Quarterly report pursuant to Section 13 or 15(d)

BORROWINGS

v3.22.4
BORROWINGS
 9 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
BORROWINGS BORROWINGS
Revolving Line of Credit
On March 8, 2021, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 6 to the Credit Facility with KeyBank National Association (“KeyBank”) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to February 29, 2024, and if not renewed or extended by such date, all principal and interest will be due and payable on February 28, 2026 (two years after the revolving period end date). As of December 31, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.
On August 10, 2020, we, through Business Investment, entered into Amendment No. 5 to the Credit Facility. Among other things, Amendment No. 5 amended the Credit Facility to (i) add London Interbank Offered Rate (“LIBOR”) replacement language; (ii) implement a 0.5% LIBOR floor; (iii) reduce the facility size from $200.0 million to $180.0 million, which may be expanded to $300.0 million through additional commitments; and (iv) provide certain other changes to existing terms and covenants.
Advances under the Credit Facility generally bear interest at 30-day LIBOR, subject to a floor of 0.5%, plus 2.85% per annum until February 29, 2024, with the margin then increasing to 3.10% for the period from February 29, 2024 to February 28, 2025, and increasing further to 3.35% thereafter. The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.
The following tables summarize noteworthy information related to the Credit Facility:
As of December 31, 2022
As of March 31, 2022
Commitment amount $ 180,000 $ 180,000
Borrowings outstanding at cost $ 29,600 $ —
Availability(A)
$ 150,400 $ 180,000
For the Three Months Ended December 31,
For the Nine Months Ended December 31,
2022 2021 2022 2021
Weighted-average borrowings outstanding $ 26,054  $ 21,184  $ 12,621  $ 23,959 
Effective interest rate(B)
12.8  % 11.1  % 19.8  % 10.1  %
Commitment (unused) fees incurred $ 394  $ 406  $ 1,279  $ 1,191 
(A)Availability is subject to various constraints, characteristics and applicable advance rates based on collateral quality under the Credit Facility, which equated to an adjusted availability of $150.4 million and $180.0 million as of December 31, 2022 and March 31, 2022, respectively.
(B)Excludes the impact of deferred financing costs and includes unused commitment fees.
Among other things, the Credit Facility contains a performance guaranty that requires us to maintain: (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $288.0 million as of December 31, 2022; (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 December 31, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $705.7 million, asset coverage on our senior securities representing indebtedness of 250.5%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of December 31, 2022, we were in compliance with all covenants under the Credit Facility.
Fair Value
We elected to apply the fair value option of ASC Topic 825, “Financial Instruments,” to the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of the Credit Facility is determined using a yield analysis, which includes a DCF calculation and also takes into account the assumptions 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 December 31, 2022 and March 31, 2022, the discount rate used to determine the fair value of the Credit Facility was 30-day LIBOR, with a 0.5% floor, plus 2.85% per annum, plus an unused commitment fee of 1.0%. 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 the Credit Facility. As of each of December 31, 2022 and March 31, 2022, the Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in Net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements of Operations.
The following tables provide relevant information and disclosures about the Credit Facility as of December 31, 2022 and March 31, 2022, and for the three and nine months ended December 31, 2022 and 2021, as required by ASC 820:
Level 3 – Borrowings
Recurring Fair Value Measurements
Reported in Consolidated
Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3)
December 31, 2022 March 31, 2022
Credit Facility $ 29,600  $ — 
Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3)
 Reported in Consolidated Statements of Assets and Liabilities
Credit Facility
Three Months Ended December 31, 2022:
Fair value at September 30, 2022 $ 16,600 
Borrowings 41,400 
Repayments (28,400)
Unrealized appreciation (depreciation) — 
Fair value at December 31, 2022
 $ 29,600 
Nine Months Ended December 31, 2022:
Fair value at March 31, 2022
 $ — 
Borrowings 82,900 
Repayments (53,300)
Unrealized appreciation (depreciation) — 
Fair value at December 31, 2022
 $ 29,600 
Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3)
Reported in Consolidated Statements of Assets and Liabilities
Credit Facility
Three Months Ended December 31, 2021:
Fair value at September 30, 2021
 $ 8,900 
Borrowings 49,000 
Repayments (57,900)
Unrealized appreciation (depreciation) — 
Fair value at December 31, 2021
 $ — 
Nine Months Ended December 31, 2021:
Fair value at March 31, 2021
 $ 22,400 
Borrowings 111,700 
Repayments (134,100)
Unrealized appreciation (depreciation) — 
Fair value at December 31, 2021
 $ — 
The fair value of the collateral under the Credit Facility was $641.0 million and $537.5 million as of December 31, 2022 and March 31, 2022, respectively.
Notes Payable
5.00% Notes due 2026
In March 2021, we completed a public offering of 5.00% Notes due 2026 with an aggregate principal amount of $127.9 million (the “2026 Notes”), which resulted in net proceeds of approximately $123.8 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2026 Notes are traded under the ticker symbol “GAINN” on the Nasdaq Global Select Market (“Nasdaq”). The 2026 Notes will mature on May 1, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after May 1, 2023. The 2026 Notes bear interest at a rate of 5.00% per year, which is payable quarterly in arrears.
The indenture relating to 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), we will provide the holders of the 2026 Notes and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.
The 2026 Notes are recorded at the aggregate principal amount, less underwriting discounts, commissions, and offering costs, on our accompanying Consolidated Statements of Assets and Liabilities. Total underwriting discounts, commissions, and offering costs related to this offering were $4.1 million, which have been recorded as discounts to the aggregate principal amount on our accompanying Consolidated Statements of Assets and Liabilities and are being amortized over the period ending May 1, 2026, the maturity date.
4.875% Notes due 2028
In August 2021, we completed a public offering of 4.875% Notes due 2028 with an aggregate principal amount of $134.6 million (the “2028 Notes”), which resulted in net proceeds of approximately $131.3 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2028 Notes are traded under the ticker symbol “GAINZ” on Nasdaq. The 2028 Notes will mature on November 1, 2028 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 1, 2023. The 2028 Notes bear interest at a rate of 4.875% per year, which is payable quarterly in arrears.
The indenture relating to the 2028 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 and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.
The 2028 Notes are recorded at the aggregate principal amount, less underwriting discounts, commissions, and offering costs, on our accompanying Consolidated Statements of Assets and Liabilities. Total underwriting discounts, commissions, and offering costs related to this offering were $3.3 million, which have been recorded as discounts to the aggregate principal amount on our accompanying Consolidated Statements of Assets and Liabilities and are being amortized over the period ending November 1, 2028, the maturity date.
The following tables summarize our 2026 Notes and 2028 Notes as of December 31, 2022 and March 31, 2022:
As of December 31, 2022:
Description Ticker
Symbol		 Date Issued
Maturity Date(A)
Interest
Rate		 Notes
Outstanding		 Principal
Amount per
Note		 Aggregate
Principal Amount
2026 Notes GAINN March 2, 2021 May 1, 2026 5.00% 5,117,500 $ 25.00  $ 127,938 
2028 Notes GAINZ August 18, 2021 November 1, 2028 4.875% 5,382,000 $ 25.00  134,550 
Notes payable, gross(B)
10,499,500 262,488 
Less: Unamortized Discounts (5,369)
Notes payable, net(C)
$ 257,119 
As of March 31, 2022:
Description Ticker
Symbol		 Date Issued
Maturity Date(A)
Interest
Rate		 Notes
Outstanding		 Principal
Amount per
Note		 Aggregate
Principal Amount
2026 Notes GAINN March 2, 2021 May 1, 2026 5.00% 5,117,500 $ 25.00  $ 127,938 
2028 Notes GAINZ August 18, 2021 November 1, 2028 4.875% 5,382,000 $ 25.00  134,550 
Notes payable, gross(B)
10,499,500 262,488 
Less: Unamortized Discounts (6,236)
Notes payable, net(C)
$ 256,252 
(A)The 2026 Notes can be redeemed at our option at any time on or after May 1, 2023. The 2028 Notes can be redeemed at our option at any time on or after November 1, 2023.
(B)As of December 31, 2022 and March 31, 2022, asset coverage on our senior securities representing indebtedness, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 250.5% and 252.9%, respectively.
(C)Reflected as a line item on our accompanying Consolidated Statements of Assets and Liabilities.
The fair value, based on the last reported closing prices, of the 2026 Notes and 2028 Notes as of December 31, 2022 was $117.7 million and $117.3 million, respectively. The fair value, based on the last reported closing prices, of the 2026 Notes and 2028 Notes as of March 31, 2022 was $128.3 million and $134.3 million, respectively. We consider the closing prices of the 2026 Notes and 2028 Notes to be Level 1 inputs within the ASC 820 hierarchy.
Secured Borrowing
In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our secured second lien term debt investment in Ginsey and in May 2014, we amended the agreement with the third-party to include an additional $0.1 million. ASC Topic 860, “Transfers and Servicing” required us to treat the participation as a financing-type transaction. Specifically, the third-party had a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual rate established at origination. Therefore, our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2022 reflect the entire secured second lien term debt investment in Ginsey and a corresponding $5.1 million secured borrowing liability. In conjunction with the August 2022 refinancing at Ginsey, the $5.1 million secured borrowing liability was extinguished.