Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS

v3.22.2.2
INVESTMENTS
 6 Months Ended
Sep. 30, 2022
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS INVESTMENTS
Fair Value
In accordance with ASC 820, we determine the fair value of our investments 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.
•Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;
•Level 2 — 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
•Level 3 — 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.
As of September 30, 2022 and March 31, 2022, 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.
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. There were no transfers in or out of Level 1, 2 and 3 during the six months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022 and March 31, 2022, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:
Fair Value Measurements
Fair Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of September 30, 2022:
Secured first lien debt
 $ 420,907  $ —  $ —  $ 420,907 
Secured second lien debt
 76,751  —  —  76,751 
Preferred equity
 229,430  —  — 

229,430 
Common equity/equivalents
 10,847  — 

58 
(A)
 10,789 
Total Investments as of September 30, 2022
 $ 737,935  $ —  $ 58  $ 737,877 
Fair Value Measurements
Fair Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of March 31, 2022:
Secured first lien debt
 $ 425,087  $ —  $ —  $ 425,087 
Secured second lien debt
 67,958  —  —  67,958 
Preferred equity
 217,599  —  —  217,599 
Common equity/equivalents
 3,752  —  74 
(A)
 3,678 
Total Investments as of March 31, 2022
 $ 714,396  $ —  $ 74  $ 714,322 
(A)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 investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy, and carried at fair value as of September 30, 2022 and March 31, 2022, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:
Total Recurring Fair Value Measurements
Reported in Consolidated Statements
of Assets and Liabilities
Valued Using Level 3 Inputs
September 30, 2022 March 31, 2022
Non-Control/Non-Affiliate Investments
Secured first lien debt $ 273,715  $ 233,673 
Secured second lien debt 53,109  66,917 
Preferred equity 160,290  139,927 
Common equity/equivalents(A)
1,827  1,533 
Total Non-Control/Non-Affiliate Investments 488,941  442,050 
Affiliate Investments
Secured first lien debt 147,192  191,414 
Secured second lien debt 23,642  1,041 
Preferred equity 69,140  77,672 
Common equity/equivalents 8,249  1,432 
Total Affiliate Investments 248,223  271,559 
Control Investments
Secured first lien debt —  — 
Secured second lien debt —  — 
Preferred equity —  — 
Common equity/equivalents 713  713 
Total Control Investments 713  713 
Total investments at fair value using Level 3 inputs $ 737,877  $ 714,322 
(A)Excludes our investment in Funko with a fair value of $58 thousand and $74 thousand as of September 30, 2022 and March 31, 2022, respectively, which was valued using Level 2 inputs.
In accordance with ASC 820, the following table provides quantitative information about our investments valued using Level 3 fair value measurements as of September 30, 2022 and March 31, 2022. 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.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value as of Valuation
Technique/
Methodology		 Unobservable
Input		 Range / Weighted-Average as of
September 30,
2022		 March 31,
2022		 September 30,
2022		 March 31,
2022
Secured first
lien debt		 $ 415,473  $ 411,023  TEV EBITDA multiple
3.2x – 8.0x /
6.4x
3.4x – 9.3x /
7.0x
EBITDA
$3,604–$17,320 /
$10,537
$3,990 - $13,707/$8,221
Revenue multiple
0.3x –0.6x /
0.3x
0.7x – 0.7x /
0.7x
Revenue
$13,188 – $99,672 /
$80,503
$14,072 – $14,072/$14,072
5,434  14,064  Yield Analysis Discount Rate
14.5% – 17.5% / 16.2%
11.3% – 15.2% / 14.6%
Secured second
lien debt		 62,252  39,637  TEV EBITDA multiple
5.1x – 6.4x /
 5.7x
5.6x – 6.8x /
6.0x
EBITDA
$5,302 – $5,616 /
$5,489
$3,953 – $5,488 / $4,959
Revenue multiple
0.5x –0.5x /
0.5x
0.7x – 0.7x
/0.7x
Revenue
$13,188 – $13,188 /
$13,188
$14,072 – $14,072 / $14,072
14,499  28,321  Yield Analysis Discount Rate
11.2% –12.1% /
12.0%
10.0% – 12.2% / 11.6%
Preferred
equity		 229,430  217,599  TEV EBITDA multiple
3.2x – 8.0x /
6.1x
3.4x – 9.3x /
6.8x
EBITDA
$3,604 – $17,320 /
$8,714
$1,210 – $13,707 / $6,926
Revenue multiple
0.3x – 0.6x /
0.4x
0.7x – 0.7x /
0.7x
Revenue
$13,188 – $99,672 /
$50,473
$14,072 – $14,072 / $14,072
Common equity/
equivalents(A)
10,789  3,678  TEV EBITDA multiple
4.4x – 7.5x /
5.2x
4.8x – 8.4x /
5.8x
EBITDA
$1,065 – $22,002 /
$6,562
$829 – $13,707 / $5,709
Revenue multiple
0.5x – 0.5x /
0.5x
0.7x – 0.7x /
 0.7x
Revenue
$13,188 – $13,188 /
$13,188
$14,072 – $14,072 / $14,072
Total $ 737,877  $ 714,322 
(A)Fair value as of both September 30, 2022 and March 31, 2022 excludes our investment in Funko with a fair value of $58 thousand and $74 thousand, respectively, which was valued using Level 2 inputs.
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 discount rates or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase in the fair value of certain of our investments.

Changes in Level 3 Fair Value Measurements of Investments
The following tables provide our portfolio’s changes in fair value, broken out by security type, during the three and six months ended September 30, 2022 and 2021 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

 Secured
First Lien
Debt		 Secured
Second Lien
Debt
Preferred
Equity
 Common
Equity/
Equivalents		 Total
Three Months ended September 30, 2022:
Fair value as of June 30, 2022
 $ 376,752  $ 67,936  $ 238,665  $ 6,072  $ 689,425 
Total gain (loss):
Net realized gain (loss)(A)
—  —  2,218  —  2,218 
Net unrealized appreciation (depreciation)(B)
(11,677) (4,507) 845  4,717  (10,622)
Reversal of previously recorded (appreciation) depreciation upon realization(B)
—  —  —  —  — 
New investments, repayments and settlements(C):
Issuances / originations
 70,250  4,000  —  —  74,250 
Settlements / repayments
 —  (5,096) —  —  (5,096)
Sales(D)
—  —  (12,298) —  (12,298)
Transfers(E)
(14,418) 14,418  —  —  — 
Fair value as of September 30, 2022
 $ 420,907  $ 76,751  $ 229,430  $ 10,789  $ 737,877 

Secured
First Lien
Debt		 Secured
Second Lien
Debt
Preferred
Equity
 Common
Equity/
Equivalents		 Total
Six Months ended September 30, 2022:
Fair value as of March 31, 2022 $ 425,087  $ 67,958  $ 217,599  $ 3,678  $ 714,322 
Total gain (loss):
Net realized gain (loss)(A)
—  —  6,946  —  6,946 
Net unrealized appreciation (depreciation)(B)
(18,812) (4,534) 18,061  7,111  1,826 
Reversal of previously recorded (appreciation) depreciation upon realization(B)
—  —  (12,250) —  (12,250)
New investments, repayments and settlements(C):
Issuances / originations
 77,050  4,005  21,000  —  102,055 
Settlements / repayments
 (48,000) (5,096) —  —  (53,096)
Sales(D)
—  —  (21,926) —  (21,926)
Transfers(E)
(14,418) 14,418  —  —  — 
Fair value as of September 30, 2022
 $ 420,907  $ 76,751  $ 229,430  $ 10,789  $ 737,877 
Secured
First Lien
Debt
Secured
Second Lien
Debt
Preferred
Equity
Common
Equity/
Equivalents
 Total
Three Months ended September 30, 2021:
Fair value as of June 30, 2021
 $ 416,973  $ 57,044  $ 202,465  $ 2,021  $ 678,503 
Total gain (loss):
Net realized gain (loss)(A)
—  —  —  —  — 
Net unrealized appreciation (depreciation)(B)
(2,618) 4,098  36,500  (10,463) 27,517 
Reversal of previously recorded (appreciation) depreciation upon realization(B)
—  —  —  —  — 
New investments, repayments and settlements(C):
Issuances / originations
 24,400  5  6,000  —  30,405 
Settlements / repayments
 —  —  —  —  — 
Sales
 —  —  —  —  — 
Transfers(E)
(7,342) 7,342  (16,034) 16,034  — 
Fair value as of September 30, 2021
 $ 431,413  $ 68,489  $ 228,931  $ 7,592  $ 736,425 
Secured
First Lien
Debt
Secured
Second Lien
Debt
Preferred
Equity
Common
Equity/
Equivalents
 Total
Six Months ended September 30, 2021:
Fair value as of March 31, 2021
 $ 368,688  $ 102,897  $ 159,478  $ 2,671  $ 633,734 
Total gain (loss):
Net realized gain (loss)(A)
—  —  1,786  —  1,786 
Net unrealized appreciation (depreciation)(B)
3,232  4,126  79,356  (11,113) 75,601 
Reversal of previously recorded (appreciation) depreciation upon realization(B)
60  —  (629) —  (569)
New investments, repayments and settlements(C):
Issuances / originations
 28,450  6,509  12,600  —  47,559 
Settlements / repayments
 (14,060) —  —  —  (14,060)
Sales
 —  —  (7,626) —  (7,626)
Transfers(E)
45,043  (45,043) (16,034) 16,034  — 
Fair value as of September 30, 2021
 $ 431,413  $ 68,489  $ 228,931  $ 7,592  $ 736,425 
(A)Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2022 and 2021.
(B)Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2022 and 2021.
(C)Includes increases in the cost basis of investments resulting from new portfolio investments, the amortization of discounts 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.
(D)Includes $10.1 million return of preferred equity cost basis from Horizon Facilities Services, Inc. ("Horizon").
(E)2022: Transfers represent (1) secured second lien debt of Ginsey with a total cost basis and fair value of $12.2 million, which was converted into secured first lien debt during the three months ended September 30, 2022 and (2) secured first lien debt of PSI Molded Plastics, Inc. with a total cost basis and fair value of $26.6 million, which was converted into secured second lien debt during the three months ended September 30, 2022.
2021: Transfers represent (1) secured second lien debt of J.R. Hobbs with a total cost basis and fair value of $52.5 million and $52.4 million, respectively, which was converted into secured first lien debt during the three months ended June 30, 2021, (2) secured first lien debt of D.P.M.S., Inc. with a total cost basis and fair value of $12.3 million and $7.3 million, respectively, which was converted into secured second lien debt of Galaxy Technologies Holdings, Inc. (“Galaxy Technologies Holdings”) during the three months ended September 30, 2021 and (3) preferred equity of Galaxy Technologies, Inc. with a total cost basis and fair value of $11.5 million and $16.0 million, respectively, which was converted into common equity of Galaxy Technologies Holdings during the three months ended September 30, 2021.
Investment Activity
During the six months ended September 30, 2022, the following significant transactions occurred:
•In May 2022, we invested an additional $6.4 million in the form of secured first lien debt in Nocturne Villa Rentals, Inc. ("Nocturne") to fund an add-on acquisition.
•In June 2022, we sold our investment in Bassett Creek Services, Inc. ("Bassett Creek"), which resulted in success fee income of $3.0 million and a realized gain on preferred equity of $4.7 million. In connection with the sale, we received net cash proceeds of $57.6 million, including the repayment of our debt investment of $48.0 million at par.
•In June 2022, we invested $21.0 million in a new portfolio company, Dema/Mai Holdings, Inc. (“Dema/Mai”), in the form of preferred equity to acquire Mai Mechanical, LLC, a leading provider of plumbing and mechanical services focused on multi-family residential construction headquartered in Denver, Colorado, from J.R. Hobbs, an existing portfolio company. In July 2022, we invested an additional $39.1 million in the form of secured first lien debt in Dema/Mai to fund the acquisition of Dema Plumbing, a plumbing and mechanical systems installation and service provider to single-family residential homebuilders.
•In July 2022, we recapitalized our investment in Horizon and invested an additional $30.0 million in the form of secured first lien debt. In connection with this investment, we received equity proceeds of $12.3 million, which were recognized as a $10.1 million return of preferred equity cost basis and a realized gain of $2.2 million, as well as dividend income of $3.1 million and success fee income of $1.7 million.
•In August 2022, in conjunction with a refinancing at Ginsey, our outstanding $13.3 million of secured second lien debt was reduced to $12.2 million and converted to secured first lien debt. The reduction in our cost basis was the result of a $5.1 million payment made by Ginsey to extinguish our secured borrowing liability, which was partially offset by an additional investment in Ginsey of $4.0 million. Refer to Note 5 - Borrowings for discussion of the secured borrowing liability.
Investment Concentrations
As of September 30, 2022, our investment portfolio consisted of investments in 26 portfolio companies located in 18 states across 15 different industries with an aggregate fair value of $737.9 million. Our investments in Horizon, Old World Christmas, Inc., Dema/Mai, Counsel Press, Inc., and Nocturne represented our five largest portfolio investments at fair value and collectively comprised $315.7 million, or 42.8%, of our total investment portfolio at fair value as of September 30, 2022.
The following table summarizes our investments by security type as of September 30, 2022 and March 31, 2022:
September 30, 2022 March 31, 2022
Cost Fair Value Cost Fair Value
Secured first lien debt $ 444,089  63.2  % $ 420,907  57.0  % $ 429,457  64.2  % $ 425,087  59.5  %
Secured second lien debt 94,474  13.4  % 76,751  10.4  % 81,147  12.1  % 67,958  9.5  %
Total debt 538,563  76.6  % 497,658  67.4  % 510,604  76.3  % 493,045  69.0  %
Preferred equity 149,099  21.2  % 229,430  31.1  % 143,079  21.4  % 217,599  30.5  %
Common equity/equivalents 15,556  2.2  % 10,847  1.5  % 15,565  2.3  % 3,752  0.5  %
Total equity/equivalents 164,655  23.4  % 240,277  32.6  % 158,644  23.7  % 221,351  31.0  %
Total investments
 $ 703,218  100.0  % $ 737,935  100.0  % $ 669,248  100.0  % $ 714,396  100.0  %
Investments at fair value consisted of the following industry classifications as of September 30, 2022 and March 31, 2022:
September 30, 2022 March 31, 2022
Fair Value Percentage of
Total Investments		 Fair Value Percentage of Total Investments
Diversified/Conglomerate Services $ 267,913  36.3  % $ 307,403  43.0  %
Home and Office Furnishings, Housewares, and Durable Consumer Products 133,359  18.1  % 125,440  17.6  %
Buildings and Real Estate 60,050  8.1  % —  —  %
Hotels, Motels, Inns, and Gaming 53,090  7.2  % 37,923  5.3  %
Leisure, Amusement, Motion Pictures, and Entertainment 45,169  6.1  % 46,514  6.5  %
Healthcare, Education, and Childcare 38,937  5.3  % 39,252  5.5  %
Aerospace and Defense 23,746  3.2  % 25,296  3.5  %
Chemicals, Plastics, and Rubber 23,642  3.2  % 26,618  3.7  %
Mining, Steel, Iron and Non-Precious Metals 23,368  3.2  % 24,250  3.4  %
Telecommunications 23,200  3.1  % 32,467  4.6  %
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) 17,407  2.4  % 13,823  1.9  %
Cargo Transport 14,827  2.0  % 14,533  2.0  %
Diversified/Conglomerate Manufacturing 9,259  1.3  % 14,064  2.0  %
Other < 2.0% 3,968  0.5  % 6,813  1.0  %
Total investments $ 737,935  100.0  % $ 714,396  100.0  %
Investments at fair value were included in the following geographic regions of the U.S. as of September 30, 2022 and March 31, 2022:
September 30, 2022 March 31, 2022
Location Fair Value Percentage of
Total Investments		 Fair Value Percentage of
Total Investments
West
 $ 236,774  32.1  % $ 158,607  22.2  %
Northeast
 218,107  29.6  % 194,100  27.2  %
South
 172,784  23.4  % 188,978  26.4  %
Midwest
 110,270  14.9  % 172,711  24.2  %
Total investments $ 737,935  100.0  % $ 714,396  100.0  %
The geographic region indicates the location of the headquarters for our portfolio companies. A portfolio company may have additional business locations in other geographic regions.
Investment Principal Repayments
The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of September 30, 2022:

Amount
For the remaining six months ending March 31, 2023
 $ 87,050 
For the fiscal years ending March 31:
2024 54,268 
2025 85,834 
2026 136,369 
2027 135,295 
Thereafter 39,750 
Total contractual repayments $ 538,566 
Adjustments to cost basis of debt investments (3)
Investments in equity securities 164,655 
Total cost basis of investments held as of September 30, 2022:
 $ 703,218 
Receivables from Portfolio Companies
Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies. Such receivables, net of any allowance for uncollectible receivables, are included in Other assets, net 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, 2022 and March 31, 2022, we had gross receivables from portfolio companies of $2.1 million and $1.7 million, respectively. As of September 30, 2022 and March 31, 2022, the allowance for uncollectible receivables was $1.4 million and $1.3 million, respectively.