Form NPORT-P Flat Rock Core Income For: Sep 30
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NPORT-P false 0001814390 XXXXXXXX Flat Rock Core Income Fund 811-23579 0001814390 549300XA8XWZFX4IHI07 1350 AVENUE OF THE AMERICAS NEW YORK 10019 2125963413 Flat Rock Core Income Fund 549300XA8XWZFX4IHI07 2021-12-31 2021-09-30 N 143704787.34 47626495.00 96078292.34 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 34605329.95000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 USD N DIRECTV Financing LLC N/A DIRECTV Financing LLC N/A 2000000.00000000 PA USD 2000840.00000000 2.082509952320 Long LON CORP US N 2 2027-08-02 Floating 5.75000000 N N N N N N Abpci Direct Lending Fund Clo Ltd 549300IFSLJ4O2VKXL06 ABPCI Direct Lending Fund CLO I LLC 00086BAC6 5000000.00000000 PA USD 4861403.87000000 5.059835839709 Long ABS-CBDO CORP KY Y 3 2033-07-20 Floating 8.91250000 N N N N N N N/A N/A ALM Media, LLC N/A 4611833.56000000 PA USD 4519596.89000000 4.704077039594 Long LON CORP US N 2 2024-11-25 Floating 7.50000000 N N N N N N N/A N/A Triplepoint Private Venture Credit N/A 283164.00000000 NS USD 4485317.76000000 4.668398709801 Long EC CORP US N N/A N N N N/A N/A Xanitos, Inc. TL N/A 3000000.00000000 PA USD 2940000.00000000 3.060004428051 Long LON CORP US N 2 2021-09-30 Fixed 7.00000000 N N N N N N N/A N/A Thryv Inc N/A 3489869.04000000 PA USD 3543298.94000000 3.687928723234 Long LON CORP US N 2 2026-03-01 Floating 9.50000000 N N N N N N N/A N/A Global Client Solutions N/A 997500.00000000 PA USD 992512.50000000 1.033024709148 Long LON CORP US N 2 2026-03-15 Floating 7.00000000 N N N N N N Barings Middle Market Clo Ltd. 549300NSFWDKJE15UK02 Barings Middle Market CLO Ltd 2021-I 06761EAC9 6300000.00000000 PA USD 6268502.30000000 6.524368977975 Long ABS-O CORP KY Y 3 N N N N/A N/A Accordion Partners N/A 2400000.00000000 PA USD 2364008.34000000 2.460502036853 Long LON CORP US N 2 2049-12-31 Fixed 6.50000000 N N N N N N Monroe Capital Mml Clo 5493006UQZL8BZLQCE22 Monroe Capital Mml CLO 2017-1, Ltd. 61033TAA7 2000000.00000000 PA USD 1995347.40000000 2.076793156292 Long ABS-CBDO CORP KY Y 3 2029-04-22 Floating 7.48820000 N N N N N N N/A N/A HCM Master Fund N/A 1000.00000000 NS USD 9800000.00000000 10.20001476017 Long EP CORP US N 2 N N N Holdco Sands Intermediat N/A Trident Technologies, LLC 43478EAB8 4912500.00000000 PA USD 4912500.00000000 5.113017602993 Long LON CORP US N 2 2025-12-19 Floating 7.50000000 N N N N N N N/A N/A Broder Bros Co. N/A 1808503.55000000 PA USD 1718078.37000000 1.788206605421 Long LON CORP US N 2 2022-12-02 Floating 9.75000000 N N N N N N Thl Credit Lake Shore Mm Clo I Ltd. N/A THL Credit Lake Shore MM CLO I, Ltd. 510803AA7 5000000.00000000 PA USD 5063850.50000000 5.270545902377 Long ABS-CBDO CORP KY Y 3 2033-04-15 Floating 9.07880000 N N N N N N Ais Holdco Llc N/A AIS HoldCo, LLC 00143RAC2 3725000.00000000 PA USD 3725000.00000000 3.877046426697 Long LON CORP US N 2 2025-08-15 Floating 5.12850000 N N N N N N Monroe Capital Mml Clo 549300JM3KC77XXZOT62 Monroe Capital Mml Clo XI, Ltd. 61034PAA4 4000000.00000000 PA USD 4000000.00000000 4.163271330681 Long ABS-CBDO CORP KY Y 3 2033-05-20 Floating 8.71360000 N N N N N N N/A N/A Marble Point Credit Management LLC DDTL N/A 937500.00000000 PA USD 0.00000000 0.000000 Long LON CORP US N 2 2049-12-31 Fixed 0.00000000 N N N N N N N/A N/A North Pole US LLC N/A 1775000.00000000 PA USD 1595015.00000000 1.660120055376 Long LON CORP LU N 2 2025-03-03 Floating 7.13090000 N N N N N N N/A N/A Accordion Partners DDTL N/A 600000.00000000 PA USD 591006.01000000 0.615129594423 Long LON CORP US N 2 2049-12-31 Fixed 0.00000000 N N N N N N N/A N/A Hill International, Inc. N/A 1440000.00000000 PA USD 1440000.00000000 1.498777679045 Long LON CORP US N 2 2023-06-21 Floating 6.75000000 N N N N N N N/A N/A BCP Great Lakes Fund LP N/A 10613305.68000000 NS USD 10649390.92000000 11.08407597661 Long EC CORP US N N/A N N N Tcp Whitney Clo Ltd 549300HQR4ENRKHLM113 TCP Whitney CLO, Ltd. 87240GAK7 5000000.00000000 PA USD 4613855.00000000 4.802182561355 Long ABS-O CORP KY Y 3 N N N N/A N/A Inszone Delayed Draw Term Loan N/A 1170658.72000000 PA USD 1141392.25000000 1.187981407871 Long LON CORP US N 2 2049-12-31 Fixed 7.25000000 N N N N N N N/A N/A Savers, Inc. N/A 3000000.00000000 PA USD 3024990.00000000 3.148463535649 Long LON CORP US N 2 2029-04-30 Floating 6.50000000 N N N N N N Churchill Middle Market Clo Iv Ltd. N/A Churchill Middle Market CLO IV, Ltd. 171510AB6 4000000.00000000 PA USD 4022796.40000000 4.186998230322 Long ABS-CBDO CORP KY N 3 2032-01-23 Floating 9.40790000 N N N N N N N/A N/A Aspect Software N/A 2000000.00000000 PA USD 1970000.00000000 2.050411130360 Long LON CORP US N 2 2028-05-06 Fixed 6.00000000 N N N N N N N/A N/A Inszone Delayed Draw Term Loan N/A 829341.28000000 PA USD 829341.28000000 0.863193193593 Long LON CORP US N 2 2026-06-30 Floating 7.25000000 N N N N N N N/A N/A HERCULES PRIVATE GLOBAL VENTURE GROWTH FUND I N/A 3894479.70000000 NS USD 3894479.70000000 4.053443920733 Long EC CORP US N N/A N N N N/A N/A Xanitos, Inc. DDTL N/A 1000000.00000000 PA USD 0.00000000 0.000000 Long LON CORP US N 3 2021-09-30 Fixed 7.00000000 N N N N N N Spencer Spirit Ih Llc N/A Spencer Gifts LLC 84823UAB8 3141093.12000000 PA USD 3119513.81000000 3.246845602709 Long LON CORP US N 2 2026-06-19 Floating 6.08460000 N N N N N N Mcf Clo Llc 549300SYEBIYQWJN7391 MCF CLO IV LLC 55280HBE6 2000000.00000000 PA USD 1879783.60000000 1.956512292441 Long ABS-CBDO CORP US Y 3 2033-10-20 Floating 0.00000000 N N N N N N N/A N/A Mills Fleet Farms N/A 4623124.31000000 PA USD 4536209.57000000 4.721367813186 Long LON CORP US N 2 2024-10-24 Floating 7.84030000 N N N N N N MAG Aerospace N/A MAG Aerospace 55282CAE6 1985000.00000000 PA USD 1955225.00000000 2.035033046883 Long LON CORP US N 2 2027-04-01 Floating 6.50000000 N N N N N N Isagenix Intl 2549004A29PB2JU19P76 Isagenix International, LLC 46422YAB4 2455323.62000000 PA USD 2029742.38000000 2.112592064831 Long LON CORP US N 2 2025-06-14 Floating 6.75000000 N N N N N N N/A N/A Diversified Risk Holdings N/A 7348148.14000000 PA USD 7201185.18000000 7.495121951706 Long LON CORP US N 2 2026-04-30 Floating 7.25000000 N N N N N N N/A N/A Inszone Insurance Services N/A 3959504.76000000 PA USD 3860517.14000000 4.018095082642 Long LON CORP US N 2 2026-06-30 Floating 7.25000000 N N N N N N N/A N/A Potpourri Group, Inc. N/A 7349079.49000000 PA USD 7397583.41000000 7.699536731795 Long LON CORP US N 2 2024-07-03 Floating 8.33238000 N N N N N N Thl Credit Lake Shore Mm Clo I Ltd. 5493004NSSTVWDFT9W29 THL Credit Lake Shore MM CLO II, Ltd. 87249YAA1 1725000.00000000 PA USD 1720545.88000000 1.790774833831 Long ABS-CBDO CORP KY Y 3 2031-10-17 Floating 8.93390000 N N N N N N Blackrock Elbert Clo V Ltd 54930088K41XQK16ML36 BlackRock Elbert CLO V, Ltd. 09260YAD3 2000000.00000000 PA USD 2071430.00000000 2.155981283128 Long ABS-O CORP KY N 3 N N N First American Government Obligations Fund 549300R5MYM6VZF1RM44 First American Government Obligations Fund 31846V336 -9000000.00000000 NS USD -9000000.00000000 -9.36736049403 Short STIV RF US N 1 N N N Mcf Clo Llc N/A MCF CLO VII LLC 55281FAS9 5000000.00000000 PA USD 4904219.73000000 5.104399350318 Long ABS-CBDO CORP US Y 3 2033-07-20 Floating 9.29140000 N N N N N N N/A N/A Marble Point Credit Management LLC TL N/A 4011718.75000000 PA USD 3951542.97000000 4.112836389739 Long LON CORP US N 2 2049-12-31 Fixed 7.00000000 N N N N N N 2021-10-30 Flat Rock Core Income Fund Ryan Ripp Ryan Ripp Chief Finanical Officer XXXX
Flat Rock Core Income Fund
Consolidated Schedule of Investments
September 30, 2021 (Unaudited)
|FIRST LIEN SENIOR SECURED DEBT- 73.04%|
|Accordion Partners(a)||3M US L + 5.50% (1.00% Floor)||09/24/2026||$||2,400,000||$||2,364,008|
|AIS HoldCo, LLC(a)(b)(c)||3M US L + 5.00%||08/15/2025||3,700,000||3,700,000|
|ALM Media, LLC(a)(b)(c)||3M US L + 6.50% (1.00% Floor)||11/25/2024||4,562,500||4,471,250|
|Aspect Software(a)(b)(c)||3M US L + 5.25% (0.75% Floor)||05/06/2028||1,992,500||1,962,613|
|Broder Bros Co.(a)(b)(c)||1M US L + 8.50% (1.00% Floor)||12/27/2025||1,808,504||1,718,078|
|DIRECTV Financing LLC, Series Closing Date(a)(b)(c)||3M US L + 5.00% (0.75% Floor)||08/02/2027||2,000,000||2,000,840|
|Diversified Risk Holdings(a)(b)(c)||3M US L + 6.25% (1.00% Floor)||04/30/2026||7,329,399||7,182,811|
|Global Client Solutions(a)(b)(c)||1M US L + 6.00% (1.00% Floor)||03/15/2026||995,000||990,025|
|Hill International, Inc.(a)(b)(c)||3M US L + 5.75% (1.00% Floor)||06/21/2023||1,440,000||1,440,000|
|Inszone Delayed Draw Term Loan(a)(b)(c)||3M US L + 5.50% (1.00% Floor)||06/30/2026||1,628,600||1,599,334|
|Inszone Insurance Services(a)(b)(c)||3M US L + 6.00% (1.25% Floor)||06/30/2026||3,949,381||3,850,647|
|Isagenix International, LLC(a)(b)(c)||3M US L + 5.75% (1.00% Floor)||06/14/2025||2,455,324||2,029,742|
|MAG Aerospace(a)(b)(c)||3M US L + 5.50% (1.00% Floor)||04/01/2027||1,945,600||1,916,416|
|Marble Point Credit Management LLC Delayed Draw Term Loan(a)||3M US L + 6.00% (1.00% Floor)||08/11/2028||937,500||–|
|Marble Point Credit Management LLC Term Loan(a)(b)(c)||3M US L + 6.00% (1.00% Floor)||08/11/2028||4,011,719||3,951,543|
|Mills Fleet Farms(a)(b)(c)||3M US L + 6.50% (1.00% Floor)||10/24/2024||4,623,124||4,536,210|
|North Pole US LLC(a)(b)(c)||3M US L + 7.00%||03/03/2025||1,750,000||1,572,550|
|Potpourri Group, Inc.(a)(b)(c)||1M US L + 8.25%||07/03/2024||$||7,349,079||$||7,397,583|
|Savers, Inc.(a)(b)(c)||3M US L + 5.75% (0.75% Floor)||04/26/2028||3,000,000||3,024,990|
|Spencer Gifts LLC(a)(b)(c)||1M US L + 6.00%||06/19/2026||3,141,093||3,119,514|
|Thryv Inc(a)(b)(c)||1M US L + 8.50% (1.00% Floor)||03/01/2026||3,489,869||3,543,299|
|Trident Technologies, LLC(a)(b)(c)||3M US L + 6.00% (1.50% Floor)||12/19/2025||4,912,500||4,912,500|
|Xanitos, Inc. Delayed Draw Term Loan(a)(b)(c)||1.00%||06/25/2026||1,000,000||–|
|Xanitos, Inc. Term Loan(a)(b)(c)||3M US L + 6.00% (1.00% Floor)||06/25/2026||3,000,000||2,940,000|
|TOTAL FIRST LIEN SENIOR SECURED DEBT||$||70,223,953|
|COLLATERALIZED LOAN OBLIGATIONS EQUITY- 13.47%(d)|
|Barings Middle Market CLO Ltd 2021-I, Subordinated Notes(a)(b)(c)(e)||16.52%||07/20/2033||6,300,000||6,268,502|
|BlackRock Elbert CLO V, Ltd., Subordinated Notes(a)(b)(c)||14.96%||12/15/2031||2,000,000||2,071,430|
|TCP Whitney CLO, Ltd., Subordinated Notes, Series 2021-1A(a)(b)(c)(e)||18.18%||08/20/2033||5,000,000||4,613,855|
|TOTAL COLLATERALIZED LOAN OBLIGATIONS EQUITY||$||12,953,787|
|COLLATERALIZED LOAN OBLIGATIONS DEBT- 29.59%|
|ABPCI Direct Lending Fund CLO I LLC, Class E2(a)(b)(c)(e)||3M US L + 8.73%||07/20/2033||5,000,000||4,861,404|
|Churchill Middle Market CLO IV, Ltd., Class E2(a)(b)(c)||3M US L + 9.27%||01/23/2032||4,000,000||4,022,796|
|MCF CLO IV LLC, Class ERR(a)(b)(c)(e)||3M US L + 8.65%||10/20/2033||2,000,000||1,879,784|
|MCF CLO VII LLC, Class ER(a)(b)(c)(e)||3M US L + 9.15%||07/20/2033||5,000,000||4,904,220|
|Monroe Capital Mml CLO 2017-1, Ltd., Class E(a)(b)(c)(e)||3M US L + 7.35%||04/22/2029||2,000,000||1,995,347|
|Monroe Capital Mml Clo XI, Ltd., Class E(a)(b)(c)(e)||3M US L + 8.54%||05/20/2033||4,000,000||4,000,000|
|THL Credit Lake Shore MM CLO I, Ltd., Class ER(a)(b)(c)(e)||3M US L + 8.97%||04/15/2033||$||5,000,000||$||5,063,850|
|THL Credit Lake Shore MM CLO II, Ltd., Class E(a)(b)(c)(e)||3M US L + 8.80%||10/17/2031||1,725,000||1,720,546|
|TOTAL COLLATERALIZED LOAN OBLIGATIONS DEBT||$||28,447,947|
|PRIVATE FUND INVESTMENTS - 19.79%|
|BCP Great Lakes Fund LP||10,613,306||$||10,649,391|
|Hercules Private Global Venture Growth Fund I||3,894,480||3,894,480|
|Triplepoint Private Venture Credit||283,164||4,485,317|
|TOTAL PRIVATE FUND INVESTMENTS|
|SHORT TERM INVESTMENTS - 1.78%|
|Money Market Fund - 1.77%|
|First American Government Obligations Fund||(7 Day Yield 0.03%)||1,706,694||$||1,706,694|
|TOTAL SHORT TERM INVESTMENTS|
|TOTAL INVESTMENTS - 137.67%|
|LIABILITIES IN EXCESS OF OTHER ASSETS - (37.67)%||(36,215,419||)|
|NET ASSETS - 100.00%||$||96,146,150|
|(a)||Variable rate investment. Interest rates reset periodically. Interest rate shown reflects the rate in effect at September 30, 2021. For securities based on a published reference rate and spread, the reference rate and spread are included in the description above.|
|(b)||Fair valued as determined in good faith in accordance with procedures established by the Board of Trustees.|
|(c)||The level 3 assets were a result of unavailable quoted prices from an active market or the unavailability of other significant observable inputs.|
|(d)||Collateralized Loan Obligations (“CLO”) equity positions are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying securities less contractual payments to debt holders and fund expenses. The effective yield is estimated based upon the current projection of the amount and timing of these recurring distributions in addition to the estimated amount of terminal principal payment. Effective yields for the CLO equity positions are updated generally once a quarter or on a transaction such as an add-on purchase, refinancing or reset. The estimated yield and investment cost may ultimately not be realized. Total fair value of the securities is $8,380,274, which represents 10.02% of net assets as of September 30, 2021.|
|(e)||Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities are not restricted and may normally be sold to qualified institutional buyers in transactions exempt from registration. Total fair value of Rule 144A securities amounts to $35,307,508, which represents 36.72% of net assets as of September 30, 2021.|
|LIBOR - London Interbank Offered Rate|
|1M US L - 1 Month LIBOR as of September 30, 2021 was 0.08%|
|3M US L - 3 Month LIBOR as of September 30, 2021 was 0.13%|
See Notes to Consolidated Schedule of Investments.
Flat Rock Core Income Fund
Notes to Quarterly Consolidated Schedule of Investments
September 30, 2021 (Unaudited)
Flat Rock Core Income Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended, (the "1940 Act") as a non-diversified, closed-end management investment company. The shares of beneficial interest of the Fund (the “Shares”) are continuously offered under Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). The Fund operates as an interval fund pursuant to Rule 23c-3 under the 1940 Act, and has adopted a fundamental policy to conduct quarterly repurchase offers at net asset value (“NAV”).
The Fund's investment objective is the preservation of capital while generating current income from its debt investments and seeking to maximize the portfolio’s total return.
The Fund was formed as a Delaware statutory trust on August 18, 2020 and operates pursuant to an Amended and Restated Agreement and Declaration of Trust governed by and interpreted in accordance with the laws of the State of Delaware. The Fund had no operations from that date to November 23, 2020, other than those related to organizational matters and the registration of its shares under applicable securities laws.
FRC Funding I, LLC, a wholly owned subsidiary, is consolidated in the Fund’s Schedule of Investments.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Fund is an investment company under U.S. GAAP and follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946.
Use of Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from these estimates.
Security Valuation: The Fund records its investments at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques used to determine fair value are further described below. The Fund determines the NAV of its shares daily as of the close of regular trading (normally, 4:00 p.m., Eastern time) on each day that the New York Stock Exchange ("NYSE") is open for business.
Short-term debt securities having a remaining maturity of 60 days or less when purchased are valued at cost adjusted for amortization of premiums and accretion of discounts, which approximates fair value.
The Board is responsible for the valuation of the Fund’s portfolio investments for which market quotations are not readily available, as determined in good faith pursuant to the Fund’s valuation policy and consistently applied valuation process. The Board has delegated day-to-day responsibility for implementing the portfolio valuation process set forth in the valuation policy to the investment adviser. If market quotations are not readily available, securities or other assets will be valued at their fair market value as determined using the “fair value” procedures approved by the Board. In these cases, the Fund’s NAV will reflect certain portfolio investment’s fair value rather than their market price. Fair value pricing involves subjective judgments and it is possible that the fair value determined for an investment may be materially different than the value that could be realized upon the sale of that investment. The fair value prices can differ from market prices when they become available or when a price becomes available.
The Fund intends to invest directly in Senior Loans (either in the primary or secondary markets). Each Senior Loan held by the Fund will be fair valued by a third-party valuation firm engaged by the Fund each quarter. Certain of the Senior Loans held by the Fund will be broadly syndicated loans. Broadly syndicated loans will be valued by using readily available market quotations or another commercially reasonable method selected by an independent, third party pricing service or by using broker quotations.
For each Senior Loan, the Fund will obtain a valuation from a third-party valuation firm each quarter when it receives financial updates from portfolio companies. Valuations will be updated whenever material information is received from portfolio companies. As a proxy for discount rates and market comparables, the Adviser will look to the S&P/LSTA U.S. Leveraged Loan 100 Index (the “LSTA Index”) for significant price movements. The LSTA Index is a market value-weighted index designed to track the performance of the U.S. leveraged loan market based upon market weightings, spreads and interest payments. The LSTA Index is comprised of senior secured loans denominated in U.S. dollars that meet certain selection criteria. If the LSTA index cumulative change is greater than 1% or less than -1% from the completion date of the most recent valuation, then the Adviser will adjust the value of the Senior Loan by 20% of the LSTA Index change. For example, if the LSTA Index trades down or up by 5%, then the Adviser will adjust the value of the Senior Loans by 1% to mirror the LSTA Index. Furthermore, if the LSTA Index moves another 1% (over 2% cumulative change) in either direction, then the Adviser will further adjust the value based on the aforementioned methodology.
In addition, the values of the Fund’s Senior Loans are adjusted daily based on the estimated total return that the asset will generate during the current quarter. The Adviser will monitor these estimates daily and update them as necessary if macro or individual changes warrant any adjustments. To the extent adjustments are necessary, the Senior Loans may be valued based on prices supplied by a pricing agent(s), based on broker or dealer supplied valuations, based on model pricing, or based on matrix pricing, which is a method of valuing securities or other assets by reference to the value of other securities or other assets with similar characteristics, such as rating, interest rate and maturity. At the end of the quarter, each Senior Loan’s value is adjusted based on the actual income and appreciation or depreciation realized by such loan when its quarterly valuations and income are reported. The Fund’s Senior Loans are valued without accrued interest, and accrued interest is reported as income in the Fund’s statement of operations.
The Fund may invest in junior debt or equity tranches of CLOs. These investments will be valued based on the last reported bid prices supplied by an independent, third party pricing service engaged by the Fund. If the last reported bid price is not readily available or is otherwise deemed to be unreliable by the Adviser, then such securities will be valued at fair value pursuant to procedures adopted by the Board.
All available information, including non-binding indicative bids which may not be considered reliable, typically will be considered by the Adviser in making its fair value determinations. In some instances, there may be limited trading activity in a security even though the market for the security is considered not active. In such cases the Adviser will consider the number of trades, the size and timing of each trade, and other circumstances around such trades, to the extent such information is available. The Fund will engage third-party valuation firms to provide assistance to the Board in valuing a substantial portion of the Fund’s investments. The Adviser expects to evaluate the impact of such additional information and factor it into its consideration of fair value.
Investments in private investment companies are measured based upon NAV as a practical expedient to determine fair value. The Company applies the practical expedient to private investment companies on an investment-by-investment basis, and consistently with the Company’s entire position in a particular investment, unless it is probable that the Company will sell a portion of an investment at an amount different from the NAV of the investment. Each of these investments has certain restrictions with respect to rights of withdrawal by the Company as specified in the respective agreements. Generally, the Company is required to provide notice of its intent to withdraw after the investment has been maintained for a certain period of time. The management agreements of the private investment companies provide for compensation to the managers in the form of fees ranging from 0% to 2% annually of the net assets and performance incentive allocations or fees ranging from 0% to 20% on net profits earned.
The fair value of securities may be difficult to determine and thus judgment plays a greater role in the valuation process. The fair valuation methodology may include or consider the following guidelines, as appropriate: (1) evaluation of all relevant factors, including but not limited to, pricing history, current market level and supply and demand of the respective security; (2) comparison to the values and current pricing of securities that have comparable characteristics; (3) knowledge of historical market information with respect to the security; and (4) other factors relevant to the security which would include, but not be limited to, duration, yield, fundamental analytical data, the U.S. Treasury yield curve and credit quality.
The Fund has engaged third-party valuation firms to provide assistance to the Board in valuing certain of the Fund’s investments. The Board may evaluate the impact of such additional information, and factor it into its consideration of fair value.
Securities Transactions and Investment Income: Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Discounts and premiums on securities purchased are amortized or accreted using the effective interest method. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the identified cost basis method for financial reporting purposes. Interest income from investments in the “equity” class of collateralized loan obligation (“CLO”) funds will be recorded based upon an estimate of an effective yield to expected maturity utilizing assumed cash flows in accordance with FASB ASC 325-40, Beneficial Interests in Securitized Financials Assets.
3. FAIR VALUE MEASUREMENTS
The Fund utilizes various inputs to measure the fair value of its investments. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities that the Fund has the ability to access at the measurement date.
Level 2 - Significant observable inputs (including quoted prices for the identical instrument on an inactive market, quoted prices for similar instruments, interest rates, prepayment spreads, credit risk, yield curves, default rates and similar data).
Level 3 - Significant unobservable inputs (including the Fund's own assumptions in determining the fair value of the investments) to the extent relevant observable inputs are not available, for the asset or liability at the measurement date.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, 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 in its entirety. The inputs used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the inputs used to value the Fund's investments under the fair value hierarchy levels as of September 30, 2021:
|Investments in Securities at Value|
Level 1 – Quoted Prices
Level 2 – Significant Observable Inputs
Level 3 – Significant Unobservable Inputs
|First Lien Senior Secured Debt||$||–||$||12,379,410||$||57,844,543||$||70,223,953|
|Collateralized Loan Obligations Equity||–||–||12,953,787||12,953,787|
|Collateralized Loan Obligations Debt||–||–||28,447,947||28,447,947|
|Short Term Investments||1,706,694||–||–||1,706,694|
The Fund held private fund investments with a fair value of $19,029,188 that in accordance with GAAP, are valued at net asset value as a “practical expedient” and are excluded from the fair value hierarchy as of September 30, 2021. For the period ended September 30, 2021, there were no transfers into or out of Level 3.
The following is a reconciliation of the fair value of investments for which the Fund has used Level 3 unobservable inputs in determining fair value as of September 30, 2021:
|First Lien Senior Secured Debt||Collateralized Loan Obligations Equity||Collateralized Loan Obligations Debt||Total|
|Balance as of December 31, 2020||$||69,008,204||$||2,000,000||$||8,001,252||$||79,009,456|
|Accrued discount/ premium||160,946||15,477||190,812||367,235|
|Change in Unrealized Appreciation/(Depreciation)||1,135,640||169,810||79,835||1,385,285|
|Transfer into Level 3||–||–||–||–|
|Transfer out of Level 3||–||–||–||–|
|Balance as of September 30, 2021||$||57,844,542||$||12,953,787||$||28,447,947||$||99,246,276|
|Net change in unrealized appreciation/(depreciation) attributable to Level 3 investments held at September 30, 2021||$||1,359,117||$||169,810||$||303,864||$||1,832,791|
The following table summarizes the valuation techniques and significant unobservable inputs used for the Fund's investments that are categorized in Level 3 of the fair value hierarchy as of September 30, 2021:
|Asset Class||Fair Value||Valuation Technique(s)||Unobservable Input(s)||Input Value(s)|
|First Lien Senior Secured Debt||$ 57,844,542||Third-party vendor pricing service||Broker quotes||N/A|
|Collateralized Loan Obligations Equity||12,953,787||Third-party vendor pricing service||Broker quotes||N/A|
|Collateralized Loan Obligations Debt||28,447,947||Third-party vendor pricing service||Broker quotes||N/A|
4. GENERAL COMMITMENTS AND CONTINGENCIES
As of September 30, 2021, the Fund had unfunded commitments outstanding, which could be extended at the option of the borrower, as detailed below:
|Borrower||Expiration Date(1)||Fair Value|
|Accordion Partners Delayed Draw Term Loan||March 24, 2023||$||591,006|
|BCP Great Lakes Fund||N/A||1,686,694|
|Diversified Risk Holdings||April 30, 2026||296,296|
|Hercules Private Global Venture Growth Fund||July 1, 2027||11,105,520|
|Inszone||June 30, 2022||829,341|
|Marble Point Delayed Draw Term Loan||August 11, 2022||937,500|
|TriplePoint Venture Credit||N/A||5,609,158|
|Xanitos Delayed Draw Term Loan||June 25, 2024||1,000,000|
|Total unfunded commitments||$||21,464,509|
|(1)||Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.|
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