ITEM 1A. RISK FACTORS
Investing in shares of our Common Stock involves a number of significant risks. Before you invest in shares of our
Common Stock, you should be aware of various risks, including those described below. The risks set out below are not the
only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may
also impair our operations and performance. If any of the following events occur, our business, financial condition, results
of operations and cash flows could be materially and adversely affected. In such case, our net asset value could decline,
and you may lose all or part of your investment. The risk factors described below are the principal risk factors associated
with an investment in us as well as those factors generally associated with an investment company with investment
objectives, investment policies, capital structure or trading markets similar to ours.
SUMMARY OF RISK FACTORS
The following is a summary of the principal risk factors associated with an investment in us:
We are subject to risks and conflicts relating to our business and structure which may make it more difficult for you
to sell your shares of the Company or cause you to lose all or part of your investment:
• Operating as a BDC imposes numerous constraints and costs on us, reducing our operating flexibility. In addition, if
we fail to maintain our status as a BDC (including if we do not invest a sufficient amount in qualifying assets), we
might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions.
• Our investment strategy prioritizes lending to businesses in Working Class Areas and employing Working Class
People, which may limit available investment opportunities and result in the Company underperforming relative to
peers that do not maintain similar objectives.
• Our Prohibited Investments policy limits the universe of available investment opportunities, which may result in the
Company underperforming relative to peers that do not maintain similar restrictions.
• Our financial condition and results of operation depend on our ability to manage future growth effectively. We depend
upon our Adviser and Administrator (each as defined below) for our success and upon their access to the investment
professionals and partners of Lafayette Square and its affiliates.
• Each of the Adviser and the Administrator can resign on 60 days’ notice, and we may not be able to find a suitable
replacement within that time, which could adversely affect our financial condition, business, and results of operations.
• There are significant potential conflicts of interest that could affect our investment returns, including conflicts related
to obligations that the Adviser or its affiliates have to, and fees paid by, other investment accounts.
• Our management and incentive fee structure may create incentives for the Adviser that are not fully aligned with the
interests of our stockholders and may induce the Adviser to make speculative investments.
• We will be subject to corporate-level income tax if we are unable to maintain qualification as a RIC under the IRC.
• We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash
representing such income.
• If we are not treated as a “publicly offered regulated investment company,” as defined in the IRC, U.S. stockholders
that are individuals, trusts or estates will be taxed as though they received a distribution of some of our expenses.
• We intend to finance a portion of our investments with borrowed money, which will magnify the potential for gain or
loss on amounts invested and may increase the risk of investing in us.
• We will be subject to risks associated with any credit facility, and a ny inability to renew or replace a credit facility
could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders.
• Our Shareholders may fail to fund their Capital Commitments when due.
• Our reliance on Rule 506(c) of Regulation D permits general solicitation in connection with our Private Offering,
which subjects us to additional regulatory requirements and risks.
• Our Board may change our investment objective and operating policies without prior notice or stockholder approval.
• We do not currently have comprehensive documentation of our internal controls and have not yet tested our internal
controls in accordance with Section 404 of SOX, and failure to develop such controls in accordance with Section 404
could have a material adverse effect on our business and the value of our Common Stock.
• We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn,
negatively affect the value of our Common Stock and our ability to pay distributions.
• The LS SBICs are subject to SBA regulations and risks associated with SBA-guaranteed debentures.
• We are subject to risks associated with artificial intelligence and machine learning technology.
We are subject to risks relating to our investments, which could cause you to lose all or part of your investment:
• We may invest in distressed or highly leveraged companies, which could be risky and may enter into bankruptcy
proceedings, causing you to lose all or part of your investment.
• Subordinated liens on collateral securing debt investments that we make in our portfolio companies may be subject to
control by senior creditors with first priority liens.
• Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio
investments, reducing our net asset value through increased net unrealized depreciation.
• We have not yet identified all of the portfolio company investments we will acquire, and there is no certainty how long
it will take to identify such investments or if we will be able to find a sufficient number of such businesses .
• Our portfolio may initially be concentrated in a limited number of portfolio companies and industries, which will
subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt
instruments or if there is a downturn in a particular industry.
• Because we generally do not hold controlling equity interests in our portfolio companies, we cannot control such
companies or prevent decisions by their management that could decrease the value of our investments.
• The liability of each of the Adviser and the Administrator is limited, and we have agreed to indemnify each against
certain liabilities, which may lead them to act in a riskier manner than each would when acting for its own account.
• We may be subject to risks under hedging transactions.
• There can be no guarantee that our portfolio companies will adopt Managerial Assistance Recommendations or that
such recommendations will have their intended effect.
There are risks relating to your investment in our Common Stock:
• There is no public market for shares of our Common Stock , no ability for shareholders to redeem, and restrictions on
the ability of holders of our Common Stock to transfer.
• Our stockholders may experience dilution in their ownership percentage, including if they do not opt-in to our
dividend reinvestment plan.
• Our stockholders may receive shares of our Common Stock as distributions, which could result in adverse tax
consequences to them.
• We may, in the future, issue preferred stock, which could adversely affect the value of shares of Common Stock.
General risk factors:
• The impact of economic recessions or downturns may impair our portfolio companies and lead to defaults by our
portfolio companies, which could harm our operating results.
• Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and
results of operations.
• Ongoing international events, including geopolitical conflicts and trade policy uncertainty, have increased global
political and economic uncertainty, which may have a material impact on the Company's portfolio and the value of
your investment in the Company.
• We are subject to risks associated with the current interest rate environment, and to the extent we use debt to finance
our investments, changes in interest rates will affect our cost of capital and net investment income.
• Terrorist attacks, acts of war, natural disasters, outbreaks, or pandemics may impact our portfolio companies and our
Adviser and harm our business, operating results, and financial condition.
• A shareholder may be subject to filing requirements and the short-swing profits rules under the Exchange Act as a
result of an investment in us.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a
material adverse effect on our business, financial condition and/or operating results. For a more detailed discussion of the
risks that you should consider prior to investing in our securities, see the section below entitled “Risk Factors.”
Risks Relating to Our Business and Structure
Operating as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In
addition, if we fail to maintain our status as a BDC (including if we do not invest a sufficient portion of our assets in
qualifying assets), we might be regulated as a closed-end investment company, which would subject us to additional
regulatory restrictions.
The 1940 Act imposes numerous constraints on the operations of BDCs that do not apply to other investment vehicles
managed by our Adviser and its affiliates. BDCs are required, for example, to invest at least 70% of their total assets
primarily in "qualifying assets", such as securities of U.S. private or thinly traded public companies, cash, cash equivalents,
U.S. government securities, and other high-quality debt instruments that mature in one year or less from the date of
investment. These constraints and our Adviser’s limited operating history under these constraints may hinder our ability to
take advantage of attractive investment opportunities and to achieve our investment objective. Furthermore, any failure to
comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action
against us and/or expose us to claims of private litigants.
We may be precluded from investing in what our Adviser believes are attractive investments if such investments are not
qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we
will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo
attractive investment opportunities. Similarly, these rules could prevent us from making follow-on investments in existing
portfolio companies (which could result in the dilution of our position).
If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company that is required to
register under the 1940 Act, which would subject us to additional regulatory restrictions and significantly decrease our
operating flexibility. In addition, any such failure could cause an event of default under any outstanding indebtedness we
might have, which could have a material adverse effect on our business, financial condition or results of operations.
Our investment strategy prioritizes lending to businesses in Working Class Areas and employing Working Class People,
which may limit available investment opportunities and result in the Company underperforming relative to peers that do
not maintain similar objectives.
Our investment strategy is informed by Goal2030™ and is focused on lending to middle market businesses located in, or
employing, Working Class American communities, with the goal of creating and preserving jobs and stimulating economic
growth across the United States. In furtherance of this strategy, we seek to invest a substantial portion of our assets in
companies that are located in Working Class Areas or are Substantial Employers of Working Class People, and we aim to
invest at least 5% of our assets in each of our ten Target Regions. This focus limits the types, number, and geographic
distribution of investment opportunities available to us and, as a result, we may be unable to participate in transactions that
would otherwise meet our risk-return criteria. We may also base investment decisions in part on a prospective portfolio
company's alignment with Goal2030™ objectives, which may cause us to forgo opportunities that would have generated
greater returns. There is no guarantee that our investments will have their intended economic or social effects, and our
returns may be lower than those of other BDCs or private credit funds that do not maintain similar strategic objectives.
Our Prohibited Investments policy limits the universe of available investment opportunities, which may result in the
Company underperforming relative to peers that do not maintain similar restrictions.
We maintain a policy that prohibits investment in certain categories of companies and securities, including, among others,
companies involved in the production or retail of small arms and light weapons for civilian customers, tobacco and
cannabis companies, companies with significant involvement in thermal coal, oil, or shale gas extraction, companies
operating prisons or detention centers, companies involved in pornographic content, and companies involved in the
reprocessing and storage of nuclear waste (collectively, "Prohibited Investments"). While we believe these restrictions are
consistent with our investment strategy and the values of our institutional investor base, they reduce the number and types
of investment opportunities available to us. As a result, we may be unable to participate in transactions that would
otherwise meet our risk-return criteria, and our investment returns may be lower than those of other BDCs or private credit
funds that do not impose similar restrictions. In addition, the application of these restrictions requires judgment, and there
may be circumstances in which the classification of a prospective investment as a Prohibited Investment is uncertain, which
could result in the Company declining an otherwise attractive opportunity or, conversely, making an investment that is later
determined to be inconsistent with the policy. We can offer no assurance that our Prohibited Investments policy will not
adversely affect our ability to achieve our investment objective or that maintaining such restrictions will not have a material
adverse effect on our business, financial condition, or results of operations.
Insured depository institution shareholders that are subject to regulatory examination for CRA compliance may fail to
obtain favorable regulatory consideration of their investment under the CRA.
The CRA requires the three U.S. federal bank supervisory agencies (the FRB, the OCC, and the FDIC) to encourage certain
FDIC-insured financial institutions to help meet the credit needs of their local communities, including LMI neighborhoods,
consistent with the safe and sound operation of such institutions. Each agency operates under substantially similar rules and
regulatory guidance for evaluating and rating an institution’s CRA performance. These rules vary according to an
institution’s asset size and business strategy.
In October 2023, the three federal banking agencies issued a new unified set of CRA regulations (the “New CRA Final
Rule”) that, among other changes, implemented a tiered framework with separate evaluations for retail lending, retail
services and products, community development financing, and community development services for banks with over $2
billion in total assets. Published in February 2024, the New CRA Final Rule requires banks to comply with most
provisions beginning on January 1, 2026, with certain other requirements becoming applicable on January 1, 2027. Until
these regulations become applicable, the current state of CRA regulations is unsettled, and may continue to be so even after
the new regulations are applicable. This is especially so in light of current, ongoing litigation, which has resulted in an
injunction of the New CRA Final Rule, as well as the change in the U.S. presidential administration. As such, this changing
state of laws, regulations or the interpretation of laws and regulations related to the CRA may result in a failure of insured
depository institution shareholders that are subject to regulatory examination for CRA compliance to obtain favorable
regulatory consideration of their investment under the CRA.
Investment in the Company is not currently deemed a CRA eligible investment by any of the U.S. federal bank supervisory
agencies, and the OCC declined to prospectively confirm that an investment in the Company would qualify as a CRA
activity when the Company sought clarity on the question from the OCC (which was prior to the adoption of the New CRA
Final Rule). Investments are not typically designated as CRA-qualifying by any governmental agency at the time of
issuance. The final determinations that investments are CRA-qualifying are made by the federal and, where applicable,
state bank supervisory agencies during their periodic examinations of financial institutions. We generally seek to obtain
certain data from our borrowers, both during the underwriting process and on an ongoing basis throughout the term of the
loan, that will allow an insured depository institution to apply for credit for the investment under the CRA with the
appropriate banking regulator. This data is expected to include statistics regarding the borrowers’ composition and growth
as well as their impact on the communities where they operate, and who and from where such borrowers hire, as well as
other information that could be used to validate CRA eligibility such as the borrowers’ employment of LMI workers and
the borrowers’ locations and/or operations in Working Class Areas. This information is designed to be helpful in
substantiating the CRA eligibility of the investment. We can offer no assurance, however, that an investor in the Company
subject to CRA requirements will receive CRA credit for such investment, and insured depository institution investors
interested in applying for CRA credit must make their own assessment as to the likelihood that their banking regulator will
grant CRA credit. Whether investments in the Company will qualify in whole or in part for CRA credit will depend on the
composition of the Company’s investment portfolio over time and other factors, including changing regulatory criteria for
granting CRA credit for particular categories of investments.
Our financial condition and results of operation depend on our ability to manage future growth effectively.
Our ability to achieve our investment objective depends on our ability to grow, which depends, in turn, on the Adviser’s
ability to identify, invest in and monitor companies that meet our investment criteria. Accomplishing this result on a cost-
effective basis will depend on the Adviser’s structuring of the investment process, its ability to provide competent,
attentive, and efficient services to us, and our access to financing on acceptable terms. The management team of the
Adviser has substantial responsibilities under our Investment Advisory Agreement. We can offer no assurance that any
current or future employees of the Adviser will contribute effectively to the work of, or remain associated with, the
Adviser. We caution you that the principals of our Adviser or Administrator will also be called upon to provide managerial
assistance to our portfolio companies and those of other investment vehicles which are managed by the Adviser. Such
demands on their time may distract them or slow our rate of investment. Any failure to manage our future growth
effectively could have a material adverse effect on our business, financial condition, and results of operations.
We depend upon our Adviser and Administrator for our success and upon their access to the investment professionals
and partners of Lafayette Square and its affiliates.
We do not have any internal management capacity or employees. We depend on the diligence, skill, and network of
business contacts of the senior investment professionals of our Adviser and Administrator to achieve our investment
objective. We expect that the Adviser will evaluate, negotiate, structure, close, and monitor our investments in accordance
with the terms of the Investment Advisory Agreement. We can offer no assurance, however, that the senior investment
professionals of the Adviser will continue to provide investment advice to us. The loss of any member of the Adviser’s
Investment Committee or of other senior investment professionals of the Adviser and its affiliates would limit our ability to
achieve our investment objective and operate as we anticipate. In addition, we can offer no assurance that the resources,
relationships, and expertise of Lafayette Square will be available for every transaction or generally during the term of the
Company. This could have a material adverse effect on our financial condition, results of operations, and cash flows.
We depend on the diligence, skill, and network of business contacts of the professionals available to our Administrator to
carry out the administrative functions necessary for us to operate, including the ability to select and engage sub-
administrators and third-party service providers. We can offer no assurance, however, that the professionals of the
Administrator will continue to provide administrative services to us. In addition, we can offer no assurance that the
resources, relationships, and expertise of Lafayette Square will be available to the Administrator throughout the term of the
Company. This could have a material adverse effect on our financial condition, results of operations, and cash flows.
We depend on the Adviser’s key personnel in seeking to achieve our investment objectives.
The Company does not have any internal management capacity or employees. Through staffing agreements, the Adviser
depends on the investment professionals of affiliates of Lafayette Square and such investment professionals’ diligence,
skill, and network of business contacts. Our success will depend to a significant extent on the continued service and
coordination of senior management professionals of our Adviser pursuant to the staffing agreements. The diversion of time
by, or departure of, any of these individuals could have a material adverse effect on our ability to achieve our investment
objectives.
The Adviser's personnel primarily work from home.
The Adviser's personnel primarily work from home as a result of a technology-first business model, among other things. To
the extent that such personnel, as a result of working remotely, rely more heavily on technology systems for their business-
related communications and information sharing, the Adviser could be more vulnerable to cybersecurity incidents and
cyberattacks and could have more difficulty resuming normal operations in the event it is the target of such incident or
attack.
The Adviser's dependence on technology.
Our operations are highly dependent on technology which is comprised of proprietary software and systems that work with
third-party tools to strengthen origination, underwriting, and monitoring processes. There is a risk that software or other
technology malfunctions or programming inaccuracies may impair the performance of these systems. System impairment
may negatively impact one or more of such processes, which could impact performance, potentially materially.
The Adviser may frequently be required to make investment analyses and decisions on an expedited basis in order to
take advantage of investment opportunities, and our Adviser may not have knowledge of all circumstances that could
impact an investment by the Company.
Investment analyses and decisions by the Adviser may frequently be required to be undertaken on an expedited basis to
take advantage of investment opportunities. In such cases, the information available to the Adviser at the time of making an
investment decision may be limited. Therefore, we can offer no assurance that the Adviser will have knowledge of all
circumstances that may adversely affect a portfolio investment, and the Adviser may make portfolio investments which it
would not have made if more extensive due diligence had been undertaken. In addition, the Adviser may rely upon
independent consultants and advisors in connection with its evaluation of proposed investments, and we can offer no
assurance as to the accuracy or completeness of the information provided by such independent consultants and advisors or
to the Adviser’s right of recourse against them in the event errors or omissions do occur.
Each of the Adviser and the Administrator can resign on 60 days’ notice, and we may not be able to find a suitable
replacement within that time, resulting in a disruption in our operations that could adversely affect our financial
condition, business, and results of operations.
The Adviser has the right to resign under the Investment Advisory Agreement at any time upon not less than 60 days’
written notice, and the Administrator has the right to resign under the Administration Agreement at any time upon not less
than 60 days’ written notice, in each case whether we have found a replacement or not. An affiliate of the Adviser is the
borrower under a credit facility and pledged its ownership interests in the Adviser as collateral for that facility. In the event
of a default under such credit facility, the foreclosure of these ownership interests would cause a change of control of the
Adviser, which would effect an automatic termination of the Investment Advisory Agreement. If the Adviser or
Administrator resigns or the Investment Advisory Agreement is terminated, we may not be able to find a new investment
adviser or administrator or hire internal management with similar expertise and ability to provide the same or equivalent
services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to
experience a disruption, our business, financial condition, results of operations and cash flows as well as our ability to pay
distributions are likely to be adversely affected, and the value of our shares may decline. In addition, the coordination of
our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement
with a single institution or group of executives having the expertise possessed by the Adviser or Administrator and their
respective affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of
such management and their lack of familiarity with our investment objective may result in additional costs and time delays
that may adversely affect our business, financial condition, results of operations and cash flows.
There are significant potential conflicts of interest that could affect our investment returns, including conflicts related
to obligations that the Adviser’s Investment Committee, the Adviser or its affiliates have to other investment accounts
and conflicts related to fees and expenses of such other investment accounts.
As a result of our arrangements with the Adviser and its affiliates and the Adviser’s Investment Committee, there may be
times when the Adviser or such persons have interests that differ from those of our stockholders, giving rise to a conflict of
interest. Lafayette Square and/or the Adviser are expected to provide investment advisory services for other investment
funds, accounts, and other vehicles managed or advised by Lafayette Square or its affiliates (“ Affiliated Investment
Accounts”) with a wide variety of investment objectives that in some instances may overlap or conflict with the investment
objectives of the Company and present conflicts of interest. In addition, Lafayette Square may also, from time to time,
create new or successor Affiliated Investment Accounts that may compete with the Company and present similar conflicts
of interest. See “ Item 13. Certain Relationships and Related Transactions, and Director Independence .” In serving in these
multiple capacities, Lafayette Square, including the Adviser, the Investment Committee, and the investment team, may
have obligations to Other Clients, or investors in Affiliated Investment Accounts, the fulfillment of which may not be in the
best interests of us or our stockholders. Our investment objective may overlap with the investment objectives of certain
Affiliated Investment Accounts. As a result, the members of the Investment Committee may face conflicts in the allocation
of investment opportunities among us and other investment funds, programs, accounts, and businesses advised by or
affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher management or incentive fees,
greater expense reimbursements or overhead allocations, or permit the Adviser and its affiliates to receive higher
origination and other transaction fees, all of which may contribute to this conflict of interest and create an incentive for the
Adviser to favor such other accounts. For example, the 1940 Act restricts the Adviser from receiving more than a 1% fee in
connection with loans that we acquire or “originate,” a limitation that does not exist for certain other accounts.
Lafayette Square expects to invest on its own behalf and on behalf of its Affiliated Investment Accounts in a wide variety
of investment opportunities. Lafayette Square and, to the extent consistent with applicable law and/or exemptive relief and
the Adviser’s allocation policies and procedures, its Affiliated Investment Accounts will be permitted to invest in
investment opportunities without making such opportunities available to the Company beforehand. Subject to the
requirements of an applicable exemptive relief, Lafayette Square may offer investments that fall into the investment
objectives of an Affiliated Investment Account to such account or make such investment on its own behalf, even though
such investment also falls within the investment objectives of the Company. The Company may invest in opportunities that
Lafayette Square and/or one or more Affiliated Investment Accounts have declined, and vice versa. These developments
may reduce the number of investment opportunities available to the Company and may create conflicts of interest in
allocating investment opportunities among the Adviser, the Company, and the Affiliated Investment Accounts. Lafayette
Square and its affiliates will allocate opportunities among one or more of the Company, other affiliated funds and such
Affiliated Investment Accounts in accordance with the terms of its allocation policies and procedures. Shareholders should
note that the conflicts inherent in making such allocation decisions may not always be resolved to the advantage of the
Company. We can offer no assurance that the Company will have an opportunity to participate in certain opportunities that
fall within the Company’s investment objectives. To the extent the Company does not obtain a co-investment exemptive
order, or if the granting of such order is delayed, the Company may only be able to participate in certain negotiated
investment opportunities on a rotational basis.
It is possible that Lafayette Square or an Affiliated Investment Account will invest in a company that is or becomes a
competitor of a portfolio company of the Company. Such investment could create a conflict between the Company, on the
one hand, and Lafayette Square or the Affiliated Investment Account, on the other hand. In such a situation, Lafayette
Square may also have a conflict in the allocation of its own resources to the portfolio company. In addition, certain
Affiliated Investment Accounts will be focused primarily on investing in other funds, which may have strategies that
overlap and/or directly conflict and compete with the Company.
The Adviser’s investment professionals are engaged in other investment activities on behalf of Other Clients.
Certain investment professionals who are involved in our activities remain responsible for the investment activities of other
Affiliated Investment Accounts managed by the Adviser and its affiliates, and they will devote time to the management of
such investments and other newly created Affiliated Investment Accounts (whether in the form of funds, separate accounts
or other vehicles), as well as their own investments. In addition, in connection with the management of investments for
other Affiliated Investment Accounts, members of Lafayette Square and its affiliates may serve on the boards of directors
of or advise companies that may compete with our portfolio investments. Moreover, these Affiliated Investment Accounts
managed by Lafayette Square and its affiliates may pursue investment opportunities that may also be suitable for us.
The Adviser’s Investment Committee, the Adviser or its affiliates may possess material non-public information, limiting
our investment discretion.
Principals of the Adviser and its affiliates and members of the Adviser’s Investment Committee may serve as directors of,
or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf. In
the event that material nonpublic information is obtained with respect to such companies, or we become subject to trading
restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we could
be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may
have an adverse effect on us.
Our management and incentive fee structure may create incentives for the Adviser and Administrator that are not fully
aligned with the interests of our stockholders and may induce the Adviser to make speculative investments.
In the course of our investing activities, we pay management and incentive fees to the Adviser. The base management fee is
based on our average gross assets, and the incentive fee is computed and paid on income, both of which include leverage.
As a result, our shareholders will invest on a “gross” basis and receive distributions on a “net” basis after expenses,
resulting in a lower rate of return than one might achieve through direct investments. Because these fees are based on our
average gross assets, the Adviser benefits when we incur debt or use leverage. Under certain circumstances, the use of
leverage may increase the likelihood of default on our debt, which would disfavor us or our stockholders.
Additionally, the incentive fee payable by us to the Adviser may create an incentive for the Adviser to cause us to realize
capital gains or losses that may not be in the best interests of us or our stockholders. Under the incentive fee structure, the
Adviser benefits when we recognize capital gains and, because the Adviser determines when an investment is sold, the
Adviser controls the timing of the recognition of such capital gains. Our Board is charged with protecting our stockholders’
interests by monitoring how the Adviser addresses these and other conflicts of interest associated with its management
services and compensation.
The part of the management and incentive fees payable to Adviser that relates to our net investment income is computed
and paid on income that may include interest income that has been accrued but not yet received in cash, such as a market
discount, debt instruments with Paid-in-Kind (“PIK”) interest, preferred stock with PIK dividends, zero-coupon securities,
and other deferred interest instruments and may create an incentive for the Adviser to make investments on our behalf that
are riskier or more speculative than would be the case in the absence of such compensation arrangement. This fee structure
may be considered to give rise to a conflict of interest for the Adviser to the extent that it may encourage the Adviser to
favor debt financings that provide for deferred interest, rather than current cash payments of interest. Under these
investments, we will accrue the interest over the life of the investment, but we will not receive the cash income from the
investment until the end of the term. Our net investment income used to calculate the income portion of our investment fee,
however, includes accrued interest. The Adviser may have an incentive to invest in deferred interest securities in
circumstances where it would not have done so but for the opportunity to continue to earn the fees even when the issuers of
the deferred interest securities would not be able to make actual cash payments to us on such securities. This risk could be
increased because the Adviser is not obligated to reimburse us for any fees received even if we subsequently incur losses or
never receive in cash the deferred income that was previously accrued.
In addition, we pay to the Administrator our allocable portion of certain expenses incurred by the Administrator in
performing its obligations under the Administration Agreement, such as our allocable portion of the cost of our chief
financial officer and chief compliance officer. These arrangements create conflicts of interest that our Board must monitor.
Our ability to enter into transactions with our affiliates will be restricted.
We will be prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the
prior approval of a majority of our independent directors and, in some cases, the SEC. Any person that owns, directly or
indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act. As such we
will generally be prohibited from buying or selling any securities from or to such affiliate on a principal basis, absent the
prior approval of our Board and, in some cases, the SEC. The 1940 Act also prohibits certain “joint” transactions with
certain of our affiliates, which in certain circumstances could include investments in the same portfolio company (whether
at the same or different times to the extent the transaction involves a joint investment), without prior approval of our Board
and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from
buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint
transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact
business with our officers or directors or their affiliates.
The SEC has interpreted the BDC regulations governing transactions with affiliates to prohibit certain joint transactions
involving entities that share a common investment adviser. As a result of these restrictions, we may be prohibited from
buying or selling any security from or to any portfolio company that is controlled by a fund managed by the Adviser or
their respective affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that
would otherwise be available to us.
We may, however, invest alongside our Adviser’s and/or its affiliates’ other Clients in certain circumstances where doing
so is consistent with applicable law and SEC staff interpretations, guidance, and exemptive relief orders. However,
although the Adviser seeks to allocate investment opportunities fairly in the long-run, we can offer no assurance that
investment opportunities will be allocated to us fairly or equitably in the short-term or over time. We have applied for and
received exemptive relief to co-invest with affiliates of our Adviser in privately negotiated transactions.
In situations when co-investment with affiliates’ other Clients is not permitted under the 1940 Act and related rules,
existing or future staff guidance, or the terms and conditions of exemptive relief granted to us by the SEC (as discussed
above), our Adviser will need to decide which client or clients will proceed with the investment. Generally, we will not be
entitled to make a co-investment in these circumstances and, to the extent that another client elects to proceed with the
investment, we will not be permitted to participate. Moreover, except in certain circumstances, we will not invest in any
issuer in which an affiliate’s other client holds a controlling interest.
Shares of our Common Stock are illiquid investments for which there is not a secondary market.
We do not know at this time what circumstances will exist in the future, and therefore we do not know what factors our
Board will consider in contemplating an Exchange Listing or other Liquidity Event in the future. As a result, even if we do
complete a Liquidity Event to establish a secondary market for shares of our Common Stock, you may not receive a return
of all of your invested capital. If we do not successfully complete a Liquidity Event, liquidity for your shares of Common
Stock may be limited to participation in any repurchase offers that our Board may determine to conduct, which we do not
currently intend to conduct. In addition, in any repurchase offer, if the amount requested to be repurchased in any
repurchase offer exceeds the repurchase offer amount, repurchases of shares of Common Stock would generally be made
on a pro-rata basis (based on the number of shares of Common Stock put to us for repurchases), not on a first-come, first-
served basis.
Even if we undertake a Liquidity Event, we cannot assure you a public trading market will develop or, if one develops, that
such trading market can be sustained. Shares of companies offered in an initial public offering or a Liquidity Event often
trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. In addition,
following a Liquidity Event, shareholders may be restricted from selling or disposing of their shares of Common Stock by
applicable securities laws, contractually by a lock-up agreement with the underwriters of a Liquidity Event and
contractually through restrictions contained in the subscription agreement in respect of shares of our Common Stock. Also,
shares of closed-end investment companies and BDCs frequently trade at a discount from their net asset value. This
characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per Share
may decline. We cannot predict whether shares of our Common Stock, if listed on a national securities exchange, will trade
at, above, or below net asset value.
Our reliance on Rule 506(c) of Regulation D permits general solicitation in connection with our Private Offering and
subjects us to additional requirements and risks.
We conduct our Private Offering in reliance on Rule 506(c) of Regulation D under the Securities Act, which permits us to
engage in general solicitation and general advertising in connection with the offer and sale of shares of our Common Stock,
provided that all purchasers are verified accredited investors. This exemption requires us to take reasonable steps to verify
the accredited investor status of each purchaser, which imposes additional compliance costs and operational burdens
beyond those associated with offerings conducted under Rule 506(b), under which we previously conducted our Private
Offering. If we fail to take reasonable verification steps with respect to any purchaser, or if a purchaser is later determined
not to have been an accredited investor at the time of purchase, we could lose the benefit of the Rule 506(c) exemption with
respect to that offering, which could result in a violation of Section 5 of the Securities Act and expose us to potential
rescission claims by investors, SEC enforcement action, and civil liability. We can offer no assurance that our verification
procedures will be sufficient in all cases or that our general solicitation activities will not expose us to regulatory risk or
litigation.
We operate in a highly competitive market for investment opportunities, which could reduce returns and result in
losses.
The business of identifying and structuring investments of the types contemplated by the Company is competitive and
involves a high degree of uncertainty. The Company will be competing for investments with other investment funds, as
well as more traditional lending institutions and private credit-focused competitors. Over the past several years, an
increasing number of funds have been formed, with investment objectives similar to, or overlapping with, those of the
Company (and many such existing funds have grown substantially in size). In addition, other firms and institutions are
seeking to capitalize on the perceived opportunities with vehicles, funds, and other products that are expected to compete
with the Company for investments. Other shareholders may make competing offers for investment opportunities that we
identify. Even after an agreement in principle has been reached with the Board or owners of an acquisition target,
consummating the transaction is subject to a myriad of uncertainties, only some of which are foreseeable or within the
control of the Adviser. Some of our competitors may have access to greater amounts of capital and to capital that may be
committed for longer periods of time or may have different return thresholds than the Company, and thus these competitors
may have advantages over the Company. In addition, issuers may prefer to take advantage of favorable high-yield markets
and issue subordinated debt in those markets, which could result in fewer credit investment opportunities for the Company.
In addition to competition from other shareholders, the availability of investment opportunities generally will be subject to
market conditions as well as, in many cases, the prevailing regulatory or political climate. There may also be insufficient or
inconsistent demand from middle market businesses for capital investment and managerial assistance. We can offer no
assurance that the Company will be successful in obtaining suitable investments, or that if we make such investments, the
objectives of the Company will be achieved.
We will be subject to corporate-level income tax if we are unable to maintain qualification as a RIC.
In order to maintain RIC tax treatment under the IRC, we must meet certain source-of-income, asset diversification, and
distribution requirements. The distribution requirement for a RIC is satisfied if we distribute to our stockholders
distributions for U.S. federal income tax purposes of an amount generally at least equal to 90% of our investment company
taxable income, which is generally our net ordinary income plus the excess of our net short-term capital gains in excess of
our net long-term capital losses, determined without regard to any deduction for distributions paid, to our stockholders on
an annual basis. We are subject, to the extent we use debt financing, to certain asset coverage ratio requirements under the
1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from
making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to be
subject to tax as a RIC, in which case we will be subject to corporate-level income tax. To maintain status as a RIC, we
must also meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet
these requirements may result in our having to dispose of certain investments quickly in order to continue to qualify as a
RIC. Because most of our investments are in private or thinly traded public companies, any such dispositions could be
made at disadvantageous prices and may result in substantial losses. If we fail to qualify as a RIC for any reason and
become subject to corporate-level income tax, the resulting corporate taxes could substantially reduce our net assets, the
amount of income available for distributions to stockholders, the amount of our distributions, and the amount of funds
available for new investments. Such a failure would have a material adverse effect on our stockholders and us. See “ Item 1.
Material U.S. Federal Income Tax Considerations — Taxation as a RIC .”
We will need to raise additional capital to grow because we must distribute most of our income.
We will need additional capital to fund new investments and grow our portfolio of investments. We intend to access the
capital markets periodically to issue debt or equity securities (although we do not intend to issue preferred stock within one
year of the Effective Date) or borrow from financial institutions in order to obtain such additional capital. Unfavorable
economic conditions could increase our funding costs, limit our access to the capital markets, or result in a decision by
lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition,
we will be required to distribute each taxable year an amount at least equal to 90% of the sum of our net ordinary income
and net short-term capital gains in excess of net long-term capital losses, or investment company taxable income,
determined without regard to any deduction for distributions paid as distributions for U.S. federal income tax purposes, to
our stockholders to maintain our ability to be subject to tax as a RIC. As a result, these earnings are not available to fund
new investments. An inability to access the capital markets successfully could limit our ability to grow our business and
execute our business strategy fully and could decrease our earnings if any. This would have an adverse effect on the value
of our securities. If we are not able to raise capital and are at or near our targeted leverage ratios, we may receive smaller
allocations, if any, on new investment opportunities under the Adviser’s allocation policies and procedures.
We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash
representing such income.
For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as
the accretion of Original Issue Discount (“OID”). This may arise if we receive warrants in connection with the making of a
loan and in other circumstances, or through contracted PIK interest, which represents contractual interest added to the loan
balance and due at the end of the loan term. Such OID, which could be significant relative to our overall investment
activities, or increases in loan balances as a result of contracted PIK arrangements, is included in our income before we
receive any corresponding cash payments. We also may be required to include in income certain other amounts that we do
not receive in cash.
That part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that
may include interest that has been accrued but not yet received in cash, such as a market discount, debt instruments with
PIK interest, preferred stock with PIK dividends and zero-coupon securities. If a portfolio company defaults on a loan that
is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the
incentive fee will become uncollectible, and the Adviser will have no obligation to refund any fees it received in respect of
such accrued income.
The higher interest rates of PIK loans reflect the payment deferral and increased credit risk associated with these
instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans. PIK loans may
have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the
deferred payments and the value of any associated collateral. Market prices of zero-coupon or PIK securities are affected to
a greater extent by interest rate changes and may be more volatile than securities that pay interest periodically and in cash.
PIKs are usually less volatile than zero-coupon bonds, but more volatile than cash pay securities. Because original issue
discount income is accrued without any cash being received by us, required cash distributions may have to be paid from
offering proceeds or the sale of our assets without investors being given any notice of this fact. The deferral of PIK interest
increases the loan-to-value ratio, which is a measure of the riskiness of a loan. Even if the accounting conditions for income
accrual are met, the borrower could still default when our actual payment is due at the maturity of the loan.
Since in certain cases we may recognize income before or without receiving cash representing such income, we may have
difficulty meeting the requirement in a given taxable year to distribute to our stockholders distributions for U.S. federal
income tax purposes an amount at least equal to 90% of our investment company taxable income, determined without
regard to any deduction for distributions paid, to our stockholders to qualify and maintain our ability to be subject to tax as
a RIC. In such a case, we may have to sell some of our investments at times we would not consider advantageous, raise
additional debt or equity capital, or reduce new investment originations to meet these distribution requirements. If we are
not able to obtain such cash from other sources, we may fail to qualify as a RIC and thus be subject to corporate-level
income tax. See “ Item 1. Material U.S. Federal Income Tax Considerations — Taxation as a RIC.”
If we are not treated as a “publicly offered regulated investment company,” as defined in the IRC, U.S. stockholders
that are individuals, trusts or estates will be taxed as though they received a distribution of some of our expenses.
We do not expect to be treated initially as a “publicly offered regulated investment company.” Until and unless we are
treated as a “publicly offered regulated investment company” as a result of either (1) shares of our Common Stock and our
preferred stock collectively being held by at least 500 persons at all times during a taxable year, (2) shares of our Common
Stock being continuously offered pursuant to a public offering (within the meaning of Section 4 under the Securities Act)
or (3) shares of our Common Stock being treated as regularly traded on an established securities market, each U.S.
stockholder that is an individual, trust or estate will be treated as having received a dividend for U.S. federal income tax
purposes from us in the amount of such U.S. stockholder’s allocable share of the management and incentive fees paid to
our investment adviser and certain of our other expenses for the calendar year, and these fees and expenses will be treated
as miscellaneous itemized deductions of such U.S. stockholder. For taxable years beginning before 2026, miscellaneous
itemized deductions generally are not deductible by a U.S. stockholder that is an individual, trust, or estate. For taxable
years beginning in 2026 or later, miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is
an individual, trust or estate only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized
deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, are not
deductible for purposes of the alternative minimum tax and are subject to the overall limitation on itemized deductions
under IRC Section 68. See “ Item 1. Material U.S. Federal Income Tax Considerations — Taxation as a RIC.”
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.
As a BDC, our need to raise additional capital (because we must distribute most of our income) exposes us to risks,
including the typical risks associated with leverage.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we
refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of
the 1940 Act, we are currently permitted to issue “senior securities,” including borrowing money from banks or other
financial institutions, only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150%
(equivalent to $2 of debt outstanding for each $1 of equity) of total assets less all liabilities and indebtedness not
represented by senior securities, after each issuance of senior securities. If we fail to comply with certain disclosure
requirements, our asset coverage ratio under the 1940 Act would be 200%, which would decrease the amount of leverage
we are able to incur. If the value of our assets declines, we may be unable to satisfy the applicable asset coverage ratio. If
that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a
portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service
our indebtedness would not be available for distributions to holders of shares of our Common Stock. If we issue senior
securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss.
In the absence of an event of default, no person or entity from which we borrow money has a veto right or voting power
over our ability to set policy, make investment decisions, or adopt investment strategies. If we issue preferred stock, which
is another form of leverage, the preferred stock would rank “senior” to Common Stock in our capital structure, preferred
stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges
more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of
delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our
Common Stock or otherwise be in the best interest of our common stockholders. Holders of our Common Stock will
directly or indirectly bear all of the costs associated with offering and servicing any preferred stock that we issue. In
addition, any interests of preferred stockholders may not necessarily align with the interests of holders of our Common
Stock, and the rights of holders of shares of preferred stock to receive distributions would be senior to those of holders of
shares of Common Stock. We do not, however, anticipate issuing preferred stock in the next 12 months.
We are not generally able to issue and sell our Common Stock at a price below net asset value per share. We may,
however, sell our Common Stock, or warrants, options or rights to acquire our Common Stock, at a price below the then-
current net asset value per share of our Common Stock if our Board determines that such sale is in the best interests of us
and our stockholders, and if our stockholders approve such sale. In any such case, the price at which our securities are to be
issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value
of such securities (less any distributing commission or discount). If we raise additional funds by issuing Common Stock or
senior securities convertible into, or exchangeable for, our Common Stock, then the percentage ownership of our
stockholders at that time will decrease, and holders of our Common Stock might experience dilution.
We intend to finance a portion of our investments with borrowed money, which will magnify the potential for gain or
loss on amounts invested and may increase the risk of investing in us.
The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally
considered a speculative investment technique and increases the risks associated with investing in our securities. The
amount of leverage that we employ will be subject to the restrictions of the 1940 Act and the supervision of our Board. At
the time of any proposed borrowing, the amount of leverage we employ will also depend on our Adviser’s assessment of
the market and other factors. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
For example, due to the interplay of the 1940 Act restrictions on principal and joint transactions and the U.S. risk retention
rules adopted pursuant to Section 941 of the Dodd-Frank Act, as a BDC, we are limited in our ability to enter into any
securitization transactions. We cannot assure you that the SEC or any other regulatory authority will modify such
regulations or provide administrative guidance that would give us greater flexibility to enter into securitizations. We may
issue senior debt securities to banks, insurance companies, and other lenders. Lenders of these senior securities will have
fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such
lenders to seek recovery against our assets in the event of a default. We may pledge up to 100% of our assets, may grant a
security interest in all of our assets, and may pledge the right to make capital calls of stockholders under the terms of any
debt instruments we may enter into with lenders. Under the terms of any credit facility or debt instrument we enter into, we
are likely to be required to comply with certain financial and operational covenants. Failure to comply with such covenants
could result in a default under the applicable credit facility or debt instrument if we are unable to obtain a waiver from the
applicable lender or holder, and such lender or holder could accelerate repayment under such indebtedness and negatively
affect our business, financial condition, results of operations and cash flows. In addition, under the terms of any credit
facility or other debt instrument we enter into, we are likely to be required by its terms to use the net proceeds of any
investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such
net proceeds to any other uses. If the value of our assets decreases, leveraging would cause our net asset value to decline
more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our equity stake
in a leveraged investment. Similarly, any decrease in our net investment income will cause our net income to decline more
sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make
distributions on our Common Stock or any outstanding preferred stock. Our ability to service our debt depends largely on
our financial performance and is subject to prevailing economic conditions and competitive pressures. Our common
stockholders bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses
and any increase in the base management fee payable to the Adviser.
We will be subject to risks associated with any credit facility.
We anticipate that we or a direct subsidiary of ours may enter into one or more credit facilities, including subscription-
based and asset-based revolving credit facilities. Under any credit facility, we will be subject to a variety of risks, including
those set forth below.
Our interests in any subsidiary that enters into a credit facility would be subordinated, and we may not receive cash on
our equity interests from any such subsidiary.
We would consolidate the financial statements of any such subsidiary in our consolidated financial statements and treat the
indebtedness of any such subsidiary as our leverage. Our interests in any wholly-owned direct or indirect subsidiary of ours
would be subordinated in priority of payment to every other obligation of any such subsidiary and would be subject to
certain payment restrictions set forth in the credit facility. We would receive cash distributions on our equity interests in
any such subsidiary only if such a subsidiary had made all required cash interest payments to the lenders, and no default
exists under the credit facility. We cannot assure you that distributions on the assets held by any such subsidiary would be
sufficient to make any distributions to us or that such distributions would meet our expectations.
We would receive cash from any such subsidiary only to the extent that we would receive distributions on our equity
interests in such subsidiary. Any such subsidiary would be able to make distributions on its equity interests only to the
extent permitted by the payment priority provisions of the credit facility. We expect that the credit facility would generally
provide that payments on such interests may not be made on any payment date unless all amounts owing to the lenders and
other secured parties are paid in full. In addition, if such a subsidiary would not meet the borrowing base test set forth in
the credit facility documents, a default would occur. In the event of a default under the credit facility, cash would be
diverted from us to pay the lender and other secured parties until they are paid in full. In the event that we fail to receive
cash from such subsidiary, we would be unable to make distributions to our stockholders in amounts sufficient to maintain
our status as a RIC, or at all. We also could be forced to sell investments in portfolio companies at less than their fair value
in order to continue making such distributions.
Our equity interests in any such subsidiary would rank behind all of the secured and unsecured creditors, known or
unknown, of such subsidiary, including the lenders in the credit facility. Consequently, to the extent that the value of such
subsidiary’s portfolio of loan investments would have been reduced as a result of conditions in the credit markets, defaulted
loans, capital gains, and losses on the underlying assets, prepayment, or changes in interest rates, the return on our
investment in such subsidiary could be reduced. Accordingly, our investment in such subsidiary may be subject to up to a
complete loss.
Our ability to sell investments held by any subsidiary that enters into a credit facility would be limited.
We expect that a credit facility would place significant restrictions on our ability, as servicer, to sell investments. As a
result, there may be times or circumstances during which we would be unable to sell investments or take other actions that
might be in our best interests.
Any inability to renew, extend, or replace a credit facility could adversely impact our liquidity and ability to find new
investments or maintain distributions to our stockholders.
There can be no assurance that we would be able to renew, extend, or replace any credit facility upon its maturity on terms
that are favorable to us, if at all. Our ability to renew, extend, or replace the credit facility would be constrained by then-
current economic conditions affecting the credit markets. In the event that we were not able to renew, extend or replace the
credit facility at the time of its maturity, this could have a material adverse effect on our liquidity and ability to fund new
investments, our ability to make distributions to our stockholders, and our ability to qualify as a RIC.
Our Shareholders may fail to fund their Capital Commitments when due.
We call only a limited amount of Capital Commitments from shareholders in the Private Offering of shares of our Common
Stock upon each drawdown notice. The timing of drawdowns may be difficult to predict, requiring each shareholder to
maintain sufficient liquidity until its Capital Commitments to purchase shares of Common Stock are fully funded. We may
not call a shareholder’s entire Capital Commitment prior to the end of our Investment Period.
Although the Adviser will seek to manage our cash balances so that they are appropriate for our investments and other
obligations, the Adviser’s ability to manage cash balances may be affected by changes in the timing of investment closings,
our access to leverage, defaults by our shareholders, late payments of drawdown purchases and other factors.
In addition, we can offer no assurance that all shareholders will satisfy their respective Capital Commitments. To the extent
that one or more shareholders does not satisfy its or their Capital Commitments when due or at all, there could be a
material adverse effect on our business, financial condition and results of operations, including an inability to fund our
investment obligations, make appropriate distributions to our stockholders or to satisfy applicable regulatory requirements
under the 1940 Act. If a shareholder fails to satisfy any part of its Capital Commitment when due, other stockholders who
have an outstanding Capital Commitment may be required to fund such Capital Commitment sooner than they otherwise
would have absent such default. We cannot assure you that we will recover the full amount of the Capital Commitment of
any defaulting shareholder.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be
precluded from investing according to our current business strategy.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to
such acquisition, at least 70% of our total assets are qualifying assets. See “ Item 1. Regulation as a Business Development
Company — Qualifying Assets .”
In the future, we believe that most of our investments will constitute qualifying assets. However, we may be precluded
from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of
the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act
provisions applicable to BDCs. As a result of such violation, specific rules under the 1940 Act could prevent us, for
example, from making follow-on investments in existing portfolio companies (which could result in the dilution of our
position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the
1940 Act. If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on
favorable terms. We may not be able to find a buyer for such investments, and even if we do find a buyer, we may have to
sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
Failure to qualify as a BDC would decrease our operating flexibility.
If we do not maintain our status as a BDC, we would be subject to regulation as a registered closed-end investment
company under the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more
regulatory restrictions under the 1940 Act, which would significantly decrease our operating flexibility.
There may be uncertainty as to the value of our portfolio investments.
The majority of our portfolio investments take the form of securities for which no market quotations are readily available.
The fair value of securities and other investments that are not publicly traded may not be readily determinable, and we
value these securities at fair value as determined by our Adviser's Valuation Committee, including to reflect significant
events affecting the value of our securities. Most, if not all, of our investments (other than cash and cash equivalents) are
classified as Level 3 under Accounting Standards Codification Topic 820 (“ASC 820”) issued by the Financial Accounting
Standards Board (“FASB”). This means that our portfolio valuations are based on unobservable inputs and our own
assumptions about how market participants would price the asset or liability in question. Inputs into the determination of
the fair value of our portfolio investments require significant management judgment or estimation. Even if observable
market data are available, such information may be the result of consensus pricing information or broker quotes, which
may include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature
of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information.
In connection with the determination of the fair value of our investments, investment professionals from the Adviser may
provide our Board with portfolio company valuations based upon the most recent portfolio company financial statements
available and projected financial results of each portfolio company. The participation of the Adviser’s investment
professionals in our valuation process could result in a conflict of interest as the Adviser’s base management fee is based,
in part, on our average adjusted gross assets, and our incentive fees will be based, in part, on unrealized losses.
The valuation for each portfolio investment for which a market quote is not readily available will be reviewed by an
independent valuation firm on a quarterly basis. Investments that have been completed within the past three months will be
fair valued approximating cost unless there has been a material event. The types of factors that the Adviser may take into
account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded
securities, including such factors as yield, maturity, and measures of credit quality, the enterprise value of a portfolio
company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its
earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors.
Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain,
may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ
materially from the values that would have been used if a ready market for these securities existed. Our net asset value
could be adversely affected if our determinations regarding the fair value of our investments were materially higher than
the values that we ultimately realize upon the disposal of such securities.
The Adviser adjusts quarterly (or as otherwise may be required by the 1940 Act in connection with the issuance of our
shares) the valuation of our portfolio to reflect its determination of the fair value of each investment in our portfolio. Any
changes in fair value are recorded in the aggregate in our consolidated statement of operations as a net change in unrealized
appreciation or depreciation.
Our Board may change our investment objective and operating policies without prior notice or stockholder approval.
Our Board has the authority, except as otherwise provided in the 1940 Act, to modify or waive our investment objective
and certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent
stockholder approval, we may not change the nature of our business so as to cease to be or withdraw our election as a BDC.
We cannot predict the effect any changes to our current investment objective, operating policies, and strategies would have
on our business, operating results, and the value of our Common Stock. Nevertheless, any such changes could adversely
affect our business and impair our ability to make distributions.
Provisions of the Delaware General Corporation Law (“ DGCL”) and of our Charter and Bylaws could deter takeover
attempts and have an adverse effect on the price of shares of Common Stock.
The DGCL contains provisions that may discourage, delay, or make more difficult a change in control of us or the removal
of our directors. Our Charter and Bylaws contain provisions that limit liability and provide for indemnification of our
directors and officers. These provisions and others which we may adopt also may have the effect of deterring hostile
takeovers or delaying changes in control or management. We are subject to Section 203 of the DGCL, the application of
which is subject to any applicable requirements of the 1940 Act. This section generally prohibits us from engaging in
mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, either
individually or together with their affiliates, unless our directors or stockholders approve the business combination in the
prescribed manner. Our Board will adopt a resolution exempting from Section 203 of the DGCL any business combination
between us and any other person, subject to prior approval of such business combination by our Board, including approval
by a majority of our directors who are not “interested persons.” If our Board does not adopt or adopts but later repeals such
resolution exempting business combinations, or if our Board does not approve a business combination, Section 203 of the
DGCL may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such
an offer.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of
our Charter that classify our Board in three classes serving staggered three-year terms, and provisions of our Charter
authorizing our Board to classify or reclassify shares of our preferred stock in one or more classes or series, to cause the
issuance of additional shares of our stock, and to amend our Charter, without stockholder approval, to increase or decrease
the number of shares of stock that we have authority to issue. These provisions, as well as other provisions we have
adopted in our Charter and Bylaws, may delay, defer or prevent a transaction or a change in control in circumstances that
could give our stockholders the opportunity to realize a premium of the net asset value of shares of our Common Stock.
We do not currently have comprehensive documentation of our internal controls and have not yet tested our internal
controls in accordance with Section 404 of SOX, and failure by us to develop effective internal controls over financial
reporting in accordance with Section 404 could have a material adverse effect on our business and the value of our
Common Stock.
We have not previously been required to maintain proper and effective internal control over financial reporting, including
the internal control evaluation and certification requirements of Section 404 of SOX. We will not be required to comply
with all of the requirements under Section 404 until we have been subject to the reporting requirements of the Exchange
Act for a specified period of time. Accordingly, our internal controls over financial reporting may not currently meet all of
the standards contemplated by Section 404 that we will eventually be required to meet. We are in the process of addressing
our internal controls over financial reporting and will establish formal procedures, policies, processes, and practices related
to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact, and
linkage of those risks to specific areas and activities within our organization.
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control
over financial reporting until the year following our first annual report required to be filed with the SEC. Because we do
not currently have comprehensive documentation of our internal control and have not yet tested our internal control in
accordance with Section 404 of SOX, we cannot conclude, as required by Section 404, that we do not have a material
weakness in our internal control or a combination of significant deficiencies that could result in the conclusion that we have
a material weakness in our internal control. As a public entity, we will be required to complete our initial assessment in a
timely manner. If we are not able to implement the applicable requirements of Section 404 of SOX in a timely manner or
with adequate compliance, our operations, financial reporting, or financial results could be adversely affected. Matters
impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby
subject us to adverse regulatory consequences, including sanctions by the SEC, and result in a breach of the covenants
under the agreements governing any of our financing arrangements. There could also be a negative reaction in the financial
markets due to a loss of shareholder confidence in us and the reliability of our consolidated financial statements.
Confidence in the reliability of our consolidated financial statements could also suffer if our independent registered public
accounting firm or we were to report a material weakness in our internal controls over financial reporting. This could
materially adversely affect us.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations,
including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal
controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved
controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, and
we could fail to meet our financial reporting obligations.
We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn,
negatively affect the value of our Common Stock and our ability to pay distributions.
The operations of the Company, the Adviser, the Administrator, and any third-party service provider to any of the
foregoing are susceptible to risks from cybersecurity attacks and incidents due to reliance on the secure processing, storage,
and transmission of confidential and other information in the relevant computer systems and networks. In particular,
cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level and will likely
continue to increase in frequency in the future. These attacks could involve gaining unauthorized access to information
systems for purposes of misappropriating assets, stealing confidential information, corrupting data, or causing operational
disruption and result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information,
increased cybersecurity protection, and insurance costs, litigation, and damage to our business relationships, any of which
could have a material adverse effect on our business, financial condition and results of operations. We, the Adviser and the
Administrator, must each continuously monitor and innovate our cybersecurity to protect our technology and data from
corruption or unauthorized access. In addition, due to the use of third-party vendors, agents, exchanges, clearinghouses,
and other financial institutions and service providers, we, the Adviser, and the Administrator could be adversely impacted
if any of us are subject to a successful cyber-attack or another breach of our information. Although we, the Adviser and the
Administrator, have developed protocols, processes, internal controls, and other protective measures to help mitigate
cybersecurity risks and cyber intrusions, these measures, as well as our increased awareness of the nature and extent of the
risk of a cyber incident, may be ineffective and do not guarantee that a cyber incident will not occur or that our financial
results, operations or confidential information will not be negatively impacted by such an incident. If any of the foregoing
events occur, the confidential and other information of the Company, the Adviser, and the Administrator could be
compromised. Such events could also cause interruptions or malfunctions in the operations of the Company, the Adviser or
the Administrator, and in particular, the Adviser’s investment activities on our behalf and the provision of administrative
services to us by the Administrator. The increased use of mobile and cloud technologies can heighten these and other
operational risks.
We, the Adviser and the Administrator currently or in the future are expected to routinely transmit and receive personal,
confidential, and proprietary information by email and other electronic means. We, the Adviser and the Administrator, have
discussed and worked with clients, vendors, service providers, counterparties, and other third parties to develop secure
transmission capabilities and protect against cyber-attacks. However, we, the Adviser, and the Administrator may not be
able to ensure secure capabilities with all of our clients, vendors, service providers, counterparties, and other third parties to
protect the confidentiality of the information.
In addition, the systems and technology resources used by us, our Adviser, our Administrator, and our and their respective
affiliates could be strained by extended periods of remote working by our Adviser, our Administrator, and their affiliate’s
employees and such extended remote working could introduce operational risks, including heightened cybersecurity risk.
Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social
engineering attempts.
Risks relating to compliance with the AIFMD.
The European Union Directive on Alternative Investment Fund Managers (the “AIFMD” or the “Directive”) regulates and
imposes regulatory obligations in respect of the marketing in the European Economic Area (the “EEA”) by alternative
investment fund managers (each an “AIFM”) (whether established in the EEA or elsewhere) of alternative investment
funds (each an “AIF”) (whether established in the EEA or elsewhere). For these purposes, the Adviser is a non-EEA
AIFM, and we are a non-EEA AIF. Each European jurisdiction that has implemented the Directive has implemented a new
and, in most cases, a more restrictive private placement regime in connection with the implementation of the Directive.
The AIFMD could have an adverse effect on the Adviser and us by, among other things, increasing the regulatory burden
and costs of doing business in EEA member states. Except in limited circumstances, a non-EEA AIFM marketing its AIF
to prospective EEA investors will be required to satisfy extensive disclosure obligations, including periodic disclosures to
EEA regulators. The AIFMD could also limit the Adviser’s operating flexibility and our investment opportunities.
There is little guidance and limited market practice that has developed in respect to the AIFMD. Many of the provisions of
the AIFMD require the adoption of delegated acts and regulatory technical standards, as well as the establishment of
guidelines. Some, but not all, EEA member states have published the relevant acts, standards, and guidelines. Where these
acts, standards, and guidelines have been implemented, their practical application is still uncertain. As such, it is difficult to
predict the precise impact of the AIFMD on the Adviser and us. Any regulatory changes arising from the transposition of
the AIFMD into national law that impair the ability of the Adviser to manage us or our investments, or limit the Adviser’s
ability to market the Common Stock in the future, may materially adversely affect our ability to carry out our investment
approach and achieve our investment objectives.
The Adviser is not subject to the requirements of the Directive to have additional funds of its own and/or professional
indemnity insurance to cover potential liability risks arising from the professional negligence of the Adviser.
We cannot guarantee our ability to maintain existing SBIC or RBIC licenses or eligibility under the USDA's OneRD
Guarantee Loan program.
We cannot guarantee the ability of any of our subsidiaries (in existence now or which may be formed in the future) to
maintain SBIC licenses from the SBA, RBIC licenses from the USDA, or eligibility under the USDA’ OneRD Guarantee
Loan program, nor can we anticipate changes in regulatory policies with respect to SBICs, RBICs, or OneRD.
We will be subject to risks associated with any SBA-guaranteed debentures.
We issue, as permitted under SBA regulations and through our wholly-owned subsidiaries, the LS SBICs, SBA-guaranteed
debentures to generate cash for funding new investments. To issue SBA-guaranteed debentures, we request commitments
for debt capital from the SBA. The LS SBICs may be exposed to any losses on its portfolio of loans; however, such
debentures are non-recourse to us. Receipt of an SBIC license does not assure that the LS SBICs will receive SBA-
guaranteed debenture funding, which is dependent upon the LS SBICs continuing to be in compliance with SBA regulations
and policies.
The LS SBICs are licensed by the SBA and are subject to SBA regulations.
Each of LS SBIC LP and LS SSBIC LP, our wholly-owned subsidiaries, received a license to operate as a SBIC under the
Investment Act and is subject to regulation and oversight regulated by the SBA. The SBA places certain limitations on the
financing terms of investments by SBICs in portfolio companies and regulates the types of financings and prohibits
investing in certain industries. Compliance with SBIC requirements may cause the LS SBICs to make investments at lower
rates in order to qualify investments under the SBA regulations.
Further, SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its
compliance with the relevant regulations. If either of LS SBIC LP or LS SSBIC LP fails to comply with applicable
regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare any
outstanding debentures immediately due and payable, and/or limit it from making new investments. In addition, the SBA
could revoke or suspend either of LS SBIC LP or LS SSBIC LP’s license for willful or repeated violation of, or willful or
repeated failure to observe, any provision of the Investment Act or any rule or regulation promulgated thereunder. These
actions by the SBA would, in turn, negatively affect us because the LS SBICs are our wholly-owned subsidiaries.
SBA-guaranteed debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without
penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over 10-
year U.S. Treasury Notes. Leverage through SBA-guaranteed debentures is subject to required capitalization thresholds.
Current SBA regulations limit the amount that any single SBIC may borrow to a maximum of $175.0 million, which is up
to twice its regulatory capital, and a maximum of $350.0 million as part of a group of SBICs under common control;
however, there is no guarantee that we will receive such amounts.
The SBA also limits an SBIC’s ability to invest idle funds to the following types of securities:
• direct obligations of, or obligations guaranteed as to principal and interest by, the U.S. government, which mature
within 15 months from the date of the investment;
• repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities
underlying the repurchase obligations must be direct obligations of or guaranteed by the federal government);
• mutual funds, securities or other instruments that exclusively consist of, or represent pooled assets of, investments
described in the first and second bulleted paragraphs above;
• certificates of deposit with a maturity of one year or less, issued by a federally insured institution;
• a deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less;
• a checking account in a federally insured institution; or
• a reasonable petty cash fund.
Our ability to adhere to or meet our goals, including Goal2030 ™ , and our ability to create and preserve jobs and
stimulate the economy may be limited.
When setting our goals we sought guidance from outside regulatory frameworks, including the Investment Act, CRA, and
Incentive Act. We can offer no assurances that we will be able to adhere to or meet our goals, including Goal2030 ™ , and
nor can we guarantee that such goals will have their intended consequences. While we will strive to (1) increase
employment opportunities, (2) provide significant managerial assistance to small and middle-market companies and (3)
encourage economic growth in Working Class Areas, we can offer no assurances that our goals and actions in pursuits of
these goals will have their intended effects.
We are subject to risks associated with artificial intelligence and machine learning technology.
Artificial intelligence, including machine learning and similar tools and technologies that collect, aggregate, analyze or
generate data or other materials, or collectively, AI, and its current and potential future applications including in the private
investment and financial industries, as well as the legal and regulatory frameworks within which AI operates, continue to
rapidly evolve.
Recent technological advances in AI pose risks to the Company, the Adviser, and our portfolio companies. The Company
and our portfolio companies could also be exposed to the risks of AI if third-party service providers or any counterparties,
whether or not known to the Company, also use AI in their business activities. We and our portfolio companies may not be
in a position to control the use of AI technology in third-party products or services.
Use of AI could include the input of confidential information in contravention of applicable policies, contractual or other
obligations or restrictions, resulting in such confidential information becoming partly accessible by other third-party AI
applications and users. While the Adviser does not currently use AI to make investment recommendations, the use of AI
could also exacerbate or create new and unpredictable risks to our business, the Adviser’s business, and the business of our
portfolio companies, including by potentially significantly disrupting the markets in which we and our portfolio companies
operate or subjecting us, our portfolio companies and the Investment Adviser to increased competition and regulation,
which could materially and adversely affect business, financial condition or results of operations of us, our portfolio
companies and the Adviser. In addition, the use of AI by bad actors could heighten the sophistication and effectiveness of
cyber and security attacks experienced by our portfolio companies and the Adviser.
Independent of its context of use, AI technology is generally highly reliant on the collection and analysis of large amounts
of data, and it is not possible or practicable to incorporate all relevant data into the model that AI technology utilizes to
operate. Certain data in such models will inevitably contain a degree of inaccuracy and error and could otherwise be
inadequate or flawed, which would be likely to degrade the effectiveness of AI technology. To the extent that we or our
portfolio companies are exposed to the risks of AI use, any such inaccuracies or errors could have adverse impacts on the
Company or our investments.
AI technology and its applications, including in the private investment and financial sectors, continue to develop rapidly,
and it is impossible to predict the future risks that may arise from such developments.
Risks Relating to Our Investments
Economic recessions or downturns could impair our portfolio companies, and defaults by our portfolio companies will
harm our operating results.
Many of our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay our
loans during these periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is
likely to decrease during these periods. Adverse economic conditions may decrease the value of collateral securing some of
our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our
portfolio and a decrease in revenues, net income, and assets. Unfavorable economic conditions also could increase our
funding costs, limit our access to the capital markets, or result in a decision by lenders not to extend credit to us. These
events could prevent us from increasing our investments and harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by other lenders or us could lead to
defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under
other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we
hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a
defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken
by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that
we could become subject to a lender’s liability claim, including as a result of actions taken if we render managerial
assistance to the borrower.
Limitations of investment due diligence expose us to investment risk.
Our due diligence may not reveal all of a portfolio company’s liabilities and may not reveal other weaknesses in its
business. We can offer no assurance that our due diligence processes will uncover all relevant facts that would be material
to an investment decision. Before making an investment in, or a loan to, a company, our Adviser will assess the strength
and skills of the company’s management and other factors that it believes are material to the performance of the
investment.
In making the assessment and otherwise conducting customary due diligence, our Adviser will rely on the resources
available to it and, in some cases, an investigation by third parties. This process is particularly important and highly
subjective with respect to newly organized entities because there may be little or no information publicly available about
the entities.
We may make investments in or loans to companies that are not subject to public company reporting requirements,
including requirements regarding the preparation of consolidated financial statements, and our portfolio companies may
utilize divergent reporting standards that may make it difficult for the Adviser to accurately assess the prior performance of
a portfolio company. We will, therefore, depend upon the compliance by investment companies with their contractual
reporting obligations. As a result, the evaluation of potential investments and our ability to perform due diligence on and
effectively monitor investments may be impeded, and we may not realize the returns which we expect on any particular
investment. In the event of fraud by any company in which we invest or with respect to which we make a loan, we may
suffer a partial or total loss of the amounts invested in that company.
We may invest in distressed or highly leveraged companies, which could cause you to lose all or part of your
investment.
We may make investments in restructurings that involve, or otherwise invest in, the debt securities of portfolio companies
that are experiencing or are expected to experience severe financial difficulties. These severe financial difficulties may
never be overcome and may cause such portfolio companies to become subject to bankruptcy proceedings. As such, these
investments could subject us to certain additional potential liabilities that may exceed the value of our original investment.
Under certain circumstances, payments to us may be reclaimed if any such payment or distribution is later determined to
have been a fraudulent conveyance, a preferential payment, or a similar transaction under the applicable bankruptcy and
insolvency laws. In addition, under certain circumstances, a lender that has inappropriately exercised control of the
management and policies of a debtor may have its claims subordinated or disallowed or may be found liable for damages
suffered by parties as a result of such actions.
We may also invest in highly leveraged companies. Investments in leveraged companies involves a number of significant
risks. Leveraged companies in which we invest may have limited financial resources and may be unable to meet their
obligations under their debt securities that we hold. Such developments may be accompanied by a deterioration in the value
of any collateral and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection
with our investment. Smaller leveraged companies also may have less predictable operating results and may require
substantial additional capital to support their operations, finance their expansion, or maintain their competitive position.
Our debt investments may be risky, and we could lose all or part of our investments.
The debt instruments in which we invest are typically not initially rated by any rating agency, but we believe that if such
investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service,
lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s Ratings Services), which under the
guidelines established by these entities is an indication of having predominantly speculative characteristics with respect to
the issuer’s capacity to pay interest and repay principal. Bonds that are rated below investment grade are sometimes
referred to as “high yield bonds” or “junk bonds.” Therefore, our investments may result in an above-average amount of
risk and volatility or loss of principal.
Defaults by our portfolio companies will harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by other lenders or us could lead to
defaults and, potentially, termination of its debt financing and foreclosure on its secured assets, which could trigger cross-
defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or
equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate
new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.
We may hold the debt securities of leveraged companies that may, due to the significant volatility of such companies,
enter into bankruptcy proceedings.
Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of
significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary
proceedings and are beyond the control of the creditors. A bankruptcy filing by an issuer may adversely and permanently
affect the issuer. If the proceeding is converted to a liquidation, the value of the issuer may not equal the liquidation value
that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict,
and a creditor’s return on investment can be adversely affected by delays until the plan of reorganization or liquidation
ultimately becomes effective. The administrative costs of a bankruptcy proceeding are frequently high and would be paid
out of the debtor’s estate prior to any return to creditors. Because the standards for the classification of claims under
bankruptcy law are vague, our influence with respect to the class of securities or other obligations we own may be lost by
increases in the number and amount of claims in the same class or by different classification and treatment. In the early
stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that
might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial.
Depending on the facts and circumstances of our investments and the extent of our involvement in the management of a
portfolio company, upon the bankruptcy of a portfolio company, a bankruptcy court may re-characterize our debt
investments as equity interests and subordinate all or a portion of our claim to that of other creditors. This could occur even
though we may have structured our investment as senior debt.
Our investments in private and middle market portfolio companies are risky, and you could lose all or part of your
investment.
Investments in private and middle market companies involve a number of significant risks. Generally, little public
information exists about these companies, and we rely on the ability of the Adviser’s investment professionals to obtain
adequate information to evaluate the potential returns from investing in these companies. If the Adviser is unable to
uncover all material information about these companies, it may not make a fully informed investment decision, and we may
lose money on our investments. Middle market companies generally have less predictable operating results and may
require substantial additional capital to support their operations, finance expansion, or maintain their competitive position.
Middle market companies may have limited financial resources, may have difficulty accessing the capital markets to meet
future capital needs, and may be unable to meet their obligations under their debt securities that we hold, which may be
accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any
guarantees we may have obtained in connection with our investment. In addition, such companies typically have shorter
operating histories, narrower product lines, and smaller market shares than larger businesses, which tend to render them
more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally,
middle market companies are more likely to depend on the management talents and efforts of a small group of persons.
Therefore, the death, disability, resignation, or termination of one or more of these persons could have a material adverse
impact on our portfolio company and, in turn, on us. Middle market companies also may be parties to litigation and may be
engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence. In addition, our
executive officers, directors, and the Adviser may, in the ordinary course of business, be named as defendants in litigation
arising from our investments in the portfolio companies.
Subordinated liens on collateral securing debt investments that we make in our portfolio companies may be subject to
control by senior creditors with first priority liens. If there is a default, the value of such collateral may not be sufficient
to repay in full both the first priority creditors and us.
Certain debt investments that we make in portfolio companies will be secured on a second priority basis by the same
collateral securing the senior debt of such companies. The first priority liens on the collateral will secure the portfolio
company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to
be incurred by the portfolio company under the agreements governing the debt. The holders of obligations secured by the
first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any
realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of
liquidation will depend on market and economic conditions, the availability of buyers, and other factors. We can offer no
assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the debt
obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on
the collateral. If such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the
second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an
unsecured claim against the portfolio company’s remaining assets, if any. Similarly, investments in “last out” pieces of
tranched first-lien loans will be similar to second lien loans in that such investments will be junior in priority to the “first-
out” piece of the same tranched loan with respect to payment of principal, interest, and other amounts.
We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit
from any interest in collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the
portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to
be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens
will generally control the liquidation of and be entitled to receive proceeds from any realization of such collateral to repay
their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market
and economic conditions, the availability of buyers, and other factors. We can offer no assurance that the proceeds, if any,
from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all
secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our
unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio
company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies
with senior debt outstanding, or first-out pieces of tranched first-lien debt, may also be limited pursuant to the terms of one
or more inter-creditor agreements that we enter into with the holders of senior debt. Under such an inter-creditor
agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following
actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the
first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to
control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the
collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such
actions, even if our rights are adversely affected.
The lack of liquidity in our investments may adversely affect our business.
Our investments will be illiquid in most cases, and we can offer no assurance that we will be able to realize on such
investments in a timely manner. A substantial portion of our investments in leveraged companies are and will be subject to
legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The
illiquidity of these investments may make it difficult for us to sell such investments if the need arises. In addition, if we are
required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we
have previously recorded our investments. We may also face other restrictions on our ability to liquidate an investment in a
portfolio company to the extent that we, the Adviser, or any of its affiliates have material nonpublic information regarding
such portfolio company.
In addition, we generally expect to invest in securities, instruments, and assets that are not and are not expected to become
publicly traded. We will generally not be able to sell securities publicly unless the sale is registered under applicable
securities laws or unless an exemption from such registration requirements is available.
Investments may be illiquid and long-term. Illiquidity may result from the absence of an established or liquid market for
investments as well as legal and contractual restrictions on their resale by us. It is generally expected that we will hold
assets to maturity, and the amount of “discretionary sales” of investments generally will be limited. Our investment in
illiquid investments may restrict its ability to dispose of investments in a timely fashion and for a fair price. Furthermore,
we likely will be limited in our ability to sell investments because Lafayette Square and its affiliates may have material,
non-public information regarding the issuers of such loans or investments or as a result of other Lafayette Square policies.
This limited ability to sell investments could materially adversely affect our investment results. As a result, our exposure to
losses, including a potential loss of principal, as a result of which you could potentially lose all or a portion of your
investment in the Company, may be increased due to the illiquidity of our investments generally.
In certain cases, we may also be prohibited by contract from selling our investments for a period of time or otherwise be
restricted from disposing of our investments. Furthermore, certain types of investments expected to be made may require a
substantial length of time to realize a return or fully liquidate. We may exit some investments through distributions in kind
to the stockholders, after which such exit you will still bear the risks associated with holding the securities and must make
your own disposition decisions.
Given the nature of the investments contemplated by the Company, there is a material risk that we will be unable to realize
our investment objectives by sale or other disposition at attractive prices or will otherwise be unable to complete any exit
strategy. In particular, this risk could arise from changes in the financial condition or prospects of the portfolio company in
which the investment is made, changes in national or international economic conditions, changes in debt and equity capital
markets, and changes in laws, regulations, fiscal policies or political conditions of countries in which investments are
made.
In connection with the disposition of an investment in a portfolio company, we may be required to make representations
about the business and financial affairs of the portfolio company or may be responsible for the contents of disclosure
documents under applicable securities laws. We may also be required to indemnify the purchasers of such investment or
underwriters to the extent that any such representations or disclosure documents turn out to be incorrect, inaccurate, or
misleading. These arrangements may result in contingent liabilities, for which we may establish reserves or escrows.
However, we can offer no assurance that we will adequately reserve for our contingent liabilities and that such liabilities
will not have an adverse effect on us. Such contingent liabilities might ultimately have to be funded by proceeds, including
the return of capital, from our other investments.
Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio
investments, reducing our net asset value through increased net unrealized depreciation.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as
determined by our Adviser. As part of the valuation process, our Adviser may take into account the following types of
factors, if relevant, in determining the fair value of our investments:
• a comparison of the portfolio company’s securities to publicly traded securities;
• the enterprise value of the portfolio company;
• the nature and realizable value of any collateral;
• the portfolio company’s ability to make payments and its earnings and discounted cash flow;
• the markets in which the portfolio company does business; and
• changes in the interest rate environment and the credit markets generally that may affect the price at which similar
investments may be made in the future and other relevant factors.
When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, we use the pricing
indicated by the external event to corroborate our valuation. We record decreases in the market values or fair values of our
investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in
significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio may reduce our net
asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur
substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material
adverse effect on our business, financial condition, results of operations, and cash flows.
Our prospective portfolio companies may be unable to repay or refinance outstanding principal on their loans at or
prior to maturity, and rising interest rates may make it more difficult for portfolio companies to make periodic payments
on their loans.
The portfolio companies in which we expect to invest may be unable to repay or refinance outstanding principal on their
loans at or prior to maturity. This risk and the risk of default is increased to the extent that the loan documents do not
require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. In addition, if general
interest rates rise, there is a risk that our portfolio companies will be unable to pay escalating interest amounts, which could
result in a default under their loan documents with us. Rising interest rates could also cause portfolio companies to shift
cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and
operations and could, over time, lead to increased defaults. Any failure of one or more portfolio companies to repay or
refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments
following an increase in contractual interest rates could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Our prospective portfolio companies may prepay loans, which may reduce our yields if capital returned to us cannot be
invested in transactions with equal or greater expected yields.
The loans in our investment portfolio may be prepaid at any time, generally with little advance notice. Whether a loan is
prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable
financing market conditions that allow such a company the ability to replace existing financing with less expensive capital.
As market conditions change, we do not know when, and if, prepayment may be possible for each portfolio company. In
some cases, the prepayment of a loan may reduce our achievable yield if the capital returned to us cannot be invested in
transactions with equal or greater expected yields, which could have a material adverse effect on our business, financial
condition, and results of operations.
Our investments in portfolio companies may expose us to environmental risks.
We may invest in portfolio entities that are subject to changing and increasingly stringent environmental and health and
safety laws, regulations, and permit requirements and environmental costs that could place increasing financial burdens on
such portfolio entities. Required expenditures for environmental compliance may adversely impact investment returns on
portfolio entities. The imposition of new environmental and other laws, regulations, and initiatives could adversely affect
the business operations and financial stability of portfolio entities.
There can be no guarantee that all costs and risks regarding compliance with environmental laws and regulations can be
identified. New and more stringent environmental and health and safety laws, regulations and permit requirements, or
stricter interpretations of current laws or regulations could impose substantial additional costs on portfolio investment or
potential investments. Changes in federal environmental policy, including potential shifts in regulatory enforcement
priorities under the current administration, may create uncertainty regarding the scope and application of environmental
requirements applicable to our portfolio companies. In addition, state governments located in specific regions in which we
invest may impose more stringent environmental regulations than those required at the federal level. Compliance with such
current or future environmental requirements does not ensure that the operations of the portfolio investments will not cause
injury to the environment or to people under all circumstances or that the portfolio investments will not be required to incur
additional unforeseen environmental expenditures. Moreover, failure to comply with any such requirements could have a
material adverse effect on an investment, and we can offer no assurance that the portfolio investments will at all times
comply with all applicable environmental laws, regulations and permit requirements.
We have not yet identified all of the portfolio company investments we will acquire, and there is no certainty how long it
will take to identify such investments or whether we will be able to find a sufficient number of such businesses to
meaningfully populate our portfolio.
We have not yet identified all of the potential investments for our portfolio that we will acquire with the proceeds of any
sales of our securities or repayments of investments currently in our portfolio. Privately negotiated investments in illiquid
securities or private middle market companies require substantial due diligence and structuring (particularly to identify and
underwrite non-sponsored businesses) , and we cannot assure you that we will achieve our anticipated investment pace or
be able to find a sufficient number of such businesses to meaningfully populate our portfolio . The Adviser selects all of our
investments, and our stockholders will have no input with respect to such investment decisions. These factors increase the
uncertainty, and thus the risk of investing in our securities. Until such appropriate investment opportunities can be found,
we may also invest the net proceeds in cash, cash equivalents, U.S. government securities, and high-quality debt
investments that mature in one year or less from the date of investment. We expect these temporary investments to earn
yields substantially lower than the income that we expect to receive in respect of our targeted investment types. As a result,
any distributions we make during this period may be substantially smaller than the distributions that we expect to pay when
our portfolio is fully invested.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with
respect to the proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are
not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer.
To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate
to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the
market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a
diversified investment company. Beyond our asset diversification requirements as a RIC under the IRC, we do not have
fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
Although we are classified as a non-diversified investment company within the meaning of the 1940 Act, we maintain the
flexibility to operate as a diversified investment company. To the extent that we operate as a non-diversified investment
company, we may be subject to greater risk.
Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a
risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there
is a downturn in a particular industry.
Our portfolio may at times be concentrated in a limited number of portfolio companies and industries, including as a result
of our focus on non-sponsored middle market businesses in specific geographies and sectors. As a result, the aggregate
returns we realize may be significantly and adversely affected if a small number of investments perform poorly or if we
need to write down the value of any one investment. Additionally, while we are not targeting any specific industries, our
investments may be concentrated in relatively few industries. For example, although we may classify the industries of our
portfolio companies by end-market (such as health market or business services) and not by the products or services (such as
software) directed to those end-markets, some of our portfolio companies may principally provide software products or
services, which exposes us to downturns in that sector. As a result, a downturn in any particular industry in which we are
invested could also significantly impact the aggregate returns we realize.
Our portfolio may lack geographic diversification across Target Regions.
While our goal is to invest at least 5% of our assets in each of our Target Regions over time, achieving and maintaining
geographic diversification across all ten regions may be limited by geographically diverse manner due to general market
conditions, the time necessary to identify, evaluate, structure, negotiate and close suitable in-vestments in private middle
market companies, and the potential for allocations to other affiliated investment vehicles which focus their investments on
a specific region. As a result, at any point in time, we may invest a disproportionate amount in certain regions, and there
can be no assurance that we will achieve geographic diversification across all ten regions.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as
“follow-on” investments, in seeking to:
• increase or maintain in whole or in part our position as a creditor or equity ownership percentage in a portfolio
company;
• exercise warrants, options, or convertible securities that were acquired in the original or subsequent financing; or
• preserve or enhance the value of our investment.
We have the discretion to make follow-on investments, subject to the availability of capital resources, and certain
limitations on co-investment with affiliates under the 1940 Act. Failure on our part to make follow-on investments may, in
some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a
missed opportunity for us to increase our participation in a successful portfolio company. Even if we have sufficient capital
to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to
increase our level of risk because we prefer other opportunities, or because of regulatory or other considerations. Our
ability to make follow-on investments may also be limited by the Adviser’s allocation policies and procedures.
Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to control
our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the
value of our investments.
To the extent that we do not hold controlling equity interests in portfolio companies, we will have a limited ability to
protect our position in such portfolio companies. We may also co-invest with third parties through partnerships, joint
ventures, or other entities. Such investments may involve risks in connection with such third-party involvement, including
the possibility that a third-party co-investor may have economic or business interests or goals that are inconsistent with
ours or may be in a position to take (or block) action in a manner contrary to our investment objective. In those
circumstances where such third parties involve a management group, such third parties may receive compensation
arrangements relating to such investments, including incentive compensation arrangements.
We can offer no assurance that portfolio company management will be able to operate their companies in accordance
with our expectations.
The day-to-day operations of each portfolio company in which we invest will be the responsibility of that portfolio
company’s management team. Although we will be responsible for monitoring the performance of each investment and
generally intend to invest in portfolio companies operated by strong management, we can offer no assurance that the
existing management team, or any successor, will be able to operate any such portfolio company in accordance with our
expectations. We can offer no assurance that a portfolio company will be successful in retaining key members of its
management team, the loss of whom could have a material adverse effect on us. Although we generally intend to invest in
companies with strong management teams and defensible market positions, we can offer no assurance that the existing
management of such companies will continue to operate a company successfully.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies, and
such portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
We may invest a portion of our capital in second lien and subordinated loans issued by our portfolio companies. Our
portfolio companies may have, or be permitted to incur, other debt that ranks equally with, or senior to, the debt securities
in which we invest. Such subordinated investments are subject to a greater risk of default than senior obligations as a result
of adverse changes in the financial condition of the obligor or in general economic conditions. If we make a subordinated
investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity
ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt
obligations. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or
principal on or before the dates on which we are entitled to receive payments in respect of the securities in which we invest.
These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying our investments
in the event of and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation,
dissolution, reorganization, or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in
that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect
of our investment. After repaying senior creditors, the portfolio company may not have any remaining assets to use for
repaying its obligation to us where we are the junior creditor. In the case of debt ranking equally with debt securities in
which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such
debt in the event of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of the relevant portfolio
company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same
collateral securing the senior secured debt of such companies. The first priority liens on the collateral will secure the
portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be
permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations
secured by first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds
from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the
event of liquidation will depend on market and economic conditions, the availability of buyers, and other factors. Similarly,
investments in “last out” pieces of tranched first-lien loans will be similar to second lien loans in that such investments will
be junior in priority to the “first-out” piece of the same tranched first-lien loan with respect to payment of principal,
interest, and other amounts. We can offer no assurance that the proceeds, if any, from sales of all of the collateral would be
sufficient to satisfy the loan obligations secured by the second priority liens or the “last out” pieces of the tranched first-lien
loans after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not
sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens or the “last out”
pieces of unitranche loans, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an
unsecured claim against the portfolio company’s remaining assets, if any.
We may make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in
collateral of such companies. Liens on a portfolio company’s collateral, if any, will secure the portfolio company’s
obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the
portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally
control the liquidation of and be entitled to receive proceeds from any realization of such collateral to repay their
obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and
economic conditions, the availability of buyers, and other factors. We can offer no assurance that the proceeds, if any, from
sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all loans
secured by collateral. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our
unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio
company’s remaining assets, if any.
The rights we may have with respect to the collateral securing any junior priority loans, including any “last out” pieces of
tranched first-lien loans, we make to our portfolio companies may also be limited pursuant to the terms of one or more
intercreditor agreements that we enter into (or the absence of an intercreditor agreement) with the holders of senior debt.
Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are
outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders
of the obligations secured by the first priority liens:
• the ability to cause the commencement of enforcement proceedings against the collateral;
• the ability to control the conduct of such proceedings;
• the approval of amendments to collateral documents;
• releases of liens on the collateral; and
• waivers of past defaults under collateral documents.
• we may not have the ability to control or direct such actions, even if our rights as junior lenders are adversely
affected.
The liability of each of the Adviser and the Administrator is limited, and we have agreed to indemnify each against
certain liabilities, which may lead them to act in a riskier manner on our behalf than each would when acting for its
own account.
Under the Investment Advisory Agreement, the Adviser does not assume any responsibility to us other than to render the
services called for under that agreement, and it is not responsible for any action of our Board in following or declining to
follow the Adviser’s advice or recommendations. Under the terms of the Investment Advisory Agreement, the Adviser, its
officers, members, personnel, and any person controlling or controlled by the Adviser are not liable to us, any subsidiary of
ours, our directors, our stockholders, or any subsidiary’s stockholders or partners for acts or omissions performed in
accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting gross
negligence, willful misconduct, bad faith or reckless disregard of the Adviser’s duties under the Investment Advisory
Agreement. In addition, we have agreed to indemnify the Adviser and each of its officers, directors, members, managers,
and employees from and against any claims or liabilities, including reasonable legal fees and other expenses, reasonably
incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf
pursuant to authority granted by the Investment Advisory Agreement, except where attributable to gross negligence, willful
misconduct, bad faith or reckless disregard of such person’s duties under the Investment Advisory Agreement. Under the
Administration Agreement, the Administrator and certain specified parties providing administrative services pursuant to
that agreement are not liable to our stockholders for or us, and we have agreed to indemnify them for any claims or losses
arising out of the good faith performance of their duties or obligations under the Administration Agreement, except those
liabilities resulting primarily attributable to gross negligence, willful misconduct, bad faith or reckless disregard of the
Administrator’s duties under the Administration Agreement. These protections may lead the Adviser or the Administrator
to act in a riskier manner when acting on our behalf than it would when acting for its own account.
We may be subject to risks under hedging transactions.
We may engage in hedging transactions to the limited extent such transactions are permitted under the 1940 Act and
applicable commodities laws. Engaging in hedging transactions would entail additional risks to our stockholders. We
could, for example, use instruments such as interest rate swaps, caps, collars, and floors. In each such case, we generally
would seek to hedge against fluctuations of the relative values of our portfolio positions from changes in market interest
rates. Hedging against a decline in the values of our portfolio positions would not eliminate the possibility of fluctuations
in the values of such positions or prevent losses if the values of the positions declined. However, such hedging could
establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such
portfolio positions. Such hedging transactions could also limit the opportunity for gain if the values of the underlying
portfolio positions increased. Moreover, it might not be possible to hedge against an interest rate fluctuation that was so
generally anticipated that we would not be able to enter into a hedging transaction at an acceptable price. The use of a
hedging transaction could involve counterparty credit risk.
The success of any hedging transactions we may enter into will depend on our ability to correctly predict movements in
interest rates. Therefore, while we may enter into hedging transactions to seek to reduce interest rate risks, unanticipated
changes in interest rates could result in poorer overall investment performance than if we had not engaged in any such
hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging
strategy and price movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, we
might not seek to (or be able to) establish a perfect correlation between the hedging instruments and the portfolio holdings
being hedged. Any such imperfect correlation could prevent us from achieving the intended hedge and expose us to the risk
of loss. Our ability to engage in hedging transactions may also be adversely affected by rules adopted by the CFTC.
We may not realize gains from our equity investments.
When we invest in unitranche, second lien, and subordinated loans, we may acquire warrants or other equity securities of
portfolio companies as well. We may also invest in equity securities directly. To the extent we hold equity investments, we
will seek to dispose of them and realize gains upon our disposition of them. However, the equity interests we receive may
not appreciate in value and may decline in value. As a result, we may not be able to realize gains from our equity interests,
and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses
we experience.
We may be subject to risks to the extent we provide substantial managerial assistance to our portfolio companies.
To the extent we participate substantially in the conduct of the management of certain of our portfolio companies, such as
designating directors to serve on the boards of directors of certain portfolio companies, such designation of representatives
and other measures contemplated could expose our assets to claims by a portfolio company in which we invest, its security-
holders and its creditors, including claims that we are a controlling person and thus are liable for securities laws violations
of a portfolio company. These measures also could result in certain liabilities in the event of the bankruptcy or
reorganization of a portfolio company, could result in claims against us if a designated director violates their fiduciary or
other duties to a portfolio company or fail to exercise appropriate levels of care under applicable corporate or securities
laws, environmental laws or other legal principles, and could expose us to claims that we have interfered in management to
the detriment of a portfolio company.
There can be no guarantee that our portfolio companies will adopt Managerial Assistance Recommendations or that
such recommendations will have their intended effect.
Our portfolio companies retain full discretion regarding whether to adopt Managerial Assistance Recommendations, and
there can be no assurance that a sufficient number of portfolio companies will choose to do so. Even where such
recommendations are adopted, we cannot guarantee that they will improve employee well-being, retention, or productivity,
or that they will have a positive effect on the financial performance of the portfolio company. If portfolio companies fail to
adopt Managerial Assistance Recommendations at levels sufficient to meet our Goal2030™ benchmarks, we may forfeit
interest rate step-downs under our senior secured revolving credit facility, which could increase our cost of capital and
adversely affect our results of operations and returns to stockholders.
Risks Relating to Our Common Stock
There is no public market for shares of our Common Stock, and we do not expect there to be a market for our shares.
There is no existing trading market for shares of our Common Stock, and no market for our shares may develop in the
future. If developed, any such market may not be sustained. In the absence of a trading market, holders of shares of our
Common Stock may be unable to liquidate an investment in our shares.
The shares of our Common Stock have not been registered under the Securities Act or any state securities laws and, unless
so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities laws.
There are restrictions on the ability of holders of our Common Stock to transfer shares in excess of the restrictions
typically associated with a private offering of securities under Regulation D and other exemptions from registration
under the Securities Act, and these restrictions could limit the liquidity of an investment in shares of our Common Stock
and the price at which holders may be able to sell the shares.
We are relying on an exemption from registration under the Securities Act and state securities laws in offering shares of our
Common Stock pursuant to the Subscription Agreements. As such, absent an effective Registration Statement covering our
Common Stock, such shares may be resold only in transactions that are exempt from the registration requirements of the
Securities Act and with our prior consent. Our Common Stock will have limited transferability, which could delay, defer or
prevent a transaction or a change of control of the Company that might involve a premium price for our securities or
otherwise be in the best interest of our stockholders.
During periods of capital markets disruption and economic uncertainty, there is a risk that you may not receive
distributions or that our distributions may not grow over time, and a portion of our distributions may be a return of
capital.
We intend to make periodic distributions to our stockholders out of assets legally available for distribution. We cannot
assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-
to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of one or
more of the risk factors described in this Registration Statement, especially if there are reduced cash flows to us from our
portfolio companies, which could reduce cash available for distribution to our stockholders. Due to the asset coverage test
applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions. To the extent we
make distributions to stockholders that include a return of capital, such a portion of the distribution essentially constitutes a
return of the stockholder’s investment. Although such return of capital may not be taxable, such distributions may increase
a shareholder’s tax liability for capital gains upon the future sale of our Common Stock. A return of capital distribution
may cause a stockholder to recognize a capital gain from the sale of our Common Stock even if the stockholder sells its
shares for less than the original purchase price.
Investing in our Common Stock may involve an above-average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than
alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies
involve higher levels of risk, and therefore, an investment in our shares may not be suitable for someone with lower risk
tolerance. In addition, our Common Stock is intended for long-term shareholders who can accept the risks of investing
primarily in illiquid loans and other debt or debt-like instruments and should not be treated as a trading vehicle.
Our stockholders may experience dilution in their ownership percentage.
Our stockholders do not have preemptive rights to any shares of our Common Stock we issue in the future. To the extent
that we issue additional equity interests at or below net asset value, your percentage ownership interest in us may be
diluted. In addition, depending upon the terms and pricing of any future sales of Common Stock and the value of our
investments, you may also experience dilution in the book value and fair value of your shares.
Under the 1940 Act, we generally are prohibited from issuing or selling shares of our Common Stock at a price below net
asset value per share, which may be a disadvantage as compared with certain public companies. We may, however, sell
shares of our Common Stock, or warrants, options, or rights to acquire shares of our Common Stock, at a price below the
current net asset value of shares of our Common Stock if our Board determines that such sale is in our best interests and the
best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated
with us, approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than
a price that, in the determination of our Board, closely approximates the fair value of such securities (less any distributing
commission or discount). If we raise additional funds by issuing shares of our Common Stock or senior securities
convertible into, or exchangeable for, shares of our Common Stock, then the percentage ownership of our stockholders at
that time will decrease, and you will experience dilution.
Purchases of Common Stock pursuant to the Subscription Agreements will generally be made pro-rata in accordance with
the remaining capital commitments of all shareholders. However, we may request capital contributions on a non-pro rata
basis in accordance with the terms of the Subscription Agreement. To the extent a shareholder is required to purchase less
than its pro-rata share of a drawdown of subscriber capital commitments, such stockholders will experience dilution in their
percentage ownership of the Company.
In the event that we enter into a Subscription Agreement with one or more shareholders after the Initial Drawdown, each
such shareholder will be required to make Catch-up Purchases on one or more dates to be determined by us. Each Catch-up
Purchase will dilute the ownership percentage of all shareholders whose subscriptions were accepted at previous closings.
As a result, each subsequent closing after the Initial Closing will result in existing stockholders in the Company
experiencing dilution as a result of Catch-up Purchases.
Our stockholders will experience dilution in their ownership percentage if they do not opt-in to our dividend
reinvestment plan.
We have an “opt-out” DRIP pursuant to which all distributions declared will be payable in shares of our Common Stock
unless stockholders elect to receive their distributions in cash. As a result, our stockholders that do “opt-out” to our DRIP
will experience dilution in their ownership percentage of our Common Stock over time. See “ Item 9 – Market Price of and
Dividends on the Registrant’s Common Equity and Related Stockholder Matters–Distribution Policy” and “—Dividend
Reinvestment Plan ” for a description of our dividend policy and obligations.
Our stockholders may receive shares of our Common Stock as distributions, which could result in adverse tax
consequences to them.
In order to satisfy the annual distribution requirement applicable to RICs, we will have the ability to declare a large portion
of a dividend in shares of our Common Stock instead of in cash. Revenue Procedures issued by the IRS allow a publicly
offered regulated investment company (as defined above) to distribute its own stock as a dividend for the purpose of
fulfilling its distribution requirements if certain conditions are satisfied. As long as a portion of such dividend is paid in
cash (which portion may be as low as 10% of such dividend, for distributions declared by June 30, 2022, and 20% of such
dividends, for distributions declared on or after July 1, 2022) and certain requirements are met, the entire distribution will
be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax
on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same
manner as a cash dividend, even though most of the dividend was paid in shares of our Common Stock. We currently do
not intend to pay distributions in shares of our Common Stock.
We may, in the future, determine to issue preferred stock, which could adversely affect the value of shares of Common
Stock.
The issuance of preferred stock with dividend or conversion rights, liquidation preferences, or other economic terms
favorable to the holders of preferred stock could make an investment in shares of Common Stock less attractive. In
addition, the distributions on any preferred stock we issue must be cumulative. Payment of distributions and repayment of
the liquidation preference of preferred stock must take preference over any distributions or other payments to holders of
Common Stock, and holders of preferred stock are not subject to any of our expenses or losses and are not entitled to
participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that
converts into shares of Common Stock). In addition, under the 1940 Act, the preferred stock would constitute a “senior
security” for purposes of the 150% asset coverage test.
Shareholders will not have any redemption rights in respect of the Common Stock, and there is no meaningful liquidity
risk to manage.
To the extent required by laws implementing the Directive in any relevant EEA member state, the information in respect of
the Company required to be disclosed pursuant to Article 23(4) and (5) of the Directive will be made available to each
investor as follows:
a) Any new arrangements for managing our liquidity, without undue delay in a disclosure notice delivered to each
investor.
b) Our current risk profile and the risk management systems employed by the Adviser to manage those risks, in each
annual report.
c) Any changes to the maximum level of leverage which the Adviser may employ on our behalf as well as any right
of the reuse of collateral or any guarantee granted under the leveraging arrangement, without undue delay in a
disclosure notice delivered to each investor. Please note, we do not intend to employ collateral and asset reuse
arrangements.
d) The total amount of leverage employed by us, in each annual report.
General Risk Factors
Political, social and economic uncertainty, including uncertainty related t o global pandemics , creates and exacerbates
risks.
Social, political, economic and other conditions and events will occur that create uncertainty and have significant impacts
on issuers, industries, governments and other systems, including the financial markets, to which the Company and its
investments are exposed. In addition, global economies and financial markets are increasingly interconnected, and political,
economic and other conditions and events in one country, region, or financial market may adversely impact issuers in a
different country, region or financial market. Furthermore, the occurrence of, among other events, natural or man-made
disasters, severe weather or geological events, fires, floods, earthquakes, outbreaks of disease (such as COVID-19, avian
influenza or H1N1/09), epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts or the occurrence of climate
change, may also adversely impact our performance from time to time. Such events may result in, and have resulted in,
closing borders, securities exchange closures, health screenings, healthcare service delays, quarantines, cancellations,
supply chain disruptions, lower consumer demand, market volatility and general uncertainty. We may be negatively
impacted if the value of our portfolio company holdings were harmed by such political or economic conditions or events.
Moreover, such negative political and economic conditions may disrupt the processes necessary for our operations. This
may create widespread business continuity issues for us and our portfolio companies and heightened cybersecurity,
information security and operational risks as a result of, among other things, remote work arrangements.
Outbreaks such as the severe acute respiratory syndrome, avian influenza, H1N1/09, and, most recently, the coronavirus
(COVID-19), or other similarly infectious diseases may have material adverse impacts on the Company, the Adviser, their
respective affiliates and portfolio companies. Actual pandemics, or fear of pandemics, can trigger market disruptions or
economic turn-downs with the consequences described above. The Adviser cannot predict the likelihood of disease
outbreaks occurring in the future nor how such outbreaks may affect the Company’s investments.
The outbreak of disease epidemics may result in the closure of the Adviser’s and/or a portfolio company’s offices or other
businesses, including office buildings, retail stores and other commercial venues and could also result in (a) the lack of
availability or price volatility of raw materials or component parts necessary to a portfolio company’s business which may
adversely affect the ability of a portfolio company to perform its obligations, (b) disruption of regional or global trade
markets and/or the availability of capital, (c) the availability of leverage, including an inability to obtain indebtedness at all
or to the Company’s desired degree, and less favorable timing of repayment and other terms with respect to such leverage,
(d) trade or travel restrictions which impact a portfolio company’s business and/or (e) a general economic decline and have
an adverse impact on the Company’s value, the Company’s investments, or the Company’s ability to make new
investments. If a future pandemic occurs (including a recurrence of COVID-19) during a period when the Company
expects to be harvesting its investments, the Company may not achieve its investment objective or may not be able to
realize its investments within the Company’s term.
Ongoing international events, including geopolitical conflicts and trade policy uncertainty, have increased global
political and economic uncertainty, which may have a material impact on the Company's portfolio and the value of your
investment in the Company.
The ongoing war between Russia and Ukraine and associated sanctions placed on certain Russian entities and individuals
by the United States and other countries, continue to contribute to global political and economic uncertainty. Although US-
mediated peace negotiations are underway, the conflict remains unresolved and continues to affect global energy markets,
supply chains, and inflation. There is also the ongoing risk of retaliatory actions by Russia against countries that have
enacted sanctions, including cyberattacks against financial and governmental institutions, which could result in business
disruptions and further economic turbulence.
In the Middle East, although Israel and Hamas entered into a US-brokered ceasefire framework in October 2025, the
situation remains fragile, with ongoing hostilities and significant uncertainty regarding the durability and implementation
of the agreement. Broader regional instability, including ongoing tensions between Israel and Iran and other state and non-
state actors in the region, continues to pose risks to global markets.
In particular, escalating tensions between the United States and Iran present a distinct set of risks that could materially
affect the Company's portfolio. Iran is a significant producer of oil, and any further escalation — including military
conflict, sanctions, or disruption to regional shipping routes such as the Strait of Hormuz — could cause significant
increases in energy prices, exacerbate inflationary pressures, and contribute to broader market volatility. Rising energy
costs could adversely affect the operating costs and profit margins of our portfolio companies, particularly those in
transportation, manufacturing, and other energy-sensitive industries, and could impair their ability to service their debt
obligations to us.
In addition, changes in U.S. trade policy, including the imposition or threat of tariffs and the renegotiation of trade
agreements, have introduced additional uncertainty into global markets and may adversely affect portfolio companies that
rely on cross-border supply chains or are sensitive to shifts in trade flows.
Although the Company has no direct exposure to Russia, Ukraine, or the Middle East, the broader consequences of these
and other geopolitical events — including their effects on oil and other energy prices, inflation, interest rates, capital
markets, and general economic conditions — may have a material adverse impact on the Company's portfolio and the value
of your investment in the Company .
Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and
results of operations.
There is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as
at the state and local levels. Recent events, including the 2024 U.S. presidential election, have created a climate of
heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-
reaching implications. The presidential administration’s changes to U.S. policy may impact, among other things, the U.S.
and global economy, international trade and relations, unemployment, immigration, taxes, healthcare, the U.S. regulatory
environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business,
they could adversely affect our business, financial condition, operating results and cash flows. Until we know what policy
changes are made and how those changes impact our business and the business of our competitors over the long term, we
will not know if, overall, we will benefit from them or be negatively affected by them.
Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies.
The United States is currently experiencing an inflationary environment, and certain of our portfolio companies are in
industries that may be impacted by inflation. If such portfolio companies are unable to pass any increases in their costs of
operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest
and principal on our loans, particularly if interest rates rise in response to inflation. In addition, any projected future
decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those
investments. Any decreases in the fair value of our investments could result in future realized or unrealized losses and
therefore reduce our net assets resulting from operations.
The impact of economic recessions or downturns may impair our portfolio companies and lead to defaults by our
portfolio companies, which could harm our operating results.
Our portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay our loans
during these periods. During these periods our non-performing assets may increase and the value of our portfolio may
decrease if we are required to write down the values of our investments. Adverse economic conditions may also decrease
the value of collateral securing some of our loans. Economic slowdowns or recessions could lead to financial losses in our
portfolio investments and a decrease in revenues, net income and assets. A prolonged reduction in interest rates due to
economic downturns or recessions will reduce our gross investment income and could result in a decrease in our net
investment income if such decreases in SOFR are not offset by a corresponding increase in the spread over SOFR that we
earn on any portfolio investments, a decrease in our operating expenses, including with respect to our income incentive fee,
or a decrease in the interest rate of our floating interest rate liabilities tied to SOFR. Unfavorable economic conditions also
could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend
credit to us. These events could prevent us from increasing investments and harm our operating results.
We are subject to risks associated with the current interest rate environment, and to the extent we use debt to finance
our investments, changes in interest rates will affect our cost of capital and net investment income.
To the extent we borrow money or issue debt securities or preferred stock to make investments, our net investment income
will depend, in part, upon the difference between the rate at which we borrow funds or pay interest or distributions on such
debt securities or preferred stock and the rate at which we invest these funds. In addition, we anticipate that many of our
debt investments and borrowings will have floating interest rates that reset on a periodic basis, and many of our
investments will be subject to interest rate floors. As a result, a significant change in market interest rates could have a
material adverse effect on our net investment income. Rising interest rates on floating-rate loans we make to portfolio
companies could drive an increase in defaults or accelerated refinancings. Some portfolio companies may be unable to
refinance into fixed-rate loans or repay outstanding amounts, leading to a gradual decline in the credit quality of our
portfolio. In periods of rising interest rates, our cost of funds will increase because we expect that the interest rates on the
majority of amounts we borrow will be floating. This change could reduce our net investment income to the extent any debt
investments have fixed interest rates. We may use interest rate risk management techniques in an effort to limit our
exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent
permitted by the 1940 Act and applicable commodities laws. These activities may limit our ability to benefit from lower
interest rates with respect to hedged borrowings. Adverse developments resulting from changes in interest rates or hedging
transactions could have a material adverse effect on our business, financial condition, and results of operations.
You should also be aware that a rise in the general level of interest rates typically will lead to higher interest rates
applicable to our debt investments, which may increase the amount of incentive fees payable to our Adviser. Also, an
increase in interest rates available to shareholders could make an investment in shares of our Common Stock less attractive
if we are not able to increase our distribution rate, which could reduce the value of shares of our Common Stock.
A changing interest rate environment magnifies the Company’s susceptibility to interest rate risk and may adversely affect
the Company by diminishing yield and impacting performance. It is difficult to accurately predict the pace at which the
FRB will increase or decrease interest rates, or the timing, frequency or magnitude of any increases or decreases, and the
evaluation of macroeconomic and other conditions could cause a change in approach in the future. Any such changes could
be sudden and unpredictable. Certain economic conditions and market environments will expose fixed-income and debt
instruments to heightened volatility and reduced liquidity, which can negatively impact the Company’s performance or
otherwise adversely impact the Company.
We may be the target of litigation.
We may be the target of securities litigation in the future, particularly if the value of shares of our Common Stock
fluctuates significantly. We could also generally be subject to litigation, including derivative actions by our stockholders.
Any litigation could result in substantial costs and divert management’s attention and resources from our business and
cause a material adverse effect on our business, financial condition and results of operations.
We may experience fluctuations in our quarterly operating results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate
payable on the debt securities we acquire, the default rate on such securities, the number and size of investments we
originate or acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized
gains or losses, the degree to which we encounter competition in our markets and general economic conditions. In light of
these factors, results for any period should not be relied upon as being indicative of our performance in future periods.
New or modified laws or regulations governing our operations may adversely affect our business.
Our portfolio companies and we are subject to regulation by-laws at the U.S. federal, state, and local levels. These laws and
regulations, as well as their interpretation, may change from time to time, including as the result of interpretive guidance or
other directives from the U.S. President and others in the executive branch, and new laws, regulations, and interpretations
may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on our
business. The effects of such laws and regulations on the financial services industry will depend, in large part, upon the
extent to which regulators exercise the authority granted to them and the approaches taken in implementing regulations.
The current regulatory environment reflects a shift in priorities under the current administration, and changes in regulatory
policy, including potential deregulation or re-regulation across financial services sectors, may affect the competitive
landscape and our operations in ways that are difficult to predict.
Future legislative and regulatory proposals directed at the financial services industry that are proposed or pending in the
U.S. Congress may negatively impact the operations, cash flows or financial condition of us or our portfolio companies,
impose additional costs on our portfolio companies or us, intensify the regulatory supervision of us or our portfolio
companies or otherwise adversely affect our business or the business of our portfolio companies. Laws that apply to us,
either now or in the future, are often highly complex and may include licensing requirements. The licensing process can be
lengthy and can be expected to subject us to increased regulatory oversight. Failure, even if unintentional, to comply fully
with applicable laws may result in sanctions, fines, or limitations on the ability of the Company or the Adviser to do
business in the relevant jurisdiction or to procure required licenses in other jurisdictions, all of which could have a material
adverse effect on us. In addition, if we do not comply with applicable laws and regulations, we could lose any licenses that
we then hold for the conduct of our business and may be subject to civil fines and criminal penalties.
Additionally, changes to the laws and regulations governing our operations, including those associated with RICs, may
cause us to alter our investment strategy in order to avail ourselves of new or different opportunities or result in the
imposition of corporate-level taxes on us. Such changes could result in material differences to our strategies and plans and
may shift our investment focus from the areas of expertise of the Adviser to other types of investments in which the
Adviser may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect
on our results of operations and the value of your investment. If we invest in commodity interests in the future, the Adviser
may determine not to use investment strategies that trigger additional regulation by CFTC or may determine to operate
subject to CFTC regulation, if applicable. If the Adviser or we were to operate subject to CFTC regulation, we may incur
additional expenses and would be subject to additional regulation.
In addition, certain regulations applicable to debt securitizations implementing credit risk retention requirements that have
taken effect in both the U.S. and in Europe may adversely affect or prevent us from entering into securitization
transactions. These risk retention rules will increase our cost of funds under, or may prevent us from completing, future
securitization transactions. In particular, the U.S. Risk Retention Rules require the sponsor (directly or through a majority-
owned affiliate) of a debt securitization, such as CLOs, in the absence of an exemption, to retain an economic interest in the
credit risk of the assets being securitized in the form of an eligible horizontal residual interest, an eligible vertical interest,
or a combination thereof, in accordance with the requirements of the U.S. Risk Retention Rules. Given the more attractive
financing costs associated with these types of debt securitizations as opposed to other types of financing available (such as
traditional senior secured facilities), this increases our financing costs, which increases the financing costs ultimately be
borne by our common stockholders.
Regulatory attention to the extension of credit outside of the traditional banking sector has continued to evolve, and it
remains possible that some portion of the non-bank financial sector will be subject to new or modified regulation. While it
cannot be known at this time whether any such regulation will be implemented or what form it may take, changes in the
regulation of non-bank credit extension — whether resulting in increased oversight or a relaxation of existing requirements
— could affect competitive dynamics in the private credit market and could impact our operations, cash flows or financial
condition, impose additional costs on us, intensify regulatory supervision of us or otherwise adversely affect our business,
financial condition and results of operations.
Uncertainty resulting from the overall political climate could negatively impact our business, financial condition, and
results of operations.
The current political climate has created uncertainty with respect to legal, tax, and regulatory regimes in which the
Company and its portfolio companies, as well as the Adviser, the Administrator, Lafayette Square, and their affiliates
operate. The current administration has signaled policy priorities that may affect, among other things, trade, taxation,
financial services regulation, immigration, and government spending. Any significant changes in economic or tax policy
and/or government programs could have a material adverse impact on the Company and on its investments. In addition,
political uncertainty at the state and local level, including with respect to policies affecting the industries and communities
in which our portfolio companies operate, could further affect our business, financial condition, and results of operations.
We will incur significant costs as a result of being registered under the Exchange Act.
We will incur legal, accounting, and other expenses, including costs associated with the periodic reporting requirements
applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate
governance requirements, including requirements under SOX and other rules implemented by the SEC.
Efforts to comply with SOX will involve significant expenditures, and non-compliance with SOX would adversely affect
us and the value of shares of our Common Stock.
We are required to comply with certain requirements of the SOX and the related rules and regulations promulgated by the
SEC, but will not have to comply with certain requirements until we have been registered under the Exchange Act for a
specified period of time or cease to be an “emerging growth company.” Because shares of our Common Stock are
registered under the Exchange Act, we are subject to SOX and the related rules and regulations promulgated by the SEC,
and our management is required to report on our internal control over financial reporting pursuant to Section 404 of SOX.
We are required to review on an annual basis, our internal control over financial reporting, and on a quarterly and annual
basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we expect to incur
significant additional expenses that may negatively impact our financial performance and our ability to make distributions.
This process will also result in a diversion of management’s time and attention. We do not know when our evaluation,
testing and remediation actions will be completed or its impact on our operations. In addition, we may be unable to ensure
that the process is effective or that our internal control over financial reporting is or will be effective. In the event that we
are unable to come into and maintain compliance with SOX and related rules, we and the value of our securities would be
adversely affected.
Terrorist attacks, acts of war, natural disasters, outbreaks, or pandemics, such as the Coronavirus pandemic, may
impact our portfolio companies and our Adviser and harm our business, operating results, and financial condition.
Terrorist acts, acts of war, natural disasters, disease outbreaks, pandemics, or other similar events may disrupt our
operations, as well as the operations of our portfolio companies and our Adviser. Such acts have created, and continue to
create, economic and political uncertainties and have contributed to recent global economic instability. Any of the above
factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of
our common shares and/or debt securities to decline. In addition, future terrorist activities, military or security operations,
natural disasters, disease outbreaks, pandemics, or other similar events could weaken the domestic/global economies and
create additional uncertainties, which may negatively impact our portfolio companies and, in turn, could have a material
adverse impact on our business, operating results and financial condition.
A shareholder may be subject to filing requirements under the Exchange Act as a result of an investment in us.
Because our Common Stock is registered under the Exchange Act, ownership information for any person who beneficially
owns 5% or more of our Common Stock must be disclosed in a Schedule 13G or other filings with the SEC. Beneficial
ownership for these purposes is determined in accordance with the rules of the SEC and includes having voting or
investment power over the securities. Although we will provide in our quarterly consolidated financial statements the
amount of outstanding stock and the amount of the shareholder’s stock, the responsibility for determining the filing
obligation and preparing the filing remains with the shareholder. In addition, owners of 10% or more of our Common Stock
are subject to reporting obligations under Section 16(a) of the Exchange Act.
A shareholder may be subject to the short-swing profits rules under the Exchange Act as a result of an investment in
Persons with the right to appoint a director or who hold 10% or more of a class of our shares may be subject to Section
16(b) of the Exchange Act, which recaptures for the benefit of the issuer profits from the purchase and sale of registered
stock within a six-month period.
