Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS

v3.23.3
INVESTMENTS
 6 Months Ended
Sep. 30, 2023
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, 2023 and March 31, 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.
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, 2023 and 2022, respectively.
As of September 30, 2023 and March 31, 2023, 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, 2023:
Secured first lien debt
 $ 508,504  $ —  $ —  $ 508,504 
Secured second lien debt
 102,747  —  —  102,747 
Preferred equity
 267,596  —  — 

267,596 
Common equity/equivalents
 36,789  — 

22 
(A)
 36,767 
Total Investments as of September 30, 2023
 $ 915,636  $ —  $ 22  $ 915,614 
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, 2023:
Secured first lien debt
 $ 437,517  $ —  $ —  $ 437,517 
Secured second lien debt
 75,734  —  —  75,734 
Preferred equity
 222,585  —  —  222,585 
Common equity/equivalents
 17,707  —  27 
(A)
 17,680 
Total Investments as of March 31, 2023
 $ 753,543  $ —  $ 27  $ 753,516 
(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, 2023 and March 31, 2023, 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, 2023 March 31, 2023
Non-Control/Non-Affiliate Investments
Secured first lien debt $ 351,984  $ 279,748 
Secured second lien debt 54,340  50,842 
Preferred equity 219,015  164,534 
Common equity/equivalents(A)
3,597  1,724 
Total Non-Control/Non-Affiliate Investments 628,936  496,848 
Affiliate Investments
Secured first lien debt 156,520  157,769 
Secured second lien debt 48,407  24,892 
Preferred equity 48,581  58,051 
Common equity/equivalents 33,170  15,243 
Total Affiliate Investments 286,678  255,955 
Control Investments
Secured first lien debt —  — 
Secured second lien debt —  — 
Preferred equity —  — 
Common equity/equivalents —  713 
Total Control Investments —  713 
Total investments at fair value using Level 3 inputs $ 915,614  $ 753,516 
(A)Excludes our investment in Funko with a fair value of $22 thousand and $27 thousand as of September 30, 2023 and March 31, 2023, 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, 2023 and March 31, 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.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value as of Valuation
Technique/
Methodology		 Unobservable
Input		 Range / Weighted-Average as of
September 30,
2023		 March 31,
2023		 September 30,
2023		 March 31,
2023
Secured first
lien debt		 $ 494,812  $ 432,126  TEV EBITDA multiple
3.7x – 10.8x /
6.8x
4.4x – 7.7x /
6.4x
EBITDA
$1,278–$21,338 /
$10,590
$4,251 - $19,083/$10,764
Revenue multiple
0.3x – 0.6x /
0.3x
0.3x – 0.6x /
0.3x
Revenue
$15,557 – $98,181 /
$85,316
$15,483 – $109,615/$94,957
13,692  5,391  Yield Analysis Discount Rate
24.9% – 24.9% /24.9%
19.4% – 19.9% / 19.7%
Secured second
lien debt		 77,997  62,750  TEV EBITDA multiple
5.3x – 10.3x /
 6.6x
5.4x – 6.6x /
6.2x
EBITDA
$6,134 – $9,684 /
$7,110
$4,112 – $6,379 / $5,501
24,750  12,984  Yield Analysis Discount Rate
14.1% – 14.1% / 14.1%
14.0% – 14.0% / 14.0%
Preferred
equity		 267,596  222,585  TEV EBITDA multiple
3.7x – 10.8x /
6.4x
4.4x – 7.7x /
5.9x
EBITDA
$3,176 – $21,338 /
$9,278
$4,251 – $19,083 / $9,486
Revenue multiple
0.3x – 0.6x /
0.4x
0.3x – 0.6x /
0.4x
Revenue
$15,557 – $98,181 /
$62,749
$15,483 – $109,615 / $69,247
Common equity/
equivalents(A)
36,767  17,680  TEV EBITDA multiple
4.8x – 10.3x /
5.8x
4.7x – 7.2x /
6.4x
EBITDA
$1,278 – $59,739 /
$22,467
$1,105 – $30,833 / $6,273
Total $ 915,614  $ 753,516 


(A)Fair value as of both September 30, 2023 and March 31, 2023 excludes our investment in Funko with a fair value of $22 thousand and $27 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, 2023 and 2022 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, 2023:
Fair value as of June 30, 2023
 $ 452,215  $ 104,794  $ 214,258  $ 28,780  $ 800,047 
Total gain (loss):
Net realized gain (loss)(A)
—  —  —  —  — 
Net unrealized appreciation (depreciation)(B)
889  (2,047) 41,925  7,987  48,754 
Reversal of previously recorded (appreciation) depreciation upon realization(B)
—  —  —  —  — 
New investments, repayments and settlements(C):
Issuances / originations
 55,400  —  11,413  —  66,813 
Settlements / repayments
 —  —  —  —  — 
Sales
 —  —  —  —  — 
Transfers
 —  —  —  —  — 
Fair value as of September 30, 2023
 $ 508,504  $ 102,747  $ 267,596  $ 36,767  $ 915,614 

Secured
First Lien
Debt		 Secured
Second Lien
Debt
Preferred
Equity
 Common
Equity/
Equivalents		 Total
Six Months Ended September 30, 2023
Fair value as of March 31, 2023 $ 437,517  $ 75,734  $ 222,585  $ 17,680  $ 753,516 
Total gain (loss):
Net realized gain (loss)(A)
—  —  273  882  1,155 
Net unrealized appreciation (depreciation)(B)
887  2,013  30,323  14,800  48,023 
Reversal of previously recorded (appreciation) depreciation upon realization(B)
—  —  —  (93) (93)
New investments, repayments and settlements(C):
Issuances / originations
 70,100  25,000  14,688  5,000  114,788 
Settlements / repayments
 —  —  —  —  — 
Sales(D)
—  —  (273) (1,502) (1,775)
Transfers
 —  —  —  —  — 
Fair value as of September 30, 2023
 $ 508,504  $ 102,747  $ 267,596  $ 36,767  $ 915,614 
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 
Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2023 and 2022.
(B)Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2023 and 2022.
(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)The six months ended September 30, 2023 includes $0.3 million of proceeds from the recapitalization of Old World Christmas, Inc. ("Old World"). The three and six months ended September 30, 2022 include $10.1 million return of equity cost basis from Horizon Facilities Services, Inc.
(E)2022: Transfers represent (1) secured second lien debt of Ginsey Home Solutions, Inc. 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.
Investment Activity
During the six months ended September 30, 2023, the following significant transactions occurred:
•In May 2023, we invested $15.3 million in a new portfolio company, Home Concepts Acquisition, Inc. ("Home Concepts"), in the form of $12.0 million of secured first lien debt and $3.3 million of preferred equity. Home Concepts, headquartered in Santa Barbara, California, is a leading home improvement advertising publication focusing on connecting homeowners to high-quality residential repair and remodeling businesses.
•In June 2023, we recapitalized our existing investment in Old World and invested an additional $2.5 million in the form of secured first lien debt. In connection with this investment, we received proceeds of $2.2 million, of which $1.9 million was recognized as dividend income and $0.3 million was recognized as a realized gain.
•In June 2023, we invested an additional $30.0 million in the form of $25.0 million of secured second lien debt and $5.0 million of common equity in Nth Degree Investment Group, LLC to fund an add-on acquisition.
•In June 2023, we received a $1.5 million escrow settlement in connection with our December 2021 exit of SOG Specialty Knives & Tools, LLC, of which $0.6 million was recognized as a return of cost basis and $0.9 million as a realized gain. As a result of the escrow release, there are no remaining assets held by Gladstone SOG Investments, Inc.
•In August 2023, we invested an additional $18.7 million in the form of secured first lien debt in Nocturne Villa Rentals, Inc. ("Nocturne") to fund an add-on acquisition.
•In September 2023, we invested $46.0 million in a new portfolio company, The E3 Company, LLC ("E3"), in the form of $34.8 million of secured first lien debt and $11.2 million of preferred equity. E3, headquartered in Kilgore, Texas, is a market leader in advanced pressure management solutions for oil and gas well completions.
Investment Concentrations
As of September 30, 2023, our investment portfolio consisted of investments in 26 portfolio companies located in 19 states across 16 different industries with an aggregate fair value of $915.6 million. Our investments in Nocturne, Counsel Press, Inc., Old World, Brunswick Bowling Products, Inc. and Horizon Facilities Services, Inc. represented our five largest portfolio investments at fair value and collectively comprised $364.9 million, or 39.9%, of our total investment portfolio at fair value as of September 30, 2023.
The following table summarizes our investments by security type as of September 30, 2023 and March 31, 2023:
September 30, 2023 March 31, 2023
Cost Fair Value Cost Fair Value
Secured first lien debt $ 541,539  64.9  % $ 508,504  55.5  % $ 471,439  65.4  % $ 437,517  58.1  %
Secured second lien debt 109,158  13.1  % 102,747  11.2  % 84,158  11.7  % 75,734  10.1  %
Total debt 650,697  78.0  % 611,251  66.7  % 555,597  77.1  % 513,251  68.2  %
Preferred equity 163,787  19.6  % 267,596  29.3  % 149,099  20.7  % 222,585  29.5  %
Common equity/equivalents 20,314  2.4  % 36,789  4.0  % 15,934  2.2  % 17,707  2.3  %
Total equity/equivalents 184,101  22.0  % 304,385  33.3  % 165,033  22.9  % 240,292  31.8  %
Total investments
 $ 834,798  100.0  % $ 915,636  100.0  % $ 720,630  100.0  % $ 753,543  100.0  %
Investments at fair value consisted of the following industry classifications as of September 30, 2023 and March 31, 2023:
September 30, 2023 March 31, 2023
Fair Value Percentage of
Total Investments		 Fair Value Percentage of Total Investments
Diversified/Conglomerate Services $ 332,982  36.4  % $ 268,954  35.7  %
Home and Office Furnishings, Housewares, and Durable Consumer Products 153,495  16.8  % 143,685  19.1  %
Hotels, Motels, Inns, and Gaming 80,976  8.8  % 58,713  7.8  %
Buildings and Real Estate 58,696  6.4  % 60,571  8.0  %
Healthcare, Education, and Childcare 48,008  5.2  % 37,445  5.0  %
Oil and Gas 45,983  5.0  % —  —  %
Leisure, Amusement, Motion Pictures, and Entertainment 38,509  4.2  % 47,616  6.3  %
Mining, Steel, Iron and Non-Precious Metals 27,490  3.0  % 25,998  3.5  %
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) 26,705  2.9  % 20,088  2.7  %
Aerospace and Defense 25,696  2.8  % 22,215  2.8  %
Chemicals, Plastics, and Rubber 23,657  2.6  % 24,891  3.3  %
Printing and Publishing 15,275  1.7  % —  —  %
Cargo Transport 14,157  1.6  % 14,707  2.0  %
Telecommunications 13,692  1.5  % 18,987  2.5  %
Other < 2.0% 10,315  1.1  % 9,673  1.3  %
Total investments $ 915,636  100.0  % $ 753,543  100.0  %
Investments at fair value were included in the following geographic regions of the U.S. as of September 30, 2023 and March 31, 2023:
September 30, 2023 March 31, 2023
Location Fair Value Percentage of
Total Investments		 Fair Value Percentage of
Total Investments
Northeast
 $ 297,413  32.5  % $ 266,612  35.4  %
South
 260,132  28.4  % 171,056  22.7  %
West
 224,107  24.5  % 197,989  26.3  %
Midwest
 133,984  14.6  % 117,886  15.6  %
Total investments $ 915,636  100.0  % $ 753,543  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, 2023:

Amount
For the remaining six months ending March 31, 2024
 $ 81,418 
For the fiscal years ending March 31:
2025 92,614 
2026 204,919 
2027 162,746 
2028 38,250 
Thereafter 70,750 
Total contractual repayments $ 650,697 
Investments in equity securities 184,101 
Total cost basis of investments held as of September 30, 2023:
 $ 834,798 
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, 2023 and March 31, 2023, we had gross receivables from portfolio companies of $2.3 million and $2.2 million, respectively. As of both September 30, 2023 and March 31, 2023, the allowance for uncollectible receivables was $1.5 million and $1.6 million, respectively.