Varagon Capital Corporation
11/07/2025 | Press release | Distributed by Public on 11/07/2025 14:00
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.
Except as otherwise specified, references to "we," "us," "our," or the "Company," refer to Varagon Capital Corporation. The term "Adviser" refers to VCC Advisors, LLC, our investment adviser; the term "Varagon" refers to Varagon Capital Partners, L.P.; the parent company of the Adviser; and the term "Administrator" refers to Varagon Capital Partners, L.P., when acting in its capacity as our administrator.
Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:
•
an economic downturn or recession could impair our portfolio companies' ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
•
an economic downturn or recession could disproportionately impact the companies which we target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies;
•
an economic downturn or recession could impact availability and pricing of our financing;
•
a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;
•
interest rate volatility could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy;
•
the impact of supply chain constraints and labor difficulties on our portfolio companies and the global economy generally;
•
the elevated levels of inflation, and its impact on our portfolio companies and on the industries in which we invest;
•
the uncertainty associated with the imposition of tariffs and trade barriers and changes in trade policies and its impact on our portfolio companies and the global economy;
•
the impact of geopolitical conditions, including the ongoing conflicts between Ukraine and Russia and ongoing conflicts in the Middle East, and its impact on financial market volatility, global economic market, and various sectors, industries and markets for commodities globally;
•
changes in the financial, capital, and lending markets;
•
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars;
•
social, political, economic and other conditions and events (including natural disasters, epidemics, pandemics and terrorism) could adversely affect our results and the financial performance of our portfolio companies;
•
our future operating results;
•
our business prospects and the prospects of our portfolio companies;
•
the expected return or impact of our investments;
•
our contractual arrangements and relationships with third parties;
•
the ability of our portfolio companies to achieve their objectives;
•
competition with other entities and our affiliates for investment opportunities;
•
the speculative and illiquid nature of our investments;
•
the use of borrowed money to finance a portion of our investments;
•
the adequacy of our financing sources and working capital;
•
the loss of key personnel;
•
the timing of cash flows, if any, from the operations of our portfolio companies;
•
the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments;
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•
the ability of the Adviser to attract and retain highly talented professionals;
•
the ability of the Adviser to adequately allocate investment opportunities among the Company and Varagon's advisory clients;
•
any conflicts of interest posed by the structure of the management fee and incentive fee to be paid to the Adviser;
•
our ability to qualify and maintain our qualification, for U.S. federal income tax purposes, as a regulated investment company ("RIC") under subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and our ability to operate as a business development company ("BDC");
•
the effect of legal, tax and regulatory changes; and
•
other risks, uncertainties and other factors we identify under "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.
Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.
Overview
We were formed on July 31, 2019 as a corporation under the laws of Maryland. We are an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the "1940 Act"). In addition, for U.S. federal income tax purposes, the Company has elected, and intends to qualify annually, to be treated as a RIC under the Code. The Company's fiscal year end is December 31.
The Adviser serves as the Company's investment adviser. The Adviser is registered with the Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is a subsidiary of Varagon, which is also registered with the SEC as an investment adviser under the Advisers Act. Subject to the overall supervision of the Company's board of directors (the "Board"), the Adviser manages the day-to-day operation of and provides investment advisory and management services to the Company.
The Company's investment objective is to generate current income with a focus on capital preservation and, to a lesser extent, capital appreciation by investing primarily in directly originated leveraged loans to U.S. middle market companies.
The Company seeks to achieve its investment objective by investing primarily in senior secured loans to performing middle market companies controlled by private equity sponsors. The Company focuses on loans to middle market companies that have sustainable competitive advantages, experienced management teams, solid financial performance, stable and recurring cash flow and strong enterprise value. The Company expects that such companies and their sponsors will require financing from the Company for growth, acquisitions, recapitalizations, refinancings or leveraged buyouts, among other things. The Company generally expects to invest in companies with EBITDA between $10 million and $75 million annually, though we may invest in smaller or larger companies if an attractive opportunity presents itself. The Company also generally intends to directly originate its investments as a lead lender to allow for deeper diligence, greater control over terms and structure, and superior economics.
VCC Equity Holdings, LLC ("VCCEH"), VCC Funding, LLC ("VCCF"), Varagon SDLP, LLC ("VSDLP"), and VCC CLO 1 Depositor, LLC ("VCC CLO Depositor") are wholly owned subsidiaries of the Company and are consolidated in the Company's consolidated financial statements from June 2, 2022, the commencement of investment operations, or the date of their respective formation, in accordance with the Company's consolidation policy. VCCEH is taxed as a corporation for U.S. federal income tax purposes and was formed to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The assets held by VCCEH guarantee the borrowings outstanding under the SMBC Facility (as defined below) (See "Note 6. Borrowings" in our consolidated audited financial statements). VCCF, a bankruptcy remote special purpose entity, whose assets were pledged as collateral supporting the amounts outstanding under the JPM Facility before its termination on November 26, 2024 (See "Note 6. Borrowings"), held no collateral assets, effective as of December 31, 2024. VSDLP holds the Company's interest in the SDLP (as defined below). VCC CLO Depositor wholly owns VCC CLO 1, LLC ("VCC CLO"), which was formed for the purpose of issuing a term debt securitization and VCC CLO is consolidated in the Company's consolidated financial statements.
Substantially concurrent with our initial closing on June 2, 2022 (the "Initial Closing") and immediately prior to our election to be regulated as a BDC, Varagon Fund I, L.P. ("VF1"), a private fund exempt from registration pursuant to Section 3(c)(7) of the 1940 Act, merged with and into the Company, with the Company continuing in existence as the surviving entity in the merger (the "Merger"). As a result of the Merger, we acquired all of VF1's assets and liabilities (the "Existing Portfolio"), including all VF1's interests in the joint venture, Senior Direct Lending Program ("SDLP"), in exchange for shares of our common stock. In addition, immediately prior to our election to be regulated as a BDC, the Company purchased a portfolio of existing loans (the "Warehoused Portfolio" and together with the Existing Portfolio, the "Initial Portfolio") from certain affiliates of the Adviser.
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Key Components of Our Results of Operations
Investments
We focus primarily on the direct origination and syndication of loans to middle market companies domiciled in the United States.
Our level of investment activity (both the number of investments and the size of each investment) varies substantially from period to period depending on many factors, including the amount of debt and equity capital generally available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. Based on current market conditions, the pace of our investment activities, including originations and repayments, may vary. There have been headwinds in the financing and merger and acquisitions markets resulting from uncertainty associated with the imposition of tariffs and trade barriers, inflation, supply chain disruptions, labor and resource shortages, a shifting interest rate environment, geopolitical conditions (including the war in Ukraine, conflicts in the Middle East, and U.S. and China relations), and the uncertain economic outlook for the United States and globally generally, which could include a recession. We are closely monitoring the effect that the current market and economic conditions may have on our portfolio companies and our investment activities, and we will continue to seek to invest in defensive businesses with low levels of cyclicality and strong levels of free cash flow generation.
As a BDC, we may not acquire any assets other than "qualifying assets" specified in Section 55(a) of 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 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. Qualifying assets include investments in "eligible portfolio companies", which, under the 1940 Act, includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million. In addition, we must be organized in the United States to qualify as a BDC.
Revenues
We plan to generate revenues in the form of interest income from the debt securities we hold and dividends and capital appreciation on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. The debt we invest in typically will not be rated by any rating agency, but if it were, it is likely that such debt would be below investment grade. Our investment bias will be toward adjustable-rate senior secured loans. We do not anticipate a secondary market to develop for our private investments. We expect most of our investments to be in corporations, partnerships, limited liability companies or other business entities, including in investment vehicles that issue certificates to us. We also may generate revenue in the form of commitment, loan origination, structuring or diligence fees, fees for providing managerial assistance to our portfolio companies, repayment fees, and waiver and amendment fees associated with our portfolio investments based on our pro rata ownership of the applicable term loan investment or our interest in securities (including the subordinated certificates (the "Subordinated Certificates") issued by SDLP, a joint venture between the Company and Ares Capital Corporation ("ARCC")) related to an underlying investment, as applicable. Certain of these fees may be capitalized and amortized as additional interest income over the life of the related loan.
Expenses
All professionals of the Adviser, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of personnel allocable to these services to us, will be provided and paid for by the Adviser and not by us. Payments under the Administration Agreement are based upon our allocable portion of overhead and other expenses incurred by our administrator, Varagon (in its capacity as our administrator, the "Administrator"), in performing its obligations under the Administration Agreement, including a portion of the rent and the compensation of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. In accordance with the terms of the Administration Agreement, overhead and other administrative expenses are generally allocated between the Administrator and us by reference to the relative time spent by personnel in performing administrative and similar functions on our behalf as compared to performing administrative functions on behalf of the Administrator, its other clients or the Adviser. To the extent personnel retained by the Administrator perform administrative tasks for the Adviser, the fees incurred with respect to the actual time dedicated to such tasks will be reimbursed by the Adviser. We will bear all other out-of-pocket costs and expenses of our operations and transactions, including those relating to:
•
organization and offering of the common stock, subject to the terms of the Expense Reimbursement Agreement;
•
the Company's fees and expenses related to any of the following: (i) an initial public offering ("IPO") or a listing of the common stock on a national securities exchange (a "Public Listing"), (ii) a sale of all or substantially all of our assets to, or other liquidity event with, an entity for consideration of either cash and/or publicly listed securities of the acquirer, which potential acquirers may include entities affiliated with Varagon, or (iii) a permanent election by the Adviser not to make new investments and to distribute proceeds of investments to shareholders as they are received, or the wind down and/or liquidation and dissolution of the Company;
•
calculating the Company's net asset value ("NAV") (including the cost and expenses of any independent valuation firm);
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•
fees and expenses payable to third parties, including agents, consultants or other advisers, in connection with monitoring financial and legal affairs for the Company and in providing administrative services, monitoring the Company's investments and performing due diligence on the Company's prospective portfolio investments or otherwise relating to, or associated with, evaluating and making investments;
•
fees and expenses incurred in connection with debt, if any, incurred to finance the Company's investments or operations, and payment of interest and repayment of principal on such debt;
•
fees and expenses related to sales and repurchases of the common stock and other securities;
•
investment advisory and management fees;
•
administration fees, if any, payable under the Administration Agreement;
•
transfer agent, sub-administrator and custodial fees;
•
expenses relating to the issue, repurchase and transfer of common stock to the extent not borne by the relevant transferring shareholders and/or assignees;
•
federal and state registration fees;
•
all costs associated with a Public Listing;
•
federal, state and local taxes and other governmental charges assessed against the Company;
•
independent directors' fees and expenses and the costs associated with convening a meeting of the Board or any committee thereof;
•
fees and expenses and the costs associated with convening a meeting of the shareholders or holders of any preferred stock, as well as the compensation of an investor relations professional responsible for the coordination and administration of the foregoing;
•
costs of preparing and filing reports or other documents required by the SEC, the Financial Industry Regulatory Authority or other regulators;
•
costs of any reports, proxy statements or other notices to shareholders, including printing and mailing costs;
•
costs and expenses related to the preparation of the Company's financial statements and tax returns;
•
the Company's allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
•
direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying;
•
independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, "no-action" positions or other guidance sought from a regulator, pertaining to the Company;
•
compensation of other third-party professionals to the extent they are devoted to preparing the Company's financial statements or tax returns or providing similar "back office" financial services to the Company;
•
Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for the Company, monitoring the investments of the Company and disposing of any such investments;
•
portfolio risk management costs;
•
commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees) and other assets;
•
costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to the Company, including in each case services with respect to the proposed purchase or sale of securities by the Company that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated);
•
costs of amending, restating or modifying the Company's charter and the Company's bylaws or the Investment Advisory Agreement, the Administration Agreement or related documents of the Company or related entities;
•
fees, costs, and expenses incurred in connection with any restructuring, IPO or reorganization of the Company or related entities, the termination, liquidation or dissolution of the Company or related entities, or the required redemption of all or substantially all outstanding common stock (including the fees and expenses associated with any such transaction);
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•
the expense reimbursements set forth in the Administration Agreement; and
•
all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering the Company's business, including rent and the allocable portion of the cost of the Company's Chief Compliance Officer and Chief Financial Officer and their respective staffs; while certain of these expenses may not be ascertainable at any given time, any such expenses will be subject to the approval of the Board on a quarterly basis.
Leverage
The ratio of a BDC's total assets (less total liabilities other than indebtedness represented by senior securities) to its total indebtedness represented by senior securities plus preferred stock, if any, must be at least 200% or 150%, if certain requirements are met. In connection with the Company's organization and the Initial Closing, the Board and its initial shareholder authorized us to adopt the 150% asset coverage ratio. Additionally, investors both consented to the minimum asset coverage ratio of 150% and agreed not to seek to redeem their shares of common stock in connection therewith, in each case in the subscription agreement. The Company therefore may be exposed, to a greater extent, to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In any period, our interest expense will depend largely on the extent of our borrowing, and we expect interest expense will increase as we increase our debt outstanding. As of September 30, 2025, the Company's asset coverage ratio was 182.93%.
Portfolio and Investment Activity
As of September 30, 2025, our portfolio had a fair value of approximately $819.8 million. The following table summarizes our portfolio and investment activity during the nine months ended September 30, 2025 (dollars in thousands):
|
Nine Months ended September 30, |
||||
|
2025 |
||||
|
Investments made in new portfolio companies |
$ |
95,745 |
||
|
Investments made in existing portfolio companies |
$ |
72,778 |
||
|
Aggregate amount in exits and repayments |
$ |
(146,592 |
) |
|
|
Net investment activity |
$ |
21,931 |
||
|
Portfolio Companies, at beginning of period |
99 |
|||
|
Number of new portfolio companies |
17 |
|||
|
Number of exited portfolio companies |
(9 |
) |
||
|
Portfolio companies, at end of period |
107 |
|||
The following table shows the amortized cost and the fair value of the Company's portfolio investments as of September 30, 2025 (dollars in thousands):
|
As of September 30, 2025 |
||||||||||||
|
Amortized Cost |
Percentage |
Fair Value |
Percentage |
|||||||||
|
Senior Secured First Lien Loans |
$ |
671,277 |
79.3 |
% |
$ |
657,682 |
80.3 |
% |
||||
|
Equity |
6,152 |
0.7 |
5,183 |
0.6 |
||||||||
|
Subordinated Certificates of the SDLP |
169,550 |
20.0 |
156,931 |
19.1 |
||||||||
|
Total Investments |
$ |
846,979 |
100.0 |
% |
$ |
819,796 |
100.0 |
% |
||||
The following table presents the fair value measurements of the Company's investments, by major class according to the fair value hierarchy, as of December 31, 2024 (dollars in thousands):
|
As of December 31, 2024 |
||||||||||||
|
Amortized Cost |
Percentage |
Fair Value |
Percentage |
|||||||||
|
Senior Secured First Lien Loans |
$ |
634,455 |
77.1 |
% |
$ |
627,526 |
78.0 |
% |
||||
|
Equity |
4,780 |
0.6 |
4,437 |
0.6 |
||||||||
|
Subordinated Certificates of the SDLP |
183,982 |
22.3 |
172,152 |
21.4 |
||||||||
|
Total Investments |
$ |
823,217 |
100.0 |
% |
$ |
804,115 |
100.0 |
% |
||||
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The following table shows weighted average current yield to maturity based on the amortized cost and fair value as of September 30, 2025 and December 31, 2024:
|
As of September 30, 2025 |
As of December 31, 2024 |
|||||||||||||||
|
Weighted Average Current Yield for Total Portfolio (Amortized Cost) |
Weighted Average Current Yield for Total Portfolio (Fair Value) |
Weighted Average Current Yield for Total Portfolio (Amortized Cost) |
Weighted Average Current Yield for Total Portfolio (Fair Value) |
|||||||||||||
|
Senior Secured First Lien Loans |
10.0 |
% |
11.8 |
% |
10.5 |
% |
11.2 |
% |
||||||||
|
Equity |
N/A |
N/A |
N/A |
N/A |
||||||||||||
|
Subordinated Certificates of the SDLP (1) |
12.5 |
% |
13.5 |
% |
13.5 |
% |
14.3 |
% |
||||||||
|
Total |
10.5 |
% |
12.2 |
% |
11.2 |
% |
11.9 |
% |
||||||||
(1) "Weighted average yields" of investments are computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on the relevant accruing investments, divided by (b) the total relevant investments at amortized cost or at fair value, as applicable.
The weighted average yield of our debt and income producing securities is not the same as a return on investment for our shareholders, but rather relates to our investment portfolio and is calculated before the payment of all of our and our subsidiaries' fees and expenses. The weighted average yield was computed using the effective interest rates as of each respective date, including accretion of original issue discount, but excluding investments on non-accrual status. There can be no assurance that the weighted average yield will remain at its current level.
Portfolio Asset Quality
Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.
|
Loan Rating |
Summary Description |
|
|
1 |
Involves the least amount of risk to our initial cost basis. The borrower is performing above expectations, and the trends and risk factors for this investment since origination or acquisition are generally favorable. |
|
|
2 |
Involves an acceptable level of risk that is similar to the risk at the time of origination or acquisition. The borrower is generally performing as expected and the risk factors are generally neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a rating of 2. |
|
|
3 |
Involves a borrower performing below expectations and indicates that the loan's risk has increased somewhat since origination or acquisition. |
|
|
4 |
Involves a borrower performing materially below expectations and indicates that the loan's risk has increased materially since origination or acquisition. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 120 days past due). |
|
|
5 |
Involves a borrower performing substantially below expectations and indicates that the loan's risk has increased substantially since origination or acquisition. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans rated 5 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we anticipate will be recovered. |
The weighted average risk rating of our investments based on fair value was 2.0 as of September 30, 2025 and 2.0 as of December 31, 2024.
Based on a generally uncertain economic outlook in the United States (which includes a possible recession), we are maintaining close communications with our portfolio companies to proactively assess and manage potential risks across our debt investment portfolio. We also have increased oversight and analysis of credits to assess vulnerable industries and ways to mitigate any decline in loan performance and reduce credit risk. While we are not seeing signs of an overall, broad deterioration in our operating results or those of our portfolio companies at this time, there can be no assurance that the performance of certain of our portfolio companies will not be negatively impacted by economic conditions, which could have a negative impact on our future results.
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The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of September 30, 2025 and December 31, 2024 (dollars in thousands):
|
As of September 30, 2025 |
As of December 31, 2024 |
|||||||||||||||
|
Investment Performance Rating |
Fair Value |
Percentage |
Fair Value |
Percentage |
||||||||||||
|
1 |
$ |
18,536 |
2.3 |
% |
$ |
20,996 |
2.6 |
% |
||||||||
|
2 |
758,984 |
92.6 |
743,105 |
92.4 |
||||||||||||
|
3 |
28,131 |
3.4 |
40,014 |
5.0 |
||||||||||||
|
4 |
- |
- |
- |
- |
||||||||||||
|
5 |
14,145 |
1.7 |
- |
- |
||||||||||||
|
Total |
$ |
819,796 |
100.0 |
% |
$ |
804,115 |
100.0 |
% |
||||||||
The following table shows the amortized cost of our performing and non-accrual debt investments as of September 30, 2025 and December 31, 2024 (dollars in thousands):
|
As of September 30, 2025 |
As of December 31, 2024 |
|||||||||||||||
|
Amortized Cost |
Percentage |
Amortized Cost |
Percentage |
|||||||||||||
|
Performing(1) |
$ |
834,777 |
99.3 |
% |
$ |
818,437 |
100.0 |
% |
||||||||
|
Non-Accrual |
6,050 |
0.7 |
- |
- |
||||||||||||
|
Total |
$ |
840,827 |
100.0 |
% |
$ |
818,437 |
100.0 |
% |
||||||||
(1) As of September 30, 2025, the Company had an investment in one portfolio company that was current on cash interest payments and was on non-accrual status with respect to the portion of the interest that is PIK interest only.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Senior Direct Lending Program
In 2015, VSDLP, a wholly owned subsidiary of the Company, and ARCC formed SDLP, a joint venture established for the purpose of providing senior stretch and unitranche loan financings to middle market borrowers. The Company received, indirectly through its membership interest in VSDLP, limited liability company membership interests and Subordinated Certificates in each case in SDLP, as a result of the Merger. The SDLP finances its investment activity through the issuance of securities ("SDLP Securities") backed by its loan portfolio, including, in order of seniority, rated senior notes (the "Senior Note"), a rated intermediate funding note (the "IFN"), and capital provided by the Company and ARCC through the Subordinated Certificates. The Subordinated Certificates are the most junior securities issued by SDLP and collateralize the profits earned or losses incurred across the SDLP loan portfolio. As of September 30, 2025 and December 31, 2024, the Company and ARCC own 12.5% and 87.5%, respectively, of the outstanding Subordinated Certificates.
SDLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of SDLP must be approved by an investment committee of SDLP consisting of representatives of the Company (and/or VSDLP) and ARCC (the "SDLP Investment Committee").
As of September 30, 2025 and December 31, 2024, the Company and ARCC had agreed to make capital available to the SDLP in the aggregate totaling $1.7 billion and $1.7 billion, respectively, of which $206.3 million and $206.3 million, respectively, is to be made available from the Company. The Company and ARCC will continue to provide capital to the SDLP in the form of Subordinated Certificates. This capital will only be committed to the SDLP upon approval of transactions by the SDLP Investment Committee as discussed above. As of September 30, 2025 and December 31, 2024, the Company has funded $174.4 million and $187.1 million, respectively, of its commitment to the SDLP and had $31.9 million and $19.2 million in unfunded commitments remaining available to the SDLP, respectively.
The Subordinated Certificates pay a coupon equal to SOFR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses, which may result in a return to the holders of the Subordinated Certificates that is greater than the stated coupon. The Subordinated Certificates are junior in right of payment to the Senior Notes and IFNs.
The amortized cost and fair value of the Subordinated Certificates held by the Company were $169.6 million and $156.9 million, respectively, as of September 30, 2025, and $184.0 million and $172.2 million, respectively, as of December 31, 2024. The Company's yield on its investment in the Subordinated Certificates at amortized cost and fair value was 12.5% and 13.5%, respectively, as of
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September 30, 2025, and 13.5% and 14.4%, respectively, as of December 31, 2024. For the three and nine months ended September 30, 2025, the Company earned interest income of $5.3 million and $16.2 million, respectively, from its investment in the Subordinated Certificates. For the three and nine months ended September 30, 2024, the Company earned interest income of $6.5 million and $21.5 million, respectively, from its investment in the Subordinated Certificates. As of September 30, 2025 and December 31, 2024, $5.3 million and $8.2 million, respectively, was in Interest receivable on the consolidated statements of assets and liabilities.
As of September 30, 2025 and December 31, 2024, the SDLP's portfolio was comprised entirely of first lien senior secured loans to U.S. middle market companies and were in industries similar to the companies in the Company's portfolio. As of September 30, 2025, there was an investment in one portfolio company on non-accrual status. As of December 31, 2024, loans in two portfolio companies were on non-accrual status. Below is a summary of the SDLP's portfolio as of September 30, 2025 and December 31, 2024 (dollars in millions):
|
As of September 30, 2025 |
As of December 31, 2024 |
|||||||
|
Total first lien senior secured loans(1) |
$ |
4,518 |
$ |
4,759 |
||||
|
Largest loan to a single borrower(1) |
$ |
418 |
$ |
400 |
||||
|
Total of five largest loans to borrower(1) |
$ |
1,706 |
$ |
1,692 |
||||
|
Number of borrowers in the SDLP |
23 |
20 |
||||||
|
Commitments to fund delayed draw loans (2) |
$ |
260 |
$ |
489 |
||||
(1) At principal amount.
(2) As discussed above, these commitments have been approved by the SDLP Investment Committee.
TABLE OF CONTENTS
Below is a listing of SDLP's individual investments as of September 30, 2025 (dollars in thousands):
|
Company |
Type of Investment |
Reference Rate and Spread (1) |
Interest Rate |
Maturity |
Par |
Amortized Cost |
Fair Value |
Footnotes |
|||||||||
|
Senior Secured First Lien Loans |
|||||||||||||||||
|
Automobile Components |
|||||||||||||||||
|
Arrowhead Holdco Company |
Delayed Draw Term Loan |
SOFR |
+ |
2.50%(2.75% PIK) |
(Q) |
9.40% |
08/31/2028 |
42,263 |
41,293 |
33,388 |
(2) |
||||||
|
Arrowhead Holdco Company |
Delayed Draw Term Loan |
SOFR |
+ |
2.50%(2.75% PIK) |
(Q) |
9.40% |
08/31/2028 |
36,801 |
35,956 |
29,073 |
(2) |
||||||
|
Arrowhead Holdco Company |
Delayed Draw Term Loan |
SOFR |
+ |
2.50%(2.75% PIK) |
(Q) |
9.40% |
08/31/2028 |
2,397 |
2,342 |
1,893 |
(2) |
||||||
|
Arrowhead Holdco Company |
Term Loan |
SOFR |
+ |
2.50%(2.75% PIK) |
(Q) |
9.40% |
08/31/2028 |
26,244 |
25,642 |
20,733 |
(2) |
||||||
|
Arrowhead Holdco Company |
Term Loan |
SOFR |
+ |
2.50%(2.75% PIK) |
(Q) |
9.40% |
08/31/2028 |
178,403 |
174,307 |
140,938 |
(2) |
||||||
|
North Haven Falcon Buyer, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
3.00%(5.00% PIK) |
(Q) |
12.20% |
05/19/2027 |
35,336 |
31,270 |
15,145 |
(2)(3) |
||||||
|
North Haven Falcon Buyer, LLC |
Term Loan |
SOFR |
+ |
3.00%(5.00% PIK) |
(Q) |
12.20% |
05/19/2027 |
211,224 |
188,958 |
90,531 |
(2)(3) |
||||||
|
499,768 |
331,701 |
||||||||||||||||
|
Chemicals |
|||||||||||||||||
|
SePRO Holdings, LLC |
Term Loan |
SOFR |
+ |
5.25% |
(M) |
9.41% |
07/26/2030 |
117,425 |
117,425 |
117,425 |
(2) |
||||||
|
117,425 |
117,425 |
||||||||||||||||
|
Commercial Services & Supplies |
|||||||||||||||||
|
ISQ Hawkeye HoldCo, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
4.68% |
(M) |
8.87% |
08/20/2031 |
3,722 |
3,722 |
3,722 |
(2) |
||||||
|
ISQ Hawkeye HoldCo, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
4.68% |
(M) |
8.87% |
08/20/2031 |
81,701 |
81,701 |
81,701 |
(2) |
||||||
|
ISQ Hawkeye HoldCo, Inc. |
Term Loan |
SOFR |
+ |
4.68% |
(M) |
8.87% |
08/20/2031 |
224,338 |
224,338 |
224,338 |
(2) |
||||||
|
Pritchard Industries, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.75% |
(Q) |
9.90% |
10/13/2027 |
46,470 |
46,470 |
44,611 |
(2) |
||||||
|
Pritchard Industries, LLC |
Term Loan |
SOFR |
+ |
5.75% |
(Q) |
9.90% |
10/13/2027 |
194,351 |
194,351 |
186,577 |
(2) |
||||||
|
550,581 |
540,948 |
||||||||||||||||
|
Construction & Engineering |
|||||||||||||||||
|
Ground Penetrating Radar Systems, LLC |
Term Loan |
SOFR |
+ |
4.50% |
(Q) |
8.80% |
01/02/2032 |
182,957 |
182,957 |
182,957 |
(2) |
||||||
|
Ground Penetrating Radar Systems, LLC |
Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.50% |
01/02/2032 |
4,461 |
4,461 |
4,461 |
(2) |
||||||
|
Pave America Holding, LLC |
Term Loan |
SOFR |
+ |
2.38% |
(M) |
6.38% |
08/27/2032 |
8,649 |
8,649 |
8,563 |
(2) |
||||||
|
Valcourt Holdings II, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.00% |
(Q) |
9.47% |
11/21/2029 |
65,515 |
65,515 |
65,515 |
(2) |
||||||
|
Valcourt Holdings II, LLC |
Term Loan |
SOFR |
+ |
5.00% |
(Q) |
9.39% |
11/21/2029 |
257,931 |
257,931 |
257,931 |
(2) |
||||||
|
519,514 |
519,427 |
||||||||||||||||
|
Consumer Staples Distribution & Retail |
|||||||||||||||||
|
FS Squared Holding Corp. |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.95% |
12/23/2030 |
48,723 |
48,723 |
48,723 |
(2) |
||||||
|
FS Squared Holding Corp. |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.95% |
12/23/2030 |
119,791 |
119,791 |
119,791 |
(2) |
||||||
|
FS Squared Holding Corp. |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.91% |
12/23/2030 |
248,952 |
248,952 |
248,952 |
(2) |
||||||
|
417,466 |
417,466 |
||||||||||||||||
|
Distributors |
|||||||||||||||||
|
Big Bucks Acquisition Corporation |
Term Loan |
SOFR |
+ |
5.00% |
(M) |
8.99% |
09/29/2031 |
8,327 |
8,327 |
8,223 |
(2) |
||||||
|
8,327 |
8,223 |
||||||||||||||||
|
Electronic Equipment, Instruments & Components |
|||||||||||||||||
|
EIS Legacy Holdco, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.82% |
11/05/2031 |
50,772 |
50,772 |
50,772 |
(2) |
||||||
|
EIS Legacy Holdco, LLC |
Term Loan |
SOFR |
+ |
4.50% |
(Q) |
8.82% |
11/05/2031 |
218,846 |
218,846 |
218,846 |
(2) |
||||||
|
269,618 |
269,618 |
||||||||||||||||
|
Financial Services |
|||||||||||||||||
|
Tiger Holdco LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.00% |
(M) |
8.33% |
03/11/2031 |
23,439 |
23,439 |
23,439 |
(2) |
||||||
|
Tiger Holdco LLC |
Term Loan |
SOFR |
+ |
4.00% |
(M) |
8.15% |
03/11/2031 |
116,583 |
116,583 |
116,583 |
(2) |
||||||
|
140,022 |
140,022 |
||||||||||||||||
|
Food Products |
|||||||||||||||||
TABLE OF CONTENTS
|
Manna Pro Products, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
3.00%(3.50% PIK) |
(Q) |
10.59% |
12/10/2029 |
29,424 |
28,701 |
23,245 |
(2) |
||||||
|
Manna Pro Products, LLC |
Term Loan |
SOFR |
+ |
3.00%(3.50% PIK) |
(Q) |
10.92% |
12/10/2029 |
47,344 |
46,182 |
37,402 |
(2) |
||||||
|
Manna Pro Products, LLC |
Term Loan |
SOFR |
+ |
3.00%(3.50% PIK) |
(Q) |
10.92% |
12/10/2029 |
14,032 |
13,688 |
11,086 |
(2) |
||||||
|
Manna Pro Products, LLC |
Term Loan |
SOFR |
+ |
3.00%(3.50% PIK) |
(Q) |
10.92% |
12/10/2029 |
177,910 |
173,542 |
140,549 |
(2) |
||||||
|
262,113 |
212,281 |
||||||||||||||||
|
Health Care Equipment & Supplies |
|||||||||||||||||
|
NMN Holdings III Corp |
Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.66% |
07/31/2031 |
227,213 |
227,213 |
227,213 |
(2) |
||||||
|
227,213 |
227,213 |
||||||||||||||||
|
Health Care Technology |
|||||||||||||||||
|
Surescripts, LLC |
Term Loan |
SOFR |
+ |
4.00% |
(Q) |
8.00% |
11/03/2031 |
111,938 |
111,938 |
111,938 |
(2) |
||||||
|
111,938 |
111,938 |
||||||||||||||||
|
Hotels, Restaurants & Leisure |
|||||||||||||||||
|
Concert Golf Partners Holdco LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.66% |
03/31/2031 |
15,843 |
15,843 |
15,843 |
(2) |
||||||
|
Concert Golf Partners Holdco LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.66% |
03/31/2031 |
43,141 |
43,141 |
43,141 |
(2) |
||||||
|
Concert Golf Partners Holdco LLC |
Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.66% |
03/31/2031 |
229,297 |
229,297 |
229,297 |
(2) |
||||||
|
Triwizard Holdings, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
5.00% |
(Q) |
9.32% |
06/29/2029 |
59,250 |
59,250 |
59,250 |
(2) |
||||||
|
Triwizard Holdings, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
5.00% |
(M) |
9.32% |
06/29/2029 |
41,642 |
41,642 |
41,642 |
(2) |
||||||
|
Triwizard Holdings, Inc. |
Term Loan |
SOFR |
+ |
5.00% |
(Q) |
9.00% |
06/29/2029 |
166,175 |
166,175 |
166,175 |
(2) |
||||||
|
555,348 |
555,348 |
||||||||||||||||
|
Household Durables |
|||||||||||||||||
|
LHS BORROWER, LLC |
Term Loan |
SOFR |
+ |
5.25% |
(M) |
9.41% |
09/04/2031 |
19,700 |
19,700 |
19,503 |
(2) |
||||||
|
19,700 |
19,503 |
||||||||||||||||
|
Household Products |
|||||||||||||||||
|
Walnut Parent, Inc. |
Term Loan |
SOFR |
+ |
5.75% |
(Q) |
10.17% |
11/09/2027 |
26,460 |
26,460 |
25,402 |
(2) |
||||||
|
Walnut Parent, Inc. |
Term Loan |
SOFR |
+ |
5.75% |
(Q) |
10.01% |
11/09/2027 |
40,044 |
40,044 |
38,442 |
(2) |
||||||
|
Walnut Parent, Inc. |
Term Loan |
SOFR |
+ |
5.75% |
(Q) |
10.01% |
11/09/2027 |
300,038 |
300,038 |
288,036 |
(2) |
||||||
|
366,542 |
351,880 |
||||||||||||||||
|
Insurance |
|||||||||||||||||
|
THG Acquisition, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.91% |
10/31/2031 |
4,436 |
4,436 |
4,436 |
(2) |
||||||
|
THG Acquisition, LLC |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.91% |
10/31/2031 |
122,043 |
122,043 |
122,043 |
(2) |
||||||
|
126,479 |
126,479 |
||||||||||||||||
|
Machinery |
|||||||||||||||||
|
Harvey Tool Company, LLC |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.91% |
08/06/2032 |
240,212 |
240,212 |
239,010 |
(2) |
||||||
|
240,212 |
239,010 |
||||||||||||||||
|
Software |
|||||||||||||||||
|
Doxim Inc. |
Term Loan |
SOFR |
+ |
6.50% |
(M) |
10.65% |
11/30/2027 |
13,005 |
13,005 |
12,875 |
(2) |
||||||
|
13,005 |
12,875 |
||||||||||||||||
|
Trading Companies & Distributors |
|||||||||||||||||
|
Penn Detroit Diesel Allison, LLC |
Term Loan |
SOFR |
+ |
7.00% |
(M) |
11.26% |
12/14/2027 |
32,913 |
32,913 |
31,267 |
(2) |
||||||
|
32,913 |
31,267 |
||||||||||||||||
|
Total Investments, September 30, 2025 |
$ |
4,478,182 |
$ |
4,232,624 |
|||||||||||||
(1) Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to SOFR, or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower's option, which reset semi-annually (S), quarterly (Q) or monthly (M). For each such loan, the interest rate provided was the rate in effect as of September 30, 2025.
(2) Loan includes interest rate floor feature.
(3) The investment was on non-accrual status as of September 30, 2025.
TABLE OF CONTENTS
Below is a listing of SDLP's individual investments as of December 31, 2024 (dollars in thousands):
|
Company |
Type of Investment |
Reference Rate and Spread (1) |
Interest Rate |
Maturity |
Par |
Amortized Cost |
Fair Value |
Footnotes |
|||||||||
|
Senior Secured First Lien Loans |
|||||||||||||||||
|
Aerospace & Defense |
|||||||||||||||||
|
Qnnect, LLC and Connector TopCo, LP |
Term Loan |
SOFR |
+ |
5.25% |
(Q) |
10.33% |
11/2/2029 |
$ |
272,375 |
$ |
272,375 |
$ |
272,375 |
(2) |
|||
|
Qnnect, LLC and Connector TopCo, LP |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(Q) |
10.33% |
11/2/2029 |
3,146 |
3,146 |
3,146 |
(2) |
||||||
|
275,521 |
275,521 |
||||||||||||||||
|
Automobile Components |
|||||||||||||||||
|
Arrowhead Holdco Company |
Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.91% |
8/31/2028 |
174,307 |
174,307 |
146,418 |
(2) |
||||||
|
Arrowhead Holdco Company |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.91% |
8/31/2028 |
35,956 |
35,956 |
30,203 |
(2) |
||||||
|
Arrowhead Holdco Company |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.91% |
8/31/2028 |
41,293 |
41,293 |
34,686 |
(2) |
||||||
|
Arrowhead Holdco Company |
Term Loan |
SOFR |
+ |
2.50% |
(Q) |
7.16% |
8/31/2028 |
25,642 |
25,642 |
21,539 |
(2) |
||||||
|
Arrowhead Holdco Company |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.91% |
8/31/2028 |
2,342 |
2,342 |
1,967 |
(2) |
||||||
|
North Haven Falcon Buyer, LLC |
Term Loan |
SOFR |
+ |
8.00% |
(Q) |
12.51% |
5/19/2027 |
203,274 |
200,709 |
132,128 |
(2)(3) |
||||||
|
North Haven Falcon Buyer, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
8.00% |
(Q) |
12.33% |
5/19/2027 |
34,034 |
33,192 |
22,122 |
(2)(3) |
||||||
|
513,441 |
389,063 |
||||||||||||||||
|
Chemicals |
|||||||||||||||||
|
SePRO Holdings, LLC |
Term Loan |
SOFR |
+ |
5.25% |
(M) |
9.61% |
7/26/2030 |
118,315 |
118,315 |
115,948 |
(2) |
||||||
|
118,315 |
115,948 |
||||||||||||||||
|
Commercial Services & Supplies |
|||||||||||||||||
|
ISQ Hawkeye HoldCo, Inc. |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.13% |
8/20/2031 |
226,072 |
226,072 |
226,072 |
(2) |
||||||
|
ISQ Hawkeye HoldCo, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.13% |
8/20/2031 |
82,329 |
82,329 |
82,329 |
(2) |
||||||
|
ISQ Hawkeye HoldCo, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.25% |
8/20/2031 |
3,750 |
3,750 |
3,750 |
(2) |
||||||
|
Pritchard Industries, LLC |
Term Loan |
SOFR |
+ |
5.75% |
(S) |
10.28% |
10/13/2027 |
195,865 |
195,865 |
191,948 |
(2) |
||||||
|
Pritchard Industries, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.75% |
(Q) |
10.28% |
10/13/2027 |
46,831 |
46,831 |
46,362 |
(2) |
||||||
|
554,847 |
550,461 |
||||||||||||||||
|
Construction & Engineering |
|||||||||||||||||
|
Valcourt Holdings II, LLC |
Term Loan |
SOFR |
+ |
5.75% |
(Q) |
10.42% |
11/21/2029 |
259,905 |
259,905 |
259,905 |
(2) |
||||||
|
Valcourt Holdings II, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.75% |
(Q) |
10.42% |
11/21/2029 |
66,014 |
66,014 |
66,014 |
(2) |
||||||
|
325,919 |
325,919 |
||||||||||||||||
|
Consumer Staples Distribution & Retail |
|||||||||||||||||
|
FS Squared Holding Corp. |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
8.50% |
12/23/2030 |
250,833 |
250,833 |
246,444 |
(2) |
||||||
|
250,833 |
246,444 |
||||||||||||||||
|
Electronic Equipment, Instruments & Components |
|||||||||||||||||
|
EIS Legacy Holdco, LLC |
Term Loan |
SOFR |
+ |
4.75% |
(Q) |
9.30% |
11/5/2031 |
220,500 |
220,500 |
218,295 |
(2) |
||||||
|
220,500 |
218,295 |
||||||||||||||||
|
Food Products |
|||||||||||||||||
|
Manna Pro Products, LLC |
Term Loan |
SOFR |
+ |
6.00% |
(S) |
10.53% |
12/10/2026 |
175,310 |
175,310 |
143,754 |
(2) |
||||||
|
Manna Pro Products, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
6.00% |
(S) |
10.53% |
12/10/2026 |
28,993 |
28,993 |
23,775 |
(2) |
||||||
|
Manna Pro Products, LLC |
Term Loan |
SOFR |
+ |
6.00% |
(S) |
10.53% |
12/10/2026 |
13,827 |
13,827 |
11,338 |
(2) |
||||||
|
Manna Pro Products, LLC |
Term Loan |
SOFR |
+ |
6.00% |
(S) |
10.53% |
12/10/2026 |
46,651 |
46,651 |
38,254 |
(2) |
||||||
|
264,781 |
217,121 |
||||||||||||||||
|
Health Care Providers and Services |
|||||||||||||||||
|
Center for Autism and Related Disorders, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
6.50% |
(Q) |
12.00% |
11/21/2024 |
7,307 |
- |
- |
(2)(3) |
||||||
|
Center for Autism and Related Disorders, LLC |
Term Loan |
SOFR |
+ |
6.50% |
(Q) |
12.00% |
11/21/2024 |
132,765 |
- |
- |
(2)(3) |
||||||
|
Center for Autism and Related Disorders, LLC |
Term Loan |
SOFR |
+ |
6.50% |
(Q) |
12.00% |
11/21/2024 |
19,452 |
- |
- |
(2)(3) |
||||||
|
Center for Autism and Related Disorders, LLC |
Term Loan |
SOFR |
+ |
6.50% |
(Q) |
12.00% |
11/21/2024 |
4,820 |
- |
- |
(2)(3) |
||||||
TABLE OF CONTENTS
|
NMN Holdings III Corp |
Term Loan |
SOFR |
+ |
4.50% |
(M) |
8.86% |
7/31/2031 |
228,934 |
228,934 |
226,645 |
(2) |
||||||
|
228,934 |
226,645 |
||||||||||||||||
|
Health Care Technology |
|||||||||||||||||
|
Surescripts, LLC |
Term Loan |
SOFR |
+ |
4.00% |
(Q) |
8.33% |
11/3/2031 |
112,500 |
112,500 |
111,375 |
(2) |
||||||
|
112,500 |
111,375 |
||||||||||||||||
|
Hotels, Restaurants & Leisure |
|||||||||||||||||
|
Triwizard Holdings, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.74% |
6/29/2029 |
59,700 |
59,700 |
59,700 |
(2) |
||||||
|
Triwizard Holdings, Inc. |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.81% |
6/29/2029 |
20,798 |
20,798 |
20,798 |
(2) |
||||||
|
Triwizard Holdings, Inc. |
Term Loan |
SOFR |
+ |
5.25% |
(Q) |
9.58% |
6/29/2029 |
167,450 |
167,450 |
167,450 |
(2) |
||||||
|
Concert Golf Partners Holdco LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.13% |
4/1/2030 |
43,474 |
43,474 |
43,474 |
(2) |
||||||
|
Concert Golf Partners Holdco LLC |
Delayed Draw Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.13% |
4/1/2030 |
11,664 |
11,664 |
11,664 |
(2) |
||||||
|
Concert Golf Partners Holdco LLC |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.13% |
4/1/2030 |
231,075 |
231,075 |
231,075 |
(2) |
||||||
|
HGC Holdings, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.50% |
(Q) |
10.00% |
6/8/2026 |
50,000 |
50,000 |
50,000 |
(2) |
||||||
|
HGC Holdings, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.50% |
(Q) |
10.12% |
6/8/2026 |
24,420 |
24,420 |
24,420 |
(2) |
||||||
|
HGC Holdings, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
6.25% |
(Q) |
10.50% |
6/8/2026 |
74,168 |
74,168 |
74,168 |
(2) |
||||||
|
HGC Holdings, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.00% |
(Q) |
9.25% |
6/8/2026 |
149,181 |
149,181 |
149,181 |
(2) |
||||||
|
HGC Holdings, LLC |
Term Loan |
SOFR |
+ |
5.50% |
(Q) |
10.16% |
6/8/2026 |
102,375 |
102,375 |
102,375 |
(2) |
||||||
|
934,305 |
934,305 |
||||||||||||||||
|
Household Products |
|||||||||||||||||
|
Walnut Parent, Inc. |
Term Loan |
SOFR |
+ |
5.50% |
(M) |
9.96% |
11/9/2027 |
300,825 |
300,825 |
291,800 |
(2) |
||||||
|
Walnut Parent, Inc. |
Term Loan |
SOFR |
+ |
5.50% |
(M) |
9.96% |
11/9/2027 |
26,460 |
26,460 |
25,666 |
(2) |
||||||
|
Walnut Parent, Inc. |
Term Loan |
SOFR |
+ |
5.50% |
(M) |
9.96% |
11/9/2027 |
40,044 |
40,044 |
38,843 |
(2) |
||||||
|
367,329 |
356,309 |
||||||||||||||||
|
Insurance |
|||||||||||||||||
|
THG Acquisition, LLC |
Term Loan |
SOFR |
+ |
4.75% |
(M) |
9.11% |
10/31/2031 |
122,656 |
122,656 |
121,430 |
(2) |
||||||
|
122,656 |
121,430 |
||||||||||||||||
|
Machinery |
|||||||||||||||||
|
Harvey Tool Company, LLC |
Delayed Draw Term Loan |
SOFR |
+ |
5.25% |
(M) |
9.73% |
10/26/2027 |
34,677 |
34,677 |
34,677 |
(2) |
||||||
|
Harvey Tool Company, LLC |
Term Loan |
SOFR |
+ |
5.25% |
(M) |
9.61% |
10/26/2027 |
220,501 |
220,501 |
220,501 |
(2) |
||||||
|
Harvey Tool Company, LLC |
Term Loan |
SOFR |
+ |
5.25% |
(M) |
9.61% |
10/26/2027 |
12,915 |
12,915 |
12,915 |
(2) |
||||||
|
268,093 |
268,093 |
||||||||||||||||
|
Trading Companies & Distributors |
|||||||||||||||||
|
Penn Detroit Diesel Allison, LLC |
Term Loan |
SOFR |
+ |
5.75% |
(M) |
10.21% |
12/14/2027 |
32,913 |
32,913 |
32,913 |
(2) |
||||||
|
32,913 |
32,913 |
||||||||||||||||
|
Total Investments, December 31, 2024 |
$ |
4,590,887 |
$ |
4,389,842 |
|||||||||||||
(1) Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to LIBOR, SOFR, or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower's option, which reset semi-annually (S), quarterly (Q), or monthly (M). For each such loan, the interest rate provided was the rate in effect as of December 31, 2024.
(2) Loan includes interest rate floor feature.
(3) The investment was on non-accrual status as of December 31, 2024.
TABLE OF CONTENTS
Below are the consolidated statements of assets and liabilities for SDLP (dollars in millions):
|
As of September 30, 2025 |
As of December 31, 2024 |
|||||||
|
Selected Consolidated Statements of Assets and Liabilities Information: |
||||||||
|
Investments in loans at fair value (cost of $4,478 and $4,591, respectively) |
$ |
4,233 |
$ |
4,390 |
||||
|
Restricted cash |
118 |
425 |
||||||
|
Other Assets |
18 |
24 |
||||||
|
Total assets |
$ |
4,369 |
$ |
4,839 |
||||
|
Senior notes |
$ |
3,156 |
$ |
3,428 |
||||
|
Intermediate funding notes |
118 |
130 |
||||||
|
Interest payable |
55 |
65 |
||||||
|
Other liabilities |
50 |
59 |
||||||
|
Total liabilities |
3,379 |
3,682 |
||||||
|
Members' capital |
990 |
1,157 |
||||||
|
Total liabilities and members' capital |
$ |
4,369 |
$ |
4,839 |
||||
Below are the consolidated statements of operations for SDLP (dollars in millions):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Selected Consolidated Statement of Operation Information: |
||||||||||||||||
|
Total revenues |
$ |
99 |
$ |
137 |
$ |
311 |
$ |
420 |
||||||||
|
Total expenses |
59 |
79 |
187 |
241 |
||||||||||||
|
Net unrealized appreciation/(depreciation) |
(3 |
) |
68 |
(42 |
) |
(4 |
) |
|||||||||
|
Net realized gain/(loss) |
- |
(93 |
) |
2 |
(93 |
) |
||||||||||
|
Net income/(loss) |
$ |
37 |
$ |
33 |
$ |
84 |
$ |
82 |
||||||||
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, the Company must determine if any of its portfolio companies is considered a "significant subsidiary." Pursuant to the definition of "significant subsidiary" applicable to investment companies set forth in Rule 1-02(w) of Regulation S-X, a portfolio company will meet the definition of "significant subsidiary" if either the investment test or the income test is triggered. Rule 3-09 of Regulation S-X requires the Company to include separate audited financial statements of any unconsolidated majority-owned subsidiary (portfolio company in which the Company owns greater than 50% of the unconsolidated subsidiary) in the Company's annual report on Form 10-K if one of the following conditions are met: (i) if the portfolio investment's fair value exceeds 20% of the Company's total investments at fair value (the investment test); or (ii) either (A) if the income from the portfolio investment exceeds 80% of the Company's absolute value of the change in net assets from operations of the Company and its subsidiaries (the income test) or (B) if the income from the portfolio investment exceeds 20% of the Company's absolute value of the change in net assets from operations of the Company and its subsidiaries and have a fair value exceeding 5% of the Company's total investment fair value (the alternate income test). If the Company has an unconsolidated majority-owned subsidiary and does not satisfy any Rule 3-09 significant subsidiary conditions during a quarter end, the Company must include a summarized income statement within the notes to the quarterly financial statements.
Rule 4-08(g) of Regulation S-X requires the Company to include summarized financial information of any unconsolidated controlled subsidiary (portfolio company in which the Company owns greater than 25% of the voting securities of the unconsolidated subsidiary or otherwise controls the subsidiary) in the Company's annual report on Form 10-K if one of the following conditions are met: (i) if the portfolio investment's fair value exceeds 10% of the Company's total investments fair value (the investment test); or (ii) either (A) if the income from the portfolio investment exceeds 80% of the Company's absolute value of the change in net assets from operations of the Company and its subsidiaries (the income test) or (B) if the income from the portfolio investment income exceeds 10% of the Company's absolute value of the change in net assets from operations of the Company and its subsidiaries and have a fair value exceeding 5% of the Company's total investment fair value (the alternate income test).
After performing the investment analysis and income analysis for the three and nine months ended September 30, 2025, the Company determined that the SDLP generated more than 10% of the Company's total income. Accordingly, the related summary financial information is presented in the "Senior Direct Lending Program" heading above.
TABLE OF CONTENTS
Results of Operations
Set forth below is a comparison of our results of operations for the three and nine months ended September 30, 2025 and 2024 (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Total investment income |
$ |
22,964 |
$ |
24,401 |
$ |
68,540 |
$ |
72,815 |
||||||||
|
Total expenses (including excise tax expense) |
12,958 |
12,112 |
36,425 |
35,033 |
||||||||||||
|
Net investment income |
10,006 |
12,289 |
32,115 |
37,782 |
||||||||||||
|
Net realized gain (loss) |
(614 |
) |
(816 |
) |
(614 |
) |
(753 |
) |
||||||||
|
Net change in unrealized appreciation (depreciation) |
4,370 |
1,385 |
(8,082 |
) |
630 |
|||||||||||
|
Net increase in net assets resulting from operations |
$ |
13,762 |
$ |
12,858 |
$ |
23,419 |
$ |
37,659 |
||||||||
|
Net investment income per share - basic and diluted |
$ |
0.24 |
$ |
0.30 |
$ |
0.77 |
$ |
0.91 |
||||||||
|
Net increase in net assets resulting from operations per share - basic and diluted |
$ |
0.33 |
$ |
0.31 |
$ |
0.56 |
$ |
0.91 |
||||||||
Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including the level of new investment commitments, expenses, the recognition of realized gains and losses, and changes in unrealized appreciation and depreciation on the investment portfolio.
Investment Income
We expect our portfolio to continue to grow as we raise and deploy capital through our private offering and our investment income to grow commensurately. The shifting environment in base interest rates may affect our investment income over the long term. Increases in interest rates, however, may adversely affect our existing borrowers.
Investment income decreased to $23.0 million and $68.5 for the three and nine months ended September 30, 2025, respectively, compared to $24.4 million and $72.8 million for the three and nine months ended September 30, 2024, which was due to a decrease in the yield on the Subordinated Certificates, a decrease in SOFR rates, as well as certain loans in one portfolio company being placed on non-accrual status.
Operating Expenses
Expenses for the three and nine months ended September 30, 2025 and 2024 were as follows (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Base management fees |
$ |
1,594 |
$ |
1,442 |
$ |
4,723 |
$ |
4,199 |
||||||||
|
Income-based incentive fees |
1,966 |
1,837 |
3,346 |
5,380 |
||||||||||||
|
Professional fees |
914 |
469 |
2,710 |
1,663 |
||||||||||||
|
Administrator expenses |
243 |
270 |
707 |
905 |
||||||||||||
|
Interest expenses |
7,732 |
7,509 |
23,322 |
20,978 |
||||||||||||
|
Credit facility fees |
328 |
383 |
954 |
1,078 |
||||||||||||
|
Directors' fees and expenses |
72 |
79 |
230 |
230 |
||||||||||||
|
Organizational expenses |
- |
- |
- |
155 |
||||||||||||
|
Insurance expenses |
6 |
19 |
17 |
172 |
||||||||||||
|
Other general and administrative |
103 |
104 |
416 |
273 |
||||||||||||
|
Total expenses |
$ |
12,958 |
$ |
12,112 |
$ |
36,425 |
$ |
35,033 |
||||||||
Total expenses increased to $13.0 million and $36.4 million for the three and nine months ended September 30, 2025, respectively, from $12.1 million and $35.0 million for the three and nine months ended September 30, 2024.
Management and Incentive Fees
Management fees for the three and nine months ended September 30, 2025 increased from the comparable period in the prior year primarily due to an increase in our invested balance. Incentive fees on income for the three months ended September 30, 2025 increased from the comparable period in the prior year primarily due to the unrealized appreciation on the portfolio during the current period. For the nine months ended September 30, 2025, incentive fees on income decreased from the comparable period in the prior year primarily
TABLE OF CONTENTS
due to cumulative unrealized losses during the trailing twelve quarters as well as lower cumulative pre-incentive fee net investment income during the trailing twelve quarters in the current period.
Interest Expenses and Credit Facility Fees
Interest expenses and credit facility fees increased to $8.1 million and $24.3 million, respectively, for the three and nine months ended September 30, 2025 from $7.9 million and $22.1 million, respectively, for the three and nine months ended September 30, 2024. The increase was primarily attributable to increased interest expenses related to our term debt securitization that closed on November 26, 2024.
Net Realized Gains/Losses
We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized.
For the three and nine months ended September 30, 2025, we had realized losses of $(0.6) million and $(0.6) million, respectively, due to the restructuring of one of our portfolio investments.
For the three and nine months ended September 30, 2024, we had realized losses of $(0.8) million and $(0.8) million, respectively, due to the extinguishment of the CIBC Facility, the winddown of two interest rate swaps during the period, partially offset by an escrow payment from a previously realized investment.
Net Change in Unrealized Appreciation/Depreciation
For the three months ended September 30, 2025, we had $4.4 million of unrealized appreciation, which was primarily due to the adjustment of our investment in the Subordinated Certificates. For the nine months ended September 30, 2025, we had $(8.1) million of unrealized depreciation on portfolio investments, which was primarily due to the adjustment of a minority of portfolio investments facing operational difficulties.
For the three and nine months ended September 30, 2024, we had $1.4 million and $0.6 million, respectively, of unrealized appreciation primarily due to the adjustment on our investment in the Subordinated Certificates during the period.
Net Increase in Net Assets Resulting from Operations
For the three and nine months ended September 30, 2025, the net increase in net assets resulting from operations was $13.8 million or $0.33 per share and $23.4 million or $0.56 per share, respectively. For the three and nine months ended September 30, 2024, the net increase in net assets resulting from operations was $12.9 million or $0.31 per share and $37.7 million or $0.91 per share, respectively.
Financial Condition, Liquidity and Capital Resources
We expect to generate cash primarily from (i) the net proceeds from drawdowns of our capital commitments to purchase shares of our common stock pursuant to our private offering of our shares (the "Offering"), (ii) cash flows from our operations, (iii) proceeds from net borrowings from the SMBC Facility and CLO debt issuances (as described below), and (iv) any future offerings of our equity or debt securities. We may fund a portion of our investments through borrowings under the SMBC Facility and issuances of senior securities. Our primary use of cash will be for (i) investments in portfolio companies in accordance with our investment objective and investment strategies and to comply with certain portfolio diversification requirements, (ii) providing capital to the SDLP through the Subordinated Certificates, (iii) the cost of operations (including paying the Adviser), (iv) debt service and other financing costs of any borrowings, (v) any cash distributions to the holders of our common stock, and (vi) general working capital purposes. We will also pay operating expenses, including advisory and administrative fees and expenses, and may pay other expenses such as due diligence expenses of potential new investments, from the net proceeds of the Offering.
Equity
We are authorized to issue 500,000,000 shares of common stock at $0.01 par value per share.
On March 29, 2022, in connection with our seed audit, we issued 100 shares of common stock for $10.00 to Varagon, which were subsequently redeemed on June 2, 2022 in connection with the Merger.
As of September 30, 2025, we had received capital commitments totaling $488.2 million ($73.5 million remaining undrawn), of which $5.9 million ($1.0 remaining undrawn) is from Varagon and current officers and directors of the Company. On June 2, 2022, we held our Initial Closing and entered into Subscription Agreements with a number of investors providing for the private placement of our shares of common stock.
The following table summarizes the total shares issued and proceeds received related to capital drawdowns delivered pursuant to the Subscription Agreements from inception through September 30, 2025 (dollars in thousands, except per share data):
TABLE OF CONTENTS
|
Capital Drawdown Notice Date |
Date of Issuance |
Number of |
Aggregate |
Issuance Price per Share |
||||||||||
|
May 20, 2022 |
June 2, 2022 |
36,130,510 |
$ |
361,305 |
$ |
10.00 |
||||||||
|
June 27, 2022 |
July 12, 2022 |
2,994,012 |
$ |
30,000 |
$ |
10.02 |
||||||||
|
August 23, 2022 |
September 7, 2022 |
2,362,205 |
$ |
24,000 |
$ |
10.16 |
||||||||
Distributions and Dividend Reinvestments
Distributions to common shareholders are recorded on the ex-dividend date. We have elected, and intend to qualify annually, to be treated as a RIC for U.S. federal income tax purposes under the Code. The Company will be required to distribute dividends each tax year as a RIC to its shareholders of an amount generally at least equal to 90% of its investment company taxable income, determined without regard to any deduction for dividends paid, in order to be eligible for tax benefits allowed to a RIC under subchapter M of the Code. The Company anticipates paying out as a distribution all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the Board and is based on management's estimate of the Company's annual taxable income. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such net realized capital gains for investment.
With respect to distributions, we have adopted an "opt out" distribution reinvestment plan ("DRIP") for common shareholders. As a result, in the event of a declared distribution, each shareholder that has not "opted out" of the DRIP will have their dividends or distributions automatically reinvested in additional shares of our common stock rather than receiving cash distributions. Shareholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
The following table reflects the distributions per share that the Company has declared, including shares issued under the DRIP, on its common stock from inception through September 30, 2025 (dollars in thousands):
|
Distribution |
Date Declared |
Record Date |
Payment Dates |
Amount per Share |
Cash Distribution |
DRIP Shares Issued |
DRIP Shares Value |
||||||||||||||||
|
Quarterly |
December 12, 2022 |
December 15, 2022 |
December 21, 2022 |
$ |
0.2635 |
$ |
10,892 |
3,915 |
$ |
40 |
|||||||||||||
|
Quarterly |
December 19, 2022 |
December 23, 2022 |
January 27, 2023 |
0.2405 |
9,941 |
3,665 |
37 |
||||||||||||||||
|
Quarterly |
March 23, 2023 |
March 27, 2023 |
March 31, 2023 |
0.2222 |
9,185 |
3,619 |
35 |
||||||||||||||||
|
Quarterly |
May 10, 2023 |
July 1, 2023 |
July 15, 2023 |
0.2246 |
9,284 |
3,780 |
37 |
||||||||||||||||
|
Quarterly |
August 8, 2023 |
October 2, 2023 |
October 16, 2023 |
0.2271 |
9,387 |
3,825 |
38 |
||||||||||||||||
|
Quarterly |
November 7, 2023 |
December 27, 2023 |
January 17, 2024 |
0.2397 |
9,908 |
4,089 |
41 |
||||||||||||||||
|
Special |
December 18, 2023 |
December 27, 2023 |
January 17, 2024 |
0.1205 |
4,981 |
2,056 |
20 |
||||||||||||||||
|
Quarterly |
March 20, 2024 |
March 29, 2024 |
April 10, 2024 |
0.2371 |
9,809 |
3,461 |
34 |
||||||||||||||||
|
Special |
March 20, 2024 |
March 29, 2024 |
April 10, 2024 |
0.0333 |
1,378 |
486 |
5 |
||||||||||||||||
|
Quarterly |
May 9, 2024 |
June 28, 2024 |
July 17, 2024 |
0.2371 |
9,809 |
3,533 |
35 |
||||||||||||||||
|
Special |
May 9, 2024 |
June 28, 2024 |
July 17, 2024 |
0.0662 |
2,739 |
986 |
10 |
||||||||||||||||
|
Quarterly |
August 6, 2024 |
September 30, 2024 |
October 17, 2024 |
0.2397 |
9,916 |
3,699 |
36 |
||||||||||||||||
|
Special |
August 6, 2024 |
September 30, 2024 |
October 17, 2024 |
0.0638 |
2,639 |
985 |
10 |
||||||||||||||||
|
Quarterly |
November 6, 2024 |
December 31, 2024 |
January 17, 2025 |
0.2392 |
9,911 |
2,282 |
22 |
||||||||||||||||
|
Special |
November 6, 2024 |
December 31, 2024 |
January 17, 2025 |
0.0675 |
2,797 |
644 |
6 |
||||||||||||||||
|
Quarterly |
March 13, 2025 |
March 31, 2025 |
April 17, 2025 |
0.2400 |
9,944 |
2,429 |
23 |
||||||||||||||||
|
Special |
March 13, 2025 |
March 31, 2025 |
April 17, 2025 |
0.0185 |
766 |
187 |
2 |
||||||||||||||||
|
Quarterly |
May 7, 2025 |
June 30, 2025 |
July 17, 2025 |
0.2400 |
9,944 |
2,526 |
24 |
||||||||||||||||
|
Special |
May 7, 2025 |
June 30, 2025 |
July 17, 2025 |
0.0185 |
766 |
195 |
2 |
||||||||||||||||
|
Quarterly |
August 6, 2025 |
September 30, 2025 |
October 17, 2025 |
0.2400 |
9,944 |
2,644 |
24 |
||||||||||||||||
|
Special |
August 6, 2025 |
September 30, 2025 |
October 17, 2025 |
0.0185 |
766 |
204 |
2 |
||||||||||||||||
|
Total |
$ |
144,706 |
$ |
49,210 |
$ |
483 |
|||||||||||||||||
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Income Taxes
The Company has elected, and intends to qualify annually, to be treated as a RIC under subchapter M of the Code. As a RIC, the Company generally will not be subject to U.S. federal income tax on any ordinary income or capital gains that it timely distributes to its shareholders as dividends. To qualify as a RIC, the Company must meet certain minimum distribution, source-of-income, and asset diversification requirements. The minimum distribution requirements applicable to the RIC require the Company to distribute at least 90% of its investment company taxable income, as defined by the Code, each year.
The Company is subject to a nondeductible 4% U.S. federal excise tax on its undistributed income, unless it timely distributes (or is deemed to have timely distributed) an amount equal to the sum of (1) 98% of ordinary income for each calendar year, (2) 98.2% of the amount by which capital gains exceeds capital losses (adjusted for certain ordinary losses) for a one-year period ending on October 31 of the calendar year, and (3) certain un-distributed amounts from the previous years on which we paid no U.S. federal income tax. While the Company intends to distribute any income and capital gains to avoid imposition of this 4% U.S. federal excise tax, it may not be successful in avoiding entirely the imposition of this tax. In that case, the Company will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
The Company evaluates tax positions taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes ("ASC 740"). Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as tax expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. It is the Company's policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. As of September 30, 2025, the Company did not have any uncertain tax positions that met the recognition or measurement criteria, nor did the Company have any unrecognized tax benefits.
Our accounting policy on income taxes is critical because if we are unable to maintain our tax treatment as a RIC, we would be required to record a provision for U.S. federal income taxes, which may be significant to our financial results.
Federal Income Taxes
The Company is subject to the Code, U.S. federal income tax regulations, and other administrative guidance pertaining to U.S. federal income tax filing requirements. The Company is expected to have minimal or no income subject to tax and therefore no provision has been included for taxes due. The Company has elected, and intends to qualify annually, as a RIC under subchapter M of the Code. As a result, the Company generally does not expect to be subject to U.S. federal income taxes.
The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740 as of September 30, 2025.
In the normal course of business, the Company is subject to examination by federal and certain state and local tax regulators. The Company adopted a tax year-end of December 31.
For U.S. federal income tax purposes, distributions paid to shareholders are reported as ordinary income, return of capital, long-term capital gains, or a combination thereof.
Credit Facilities
JPM Facility
On June 2, 2022, the Company's wholly owned subsidiary, VCCF, entered into the Loan and Security Agreement (as amended on January 26, 2023 and November 20, 2023, the "Loan and Security Agreement" and the revolving credit facility thereunder, the "JPM Facility") with JPMorgan Chase Bank, National Association, as administrative agent ("JPMorgan").
The JPM Facility permitted VCCF to borrow up to $300 million, subject to certain leverage and borrowing base restrictions, and could have increased up to $600 million with the consent of the lenders. The reinvestment period and termination date of the JPM Facility was June 2, 2025 and June 2, 2027, respectively.
The JPM Facility bore interest at an annual rate of: (i) with respect to interest based reference rate other than a term SOFR, the reference rate plus a margin equal to 2.375% per annum; provided that, in the case of advances denominated in British Pounds, the margin was 2.494% per annum (ii) with respect to interest based on a term SOFR, the SOFR plus a margin equaled to 2.475% per annum and (iii) with respect to interest based on a Base Rate, the Base Rate plus a margin equaled to 2.475% per annum. JPMorgan determined the reference rate. The Company paid a fee of 0.50% per annum on the average daily committed but unused amounts under the JPM Facility during its ramp-up period (June 2, 2022 up to but not including March 2, 2023), and, beginning March 3, 2023 through its termination (as described below), paid a fee of 0.75% on annum.
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On January 26, 2023, the Company entered into the First Amendment to the Loan and Security Agreement (the "First Amendment"). The First Amendment, among other things: (i) reduced the borrowings available under the JPM Facility from up to $500 million to up to $300 million, subject to certain leverage and borrowing base restrictions; and (ii) reduced the commitment increase, subject to lender consent, from up to $800 million to up to $600 million. The reduction was accounted for as a debt modification to a line-of-credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt financing costs in the amount of $1.4 million and was recorded on the consolidated statements of operations as a component of "Credit facility fees."
On November 20, 2023, the Company entered into the Second Amendment to the Loan and Security Agreement (the "Second Amendment"). The Second Amendment, among other things: (i) permitted the inclusion of revolving loans as collateral to the JPM Facility; (ii) decreased the minimum funding amount under the Loan and Agreement from 85% to 75% of the financing commitment which commenced on November 21, 2023; and (iii) increased the percentage of Collateral Principal Amount (as defined in the Second Amendment) that may consist of portfolio investments the obligors of which have a leverage ratio equal to or greater than 7.0x from 0.0% to 10.0%.
On November 26, 2024, the Company terminated in full (i) the JPM Facility, and (ii) the security interest over the collateral granted by VCCF to the collateral agent pursuant to the Loan and Security Agreement and the other loan documents relating to the JPM Facility. The JPM Facility terminated upon the satisfaction of all obligations and liabilities of the Company to secured parties thereunder, including, without limitation, payments of principal and interest, other fees, breakage costs and other amounts owing to the secured parties. The termination was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $4.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
The following table summarizes the interest expense, unused fees and amortization of debt issuance costs incurred on the JPM Facility for the three and nine months ended September 30, 2025 and 2024 (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025(1) |
2024 |
2025(1) |
2024 |
|||||||||||||
|
JPM Facility interest |
$ |
- |
$ |
5,114 |
$ |
- |
$ |
14,930 |
||||||||
|
JPM Facility unused fees |
- |
74 |
- |
276 |
||||||||||||
|
Amortization of debt issuance costs |
- |
125 |
- |
371 |
||||||||||||
|
Total interest and financing expenses related to the JPM Facility |
$ |
- |
$ |
5,313 |
$ |
- |
$ |
15,577 |
||||||||
|
Weighted average outstanding debt balance of the JPM Facility |
$ |
- |
$ |
261,307 |
$ |
- |
$ |
251,684 |
||||||||
|
Weighted average interest rate of the JPM Facility (annualized) |
- |
7.8 |
% |
- |
7.9 |
% |
||||||||||
(1) On November 26, 2024, the Company terminated the JPM Facility in full upon the satisfaction of all obligations and liabilities of the Company.
CIBC Facility
On January 31, 2023, the Company entered into a Senior Secured Revolving Credit Agreement (the "CIBC Credit Agreement" and the senior secured credit facility thereunder, the "CIBC Facility") among the Company, as borrower, the lenders party thereto from time to time, the issuing banks party thereto from time to time, and CIBC Bank USA ("CIBC"), as administrative agent and as sole lead arranger. The CIBC Facility was guaranteed by VCCEH, and could have been guaranteed by certain domestic subsidiaries of the Company that would have been formed or acquired by the Company in the future. Proceeds of the CIBC Facility were used for general corporate purposes, including the funding of portfolio investments. The initial maximum principal amount of the CIBC Facility was $75 million, subject to availability under the borrowing base, which was based on the Company's and Guarantor's portfolio investments and other outstanding indebtedness. The CIBC Facility was secured by a perfected first-priority interest in substantially all of the portfolio investments held by the Company and each Guarantor, subject to certain exceptions. The CIBC Facility's commitment termination date was January 31, 2026 and had a final maturity date of January 31, 2028.
The CIBC Facility bore interest from January 1, 2023 to January 31, 2026 (the "Availability Period") at an annual rate of: (i) with respect to interest based on the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 1/2 of 1% and (c) zero (the "ABR"), the ABR plus a margin equal to 1.500% per annum; and (ii) with respect to interest based on a term SOFR, the SOFR plus a margin equal to 2.500% per annum and after the Availability Period at an annual rate of: (i) with respect to interest based on the ABR, the ABR plus a margin equal to 1.750% per annum; and (ii) with respect to interest based on a term SOFR, the SOFR plus a margin equal to 2.750% per annum. CIBC, as the administrative agent determines the reference rate. The Company paid a fee of 0.375% per annum on the average daily committed but unused amounts under the CIBC Facility during the first nine months of the CIBC Facility (January 31, 2023 up to but not including October 31, 2023), and thereafter, 0.375% if the average daily used amount of the commitment exceeds 25% of the total commitment or otherwise, 0.50%.
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On August 9, 2024, the Company terminated in full (i) the CIBC Credit Agreement and the CIBC Facility, and (ii) the security interest over the collateral granted to CIBC as the lender pursuant to the CIBC Credit Agreement and the other loan documents relating to the CIBC Facility. The CIBC Facility terminated upon the satisfaction of all obligations and liabilities of the Company to CIBC as the lender thereunder, including, without limitation, payments of principal and interest, other fees, breakage costs and other amounts owing to CIBC. The termination was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.8 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
The following table summarizes the interest expense, unused fees and amortization of debt issuance costs incurred on the CIBC Facility for the three and nine months ended September 30, 2025 and 2024 (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||||||
|
2025(1) |
2024 |
2025(1) |
2024 |
||||||||||||||
|
CIBC Facility interest |
$ |
- |
$ |
490 |
$ |
- |
$ |
1,715 |
|||||||||
|
CIBC Facility unused fees |
- |
16 |
- |
98 |
|||||||||||||
|
Amortization of debt issuance costs |
- |
26 |
- |
143 |
|||||||||||||
|
Total interest and financing expenses related to the CIBC Facility |
$ |
- |
$ |
532 |
$ |
- |
$ |
1,956 |
|||||||||
|
Weighted average outstanding debt balance of the CIBC Facility |
$ |
- |
$ |
22,100 |
$ |
- |
$ |
28,496 |
|||||||||
|
Weighted average interest rate of the CIBC Facility (annualized) |
- |
8.8 |
% |
- |
8.0 |
% |
|||||||||||
(1) On August 9, 2024, the Company terminated the CIBC Facility in full upon the satisfaction of all obligations and liabilities of the Company.
SMBC Facility
On August 9, 2024, the Company entered into a Senior Secured Revolving Credit Agreement (the "SMBC Credit Agreement" and the senior secured credit facility thereunder, the "SMBC Facility") by and among the Company, as borrower, the lenders party thereto from time to time, the issuing banks party thereto from time to time, and Sumitomo Mitsui Banking Corporation, as administrative agent, sole book runner and lead arranger.
The SMBC Facility is guaranteed by VCCEH, a wholly owned subsidiary of the Company, and will be guaranteed by certain subsidiary guarantors. Proceeds of the SMBC Facility may be used for general corporate purposes, including the funding of portfolio investments.
The initial maximum principal amount of the SMBC Facility was $170 million, subject to availability under the borrowing base, which is based on the Company's and subsidiary guarantors' portfolio investments and other outstanding indebtedness. Maximum capacity under the SMBC Facility may be increased to $400 million through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The SMBC Facility provides for the issuance of letters of credit in an initial aggregate face amount of up to $10 million, subject to increase or reduction from time to time pursuant to the terms of the SMBC Facility. The SMBC Facility is secured by a perfected first-priority interest in substantially all of the portfolio investments held by the Company and each subsidiary guarantor, subject to certain exceptions.
The availability period under the SMBC Facility will terminate on August 9, 2028 (the "SMBC Commitment Termination Date") and the SMBC Facility will mature on August 9, 2029 (the "SMBC Maturity Date"). During the period from the SMBC Commitment Termination Date to the SMBC Maturity Date, the Company will be obligated to make mandatory prepayments under the SMBC Credit Agreement out of the proceeds of certain asset sales and other recovery events, equity and debt issuances and other returns of capital and extraordinary receipts.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the SMBC Facility will bear interest at either term SOFR plus a 1.125% or 1.000% margin, or the alternate base rate plus a 2.125% or 2.000% margin depending on the ratio of the borrowing base compared to the outstanding debt of the SMBC Facility. The Company may elect either the term SOFR or the alternate base rate at the time of drawdown, and loans may be converted from one rate to another at any time at the Company's option, subject to certain conditions. The Company also will pay a fee of 0.375% on average daily undrawn amounts under the SMBC Facility. The Company is also required to pay letter of credit participation fees and a fronting fee on the daily amount of any lender's exposure with respect to any letters of credit issued at the request of the Company under the SMBC Facility.
The SMBC Credit Agreement includes customary covenants, including certain limitations on the incurrence by the Company of additional indebtedness and on the Company's ability to make distributions to its shareholders, or redeem, repurchase or retire shares of
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stock, upon the occurrence of certain events and certain financial covenants related to asset coverage and liquidity and other maintenance covenants, as well as customary events of default.
On August 28, 2024, the Company closed an additional $25 million of commitments under the accordion feature of the SMBC Credit Agreement, increasing the maximum principal amount available under the SMBC Facility from $170 million to $195 million.
At September 30, 2025 and December 31, 2024, the carrying amount of the Company's borrowings under the SMBC Facility approximated their fair value. The fair values of the Company's debt obligations 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 the Company's borrowings under the SMBC Facility would be deemed to be Level 3 investments.
The following table summarizes the interest expense, unused fees and amortization of debt issuance costs incurred on the SMBC Facility for the three and nine months ended September 30, 2025 and 2024 (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
SMBC Facility interest |
$ |
535 |
$ |
716 |
$ |
1,862 |
$ |
716 |
||||||||
|
SMBC Facility unused fees |
159 |
66 |
453 |
66 |
||||||||||||
|
Amortization of debt issuance costs |
89 |
51 |
263 |
51 |
||||||||||||
|
Total interest and financing expenses related to the SMBC Facility |
$ |
783 |
$ |
833 |
$ |
2,578 |
$ |
833 |
||||||||
|
Weighted average outstanding debt balance of the SMBC Facility |
$ |
31,220 |
$ |
38,196 |
$ |
37,037 |
$ |
12,825 |
||||||||
|
Weighted average interest rate of the SMBC Facility (annualized) |
6.8 |
% |
7.5 |
% |
6.7 |
% |
7.5 |
% |
||||||||
VCC CLO 1, LLC
On November 26, 2024 (the "Closing Date"), the Company completed its $493.77 million term debt securitization (the "2024 Debt Securitization"), also known as a collateralized loan obligation, in connection with which a subsidiary of the Company issued the Debt (as defined below). The 2024 Debt Securitization is subject to the Company's' overall asset coverage requirement.
The debt offered in the 2024 Debt Securitization was issued and incurred by VCC CLO, an indirect, wholly-owned and consolidated subsidiary of the Company, and consists of (i) Class A-1 Senior Secured Floating Rate Notes, Class A-2 Senior Secured Floating Rate Loans, Class B Senior Secured Floating Rate Notes, Class B Senior Secured Floating Rate Loans and the Class C Mezzanine Secured Deferrable Floating Rate Notes (collectively, the "Secured Debt"), and (ii) the subordinated notes (the "Subordinated Notes" and, together with the Secured Debt, the "Debt"), the terms of which are summarized in the table below (dollars in thousands):
|
Class |
Par Size ($) |
Ratings (S&P) |
Ratings (Fitch) |
Coupon |
||||||
|
Class A-1 Notes |
$ |
280,000 |
AAA(sf) |
AAA(sf) |
SOFR + 1.71% |
|||||
|
Class A-2 Loans |
30,000 |
AAA(sf) |
N/A |
SOFR + 1.85% |
||||||
|
Class B Notes |
7,000 |
AA (sf) |
N/A |
SOFR + 2.15% |
||||||
|
Class B Loans |
23,000 |
AA (sf) |
N/A |
SOFR + 2.15% |
||||||
|
Class C Notes |
37,500 |
A (sf) |
N/A |
SOFR + 2.65% |
||||||
|
Subordinated Notes |
116,270 |
N/A |
N/A |
N/A |
||||||
VCC CLO Depositor, a direct, wholly owned subsidiary of the Company, retained all of the Subordinated Notes issued in the 2024 Debt Securitization and eliminated in consolidation.
The 2024 Debt Securitization is backed by a diversified portfolio of middle market commercial loans and participation interests therein, which is managed by the Company pursuant to a collateral management agreement entered into with VCC CLO on the Closing Date (the "Collateral Management Agreement"). The Company has agreed to irrevocably waive all collateral management fees payable to it so long as it is the collateral manager under the Collateral Management Agreement. The Debt is scheduled to mature on October 20, 2036; however, the Debt may be redeemed by VCC CLO, at the written direction of (i) a majority of the Subordinated Notes with the consent of the Company or (ii) the Company, in each case, on any business day on or after November 26, 2026.
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As part of the 2024 Debt Securitization, the Company, VCC CLO Depositor and VCC CLO entered into a loan sale and contribution agreement on the Closing Date (the "Sale Agreement"), pursuant to which the Company sold, transferred, assigned, contributed or otherwise conveyed to VCC CLO Depositor and VCC CLO Depositor subsequently sold, transferred, assigned, contributed or otherwise conveyed to VCC CLO the loans and participations therein securing the 2024 Debt Securitization for the purchase price and other consideration set forth in the Sale Agreement. Following this transfer, VCC CLO, and not VCC CLO Depositor or the Company, holds all of the ownership interest in such loans and participations therein. The Company made customary representations, warranties and covenants in the Sale Agreement.
The Secured Debt is a secured obligation of VCC CLO, the Subordinated Notes are the unsecured obligations of VCC CLO, and the indenture and security agreement governing the Debt includes customary covenants and events of default. The Debt has not been, and will not be, registered under the Securities Act of 1933, as amended (the "1933 Act"), or any state securities or "blue sky" laws and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission or an applicable exemption from registration.
At September 30, 2025 and December 31, 2024, the carrying amount of the Secured Debt of VCC CLO approximated its fair value. The fair values of the Company's debt obligations 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 the Secured Debt of VCC CLO would be deemed to be Level 3 investments.
The following table summarizes the interest expense and amortization of debt issuance costs incurred on VCC CLO for the three and nine months ended September 30, 2025 and 2024 (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
VCC CLO interest |
$ |
5,945 |
$ |
- |
$ |
17,791 |
$ |
- |
||||||||
|
Amortization of debt issuance costs |
55 |
- |
165 |
- |
||||||||||||
|
Total interest and financing expenses related to VCC CLO |
$ |
6,000 |
$ |
- |
$ |
17,956 |
$ |
- |
||||||||
|
Weighted average outstanding debt balance of VCC CLO |
$ |
377,500 |
$ |
- |
$ |
377,500 |
$ |
- |
||||||||
|
Weighted average interest rate of VCC CLO (annualized) |
6.3 |
% |
- |
6.3 |
% |
- |
||||||||||
Unsecured Notes
On December 21, 2023, the Company entered into a Master Note Purchase Agreement (the "Note Purchase Agreement") governing the issuance of $25,000,000 in aggregate principal amount of Series A Senior Notes, Tranche A, due December 21, 2026, with a fixed interest rate of 8.10% per year (the "2026 Notes"), and $25,000,000 in aggregate principal amount of Series A Senior Notes, Tranche B, due December 21, 2028, with a fixed interest rate of 8.20% per year (the "2028 Notes" and, together with the 2026 Notes, the "Notes"), to qualified institutional investors in a private offering exempt from the registration requirements of the 1933 Act. The Notes are guaranteed by VCCEH, a wholly owned subsidiary of the Company. The interest rate of each Note is subject to an adjustment in the event of certain triggering events, including, an Asset Coverage Ratio Event, a Secured Debt Ratio Event, and a Below Investment Grade Event (each as defined in the Note Purchase Agreement). As of December 31, 2024, the Company's asset coverage ratio was below 200%, which triggered an Asset Coverage Ratio Event. Accordingly, effective January 1, 2025, the interest rates of the 2026 Notes and the 2028 Notes increased to 9.10% and 9.20% per year, respectively.
Interest on the Notes are payable semi-annually on June 21 and December 21 each year. The 2026 Notes and the 2028 Notes may be redeemed in whole or in part at any time or from time to time at the Company's option prior to September 21, 2026 and September 21, 2028, respectively, at par plus accrued interest to the redemption date and a make-whole premium, and thereafter at par plus accrued interest to the redemption date. In addition, the Company is obligated to offer to prepay the Notes at par plus accrued and unpaid interest up to, but excluding, the date of prepayment, if certain change in control events occur. The Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
On February 2, 2024, in connection with each of the 2026 Notes and the 2028 Notes, the Company entered into an interest rate swap
agreement for a total notional amount of $25,000,000 and $25,000,000 that matures on December 21, 2026 and December 21, 2028,
respectively. Under the interest rate swap agreement for the 2026 Notes and the 2028 Notes, the Company receives a fixed interest rate of 8.10% and 8.20% and pays a floating interest rate of SOFR + 4.226% and SOFR + 4.595%, respectively. The Company designated
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these interest rate swaps, the 2026 Notes, and the 2028 Notes as a qualifying fair value hedge accounting relationship. For more information, see "Note 5. Derivative Instruments" to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
At September 30, 2025 and December 31, 2024, the carrying amount of the Notes approximated their fair value. The fair values of the Company's debt obligations 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 the Notes would be deemed to be Level 3 investments.
The following table summarizes the interest expenses and amortization of debt issuance costs incurred on the Notes for the three and nine months ended September 30, 2025 and 2024 (dollars in thousands):
|
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
2026 Notes interest |
$ |
569 |
$ |
506 |
$ |
1,707 |
$ |
1,518 |
||||||||
|
2028 Notes interest |
575 |
513 |
1,725 |
1,539 |
||||||||||||
|
Amortization of debt issuance costs |
25 |
25 |
73 |
73 |
||||||||||||
|
Effect of interest rate swap |
108 |
170 |
237 |
560 |
||||||||||||
|
Total |
$ |
1,277 |
$ |
1,214 |
$ |
3,742 |
$ |
3,690 |
||||||||
|
Weighted average stated interest rate, net of effect of interest rate swaps (annualized) |
9.9 |
% |
9.5 |
% |
9.8 |
% |
9.7 |
% |
||||||||
|
Weighted average outstanding balance |
50,000 |
50,000 |
50,000 |
50,000 |
||||||||||||
Contractual Obligations
The following table shows the contractual maturities of our debt obligations as of September 30, 2025 (dollars in thousands):
|
Payments Due by Period |
||||||||||||||||||||
|
Contractual Obligations |
Total |
Less than |
1 to 3 |
3 to 5 |
More than |
|||||||||||||||
|
SMBC Facility |
31,600 |
- |
- |
31,600 |
- |
|||||||||||||||
|
2026 Notes |
25,000 |
- |
25,000 |
- |
- |
|||||||||||||||
|
2028 Notes |
25,000 |
- |
- |
25,000 |
- |
|||||||||||||||
|
VCC CLO |
377,500 |
- |
- |
- |
377,500 |
|||||||||||||||
|
Total debt obligations |
$ |
459,100 |
$ |
- |
$ |
25,000 |
$ |
56,600 |
$ |
377,500 |
||||||||||
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Related-Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
•
the Investment Advisory Agreement;
•
the Administration Agreement;
•
the Expense Reimbursement Agreement;
•
the Fronting Letter Agreement; and
•
the Placement Agent Agreements.
For more information on the above agreements, see "Note 7. Related Party Transactions" to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On June 3, 2025, the Company and certain of its affiliates were granted an order for co-investment exemptive relief by the SEC based on an updated model of co-investment order that was recently granted by the SEC (the "Order"). The Order supersedes the prior exemptive order granted on December 22, 2022. The Order permits the Company to participate in negotiated co-investment transactions with other funds managed by the Adviser and certain other affiliates pursuant to the conditions of the Order. The Order requires that a "required majority" (as defined in Section 57(o) of the 1940 Act) of the Board make certain findings with respect to the following, among other things: (1) when the Company co-invests with an affiliated entity (as defined in the exemptive application) in an issuer where an affiliated entity has an existing investment in the issuer under certain circumstances, and (2) if the Company disposes of an asset acquired in a co-investment transaction unless the disposition is done on a pro rata basis or the disposition is of a tradable security. Pursuant to the Order, the Board will oversee the Company's participation in the co-investment program. As required by the Order, the Company has adopted, and the Board has approved, policies and procedures reasonably designed to ensure the Company's compliance with the conditions of the Order, and the Adviser and the Company's Chief Compliance Officer will provide reporting to the Board.
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Off-Balance Sheet Arrangements
Portfolio Company Commitments
As of September 30, 2025 and December 31, 2024, we had commitments under loan and financing agreements to fund up to $110.7 million to 67 portfolio companies and $112.5 million to 53 portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, including underlying investments in the SDLP, and an analysis of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of September 30, 2025 and December 31, 2024 are shown in the table below (dollars in thousands):
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|
Issuer |
As of September 30, 2025 |
As of December 31, 2024 |
||||||
|
360 Partners LLC |
3,044 |
- |
||||||
|
360 Partners LLC |
1,739 |
- |
||||||
|
3G Intermediate, Inc. |
- |
1,333 |
||||||
|
3G Intermediate, Inc. |
400 |
667 |
||||||
|
Accupac, LLC |
652 |
1,304 |
||||||
|
ACP Oak Buyer, Inc. |
1,665 |
553 |
||||||
|
ACP Oak Buyer, Inc. |
1,498 |
- |
||||||
|
ACP Oak Buyer, Inc. |
1,665 |
- |
||||||
|
ACP Vault Acquisition, Inc. |
1,036 |
1,036 |
||||||
|
ACP Vault Acquisition, Inc. |
1,943 |
1,943 |
||||||
|
ADPD Holdings, LLC |
- |
6 |
||||||
|
ADPD Holdings, LLC |
- |
11 |
||||||
|
ADPD Holdings, LLC |
- |
2 |
||||||
|
Advanced Web Technologies Holding Company |
258 |
235 |
||||||
|
Advanced Web Technologies Holding Company |
608 |
845 |
||||||
|
Alert SRC Newco LLC |
652 |
2,013 |
||||||
|
Alert SRC Newco LLC |
604 |
604 |
||||||
|
Allergy & Clinical MidCo, LLC |
2,354 |
- |
||||||
|
Allergy & Clinical MidCo, LLC |
257 |
- |
||||||
|
Apex Dental Partners, LLC |
759 |
759 |
||||||
|
Apex Dental Partners, LLC |
2,088 |
2,172 |
||||||
|
Basin Innovation Group, LLC |
329 |
1,773 |
||||||
|
Basin Innovation Group, LLC |
1,266 |
1,266 |
||||||
|
Bebright MSO, LLC |
- |
285 |
||||||
|
Bebright MSO, LLC |
1,237 |
1,237 |
||||||
|
Big Bucks Acquisition Corporation |
756 |
- |
||||||
|
Boulder Scientific Company, LLC |
71 |
- |
||||||
|
BPCP NSA Intermedco, Inc. |
988 |
1,409 |
||||||
|
BPCP NSA Intermedco, Inc. |
996 |
996 |
||||||
|
BRG Acquisition Co., LLC |
600 |
600 |
||||||
|
Castleworks Home Services Company |
7 |
7 |
||||||
|
Concord III, L.L.C., |
52 |
105 |
||||||
|
Distinct Holdings, Inc. |
1,590 |
1,590 |
||||||
|
DRML Holdings LLC |
2,000 |
- |
||||||
|
DRML Holdings LLC |
1,333 |
- |
||||||
|
Easy Ice, LLC |
1,143 |
1,352 |
||||||
|
Easy Ice, LLC |
- |
1,500 |
||||||
|
Easy Ice, LLC |
690 |
750 |
||||||
|
Eventus Buyer, LLC |
1,730 |
1,730 |
||||||
|
Eventus Buyer, LLC |
404 |
750 |
||||||
|
Express Wash Acquisition Company, LLC |
180 |
115 |
||||||
|
Eye Health America, LLC |
184 |
475 |
||||||
|
Eye Health America, LLC |
528 |
600 |
||||||
|
FS Squared Holding Corp. |
- |
203 |
||||||
|
FS Squared Holding Corp. |
60 |
95 |
||||||
|
FS Squared Holding Corp. |
14 |
46 |
||||||
|
Gen4 Dental Partners OPCO, LLC |
586 |
585 |
||||||
|
Gen4 Dental Partners OPCO, LLC |
2,342 |
2,927 |
||||||
|
Graffiti Buyer, Inc. |
1,213 |
1,213 |
||||||
|
Healthfuse, LLC |
1,442 |
- |
||||||
|
Hissho Parent, LLC |
635 |
635 |
||||||
|
HLSG Intermediate, LLC |
25 |
- |
||||||
|
HLSG Intermediate, LLC |
121 |
- |
||||||
|
Horizon Freight Holdings, Inc. |
1,543 |
1,543 |
||||||
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|
Horizon Freight Holdings, Inc. |
1,543 |
1,543 |
||||||
|
Horizon Freight Holdings, Inc. |
634 |
757 |
||||||
|
HTI Intermediate, LLC |
657 |
536 |
||||||
|
HTI Intermediate, LLC |
- |
321 |
||||||
|
Hub Pen Company, LLC |
472 |
629 |
||||||
|
JTM Foods LLC |
23 |
2 |
||||||
|
KL Bronco Acquisition, Inc. |
364 |
482 |
||||||
|
KL Bronco Acquisition, Inc. |
714 |
1,250 |
||||||
|
KL Charlie Acquisition Company |
52 |
52 |
||||||
|
Krayden Holdings, Inc. |
865 |
1,251 |
||||||
|
Krayden Holdings, Inc. |
678 |
837 |
||||||
|
Krayden Holdings, Inc. |
- |
386 |
||||||
|
Krayden Holdings, Inc. |
- |
386 |
||||||
|
Lav Gear Intermediate Holdings, INC. |
73 |
- |
||||||
|
Leiters, Inc. |
56 |
167 |
||||||
|
Lightspeed Buyer, Inc. |
318 |
318 |
||||||
|
Lightspeed Buyer, Inc. |
- |
8,843 |
||||||
|
M&D Midco, Inc. |
3,503 |
3,503 |
||||||
|
M&D Midco, Inc. |
1,002 |
1,763 |
||||||
|
MDI Buyer, Inc. |
280 |
220 |
||||||
|
MDI Buyer, Inc. |
1,837 |
- |
||||||
|
Municipal Emergency Services, Inc. |
- |
2,472 |
||||||
|
MWD Management, LLC |
333 |
300 |
||||||
|
NBPT Acquisition LLC |
1,998 |
- |
||||||
|
NBPT Acquisition LLC |
444 |
- |
||||||
|
NS and Associates LLC |
468 |
- |
||||||
|
OIS Management Services, LLC |
1,550 |
2,563 |
||||||
|
OIS Management Services, LLC |
577 |
577 |
||||||
|
Oliver Packaging, LLC |
411 |
411 |
||||||
|
Online Labels Group, LLC |
11 |
11 |
||||||
|
Online Labels Group, LLC |
9 |
9 |
||||||
|
Online Labels Group, LLC |
4 |
9 |
||||||
|
Pediatric Home Respiratory Services, LLC |
2,250 |
2,250 |
||||||
|
Pediatric Home Respiratory Services, LLC |
800 |
1,050 |
||||||
|
QM Buyer, Inc. |
2,306 |
2,306 |
||||||
|
QM Buyer, Inc. |
1,153 |
1,153 |
||||||
|
RBS Buyer Inc. |
918 |
- |
||||||
|
RBS Buyer Inc. |
551 |
- |
||||||
|
RFI Buyer, Inc. |
11 |
11 |
||||||
|
RFI Buyer, Inc. |
155 |
- |
||||||
|
RFI Buyer, Inc. |
1,154 |
- |
||||||
|
RWA Wealth Partners, LLC |
6,111 |
6,511 |
||||||
|
RWA Wealth Partners, LLC |
1,861 |
1,944 |
||||||
|
Senior Direct Lending Program, LLC |
8,720 |
17,005 |
||||||
|
SGA Dental Partners Opco, LLC |
- |
1,491 |
||||||
|
SHF Holdings, Inc. |
25 |
- |
||||||
|
SI Holdings, Inc. |
- |
522 |
||||||
|
Source Holding Delaware, LLC |
675 |
- |
||||||
|
Source Holding Delaware, LLC |
1,730 |
- |
||||||
|
Techmer BB Bidco, LLC |
3 |
3 |
||||||
|
Titan Group Holdco, LLC |
586 |
586 |
||||||
|
Titan Group Holdco, LLC |
586 |
586 |
||||||
|
Titan Group Holdco, LLC |
586 |
586 |
||||||
|
UHY Advisors, Inc. |
1,617 |
1,753 |
||||||
|
UHY Advisors, Inc. |
6,207 |
6,623 |
||||||
|
US Health Partners Management, LLC |
22 |
22 |
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|
US Health Partners Management, LLC |
11 |
11 |
||||||
|
U.S. Urology Partners, LLC |
853 |
- |
||||||
|
U.S. Urology Partners, LLC |
1,706 |
- |
||||||
|
USN Opco, LLC |
556 |
556 |
||||||
|
USSC Holding Corp. |
285 |
518 |
||||||
|
Velocity Buyer, Inc. |
1,781 |
- |
||||||
|
VG Target Holdings, LLC |
82 |
- |
||||||
|
VTC Buyer Corp |
583 |
- |
||||||
|
VTC Buyer Corp |
505 |
- |
||||||
|
VTC Buyer Corp |
832 |
- |
||||||
|
Xifin, Inc. |
474 |
- |
||||||
|
Zavation Medical Products, LLC |
- |
101 |
||||||
|
Zep Holdco Inc. |
840 |
- |
||||||
|
Total Unfunded Commitments |
$ |
110,698 |
$ |
112,456 |
Also included within commitments, as of September 30, 2025 and December 31, 2024, were commitments to issue up to $0.2 million and $0.1 million, respectively, in letter of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2025, the Company had not issued any letters of credit. If the Company were to issue any letters of credit, it would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated statements of assets and liabilities. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Critical accounting policies are those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods.
Valuation of Portfolio Securities.
Investments are valued at the end of each calendar quarter. Most of our investments may be in loans that do not have readily available market quotations. Assets that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by the Board. In connection with that determination, portfolio company valuations will be prepared using sources, preliminary valuations obtained from independent valuation firms depending on the availability of information on our assets and the type of asset being valued, all in accordance with our valuation policy. The participation of the Adviser in the valuation process could result in a conflict of interest because the Adviser's management fee is based in part on our gross assets.
Because fair values, and particularly fair values of private securities and private companies, are inherently uncertain, they may fluctuate over short periods of time, and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, our determinations of fair value may differ materially from the values that would have been determined if a ready market for these securities existed. This could make it more difficult for our shareholders to value accurately our portfolio investments and could lead to undervaluation or overvaluation of our interests. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.
NAV as of a particular date may be materially greater than or less than the value that would be realized if assets were to be liquidated as of such date. For example, if we were required to sell a certain asset or all or a substantial portion of our assets on a particular date, the actual price that we would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in our NAV. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in NAV.
For more information regarding the fair value hierarchies, our framework for determining fair value and the composition of our portfolio, see "Note 2. Significant Accounting Policies" to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Revenue Recognition
Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.
Investment Income
Interest income, including amortization of premium and accretion of discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. The Company records amortized or accreted discounts or premiums as interest income using the effective interest method and is adjusted only for material amendments or prepayments. Dividend income, which represents dividends from equity investments and distributions from subsidiaries, if any, is recognized on an accrual basis to the extent that the Company expects to collect such amount.
Interest income from investments in the Subordinated Certificates of SDLP is recorded based on an estimate of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC Topic 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash flows from these investments, including the expected residual payments, and the effective yield is determined and updated periodically. Any difference between the cash distribution received and the amount calculated pursuant to the effective interest method is recorded as an adjustment to the cost basis of such investments.
PIK Interest
The Company may, from time to time, hold loans in its portfolio that contain a payment-in-kind ("PIK") interest provision. PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the principal balance of the loan, rather than being paid to the Company in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment.
PIK interest, which is a non-cash source of income at the time of recognition, is included in the Company's taxable income, and therefore affects the amount the Company would be required to distribute to its shareholders to maintain its tax treatment as a RIC for federal income tax purposes, even though the Company had not yet collected the cash. For the three and nine months ended September 30, 2025, the Company earned PIK interest of $0.6 million and $2.0 million, respectively, reflected on the accompanying consolidated statements of operations as part of interest income. For the three and nine months ended September 30, 2024, the Company earned PIK interest of $0.7 million and $1.2 million, respectively.
When the Company does not expect the borrower will be able to pay future accrual of PIK interest, the Company will place the investment's PIK interest on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes. As of September 30, 2025, the Company had an investment in one portfolio company that was current on cash interest payments and was on non-accrual status with respect to its PIK interest only.
Fee Income
Origination fees received are recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan, any unamortized origination fees are recorded as investment income. The Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees, covenant waiver fees and loan amendment fees, and are recorded as investment income when earned. Some of the fees earned by the Company may be PIK fee income. For the three and nine months ended September 30, 2025 and 2024, the Company did not earn any PIK fee income.
Non-accrual loans
A loan can be left on accrual status during the period the Company is pursuing repayment of the loan. Management reviews all loans that become 90 days or more past due on principal and interest, or when there is reasonable doubt that principal or interest will be collected, for possible placement on non-accrual status. When a loan is placed on non-accrual status, unpaid interest credited to income is reversed. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans are recognized as income or applied to principal depending upon management's judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid, and, in management's judgment, payments are likely to remain current. As of September 30, 2025, certain loans in one portfolio company held by the Company were on non-accrual with an aggregate amortized cost of $6.1 million and a fair value of $2.2 million, respectively. As of December 31, 2024 there were no loans on non-accrual.
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Recent Developments
Dividend Declaration
On November 5, 2025, the Board declared a dividend of $0.2400 per share and a special dividend of $0.0185 per share, both payable on January 16, 2026 to shareholders of record as of the close of business on December 31, 2025.
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Varagon Capital Corporation published this content on November 07, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 07, 2025 at 20:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]