insiderdeltaSEC filings, surfaced and scored

CoverageForm 410-K10-Q8-K13D13G13F

First Eagle Alternative Capital Bdc, Inc.

FCRDCIK 0001464963 · Every Form 4 filed by insiders at this issuer. See financials →

Annual report (10-K)

Latest 10-K filed Mar 4, 2022. Sentiment + YoY language diff vs prior year. Read sections →

Signal:Neutral

Risk Factors:tone -0.0207

MD&A:tone -0.0088

Sentiment via Loughran-McDonald lexicon · YoY diff via Jaccard similarity + paragraph set difference.

Top insiders

Most active reporters at First Eagle Alternative Capital Bdc, Inc.

Name	Roles	Filings
Hickey Robert J.	Officer	2
Fellows James R	Officer	1
First Eagle Holdings, Inc.	10% Owner	1
First Eagle Investment Management, LLC	10% Owner	1
Flynn Christopher J.	OfficerDirector	1

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17 Form 4 / 4-A filings, newest first

Filed	Insider	Top transaction	Shares	Price	Value
Mar 16, 2023	Wu Howard Hsung 10% Owner	DDisposition	9,554	-	-
Mar 15, 2023	Kovanda Jeffrey Robert 10% Owner	DDisposition	1,399	-	-
Mar 15, 2023	Herzig Michael Arthur 10% Owner	DDisposition	40,154	-	-
Mar 13, 2023	Fellows James R CIO of Adviser	DDisposition	144,229	-	-
Mar 13, 2023	Flynn Christopher J. CEO · Director	DDisposition	166,478	-	-

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Filed		Top transaction	Shares	Price	Value

YoY shift: Unscored

Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K.

Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.

Per-snippet highlights

Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.

Risk Factors (Item 1A)

23,489 words

Item 1A.

Risk Factors

Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this Annual Report on Form 10-K, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face, but they are the principal risks associated with an investment in the Company. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.

R isks R elated T o O ur B usiness

We may suffer credit losses.

Investment in middle market companies is highly speculative and involves a high degree of risk of credit loss, and therefore our securities may not be suitable for someone with a low tolerance for risk. These risks are likely to increase during an economic recession.

The lack of liquidity in our investments may adversely affect our business.

Our investments generally are made in private companies. Substantially all of these securities are subject to legal and other restrictions on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our 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 had previously recorded our investments. Further, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or an affiliated manager have material non-public information regarding such portfolio company.

Our financial condition and results of operations depend on our ability to manage future growth effectively.

Our ability to achieve our investment objective depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on FEAC’s ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of the structuring of our investment process and the ability of our investment adviser to provide competent, attentive and efficient services to us. Our executive officers and the members of our investment adviser’s investment committee have substantial responsibilities in connection with their roles at FEAC and with the other FEAC funds, as well as responsibilities under the investment advisory and management agreement. They may also be called upon to provide significant managerial assistance to certain of our portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order to grow, FEAC will need to hire, train, supervise, manage and retain new employees. However, we cannot assure you that we will be able to do so effectively. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

In addition, as we grow, FEAC may open up new offices in new geographic regions that may increase our direct operating expenses without corresponding revenue growth.

We may experience fluctuations in our periodic operating results.

We could experience fluctuations in our periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire, the default rates on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend rates payable on preferred stock we issue, 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. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

We are exposed to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability.

General interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities, and, accordingly, may have a material adverse effect on our investment objective and rate of return on investment capital. A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest. Because we will borrow money to make investments and may issue debt securities, preferred stock or other securities, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities, preferred stock or other securities and the rate at which we invest these funds. Typically, we anticipate that our interest earning investments will accrue and pay interest at both variable and fixed rates, and that our interest-bearing liabilities will accrue interest at variable and fixed rates. The benchmarks used to determine the floating rates earned on our interest earning investments are London Interbank Offered Rate, or LIBOR, and Canadian Dollar Offer Rate, or CDOR, with maturities that range between one and twelve months and alternate base rate, or ABR, (commonly based on the Prime Rate or the Federal Funds Rate), with no fixed maturity date. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We use a combination of equity and long-term and short-term borrowings to finance our investment activities.

A significant increase in market interest rates could harm our ability to attract new portfolio companies and originate new loans and investments. We expect that a majority of our investments in debt will continue to be at floating rates with a floor. However, in the event that we make investments in debt at variable rates, a significant increase in market interest rates could also result in an increase in our non-performing assets and a decrease in the value of our portfolio because our floating-rate loan portfolio companies may be unable to meet higher payment obligations. In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. In addition, a decrease in interest rates may reduce net income, because new investments may be made at lower rates despite the increased demand for our capital that the decrease in interest rates may produce. We may, but will not be required to, hedge against the risk of adverse movement in interest rates in our short-term and long-term borrowings relative to our portfolio of assets. If we engage in hedging activities, it may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. 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.

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to our pre-incentive fee net investment income.

Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

If we fail to continue to qualify as a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility and could significantly increase our costs of doing business. 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.

There will be uncertainty as to the value of our portfolio investments.

A large percentage of our portfolio investments are in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We value these securities on a quarterly basis in accordance with our valuation policy, which is at all times consistent with U.S. generally accepted accounting policies (“GAAP”). Our board of directors utilizes the services of third-party valuation firms to aid it in determining the fair value of these securities. The board of directors discusses valuations and determines the fair value in good faith based on the input of our investment adviser and the respective third-party valuation firms. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies – Valuation of Portfolio Investments.” The factors that may be considered in fair value pricing our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparisons to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain they may fluctuate over short periods of time and may be based on estimates. Further, 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.

Because we have indebtedness, there could be increased risk in investing in our company.

Lenders have fixed dollar claims on our assets that are superior to the claims of stockholders, and we have granted, and may in the future grant, lenders a security interest in our assets in connection with borrowings. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. In addition, borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. Leverage is generally considered a speculative investment technique. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more than it otherwise would have had we not leveraged.

Conversely, if the value of our assets decreases, leveraging would cause the net asset value attributable to our common stock to decline more than it otherwise would have had we not leveraged. Similarly, any increase in our revenue in excess of interest expense on our borrowed funds would cause our net income to increase more than it would without the leverage. Any decrease in our revenue would cause our net income to decline more than it would have had we not borrowed funds and could negatively affect our ability to make distributions on common stock. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. We and, indirectly, our stockholders will bear the cost associated with our leverage activity.

As of December 31, 2021, there was $150.0 million of commitments under our revolving credit agreement, or Revolving Facility, of which $114.1 million was funded.

The Revolving Facility has a maturity date of October 16, 2023 and a termination date of October 16, 2024. The one year term out period is the one year period between the revolver termination date, or the end of the availability period, and the maturity date. During this time, we are required to make mandatory prepayments on our loans from the proceeds we receive from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Revolving Facility includes an accordion feature permitting us to expand the commitments, if certain conditions are satisfied, provided, however, that the aggregate amount is capped at $200.0 million. ING serves as administrative agent, lead arranger and bookrunner under the Revolving Facility.

In May 2021 and November 2021, we closed public offerings of $69.0 million and $42.6 million, respectively, in aggregate principal amount of 5.00% notes due 2026 (“2026 Notes”). The 2026 Notes mature on May 25, 2026, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after May 25, 2023. The 2026 Notes bear interest at a rate of 5.00% per year.

As a BDC, as defined in the 1940 Act, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 15 0% (i.e., the amount of debt may not exceed 50% of the value of our assets). In addition, we may not be permitted to declare any cash dividend or other distribution on our outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 15 0% after deducting the amount of such dividend, distribution, or purchase price. If this ratio declines below 15 0%, we may not be able to incur additional debt and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to make distributions. As of December 31, 2021 , there was $ 114.1 million of borrowings outstanding under the Revolving Facility and $ 111.6 million outstanding on the Notes at a weighted average interest rate of 4.19% per annum. As of December 31, 2021 , our asset coverage ratio was over 150 %.

The following table is designed to illustrate the effect on the return to a holder of our common stock on the leverage created by our use of borrowings at December 31, 2021 of $225.7 million at a weighted average interest rate of 4.19%, and assuming hypothetical annual returns on our portfolio of minus 10 to plus 10 percent. The table also assumes that we maintain a constant level of leverage and a constant weighted average interest rate. The amount of leverage we use will vary from time to time. As can be seen, leverage generally increases the return to stockholders when the portfolio return is positive and decreases return to stockholders when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table below.

Assumed return on portfolio (net of expenses) (1)

Corresponding return to common stockholders (2)

The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance.

In order to compute the “corresponding return to common stockholders”, the “assumed return on portfolio” is multiplied by the total value of net assets attributable to First Eagle Alternative Capital BDC, Inc. at the beginning of the period ($185.2 million as of December 31, 2020) to obtain an assumed return to us. From this amount, all interest expense expected to be accrued during the period ($9.5 million) is subtracted to determine the return available to stockholders. The return available to stockholders is then divided by the total value of our net assets as of the end of the period ($190.7 million) to determine the “corresponding return to common stockholders.”

This example is for illustrative purposes only, and actual interest rates on our Revolving Facility borrowing are likely to fluctuate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital resources—Credit Facility” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital resources—Notes” for additional information about the Facilities and Notes.

To the extent original issue discount or PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

Our investments may include original issue discount, or OID, instruments or instruments with PIK interest, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash. Such risks include:

The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans.

Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation.

OID and PIK instruments 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. OID and PIK income may also create uncertainty about the source of our cash distributions.

For accounting purposes, any cash distributions to stockholders representing OID and PIK income are not treated as coming from paid-in capital, even though the cash to pay them comes from the offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

PIK interest has the effect of generating investment income at a compounding rate, thereby further increasing the incentive fees payable to the Advisor. Similarly, all things being equal, the deferral associated with PIK interest also decreases the loan-to-value ratio at a compounding rate.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we may include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with making a loan, or possibly in other circumstances, or PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances as a result of PIK arrangements are included in income before we receive any corresponding cash payments. In addition, the PIK interest of many subordinated loans effectively operates as negative amortization of loan principal, thereby increasing credit risk exposure over the life of the loan because more will be owed at the end of the term of the loan than was owed when the loan was initially originated. We also may be required to include in income certain other amounts that we do not receive in cash.

Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the tax requirement to distribute at least 90% of our ordinary income and realized net short- term capital gains in excess of realized net long-term capital losses, if any, to maintain our tax treatment as a RIC. Accordingly, 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.

We may pay an incentive fee on income we do not receive in cash.

That part of the incentive fee payable by us that relates to our net investment income is computed on income that may include interest and other fee income that has been accrued but not yet received in cash. If a portfolio company defaults on a loan, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible. Consequently, while we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a formal clawback right against our investment adviser per se, the amount of accrued income written off in any period will reduce the income in the period in which such write-off was taken and thereby reduce such period’s incentive fee payment, but only to the extent that such an incentive fee is payable for that period because the write-off will not be carried forward to reduce any incentive fee payable in subsequent quarters.

The portion of the incentive fee that is attributable to deferred interest (sometimes referred to as payment in-kind interest, or PIK) will be paid to our Advisor, together with interest thereon from the date of deferral to the date of payment, only if and to the extent we actually receive such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual.

The highly competitive market in which we operate may limit our investment opportunities.

A number of entities compete with us to make the types of investments that we make. We compete with other BDCs, public and private funds, commercial and investment banks, CLO funds, commercial finance companies, and, to the extent they provide an alternative form of financing, private equity and hedge funds. Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles such as hedge funds, entities have begun to invest in areas in which they had not traditionally invested. As a result of these new entrants, competition for investment opportunities intensified in recent years and may intensify further in the future. Some of our existing and potential competitors are substantially larger and

have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC and that the Code imposes on us as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this existing and potentially increasing competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.

With respect to the investments we make, we do not seek to compete based primarily on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that are lower than the rates we offer. With respect to all investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss. We may also compete for investment opportunities with investment funds, accounts and investment vehicles managed by FEAC. Although FEAC will allocate opportunities in accordance with its policies and procedures, allocations to such investment funds, accounts and investment vehicles will reduce the amount and frequency of opportunities available to us and may not be in the best interests of us and our stockholders.

Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all.

We have elected to be taxed for federal income tax purposes as a RIC under Subchapter M of the Code. If we meet certain requirements, including source of income, asset diversification and distribution requirements, and if we continue to qualify as a BDC, we will continue to qualify for tax treatment as a RIC under the Code and will not have to pay corporate-level income taxes on income we distribute to our stockholders as dividends, allowing us to substantially reduce or eliminate our corporate-level income tax liability. As a BDC, we are generally required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 150% at the time we issue any debt or preferred stock. This requirement limits the amount that we may borrow. Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt or preferred stock and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are generally not permitted to issue common stock priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our net asset value could decline.

Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.

Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). 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 operating policies and strategies would have on our business, operating results or value of our stock. Nevertheless, the effects could adversely affect our business and impact our ability to make distributions and cause you to lose all or part of your investment.

We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.

Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:

sudden electrical or telecommunications outages;

natural disasters such as earthquakes, tornadoes and hurricanes;

disease pandemics;

events arising from local or larger scale political or social matters, including terrorist acts; and

cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders.

The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.

We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins, “phishing” attempts or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer virus attacks, impersonation of authorized users, unauthorized access, system failures and disruptions. We do not control the cyber security plans and systems put in place by third-party service providers, and such third-party service providers may have limited indemnification obligations to us, the Advisor, stockholders and/or a portfolio company, each of which would be negatively impacted. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

Many jurisdictions in which we or our portfolio companies operate have laws and regulations relating to data privacy, cyber security and protection of personal information, including the General Data Protection Regulation (“GDPR”) in the European Union that went into effect in May 2018 and the California Consumer Privacy Act (“CCPA”) that took effect in January 2020 and provides for enhanced consumer protections for California residents, a private right of action for data breaches and statutory fines for data breaches or other CCPA violations. If we fail to comply with the relevant laws and regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause our fund investors and clients to lose confidence in the effectiveness of our security measures.

R isks Related to the Advisor and its Affiliates

We are dependent upon senior management personnel of our investment adviser for our future success, and if our investment adviser is unable to retain qualified personnel or if our investment adviser loses any member of its senior management team, our ability to achieve our investment objective could be significantly harmed.

We depend on the members of senior management of FEAC, particularly the members of the investment committee of FEAC’s direct lending platform, or the Investment Committee Members. The Investment Committee Members and other investment professionals make up our investment team and are responsible for the identification, final selection, structuring, closing and monitoring of our investments. These Investment Committee Members have critical industry experience and relationships that we will rely on to implement our business plan. Our future success depends on the continued service of the Advisor’s senior management team. An Investment Committee Member could depart at any time for any reason, which we have no control over. The departure of any of the members of FEAC’s senior management or a significant number of the Investment Committee Members could have a material adverse effect on our ability to achieve our investment objective. As a result, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. Our Advisor may need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process and may not be able to find investment professionals in a timely manner or at all. In addition, we can offer no assurance that FEAC will remain our investment adviser or our administrator.

Our investment adviser and its affiliates, senior management and employees have certain conflicts of interest.

Our investment adviser, its senior management and employees serve or may serve as investment advisers, officers, directors or principals of entities that operate in the same or a related line of business. For example, FEAC serves as investment adviser to one or more private funds and registered closed-end funds. In addition, our officers may serve in similar capacities for one or more registered closed-end funds. Accordingly, these individuals may have obligations to investors in those entities or funds, the fulfillment of which might not be in our best interests or the best interests of our stockholders. In addition, certain of the personnel employed by our investment adviser or focused on our business may change in ways that are detrimental to our business. Any affiliated investment vehicle formed in the future and managed by FEAC or its affiliates may invest in asset classes similar to those targeted by us. As a result, FEAC may face conflicts in allocating investment opportunities between us and such other entities. Although FEAC will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in such investments. In certain circumstances, negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. The SEC has granted us the Order we sought in an exemptive application that expands our ability to co-invest in portfolio companies with Affiliated Funds and, subject to certain conditions, FEAC Proprietary Accounts in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with the conditions to the Order. Pursuant to the Order, we are permitted to co-invest with Affiliated Funds and/or FEAC Proprietary Accounts if, among other things, a “required majority” (as defined in Section 57 (o) of the 1940 Act) or our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

Our base management fee may encourage our investment adviser to induce the Company to incur leverage.

Our base management fee is calculated on the basis of our total assets, including assets acquired with the proceeds of leverage. This may encourage the Advisor to use leverage to increase the aggregate amount of and the return on our investments, even when it may not be appropriate to do so, and to refrain from delivering when it would otherwise be appropriate to do so. Under certain circumstances, the use of increased leverage may increase the likelihood of default, which would impair the value of our common stock. Given the subjective nature of the investment decisions made by our investment adviser on our behalf, we will not be able to monitor this conflict of interest.

Our incentive fee may encourage our investment adviser to make certain investments, including speculative investments.

The incentive fee payable by us to FEAC may create an incentive for FEAC to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to FEAC is determined, which is calculated separately in two components as a percentage of the interest and other ordinary income in excess of a quarterly minimum hurdle rate and as a percentage of the realized gain on invested capital, may encourage our FEAC to use leverage or take additional risk to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor the holders of our common stock, or of securities convertible into our common stock or warrants representing rights to purchase our common stock or securities convertible into our common stock. In addition, FEAC receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of the incentive fee based on ordinary income, there is no minimum level of gain applicable to the portion of the incentive fee based on net capital gains. As a result, FEAC may have an incentive to invest more in investments that are likely to result in capital gains as compared to income producing securities or to advance or delay realizing a gain in order to enhance its incentive fee. This practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to certain of our debt investments and may accordingly result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to our pre-incentive fee net investment income.

We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, we will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to FEAC with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the management and incentive fee of FEAC as well as indirectly bear the management and performance fees and other expenses of any investment companies in which we invest.

We may be obligated to pay our investment adviser incentive compensation payments even if we have incurred unrecovered cumulative losses from more than three years prior to such payments and may pay more than 17.5% (effective January 1, 2020) of our net capital gains as incentive compensation payments because we cannot recover payments made in previous years.

Our investment adviser will be entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our investment income for that quarter (before deducting incentive compensation) above a threshold return for that quarter and subject to a total return requirement. The general effect of this total return requirement is to prevent payment of the foregoing incentive compensation except to the extent 17.5% (effective January 1, 2020) of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. Consequently, we may pay an incentive fee if we incurred losses more than three years prior to the current calendar quarter even if such losses have not yet been recovered in full. Thus, we may be required to pay our investment adviser incentive compensation for a fiscal quarter even if there is a decline in the

value of our portfolio or we incur a net loss for that quarter. If we pay an incentive fee of 17.5% (effective January 1, 2020 ) of our realized capital gains (net of all realized capital losses and unrealized capital depreciation on a cumulative basis) and thereafter experience additional realized capital losses or unrealized capital depreciation, we will not be able to recover any portion of the incentive fee previously paid. See “Item1. Business — The Advis o r—Investment Management Agreement .”

R isks R elated T o O ur I nvestments

Our investments in prospective private and middle market portfolio companies are risky, and we could lose all or part of our investment.

Investment in private and middle market companies involves a number of significant risks. Generally, little public information exists about these companies, and we are required to rely on the ability of the Advisors’ investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Middle market companies may have limited financial resources 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, they 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 generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.

Our investments in lower credit quality obligations are risky and highly speculative, and we could lose all or part of our investment.

Most of our debt investments are likely to be in lower grade obligations. The lower grade investments in which we invest may be rated below investment grade by one or more nationally-recognized statistical rating agencies at the time of investment or may be unrated but determined by the Advisor to be of comparable quality. Debt securities rated below investment grade are commonly referred to as “junk bonds” and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. The debt in which we invest typically is not 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). We may invest without limit in debt of any rating, as well as debt that has not been rated by any nationally recognized statistical rating organization.

Investment in lower grade investments involves a substantial risk of loss. Lower grade securities or comparable unrated securities are considered predominantly speculative with respect to the issuer’s ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for lower grade debt tend to be very volatile and are less liquid than investment grade securities. For these reasons, your investment in our company is subject to the following specific risks: increased price sensitivity to a deteriorating economic environment; greater risk of loss due to default or declining credit quality; adverse company specific events are more likely to render the issuer unable to make interest and/or principal payments; and if a negative perception of the lower grade debt market develops, the price and liquidity of lower grade securities may be depressed. This negative perception could last for a significant period of time.

We invest primarily in debt and equity securities of middle market companies and we may not realize gains from our equity investments.

Our investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of middle market companies. We are a direct lender to middle market companies that invests primarily in directly originated first lien senior secured and second lien loans, including unitranche investments. In certain instances, we make subordinated debt investments, which may include an associated equity component such as warrants, preferred stock or similar securities, and direct equity co-investments. We may also provide advisory services to managed funds.

Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, 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 not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

We do not generally intend to take controlling equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company, we are subject to the risk that such portfolio company may make business decisions with which we disagree, and the stockholders and management of such portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.

In addition, we may not be in a position to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.

Our portfolio companies may be highly leveraged.

Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies’ ability to finance their future operations and capital needs. As a result, these companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We have invested a portion of our capital in second lien and subordinated loans and the “last-out” tranche of unitranche loans issued by our portfolio companies and intend to continue to do so in the future. The portfolio companies usually have, or may 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 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. 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 debt 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 and during the continuance of a default under the debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments 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 such senior

creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. 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.

Certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. In addition, we have made in the past, and may make in the future, 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 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 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. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan 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 loan 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.

The rights we may have with respect to the collateral securing certain loans we make to our portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements or agreements among lenders. Under these agreements, we may forfeit certain rights with respect to the collateral to holders with prior claims. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of those enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and certain rights to receive interest and certain amortization payments that would be allocated to other lenders under the credit facility. We may not have the ability to control or direct such actions, even if as a result our rights as lenders are adversely affected.

The interest rates of some of our floating-rate loans to our portfolio companies may be priced using a spread over LIBOR, which may be phased out in the future.

On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”) announced that it would phase out the London Interbank Offered Rate (“ LIBOR”) as a benchmark by the end of 2021. On November 30, 2020, the FCA announced that subject to confirmation following its consultation with the administrator of LIBOR, it would cease publication of the one-week and two-month USD LIBOR immediately after December 31, 2021 and cease publication of the remaining tenors immediately after June 30, 2023. Additionally, the Federal Reserve Board has advised banks to stop entering into new USD LIBOR based contracts. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021 and has indicated that market participants should not rely on LIBOR being available after 2023. As an alternative to LIBOR, for example, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.- dollar LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements, backed by Treasury securities. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and our existing financial instruments which reference LIBOR. While some instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate setting methodology, not all instruments may have such provisions and there is significant uncertainty regarding the effectiveness of any such alternative methodologies. Abandonment of or modifications to LIBOR could lead to significant short-term and long-term uncertainty and market instability. If LIBOR ceases to exist, we and our portfolio companies may need to amend or restructure our existing LIBOR-based debt instruments and any related hedging arrangements that extend beyond 2023, which may be difficult, costly and time consuming. In addition, from time to time we invest in floating rate loans and investment securities whose interest rates are indexed to LIBOR. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR, or any changes announced with respect to such reforms, may result in a sudden or prolonged increase or decrease in the reported LIBOR rates and the value of LIBOR-based loans and securities, including those of other

issuers we or our funds currently own or may in the future own. It remains uncertain how such changes would be implemented and the effects such changes would have on us, issuers of instruments in which we invest and financial markets generally.

The expected discontinuation of LIBOR could have a significant impact on our business. The dollar amount of our outstanding debt investments and borrowings that are linked to LIBOR with maturity dates after the anticipated discontinuation date of 2023 is material. We anticipate significant operational challenges for the transition away from LIBOR including, but not limited to, amending existing loan agreements with borrowers on investments that may have not been modified with fallback language and adding effective fallback language to new agreements in the event that LIBOR is discontinued before maturity. Beyond these challenges, we anticipate there may be additional risks to our current processes and information systems that will need to be identified and evaluated by us. Due to the uncertainty of the replacement for LIBOR, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined. In addition, the cessation of LIBOR could:

Adversely impact the pricing, liquidity, value of, return on and trading for a broad array of financial products, including any LIBOR-linked securities, loans and derivatives that are included in our assets and liabilities;

Require extensive changes to documentation that governs or references LIBOR or LIBOR-based products, including, for example, pursuant to time-consuming renegotiations of existing documentation to modify the terms of outstanding investments;

Result in inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with one or more alternative reference rates;

Result in disputes, litigation or other actions with portfolio companies, or other counterparties, regarding the interpretation and enforceability of provisions in our LIBOR-based investments, such as fallback language or other related provisions, including, in the case of fallbacks to the alternative reference rates, any economic, legal, operational or other impact resulting from the fundamental differences between LIBOR and the various alternative reference rates;

Require the transition and/or development of appropriate systems and analytics to effectively transition our risk management processes from LIBOR-based products to those based on one or more alternative reference rates, which may prove challenging given the limited history of the proposed alternative reference rates; and

Cause us to incur additional costs in relation to any of the above factors.

There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have a material adverse effect on our business, result of operations, financial condition, and unit price. In addition, the transition to a successor rate could potentially cause (i) increased volatility or illiquidity in markets for instruments that currently rely on LIBOR, (ii) a reduction in the value of certain instruments held by the Company, or (iii) reduced effectiveness of related Company transactions, such as hedging. It remains uncertain how such changes would be implemented and the effects such changes would have on the Company, issuers of instruments in which the Company invests and financial markets generally.

Economic downturns or recessions could impair the value of the collateral for our loans to our portfolio companies and consequently increase the possibility of an adverse effect on our financial condition and results of operations.

Many of our portfolio companies are susceptible to economic recessions and may be unable to repay our loans during such periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during such periods. Adverse economic conditions may also 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.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of the portfolio company’s loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the 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, if a portfolio company goes bankrupt, even though we may have structured our investment as mezzanine debt, or senior secured debt, depending on the facts and circumstances, including the extent to which we actually provided significant “managerial assistance,” if any, to that portfolio company, a bankruptcy court might re-characterize our debt and subordinate all or a portion of our claim to that of other creditors. These events could harm our financial condition and operating results.

We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient.

In the event of a default by a portfolio company on a secured loan, we will only have recourse to the assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. In addition, we sometimes make loans that are unsecured, where other lenders may be directly secured by the assets of the same portfolio company. In the event of a default or an enforcement action against the assets of the portfolio company that constitute collateral for such other lenders, those collateralized lenders would have priority over us with respect to the proceeds of a sale of such underlying assets. In cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the portfolio company prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.

In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subject to equitable subordination. In addition, certain of our loans are subordinate to other debt of the portfolio company. If a portfolio company defaults on our loan or on debt senior to our loan, or in the event of a portfolio company bankruptcy, our loan will be satisfied only after the senior debt receives payment in full. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans to affiliates of the portfolio company, accept prepayments, exercise our remedies (through “standstill” periods) and control decisions made in bankruptcy proceedings relating to the portfolio company. Bankruptcy and portfolio company litigation can significantly increase collection losses and the time needed for us to acquire the underlying collateral in the event of a default, during which time the collateral may decline in value, causing us to suffer losses.

If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able to obtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a portfolio company’s ability to refinance our loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer a loss which may adversely impact our financial performance.

We may be exposed to special risks associated with bankruptcy cases.

One or more of our portfolio companies may be involved in bankruptcy or other reorganization or liquidation proceedings. Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, we cannot assure you that a bankruptcy court would not approve actions that may be contrary to our interests. There also are instances where creditors can lose their ranking and priority if they are considered to have taken over management of a borrower.

To the extent that portfolio companies in which we have invested through a unitranche facility are involved in bankruptcy proceedings, the outcome of such proceedings may be uncertain. For example, it is unclear whether a bankruptcy court would enforce an agreement among lenders which sets the priority of payments among unitranche lenders. In such a case, the “first out” lenders in the unitranche facility may not receive the same degree of protection as they would if the agreement among lenders was enforced.

The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the borrower. It is subject to unpredictable and lengthy delays and during the process a company’s competitive position may erode, key management may depart and a company may not be able to invest adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during reorganization and may be adversely affected by an erosion of the issuer’s fundamental value.

In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. For example, we could become subject to a lender liability claim (alleging that we misused our influence on the borrower for the benefit of its lenders), if, among other things, the borrower requests significant managerial assistance from us and we provide that assistance. To the extent we and an affiliate both hold investments in the same portfolio company that are of a different character, we may also face restrictions on our ability to become actively involved in the event that that portfolio company becomes distressed as a result of the restrictions imposed on transactions involving affiliates under the 1940 Act. In such cases, we may be unable to exercise rights we may otherwise have to protect our interests as security holders in such portfolio company.

Our loans could be subject to equitable subordination by a court which would increase our risk of loss with respect to such loans.

Courts may apply the doctrine of equitable subordination to subordinate the claim or lien of a lender against a borrower to claims or liens of other creditors of the borrower, when the lender or its affiliates is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also applied the doctrine of equitable subordination when a lender or its affiliates is found to have exerted inappropriate control over a client, including control resulting from the ownership of equity interests in a client. We have made or received through restructuring direct equity investments or received warrants in connection with loans representing approximately 2.9% of the aggregate amortized cost basis of our portfolio as of December 31, 2021. Payments on one or more of our loans, particularly a loan to a client in which we also hold an equity interest, may be subject to claims of equitable subordination. If we were deemed to have the ability to control or otherwise exercise influence over the business and affairs of one or more of our portfolio companies resulting in economic hardship to other creditors of that company, this control or influence may constitute grounds for equitable subordination and a court may treat one or more of our loans as if it were unsecured or common equity in the portfolio company. In that case, if the portfolio company were to liquidate, we would be entitled to repayment of our loan on a pro-rata basis with other unsecured debt or, if the effect of subordination was to place us at the level of common equity, then on an equal basis with other holders of the portfolio company’s common equity only after all of its obligations relating to its debt and preferred securities had been satisfied.

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 order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; (3) attempt to preserve or enhance the value of our initial investment; or (4) to finance an acquisition or other material transaction. We have the discretion to make any follow-on investments, subject to the availability of capital resources. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. Our failure 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 operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make such follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, because we are inhibited by compliance with BDC requirements or because we desire to maintain our tax status. In addition, our ability to make follow-on investments may also be limited by our Advis o r’ s allocation policy. We may also make follow on investments that exceed our target hold size because other co-investing funds may not have available capital.

Our ability to invest in public companies may be limited in certain circumstances.

To maintain our status as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if such issuer has a market capitalization that is less than $250 million at the time of such investment and meets the other specified requirements.

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies in order to provide diversification or to complement our U.S. investments although we are required generally to invest at least 70% of our assets in companies organized and having their principal place of business within the U.S. and its possessions. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks many be more pronounced for portfolio companies located or operating primarily in emerging markets, whose economies, markets and legal systems may be less developed.

Although it is anticipated that most of our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective. As a result, a change in currency exchange rates may adversely affect our profitability.

Hedging transactions may expose us to additional risks.

While we may enter into transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may 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 may vary. Moreover, for a variety of reasons, we may not seek or be able to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.

We may incur greater risk with respect to investments we acquire through assignments or participations of interests.

Although we originate a substantial portion of our loans, we may acquire loans through assignments or participations of interests in such loans. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to such debt obligation. However, the purchaser’s rights can be more restricted than those of the assigning institution, and we may not be able to unilaterally enforce all rights and remedies under an assigned debt obligation and with regard to any associated collateral. A participation typically results in a contractual relationship only with the institution participating out the interest and not directly with the borrower. Sellers of participations typically include banks, broker-dealers, other financial institutions and lending institutions. In purchasing participations, we generally will have no right to enforce compliance by the borrower with the terms of the loan agreement against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which we have purchased the participation. As a result, we will be exposed to the credit risk of both the borrower and the institution selling the participation. In addition, to the extent that the lead institution fails and any borrower collateral is used to reduce the balance of a participated loan, we will be regarded as a creditor of the lead institution and will not benefit from the exercise of any set-off rights by the lead institution or its receiver.

Further, in purchasing participations in lending syndicates, we will not be able to conduct the same level of due diligence on a borrower or the quality of the loan with respect to which we are buying a participation as we would conduct if we were investing directly in the loan. This difference may result in us being exposed to greater credit or fraud risk with respect to such loans than we expected when initially purchasing the participation.

Changes in healthcare laws and other regulations applicable to some of our portfolio companies’ businesses may constrain their ability to offer their products and services.

Changes in healthcare or other laws and regulations applicable to the businesses of some of our portfolio companies may occur that could increase their compliance and other costs of doing business, require significant systems enhancements, or render their products or services less profitable or obsolete, any of which could have a material adverse effect on their results of operations. There has also been an increased political and regulatory focus on healthcare laws in recent years, and new legislation could have a material effect on the business and operations of some of our portfolio companies.

Our investments in the consumer products and services sector are subject to various risks including cyclical risks associated with the overall economy.

General risks of companies in the consumer products and services sector include cyclicality of revenues and earnings, economic recession, currency fluctuations, changing consumer tastes, extensive competition, product liability litigation and increased government regulation. Generally, spending on consumer products and services is affected by the health of consumers. Companies in the consumer products and services sectors are subject to government regulation affecting the permissibility of using various food additives and production methods, which regulations could affect company profitability. A weak economy and its effect on consumer spending would adversely affect companies in the consumer products and services sector.

Our investments in the financial services sector are subject to various risks including volatility and extensive government regulation.

These risks include the effects of changes in interest rates on the profitability of financial services companies, the rate of corporate and consumer debt defaults, price competition, governmental limitations on a company’s loans, other financial commitments, product lines and other operations and recent ongoing changes in the financial services industry (including consolidations, development of new products and changes to the industry’s regulatory framework). The deterioration of the credit markets starting in late 2007 generally has caused an adverse impact in a broad range of markets, including U.S. and international credit and interbank money markets generally, thereby affecting a wide range of financial institutions and markets. In particular, events in the financial sector in late 2008 resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both domestic and foreign. This situation has created instability in the financial markets and caused certain financial services companies to incur large losses. Insurance companies have additional risks, such as heavy price competition, claims activity and marketing competition, and can be particularly sensitive to specific events such as man-made and natural disasters (including weather catastrophes), terrorism, mortality risks and morbidity rates.

Our investments in technology companies are subject to many risks, including volatility, intense competition, shortened product life cycles, litigation risk and periodic downturn.

We have invested and will continue investing in technology companies, many of which may have narrow product lines and small market shares, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as to general economic downturns. The revenues, income (or losses), and valuations of technology-related companies can and often do fluctuate suddenly and dramatically. In addition, technology-related markets are generally characterized by abrupt business cycles and intense competition, where the leading companies in any particular category may hold a highly concentrated percentage of the overall market share. Therefore, our portfolio companies may face considerably more risk of loss than do companies in other industry sectors. Because of rapid technological change, the selling prices of products and services provided by technology-related companies have historically decreased over their productive lives. As a result, the selling prices of products and services offered by technology related companies may decrease over time, which could adversely affect their operating results, their ability to meet obligations under their debt securities and the value of their equity securities. This could, in turn, materially adversely affect the value of the technology-related companies in our portfolio.

Our equity ownership in a portfolio company may represent a control investment. Our ability to exit a control investment may be limited.

We currently have, and may acquire in the future, control investments in portfolio companies. Our ability to divest ourselves from a debt or equity investment in a controlled portfolio company could be restricted due to illiquidity in a private stock, limited trading volume on a public company’s stock, inside information on a company’s performance, insider blackout periods, or other factors that could prohibit us from disposing of the investment as we would if it were not a control investment. Additionally, we may choose not to take certain actions to protect a debt investment in a control investment portfolio company. As a result, we could be limited in our ability to exit a control investment at an ideal time, which could diminish the value we are able to receive upon exiting such control investment.

R isks Related to Debt Financing

We may default under the Revolving Facility or any future borrowing facility we enter into or be unable to amend, repay or refinance any such facility on commercially reasonable terms, or at all, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

As of December 31, 2021, all of our assets were pledged as collateral under the Revolving Facility. In the event we default under the Revolving Facility or any other future borrowing facility, our business could be adversely affected as we may be forced to sell all or a portion of our investments quickly and prematurely at what may be disadvantageous prices to us in order to meet our outstanding payment obligations and/or support working

capital requirements under the Revolving Facility or such future borrowing facility, any of which would have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, following any such default, the agent for the lenders under the Revolving Facility or such future borrowing facility could assume control of the disposition of any or all of our assets, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid to our stockholders.

We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings.

Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on any preferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must take preference over any dividends or other payments to our common stockholders, and preferred stockholders 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.

Our use of borrowed funds to make investments exposes us to risks typically associated with leverage.

We borrow money and may issue additional debt securities or preferred stock to leverage our capital structure. As a result:

our common shares would be exposed to incremental risk of loss; therefore, a decrease in the value of our investments would have a greater negative impact on the value of our common shares than if we did not use leverage;

any depreciation in the value of our assets may magnify losses associated with an investment and could totally eliminate the value of an asset to us;

if we do not appropriately match the assets and liabilities of our business and interest or dividend rates on such assets and liabilities, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;

our ability to pay dividends on our common stock may be restricted if our asset coverage ratio, as currently provided in the 1940 Act, is not at least 150%, and any amounts used to service indebtedness or preferred stock would not be available for such dividends;

any credit facility would be subject to periodic renewal by our lenders, whose continued participation cannot be guaranteed;

such securities would be governed by an indenture or other instrument containing covenants restricting our operating flexibility or affecting our investment or operating policies, and may require us to pledge assets or provide other security for such indebtedness;

we, and indirectly our common stockholders, bear the entire cost of issuing and paying interest or dividends on such securities;

if we issue preferred stock, the special voting rights and preferences of preferred stockholders may result in such stockholders’ having interests that are not aligned with the interests of our common stockholders, and the rights of our preferred stockholders to dividends and liquidation preferences will be senior to the rights of our common stockholders;

any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common shares; and

any custodial relationships associated with our use of leverage would conform to the requirements of the 1940 Act, and no creditor would have veto power over our investment policies, strategies, objectives or decisions except in an event of default or if our asset coverage was less than 150%.

Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage ratio equals at least 150% after each issuance of senior securities. If the value of our

assets declines, we may be unable to satisfy this test and we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our senior securities at a time when such sales may be disadvantageous.

Modified legislation allows us to incur additional leverage.

The 1940 Act was modified by allowing a BDC to increase the maximum amount of leverage it may incur under the 1940 Act from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. Under the legislation, we are permitted to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when quorum is met, approve a proposal to do so. At our Annual Meeting of Stockholders on June 14, 2019, stockholders approved a proposal to reduce our asset coverage ratio to 150%. Such asset coverage ratio became effective on June 15, 2019. We are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. See “Regulation” for a discussion of BDC regulation and other regulatory considerations. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. We are also subject to asset coverage requirements for total borrowings under our Revolving Facility. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. Leverage is generally considered a speculative investment technique. Because we borrow money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us.

Our Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.

The Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of December 31, 2021, we had $114.1 million outstanding under the Revolving Facility. The indebtedness under the Revolving Facility is effectively senior to the Notes to the extent of the value of the assets securing such indebtedness.

The trading market or market value of our publicly issued debt securities may fluctuate.

Our publicly issued debt securities may or may not have an established trading market. We cannot assure you that a trading market for our publicly issued debt securities will ever develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely affect the trading market for, and market value of, our publicly issued debt securities. These factors include, but are not limited to, the following:

the time remaining to the maturity of these debt securities;

the outstanding principal amount of debt securities with terms identical to these debt securities;

the ratings assigned by national statistical ratings agencies;

the general economic environment;

the supply of debt securities trading in the secondary market, if any;

the redemption or repayment features, if any, of these debt securities;

the level, direction and volatility of market interest rates generally; and

market rates of interest higher or lower than rates borne by the debt securities.

You should also be aware that there may be a limited number of buyers when you decide to sell your debt securities. This too may materially adversely affect the market value of the debt securities or the trading market for the debt securities.

Terms relating to redemption may materially adversely affect noteholders’ return on any debt securities that we may issue.

If noteholders’ debt securities are redeemed at our option, we may choose to redeem such debt securities at times when prevailing interest rates are lower than the interest rate paid such debt securities. In addition, if noteholders’ debt securities are subject to mandatory redemption, we may be required to redeem such debt securities also at times when prevailing interest rates are lower than the interest rate paid on such debt securities. In this circumstance, noteholders may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the debt securities being redeemed.

Holders of any preferred stock that we may issue will have the right to elect members of the board of directors and have class voting rights on certain matters.

The 1940 Act requires that holders of shares of preferred stock must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two years or more, until such arrearage is eliminated. In addition, certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock, including changes in fundamental investment restrictions and conversion to open-end status and, accordingly, preferred stockholders could veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes.

The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Notes are obligations exclusively of First Eagle Alternative Capital BDC, Inc. and not of any of our subsidiaries. None of our subsidiaries are a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the Notes.

The indentures under which our Notes were issued contains limited protection for holders of our Notes.

The indentures under which the Notes were issued offers limited protection to holders of the Notes. The terms of the indentures and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indentures and the Notes do not place any restrictions on our or our subsidiaries’ ability to:

issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC (these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowings);

pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes;

sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

enter into transactions with affiliates;

create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

make investments; or

create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

In addition, the indentures do not require us to offer to purchase the Notes in connection with a change of control or any other event. Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.

Certain of our current debt instruments include more protections for their holders than the indenture and the Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial condition, liquidity and capital resources—Credit Facility.” The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.

Any default under the agreements governing our indebtedness, including a default under the Revolving Facility or other indebtedness to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the

holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Revolving Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under the Revolving Facility or other debt that we may incur in the future to avoid being in default. If we breach our covenants under the Revolving Facility or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default under the Revolving Facility or other debt, the lenders or holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including the lenders under the Revolving Facility, could proceed against the collateral securing the debt. Because the Revolving Facility have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes, the Revolving Facility or any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

R isks I n T he C urrent E nvironment

Capital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditions could materially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on our business, financial condition and results of operations.

The U.S. and global capital markets have historically experienced extreme volatility and disruption during the economic downturns, in particular the extended recession that began in mid-2007, and more recently the softening in the market in late 2018 and 2020. These market and economic disruptions affected, and these and other similar market and economic disruptions may in the future affect, the U.S. capital markets, which could adversely affect our business, that of our portfolio companies and the broader financial and credit markets and may reduce the availability of debt and equity capital for the market as a whole and to financial firms, in particular. At various times, these disruptions resulted in, and may in the future result in, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk. These conditions may reoccur for a prolonged period of time or materially worsen in the future, including as a result of U.S. government shutdowns, further downgrades to the U.S. government’s sovereign credit rating, or the perceived credit worthiness of the United States or other large global economies.

We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the uncertainty created by the COVID-19 global pandemic. We expect that the significant disruption in business activity and the financial markets will impact several sources of our liquidity. For example, limited opportunities to successfully exit investments due to, among other things, lower valuations, a lack of potential buyers with the financial resources to pursue acquisitions, and our portfolio companies limited ability to repay their obligations to us, will impact cash flows from operating activities. For more information on the potential impact of the COVID-19 pandemic on our business, see “Item 1A. Risk Factors – Risks in the Current Environment – Major public health issues, and specifically the novel coronavirus COVID-19, could have an adverse impact on our financial condition and results of operations and other aspects of our business.”

Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us .

There has been ongoing discussion and commentary regarding further potential significant changes to U.S. trade policies, treaties and tariffs. Since 2018, the U.S. has imposed various tariffs on Chinese goods, and China has retaliated by placing tariffs on various U.S. goods. Both countries signed a phase one trade agreement in January 2020 halting further tariffs and increasing sales of U.S. goods to China. The agreement leaves in place most tariffs. It is unclear what the final outcome of the negotiations and agreements will result in. These prior tariffs have resulted in, and may continue to trigger, retaliatory actions by affected countries, including the imposition of tariffs on the U.S. by other countries. The current U.S. presidential administration, along with the U.S. Congress, has created significant uncertainty about the future relationship between the United States and

other countries with respect to trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity, restrict our portfolio companies' access to suppliers or customers, increase costs, decrease margins, reduce the competitiveness of products and services offered by current or future portfolio companies and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.

The United Kingdom’s decision to leave the European Union may create significant risks and uncertainty for global markets and our investments.

On January 31, 2020, the United Kingdom ended its membership in the European Union. The decision made in the United Kingdom referendum to leave the European Union has led to volatility in global financial markets, and in particular in the markets of the United Kingdom and across Europe, and may also lead to weakening in consumer, corporate and financial confidence in the United Kingdom and Europe. Under the terms of the withdrawal agreement negotiated and agreed to between the United Kingdom and the European Union, the United Kingdom's departure from the European Union was followed by a transition period which ran until December 31, 2020 and during which the United Kingdom continued to apply European Union law and was treated for all material purposes as if it were still a member of the European Union. On December 24, 2020, the European Union and United Kingdom governments signed a trade deal that became provisionally effective on January 1, 2021 and that now governs the relationship between the United Kingdom and the European Union (the “Trade Agreement”). The Trade Agreement implements significant regulation around trade, transport of goods and travel restrictions between the United Kingdom and the European Union.

The longer term economic, legal, political and social framework to be put in place between the United Kingdom and the European Union are unclear at this stage and are likely to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. In particular, the decision of the United Kingdom to withdraw from the European Union may lead to a call for similar referenda in other countries proposing withdrawal from the European Union, which may cause increased economic volatility and uncertainty in the European and global markets. This volatility and uncertainty may have an adverse effect on the economy generally and on our ability, and the ability of our portfolio companies, to execute our respective strategies and to receive attractive returns.

Legislative tax reform may have a negative effect.

Legislative or other actions relating to taxes could have a negative effect on the Company. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department. In December 2017, the U.S. House of Representatives and U.S. Senate passed tax reform legislation, which was signed by the President. Such legislation made many changes to the Internal Revenue Code, including significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with certainty how any changes in the tax laws might affect the Company, investors, or the Company’s portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect the Company’s ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to the Company and its investors of such qualification, or could have other adverse consequences. For instance, as a result of the recent presidential and congressional elections in the United States, there could be significant changes in tax law and regulations, including an increase in the corporate tax rate. Investors are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in the Company’s securities.

Major public health issues, and specifically the novel coronavirus COVID-19, could have an adverse impact on our financial condition and results of operations and other aspects of our business.

We are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our business; while, due to the evolving and highly uncertain nature of this event, it currently is not possible to estimate its impact precisely, the COVID-19 pandemic has and may in the future adversely impact our business, financial condition, results of operations, liquidity or prospects in a number of ways. Changes in interest rates, reduced liquidity or a continued supply chain disruption in U.S. and globally or global economic conditions may also adversely affect our business, financial condition, results of operations, liquidity or prospects. Further, extreme market volatility may leave us unable to react to market events in a prudent manner consistent with our historical practices in dealing with more orderly markets. Although it is impossible to predict with certainty the potential full magnitude of the business and economic ramifications, COVID-19 has impacted, and may further impact, our business in various ways, including but not limited to:

From an operational perspective, our Advisor’s employees, as well as the workforces of our vendors, service providers and counterparties, may also be adversely affected by the COVID-19 pandemic or efforts to mitigate the pandemic, including government-mandated shutdowns, vaccine mandates, requests or orders for employees to work remotely, and other social distancing measures, in the U.S., which could result in an adverse impact on our ability to conduct our business;

While the market dislocation caused by COVID-19 may present attractive investment opportunities, due to increased volatility in the financial markets, we may not be able to complete those investments;

If the impact of COVID-19 worsens, we may have more limited opportunities to successfully exit existing investments, due to, among other reasons, lower valuations, decreased revenues and earnings, or lack of potential buyers with financial resources to pursue an acquisition, resulting in a reduced ability to realize value from such investments;

Our portfolio companies are facing or may face in the future increased credit and liquidity risk due to volatility in financial markets, reduced revenue streams, supply chain disruptions, and limited or higher cost of access to preferred sources of funding, which may result in potential impairment of our investments. Changes in the debt financing markets are impacting, or, if the volatility in financial market continues, may in the future impact, the ability of our portfolio companies to meet their respective financial obligations;

Borrowers of loans, notes and other credit instruments in our portfolio may be unable to meet their principal or interest payment obligations or satisfy financial covenants, resulting in a decrease in value of our investments and lower than expected return. In addition, for variable interest instruments, lower reference rates resulting from government stimulus programs in response to COVID-19 could lead to lower interest income;

An extended period of remote working by our Advisor’s employees could strain its technology resources and 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 that seek to exploit the COVID-19 pandemic; and

COVID-19 presents a significant threat to our Advisor’s employees’ well-being and morale. While our Advisor has implemented a business continuity plan to protect the health of its employees and has contingency plans in place for key employees or executive officers who may become sick or otherwise unable to perform their duties for an extended period of time, such plans cannot anticipate all scenarios,

and our Advisor may experience potential loss of productivity or a delay in the roll out of certain strategic plans.

The full extent of COVID-19 pandemic is uncertain. Although vaccines have been developed and are being distributed throughout the U.S. and worldwide, the COVID-19 pandemic and its after-effects will continue to impact our operations, even after the vaccines have been widely distributed. Furthermore, the efficacy of such vaccines on newly and yet-to-be discovered strains of COVID-19 is uncertain.

In addition to the foregoing, the pandemic is exacerbating many of the other risks described herein.

Inflation may adversely affect our business and operations and those of our portfolio companies.

Economic activity has continued to accelerate across sectors and regions. Nevertheless, due to global supply chain issues, a rise in energy prices and strong consumer demand as economies continue to reopen, inflation is showing signs of acceleration in the U.S. and globally. Inflation is likely to continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten in response. Certain of our portfolio companies may be impacted by inflation and persistent inflationary pressures could negatively affect our portfolio companies profit margins.

Disruptions to the global supply chain may have adverse impact on our portfolio companies and, in turn, harm us.

Recent supply chain disruptions, including the global microchip shortage, may have an adverse impact on the business of our portfolio companies. Potential adverse impacts to certain of our portfolio companies may include, among others, increased costs, inventory shortages, shipping and project completion delays, and inability to meet customer demand.

Some of our portfolio companies may be adversely affected by the physical and financial risks created by climate change.

Climate change creates physical and financial risk, which may adversely affect some of our portfolio companies. There is increasing concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe, an increase in the frequency, severity, and duration of extreme weather conditions and natural disasters, and water scarcity and poor water quality. These events could adversely impact our portfolio companies and, more generally, disrupt the operation of supply chains, increase production costs and impose capacity restraints globally. These events could also compound adverse economic conditions and impact consumer confidence and governmental budgets. As a result, the effects of climate change could have a long-term adverse impact on our portfolio companies and the results of our operations.

The Russian invasion of Ukraine may have a material adverse impact on us and our portfolio companies.

Commencing in 2021, Russian President Vladimir Putin ordered the Russian military to begin massing

thousands of military personnel and equipment near its border with Ukraine and in Crimea, representing the

largest mobilization since the illegal annexation of Crimea in 2014. President Putin has initiated troop

movements into the eastern portion of Ukraine and continues to threaten an all-out invasion of Ukraine. On

February 22, 2022, the United States and several European nations announced sanctions against Russia in

response to Russia’s actions. On February 24, 2022, President Putin commenced a full-scale invasion of Russia’s

pre-positioned forces into Ukraine, which could have a negative impact on the economy and business activity

globally (including in the countries in which the Fund invests), and therefore could adversely affect the

performance of the Fund’s investments. Furthermore, the conflict between the two nations and the varying

involvement of the United States and other NATO countries could preclude prediction as to their ultimate

adverse impact on global economic and market conditions, and, as a result, presents material uncertainty and risk

with respect to the Fund and the performance of its investments or operations, and the ability of the Fund to

achieve its investment objectives. Additionally, to the extent that third parties, investors, or related customer

bases have material operations or assets in Russia or Ukraine, they may have adverse consequences related to the

ongoing conflict.

R isks R elated T o O ur O perations A s A BDC

Our ability to enter into transactions with our affiliates will be restricted.

Because we have elected to be treated as a BDC under the 1940 Act, we are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and, in some cases, of 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 and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, of the SEC. The Staff has granted us relief pursuant to the Order. Pursuant to the Order, we are permitted to co-invest with Affiliated Funds and/or First Eagle Proprietary Accounts if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategies. We intend to co-invest, subject to the conditions included in the Order. We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that person’s affiliates, 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.

Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations.

Our business may in the future require a substantial amount of capital. We may acquire additional capital from the issuance of senior securities (including debt and preferred stock) or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital in the future on favorable terms or at all. Additionally, we may only issue senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such issuance or incurrence. If our assets decline in value and we fail to satisfy this test, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales or repayment may be disadvantageous, which could have a material adverse impact on our liquidity, financial condition and results of operations.

Senior Securities (including debt and preferred stock). As a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred securities, such securities would rank “senior” to common stock in our capital structure, resulting in preferred stockholders having separate voting rights, dividend and liquidation rights, and possibly other rights, preferences or privileges more favorable than those granted to holders of our common stock. Furthermore, the issuance of preferred securities could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for our common stockholders or otherwise be in your best interest.

Additional Common Stock. Our board of directors may decide to issue common stock to finance our operations rather than issuing debt or other senior securities. As a BDC, we are generally not able to issue our common stock at a price below net asset value without first obtaining required approvals

from our stockholders and our independent directors. We may also make subscription rights offerings or warrants representing rights to purchase shares of our securities to our stockholders at prices per share less than the net asset value per share, subject to the requirements of the 1940 Act. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and such stockholders may experience dilution.

Additionally, if we do raise additional capital in one or more subsequent financings, until we are able to invest the net proceeds of such any financing in suitable investments, we will invest in temporary investments, such as cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less, which we expect will earn yields lower than the interest, dividend or other income that we anticipate receiving in respect of investments in debt and equity securities of our target portfolio companies. As a result, our ability to pay dividends in the years of operation during which we have such net proceeds available to invest will be based on our ability to invest our capital in suitable portfolio companies in a timely manner. Further, the management fee payable to our investment adviser will not be reduced while our assets are invested in such temporary investments.

Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition.

Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and may be subject to civil fines and criminal penalties.

In December 2019, the Commodity Futures Trading Commission (“CFTC”) amended certain rules to require BDCs that trade “commodity interests” (as defined under CFTC rules) to a de minimis extent to file an electronic notice of exclusion to not be deemed a commodity pool operator pursuant to CFTC regulations. This exclusion allows BDCs that trade commodity interests to forgo regulation under the Commodity Exchange Act (“CEA”) and the CFTC. If our Advisor is unable to claim this exclusion with respect to us, and/or file annual renewals, the Advisor would become subject to registration and regulation as a commodity pool operator under the CEA, which would subject our Advisor and us to additional registration and regulatory requirements, along with increasing operating expenses which would have a material adverse effect on our business, results of operations or financial condition.

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, which would have a material adverse effect on our business, financial condition and results of operations.

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 “Business—Business Development Company Regulation.” We believe that most of the investments that we may acquire in the future 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 be found to be in violation of the 1940 Act provisions applicable to BDCs and possibly lose our status as a BDC, which would have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could prevent us 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 inopportune times in order to come into compliance with the 1940 Act. If we need to dispose of such investments quickly, it may be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss.

There is a risk that we may not make distributions or that our distributions may not grow over time.

We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or periodically increase our dividend rate.

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 in good faith by or under the direction of our board of directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. Any unrealized depreciation in our investment portfolio could be an indication of a portfolio company’s potential inability to meet its repayment obligations to us. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.

If we are unable to qualify for tax treatment as a RIC, we will be subject to corporate-level income tax, which would have a material adverse effect on our results of operations and financial condition.

We intend to continue to qualify for tax treatment as a RIC under the Code. As a RIC we do not have to pay federal income taxes on our income (including realized gains) that is distributed to our stockholders, provided that we satisfy certain distribution and other requirements. Accordingly, we are not permitted under accounting rules to establish reserves for taxes on our unrealized capital gains. If we fail to qualify for RIC tax treatment in any year, to the extent that we had unrealized gains, we would have to establish reserves for taxes, which would reduce our net asset value and the amount potentially available for distribution. In addition, if we, as a RIC, were to decide to make a deemed distribution of net realized capital gains and retain the net realized capital gains, we would have to establish appropriate reserves for taxes that we would have to pay on behalf of stockholders. It is possible that establishing reserves for taxes could have a material adverse effect on the value of our common stock.

To maintain our tax treatment as a RIC under the Code, which is required in order for us to distribute our income without being taxed at the corporate level, we must maintain our status as a BDC and meet certain source-of-income, asset diversification and annual distribution requirements and including:

The Annual Distribution Requirement, which is satisfied if we distribute to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long- term capital losses, if any, on an annual basis. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and we may be subject to certain financial covenants under our debt arrangements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and, thus, become subject to corporate- level income tax.

The income source requirement, which will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.

The asset diversification requirement, which will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy these requirements, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Internal Revenue Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because

most of our investments will be in private companies, and, therefore, will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

Satisfying these requirements may require us to take actions we would not otherwise take, such as selling investments at unattractive prices to satisfy diversification, distribution or source of income requirements. In addition, while we are authorized to borrow funds in order to make distributions, under the 1940 Act we are not permitted to make distributions to stockholders while we have debt obligations or other senior securities outstanding unless certain “asset coverage” tests are met. If we fail to qualify as a RIC for any reason and become or remain subject to corporate-level income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on our results of operations and financial conditions, and thus, our stockholders.

R isks R elated T o A n I nvestment I n O ur Common Stock

Our common stock price may be volatile and may fluctuate substantially.

As with any stock, the price of our common stock will fluctuate with market conditions and other factors. Our common stock is intended for long-term investors and should not be treated as a trading vehicle. Shares of closed-end management investment companies, which are structured similarly to us, frequently trade at a discount from their net asset value. Our shares may trade at a price that is less than the offering price. This risk may be greater for investors who sell their shares in a relatively short period of time after completion of the offering.

The market price and liquidity of the market for our common shares may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

significant volatility in the market price and trading volume of securities of BDCs or other companies in the sector in which we operate, which are not necessarily related to the operating performance of these companies;

changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;

loss of RIC status;

changes in earnings or variations in operating results;

changes in the value of our portfolio of investments;

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

departure of key personnel from our investment adviser;

operating performance of companies comparable to us;

general economic trends and other external factors; and

loss of a major funding source.

Certain provisions of the General Corporation Law of the State of Delaware and our certificate of incorporation could deter takeover attempts and have an adverse effect on the price of our common stock.

The General Corporation Law of the State of Delaware and our certificate of incorporation contain provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. Among other provisions, our directors may be removed for cause by the affirmative vote of 75% of the holders of our outstanding capital stock and removed with or without cause by the approval of 66.7% of the remaining directors. Our board of directors also is authorized to issue preferred stock in one or more series. In addition, our certificate of incorporation requires the favorable vote of a majority of our board of directors followed by the favorable vote of the holders of at least 75% of our outstanding shares of common stock, to approve, adopt or authorize certain transactions, including mergers and the sale, lease or exchange of all or any

substantial part of our assets with 10% or greater holders of our outstanding common stock and their affiliates or associates, unless the transaction has been approved by at least 80% of our board of directors, in which case approval by “a majority of the outstanding voting securities” (as defined in the 1940 Act) will be required. These measures may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders and could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices.

Our common stock may trade below its net asset value per share, which limits our ability to raise additional equity capital.

If our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common stock at its market price without first obtaining the approval for such issuance from our stockholders and our independent directors. Shares of BDCs, including shares of our common stock, have traded at discounts to their net asset values. As of December 31, 2021, our net asset value per share was $6.34. The last reported sale price of a share of our common stock on the NASDAQ Global Select Market on March 2, 2022 was $4.49. If our common stock trades below net asset value, the higher the cost of equity capital may result in it being unattractive to raise new equity, which may limit our ability to grow. The risk of trading below net asset value 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 will trade above, at or below our net asset value.

The net asset value per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or securities to subscribe for or convert into shares of our common stock.

Any decision to sell shares of our common stock below its then current net asset value per share or securities to subscribe for or convert into shares of our common stock would be subject to the determination by our board of directors that such issuance is in our and our stockholders’ best interests.

If we were to sell shares of our common stock below its then current net asset value per share, such sales would result in an immediate dilution to the net asset value per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.

In addition, if we issue warrants or securities to subscribe for or convert into shares of our common stock, subject to certain limitations, the exercise or conversion price per share could be less than net asset value per share at the time of exercise or conversion (including through the operation of anti-dilution protections). Because we would incur expenses in connection with any issuance of such securities, such issuance could result in a dilution of the net asset value per share at the time of exercise or conversion. This dilution would include reduction in net asset value per share as a result of the proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest than the increase in our assets resulting from such issuance.

We incur significant costs as a result of being a publicly traded company.

As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the SEC.

If we issue preferred stock, debt securities or convertible debt securities, the net asset value and market value of our common stock may become more volatile.

We cannot assure you that the issuance of preferred stock and/or debt securities would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock, debt securities or convertible debt would likely cause the net asset value and market value of our common stock to become more volatile. If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced. If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of leverage would result in a lower rate of return to the holders of common stock than if we had not issued the preferred stock or debt securities. Any decline in the net asset value of our investment would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of our common stock than if we were not leveraged through the issuance of preferred stock. This decline in net asset value would also tend to cause a greater decline in the market price for our common stock.

There is also a risk that, in the event of a sharp decline in the value of our net assets, we would be in danger of failing to maintain required asset coverage ratios which may be required by the preferred stock, debt securities, convertible debt or units or of a downgrade in the ratings of the preferred stock, debt securities, convertible debt or units or our current investment income might not be sufficient to meet the dividend requirements on the preferred stock or the interest payments on the debt securities. If we do not maintain our required asset coverage ratios, we may not be permitted to declare dividends. In order to counteract such an event, we might need to liquidate investments in order to fund redemption of some or all of the preferred stock, debt securities or convertible debt. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, debt securities, convertible debt or any combination of these securities. Holders of preferred stock, debt securities or convertible debt may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.

Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than our net asset value per share, then you will experience an immediate dilution of the aggregate net asset value of your shares.

In the event we issue subscription rights, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of a rights offering pursuant to this prospectus, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of such rights offering.

In addition, if the subscription price is less than the net asset value per share of our common stock, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offering. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of a rights offering or what proportion of the shares will be purchased as a result of such rights offering. Such dilution could be substantial.

Our stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan.

All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares of our common stock. As a result, our stockholders that do not participate in our dividend reinvestment plan may experience dilution in their ownership percentage of our common stock over time.

Item 1B.

Unresolve d Staff Comments

None.

MD&A (Item 7)

26,840 words

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.

Overview

First Eagle Alternative Capital BDC, Inc., or we, us, our or the Company, was organized as a Delaware corporation on May 26, 2009 and initially funded on July 23, 2009. We commenced principal operations on April 21, 2010. Our investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated investments in debt and equity securities of middle market companies.

As of December 31, 2021, we, together with our credit-focused affiliates, collectively had $21.3 billion of assets under management. This amount included our assets, assets of the managed funds and a separate account managed by us, and assets of the collateralized loan obligations (CLOs), separate accounts and various fund formats, including any uncalled commitments of private funds, as managed by the investment professionals of the Advisor or its consolidated subsidiary.

We are a direct lender to middle market companies and invest primarily in directly originated first lien senior secured loans, including unitranche investments. In certain instances, we also make second lien, subordinated, or mezzanine, debt investments, which may include an associated equity component such as warrants, preferred stock or other similar securities and direct equity investments. Our first lien senior secured loans may be structured as traditional first lien senior secured loans or as unitranche loans. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans, and our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche or subordinated tranche (or piece) of the unitranche loan. We may also provide advisory services to managed funds.

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940 Act, as amended, or the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less.

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant U.S. Securities and Exchange Commission, or SEC, rules the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States.

Since April 2010, after we completed our initial public offering and commenced principal operations, through December 31, 2021, we have been responsible for making, on behalf of ourselves, our managed funds and separately managed account, over $2.5 billion in aggregate commitments into 180 separate portfolio companies through a combination of both initial and follow-on investments. Since April 2010 through December 31, 2021, we, along with our managed funds and separately managed account, have received $2.0 billion of gross proceeds from the realization of investments. We alone have received $1.7 billion of gross proceeds from the realization of our investments during this same time period. As of December 31, 2021, our managed fund, First Eagle Greenway II, LLC, or Greenway II, and its separately managed account, collectively Greenway II, have received $220.9 million, or 118.1% of the committed capital.

We have elected to be treated for tax purposes as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. To qualify as a RIC, we must, among other things, meet certain source of income and asset diversification requirements. As a RIC, we generally will not have to pay corporate-level income taxes on any income we distribute to our stockholders

COVID-19 Developments

There is an ongoing global outbreak of COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19, including new variants, have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of non-essential businesses. Such actions are creating disruption in global supply chains and adversely impacting many industries. The pandemic has had a continued adverse impact on economic and market conditions and has triggered a period of global economic slowdown.

Although vaccines have been widely distributed in the U.S., certain U.S. states have reopened, and the economy is beginning to rebound in certain respects, the uncertainty surrounding the COVID-19 pandemic, including the continued emergence of new variants of COVID-19 and uncertainty around acceptance of vaccines, among other factors, may continue to contribute to significant volatility in the markets. We have enhanced our portfolio monitoring practices to include a potential threat assessment of the impact of COVID-19 on our portfolio companies, and we are maintaining frequent contact with our borrowers, sponsors and co-lenders. We have continued to fund our existing debt commitments. We will continue to monitor the rapidly evolving situation in relation to COVID-19, and the resulting impacts on our portfolio companies’ operations. Given the dynamic nature, coupled with the significant uncertainties of the situation, we cannot reasonably estimate the impact of COVID-19 on our financial condition, results of operations or cash flows in the future. However, to the extent our portfolio companies are adversely impacted by the effects of COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas, it may have a material adverse impact on our performance, financial condition, results of operations and ability to pay distributions.

Portfolio Composition and Investment Activity

Portfolio Composition

As of December 31, 2021, we had $392.1 million of portfolio investments (at fair value), which represents a $54.4 million, or 16.1% increase from the $337.7 million (at fair value) as of December 31, 2020. Our portfolio consisted of 76 investments, including Greenway II as of December 31, 2021, compared to 51 portfolio investments, including Greenway and Greenway II, as of December 31, 2020. The increase in fair value of our portfolio is largely attributed to portfolio expansion (as measured by total dollars invested) and an increase in the valuation of certain portfolio assets, including First Eagle Logan JV LLC (the “Logan JV”). As of December 31, 2021, we had $97.3 million of controlled portfolio investments (at fair value) in three portfolio companies, which represents a $3.5 million, or 3.7% increase from $93.8 million (at fair value) as of December 31, 2020 in three portfolio companies. The increase in controlled portfolio companies was largely the result of an increase to the fair value of Logan JV. Our average controlling equity position at December 31, 2021 was approximately $28.9 million and $13.6 million at cost and fair value, respectively. Our average controlling equity position at December 31, 2020 was approximately $28.1 million and $12.8 million at cost and fair value, respectively. Our investment in Logan JV represented 18.6% and 20.2% of our portfolio investments as of December 31, 2021 and December 31, 2020, respectively. We are continuing to limit new investments in new portfolio companies to 2.5% of our investment portfolio based upon the most recent market value.

The following table shows certain portfolio highlights based on cost and fair value (in millions).

December 31, 2021

December 31, 2020

Cost

Fair Value

Cost

Fair Value

Largest portfolio company investment - Logan JV

Largest portfolio company investment - excluding Logan JV, Greenway II, investments where we hold controlling equity position and investments where we hold equity only

Average portfolio company investment

Average portfolio company investment - excluding Logan JV, Greenway II, investments where we hold controlling equity position and investments where we hold equity only

Total investments where we hold controlling equity position and investments where we hold equity only, including Greenway II

As of December 31, 2021 and December 31, 2020, based upon fair value, 96.0% and 96.8%, respectively, of our income-producing debt investments bore interest based on floating rates, which may be subject to interest rate floors, such as LIBOR.

The following table shows the weighted average yield by investment category at their current cost.

Description:

December 31, 2021

December 31, 2020

First lien senior secured debt (1)(4)(5)

Second lien debt (1)(4)

Subordinated debt

Debt and income-producing investments (1)(2)(4)

Logan JV (3)

All investments including Logan JV (1)(3)(4)

Includes all loans on non-accrual status and restructured loans for which income is not being recognized as of December 31, 2021 and December 31, 2020.

Includes yields on controlled investments, but excludes the yield on the Logan JV.

As of December 31, 2021 and December 31, 2020, the dividends declared and earned of $6.6 million and $7.1 million for the years ended December 31, 2021 and December 31, 2020, respectively, represented a yield to us of 7.1% and 7.6%, respectively, based on average capital invested. We expect the dividend yield to fluctuate as a result of the timing of additional capital invested, the changes in asset yields in the underlying portfolio and the overall performance of the Logan JV investment portfolio.

Excluding restructured loans for which income is not being recognized as of December 31, 2021, the weighted average yield would be 6.9% on first lien senior secured debt, 11.9% on second lien debt, 6.9% on debt and income-producing investments and 7.0% on all investments including Logan JV. Excluding restructured loans for which income is not being recognized as of December 31, 2020, the weighted average yield would be 7.6% on first lien senior secured debt, 11.8% on second lien debt, 7.8% on debt and income-producing investments and 7.7% on all investments including Logan JV.

The broadly syndicated loans are included as first lien senior secured debt. As of December 31, 2021, the weighted average yield of only the broadly syndicated loans is 6.2%.

The weighted average yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of our fees and expenses. The weighted average yield was computed using the effective interest rates as of December 31, 2021 and 2020, including accretion of original issue discount and loan origination fees. This weighted average yield reflects the impact of loans on non-accrual status and restructured loans for which income is not being recognized as of December 31, 2021. There can be no assurance that the weighted average yield will remain at its current level. As of December 31, 2021 and 2020, 0.8% and 1.5% of our investment portfolio at fair value was comprised of non-income producing equity and warrant investments. We intend to continue to reduce

our non-income producing investments in 20 2 2 and beyond. No assurance can be given that we will be successful in achieving this target.

In evaluating our portfolio performance, among other factors, we consider portfolio companies’ adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, and leverage as an investment metric. As of December 31, 2021 and 2020, portfolio investments, in which we have debt investments, had a median EBITDA of approximately $17.3 million and $18.5 million, respectively, based on the latest available financial information provided by the portfolio companies for each of these periods. As of December 31, 2021 and 2020, our median attachment point in the capital structure of our debt investments in portfolio companies is approximately 4.3 times and 4.3 times the portfolio company’s EBITDA, respectively, based on our latest available financial information for each of these periods.

We expect the percent of our portfolio investments in the companies not owned by a private equity sponsor, or unsponsored investments to decrease over time as we work through restructurings, which may include providing additional liquidity through revolving loans, and ultimately exit our unsponsored investments. However, these portfolio investments may require follow-on capital as we work through restructurings, which will increase our exposure to these investments. Going forward, we expect unsponsored investments we make, if any, would only be in first lien senior secured investments. As of December 31, 2021, our portfolio of unsponsored debt investments included three investments, excluding our investment in Wheels Up Partners, LLC, which is a non-income producing equity security. Two are performing at or above our expectations and have an Investment Score of 2. The other unsponsored investment has an Investment Score of 5. As of December 31, 2020, our portfolio of unsponsored debt investments included two investments, excluding our investment in Wheels Up Partners, LLC. One was performing at or above our expectations and had an Investment Score of 2. The other unsponsored investment had an Investment Score of 5.

As of December 31, 2021, we have closed portfolio investments with 105 different sponsors since inception. As of December 31, 2020, we had closed portfolio investments with 86 different sponsors since inception.

The following table summarizes sponsored and unsponsored investments based on amortized cost and fair value (in millions).

As of December 31, 2021

As of December 31, 2020

Amortized

Cost

Fair

Value

Fair

Value

Total

Amortized

Cost

Fair

Value

Fair

Value

Total

Sponsored Investments (1)

Unsponsored Investments (1)

Total

Excludes Greenway II and the Logan JV.

The following table summarizes the amortized cost and fair value of investments by type as of December 31, 2021 (in millions).

Description

Amortized

Cost

Percentage of

Total

Fair Value (1)

Percentage of

Total

First lien senior secured debt

Investment in Logan JV

Second lien debt

Investments in funds

Equity investments

Total investments

All investments are categorized as Level 3 in the fair value hierarchy, except for i) our equity investment in Wheels Up Experience Inc. which is categorized as Level 1 in the fair value hierarchy and noted as such on the Consolidated

Schedule of Investments as of December 3 1 , 2021, ii) certain broadly syndicated loans which are categorized as Level 2 in the fair value hierarchy and noted as such on the Consolidated Schedule of Investments as of December 3 1 , 2021 and iii) investments in funds and the Logan JV, which are excluded from the fair value hierarchy in accordance with ASU 2015-07. These assets are valued at net asset value.

The following table summarizes the amortized cost and fair value of investments by type as of December 31, 2020 (in millions).

Description

Amortized

Cost

Percentage of

Total

Fair Value (1)

Percentage of

Total

First lien senior secured debt

Investment in Logan JV

Second lien debt

Subordinated debt

Equity investments

Investments in funds

Total investments

All investments are categorized as Level 3 in the fair value hierarchy, except for investments in funds and the Logan JV, which are excluded from the fair value hierarchy in accordance with ASU 2015-07. These assets are valued at net asset value.

We expect the percent of our core assets, which we define as first lien senior secured loans and the Logan JV, to continue to increase as a percent of total investments as we exit non-qualifying BDC assets as defined under the 1940 Act and our controlled equity investments, through sales or repayments, and redeploy these proceeds. We intend to continue our efforts to reposition the portfolio towards these core assets, which we believe will reduce our exposure to portfolio company risks and potential changes in interest rates.

As required by the 1940 Act, we classify our investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that we are deemed to “control”, which, in general, includes a company in which we own 25% or more of the voting securities of such company or have greater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of ours, as defined in the 1940 Act, which are not control investments. We are deemed to be an “affiliate” of a company in which we have invested if we own 5% or more, but less than 25%, of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither control investments nor affiliate investments.

The following table summarizes our realized gains (losses) and changes in our unrealized appreciation and depreciation on control and affiliate investments for the years ended December 31, 2021 and December 31, 2020 (in millions)

Year Ended December 31, 2021

Type of Investment/Portfolio company (1)

Fair Value at December 31, 2021

Investment

Income (2)

Change in Unrealized Appreciation/ (Depreciation)

Reversal of Change in Unrealized Appreciation/ (Depreciation)

Realized

Gains/ (Losses)

Control Investments

Loadmaster Derrick & Equipment, Inc. (3)

First lien senior secured term loan 11.3% (LIBOR + 10.3% PIK)

due 12/31/2022

First lien senior secured term loan 13.0% PIK (LIBOR + 12.0% PIK) due 12/31/2022

First lien senior secured revolving term loan 11.3%

(LIBOR+ 10.3%) due 12/31/2022

12,131 shares of common stock

2,956 shares of preferred stock

OEM Group, LLC (4)

Senior secured term loan 8.5% (LIBOR+7.5%) due 9/30/2025

Second lien revolver 10.0% PIK due 9/30/2025

20,000 shares of common stock

First Eagle Logan JV LLC (5)

80% economic interest

Total Control Investments

Affiliate Investments

First Eagle Greenway II Fund LLC (6)

Investment in fund

Total Affiliate Investments

Total Controlled and Affiliated Investments

The principal amount and ownership detail is shown in the Consolidated Schedule of Investments as of December 31, 2021. Common stock and preferred stock, in some cases, are generally non-income producing.

Represents the total amount of interest, fees, and dividends credited to income for the portion of the year an investment was included in the Control and Affiliate categories.

In December 2016, we exercised our warrants in connection with an acquisition of common stock from the sponsor and company management to take a controlling interest in Loadmaster Derrick Equipment, Inc.

In September 2020, we restructured our non-accruing first lien senior secured term loan and revolvers in OEM Group, LLC (“OEM”) into a $7.5 million first lien senior secured term loan and a $44.1 million second lien term loan, at par. We are not recognizing interest income on the restructured second lien term loan as of December 31, 2021.

Together with Perspecta Trident LLC, or Perspecta, an affiliate of Perspecta Trust LLC, we invest in Logan JV. Logan JV is capitalized through equity contributions from its members and investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from both Perspecta and us.

Income includes certain fees related to investment management services provided by the Company, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction.

Year Ended December 31, 2020

Type of Investment/Portfolio company (1)

Fair Value at December 31, 2020

Investment

Income (2)

Change in Unrealized Appreciation/ (Depreciation)

Reversal of Change in Unrealized Appreciation/ (Depreciation)

Realized

Gains/ (Losses)

Control Investments

C&K Market, Inc.

Shares of common stock

Shares of preferred stock

Loadmaster Derrick & Equipment, Inc. (3)

First lien senior secured term loan 11.9% (LIBOR + 10.3% PIK)

due 12/31/2020

First lien senior secured term loan 13.7% PIK (LIBOR + 12.0% PIK)

due 12/31/2020

First lien senior secured revolving term loan 13.1%

(LIBOR+ 10.3%) due 12/31/2020

12,131 shares of common stock

2,956 shares of preferred stock

OEM Group, LLC (4)

First lien senior secured term loan 12.0% (LIBOR+9.5%) cash

due 2/15/2019

First lien senior secured revolving term loan 12.0% (LIBOR+

9.5%) cash due 6/30/2017

Senior secured revolving term loan 12.0% (LIBOR+

Senior secured term loan 8.5% (LIBOR+7.5%) due 9/30/2025

Second lien term loan 10.0% PIK due 9/30/2026

20,000 shares of common stock

First Eagle Logan JV LLC (5)

80% economic interest

Total Control Investments

Affiliate Investments

First Eagle Greenway Fund LLC (6)

Investment in fund

First Eagle Greenway II Fund LLC (6)

Investment in fund

Total Affiliate Investments

Total Controlled and Affiliated Investments

The principal amount and ownership detail is shown in the Consolidated Schedule of Investments as of December 31, 2020. Common stock and preferred stock, in some cases, are generally non-income producing.

Represents the total amount of interest, fees, and dividends credited to income for the portion of the year an investment was included in the Control and Affiliate categories

On September 30, 2020, we restructured our non-accruing first lien senior secured term loan and revolvers in OEM Group, LLC (“OEM”) into a $7.5 million first lien senior secured term loan and a $44.1 million second lien term loan, at par. We are not recognizing interest income on the restructured second lien term loan as of December 31, 2020. This transaction resulted in a $17.5 million realized loss, which was fully offset by a reversal of unrealized depreciation.

Investment Activity

The following is a summary of our investment activity, presented on a cost basis, for the years ended December 31, 2021 and 2020 (in millions).

Year ended December 31,

New portfolio investments

Existing portfolio investments:

Follow-on investments (1)

Delayed draw and revolver investments (1)

Total existing portfolio investments

Total portfolio investment activity

Number of new portfolio investments

Number of follow-on investments

First lien senior secured debt

Equity investments

Total portfolio investments

Weighted average yield of new debt investments

Weighted average yield, including all new income-producing investments

Includes follow-on investments in controlled investments. Refer to Schedule 12-14 for additional detail.

For the years ended December 31, 2021 and 2020, we recognized proceeds from prepayments and sales of our investments, including any prepayment premiums, totaling $125.4 million and $82.9 million, respectively. Please refer to “Results of Operations - Net Realized Gains and Losses, net of income tax provision” for additional details surrounding certain investments that were sold.

The following are proceeds received from notable prepayments, sales and other activity related to our investments (in millions):

For the year ended December 31, 2021

Repayment of a first lien senior secured term loan in Igloo Products Corp., which resulted in proceeds of $21.6 million;

Repayment of a first lien senior secured term loan and revolving loan in Women’s Health USA, Inc., which resulted in proceeds of $8.6 million, including a prepayment premium;

Repayment of a first lien senior secured term loan and revolving loan in Communication Technology Intermediate, which resulted in proceeds of $8.6 million, including a prepayment premium;

Repayment of first lien senior secured term loans in Urology Management Associates, LLC, which resulted in proceeds of $8.1 million, and sale of common equity with proceeds of $2.0 million, resulting in a $1.2 million realized gain;

Repayment of a first lien senior secured term loan in Whitney, Bradley & Brown, Inc., which resulted in proceeds of $7.5 million, including a prepayment premium;

Repayment of first lien senior secured term loans, a revolving loan, and delayed draw loans in PDFTron Systems Inc., which resulted in proceeds of $7.5 million, including a prepayment premium;

Repayment of a first lien senior secured term loan in ABC Legal Services, LLC, which resulted in proceeds of $6.7 million;

Repayment of a first lien senior secured term loan in Finxera Intermediate, LLC, which resulted in proceeds of $6.5 million;

Repayment of first lien senior secured term loans and delayed draw loans in Alpine SG, LLC, which resulted in proceeds of $ 6 .5 million ;

Repayment of a subordinated promissory note in C&K Market, Inc., which resulted in proceeds of $6.0 million, and redemption of warrants in C&K Market, Inc., which resulted in proceeds of $0.1 million and a nominal realized gain;

Repayment of a first lien senior secured term loan A in Xcel Brands, Inc., which resulted in proceeds of $5.5 million;

Repayment of a first lien senior secured term loan and delayed draw loans in AppFire Technologies, LLC at par, which resulted in proceeds of $3.2 million, including a prepayment premium;

Repayment of a first lien senior secured term loan in Trace3, LLC, which resulted in proceeds of $3.0 million;

Repayment of a first lien senior secured term loan in Neiman Marcus Group LTD LLC, which resulted in proceeds of $3.0 million, including a prepayment premium; and

Sale of series A preferred equity in Sciens Building Solutions, LLC with proceeds of $2.3 million, resulting in a $2.1 million realized gain.

For the year ended December 31, 2020

Proceeds of $23.3 million from the sale of eight senior secured syndicated investments made in December 2019 resulting in a $0.1 million net realized gain;

Repayment of a first lien senior secured loan in It’s Just Lunch International at par, which resulted in proceeds of $5.5 million;

Repayment of a first lien senior secured term loan on Holland Intermediate Acquisition Corp. with proceeds received of $2.6 million and additional receivable accrual of $1.3 million. A realized loss of $17.4 million was recorded which was offset by a corresponding reversal of unrealized depreciation;

Sale of a first lien senior secured term loan in MB Medical Operations LLC with proceeds received of $2.6 million, resulting in a nominal gain.

Repayment of a first lien senior secured term loan in SynteractHCR Holdings Corporation at par, which resulted in proceeds of $6.1 million;

Repayment of a first lien senior secured term loan and a first lien delayed draw term loan in Simplicity Financial Marketing Holdings Inc at par, which resulted in proceeds of $3.4 million and $1.1 million, respectively;

Repayment of a first lien senior secured term loan and a first lien revolving facility in NCP Investor Inc at par, which resulted in proceeds of $6.9 million and $0.7 million, respectively;

Sale of series A preferred equity and commons shares in C&K Market, Inc, which resulted in cash proceeds of $10.7 million, a subordinated sellers note of $5.8 million at par value, and warrants valued at $0; and

A bankruptcy resolution resulting in the restructuring of the senior secured term loan in smarTours, LLC which had a pre-petition value of $5.4 million. A first lien term loan of $2.1 million and a second lien term loan of $0.5 million was received in consideration, and a $2.3 million loss was recognized on the proceeds, which includes recognizing capitalized PIK interest of $0.3 million as a realized loss.

Our level of investment activity can vary substantially from year to year depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make. The frequency and volume of any prepayments may fluctuate significantly from period to

period. The future adverse impact of COVID-19 on the broader markets in which we invest cannot currently be accurately predicted and future investment activity of the Company will be subject to these effects and related uncertainties.

Aggregate Cash Flow Realized Gross Internal Rate of Return

Since April 2010, after we completed our initial public offering and commenced principal operations, through December 31, 2021, our fully exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of 11.0% (based on cash invested of $1.7 billion and total proceeds from these exited investments of $2.1 billion). 76.8% of these exited investments resulted in an aggregate cash flow realized gross internal rate of return to us of 10% or greater. Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total cash invested in our investments is equal to the present value of all realized returns from the investments. Our IRR calculations are unaudited.

Investment Risk

The value of our investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, our ability to dispose of investments at a price and time that we deem advantageous may be impaired.

Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. The value of lower-quality debt securities often fluctuates in response to company, political, or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality debt securities is likely to be higher during economic recessions or periods of high interest rates.

Logan JV

On December 3, 2014, we entered into an agreement with Perspecta, an affiliate of Perspecta Trust LLC to create Logan JV, a joint venture, which invests primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of us and Perspecta.

We have determined that Logan JV is an investment company under ASC 946, however, in accordance with such guidance, we will generally not consolidate our investment in a company other than a substantially owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our non-controlling interest in Logan JV.

Logan JV is capitalized with equity contributions which are generally called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by the Logan JV to call down on capital commitments requires the explicit authorization of us, coupled with that of Perspecta, and we may withhold such authorization for any reason in our sole discretion.

As of December 31, 2021 and December 31, 2020, Logan JV had the following commitments, contributions and unfunded commitments from its members (in millions).

As of December 31, 2021

Member

Total

Commitments

Contributed

Capital

Return of Capital (not recallable)

Unfunded

Commitments

First Eagle Alternative Capital BDC, Inc.

Perspecta Trident LLC

Total Investments

As of December 31, 2020

Member

Total

Commitments

Contributed

Capital

Return of Capital (not recallable)

Unfunded

Commitments

First Eagle Alternative Capital BDC, Inc.

Perspecta Trident LLC

Total Investments

Logan JV has a senior credit facility, or the Logan JV Credit Facility, with Deutsche Bank AG and other banks, which was amended on January 9, 2021 to reduce commitments, extend the maturity date, and amend the pricing. As of December 31, 2021, the Logan JV Credit Facility had $225.0 million of commitments subject to leverage and borrowing base restrictions with an interest rate of three month LIBOR (with no LIBOR floor) plus 2.50%. As of December 31, 2020, the Logan JV Credit Facility had $275.0 million of commitments subject to leverage and borrowing base restrictions with an interest rate of three month LIBOR (with no LIBOR floor) plus 2.20%. The final maturity date of the Logan JV Credit Facility is July 12, 2025. As of December 31, 2021 and December 31, 2020, Logan JV had $147.0 million and $166.5 million of outstanding borrowings under the credit facility, respectively. At December 31, 2021, the effective interest rate on the Logan JV Credit Facility was 2.88% per annum.

As of December 31, 2021 and December 31, 2020, Logan JV had total investments at fair value of $224.4 million and $221.4 million, respectively. As of December 31, 2021 and December 31, 2020, Logan JV’s portfolio was comprised of senior secured first lien and second lien loans to 95 and 92 different borrowers, respectively. As of December 31, 2021, there was one loan on non-accrual status with an amortized cost and fair value of $1.7 million and $0.1 million, respectively. As of December 31, 2020, there was one loan on non-accrual status with an amortized cost and fair value of $2.2 million and $1.1 million, respectively. As of December 31, 2021 and December 31, 2020, Logan JV had unfunded commitments to fund revolver and delayed draw loans to its portfolio companies totaling $2.5 million and $6.2 million, respectively. The portfolio companies in Logan JV are in industries similar to those in which we may invest directly.

Below is a summary of Logan JV’s portfolio, followed by a listing of the individual loans in Logan JV’s portfolio as of December 31, 2021 and 2020 (dollar amounts in thousands):

As of December 31,

First lien secured debt, at par

Second lien debt, at par

Total debt investments, at par

Weighted average yield on first lien secured loans (1)

Weighted average yield on second lien loans (1)

Weighted average yield on all loans (1)

Number of borrowers in Logan JV

Largest loan to a single borrower (2)

Total of five largest loans to borrowers (2)

Weighted average yield at their current cost.

At current principal amount.

The weighted average yield of Logan JV’s debt investments is not the same as a return on Logan JV investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of our expenses. The weighted average yield was computed using the effective interest rates as of December 31, 2021 and December 31, 2020, respectively, but excluding the effective rates on investments on non-accrual status, if any. There can be no assurance that the weighted average yield will remain at its current level.

For the years ended December 31, 2021, 2020 and 2019 our share of income from distributions declared related to our Logan JV equity interest was $6.6 million, $7.1 million and $9.8 million, respectively, which amounts are included in dividend income from controlled investments in the Consolidated Statements of Operations and reduction of cost basis in the Consolidated Statements of Assets and Liabilities, as applicable. As of December 31, 2021 and December 31, 2020, $2.3 million and $1.6 million, respectively, of income related to the Logan JV was included in interest, dividends and fees receivable on the Consolidated Statements of Assets and Liabilities. As of December 31, 2021 and December 31, 2020, $0.1 million and $0.1 million of return of capital associated with distributions declared was included in prepaid expenses and other assets on the Consolidated Statements of Assets and Liabilities, respectively. Distributions declared and earned for the years ended December 31, 2021, 2020 and 2019 represented dividend yields to the Company of 7.1%, 7.6% and 10.5%, respectively, based upon average capital invested. We expect the dividend yield to fluctuate as a result of the timing of additional capital invested, the changes in asset yields in the underlying portfolio and the overall performance of the Logan JV investment portfolio.

Logan JV Loan Portfolio as of December 31, 2021

(dollar amounts in thousands)

Type of Investment/

Portfolio company (12)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

Senior Secured First Lien Term Loans

Australia

Ticketek Pty Ltd

Services: Consumer

5% (LIBOR +4.25%)

Total Australia

Canada

Avison Young Canada Inc.

Services: Business

5.97% (LIBOR +5.75%)

PNI Canada Acquireco Corp

High Tech Industries

4.6% (LIBOR +4.5%)

WildBrain Ltd.

Media: Diversified & Production

5% (LIBOR +4.25%)

Total Canada

Germany

Rhodia Acetow

Consumer goods: Non-Durable

6.5% (LIBOR +5.5%)

VAC Germany Holding GmbH

Metals & Mining

5% (LIBOR +4%)

Total Germany

Luxembourg

Travelport Finance (Luxembourg) S.a r.l.

Services: Consumer

2.5% (LIBOR +1.5%)

Travelport Finance (Luxembourg) S.a r.l.

Services: Consumer

5.22% (LIBOR +5%)

Total Luxembourg

United Kingdom

Auxey Bidco Ltd.

Services: Consumer

5.16% (LIBOR +5%)

EG Group

Retail

4.22% (LIBOR +4%)

Total United Kingdom

United States of America

A Place for Mom Inc

Media: Advertising, Printing & Publishing

4.75% (LIBOR +3.75%)

Advanced Integration Technology LP

Aerospace & Defense

5.75% (LIBOR +4.75%)

Advisor Group Holdings Inc

Fire: Finance

4.6% (LIBOR +4.5%)

AG Parent Holdings LLC

High Tech Industries

5.1% (LIBOR +5%)

AgroFresh Inc.

Chemicals, Plastics & Rubber

7.25% (LIBOR +6.25%)

Alcami Carolinas Corp

Healthcare & Pharmaceuticals

4.39% (LIBOR +4.25%)

Alchemy US Holdco 1 LLC

Chemicals, Plastics & Rubber

5.6% (LIBOR +5.5%)

Allen Media, LLC

Media: Broadcasting & Subscription

5.72% (LIBOR +5.5%)

Alpine US Bidco LLC

Beverage, Food & Tobacco

6% (LIBOR +5.25%)

Alvogen Pharma US, Inc.

Healthcare & Pharmaceuticals

6.25% (LIBOR +5.25%)

AMCP Clean Acquisition Co LLC

Wholesale

4.35% (LIBOR +4.25%)

AMCP Clean Acquisition Co LLC

Wholesale

4.35% (LIBOR +4.25%)

American Achievement Corporation (3) (15)

Retail

7.25% (LIBOR +6.25%)

American Public Education

Services: Consumer

6.25% (LIBOR +5.5%)

ANI Pharmaceuticals, Inc.

Healthcare & Pharmaceuticals

6.75% (LIBOR +6%)

Anne Arundel Dermatology Management, LLC (4)

Healthcare & Pharmaceuticals

7% (LIBOR +6%)

Logan JV Loan Portfolio as of December 31, 2021 —(Continued)

(dollar amounts in thousands)

Type of Investment/

Portfolio company (12)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

Anne Arundel Dermatology Management, LLC (5) (15)

Healthcare & Pharmaceuticals

8.75% (LIBOR +6.5%)

Anne Arundel Dermatology Management, LLC

Healthcare & Pharmaceuticals

7.5% (LIBOR +6.5%)

Ansira Holdings, Inc.

Media: Diversified & Production

7.5% (LIBOR +6.5%)

Ansira Holdings, Inc.

Media: Diversified & Production

7.5% (LIBOR +6.5%)

Anthology / Blackboard

High Tech Industries

5.75% (LIBOR +5.25%)

Arcline FM Holding, LLC

Aerospace & Defense

5.5% (LIBOR +4.75%)

Ascend Performance Materials Operations LLC

Chemicals, Plastics & Rubber

5.5% (LIBOR +4.75%)

Axiom Global Inc.

Services: Business

5.5% (LIBOR +4.75%)

BCP Qualtek Merger Sub LLC

Telecommunications

7.25% (LIBOR +6.25%)

Brand Energy & Infrastructure Services, Inc.

Energy: Oil & Gas

5.25% (LIBOR +4.25%)

Canister International Group Inc

Forest Products & Paper

4.85% (LIBOR +4.75%)

Cano Health, LLC

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

Clear Balance Holdings, LLC

Fire: Finance

6.75% (LIBOR +5.75%)

Cloudera, Inc.

High Tech Industries

4.25% (LIBOR +3.75%)

CMI Marketing, Inc

Media: Advertising, Printing & Publishing

4.75% (LIBOR +4.25%)

Confluence Technologies, Inc.

High Tech Industries

4.25% (LIBOR +3.75%)

Conyers Park Parent Merger Sub Inc

Beverage, Food & Tobacco

4.75% (LIBOR +3.75%)

Drilling Info Inc.

High Tech Industries

4.35% (LIBOR +4.25%)

Eisner Advisory Group LLC

Banking, Finance, Insurance & Real Estate

7.5% (LIBOR +6.75%)

Eisner Advisory Group LLC

Banking, Finance, Insurance & Real Estate

6% (LIBOR +5.25%)

Eliassen Group, LLC

Services: Business

4.35% (LIBOR +4.25%)

Empower Payments Acquisition

Services: Business

4.47% (LIBOR +4.25%)

EyeSouth (6) (15)

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

EyeSouth

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

Gastro Health Holdco, LLC (7)

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

Gastro Health Holdco, LLC

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

Gold Standard Baking, Inc. (17)

Wholesale

7.5% (LIBOR +6.5%)

Golden West Packaging Group LLC

Containers, Packaging & Glass

6% (LIBOR +5.25%)

HDT Holdco, Inc.

Aerospace & Defense

6.5% (LIBOR +5.75%)

Hoffman Southwest Corporation

Environmental Industries

6% (LIBOR +5%)

Hornblower Sub LLC

Hotel, Gaming & Leisure

5.5% (LIBOR +4.5%)

International Textile Group Inc

Consumer goods: Durable

5.13% (LIBOR +5%)

Isagenix International LLC

Services: Consumer

6.75% (LIBOR +5.75%)

LaserShip, Inc.

Transportation: Cargo

5.25% (LIBOR +4.5%)

Lereta, LLC

Fire: Real Estate

6% (LIBOR +5.25%)

Lids Holdings, Inc

Retail

5.55% (LIBOR +0%)

Lifescan Global Corporation

Healthcare & Pharmaceuticals

6.13% (LIBOR +6%)

Liquid Tech Solutions Holdings, LLC

Transportation: Cargo

5.5% (LIBOR +4.75%)

LRS Holdings LLC

Environmental Industries

4.75% (LIBOR +4.25%)

MAG DS Corp.

Aerospace & Defense

6.5% (LIBOR +5.5%)

McAfee Enterprise

High Tech Industries

5.75% (LIBOR +5%)

Miller's Ale House Inc

Hotel, Gaming & Leisure

4.85% (LIBOR +4.75%)

MRI Software LLC

Construction & Building

6.5% (LIBOR +5.5%)

Logan JV Loan Portfolio as of December 31, 2021 —(Continued)

(dollar amounts in thousands)

Type of Investment/

Portfolio company (12)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

NAC Holding Corporation

Fire: Insurance

6% (LIBOR +5%)

New Constellis Borrower LLC

Aerospace & Defense

8.5% (LIBOR +7.5%)

New Insight Holdings Inc

Services: Business

6.5% (LIBOR +5.5%)

NextCare, Inc. (8)

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.25%)

NextCare, Inc.

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.25%)

Northern Star Holdings Inc.

Utilities: Electric

5.75% (LIBOR +4.75%)

Oak Point Partners, LLC

Banking, Finance, Insurance & Real Estate

6.5% (LIBOR +5.5%)

Odyssey Logistics & Technology Corporation

Transportation: Cargo

5% (LIBOR +4%)

Omni Logistics

Transportation: Cargo

6% (LIBOR +5%)

Omni Logistics (9)

Transportation: Cargo

6% (LIBOR +5%)

Omni Logistics

Transportation: Cargo

6% (LIBOR +5%)

Options Technology (10) (15)

Services: Business

4.8% (LIBOR +4.75%)

Options Technology

Services: Business

5.75% (LIBOR +4.75%)

Orion Business Innovations

High Tech Industries

5.5% (LIBOR +4.5%)

Orion Business Innovations

High Tech Industries

5.5% (LIBOR +4.5%)

Orion Business Innovations

High Tech Industries

5.5% (LIBOR +4.5%)

Output Services Group Inc

Services: Business

5.5% (LIBOR +4.5%)

OVG Business Services, LLC

Services: Business

7.25% (LIBOR +6.25%)

Patriot Rail Co LLC

Transportation: Cargo

4.25% (LIBOR +4%)

PH Beauty Holdings III, Inc.

Containers, Packaging & Glass

5.18% (LIBOR +5%)

PLH Group Inc

Energy: Oil & Gas

6.15% (LIBOR +6%)

Portfolio Holding, Inc.

Banking, Finance, Insurance & Real Estate

7% (LIBOR +6%)

Portfolio Holding, Inc. (11)

Banking, Finance, Insurance & Real Estate

7% (LIBOR +6%)

Portfolio Holding, Inc.

Banking, Finance, Insurance & Real Estate

7% (LIBOR +6%)

Portillo's Holdings, LLC

Beverage, Food & Tobacco

6.5% (LIBOR +5.5%)

Precisely

High Tech Industries

4.75% (LIBOR +4%)

Premier Dental Services, Inc. (12)

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

Premier Dental Services, Inc.

Healthcare & Pharmaceuticals

5.25% (LIBOR +4.5%)

Pure Fishing Inc

Consumer goods: Non-Durable

4.6% (LIBOR +4.5%)

Quidditch Acquisition Inc

Beverage, Food & Tobacco

8% (LIBOR +7%)

Red Ventures, LLC

Media: Advertising, Printing & Publishing

2.6% (LIBOR +2.5%)

Reedy Industries Inc. (13) (15)

Services: Consumer

5.25% (LIBOR +4.5%)

Reedy Industries Inc.

Services: Consumer

5.25% (LIBOR +4.5%)

R-Pac International Corp (14)

Containers, Packaging & Glass

6.75% (LIBOR +6%)

R-Pac International Corp

Containers, Packaging & Glass

6.75% (LIBOR +6%)

RSA Security LLC

High Tech Industries

5.5% (LIBOR +4.75%)

RXB Holdings, Inc.

Services: Business

5.25% (LIBOR +4.5%)

StubHub

High Tech Industries

4.75% (LIBOR +4.25%)

Teneo Holdings LLC

Services: Business

6.25% (LIBOR +5.25%)

Titan Sub LLC

Aerospace & Defense

5.1% (LIBOR +5%)

Upstream Newco, Inc.

Healthcare & Pharmaceuticals

4.35% (LIBOR +4.25%)

W3 Topco LLC

Energy: Oil & Gas

7% (LIBOR +6%)

Yak Access LLC

Energy: Oil & Gas

5.18% (LIBOR +5%)

Zenith American Holding, Inc.

Services: Business

6.25% (LIBOR +5.25%)

Logan JV Loan Portfolio as of December 31, 2021 —(Continued)

(dollar amounts in thousands)

Type of Investment/

Portfolio company (12)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

Zenith American Holding, Inc.

Services: Business

6.25% (LIBOR +5.25%)

Total United States of America

Total Senior Secured First Lien Term Loans

Second Lien Term Loans

United States of America

ASP MSG Acquisition Co Inc

Beverage, Food & Tobacco

8.25% (LIBOR +7.5%)

New Constellis Borrower LLC

Aerospace & Defense

12% (LIBOR +11%)

Total United States of America

Total Second Lien Term Loans

Total Investments

Cash equivalents

Dreyfus Government Cash Management Fund

Other cash accounts

Total Cash equivalents

Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates may be subject to interest rate floors.

Represents fair value in accordance with ASC Topic 820.

Represents a revolver commitment of $1,470, which was unfunded as of December 31, 2021. Issuer pays 0.75% unfunded commitment fee on revolver term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $1,358, of which $104 was unfunded as of December 31, 2021. Unfunded amounts of a delayed draw position have a lower rate than the contractual

fully funded rate. Issuer pays 1.00% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a revolver commitment of $451, which was unfunded as of December 31, 2021. Issuer pays 0.5% unfunded commitment fee on revolver term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $295, which was unfunded as of December 31, 2021. Issuer pays 4.5% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $333, of which $63 was unfunded as of December 31, 2021. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate.

Issuer pays 4.00% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $629, of which $512 was unfunded as of December 31, 2021. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate.

Issuer pays 1.00% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $203, of which $193 was unfunded as of December 31, 2021. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate.

Issuer pays 1.00% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $606, which was unfunded as of December 31, 2021. Issuer pays 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $417, of which $197 was unfunded as of December 31, 2021. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate.

Issuer pays 1.00% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Logan JV Loan Portfolio as of December 31, 2021 —(Continued)

(dollar amounts in thousands)

Represents a delayed draw commitment of $185, of which $107 was unfunded as of December 31, 2021. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate.

Issuer pays 4.50% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a revolver commitment of $299, which was unfunded as of December 31, 2021. Issuer pays 4.5% unfunded commitment fee on revolver term loan and/or revolving loan facilities.

Represents a revolver commitment of $373, of which $299 was unfunded as of December 31, 2021. Issuer pays 0.5% unfunded commitment fee on revolver term loan and/or revolving loan facilities.

Unfunded amount will start to accrue interest when the position is funded. 3 month LIBOR as of December 31, 2021 or LIBOR floor is shown to reflect possible projected interest rate.

All investments are pledged as collateral for loans payable unless otherwise noted.

Loan was on non-accrual as of December 31, 2021.

Logan JV Loan Portfolio as of December 31, 2020

(dollar amounts in thousands)

Type of Investment/

Portfolio company (13)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

Senior Secured First Lien Term Loans

Australia

Ticketek Pty Ltd

Services: Consumer

5% (LIBOR +4.25%)

Total Australia

Canada

Avison Young Canada Inc.

Services: Business

5.25% (LIBOR +5%)

PNI Canada Acquireco Corp

High Tech Industries

4.65% (LIBOR +4.5%)

Total Canada

Germany

Rhodia Acetow

Consumer goods: Non-Durable

6.5% (LIBOR +5.5%)

VAC Germany Holding GmbH

Metals & Mining

5% (LIBOR +4%)

Total Germany

Luxembourg

Connect Finco SARL

Telecommunications

5.5% (LIBOR +4.5%)

Travelport Finance (Luxembourg) S.à r.l.

Services: Consumer

2.5% (LIBOR +1.5%)

Travelport Finance (Luxembourg) S.à r.l.

Services: Consumer

5.25% (LIBOR +5%)

Total Luxembourg

United Kingdom

Auxey Bidco Ltd.

Services: Consumer

5.52% (LIBOR +5.25%)

EG Group

Retail

4.25% (LIBOR +4%)

Total United Kingdom

United States of America

1A Smart Start LLC

Services: Consumer

5.75% (LIBOR +4.75%)

A Place for Mom Inc

Media: Advertising, Printing & Publishing

4.75% (LIBOR +3.75%)

A10 Capital, LLC

Banking, Finance, Insurance & Real Estate

7.5% (LIBOR +6.5%)

Acproducts Inc

Construction & Building

7.5% (LIBOR +6.5%)

Advanced Integration Technology LP

Aerospace & Defense

5.75% (LIBOR +4.75%)

Advisor Group Holdings Inc

Banking, Finance, Insurance & Real Estate

5.15% (LIBOR +5%)

AG Parent Holdings LLC

High Tech Industries

5.15% (LIBOR +5%)

AgroFresh Inc.

Chemicals, Plastics & Rubber

7.25% (LIBOR +6.25%)

Alcami Carolinas Corp

Healthcare & Pharmaceuticals

4.4% (LIBOR +4.25%)

Alchemy US Holdco 1 LLC

Chemicals, Plastics & Rubber

5.65% (LIBOR +5.5%)

Allen Media LLC

Media: Broadcasting & Subscription

5.75% (LIBOR +5.5%)

AMCP Clean Acquisition Co LLC

Wholesale

4.47% (LIBOR +4.25%)

AMCP Clean Acquisition Co LLC

Wholesale

4.49% (LIBOR +4.25%)

Logan JV Loan Portfolio as of December 31, 2020 —(Continued)

(dollar amounts in thousands)

Type of Investment/

Portfolio company (13)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

Anne Arundel Dermatology Management, LLC (3)

Healthcare & Pharmaceuticals

7% (LIBOR +6%)

Anne Arundel Dermatology Management, LLC (4) (12)

Healthcare & Pharmaceuticals

7% (LIBOR +6%)

Anne Arundel Dermatology Management, LLC

Healthcare & Pharmaceuticals

7% (LIBOR +6%)

Ansira Holdings, Inc.

Media: Diversified & Production

7.5% (LIBOR +6.5%)

Ansira Holdings, Inc.

Media: Diversified & Production

7.5% (LIBOR +6.5%)

AP Gaming I LLC

Hotel, Gaming & Leisure

4.5% (LIBOR +3.5%)

APFS Staffing Holdings Inc

Services: Consumer

4.9% (LIBOR +4.75%)

AQA Acquisition Holding, Inc.

High Tech Industries

5.25% (LIBOR +4.25%)

Ascend Performance Materials Operations LLC

Chemicals, Plastics & Rubber

6.25% (LIBOR +5.25%)

BCP Qualtek Merger Sub LLC

Telecommunications

7.25% (LIBOR +6.25%)

Brand Energy & Infrastructure Services, Inc.

Energy: Oil & Gas

5.25% (LIBOR +4.25%)

California Cryobank LLC

Healthcare & Pharmaceuticals

4.25% (LIBOR +4%)

Cambium Learning Group, Inc.

Services: Consumer

4.75% (LIBOR +4.5%)

Canister International Group Inc

Forest Products & Paper

4.9% (LIBOR +4.75%)

CC Amulet Intermediate, LLC

Healthcare & Pharmaceuticals

5.75% (LIBOR +4.75%)

CC Amulet Intermediate, LLC (5)

Healthcare & Pharmaceuticals

5.75% (LIBOR +4.75%)

CC Amulet Intermediate, LLC

Healthcare & Pharmaceuticals

5.75% (LIBOR +4.75%)

Clear Balance Holdings, LLC

Banking, Finance, Insurance & Real Estate

6.75% (LIBOR +5.75%)

Conyers Park Parent Merger Sub Inc

Beverage, Food & Tobacco

4.75% (LIBOR +3.75%)

Discovery Practice Management, Inc.

Healthcare & Pharmaceuticals

5.5% (LIBOR +4.5%)

Drilling Info Inc.

High Tech Industries

4.4% (LIBOR +4.25%)

E2open, LLC

Services: Business

6.75% (LIBOR +5.75%)

Eliassen Group, LLC

Services: Business

4.4% (LIBOR +4.25%)

Empower Payments Acquisition

Services: Business

4.47% (LIBOR +4.25%)

Gold Standard Baking, Inc. (14)

Wholesale

7.5% (LIBOR +6.5%)

Golden West Packaging Group LLC

Containers, Packaging & Glass

6.25% (LIBOR +5.25%)

Granite Holdings US Acquisition Co

Capital Equipment

5.5% (LIBOR +5.25%)

Gruden Acquisition Inc.

Transportation: Cargo

6.5% (LIBOR +5.5%)

Hertz Corporation (6)

Services: Business

8.25% (LIBOR +7.25%)

High Street Insurance Partners, Inc. (7)

Banking, Finance, Insurance & Real Estate

7.5% (LIBOR +6.5%)

High Street Insurance Partners, Inc.

Banking, Finance, Insurance & Real Estate

7.5% (LIBOR +6.5%)

Hoffman Southwest Corporation

Environmental Industries

6% (LIBOR +5%)

Hornblower Sub LLC

Hotel, Gaming & Leisure

5.5% (LIBOR +4.5%)

Institutional Shareholder Services, Inc.

Services: Business

4.75% (LIBOR +4.5%)

International Textile Group Inc

Consumer goods: Durable

5.37% (LIBOR +5%)

Isagenix International LLC

Services: Consumer

6.75% (LIBOR +5.75%)

Lifescan Global Corporation

Healthcare & Pharmaceuticals

6.23% (LIBOR +6%)

LSCS Holdings Inc.

Healthcare & Pharmaceuticals

4.51% (LIBOR +4.25%)

LSCS Holdings Inc.

Healthcare & Pharmaceuticals

4.51% (LIBOR +4.25%)

MAG DS Corp.

Aerospace & Defense

6.5% (LIBOR +5.5%)

Miller's Ale House Inc

Hotel, Gaming & Leisure

4.9% (LIBOR +4.75%)

MRI Software LLC (8)

Construction & Building

6.5% (LIBOR +5.5%)

MRI Software LLC

Construction & Building

6.5% (LIBOR +5.5%)

Logan JV Loan Portfolio as of December 31, 2020 —(Continued)

(dollar amounts in thousands)

Type of Investment/

Portfolio company (13)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

NAC Holding Corporation

Banking, Finance, Insurance & Real Estate

6.75% (LIBOR +5.75%)

New Constellis Borrower LLC

Aerospace & Defense

8.5% (LIBOR +7.5%)

New Insight Holdings Inc

Services: Business

6.5% (LIBOR +5.5%)

NextCare, Inc. (9)

Healthcare & Pharmaceuticals

5.5% (LIBOR +4.5%)

NextCare, Inc.

Healthcare & Pharmaceuticals

5.5% (LIBOR +4.5%)

Northern Star Holdings Inc.

Utilities: Electric

5.75% (LIBOR +4.75%)

Oak Point Partners, LLC

Banking, Finance, Insurance & Real Estate

6.25% (LIBOR +5.25%)

OB Hospitalist Group Inc

Healthcare & Pharmaceuticals

5% (LIBOR +4%)

Odyssey Logistics & Technology Corporation

Transportation: Cargo

5% (LIBOR +4%)

Orion Business Innovations

High Tech Industries

5.5% (LIBOR +4.5%)

Orion Business Innovations

High Tech Industries

5.5% (LIBOR +4.5%)

Orion Business Innovations

High Tech Industries

5.5% (LIBOR +4.5%)

OSM MSO, LLC

Healthcare & Pharmaceuticals

5.25% (LIBOR +5%)

Output Services Group Inc

Services: Business

5.5% (LIBOR +4.5%)

Parts Town

Beverage, Food & Tobacco

6.5% (LIBOR +5.5%)

Patriot Rail Co LLC

Transportation: Cargo

5.49% (LIBOR +5.25%)

PH Beauty Holdings III, Inc.

Containers, Packaging & Glass

5.23% (LIBOR +5%)

PLH Group Inc

Energy: Oil & Gas

6.21% (LIBOR +6%)

Portillo's Holdings, LLC

Beverage, Food & Tobacco

6.5% (LIBOR +5.5%)

Premise Health Holding Corp

Healthcare & Pharmaceuticals

3.75% (LIBOR +3.5%)

PSC Industrial Outsourcing, LP

Chemicals, Plastics & Rubber

4.75% (LIBOR +3.75%)

Pure Fishing Inc

Consumer goods: Non-Durable

4.65% (LIBOR +4.5%)

Quidditch Acquisition Inc

Beverage, Food & Tobacco

8% (LIBOR +7%)

Red Ventures, LLC

Media: Advertising, Printing & Publishing

2.65% (LIBOR +2.5%)

Sentry Data Systems, Inc.

High Tech Industries

7.75% (LIBOR +6.75%)

Sentry Data Systems, Inc. (10) (12)

High Tech Industries

8% (LIBOR +6.75%)

Silverback Merger Sub Inc

High Tech Industries

4.5% (LIBOR +3.5%)

Starfish- V Merger Sub Inc

High Tech Industries

7% (LIBOR +6%)

Starfish- V Merger Sub Inc

High Tech Industries

6.48% (LIBOR +6.25%)

Teneo Holdings LLC

Services: Business

6.25% (LIBOR +5.25%)

Titan Sub LLC

Aerospace & Defense

5.15% (LIBOR +5%)

Tupelo Buyer Inc

Transportation: Cargo

4.75% (LIBOR +3.75%)

Upstream Newco, Inc.

Healthcare & Pharmaceuticals

4.65% (LIBOR +4.5%)

US Shipping Corp

Utilities: Oil & Gas

5.25% (LIBOR +4.25%)

W3 Topco LLC

Energy: Oil & Gas

7% (LIBOR +6%)

Yak Access LLC

Energy: Oil & Gas

5.25% (LIBOR +5%)

Zenith American Holding, Inc.

Services: Business

6.25% (LIBOR +5.25%)

Zenith American Holding, Inc. (11)

Services: Business

6.25% (LIBOR +5.25%)

Total United States of America

Total Senior Secured First Lien Term Loans

Logan JV Loan Portfolio as of December 31, 2020 —(Continued)

(dollar amounts in thousands)

Type of Investment/

Portfolio company (13)

Industry

Interest Rate (1)

Initial

Acquisition

Date

Maturity

Date

Principal

Amortized

Cost

Fair

Value (2)

Second Lien Term Loans

United States of America

AQA Acquisition Holding, Inc.

High Tech Industries

9% (LIBOR +8%)

DiversiTech Holdings Inc

Consumer goods: Durable

8.5% (LIBOR +7.5%)

Gruden Acquisition Inc.

Transportation: Cargo

9.5% (LIBOR +8.5%)

Midwest Physician Administrative Services, LLC

Healthcare & Pharmaceuticals

7.75% (LIBOR +7%)

New Constellis Borrower LLC

Aerospace & Defense

12% (LIBOR +11%)

TKC Holdings Inc

Services: Business

9% (LIBOR +8%)

Wash Multifamily Acquisition Inc.

Services: Consumer

8% (LIBOR +7%)

Wash Multifamily Acquisition Inc.

Services: Consumer

8% (LIBOR +7%)

Total United States of America

Total Second Lien Term Loans

Equity Investments

United States of America

New Constellis Borrower LLC

Aerospace & Defense

Total United States of America

Total Equity Investments

Total Investments

Cash equivalents

Dreyfus Government Cash Management Fund

Other cash accounts

Total Cash equivalents

Logan JV Loan Portfolio as of December 31, 2020 —(Continued)

(dollar amounts in thousands)

Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.

Represents fair value in accordance with ASC Topic 820.

Represents a delayed draw commitment of $1,363 of which $957 was unfunded as of December 31, 2020. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate. Issuer pays 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $451, which was unfunded as of December 31, 2020. Issuer pays a 0.5% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $1,251, which $700 was unfunded as of December 31, 2020. Issuer pays a 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $3,000, which $2,434 was unfunded as of December 31, 2020. Issuer pays a 3.75% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $1,000, which $308 was unfunded as of December 31, 2020. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate. Issuer pays a 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $42, which was unfunded as of December 31, 2020. Issuer pays a 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $630, which $554 was unfunded as of December 31, 2020. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate. Issuer pays a 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $318, which was unfunded as of December 31, 2020. Issuer pays a 0.5% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Represents a delayed draw commitment of $495, which $300 was unfunded as of December 31, 2020. Unfunded amounts of a delayed draw position have a lower rate than the contractual fully funded rate. Issuer pays 1.0% unfunded commitment fee on delayed draw term loan and/or revolving loan facilities.

Unfunded amount will start to accrue interest when the position is funded. 90-Day LIBOR as of December 31, 2020 is shown to reflect possible projected interest rate.

All investments are pledged as collateral for loans payable unless otherwise noted.

Loan was on non-accrual as of December 31, 2020.

Logan JV Summarized Financial Information:

Below is certain summarized financial information for Logan JV as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Selected Balance Sheet Information

As of December 31,

As of December 31, 2020

(Dollars in

thousands)

(Dollars in

thousands)

Assets:

Investments at fair value (cost of $228,559

and $231,535, respectively)

Cash

Other assets

Total assets

Liabilities:

Loans payable reported net of unamortized debt issuance costs (1)

Distribution payable

Other liabilities

Total liabilities

Members' capital

Total liabilities and members' capital

Selected Statement of Operations Information

For the year ended December 31,

(Dollars in

thousands)

(Dollars in

thousands)

(Dollars in

thousands)

Interest income

Fee income

Total revenues

Credit facility expenses (1)

Other fees and expenses

Total expenses

Net investment income

Net realized gain (loss)

Net change in unrealized (depreciation) appreciation

on investments

Net increase in members' capital from operations

As of December 31, 2021, Logan JV had $147,041 of outstanding debt under its credit facility with an effective interest rate of 2.88% per annum. As of December 31, 2020, Logan JV had $166,541 of outstanding debt under its credit facility with an effective interest rate of 2.46% per annum. As of December 31, 2019, Logan JV had $236,141 of outstanding debt under the credit facility with an effective interest rate of 4.25% per annum

OEM Group LLC

In December 2020, OEM completed the sale of all of its principal business operations via two transactions. On December 2, 2020, OEM closed on the sale of certain assets and liabilities of its Arizona based division to Plasma Therm LLC. Plasma Therm will be responsible for developing, commercializing, and marketing the newly developed Endeavor M series PVD platform with no further investment required by OEM. OEM is entitled to a series of deferred royalty payments over seven years associated with the sale of its business operations, which are based on the future revenues associated with Plasma Therm’s product and other systems and services sales. OEM will receive minimum annual payments for the first four years that will be used to cover certain residual operating costs and service the outstanding debt. These future royalty streams will be used to cover principal and interest on OEM’s outstanding debt. We made an additional $1.0 million investment in the first lien loan to facilitate the completion of the sale and cover near-term costs associated with the transition of certain assets and settlement of certain liabilities. During the year ended December 31, 2021, we made an incremental $0.9 million investment in the first lien loan continue to cover near-term operating costs of OEM.

OEM also consummated the sale of certain assets and liabilities of the Pennsylvania based division to a minority shareholder of the company on December 18, 2020. There was no cash consideration exchanged in connection with the transaction.

As of December 31, 2021 and December 31, 2020, we hold all outstanding debt and equity of OEM. The fair value of our investments in OEM are described in Footnote 3 of the consolidated financial statements.

Asset Quality

We employ the use of board observation and information rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to actively monitor performance. Additionally, First Eagle has developed a monitoring template that promotes compliance with these standards and that is used as a tool to assess investment performance relative to plan.

As part of the monitoring process, the Advisor assesses the risk profile of each of our investments and assigns each portfolio investment a score of a 1, 2, 3, 4 or 5.

The investment performance scores are as follows:

1 – The portfolio investment is performing above our underwriting expectations.

2 – The portfolio investment is performing as expected at the time of underwriting. All new investments are initially scored a 2.

3 – The portfolio investment is operating below our underwriting expectations and requires closer monitoring. The company may be out of compliance with financial covenants, however, principal or interest payments are generally not past due.

4 – The portfolio investment is performing materially below our underwriting expectations and returns on our investment are likely to be impaired. Principal or interest payments may be past due, however, full recovery of principal and interest payments are expected.

5 – The portfolio investment is performing substantially below expectations and the risk of the investment has increased substantially. The company is in payment default and the principal and interest payments are not expected to be repaid in full.

For purposes of clarity, underwriting as referenced herein may be redetermined after the initial investment as a result of a transformative credit event or other material event whereby such initial underwriting is deemed by the Advisor to be no longer appropriate for the purpose of assessing investment performance relative to plan. For any investment receiving a score of a 3 or lower the Advisor will increase their level of focus and prepare regular

updates for the investment committee summarizing current operating results, material impending events and recommended actions.

The Advisor monitors and, when appropriate, changes the investment scores assigned to each investment in our portfolio. In connection with our investment valuation process, the Advisor and board of directors review these investment scores on a quarterly basis. Our average portfolio company investment score was 2.11 and 2.24 at December 31, 2021 and December 31, 2020, respectively. The following is a distribution of the investment scores of our portfolio companies at December 31, 2021 and 2020 (in millions):

December 31, 2021

December 31, 2020

Investment Score

Amortized

Cost

Total

Portfolio

based on

Amortized Cost

Fair Value

Total

Portfolio

based on

Amortized

Cost

Total

Portfolio

based on

Amortized Cost

Fair Value

Total

Portfolio

based on

Total

As of December 31, 2021 and December 31, 2020, Investment Score “1”, based upon fair value, included $0.0 million and $0.0 million, respectively, of loans to companies in which we also hold equity securities.

As of December 31, 2021 and December 31, 2020, Investment Score “2”, based upon fair value, included $13.3 million and $45.4 million, respectively, of loans to companies in which we also hold equity securities.

As of December 31, 2021 and December 31, 2020, Investment Score “3”, based upon fair value, included $14.2 million and $0.0 million, respectively, of loans to companies in which we also hold equity securities.

As of December 31, 2021 and December 31, 2020, Investment Score “4”, based upon fair value, included $3.9 million and $13.3 million, respectively, of loans to companies in which we also hold equity securities.

As of December 31, 2021 and December 31, 2020, Investment Score “5”, based upon fair value, included $24.5 million and $25.7, respectively, of loans to companies in which we also hold equity securities.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of December 31, 2021, we had loans on non-accrual status with an amortized cost basis of $19.7 million and fair value of $9.1 million. As of December 31, 2020, we had loans on non-accrual status with an amortized cost basis of $15.5 million and fair value of $7.4 million. For additional information, please refer to the Consolidated Schedules of Investments as of December 31, 2021 and 2020. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statements of Operations.

In certain instances, we may enter into an agreement to restructure a loan where we determined the full balance of principal or interest may not be collectible at the date of origination. As a result of this determination, we do not recognize interest income on these balances. As of December 31, 2021, we have two loans with an amortized cost basis of $27.2 million and fair value of $12.1 million, which meet the above criteria. As of December 31, 2020, we have two loans with an amortized cost basis of $27.2 million and fair value of $13.8 million, which meet the above criteria. For additional information, please refer to the Consolidated Schedules of Investments as of as of December 31, 2021 and 2020.

Results of Operations

Comparison of the years ended December 31, 2021, 2020 and 2019

Investment Income

We generate revenues primarily in the form of interest on the debt and other income-producing securities we hold. Other income-producing securities include investments in funds. Our investments in fixed income instruments generally have an expected maturity of five to seven years, and typically bear interest at a fixed or floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt instruments and preferred stock investments may defer payments of dividends or pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. In addition to interest income, we may receive dividends and other distributions related to our equity investments. We may also generate revenue in the form of fees from the management of Greenway II, prepayment premiums, commitment, loan origination, structuring or due diligence fees, exit fees, amendment fees, portfolio company administration fees, fees for providing significant managerial assistance and consulting fees. These fees may or may not be recurring in nature as part of our normal business operations. We disclose below what amounts, if any, are material non-recurring fees that have been recorded as income during each respective period.

The following shows the breakdown of investment income for the years ended December 31, 2021, 2020 and 2019 (in millions):

For the years ended December 31,

Interest income on debt securities

Cash interest

PIK interest

Prepayment premiums

Net accretion of discounts and other fees

Total interest on debt securities

Dividend income (1)

Interest income on other income-producing securities

Fees related to non-controlled, affiliated investments

Other income (2)

Total investment income

Includes dividend income from preferred and common equity interests in C&K Market, Inc., Copperweld Bimetallics, LLC, and Logan JV.

For the years ended December 31, 2021, 2020 and 2019, we recognized $0.0 million, $0.0 million and $1.5 million, respectively, of non-recurring fees from portfolio companies.

The increase in investment income from 2020 to 2021 was primarily due to an increase in interest income due to the expansion of our investment portfolio, as well as higher other income related to one-time fees. This increase was partially offset by a reduction in dividend income due to the sale of C&K Markets in December 2020.

The decrease in investment income from 2019 to 2020 was primarily due to the contraction in our overall investment portfolio (based on dollars invested) since December 31, 2019, coupled with declining LIBOR rates, which led to lower interest income. Additionally, dividend income decreased due to a smaller Logan JV portfolio and the sale of Copperweld Bimetallics LLC in September 2019. Other income declined during the period due to lower one-time fees.

The following shows a rollforward of PIK income activity for the years ended December 31, 2021, 2020 and 2019 (in millions):

Years ended December 31,

Accumulated PIK balance, beginning of period

PIK income capitalized/receivable

PIK reduction due to sale

PIK received in cash from repayments

PIK reduced through restructurings/sales

Accumulated PIK balance, end of period

In certain investment transactions, we may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. We earned no income from advisory services related to portfolio companies for the years ended December 31, 2021, 2020 and 2019.

Expenses

Our primary operating expenses include the payment of base management fees, borrowing expenses related to our credit facilities and Notes, and expenses reimbursable under the investment management agreement and the allocable portion of overhead under the administration and investment management agreements (“administrator expenses”). The base management fee compensates the Advisor for work in identifying, evaluating, negotiating, closing and monitoring our investments. Our investment management agreement and administration agreement provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for facilities, office equipment and utilities allocable to the performance by the Advisor of its duties under the agreements, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to us. We bear all other costs and expenses of our operations and transactions.

The following shows the breakdown of expenses for the years ended December 31, 2021, 2020 and 2019 (in millions):

For the years ended December 31,

Expenses

Interest and fees on Borrowings (1)

Base management fees

Incentive fees

Other expenses

Administrator expenses

Total expenses

Management fee waiver

Total expenses, net of fee waiver

Income tax provision, excise and other taxes (2)

Total expenses after taxes

Interest, fees and amortization of deferred financing costs related to our Revolving Facility and Notes.

Amounts include the income taxes related to earnings by our consolidated corporate subsidiaries established to hold equity or equity-like investments in portfolio companies organized as pass-through entities and excise taxes related to our undistributed earnings and other taxes.

The increase in expenses (net of fee waivers) from 2020 to 2021 was primarily due to a reduction in management fee waiver during the year ended December 31, 2021, and the reversal of incentive fees during the prior year. This increase was partially offset by lower interest and fees on our borrowings in 2021 primarily

driven by one-time accelerated amortization expense incurred in the prior year and a reduction in borrowing costs in the current year , as well as lower administrator and other expenses during the year ended December 31, 2021.

The decrease in expenses from 2019 to 2020 was due primarily to lower net base management fees due to portfolio contraction, as well as the effect of the Advisor’s waiver of base management fees beginning in the third quarter of 2020. Additionally, interest and fees on our Credit Facility decreased due to a reduction in borrowings outstanding, a decrease in LIBOR and lower fees resulting from a reduction in credit facility size, offset marginally by an increase in the contractual spread on the Credit Facility.

We expect certain of our operating expenses, including administrator expenses, professional fees and other general and administrative expenses to decline as a percentage of our total assets during periods of growth and increase as a percentage of our total assets during periods of asset declines.

Net Investment Income

Net investment income was $12.0 million, or $0.40 per common share based on a weighted average of 30,108,671 common shares outstanding for the year ended December 31, 2021, as compared to $10.8 million, or $0.35 per common share based on a weighted average of 31,341,857 common shares outstanding for the year ended December 31, 2020, and as compared to $27.4 million, or $0.87 per common share based on a weighted average of 31,312,987 common shares outstanding for the year ended December 31, 2019.

The increase in net investment income from 2020 to 2021 is primarily attributable to an increase in interest income earned on the debt securities in the portfolio due to expansion of the portfolio and higher other income related to one-time fees, as well as lower interest and fees on our borrowings. The increase was partially offset by reduced dividend income due to the sale of C&K Markets in December 2020, as well as a reduction in management fee waiver during the year ended December 31, 2021.

The decrease in net investment income from 2019 to 2020 is primarily attributable to a decrease in interest income on debt and other income-producing investments due to portfolio contraction and a declining LIBOR, as well as additional positions placed on non-accrual, partially offset by lower borrowing costs, incentive and net base management fees (net of waivers).

Net Realized Gains and Losses, net of income tax provision

The following shows the breakdown of net realized gains and losses for the years ended December 31, 2021, 2020 and 2019 (in millions):

For the years ended December 31,

Aerogroup International Inc. (1)

Alex Toys, LLC (2)

Allied Wireless Services, LLC (3)

Charming Charlie LLC (4)

Copperweld Bimetallics, LLC (5)

Constructive Media, LLC

C&K Market, Inc. (6)

Fairstone Financial Inc.

Gryphon Partners 3.5, L.P.

Holland Intermediate Acquisition Corp. (7)

LAI International, Inc. (8)

Martex Fiber Southern Corp. (9)

New Host Holdings, LLC (10)

OEM Group, LLC (11)

Sciens Building Solutions, LLC (12)

smarTours, LLC (13)

Specialty Brands Holdings, LLC

Tri Starr Management Services, Inc. (14)

Urology Management Associates, LLC (15)

Virtus Pharmaceuticals, LLC (16)

Other investments

Loss on extinguishment of debt (17)

Net realized losses

In March 2018, Aerogroup International Inc. was sold through bankruptcy proceedings and we received $2.5 million in proceeds with an additional $6.3 million reflected as escrow and other receivables. Subsequently, we collected the outstanding escrow proceeds in cash through June 2019, realizing additional losses to reflect amounts collected and associated expenses. In 2020, we reversed a portion of the realized losses recorded in 2019 to true up expected accrued expenses related to the bankruptcy proceedings.

On January 11, 2019, we sold our first lien senior secured term loan in Alex Toys, LLC for total proceeds of $7.7 million. The realized loss of $1.5 million was offset by a corresponding change in unrealized appreciation in the same amount. On March 31, 2021, we wrote off our equity investment and recorded a realized loss of $1.9 million, which was offset by a corresponding change in unrealized appreciation in the same amount.

In June 2020, we restructured our first lien senior secured term loan, common equity, and warrants in Allied Wireline Services, LLC into a Class A Note, Class B common equity and Class C common equity. This cashless restructuring resulted in a $5.3 million realized loss, which was fully offset by a $5.8 million reversal of unrealized depreciation.

On July 11, 2019, Charming Charlie LLC filed for Chapter 11 bankruptcy protection in Delaware with plans to liquidate the company and any of its remaining assets. In connection with the liquidation, we removed Charming Charlie from Investments, at fair value and reflected the expected liquidation proceeds as escrow and other receivables on the Consolidated Statements of Assets and Liabilities. Charming Charlie has ceased its operations and has been actively liquidating its assets. In 2020 and 2021, we recorded realized losses to reflect the collectability of the remaining receivable balance.

On September 28, 2019, we were repaid on our second lien term loan in connection with the sale of our controlling common and preferred equity positions in Copperweld Bimetallics LLC with proceeds received of $32.5 million with an additional $2.1 million in escrow proceeds that were reflected as escrow and other receivables. Subsequently, we collected $1.7 million in escrow proceeds in cash through September 2021 with the final release of our escrow proceeds and realized additional gains and losses in 2020 and 2021 to reflect expected and final collectability of the remaining receivable.

On December 29, 2020, we sold our Series A preferred equity for $10.7 million and sold our common shares for a $5.8 million subordinated sellers note and $0.5 million in cash and warrants valued at $0. We recognized a realized gain of $3.8 million on the transaction. Subsequently, in the fourth quarter of 2021, we were repaid on our subordinated sellers note and our warrants were redeemed, resulting in a $0.1 million realized gain.

During the second quarter of 2020, we received proceeds of $2.6 million from the partial repayment of our first lien senior secured term loan in Holland Intermediate Acquisition Corp. An additional $1.3 million in expected proceeds were reflected as Escrow and other receivables on the Consolidated Statements of Assets and Liabilities at December 31, 2020, resulting in a realized loss of $17.4 million. This realized loss was largely offset by a corresponding reversal of unrealized depreciation. Subsequently, in 2021, we received cash of $0.5 million and recorded additional realized losses to reflect the expected collectability of the remaining receivable balance.

In May 2019, we received $16.8 million in proceeds from a sale of certain business segments of LAI International Inc. The realized loss of $22.7 million was largely offset by a corresponding change in unrealized appreciation. In 2021, we recorded realized losses to reflect collectability of the remaining receivable balance.

On December 31, 2019, we sold our subordinated debt investment in Martex Fiber Southern Corp., resulting in a receivable of $4.3 million. The proceeds were subsequently received in January 2020. The realized loss of $5.5 million was partially offset by a corresponding change in unrealized appreciation.

In April 2020, New Host Holdings, LLC was dissolved and we wrote off our common and preferred equity investments resulting in a $2.0 million realized loss. This realized loss was equally offset by a corresponding reversal of unrealized depreciation.

On September 30, 2020, we restructured our first lien senior secured term loan and revolvers in OEM Group, LLC into a $7.5 million first lien senior secured term loan and a $44.1 million second lien term loan, at par. This cashless restructuring resulted in a $17.5 million realized loss, which was fully offset by a reversal of unrealized depreciation. We are not recognizing interest income on the restructured second lien term loan as of December 31, 2021.

On December 15, 2021, we sold our Series A convertible preferred stock in Sciens Building Solutions, LLC resulting in total proceeds of $2.3 million and a $2.1 million realized gain.

On December 21, 2020 as part of a bankruptcy resolution relating to an investment we restructured our term loan which consisted of a par balance of $5.1 million and capitalized interest of $0.3 million into a first-out term loan of $2.2 million and a last-out term loan of $0.5 million. In connection with the bankruptcy, we reduced the value of our investments and recognized a $2.4 million loss as part of the cashless restructuring.

On February 5, 2019, we received an additional $0.4 million in cash proceeds related to the final purchase price true-up in connection with the sale of its investment in Tri-Starr Management Services, Inc. in October 2018. In 2021, the Company recorded realized losses to reflect collectability of the remaining receivable balance.

On December 30, 2021, we were repaid on our first lien senior secured term loan in Urology Management Associates, LLC, and we sold our common equity for total sales proceeds of $2.0 million, which resulted in a realized gain of $1.2 million during the year ended December 31, 2021.

On May 7, 2020, we agreed to contribute our preferred and common equity interests in Virtus Pharmaceuticals, LLC to Virtus Aggregator, LLC, in exchange for member units in Virtus Aggregator, LLC. This cashless restructuring resulted in a $0.9 million realized loss, which was partially offset by a corresponding reversal of unrealized depreciation.

In June 2021 and December 2021, we redeemed our 2022 Notes and 2023 Notes, respectively. In connection with the redemptions, we realized losses on the extinguishment of debt equal to the difference between the amounts paid to redeem the Notes and the Notes’ carrying value.

Net Change in Unrealized Appreciation (Depreciation) of Investments

Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

The following shows the breakdown in the changes in unrealized appreciation (depreciation) of investments for the years ended December 31, 2021, 2020 and 2019 (in millions):

Years ended December 31,

Gross unrealized appreciation on investments

Gross unrealized depreciation on investments

Reversal of prior period net unrealized depreciation upon a realization

Total

During 2021, our largest increase in value for the investments still held as of the reporting date was related to a market driven increase of Logan JV (an investment where we hold a controlling interest) and Matilda Jane Holdings, Inc. This was partially offset by a reduction in value of our investment in Loadmaster Derrick & Equipment, Inc., OEM Group LLC, and Aurotech, LLC.

During 2020, the largest reductions in value for the investments still held as of the reporting date were related to OEM Group, LLC, smarTours LLC, and a market driven reduction of Logan JV (an investment where we hold a controlling interest). This was partially offset by a net increase of approximately $23.1 million due to the reversal of prior period unrealized depreciation upon the realizations of OEM Group, LLC, Holland Intermediate Acquisition Corp., and Hostway Corporation and a reversal of unrealized appreciation to realized gains for C&K Market, Inc. (see “Net Realized Gains and Losses on Investments” above).

During 2019, the largest reductions in value for the investments still held as of the reporting date were related to OEM Group, LLC, Holland Intermediate Acquisition Corp. and a market driven reduction of Logan JV (an investment where we hold a controlling interest). This was partially offset by a net increase of approximately $13.3 million due to the reversal of prior period unrealized depreciation upon the realizations of Charming Charlie, LLC and LAI International Inc and a reversal of unrealized appreciation to realized gains for Copperweld Bimetallics LLC (See “Net Realized Gains and Losses on Investments” above).

Many of our portfolio companies operate in industries that are materially impacted by COVID-19, including but not limited to healthcare, travel, entertainment and hospitality. Many of these companies have faced operational and financial hardships resulting from the spread of COVID-19 in 2020 and 2021 and related governmental measures, such as the closure of stores, restrictions on travel, vaccine mandates, quarantines or stay-at-home orders. Many of our portfolio companies are facing increased credit and liquidity risk due to volatility in financial markets, reduced revenue streams, and limited or higher cost of access to preferred sources of funding. Although vaccines have been widely distributed in the U.S., certain U.S. states are planning on reopening, and we believe the economy is beginning to rebound in certain respects, the uncertainty surrounding the COVID-19 pandemic, including uncertainty regarding new variants of COVID-19 and acceptance of vaccines and other factors may continue to contribute to significant volatility in the global markets, and the businesses of these portfolio companies could suffer materially or become insolvent, which would decrease the value of our investments.

Benefit for Taxes on Unrealized Gains on Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable entities are not consolidated with the Company for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the years ended December 31, 2021, 2020 and 2019, we recognized a benefit for tax on unrealized gains on investments of $0.2 million, $0.2 million and $0.3 million for consolidated subsidiaries, respectively. As of December 31, 2021 and December 31, 2020, $1.6 million and $1.7 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to deferred tax on unrealized gain on investments. The change in provision for tax on unrealized gains on investments relates primarily to changes to the unrealized appreciation (depreciation) of the investments held in these taxable

consolidated subsidiaries, other temporary differences and a change in the prior year estimates received from certain portfolio companies.

Net Increase (Decrease) in Net Assets Resulting from Operations

Net increase (decrease) in net assets resulting from operations totaled $17.7 million, or $0.59 per common share based on a weighted average of 30,108,671 common shares for the year ended December 31, 2021, as compared to $(36.7) million, or $(1.17) per common share based on a weighted average of 31,341,857 common shares for the year ended December 31, 2020, and as compared to $(24.6) million, or $(0.79) per common share based on a weighted average of 32,312,987 common shares for the year ended December 31, 2019.

The increase in net assets from operations from 2020 to 2021 is primarily due to higher interest income, significant unrealized gains recognized during the current year, and a significant reduction in realized losses during the year ended December 31, 2021. The decrease in net assets from operations from 2019 to 2020 is primarily due to lower interest income as a result of portfolio contraction, as well as an increase in realized losses in the portfolio, partially offset by lower interest and fees on borrowings, management and incentive fees.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

Our liquidity and capital resources are derived from our borrowings, equity raises and cash flows from operations, including investment sales and repayments, and investment income earned. Our primary use of funds from operations includes investments in portfolio companies, payment of distributions to the holders of our common stock and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our borrowings and the proceeds from the turnover in our portfolio and from public and private offerings of securities to finance our investment objectives, to the extent permitted by the 1940 Act. We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the uncertainty created by the COVID-19 global pandemic. We expect that the significant disruption in business activity and the financial markets could impact several sources of our liquidity. For example, limited opportunities to successfully exit investments due to, among other things, lower valuations, a lack of potential buyers with the financial resources to pursue acquisitions, and our portfolio companies limited ability to repay their obligations to us, will impact cash flows from operating activities. For more information on the potential impact of the COVID-19 pandemic on our business, see “Item 1A. Risk Factors – Risks in the Current Environment – Major public health issues, and specifically the novel coronavirus COVID-19, could have an adverse impact on our financial condition and results of operations and other aspects of our business”.

We may raise additional equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, by securitizing a portion of our investments or borrowings from credit facilities. To the extent we determine to raise additional equity through an offering of our common stock at a price below net asset value, existing investors will experience dilution.

In June 2021 and November 2021 , we completed a public debt offering of $69.0 million and $4 2 . 6 million , respectively, in aggregate principal amount of 5.00% notes due 2026 , including the exercise of the overallotment option, through a group of underwriters, resulting in net proceeds received of $ 67.3 million and $42.3 million, respectively . The proceeds received from the June issuance were primarily used to repay our 6.75% n otes due 2022 and partially pay down our Revolving Facility , and the proceeds received from the November 2021 issuance were primarily used to repay our 6.125% notes due 2023 .

We borrowed $260.6 million under our Revolving Facility for the year ended December 31, 2021 and repaid $204.2 million on our Revolving Facility from proceeds received from the 2026 Note issuance, prepayments and sales, and investment income. We borrowed $25.5 under our Revolving Facility for the year ended December 31, 2020 and repaid $34.0 million on our Revolving Facility from proceeds received from prepayments and sales and investment income.

Our operating activities (used) provided cash of $(32.4) million, $19.5 million and $83.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, primarily in connection with the purchase and sale of portfolio investments. For the year ended December 31, 2021, our financing activities included net borrowings of $56.4 million on our Revolving Facility, net proceeds of $0.4 million from the issuance of the 2026 Notes and redemption of 2022 and 2023 Notes, and used $12.0 million for distributions to stockholders, $0.2 million to repurchase common stock and $3.5 million for the payment of financing and offering costs. For the year ended December 31, 2020, our financing activities included net repayments of $8.5 million on our Revolving Facility and used $15.8 million for distributions to stockholders, $21.8 million to repurchase common stock, $30.0 million from the issuance of common stock, and $1.6 million for the payment of financing and offering costs. For the year ended December 31, 2019, our financing activities included net repayments of $42.0 million on our Revolving Facility and used $26.2 million for distributions to stockholders, $15.4 million to repurchase common stock and $0.5 million for payment of financing and offering costs.

As of December 31, 2021 and 2020, we had cash of $16.3 million and $7.6 million, respectively. We had no cash equivalents as of December 31, 2021 and 2020.

We believe cash balances, our Revolving Facility capacity and any proceeds generated from the sale or pay down of investments provides us with the liquidity necessary to fulfill our pipeline in the near future.

Although we were able to issue debt securities and increase our Revolving Facility commitment during the year ended December 31, 2021, and the financial markets have recovered from 2020 levels, another disruption in the financial markets like that caused by the COVID-19 pandemic or any other negative economic development would restrict our access to financing in the future. We may not be able to find new financing for future investments or liquidity needs and even if we are able to obtain such financing, it may not be on as favorable terms as we could have obtained prior to the pandemic. These factors may limit our ability to make new investments and adversely impact our results of operations.

Borrowings

The following shows a summary of our Borrowings as of December 31, 2021 and 2020 (in millions):

December 31, 2021

December 31, 2020

Facility

Commitments

Borrowings Outstanding (1)

Weighted Average Borrowings Outstanding (2)

Weighted Average Interest Rate (5)

Commitments

Borrowings Outstanding (3)

Weighted Average Borrowings Outstanding (4)

Weighted Average Interest Rate (5)

Revolving Facility

2022 Notes

2023 Notes

2026 Notes

Total

As of December 31, 2021, borrowings outstanding excludes deferred financing costs of $3.2 million and includes an issuance premium of $0.4 million for the 2026 Notes, which are netted and presented as a reduction to the balance outstanding in the Consolidated Statements of Assets and Liabilities.

Represents the weighted average borrowings outstanding for the year ended December 31, 2021.

As of December 31, 2020, borrowing outstanding excludes deferred financing costs of $0.7 million for the 2022 Notes and $1.2 million for the 2023 Notes presented as a reduction to the respective balances outstanding in the Consolidated Statements of Assets and Liabilities.

Represents the weighted average borrowings outstanding for the year ended December 31, 2020.

Represents the weighted average interest rate as of December 31, 2021 and December 31, 2020. The weighted average interest rate as of December 31, 2021 incorporates the amortization of the $0.4 million premium received on the issuance of the 2026 Notes.

Credit Facility

On December 15, 2017, we entered into an amendment, or the Revolving Amendment, to our existing revolving credit agreement, or Revolving Facility. The Revolving Amendment revised the Revolving Facility dated August 19, 2015 to, among other things, extend the maturity date from August 2019 to December 2022 (with a one year term out period beginning in December 2021). The one year term out period is the one year anniversary between the revolver termination date, or the end of the availability period, and the maturity date. During this time, we are required to make mandatory prepayments on our loans from the proceeds we receive from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Revolving Amendment also reduced the size of the revolver commitments from $303.5 million to $275.0 million and terminated the $75.0 million term loan facility.

On March 26, 2019, we entered into Amendment No. 1 which amended our Revolving Facility to, among other things, (i) reduce the size of the commitments thereunder to $190.0 million; (ii) provide a $20.0 million letter of credit subfacility; and (iii) lower the testing levels of certain financial covenants.

On March 13, 2020, we entered into Amendment No. 4 which further amended the Revolving Facility to, among other things, reduce the size of commitments from $190.0 million to $150.0 million.

On April 14, 2020, we entered into Amendment No. 5 which, among other things, (i) permanently reduced the asset coverage test from a minimum of 200% to a minimum of 165%; (ii) permanently reduced shareholder's equity and obligor's net worth test from a minimum of $175.0 million each to a minimum of $140.0 million each; (iii) permanently reduced the size of the lender's commitments under the Revolving Facility from $150.0 million to $120.0 million; and (iv) permanently increased the interest rate by 25 basis points with a mechanism for an additional 25 basis points increase dependent on certain testing levels, as well as added a 50 basis point LIBOR floor.

On October 16, 2020, we entered into the Third Amended and Restated Senior Secured Revolving Credit Agreement, which among other things, (i) reduced the size of the revolver commitment from $120.0 million to $100.0 million ; (ii) increased the applicable margin on LIBOR borrowings from 2.75% to 3.0% ; (iii) permanently reduced the asset coverage test from a minimum of 165% to a minimum of 150% ; and (iv) extended the maturity date from December 2022 to October 16, 2024 (with a one year term out period beginning in October 2023).

The Revolving Facility includes an accordion feature permitting us to expand the Revolving Facility, if certain conditions are satisfied; provided, however, that the aggregate amount of the Revolving Facility, collectively, is capped. The Third Amended and Restated Senior Secured Revolving Credit Agreement revised the cap from $300.0 million to $200.0 million. On March 31, 2021, we entered into an Incremental Commitment Agreement which increased the size of the revolver commitment from $100.0 million to $125.0 million. On September 15, 2021, we entered into an Incremental Commitment and Assumption Agreement which further increased the size of the revolver commitment from $125.0 million to $150.0 million.

The Revolving Facility, denominated in US dollars, has an interest rate of LIBOR plus 3.00% (with a 0.5% LIBOR floor). We elect the LIBOR rates on the loans outstanding on our Revolving Facility, which can have a LIBOR period that is one, two, three or six months. The LIBOR rate on the USD borrowings outstanding on our Revolving Facility had a one month LIBOR period as of December 31, 2021.

The non-use fee is 1.00% annually if we use 35% or less of the Revolving Facility and 0.50% annually if we use more than 35% of the Revolving Facility.

As of December 31, 2021, we had USD borrowings of $114.1 million outstanding under the Revolving Facility with a year-end interest rate of 3.50%.

The Revolving Facility, denominated in Canadian dollars, had an interest rate of CDOR plus 2.5% (with no CDOR floor). This Facility was repaid in 2019, and there were no Canadian borrowings outstanding on the Revolving Facility as of December 31, 2021.

The Revolving Facility generally requires payment of interest on a quarterly basis for ABR loans (commonly based on the Prime Rate or the Federal Funds Rate), and at the end of the applicable interest period for Eurocurrency loans bearing interest at LIBOR or CDOR, the interest rate benchmarks used to determine the variable rates paid on the Revolving Facility. All outstanding principal is due upon each maturity date. The Revolving Facility also requires a mandatory prepayment of interest and principal upon certain customary triggering events (including, without limitation, the disposition of assets or the issuance of certain securities).

Borrowings under the Revolving Facility are subject to, among other things, a minimum borrowing/collateral base. The facilities have certain collateral requirements and/or covenants, including, but not limited to, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) limitations on the creation or existence of agreements that prohibit liens on certain properties of ours and our subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of us and our consolidated subsidiaries, of not less than 1.50:1.00, (iii) minimum liquidity, and (iv) minimum net worth. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in our portfolio.

We cannot be assured that we will be able to borrow funds under the Revolving Facility at any particular time or at all. We are currently in compliance with all financial covenants under the Revolving Facility.

As of December 31, 2021 and 2020, the carrying amount of our outstanding Revolving Facility approximated fair value. The fair values of the Company’s Revolving Facility are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of our Revolving Facility is estimated based upon market interest rates and entities with similar credit risk. As of December 31, 2021 and 2020, the Revolving Facility would be deemed to be Level 3 of the fair value hierarchy.

Interest expense and related fees, excluding amortization of deferred financing costs, of $ 2.9 million, $ 2.9 million and $ 5.2 million were incurred in connection with the Revolving Facility during the years ended December 31, 2021, 2020 and 2019 , respectively.

Amortization of deferred financing costs of $0.5 million, $1.3 million (including one-time accelerated amortization of $0.8 million in connection with a reduction in the revolver commitment size) and $0.9 million (including one-time accelerated amortization of $0.4 million in connection with a reduction in the revolver commitment size), respectively, were incurred in connection with the Facilities for the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021 and 2020, we had $1.5 million and $1.8 million, respectively, of deferred financing costs related to the Revolving Facility, which is presented as an asset on the Consolidated Statements of Assets and Liabilities.

The 1940 Act was modified by allowing a BDC to increase the maximum amount of leverage it may incur under the 1940 Act from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. At our Annual Meeting of Stockholders on June 14, 2019, stockholders approved a proposal to reduce our asset coverage ratio to 150%. Such asset coverage ratio became effective on June 15, 2019. On April 14, 2020, we received lender consent to reduce our asset coverage ratio to 165% and on October 16, 2020, we received lender consent to reduce our asset coverage ratio to 150%. Our asset coverage ratio as of December 31, 2021 was 184%.

Notes

2022 Notes

In December 2015 and November 2016, we completed a public offering of $35.0 million and $25.0 million, respectively, in aggregate principal amount of 6.75% notes due 2022 (“2022 Notes”). The 2022 Notes bore interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning March 30, 2016 and traded on the New York Stock Exchange under the trading symbol “FCRZ”. On June 21, 2021, we redeemed the 2022 Notes at par with proceeds from the issuance of the 2026 Notes (see below). As a result of this redemption, we recognized a loss on extinguishment of debt of $0.5 million during the year ended December 31, 2021 on the Consolidated Statements of Operations.

2023 Notes

On October 16, 2018, we completed a public offering of $51.6 million in aggregate principal amount of 6.125% notes due 2023 (“2023 Notes”), including the underwriters exercise of their option to purchase an additional $1.6 million to cover overallotments. The 2023 Notes bore interest at a rate of 6.125% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning December 30, 2018 and traded on the New York Stock Exchange under the trading symbol “FCRW”. On December 22, 2021, we redeemed the 2023 Notes at par with proceeds from the issuance of the 2026 Notes (see below). As a result of this redemption, we recognized a realized loss on extinguishment of debt of $0.8 million during the year ended December 31, 2021 on the Consolidated Statements of Operations.

2026 Notes

On June 2, 2021, we completed a public offering of $69.0 million in aggregate principal amount of 5.00% notes due 2026 (“2026 Notes”), including the underwriters exercise of their option to purchase an additional $9.0 million to cover overallotments. The 2026 Notes mature on May 25, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after May 25, 2023. The 2026 Notes bear interest at a rate of 5.00% per year payable quarterly on March 30, June 30, September 30, and December 30, of each year, beginning September 30, 2021 and trade on the New York Stock Exchange under the trading symbol “FCRX”. We used the net proceeds from the issuance of the 2026 Notes to redeem the 2022 Notes and partially repay the Revolving Credit Facility.

On November 17 , 2021 , we completed a public offering of an additional $ 42.6 million in aggregate principal amount of 2026 Notes , including the underwriters exercise of their option to purchase an additional $2.6 million to cover overallotments . The Notes were issued at a price of 101% of the aggregate principal amount of the 2026 Notes. The additional 2026 Notes are a further issuance of, fungible with, and rank equally in right of payment with and have the same terms (other than the issue date and public offering price) as the initial issuance of the 2026 Notes in June 2021 . The Company used the net proceeds from the subsequent offering of the 2026 Notes to redeem the 2023 Notes.

The 2022 Notes, 2023 Notes, and 2026 Notes are collectively referred to as the Notes, except that the 2022 and 2023 Notes are not included with respect to dates subsequent to their redemption, and the 2026 Notes are not included with respect to dates prior to their issuance.

The Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) senior to any of our future indebtedness that expressly provides it is subordinated to the Notes; (iii) effectively subordinated to all our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, including without limitation, borrowings under our Revolving Facility; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.

The Base Indenture, as supplemented by the First, Second and Third Supplemental Indentures (the “Indenture”), contains certain covenants including covenants requiring us to comply with (regardless of whether it is subject to) the Section 18 (a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC. Currently these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowings. These covenants are subject to important limitations and exceptions that are described in the Indenture. The Indenture provides for customary events of default and further provides that the Trustee or the holders of 25% in aggregate principal amount of the outstanding Notes in a series may declare such Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period. As of December 31, 2021, we were in compliance with the terms of the Base Indenture and the First, Second and Third Supplemental Indentures governing the Notes. See Note 7 to our consolidated financial statements for more detail on the Notes.

As of December 31, 2021, the carrying amount and fair value of our Notes was $111.6 million and $114.1 million, respectively. As of December 31, 2020, the carrying value and fair value of our Notes was $111.6 million and $113.0 million, respectively. The fair value of our Notes is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Notes is based on the closing price of the security, which is a Level 2 input under ASC 820 due to the trading volume.

In connection with the issuance of the 2022 Notes, 2023 Notes and 2026 Notes, we incurred $2.6 million, $2.2 million, and $3.5 million of fees and expenses, respectively. These deferred financing costs are presented as a reduction to the notes payable balance and are being amortized using the effective yield method over the term of the Notes. For the years ended December 31, 2021, 2020 and 2019, we amortized approximately $1.1 million, $0.8 million and $0.8 million of deferred financing costs, respectively, which is reflected in amortization of deferred financing costs on the Consolidated Statements of Operations. As of December 31, 2021, we had $3.2 million of remaining deferred financing costs on the Notes, which was netted with the $0.4 million of unamortized premium on the 2026 Notes and presented as a reduction to the notes payable balance on our Consolidated Statements of Assets and Liabilities. As of December 31, 2020, we had $1.9 million of remaining deferred financing costs on the Notes, which was presented as a reduction to the notes payable balance on our Consolidated Statements of Assets and Liabilities.

For the years ended December 31, 2021, 2020 and 2019 , we incurred interest expense on the Notes of approximately $ 7.3 million, $7. 2 million and $ 7. 2 million, respectively.

Commitments and Contingencies and Off-Balance Sheet Arrangements

From time to time, we, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of our rights under contracts with our portfolio companies. Neither we, nor the Advisor, are currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected in our Consolidated Statements of Assets and Liabilities. Our unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We intend to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments.

As of December 31, 2021 and 2020 , we have the following unfunded commitments to portfolio companies (in millions):

December 31, 2021

December 31, 2020

Unfunded delayed draw facilities

Advanced Web Technologies

Alcanza Clinical Research

Alpine X

AppFire Technologies, LLC

BCDI Rodeo Dental Buyer, LLC

CC Amulet Management, LLC

Cedar Services Group, LLC

ConvenientMD

Doxa Insurance Holdings, LLC

Endo1 Partners

Groundworks Operations, LLC

HealthDrive Corporation

Integrated Pain Management Medical Group, Inc.

Lighthouse Lab Services

MarkLogic Corporation

Multi Specialty Healthcare LLC

Newcleus, LLC

PDFTron Systems Inc.

Socius Insurance Services, Inc.

SuperHero Fire Protection, LLC

Technology Partners, LLC

TMA Buyer, LLC

Tricor Borrower, LLC

TriStrux, LLC

Unfunded revolving commitments

1-800 Hansons, LLC (1)

A&A Global Imports, LLC

ABC Legal Services, LLC

Action Point, Inc

Advanced Web Technologies

Alcanza Clinical Research

Alpine SG, LLC

Alpine X

AppFire Technologies, LLC

Aurotech, LLC

Automated Control Concepts, Inc.

BCDI Rodeo Dental Buyer, LLC

CC Amulet Management, LLC

Cedar Services Group, LLC

Certify, Inc.

Communication Technology Intermediate

ConvenientMD

Danforth Advisors

Doxa Insurance Holdings, LLC

EBS Intermediate LLC

Gener8, LLC

Groundworks Operations, LLC

December 31, 2021

December 31, 2020

HealthDrive Corporation (2)

iLending LLC

Integrated Pain Management Medical Group, Inc.

IRC Opco LLC

Lash Opco LLC

Lighthouse Lab Services

Loadmaster Derrick & Equipment, Inc. (3)

MarkLogic Corporation

Marlin DTC-LS Midco 2, LLC

Matilda Jane Holdings, Inc.

Multi Specialty Healthcare LLC

Newcleus, LLC

NWN Parent Holdings LLC

PDFTron Systems Inc.

QuarterMaster Newco, LLC

Quorum Health Resources

Sequoia Consulting Group, LLC

smarTours, LLC

Socius Insurance Services, Inc.

SolutionReach, Inc.

SuperHero Fire Protection, LLC

Technology Partners, LLC

The Mulch & Soil Company, LLC

TMA Buyer, LLC

Tricor Borrower, LLC

TriStrux, LLC

Women's Health USA, Inc.

Unfunded commitments to investments in funds

Freeport Financial SBIC Fund LP

Gryphon Partners 3.5, L.P.

Total unfunded commitments

We have sole discretion as to whether to lend under this revolving commitment.

Includes amounts set aside for issued standby letters of credit.

As of December 31, 2020, we had issued a standby letter of credit of $3.1 million which expired on January 19, 2021.

The changes in fair value of our unfunded commitments are considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding. We will fund our unfunded commitments from the same sources we use to fund our investment commitments that are funded at the time they are made (which are typically existing cash and cash equivalents and borrowings under our Revolving Facility). We manage our liquidity to ensure that we have available capital to fund our unfunded commitments as necessary.

Distributions

We have elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain our status as a RIC, we are required to distribute, for each taxable year, at least 90% of our investment company taxable income. To avoid a 4% excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year, (ii) 98.2% of our capital gain net income for the one-year

period ending October 31 of that calendar year and (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax.

Our quarterly distributions, if any, will be determined by our board of directors. We intend to make distributions to stockholders on a quarterly basis of substantially all of our net investment income. Although we intend to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In addition, the extent and timing of special dividends, if any, will be determined by our board of directors and will largely be driven by portfolio specific events and tax considerations at the time.

In addition, we may be limited in our ability to make distributions due to the BDC asset coverage test for borrowings applicable to us as a BDC under the 1940 Act.

The following table summarizes our recent distributions declared and paid or to be paid on all shares including distributions reinvested, if any:

Date Declared

Record Date

Payment Date

Amount Per Share

March 5, 2019

March 20, 2019

March 29, 2019

May 7, 2019

June 14, 2019

June 28, 2019

August 6, 2019

September 16, 2019

September 30, 2019

October 31, 2019

December 16, 2019

December 31, 2019

March 3, 2020

March 20, 2020

March 31, 2020

May 5, 2020

June 15, 2020

June 30, 2020

August 4, 2020

September 15, 2020

September 30, 2020

October 30, 2020

December 15, 2020

December 31, 2020

March 2, 2021

March 15, 2021

March 31, 2021

May 4, 2021

June 15, 2021

June 30, 2021

August 3, 2021

September 15, 2021

September 30, 2021

November 2, 2021

December 15, 2021

December 31, 2021

March 1, 2022

March 15, 2022

March 31, 2022

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure stockholders that they will receive any distributions at a particular level.

We maintain an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. There were no dividends reinvested for the years ended December 31, 2021, 2020 and 2019.

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, we reserve the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

Distributions in excess of our current and accumulated earnings and profits would generally be treated as a return of capital to the extent of the stockholder’s adjusted tax basis in our shares. If a stockholder’s tax basis is reduced to zero, the stockholder would generally treat any remaining distributions in excess of our current and accumulated earnings and profits as a capital gain. The determination of the tax attributes of our distributions will be made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. Each year, a statement on Form 1099-DIV identifying the source of the distributions will be sent to our U.S. stockholders of record (other than certain exempt recipients). Our board of directors presently intends to declare and pay quarterly distributions. Our ability to pay distributions could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

The tax character of distributions declared and paid in 2021 represented $12.0 million from ordinary income, $0 from capital gains and $0 from tax return of capital. The tax character of distributions declared and paid in 2020 represented $15.8 million from ordinary income, $0 from capital gains and $0 from tax return of capital. The tax character of distributions declared and paid in 2019 represented $26.2 million from ordinary income, $0 from capital gains and $0 from tax return of capital. Generally accepted accounting principles require adjustments to certain components of net assets to reflect permanent differences between financial and tax reporting. These adjustments have no effect on net asset value per share. Permanent differences between financial and tax reporting at December 31, 2021 and 2020 were $0.2 million and $5.4 million, respectively.

We may generate qualified interest income and short-term capital gains that may be exempt from United States withholding tax when distributed to foreign accounts. A RIC is permitted to designate distributions in the form of dividends that represent interest income from U.S. sources (commonly referred to as qualified interest income) and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. stockholders with proper documentation. As of December 31, 2021, the percentage of income estimated as qualified interest income for tax purposes was 90.1%.

Contractual obligations

We have entered into a contract with the Advisor to provide investment advisory services. Payments for investment advisory services under the investment management agreement in future periods will be equal to (a) an annual base management fee of 1.0% of our gross assets and (b) an incentive fee based on our performance. In addition, under our administration agreement, the Advisor will be reimbursed for administrative services incurred on our behalf. Please refer to Note 4 – “Related Party Transactions” in our consolidated financial statements.

The following table shows our contractual obligations as of December 31, 2021 (in millions):

Payments due by period

Contractual Obligations (1)

Total

Less than

1 year

years

After 5

years

Revolving Facility

Notes Payable

Excludes $42.5 million in commitments to extend credit to our portfolio companies.

The following table shows our contractual obligations as of December 31, 2020 (in millions):

Payments due by period

Contractual Obligations (1)

Total

Less than

1 year

years

After 5

years

Revolving Facility

Notes Payable

Excludes $22.0 million in commitments to extend credit to our portfolio companies.

Stock Repurchase Program and Tender Offer

Stock Repurchase Program

On March 2, 2018 our board of directors authorized a $20.0 million stock repurchase program, which was amended and extended on March 5, 2019 to authorize the repurchase of outstanding shares in an aggregate amount of up to $15.0 million. Effective March 14, 2019, we adopted a stock trading plan in accordance with Rule 10b5-1 of the Exchange Act. This plan was completed in November of 2019. On December 16, 2019, our board of directors authorized a new $10.0 million stock repurchase program, which expired on December 16, 2020. Effective December 17, 2019, we adopted a stock trading plan in accordance with Rule 10b5-1 of the Exchange Act, which was terminated on March 10, 2020. On May 4, 2021, our board of directors authorized a new $10.0 million stock repurchase program, which, unless extended by our board of directors, will expire on May 5, 2022 and may be modified or terminated at any time for any reason without prior notice. We provided our stockholders with notice of our ability to repurchase shares of our common stock in accordance with 1940 Act requirements. Effective December 16, 2021, we adopted a stock trading plan in accordance with Rule 10b5-1 of the Exchange Act, which, unless extended, expires on March 8, 2022. We retired all shares of common stock purchased in connection with the stock repurchase program and plan to retire all shares of common stock that we purchase in the future in connection with the program.

The following table summarizes our share repurchases under our stock repurchase program for the years ended December 31, 2021, 2020 and 2019 (in millions):

For the years ended

December 31,

Dollar amount repurchased (1)(2)

Shares repurchased

Average price per share (including commission)

Weighted average discount to net asset value

Effective December 17, 2019, we adopted a stock trading plan in accordance with Rule 10b5-1 of the Exchange Act. All shares repurchased during the year ended December 31, 2020 were under the Plan which terminated on March 10, 2020.

Effective December 16, 2021, we adopted a stock trading plan in accordance with Rule 10b5-1 of the Exchange Act. All shares repurchased during the year ended December 31, 2021 were under the Plan.

Tender Offer

On June 23, 2020, we announced the commencement of a modified “Dutch Auction” tender offer (the “Tender Offer”) to repurchase up to $20 million of our common stock. Pursuant to the Tender Offer, we purchased 5.2 million shares of our common stock at a purchase price of approximately $3.75 per share. The purchase of shares was settled on July 23, 2020 for a total purchase price of approximately $19.5 million, excluding fees and expenses related to the Tender Offer, at a discount to net asset value of 32.31%. The shares of common stock purchased in the Tender Offer represented approximately 14.7% of our issued and outstanding shares as of July 23, 2020. We retired all shares of common stock purchased in connection with the Tender Offer.

Related Party Transactions

Refer to Note 4 – “Related Party Transactions” in our consolidated financial statements.

Critical accounting policies

For further description of our critical accounting policies, refer to Note 2 – “Significant Accounting Policies and Recent Accounting Updates” in our consolidated financial statements. We consider our most significant accounting policies to be those related to its Valuation of Portfolio Investments, Revenue Recognition, Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation and U.S. Federal Income Taxes, including excise tax.

Valuation of Portfolio Investments

As a BDC, we generally invest in illiquid securities including debt and equity investments of lower middle market companies. Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from an independent pricing service or one or more broker-dealers or market makers. Debt and equity securities for which market quotations are not readily available or are determined to be unreliable are valued at fair value as determined in good faith by our board of directors. Because we expect that there will not be a readily available market value for many of the investments in our portfolio, it is expected that many of our portfolio investments’ values will be determined in good faith by our board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors and in accordance with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;

preliminary valuation conclusions are then documented and discussed with senior management of the Advisor;

to the extent determined by the audit committee of our board of directors, independent valuation firms are used to conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

the audit committee of our board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firms to reflect any comments; and

our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the audit committee.

The types of factors that we may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. We generally utilize an income approach to value our debt investments and a combination of income and market approaches to value our equity investments. With respect to unquoted securities, the Advisor and our board of directors, in consultation with our independent third party valuation firms, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by our board of directors.

Debt Investments

For debt investments, we generally determine the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. Our estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. The enterprise value, a market approach, is used to determine the value of equity and debt investments that are credit impaired, close to maturity or where we also hold a controlling equity interest. The method for determining enterprise value uses a multiple analysis, whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization, or EBITDA. The collateral valuation analysis is utilized when repayment is based on the sale of the underlying collateral.

Equity

We use a combination of the income and market approaches to value our equity investments. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, our principal market as the reporting entity, and enterprise values, among other factors.

Investment in Funds

In circumstances in which net asset value per share of an investment is determinative of fair value, we estimate the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, we disclose the fair value of our investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level l—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management. For more information about our fair value measurements, see Note 3 to our consolidated financial statements.

We consider whether the volume and level of activity for the asset or liability have significantly decreased and identify transactions that are not orderly in determining fair value. Accordingly, if we determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

We have adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, we estimate the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date. Redemptions are not generally permitted in our investments in funds. The remaining term of our investments in funds is expected to be two to six years.

Revenue Recognition

We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis to the extent that we expect to collect such amounts. Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Distributions received from a limited liability company or limited partnership investment are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statements of Operations. As of December 31, 2021, we had loans on non-accrual status with an amortized cost basis of $19.7 million and a fair value of $9.1 million. As of December 31, 2020, we had loans on non-accrual status with an amortized cost basis of $15.5 million and fair value of $7.4 million.

We have investments in our portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. We will cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect amounts to be collectible and will generally only begin to recognize PIK income again when all principal and interest have been paid or upon a restructuring of the investment where the interest is deemed collectable. To maintain our status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though we have not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

We capitalize and amortize upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.

Other income includes commitment fees, fees related to the management of Greenway and Greenway II, fees related to the management of certain controlled equity investments, structuring fees, amendment fees and unused commitment fees associated with investments in portfolio companies. These fees are recognized as

income when earned by us in accordance with the terms of the applicable management or credit agreement and may or may not be recurring in nature as part of our normal business operations.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized. We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amounts paid on the interest rate derivative. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values or value of the interest rate derivative during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

U.S. Federal Income Taxes, Including Excise Tax

We have elected to be taxed as a RIC under Subchapter M of the Code and currently qualify, and intends to continue to qualify each year, as a RIC under the Code. Accordingly, we are not subject to federal income tax on the portion of our taxable income and gains distributed to stockholders.

In order to qualify for favorable tax treatment as a RIC, we are required to distribute annually to our stockholders at least 90% of our investment company taxable income, as defined by the Code. To avoid a 4% U.S. federal excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year, (ii) 98.2% of our capital gain net income for the one-year period ending October 31 of that calendar year and (iii) any income recognized, but not distributed, in preceding years and on which we paid no U.S. federal income tax. We, at our discretion, may choose not to distribute all of our taxable income for the calendar year and pay a non-deductible 4% excise tax on this undistributed income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate.

The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income. See also the disclosure in Note 10, Distributions, for a summary of the recent dividends paid. For the years ended December 31, 2021, 2020 and 2019, we incurred U.S. federal excise tax and other tax expenses of $0.1 million, $0.1 million and $0.4 million, respectively.

Certain consolidated subsidiaries are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries.

The following shows the breakdown of current and deferred income tax benefits for the years ended December 31, 2021, 2020 and 2019 :

For the years ended December 31,

Benefit for taxes on unrealized gain on investments

These current and deferred income taxes are determined from taxable income estimates provided by portfolio companies organized as pass-through entities where we hold equity or equity-like investments through our corporate subsidiaries. These tax estimates may be subject to further change once tax information is finalized for the year. As of December 31, 2021 and 2020, $1.6 million and $1.7 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities primarily relating to deferred taxes on unrealized gains on investments held in our corporate subsidiaries and other temporary book to tax differences of the corporate subsidiaries. As of December 31, 2021 and 2020, $2.3 million (net of $12.1 million allowance) and $2.2 million (net of $8.4 million allowance), respectively, of deferred tax assets were included in deferred tax assets on the Consolidated Statements of Assets and Liabilities relating to net operating loss carryforwards and

unrealized losses on investments and other temporary book to tax differences that are expected to be used in future periods.

Under the RIC Modernization Act (the “RIC Act”), we are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during post-enactment taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under the rules applicable to pre-enactment capital losses.

Because U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

We follow the provisions under the authoritative guidance on accounting for and disclosure of uncertainty in tax positions. The provisions require us to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no unrecognized tax benefits or obligations in the accompanying consolidated financial statements. Although we file U.S. federal and state tax returns, our major tax jurisdiction is U.S. federal. Our inception-to-date U.S. federal tax years remain subject to examination by taxing authorities.

Recent Developments

From January 1, 2022 through March 3, 2022, we made follow-on investments, including revolver and delayed draw fundings, totaling $3.7 million at a combined weighted average yield based upon cost at time of investment of 6.5%.

On March 1, 2022, our Board declared a dividend of $0.10 per share payable on March 31, 2022 to stockholders of record at the close of business on March 15, 2022.

Item 7A.

Quantitative and Qualitat ive Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of December 31, 2021, 96.0% of the income-producing debt investments in our portfolio are floating rate loans, based upon fair market value. We expect future debt investments in our portfolio will have floating rates. These floating rate loans typically bear interest in reference to LIBOR, which are indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates subject to an interest rate floor. As of December 31, 2021, the weighted average interest rate floor on our floating rate loans was 1.02%. Our Revolving Facility is also subject to a floating interest rate, subject to an interest rate floor of 0.50%.

Based on our December 31, 2021, Consolidated Statement of Assets and Liabilities, the following table shows the annual impact on net income of changes in interest rates, which assumes no changes in our investments and borrowings (in millions):

Change in Basis Points

Interest

Income

Interest

Expense

Net

Income (1)

Up 300 basis points

Up 200 basis points

Up 100 basis points

Down 300 basis points

Down 200 basis points

Down 100 basis points

Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note 4 “Related Party Transaction” to our consolidated financial statements for the year ended December 31, 2021 for more information on the incentive fee.

Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments, including borrowings under our Revolving Facility, that could affect net increase in net assets resulting from operations, or net income

In the future, we may use other standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.

From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We have the ability to borrow in certain foreign currencies under our Revolving Credit Facility. Instead of entering into a foreign exchange forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment.

First Eagle Alternative Capital Bdc, Inc.

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Risk Factors (Item 1A)

MD&A (Item 7)

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