a RIC under the Code
As of September 30 2024 and as defined in our Credit Facility we had a net worth of 723 9 million asset coverage on our senior securities representing indebtedness of 243 6 calculated in accordance with the requirements of Section 18 and 61 of the 1940 Act and an active status as a BDC and RIC In addition we had 33 obligors in our Credit Facility s borrowing base as of September 30 2024 As of September 30 2024 we were in compliance with all of our Credit Facility covenants
specifically for the Credit Facility which was consistent with our application of ASC 820 to our investments Generally the fair value of our Credit Facility is determined using a yield analysis which includes a DCF calculation and the assumptions that the Valuation Team believes market participants would use including the estimated remaining life counterparty credit risk current market yield and interest rate spreads of similar securities as of the measurement date As of September 30 2024 the discount rate used to determine the fair value of our Credit Facility was one month Term SOFR plus 3 10 per annum plus a 1 00 unused commitment fee As of September 30 2023 the discount rate used to determine the fair value of our Credit Facility was one month Term SOFR plus 3 10 per annum plus a 1 00 unused commitment fee Generally an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding decrease or increase respectively in the fair value of our Credit Facility As of September 30 2024 and 2023 our Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in net unrealized depreciation appreciation of other on our accompanying
In August 2023 we completed an offering of 57 0 million aggregate principal amount of 7 75 Notes due 2028 the 2028 Notes for net proceeds of approximately 55 1 million after deducting underwriting discounts commissions and offering expenses borne by us The 2028 Notes are traded under the ticker symbol GLADZ on the Nasdaq Global Select Market The 2028 Notes will mature on September 1 2028 and may be redeemed in whole or in part at any time or from time to time at our option on or after September 1 2025
The 2028 Notes bear interest at a rate of 7 75 per year Interest is payable quarterly on March 1 June 1 September 1 and December 1 of each year beginning December 1 2023 which equates to approximately 4 4 million per year
In November 2021 we completed a private placement of 50 0 million aggregate principal amount of 3 75 Notes due 2027 the 2027 Notes for net proceeds of approximately 48 5 million after deducting initial purchasers costs commissions and offering expenses borne by us The 2027 Notes will mature on May 1 2027 and may be redeemed in whole or in part at any time or from time to time at the Company s option prior to maturity at par plus a make whole premium if applicable
In April 2022 pursuant to the registration rights agreement we entered into in connection with the 2027 Notes we conducted an exchange offer through which we offered to exchange all of our then outstanding 2027 Notes the Restricted Notes that were issued on November 4 2021 for an equal aggregate principal amount of our new 3 75 Notes due 2027 the Exchange Notes that had been registered with the SEC under the Securities Act of 1933 as amended The terms of the Exchange Notes are identical to those of the Restricted Notes except that the transfer restrictions and registration rights relating to the Restricted Notes do not apply to the Exchange Notes and the Exchange Notes do not provide for the payment of additional interest in the event of a registration default
In December 2020 we completed an offering of 100 0 million aggregate principal amount of 5 125 Notes due 2026 the 2026 Notes for net proceeds of approximately 97 7 million after deducting underwriting discounts commissions and offering expenses borne by us In March 2021 we completed an offering of an additional 50 0 million aggregate principal amount of the 2026 Notes for net proceeds of approximately 50 6 million after adding premiums and deducting underwriting costs commissions and offering expenses borne by us The 2026 Notes will mature on January 31 2026 and may be redeemed in whole or in part at any time or from time to time at the Company s option prior to maturity at par plus a make whole premium if applicable The 2026 Notes bear interest at a rate of 5 125 per year Interest is payable semi annually on January 31 and July 31 of each year which equates to approximately 7 7 million per year
The indenture relating to the 2028 Notes the 2027 Notes and the 2026 Notes contains certain covenants including i an inability to incur additional debt or issue additional debt or preferred securities unless the Company s asset coverage meets the threshold specified in the 1940 Act after such borrowing ii an inability to declare any dividend or distribution except a dividend payable in our stock on a class of our capital stock or to purchase shares of our capital stock unless the Company s asset coverage meets the threshold specified in the 1940 Act at the time of and giving effect to such declaration or purchase and iii if at any time we are not subject to the reporting requirements of the Exchange Act we
will provide the holders of the 2028 Notes the 2027 Notes and the 2026 Notes as applicable and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements
The fair value based on the last quoted closing price of the 2028 Notes as of September 30 2024 was 58 3 million We consider the trading price of the 2028 Notes to be a Level 1 input within the ASC 820 hierarchy The fair value based on a DCF analysis of the 2027 Notes as of September 30 2024 was 47 0 million The fair value based on a DCF analysis of the 2026 Notes as of September 30 2024 was 147 8 million We consider the 2027 Notes and 2026 Notes to be Level 3 within the ASC 820 fair value hierarchy
In May 2023 we entered into a Dealer Manager Agreement pursuant to which we may sell a maximum of 6 000 000 shares of 6 25 Series A Cumulative Redeemable Preferred Stock the Series A Preferred Stock par value 0 001 per share on a reasonable best efforts basis through our affiliated dealer manager Gladstone Securities at a public offering price of 25 00 per share Pursuant to the Dealer Manager Agreement the offering will terminate on the date that is the earlier of 1 December 31 2026 unless earlier terminated or extended by our Board of Directors and 2 the date on which all 6 000 000 shares of Series A Preferred Stock offered are sold See Note 4 Related Party Transactions Other Transactions for a discussion of the commissions and fees to be paid to Gladstone Securities in connection with the Series A Offering
The Series A Preferred Stock is being sold pursuant to our shelf registration statement on Form N 2 File No 333 261398 the 2021 Registration Statement under the Securities Act of 1933 as amended and a prospectus supplement dated May 31 2023 and a base prospectus dated December 22 2021 As of September 30 2024 we had the ability to issue up to an additional 142 3 million in securities under the 2021 Registration Statement
During the year ended September 30 2024 we sold 349 931 shares of Series A Preferred Stock for gross proceeds of 8 7 million and net proceeds of 7 8 million There were no shares sold during the year ended September 30 2023 There were 349 931 and 0 shares of Series A Preferred Stock outstanding as of September 30 2024 and September 30 2023 respectively
We may be required to mandatorily redeem some or all of the shares of our Series A Preferred Stock if we fail to maintain asset coverage of at least the minimum amount required by Sections 18 and 61 of the 1940 Act which is currently 150 The asset coverage on our senior securities that are stock as of September 30 2024 was 237 3 calculated in accordance with Sections 18 and 61 of the 1940 Act
On April 4 2024 we completed a 1 for 2 Reverse Stock Split of the Company s issued and outstanding common stock by the filing of Articles of Amendment with the State Department of Assessments and Taxation of Maryland pursuant to the Maryland General Corporation Law The Reverse Stock Split became effective at 4 05 p m Eastern Time on April 4 2024 The Reverse Stock Split was effective for purposes of trading as of the opening of business on the Nasdaq Global Select Market on April 5 2024
As a result of the Reverse Stock Split every two shares of common stock issued and outstanding were automatically combined into one new share of common stock The Reverse Stock Split did not modify any rights or preferences of the shares of common stock The common stock issued pursuant to the Reverse Stock Split remains fully paid and non assessable The Reverse Stock Split did not affect the number of authorized shares of common stock or the par value of the common stock
In August 2024 we entered into an equity distribution agreement with Jefferies LLC and Huntington Securities Inc the 2024 Sales Agreement under which we have the ability to issue and sell from time to time shares of our common stock with an aggregate offering price of up to 150 0 million in an at the market offering the 2024 ATM Program During the year ended September 30 2024 we sold 476 138 shares of our common stock under the 2024 Sales Agreement at a weighted average price of 23 10 per share and raised 11 0 million of gross proceeds Net proceeds after deducting commissions and offering costs borne by us were approximately 10 8 million As of September 30 2024 we had a remaining capacity to sell up to an additional 139 0 million of our common stock under the 2024 ATM Program
In May 2021 we entered into an equity distribution agreement with Jefferies LLC as amended in August 2022 the Sales Agreement under which we had the ability to issue and sell from time to time shares of our common stock with an aggregate offering price of up to 100 0 million in an at the market offering the ATM Program In July 2023 we amended and restated the Sales Agreement to add Huntington Securities Inc as a sales agent under the ATM Program in addition to Jefferies LLC During the year ended September 30 2023 we sold 8 774 101 shares of our common stock under the Sales Agreement at a weighted average price of 9 96 per share and raised 87 4 million of gross proceeds Net proceeds after deducting commissions and offering costs borne by us were approximately 85 9 million This ATM program terminated in connection with our entry into the 2024 ATM Program
Our shelf registration statement on Form N 2 File No 333 275934 the 2024 Registration Statement which was declared effective on January 17 2024 permits us to issue through one or more transactions up to an aggregate of 700 0 million in securities consisting of common stock preferred stock subscription rights debt securities and warrants to purchase common stock or preferred stock As of September 30 2024 we had the ability to issue up to 689 0 million in securities under the 2024 Registration Statement
The following table sets forth the computation of basic and diluted net increase decrease in net assets resulting from operations per weighted average common share for the years ended September 30 2024 2023 and 2022
To qualify to be taxed as a RIC under Subchapter M of the Code we must generally distribute to our stockholders for each taxable year at least 90 of our taxable ordinary income plus the excess of our net short term capital gains over net long term capital losses Investment Company Taxable Income The amount to be paid out as distributions to our stockholders is determined by our Board of Directors quarterly and is based on management s estimate of Investment Company Taxable Income Based on that estimate our Board of Directors declares three monthly distributions to common stockholders each quarter
The federal income tax characteristics of all distributions will be reported to stockholders on the IRS Form 1099 after the end of each calendar year Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of cash distributions for the full year Estimates made on a quarterly basis are updated as of each interim reporting date
For the calendar year ended December 31 2023 100 0 of distributions to common stockholders were deemed to be paid from ordinary income for 1099 stockholder reporting purposes For the calendar year ended December 31 2022 93 2 of distributions to common stockholders were deemed to be paid from ordinary income and 6 8 of distributions were deemed to be return of capital for 1099 stockholder reporting purposes
Aggregate distributions declared and paid to our common stockholders were approximately 43 1 million and 35 4 million for the years ended September 30 2024 and 2023 respectively and were declared based on estimates of Investment Company Taxable Income For the fiscal years ended September 30 2024 and September 30 2023 our current and accumulated earnings and profits exceeded common stock distributions declared and paid and in accordance with Section 855 a of the Code we elected to treat 6 6 million and 5 0 million respectively of the first common distributions paid to common stockholders in the subsequent fiscal year as having been paid in the prior year For the fiscal year ended
We intend to retain some or all of our realized capital gains first to the extent we have available capital loss carryforwards and second through treating the retained amount as a deemed distribution As of September 30 2024 we had 47 4 million of capital loss carryforwards that do not expire
For the years ended September 30 2024 and 2023 we recorded the following adjustments for permanent book tax differences to reflect tax character Results of operations total net assets and cash flows were not affected by these adjustments
We intend to continue to maintain our qualifications as a RIC for federal income tax purposes As a RIC we are generally not subject to federal income tax on the portion of our taxable income and gains that we distribute to stockholders To maintain our qualification as a RIC we must meet certain source of income and asset diversification requirements In addition to qualify to be taxed as a RIC we must also meet certain annual stockholder distribution requirements To satisfy the RIC annual distribution requirement we must distribute to stockholders at least 90 0 of our Investment Company Taxable Income Our policy generally is to make distributions to our stockholders in an amount up to 100 0 of our Investment Company Taxable Income Because we have distributed more than 90 0 of our Investment Company Taxable Income no income tax provisions have been recorded for the years ended September 30 2024 2023 and 2022
In an effort to limit certain federal excise taxes imposed on RICs a RIC has to distribute to stockholders during each calendar year an amount close to the sum of 1 98 0 of our ordinary income for the calendar year 2 98 2 of our capital gains in excess of capital losses for the one year period ending on October 31 of the calendar year and 3 any ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years No excise tax provisions have been recorded for the years ended September 30 2024 2023 and 2022
Under the RIC Modernization Act we are permitted to carry forward capital losses that we may incur in taxable years beginning after September 30 2011 for an unlimited period and such capital loss carryforwards will retain their character as either short term or long term capital losses
We are party to certain legal proceedings incidental to the normal course of our business We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable When loss contingencies are not both probable and estimable we do not establish reserves Based on current knowledge we do not believe that loss contingencies if any arising from pending investigations litigation or regulatory matters will have a material adverse effect on our financial condition results of operations or cash flows Additionally based on our current knowledge we do not believe such loss contingencies are both probable and estimable and therefore as of September 30 2024 and 2023 we had no established reserves for such loss contingencies
From time to time we enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations as stipulated in the sales agreements We record escrow amounts in Restricted cash and cash equivalents if received in cash but subject to potential obligations or other contractual restrictions or as escrow receivables in Other assets net if not yet received in cash on our accompanying Consolidated Statements of Assets and Liabilities We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period Reserves and holdbacks against escrow amounts were 0 1 million and 0 6 million as of September 30 2024 and September 30 2023 respectively
We have lines of credit delayed draw term loans and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn Since these commitments have expiration dates and we expect many will never be fully drawn the total commitment amounts do not necessarily represent future cash requirements We estimate the fair value of the combined unused lines of credit the unused delayed draw term loans and the uncalled capital commitment as of September 30 2024 and 2023 to be immaterial
The following table summarizes the amounts of our unused lines of credit delayed draw term loans and uncalled capital commitment at cost as of September 30 2024 and 2023 which are not reflected as liabilities in the accompanying
Based on actual shares outstanding at the beginning or end of the corresponding year as appropriate Per share data and shares outstanding have been adjusted on a retroactive basis to reflect the 1 for 2 Reverse Stock Split effected on April 4 2024 as described in
During the fiscal years ended September 30 2023 2022 2021 2020 2019 and 2018 the anti dilution was a result of issuing common shares during the period at a price above the then current NAV per share During the fiscal years ended September 30 2017 2016 and 2015 the net dilution was a result of issuing common shares during the period at a price below the then current NAV per share
Represents the impact of the different share amounts weighted average shares outstanding during the fiscal year and shares outstanding at the end of the fiscal year in the per share data calculations and rounding impacts
Total return equals the change in the ending market value of our common stock from the beginning of the fiscal year taking into account distributions reinvested in accordance with the terms of our dividend reinvestment plan Total return does not take into account distributions that may be characterized as a return of capital or any sales load paid by a stockholder For further information on the estimated character of our distributions to common stockholders refer to Note 9
Had we not received any non contractual unconditional and irrevocable credits of fees from the Adviser the ratio of net expenses to average net assets would have been 14 53 16 31 13 13 13 17 14 36 14 18 13 12 12 14 13 40 and 13 65 for the fiscal years ended September 30 2024 2023 2022 2021 2020 2019 2018 2017 2016 and 2015 respectively
Had we not received any non contractual unconditional and irrevocable credits of fees from the Adviser the ratio of net investment income to average net assets would have been 7 90 8 49 6 61 6 40 6 11 6 74 6 41 6 13 6 90 and 5 55 for the fiscal years ended September 30 2024 2023 2022 2021 2020 2019 2018 2017 2016 and 2015 respectively
In accordance with the SEC s Regulation S X we do not consolidate portfolio company investments Further in accordance with ASC 946 we are precluded from consolidating any entity other than another investment company except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries
We did not have any unconsolidated subsidiaries that met any of the significance conditions under Rule l 02 w 2 of the SEC s Regulation S X as of or during at least one of the years ended September 30 2024 2023 and 2022
In October 2024 our investment in Antenna Research Associates Inc was sold which resulted in a realized gain of approximately 59 3 million and the repayment of our debt investment of 31 3 million at par
As of September 30 2024 the end of the period covered by this report we including our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness and design and operation of our disclosure controls and procedures Based on that evaluation our management including the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely alerting management including the Chief Executive Officer and Chief Financial Officer of material information about us required to be included in periodic SEC filings However in evaluating the disclosure controls and procedures management recognized that any controls and procedures no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures
There were no changes in internal controls for the three months ended September 30 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
During the three months ended September 30 2024 none of our officers or directors adopted or terminated any contract instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 1 c Rule 10b5 1 trading arrangement or any non Rule 10b5 1 trading arrangement In addition during the three months ended September 30 2024 we did not adopt or terminate any Rule 10b5 1 trading arrangement
We will file a definitive Proxy Statement for our 2025 Annual Meeting of Stockholders the 2025 Proxy Statement with the SEC pursuant to Regulation 14A not later than 120 days after the end of our fiscal year Accordingly certain information required by Part III has been omitted under General Instruction G 3 to Form 10 K Only those sections of the 2025 Proxy Statement that specifically address the items set forth herein are incorporated herein by reference
We have adopted a Code of Business Conduct and Ethics the Code of Conduct that applies to all of our officers and directors and to the employees of our Adviser and our Administrator The Code of Conduct is available in the Investors section of our website under Governance Governance Documents at
Articles of Amendment and Restatement to the Articles of Incorporation incorporated by reference to Exhibit 99 a 2 to Pre Effective Amendment No 1 to the Registration Statement on Form N 2 File No 333 63700 filed July 27 2001
Articles Supplementary Establishing and Fixing the Rights and Preferences of Term Preferred Shares including Appendix A thereto relating to the Term Preferred Shares 7 125 Series 2016 incorporated by reference to Exhibit 2 a 2 to Post Effective Amendment No 5 to the Registration Statement on Form N 2 File No 333 162592 filed October 31 2011
Certificate of Correction to Articles Supplementary Establishing and Fixing the Rights and Preferences of Term Preferred Shares incorporated by reference to Exhibit 3 1 to the Current Report on Form 8 K File No 814 00237 filed October 29 2015
Indenture between the Registrant and U S Bank National Association dated as of November 6 2018 incorporated by reference to Exhibit 2 d l0 to Post Effective Amendment No 7 to the Registration Statement on Form N 2 File No 333 208637 filed November 6 2018
Third Supplemental Indenture between Gladstone Capital Corporation and U S Bank National Association dated as of December 15 2020 incorporated by reference to Exhibit 4 1 to the Current Report on Form 8 K File No 814 00237 filed December 15 2020
Fourth Supplemental Indenture between Gladstone Capital Corporation and U S Bank National Association dated as of November 4 2021 incorporated by reference to Exhibit 4 1 to the Current Report on Form 8 K File No 814 00237 filed November 4 2021
Fifth Supplemental Indenture between Gladstone Capital Corporation and U S Bank Trust Company National Association as successor in interest to U S Bank National Association dated as of August 17 2023 incorporated by reference to Exhibit 4 1 to the Current Report on Form 8 K File No 814 00237 filed August 17 2023
Stock Transfer Agency Agreement between the Registrant and The Bank of New York incorporated by reference to Exhibit 99 k 1 to Pre Effective Amendment No 1 to the Registration Statement on Form N 2 File No 333 63700 filed July 27 2001
Custody Agreement between the Registrant and The Bank of New York dated as of May 5 2006 incorporated by reference to Exhibit 10 3 to the Quarterly Report on Form 10 Q File No 814 00237 filed August 1 2006
Administration Agreement between the Registrant and Gladstone Administration LLC dated as of October 1 2006 incorporated by reference to Exhibit 99 2 to the Current Report on Form 8 K File No 814 00237 filed October 5 2006
Fourth Amended and Restated Investment Advisory and Management Agreement between the Registrant and Gladstone Management Corporation dated as of April 12 2022 incorporated by reference to Exhibit 10 3 to the Quarterly Report on Form 10 Q File No 814 00237 filed on May 3 2022
Sixth Amended and Restated Credit Agreement dated as of May 13 2021 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as Administrative Agent and the financial institutions from the time to time party thereto incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K File No 814 00237 filed May 13 2021
Amendment No 1 to the Sixth Amended and Restated Credit Agreement dated as of September 12 2022 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as Administrative Agent and the financial institutions from the time to time party thereto incorporated by reference to Exhibit 10 9 to the Annual Report on Form 10 K File No 814 00237 filed November 11 2022
Amendment No 2 to the Sixth Amended and Restated Credit Agreement dated as of September 20 2022 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as Administrative Agent and the financial institutions from the time to time party thereto incorporated by reference to Exhibit 10 10 to the Annual Report on Form 10 K File No 814 00237 filed November 11 2022
Amendment No 3 to the Sixth Amended and Restated Credit Agreement dated as of October 31 2022 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as Administrative Agent and the financial institutions from the time to time party thereto incorporated by reference to Exhibit 10 11 to the Annual Report on Form 10 K File No 814 00237 filed November 11 2022
Amendment No 4 to Sixth Amended and Restated Credit Agreement dated as of June 16 2023 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as administrative agent swingline lender managing agent and lead arranger and certain other lenders party thereto incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K File No 814 00237 filed on June 22 2023
Amendment No 5 to the Sixth Amended and Restated Credit Agreement dated as of December 13 2023 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as administrative agent swingline lender managing agent and lead arranger and certain other lenders party thereto incorporated by reference to Exhibit 10 7 to the Quarterly Report on Form 10 Q File No 814 00237 filed February 5 2024
Amendment No 6 to Sixth Amended and Restated Credit Agreement dated as of March 28 2024 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as administrative agent swingline lender managing agent and lead arranger and certain other lenders party thereto incorporated by reference to Exhibit 10 8 to the Quarterly Report on Form 10 Q File No 814 00237 filed May 1 2024
Amendment No 7 to Sixth Amended and Restated Credit Agreement dated as of June 27 2024 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as administrative agent swingline lender managing agent and lead arranger and certain other lenders party thereto incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K File No 814 00237 filed June 27 2024
Amendment No 8 to Sixth Amended and Restated Credit Agreement dated as of August 12 2024 by and among Gladstone Business Loan LLC as Borrower Gladstone Management Corporation as Servicer KeyBank National Association as administrative agent swingline lender managing agent and lead arranger and certain other lenders party thereto incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K File No 814 00237 filed August 12 2024
Attached as Exhibit 101 to this Annual Report on Form 10 K are the following materials formatted in Inline eXtensible Business Reporting Language iXBRL i the Consolidated Statements of Assets and Liabilities as of September 30 2024 and 2023 ii the Consolidated Statements of Operations for the years ended September 30 2024 2023 and 2022 iii the Consolidated Statements of Changes in Net Assets for the years ended September 30 2024 2023 and 2022 iv the Consolidated Statements of Cash Flows for the years ended September 30 2024 2023 and 2022 v the Consolidated Schedules of Investments as of September 30 2024 and 2023 and vi the Notes to Consolidated Financial Statements
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated
Gross additions include increases in investments resulting from new portfolio investments paid in kind interest or dividends the amortization of discounts and fees and the exchange of one or more existing securities for one or more new securities
Gross reductions include decreases in investments resulting from principal collections related to investment repayments or sales the amortization of premiums and acquisition costs and the exchange of one or more existing securities for one or more new securities
Interest rate percentages represent cash interest rates in effect at September 30 2024 and due dates represent the contractual maturity date Unless indicated otherwise all cash interest rates are indexed to one month Secured Overnight Financing Rate SOFR or S which was 4 85 as of September 30 2024 If applicable paid in kind interest rates are noted separately from the cash interest rate Certain securities are subject to an interest rate floor The cash interest rate is the greater of the floor or SOFR plus a spread Due dates represent the contractual maturity date
Represents the principal balance for debt investments and the number of shares units held for equity investments as of September 30 2024 Warrants are represented as a percentage of ownership as applicable
Unless indicated otherwise all of our investments are valued using Level 3 inputs within the FASB Accounting Standard Codification Topic 820 Fair Value Measurements and Disclosures fair value hierarchy Refer to Note 3
Information related to the amount of equity in the net profit and loss for the year for the investments listed has not been included in this schedule This information is not considered to be meaningful due to the complex capital structures of the portfolio companies with different classes of equity securities outstanding with different preferences in liquidation These investments are not consolidated nor are they accounted for under the equity method of accounting

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Trading Symbol	GLAD