FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2024

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 5 – FAIR VALUE MEASUREMENTS

Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the year ended December 31, 2024 and year ended December 31, 2023, there were no changes in the observability of valuation inputs that would have resulted in a reclassification of assets between any levels.

Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the Investment Committee are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which the Investment Committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2024:


		Level 1			Level 2			Level 3			Total
First lien secured loans		$	—		$	—		$	502,693		$	502,693
Second lien secured loans			—			—			8,342			8,342
Unsecured loans			—			—			1,175			1,175
Subordinated Note to STRS JV			—			—			84,416			84,416
Equity (excluding STRS JV)			—			—			22,846			22,846
Equity in STRS JV⁽¹⁾			—			—			—			22,741
Total investments		$	—		$	—		$	619,472		$	642,213

(1)

The Company’s equity investment in STRS JV is measured using the net asset value per share as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

The Company’s money market funds (included in cash and cash equivalents and restricted cash and cash equivalents), which were valued at $13,249 as of December 31, 2024, are characterized in Level 1 of the fair value hierarchy.

The Company’s forward currency contracts, which were valued at $20 as of December 31, 2024, are characterized in Level 2 of the hierarchy.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2023:


		Level 1			Level 2			Level 3			Total
First lien secured loans		$	—		$	—		$	553,085		$	553,085
Second lien secured loans			—			—			19,039			19,039
Unsecured loans			—			—			167			167
Subordinated Note to STRS JV			—			—			84,416			84,416
Equity (excluding STRS JV)			—			—			16,679			16,679
Equity in STRS JV⁽¹⁾			—			—			—			22,782
Total investments		$	—		$	—		$	673,386		$	696,168

(1)

The Company’s equity investment in STRS JV is measured using the NAV per share as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

The Company’s money market funds (included in cash and cash equivalents and restricted cash and cash equivalents), which were valued at $11,312 as of December 31, 2023, are characterized in Level 1 of the fair value hierarchy.

The Company’s forward currency contracts, which were valued at ($43) as of December 31, 2023, are characterized in Level 2 of the hierarchy.

The following table presents the changes in investments measured at fair value using Level 3 inputs for the year ended December 31, 2024:


		First Lien			Second Lien						Subordinated
		Secured			Secured			Unsecured			Notes to STRS						Total
Year ended December 31, 2024		Loans			Loans			Loans			JV			Equity			Investments
Fair value, beginning of period		$	553,085		$	19,039		$	167		$	84,416		$	16,679		$	673,386
Funding of investments			206,830			—			—			—			453			207,283
Non-cash interest income			6,786			380			94			—			—			7,260
Accretion of discount			4,084			22			5			—			—			4,111
Proceeds from paydowns and sales			(241,304)			(2,039)			—			—			(1,403)			(244,746)
Conversions			(8,852)			(11,769)			886			—			19,735			—
Realized gains (losses)			(10,985)			(5,817)			—			—			(1,886)			(18,688)
Net unrealized appreciation (depreciation)			(6,951)			8,526			23			—			(10,732)			(9,134)
Fair value, end of period		$	502,693		$	8,342		$	1,175		$	84,416		$	22,846		$	619,472
Change in unrealized appreciation (depreciation) on investments still held as of December 31, 2024		$	(17,190)		$	259		$	23		$	—		$	(10,151)		$	(27,059)

The following table presents the changes in investments measured at fair value using Level 3 inputs for the year ended December 31, 2023:


		First Lien			Second Lien						Subordinated
		Secured			Secured			Unsecured			Notes to STRS						Total
Year ended December 31, 2023		Loans			Loans			Notes			JV			Equity			Investments
Fair value, beginning of period		$	618,267		$	20,634		$	167		$	80,000		$	21,000		$	740,068
Funding of investments			143,792			—			—			4,416			1,216			149,424
Non-cash interest income			5,471			267			—			—			—			5,738
Accretion of discount (premium)			4,411			82			—			—			—			4,493
Proceeds from paydowns and sales			(195,496)			(233)			—			—			(6,605)			(202,334)
Conversions			(7,232)			2,695			—			—			4,537			—
Realized gains (losses)			(518)			22			—			—			(338)			(834)
Net unrealized appreciation (depreciation)			(15,610)			(4,428)			—			—			(3,131)			(23,169)
Fair value, end of period		$	553,085		$	19,039		$	167		$	84,416		$	16,679		$	673,386
Change in unrealized appreciation (depreciation) on investments still held as of December 31, 2023		$	(17,346)		$	(4,430)		$	—		$	—		$	(3,694)		$	(25,471)

The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate, market quotes and exit multiples. An increase or decrease in the discount rate in isolation would result in significantly lower or higher fair value measurement, respectively. An increase or decrease in the market quote for an investment would in isolation result in significantly higher or lower fair value measurement, respectively. An increase or decrease in the exit multiple would in isolation result in significantly higher or lower fair value measurement, respectively. As the fair value of a debt investment diverges from par, which would generally be the case for non-accrual loans, the fair value measurement of that investment is more susceptible to volatility from changes in exit multiples as a significant unobservable input.

The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of December 31, 2024 and December 31, 2023. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values. These ranges represent the significant unobservable inputs that were used in the valuation of each type of investment, but they do not represent a range of values for any one investment.


			Fair Value as of		Valuation		Unobservable		Range
Investment Type			December 31, 2024		Techniques		Inputs		(Weighted Average)⁽¹⁾
First lien secured loans		$	439,577		Discounted cash flow analysis		Discount Rate		7.7% - 26.8% (13.1%)
			19,554		Recent transaction		Transaction Price		98.0 - 100.0 (98.5)
			22,923		Enterprise value analysis		EBITDA Multiple		5.8 - 8.0 (6.9)
			1,635		Enterprise value analysis		Revenue Multiple		1.4 - 1.4 (1.4)
			9,104		Expected repayment		Transaction Price		103.0 - 103.0 (103.0)
			373		Collateral analysis		Recovery Rate		0.0 - 15.0 (15.0)
			9,453		Market quotations		Broker quoted price		96.8 - 96.8 (96.8)
			74		Option pricing Model		Volatility		16.0 - 16.0 (16.0)
Second lien secured loans			8,342		Discounted cash flow analysis		Discount rate		11.7% - 12.5% (12.0%)
Unsecured loans			1,175		Discounted cash flow analysis		Discount rate		12.3% - 12.9% (12.6%)
Subordinated Notes to STRS JV			84,416		Enterprise value analysis		n/a		n/a
Common equity			10,728		Enterprise value analysis		EBITDA multiple		5.3 - 13.7 (9.8)
			9,132		Enterprise value analysis		Revenue Multiple		1.4 - 2.0 (2.0)
Preferred equity			2,916		Enterprise value analysis		EBITDA multiple		6.5 - 12.1 (7.5)
Warrant			70		Enterprise value analysis		EBITDA multiple		5.5 - 5.5 (5.5)
Total Level 3 Investments		$	619,472

(1)	Unobservable inputs were weighted by the relative fair value of the investments.


			Fair Value as of		Valuation		Unobservable		Range
Investment Type			December 31, 2023		Techniques		Inputs		(Weighted Average)⁽¹⁾
First lien secured loans		$	507,946		Discounted cash flow analysis		Discount rate		11.0% - 30.3% (13.9%)
			34,016		Recent transaction		Transaction price		89.0 - 98.8 (96.2)
			10,477		Enterprise value analysis		EBITDA multiple		8.6 - 8.6 (8.6)
			646		Option pricing Model		Volatility		17.2 - 17.2 (17.2)
Second lien secured loans			17,438		Discounted cash flow analysis		Discount rate		11.4% - 24.0% (18.8%)
			1,601		Enterprise value analysis		EBITDA multiple		6.3 - 6.3 (6.3)
Unsecured loans			167		Enterprise value analysis		EBITDA multiple		7.1 - 7.1 (7.1)
Subordinated Notes to STRS JV			84,416		Enterprise value analysis		n/a		n/a
Common equity			3,175		Discounted cash flow analysis		Discount rate		14.7% - 30.3% (16.6%)
			6,927		Enterprise value analysis		EBITDA multiple		5.5 - 13.2 (8.8)
			709		Recent transaction		Transaction price		1.0 - 1.0 (1.0)
Preferred equity			832		Discounted cash flow analysis		Discount rate		29.9% - 30.3% (29.9%)
			1,511		Enterprise value analysis		EBITDA multiple		6.0 - 10.5 (6.7)
Warrant			3,525		Discounted cash flow analysis		Discount rate		26.2% - 30.2% (26.3%)
Total Level 3 Investments		$	673,386

(1)	Unobservable inputs were weighted by the relative fair value of the investments.

Valuation of investments may be determined by weighting various valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. The valuation methods selected for a particular investment are based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires a greater degree of judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

The determination of fair value using the selected methodologies takes into consideration a range of factors including the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve a significant degree of judgment to be exercised.

As it relates to investments which do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

In some cases, fair value for such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.

The following table presents the principal amount and fair value of the Company’s borrowings as of December 31, 2024 and December 31, 2023. As of December 31, 2024 and December 31, 2023, the Credit Facility (as defined in Note 6) approximates its carrying value presented net of unamortized debt issuances costs and issuance discount, net of accretion. The fair value of the Company’s 5.375% private notes due 2025 (the “5.375% 2025 Notes”), the 5.375% private notes due 2026 (the “5.375% 2026 Notes”), the 4.00% notes due 2026 (the “4.000% 2026 Notes”), the 5.625% private notes due 2027 (the “5.625% 2027 Notes”) and the 4.25% private notes due 2028 (the “4.250% 2028 Notes”) were estimated using discounted future cash flows to the valuation date. As of December 31, 2024, the fair value of the 7.875% 2028 Notes (the “7.875% 2028 Notes”) approximates the principal amounts outstanding. As of December 31, 2023, the fair value of the 7.875% notes due 2028 were estimated using a of discounted future cash flows to the valuation date and the carrying value presented net of unamortized debt issuance costs and original issuance discount, net of accretion.


				As of December 31, 2024						As of December 31, 2023
		Fair
		Value Level		Principal Amount Outstanding			Fair Value			Principal Amount Outstanding			Fair Value
JPM Credit Facility		3		$	161,493		$	160,745		$	196,512		$	194,926
5.375% 2025 Notes		3			40,000			39,594			40,000			38,369
5.375% 2026 Notes		3			10,000			9,765			10,000			9,365
4.000% 2026 Notes		3			75,000			71,342			75,000			67,511
5.625% 2027 Notes		3			10,000			9,719			10,000			9,261
4.250% 2028 Notes		3			25,000			22,911			25,000			21,379
7.875% 2028 Notes		3			34,500			34,500			34,500			34,365
				$	355,993		$	348,576		$	391,012		$	375,176

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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