Lafayette Square USA Inc.

03/25/2026 | Press release | Distributed by Public on 03/25/2026 13:02

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(dollar amounts in thousands, except per share data, unless otherwise indicated)
The following discussion and other parts of this report contain forward-looking information that involves risks and
uncertainties. References to "we," "us," "our," and the "Company," means Lafayette Square USA, Inc., unless otherwise
specified. The discussion and analysis contained in this section refers to our financial condition, results of operations and
cash flows. The information contained in this section should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this report. Please see "Cautionary Statement Regarding Forward-
Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with this discussion and
analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to
factors discussed under "Cautionary Statements Regarding Forward-Looking Statements" appearing elsewhere in this
report.
Overview
Lafayette Square USA, Inc. is an externally managed, closed-end, non-diversified management investment company that
provides capital to middle market businesses located in or employing Working Class American communities. We generate
revenue primarily through interest income on debt investments and, to a lesser extent, capital gains and fee income. We are
externally managed by LS BDC Adviser, LLC (the "Adviser") and have elected to be regulated as a business development
company under the Investment Company Act of 1940, as amended, and to be treated as a regulated investment company
under Subchapter M of the IRC.
Investment Objective and Strategy
Our investment objective is to generate favorable risk-adjusted returns, consisting primarily of current income and, to a
lesser extent, capital appreciation. We invest primarily in first and second lien senior secured loans and, to a lesser extent,
in subordinated and mezzanine loans and equity and equity-like securities, including common stock, preferred stock and
warrants. Our debt investments typically bear floating interest rates and generally include financial maintenance covenants
and comprehensive collateral packages.
We focus on non-sponsored middle market companies with annual revenues between $10 million and $1 billion and
EBITDA between $10 million and $100 million, although we may invest in larger or smaller companies. We originate
investments primarily through direct engagement with business owners and management teams, supported by data and
analytics technology that integrates company-level information with place-based socioeconomic data to identify investment
opportunities, support underwriting decisions, and monitor portfolio performance. We also may purchase interests in loans
or other instruments through secondary market transactions.
Key Components of Operations
Expenses
We expect our primary annual operating expenses to include advisory fees and the reimbursement of expenses under our
Investment Advisory Agreement and our Administration Agreement, respectively. We also bear other expenses, which
include:
•our initial organization costs and operating costs incurred prior to the filing of our election to be regulated as a
BDC (in connection with our formation and the initial closing of the private offering of shares of our Common
Stock);
•the costs associated with our private offering and any subsequent offerings of our securities;
•calculating individual asset values and our net asset value (including the cost and expenses of third-party valuation
services);
•out-of-pocket expenses, including travel expenses, incurred by the Adviser, or members of its investment team, or
payable to third parties, performing due diligence on prospective portfolio companies, dead deal or broken deal
expenses and, if necessary, enforcing our rights;
•certain costs and expenses relating to distributions paid by us;
•administration and related expenses payable under the Administration Agreement;
•fees and expenses associated with marketing efforts, including attendance at investment conferences and similar
events
•debt service and other costs of borrowings or other financing arrangements;
•the allocated costs incurred in connection with providing services to employees of portfolio companies (of the
type described in Item I. "Business-Investment Strategy");
•amounts payable to third parties relating to, or associated with, making or holding investments;
•transfer agent and custodial fees;
•costs of hedging;
•commissions and other compensation payable to brokers or dealers;
•federal and state registration fees;
•any stock exchange listing fees and fees payable to rating agencies;
•the cost of effecting any sales and repurchases of our Common Stock and other securities;
•U.S. federal, state and local taxes;
•independent director fees and expenses;
•costs of preparing consolidated financial statements and maintaining books and records, costs of preparing tax
returns, costs of compliance with SOX, and attestation and costs of filing reports or other documents with the SEC
(or other regulatory bodies) and other reporting and compliance costs, including registration and listing fees, and
the compensation of professionals responsible for the preparation or review of the foregoing;
•the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing
costs), the costs of any stockholders' meetings and the compensation of investor relations personnel responsible
for the preparation of the foregoing and related matters;
•the costs of specialty and custom software expense for monitoring risk, compliance and overall investments;
•our fidelity bond;
•any necessary insurance premiums;
•extraordinary expenses (such as litigation or indemnification payments or amounts payable pursuant to any
agreement to provide indemnification entered into by the Company);
•direct fees and expenses associated with independent audits, agency, consulting and legal costs; costs of winding
up;
and other expenses incurred by either the Administrator or us in connection with administering our business, including
payments under the Administration Agreement based upon our allocable portion of the compensation paid to our Chief
Financial Officer and Chief Compliance Officer and their respective staffs. We also includethe cost of providing
managerial assistance upon request to portfolio companies, and reimbursements of third-party expenses incurred by the
Administrator in carrying out its administrative services, including providing assistance in accounting, legal, compliance,
operations, technology, internal audit, investor relations, and loan agency services (including any internal and third party
service providers and/or software solutions related to the foregoing), and being responsible for the financial records that
we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, our
Administrator assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax
returns and the printing and dissemination of reports to our stockholders, our internal control assessment under the
Sarbanes-Oxley Act, and generally overseeing the payment of our expenses and the performance of administrative and
professional services rendered to us by others. We expect our general and administrative expenses to be relatively stable or
to decline as a percentage of total assets during periods of asset growth and to increase proportionally when our asset value
declines.
On December 30, 2021, we entered into an expense support and conditional reimbursement agreement (the "Expense
Support Agreement") with the Adviser. The Adviser may elect to pay certain of our expenses on our behalf (each, an
"Expense Payment"), provided that no portion of the payment will be used to pay any of our interest expense or
shareholder servicing and/or distribution fees. Any Expense Payment that the Adviser hascommitted to pay must be paid
by the Adviser to us in any combination of cash or other immediately available funds no later than 45 daysafter such
commitment was made in writing, and/or offset against amounts due from us to the Adviser or its affiliates. Our obligation
to make a Reimbursement Payment will automatically become a liability of ours on the last business day of the applicable
calendar quarter, except to the extent the Adviser has waived its right to receive such payment for the applicable quarter.
As of December 31, 2025and December 31, 2024, we had no Unreimbursed Expense Payable under the Expense Support
Agreement.
Leverage
The amount of leverage we use in any period depends on a number of factors, including cash on-hand available for
investing, the cost of financing and general economic and market conditions. Prior to the Small Business Credit
Availability Act being signed into law, a BDC generally was not permitted to incur indebtedness unless immediately after
such borrowing it has an asset coverage for total borrowings of at least 200%. The Small Business Credit Availability Act,
signed into law on March 23, 2018, contains a provision that grants a BDC the option, subject to certain conditions and
disclosure obligations, to reduce the asset coverage requirement to 150%. In April 2021, our Board and initial stockholder
approved the reduced asset coverage ratio.
On September 30, 2024, we received an exemptive relief from the SEC to permit us to exclude the debt of the LS SBICs
that are guaranteed by the SBA from the 150% asset coverage ratio we are required to maintain under the 1940 Act. With
this exemptive relief, we have increased capacity to fund up to $175.0 million (the maximum amount of SBA-guaranteed
debentures an SBIC may currently have outstanding once certain conditions have been met) of investments in each LS
SBIC with SBA-guaranteed debentures in addition to being able to fund investments with borrowings up to the maximum
amount of debt that the 150% asset coverage ratio limitation would allow us to incur.
Portfolio and Investment Activity
The following table summarizes our portfolio and investment activity during the years ended December 31, 2025,
December 31, 2024and December 31, 2023(information presented herein is at amortized cost in thousands, except per
share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Total Investments, beginning of period
$556,863
$271,523
$84,545
New investments purchased
458,081
347,622
190,068
Net accretion of discount on investments
2,468
1,374
Net realized gains (losses) on investments
-
Investments sold or repaid
(227,174)
(63,754)
(3,496)
Total Investments, end of period
$790,441
$556,863
$271,523
Portfolio companies, at beginning of period
Number of new portfolio companies
Number of exited portfolio companies
(4)
(1)
-
Portfolio companies, at end of period
As of December 31, 2025and December 31, 2024, the Company's investments consisted of the following (dollar amounts
in thousands, except per share data, unless otherwise indicated):
December 31, 2025
Amortized Cost
Fair Value
Subordinated debt
$690,548
87.4%
$689,683
87.4%
Equity
48,364
6.1%
47,880
6.1%
Preferred equity
46,604
5.9%
46,713
5.9%
Subordinated debt
3,425
0.4%
3,437
0.4%
Convertible note
1,500
0.2%
1,500
0.2%
Warrants
-
-%
-
-%
Total
$790,441
100.0%
$789,213
100.0%
December 31, 2024
Amortized Cost
Fair Value
First lien senior secured loans
$540,064
97.0%
$540,195
96.9%
Equity
11,909
2.1%
12,028
2.2%
Subordinated debt
1,738
0.3%
1,712
0.3%
Preferred equity
1,652
0.3%
1,652
0.3%
Convertible note
1,500
0.3%
1,500
0.3%
Warrants
-
-%
-
-%
Total
$556,863
100.0%
$557,087
100.0%
The tables below describe investments by industry composition based on fair value as of December 31, 2025and
December 31, 2024(dollar amounts in thousands, except per share data, unless otherwise indicated):
December 31, 2025
Amortized Cost
Fair Value
Professional Services
$81,543
10.3%
$82,156
10.4%
Commercial Services & Supplies
72,767
9.3%
72,927
9.2%
Hotels, Restaurants & Leisure
65,740
8.3%
65,974
8.4%
Construction & Engineering
55,085
7.0%
55,241
7.0%
Specialized Consumer Services
54,727
6.9%
55,080
7.0%
Road & Rail
52,124
6.6%
45,140
5.7%
Media
35,757
4.5%
39,346
5.0%
Diversified Financial Services
37,532
4.7%
37,788
4.8%
Health Care Providers & Services
37,589
4.8%
37,723
4.8%
IT Services
36,875
4.7%
37,222
4.7%
Independent Power & Renewable
36,338
4.6%
36,499
4.6%
Transportation Infrastructure
31,671
4.0%
31,994
4.1%
Real Estate Management & Development
27,486
3.5%
26,934
3.4%
Health Care Equipment & Services
23,210
2.9%
22,990
2.9%
Diversified Consumer Services
22,028
2.8%
22,127
2.8%
Aerospace & Defense
19,657
2.5%
19,512
2.5%
Insurance
18,000
2.3%
18,000
2.3%
Food Products
16,924
2.1%
16,966
2.1%
Diversified Telecommunication Services
15,872
2.0%
15,870
2.0%
Electrical Equipment
12,441
1.6%
12,538
1.6%
Gas Utilities
10,661
1.3%
10,675
1.4%
Food & Staples Retailing
9,888
1.3%
9,986
1.3%
Health Care Distributors
7,802
1.0%
7,842
1.0%
Diversified Real Estate Activities
4,343
0.5%
4,286
0.5%
Water Utilities
3,381
0.4%
3,397
0.4%
Human Resource & Employment
Services
1,000
0.1%
1,000
0.1%
Total
$790,441
100.0%
$789,213
100.0%
December 31, 2024
Amortized Cost
Fair Value
Commercial Services & Supplies
$66,606
12.0%
$66,901
12.1%
Professional Services
57,752
10.4%
58,135
10.4%
Specialized Consumer Services
39,897
7.2%
40,288
7.2%
Road & Rail
41,613
7.5%
39,900
7.2%
Interactive Media & Services
34,011
6.1%
34,293
6.2%
IT Services
33,807
6.1%
33,820
6.1%
Media
34,140
6.1%
32,725
5.9%
Diversified Financial Services
28,388
5.1%
28,492
5.1%
Transportation Infrastructure
26,252
4.7%
26,530
4.8%
Water Utilities
23,112
4.2%
23,454
4.2%
Health Care Equipment & Services
19,702
3.5%
19,949
3.6%
Application Software
18,288
3.3%
18,400
3.3%
Health Care Providers & Services
17,595
3.2%
17,768
3.2%
Construction & Engineering
17,427
3.1%
17,428
3.1%
Pharmaceuticals
16,278
2.9%
16,426
2.9%
Aerospace & Defense
16,069
2.9%
16,108
2.9%
Electric Utilities
12,286
2.2%
12,500
2.2%
Restaurants
11,714
2.1%
11,783
2.1%
Hotels, Restaurants & Leisure
10,688
1.9%
10,877
2.0%
Gas Utilities
10,737
1.9%
10,787
1.9%
Real Estate Management & Development
9,184
1.6%
9,182
1.6%
Independent Power & Renewable
8,388
1.5%
8,388
1.5%
Diversified Consumer Services
2,459
0.4%
2,459
0.4%
Food & Staples Retailing
0.1%
0.1%
Total
$556,863
100.0%
$557,087
100.0%
Certain portfolio companies have been reclassified to updated GICS industry categories in the current year. The December
31, 2024 industry presentation has not been restated to reflect these reclassifications and therefore may not be directly
comparable to the December 31, 2025 presentation.
The weighted average yields at amortized cost and fair value of our portfolio as of December 31, 2025and December 31,
2024were as follows (dollar amount in thousands, except per share data, unless otherwise indicated):
December 31, 2025
December 31, 2024
Amortized Cost
Fair Value
Amortized Cost
Fair Value
First lien senior secured loans
11.0%
11.0%
11.3%
11.3%
Subordinated debt
14.2%
14.1%
14.0%
14.2%
Bonds
-%
-%
12.3%
12.3%
Convertible note
10.0%
10.0%
10.0%
10.0%
Weighted Average Yield(1)
10.5%
10.6%
11.4%
11.4%
(1) The weighted average yield of our portfolio does not represent the total return to our stockholders.
December 31, 2025
December 31, 2024
Number of portfolio companies
Percentage of performing debt bearing a floating rate (1)
85.4%
95.5%
Percentage of performing debt bearing a fixed rate (1)(2)
14.6%
4.5%
Weighted average spread over SOFR of all accruing floating rate
investments
6.5%
6.7%
Weighted average EBITDA (in millions) (3)
$20.0
$22.2
Weighted average leverage (net debt/EBITDA)(4)
3.6x
3.7x
Weighted average interest coverage(4)
2.6x
2.4x
(1) Measured as a percentage of total portfolio investments at fair value. Excludes equity-like investments and debt
investments, if any, placed on non-accrual.
(2) Includes equity-like investments with coupon-bearing and income-generating structure notes and preferred stock
investments, if applicable.
(3) Figures are based on portfolio company financial statements available to the Company at period end.
(4) Net debt includes debt that ranks both senior and equally with the tranche of debt owned by us but excludes debt
that is legally and contractually subordinated in right of payment to debt owned by us. Weighted average net debt to
EBITDA is weighted based on the fair value of our debt investments, excluding investments where net debt to
EBITDA may not be the appropriate measure of credit risk. Weighted average interest coverage is weighted based on
the fair value of our performing debt investments, excluding investments where interest coverage may not be the
appropriate measure of credit risk.
During the year ended December 31, 2025, we received aggregate proceeds of $75.9 million from the full repayment of
five portfolio company debt investments. Four of these repayments represented full exits from the respective portfolio
companies. In connection with the repayment of Global K9 Companies LLC, the Company continues to hold an equity
position through IVM GK9 Holdings LLC. In connection with these repayments, we received aggregate prepayment fees
of approximately$0.4 million and recognized net realized gains of approximately $0.2 million. The following table
summarizes our investment dispositions during the periods presented:
Portfolio Company
Region
Industry
Payoff
Date
Cash
proceeds
Realized G/L
Year Ended December 31, 2025
Global K9 Companies LLC
Southeast
Commercial Services &
Supplies
2/12/2025
$22,434
-
Dartpoints Operating Company LLC
Gulf Coast
IT Services
4/24/2025
$3,489
$51
Cafe Zupas, L.C.
Four Corners
Hotels, Restaurants &
Leisure
6/4/2025
$11,733
-
H.W. Lochner Inc.
Great Lakes
Transportation
Infrastructure
7/23/2025
$7,654
$119
M&S Acquisition Corporation
Far West
Professional Services
12/23/2025
$30,567
-
Total
$75,877
$170(1)
Year Ended December 31, 2024
Critical Nurse Staffing, LLC
Four Corners
Health Care Services
12/30/2024
$14,034
-
All investment dispositions during the years ended December 31, 2025, and 2024 consisted of full repayments of first lien
senior secured floating-rate debt investments, with the exception of Global K9 Companies LLC, for which the term loan
was repaid while an equity position is retained. No dispositions during either period resulted from credit deterioration or
distressed sales.The exited investments spanned six industries across five geographic regions, reflecting the diversification
of the portfolio. There were no investment dispositions during the year ended December 31, 2023.
Portfolio turnover, calculated as the lesser of purchases or dispositions divided by the average fair value of the investment
portfolio, was approximately 24% for the year ended December 31, 2025.
(1) Reflects net realized gains from full position exits only and does not include realized gains or losses from other
portfolio activity, including scheduled principal paydowns and other investment transactions. See Note 4 to the
consolidated financial statements for total net realized gains (losses) on investments.
Subsequent to December 31, 2025, on March 9, 2026, TCFIII OWL Buyer LLC repaid in full its outstanding first lien
senior secured term loans, with aggregate repayments of approximately $10.7 million.
Ongoing monitoring and risk management of each asset is conducted by the Adviser's Portfolio Monitoring team under the
supervision of our Chief Risk Officer. The Portfolio Monitoring team is separate and distinct from the Adviser's
investment team, and has as its primary responsibilities to:
•formally monitor portfolio companies post-investment on an ongoing basis;
•perform quarterly valuations of all assets in partnership with third-party valuation agent(s);
•maintain and update internal and external asset ratings;
•oversee BDC-level monitoring; and
•lead amendment, "work out," and restructurings processes.
Portfolio Monitoring monitors the financial trends of each portfolio company to determine if it is meeting its respective
business plan and to assess the appropriate course of action with respect to investments in each portfolio company.
Portfolio Monitoring has several methods of evaluating and monitoring the performance and fair value of our investments,
which may include the following:
•periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic
sponsor, to discuss financial position, requirements and variants from approved budgets and internal projections;
•assessment of performance relative to business plan and key operating metrics and compliance with financial
covenants;
•assessment of performance relative to industry benchmarks or portfolio comparables, if any;
•attendance at and participation in board meetings and lender calls; and
•review of monthly, quarterly and annual audited financial statements and financial projections of portfolio
companies.
As part of the monitoring process, our Adviser employs an investment rating system to categorize our investments. In
addition to various risk management and monitoring tools, our Adviser rates the credit risk of all 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
investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or
acquisition), although it may also take into account the performance of the portfolio company's business, the collateral
coverage of the investment and other relevant factors. The rating system is as follows:
Investment Rating
Description
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 the time of origination
or acquisition are generally favorable which may include the performance of the portfolio
company or a potential exit.
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 neutral
to favorable. All investments or acquired investments in new portfolio companies are initially
assessed a rating of 2.
Involves a borrower performing below expectations and indicates that the loan's risk has
increased since origination or acquisition. The borrower could be out of compliance with debt
covenants; however loan payments are generally not past due.
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)
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 following table shows the distribution of the Company's investments on the 1 to 5 internal risk rating scale as of
December 31, 2025and December 31, 2024(dollar amounts in thousands, except per share data, unless otherwise
indicated):
December 31, 2025
December 31, 2024
Investment Rating
Investments at
Fair Value
Percentage of
Total Investments
Investments at
Fair Value
Percentage of
Total Investments
$-
-%
$-
-%
703,603
89.2%
483,968
86.9%
40,470
5.1%
73,119
13.1%
45,140
5.7%
-
-
-
-
-
-
Total
$789,213
100.0%
$557,087
100.0%
Resultsof Operations
The following diagram illustrates the composition of the Company's investment income, operating expenses, and resulting
net investmentincome for the year ended December 2025 and December 31, 2024
(1) Rounding
The following table represents the operating results for the years ended December 31, 2025, December 31, 2024and
December 31, 2023(dollar amounts in thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Total investment income
$84,650
$56,234
$20,751
Total expenses, including expense support
reimbursement
49,130
26,647
12,038
Net investment income (loss)
35,520
29,587
8,713
Net realized gains (losses) on investments
-
Net change in unrealized gains (losses)
(1,452)
(1,846)
2,272
Net increase (decrease) in net assets resulting
from operations
$34,271
$27,839
$10,985
Investment Income
The composition of the Company's investment income was as follows (dollar amounts in thousands, except per share data,
unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Investment income
Interest income
$78,261
$51,417
$18,567
Fee income
1,892
1,135
Interest from cash and cash equivalents
4,497
3,682
2,114
Total investment income
$84,650
$56,234
$20,751
The increase in total investment income from $56.2million for the year ended December 31, 2024to $84.7million for the
year ended December 31, 2025was primarily driven by our deployment of capital and growth in average invested balance
over the period. New investments during the year consisted primarily of directly originated, first lien senior secured loans
to non-sponsored middle market borrowers across our Target Regions, consistent with our investment strategy. The growth
in investment income was partially offset by a 20 basis point compression in the weighted average spread over SOFR,
reflecting broader private credit market conditions during the period.
Expenses
The following table summarizes the Company's expenses for the years ended December 31, 2025, December 31, 2024and
December 31, 2023(dollar amounts in thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest and financing expenses
$29,229
$10,255
$2,049
Management fee
6,617
4,136
1,640
Incentive fee
6,259
5,272
1,615
General and administrative expenses
2,285
1,831
1,441
Administrative services fee
1,800
2,048
1,485
Professional fees
1,574
1,082
Legal fees
1,042
Directors' fees
Income tax expense
-
Organizational costs
Placement fees
-
1,131
Offering expenses
-
-
Total expenses
$49,130
$26,647
$11,586
Expense support reimbursement
-
-
Total expenses, including expense support
reimbursement
$49,130
$26,647
$12,038
Total expenses before expense support increased to $49.1million for the year ended December 31, 2025from $26.6
million for the year ended December 31, 2024. The Company did not receive expense support from the Adviser during the
year ended December 31, 2025or December 31, 2024.
Interest and financing expenses increased to $29.2millionfor the year ended December 31, 2025compared to $10.3
millionfor the year ended December 31, 2024primarily due to an expansion of funding sources from SBA-guaranteed
debentures, the ING Credit Facility, Notes, and Repurchase Obligations.
The increase in management fees for the year ended December 31, 2025when compared to the year ended December 31,
2024was driven by our deployment of capital and an increase in average gross assets.
Incentive fees increased to $6.3million for the year ended December 31, 2025when compared to $5.3millionfor the year
ended December 31, 2024due to the increase in Net Investment Income. Refer to Note 6 Investment Advisory Agreement
of the Form 10-Kfor a discussion of how the incentive fee is calculated.
The decrease in administrative services fee to $1.8millionfor the year ended December 31, 2025as compared to $2.0
millionfor the year ended December 31, 2024was due to a decrease in the Company's allocable portion of overhead
compensation, rent, office services and equipment, under the Company's Administration Agreement.
General and administrative expenses, legal fees, professional fees and placement fees increased to $4.5millionduring the
year ended December 31, 2025as compared to $4.2millionfor the year ended December 31, 2024primarily driven by the
continued expansion of our investment portfolio and related operational infrastructure, in connection with independent
audit services, external legal services, third-party valuation services for our portfolio, insurance premiums, accounting,
financial preparation and reporting services, and fees paid to the placement agent for the additional commitment closes and
capital draws.
The increase in organizational costs to $139thousand for the year ended December 31, 2025as compared to $46thousand
for the year ended December 31, 2024was primarily related to the formation of certainsubsidiaries of the Company. Refer
to Note 1 of the Form 10-Kon details regarding organizational costs.
Financial Condition, Liquidity and Capital Resources
We generate cash primarily from the proceeds of any private placements of our Common Stock, from interest payments
and fees earned on our investments, and from principal repayments and proceeds from sales of our investments. Our
primary uses of cash include investments in portfolio companies, payments of our expenses and cash distributions to our
stockholders. From time to time, we may explore opportunities to enter into significant corporate control transactions
which, if consummated, could use a material amount of cash and/or require material incremental financing.
Contractual Obligations
We have entered into the Investment Advisory Agreement with our Adviser. Our Adviser agreed to serve as our investment
adviser in accordance with the terms of our Investment Advisory Agreement. Payments under our Investment Advisory
Agreement in each reporting period consist of the base management fee equal to a percentage of the value of our gross
assets as well as an incentive fee based on our performance.
Under the Investment Advisory Agreement, the Adviser manages the day-to-day operations of, and provides investment
advisory services to, the Company. The Board approved the renewal of the Investment Advisory Agreement on May 8,
2025. The Adviser is a registered investment adviser with the SEC. The Adviser receives fees for providing services,
consisting of two components, a base management fee and an incentive fee.
We define a "Liquidity Event" as any of: (1) a quotation or listing of our common stock on a national securities exchange,
including an initial public offering or (2) a Sale Transaction. A "Sale Transaction" means (a) the sale of all or substantially
all of our capital stock or assets to, or another liquidity event with, another entity or (b) a transaction or series of
transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock in each case for
consideration of either cash and/or publicly listed securities of the acquirer. Potential acquirers could include entities that
are not BDCs that are advised by the Adviser or its affiliates.
Base Management Fee
The base management fee ("Management Fee") is payable quarterly in arrears beginning in the period during its initial
capital drawdown from its non-affiliated investors (the "Initial Drawdown") at an annual rate of (i) prior to a Liquidity
Event, 0.75%, and (ii) following a Liquidity Event, 1.0%, in each case of the average value of our gross assets (gross assets
equal the total assets of the Company as set forth on the Company's balance sheet) at the end of the two most recently
completed calendar quarters. No Management Fee is charged on committed but undrawn capital commitments.
For the years ended December 31, 2025, December 31, 2024and December 31, 2023, the Company incurred Management
Fees of $6.6million, $4.1million and $1.6million,respectively. As of December 31, 2025and December 31, 2024, there
was $1.8million and $1.4million of ManagementFee payable to the Adviser, respectively.
Incentive Fee
The Company also pays the Adviser an incentive fee consisting of two parts: (i) an incentive fee based on pre-incentive fee
net investment income (the "Income-Based Fee"), and (ii) the capital gains component of the incentive fee (the "Capital
Gains Fee"). For more information regarding the Income-Based Fee and the Capital Gains Fee, see Note 6 - Related Party
Agreements and Transactions.
For the years ended December 31, 2025, December 31, 2024and December 31, 2023, the Company incurred Income-
Based Fee of $6.3million, $5.3million and $1.6million, respectively. As of December 31, 2025 and December 31, 2024,
$1.5million and $1.3million, respectively, remained payable to the Adviser.
Administration Agreement
We have entered into an Administration Agreement with the Administrator pursuant to which the Administrator furnishes
us with administrative services necessary to conduct our day-to-day operations. The Administrator is reimbursed for
administrative expenses it incurs on our behalf in performing its obligations. Such costs are reasonably allocated to us on
the basis of assets, revenues, time records or other reasonable methods. We do not reimburse our Administrator for any
services for which it receives a separate fee.
If any of our contractual obligations discussed above were terminated, our costs may increase under any new agreements
that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the
services we receive under our Investment Advisory Agreement and Administration Agreement.
For the years ended December 31, 2025and December 31, 2024,our expenses were paid by a related party of the Adviser
and will be reimbursed by us. As of December 31, 2025and December 31, 2024, the total amount owed to the affiliates of
the Adviser is included in the Due to Affiliate line item in the Consolidated Statements of Assets and Liabilities.
For the years ended December 31, 2025, December 31, 2024and December 31, 2023, the Company incurred $1.8 million,
$2.0million, and $1.5million, respectively, in fees under the Administrative Agreement. These fees are included in
administrative service fees in the accompanying Consolidated Statements of Operations. As of December 31, 2025and
December 31, 2024, $0and $0, respectively, were unpaid and included in administrative services fee payablein the
accompanying Consolidated Statements of Assets and Liabilities. No administrative services fee was charged to the
Company prior to the Company's commencement of operations.
Expense Support and Conditional Reimbursement Agreement
On December 30, 2021, we entered into an expense support and conditional reimbursement agreement (the "Expense
Support Agreement") with the Adviser. The Adviser may elect to pay certain of our expenses on our behalf (each, an
"Expense Payment"), so long as no portion of the payment will be used to pay any interest expense or shareholder
servicing and/or distribution fees. Any Expense Payment that the Adviser has committed to pay must be paid by the
Adviser to us in any combination of cash or other immediately available funds no later than forty-five days after such
commitment was made in writing, and/or offset against amounts due from us to the Adviser or its affiliates.
Following any calendar quarter in which Available Operating Funds (as defined below) exceed the cumulative distributions
accrued to our shareholders based on distributions declared with respect to record dates occurring in such calendar quarter
(the amount of such excess being hereinafter referred to as "Excess Operating Funds"), we will pay such Excess Operating
Funds, or a portion thereof, to the Adviser until such time as all Expense Payments made by the Adviser to us within three
years prior to the last business day of such calendar quarter have been reimbursed. Any payments required to be made by
us will be referred to herein as a "Reimbursement Payment." "Available Operating Funds" means the sum of (i) our net
investment company taxable income (including net short-term capital gains reduced by net long-term capital losses), (ii)
our net capital gains (including the excess of net long-term capital gains over net short-term capital losses) and (iii)
dividends and other distributions paid to us on account of investments in portfolio companies (to the extent such amounts
listed in clause (iii) are not included under clauses (i) and (ii) above).
Our obligation to make a Reimbursement Payment shall automatically become a liability of ours on the last business day of
the applicable calendar quarter, except to the extent the Adviser has waived its right to receive such payment for the
applicable quarter.
As of December 31, 2025and December 31, 2024, the Company has noUnreimbursed Expense Payable.
Capital Resources and Borrowings
As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock
senior to shares of our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150%, subject to
receipt of certain approvals and compliance with certain disclosure requirements, immediately after each such issuance.
Section 61(a) of the 1940 Act reduces the asset coverage requirements applicable to BDCs from 200% to 150% so long as
the BDC meets certain disclosure requirements and obtains certain approvals. In April 2021, our Board and initial
stockholder approved the reduced asset coverage ratio. The reduced asset coverage requirements permit us to increase the
maximum amount of leverage that we are permitted to incur by reducing the asset coverage requirements applicable to us
from 200%to 150%. As defined in the 1940 Act, asset coverage of 150%means that for every $100 of net assets we hold,
we may raise $200from borrowing and issuing senior securities as compared to $100from borrowing and issuing senior
securities for every $100 of net assets under a 200%asset coverage requirement. In addition, while any senior securities
remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such
securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. As of
December 31, 2025and December 31, 2024, the Company's asset coverage ratio based on the aggregate amount
outstanding of senior securities was 220.8%and 269.2%, respectively.
Our financing facilities consist of the following (dollar amounts in thousands, except per share data, unless otherwise
indicated):
December 31, 2025
December 31, 2024
Aggregate
Principal
Amount
Available
Principal
Amount
Outstanding
Unused
Portion
Aggregate
Principal
Amount
Available
Principal
Amount
Outstanding
Unused
Portion
Secured borrowings
$300,000
$276,982
$23,018
$225,000
$208,232
$16,768
SBA-Guaranteed
Debentures
290,000
230,000
60,000
192,505
192,505
-
Note payable
65,000
65,000
-
-
-
-
Total
$655,000
$571,982
$83,018
$417,505
$400,737
$16,768
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Company's total debt for the years ended December 31, 2025, December 31, 2024and December 31, 2023(dollar amounts
in thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest expense
$27,248
$9,328
$1,526
Non-usage fee (1)
Amortization of deferred financing costs
1,813
Weighted average stated interest rate
6.07%
6.40%
7.08%
Weighted average outstanding balance
$449,096
$145,828
$21,548
(1)Non-usage fee is applicable to the undrawn portion of the credit facilities.
The following chart compares the contractual maturity profile of the Company's investment portfolio against scheduled
debt maturities as of December 31, 2025.
(1) Investment Maturities: Represents the aggregate fair value of the BDC's debt investments maturing in each period,
based on contractual maturity dates as set forth in the Consolidated Schedule of Investments. Actual maturities may differ
from contractual maturities due to prepayments, extensions, defaults, or other factors. Maturity profiles are subject to
change and should not be viewed as indicative of future cash flows or liquidity.
(2) Debt Maturities: Represents the aggregate principal amount of the BDC's outstanding borrowings maturing in each
period, including the ING revolving credit facility, SBA-guaranteed debentures, and senior unsecured notes. Actual
repayment timing may differ from contractual maturity due to refinancing activity, early repayment, or amendments to
existing facilities. Debt maturity profiles are subject to change and should not be viewed in isolation.
CreditFacilities
ING Credit Facility
On June 18, 2024, we entered into a Senior Secured Revolving Credit Agreement (as amended, restated, supplemented, or
otherwise modified from time to time, the "ING Credit Facility") with ING Capital, LLC, as Administrative Agent, Lead
Arranger, Bookrunner and Sustainability Structuring Agent.
On September 20, 2024, we entered into Amendment No. 1 to the Senior Secured Revolving Credit Agreement (the "First
Amendment") to the ING Credit Facility. The parties to the First Amendment include us, EverBank, N.A. as Lender, First-
Citizens Bank & Trust Company as Lender, Subsidiary Guarantors party thereto and ING Capital LLC, as Administrative
Agent. The First Amendment provides for, among other things, an upsize in the total commitments from lenders under the
credit facility from $75million to $150million.
On December 12, 2024, we entered into a joinder agreement (the "First Lender Joinder Agreement"), under the accordion
feature in the ING Credit Facility pursuant to which the aggregate commitments under such facility increased from $150
million to $175 million. The parties to the First Lender Joinder Agreement include us, BankUnited, N.A., as additional
Lender, the Subsidiary Guarantors party to such agreement and the Administrative Agent.
On December 20, 2024, we entered into a joinder agreement (the "Second Lender Joinder Agreement") under the
accordion feature in the ING Credit Facility, pursuant to which aggregate commitments under such facility increased from
$175 million to $225 million. The parties to the Second Lender Joinder Agreement include us, Customers Bank, as
additional Lender,the Subsidiary Guarantors party to such agreement and the Administrative Agent.
On March 20, 2025, we entered into a commitment increase agreement (the "First Commitment Increase Agreement")
under the accordion feature in the ING Credit Facility pursuant to which aggregate commitments under such facility
increased from $225 millionto $250 million. The parties to the First Commitment Increase Agreement include us, ING
Capital LLC, as additional Lender, the Subsidiary Guarantors party to such agreement and the Administrative Agent.
On April 24, 2025, we entered into Amendment No. 2 to the Senior Secured Revolving Credit Agreement (the "Second
Amendment"), which amended the ING Credit Facility. The parties to the Second Amendment include us, the lenders party
to such agreement, Subsidiary Guarantors party to such amendment and ING Capital LLC, as Administrative Agent. The
Second Amendment provides for an increase of the accordion provision to permit increases in the total facility amount of
up to $300 millionand permits us to enter into repurchase agreements in an aggregate nominal amount of up to $30
million.
On April 24, 2025, we entered into a waiver letter permitting us to enter into a repurchase agreement with Midcap
Financial Trust dated as of April 17, 2025.
On May 30, 2025, we entered into a joinder agreement(the "Third Lender Joinder Agreement") under the accordion
feature in the ING Credit Facility pursuant to which aggregate commitments under such facility increased from
$250 millionto $275 million. The parties to the Third Lender Joinder Agreement include us, City National Bank, as
additional lender, the Subsidiary Guarantors party to such agreement and the Administrative Agent.
On October 30, 2025, weentered into a commitment increase agreement(the "Second Commitment Increase Agreement")
under the accordion feature in the ING Credit Facility pursuant to which aggregate commitments under such facility
increased from $275 millionto $300 million. The parties to the Second Commitment Increase Agreement include the
Company, City National Bank, as Lender,the Subsidiary Guarantors party to such agreement and the Administrative
Agent.
As of December 31, 2025and December 31, 2024, we had $277.0million and $208.2million, respectively, in outstanding
borrowings from the ING Credit Facility and availability as determined under the borrowing base of the ING Credit
Facility of $23million.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
ING Credit Facility for the years ended December 31, 2025, December 31, 2024and December 31, 2023(dollar amounts
in thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest expense
$14,879
$3,601
$-
Non-usage fee (1)
-
Amortization of financing costs
-
Weighted average stated interest rate
7.06%
7.79%
-%
Weighted average outstanding balance
$210,745
$46,226
$-
(1)Non-usage fee is applicable to the undrawn portion of the credit facilities.
Subscription Facility
On February 2, 2022, we entered into a subscription-based credit agreement with Sumitomo Mitsui Banking Corporation,
which was amended on June 28, 2022, December 21, 2022, and February 1, 2024 (and as may be further amended,
modified or supplemented, the "Subscription Facility"). The Subscription Facility allowed us to borrow up to
$38.4 million, subject to certain restrictions, including availability under a borrowing base that was based upon unused
capital commitments made by investors in us. The amount of permissible borrowings under the Subscription Facility could
be increased to up to $1 billionwith the consent of the lenders. The Subscription Facility bore interest at an annual rate of:
(i) with respect to reference rate loans, a reference rate for the period plus a margin equal to 2.50%(the "Applicable
Margin") and (ii) with respect to alternative rate loans, the greatest of (a) the administrative agent's prime rate, (b) Term
SOFR with a one-month term plus the Applicable Margin and (c) the federal funds rate plus 0.50%. Subject to certain
exceptions, the Subscription Facility was secured by a first lien security interest in our unfunded investor equity capital
commitments. The Subscription Facility included customary covenants, certain limitations on the incurrence of additional
indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for credit
facilities of this nature. The Subscription Facility matured on May 2, 2024 and, on such date, all of our obligations under
the Subscription Facility were terminated.
As of December 31, 2025and December 31, 2024, the Company had nooutstanding borrowings from the Subscription
Facility.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Subscription Facility for the years ended December 31, 2025, December 31, 2024and December 31, 2023(dollar amounts
in thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest expense
$-
$492
$584
Non-usage fee (1)
-
Amortization of financing costs
-
Weighted average stated interest rate
-%
7.83%
7.19%
Weighted average outstanding balance
$-
$6,286
$8,121
(1)Non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the Subscription
Facility.
SBA-Guaranteed Debentures
Thefollowing illustration summarizes the Company's SBA-guaranteed debentures issued through its SBIC and SSBIC
subsidiaries, includingoutstanding balances, available capacity, and applicable interest rates, as of December 31, 2025.
(1) Combined maximum capacity of $350M represents the aggregate licensed debenture limit across Lafayette Square
SBIC, LP and Lafayette Square SSBIC, LP. As of December 31, 2025, the Company has received SBA commitments of
$290.0M in aggregate, with $230.0M currently outstanding.
LS SBIC LP and LS SSBIC LPare able to borrow funds from the SBA against their regulatory capital (which
approximates equity capital in LS SBIC LP and LS SSBIC LP) that is paid in and is subject to customary regulatory
requirements, including periodic examination by the SBA. As of December 31, 2025and December 31, 2024, LS SBIC LP
and LS SSBIC LP had a regulatory capital of $175.0 millionand $110.0 million, respectively, and had $230.0million and
$192.5 million, respectively, in SBA-guaranteed debentures outstanding. SBA debentures are non-recourse to us, have a
10-year maturity, and may be prepaid at any time without penalty. The interest rate on the SBA debentures is fixed at the
time of issuance, which is often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. Current
SBA regulations limit the amount that each of LS SBIC LP and LS SSBIC LP may borrow to a maximum of
$175.0 million, which is up to twice its potential regulatory capital.
The SBA-guaranteed debentures incurred an upfront commitment fee of 1.00%on the total commitment amount and a
2.435%issuance discount on drawdowns. These amounts are amortized over the life of the SBA-guaranteed debentures. In
addition, an annual fee is charged on the SBA-guaranteed debentures which are amortized over the period.
The following table summarizes our SBA-guaranteed debentures as of December 31, 2025(dollar amounts in thousands,
except per share data, unless otherwise indicated):
Issuance Date
Maturity Date
Debenture Amount
Interest Rate
SBA Annual Charge
September 15, 2023
March 1, 2034
$31,000
5.04%
0.047%
March 15, 2024
September 1, 2034
5,960
4.38%
0.047%
June 14, 2024
September 1, 2034
45,540
4.38%
0.129%
September 16, 2024
March 1, 2035
82,505
4.96%
0.129%
December 12, 2024
March 1, 2035
27,500
4.96%
0.347%
March 28, 2025
September 1, 2035
9,995
4.53%
0.347%
June 27, 2025
September 1, 2035
$27,500
4.53%
0.347%
The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed
debentures for the years ended December 31, 2025, December 31, 2024and December 31, 2023(dollar amounts in
thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest expense
$10,700
$4,610
$566
Non-usage fee
-
-
-
Amortization of financing costs
1,032
Weighted average stated interest rate
4.99%
5.34%
6.23%
Weighted average outstanding balance
$214,309
$86,388
$9,088
(1)The Company's initial borrowing under the SBA Debentures program occurred on September 15, 2023.
Unsecured Notes
On August 19, 2025, we entered into a Note Purchase Agreement (the "Note Purchase Agreement") governing the issuance
of $65.0 million in aggregate principal amount of 7.00%Senior Notes (the "Notes") to qualified institutional investors in a
private placement.
The Notes were issued on August 19, 2025 and will mature on August 19, 2030 unless redeemed, purchased or prepaid
prior to such date by the Company in accordance with their terms. The Notes have a fixed annual interest rate of 7.00%.
Interest on the Notes is due semiannually. Interest payable on the Notes is subject to increase (up to a maximum increase of
2.00%above the stated rate for the Notes) in the event that, subject to certain exceptions, the Notes cease to have an
investment grade rating and the Company's minimum secured debt ratio exceeds certain thresholds.
The Notes are general unsecured obligations of the Company that rank at least pari passu, without preference or priority,
with all other unsecured and unsubordinated indebtedness of the Company. The Notes are guaranteed, on a senior
unsecured basis, by LS BDC Holdings, LLC (the "Guarantor"), a wholly owned subsidiary of the Company.
The Note Purchase Agreement contains customary terms and conditions for senior unsecured notes issued in a private
placement, including affirmative and negative covenants, such as maintenance of the Company's status as a business
development company within the meaning of the 1940 Act, a minimum consolidated net worth test and a minimum asset
coverage ratio. The Note Purchase Agreement also contains customary events of default with customary cure and notice
periods.
In addition, the Company is obligated to offer to repay the Notes at 100%of the principal amount of such Notes, together
with interest on such Notes accrued to, if certain change in control events occur.
The Notes were offered in reliance on Section 4(a)(2) under the Securities Act. The Notes have not and will not be
registered under the Securities Act or any state securities laws. Unless they are registered under the Securities Act, the
Notes may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act. We used the net proceeds from this offering for general corporate
purposes, including making investments.
As of December 31, 2025,the carrying amount of the Company's borrowings under the Notes approximated its fair value.
As of December 31, 2025, unamortized debt issuance costs of $1.6million are being deferred and amortized over the
remaining term of the Notes. As of December 31, 2025, the Notes had an outstanding balance of $65.0million.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Notes for the years ended December 31, 2025, December 31, 2024and December 31, 2023(dollar amounts in thousands,
except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest expense
$1,669
$-
$-
Non-usage fee
-
-
-
Amortization of financing costs
-
-
Weighted average stated interest rate
6.94%
-%
-%
Weighted average outstanding balance
$24,041
$-
$-
Repurchase Obligations
In order to finance certain investment transactions, we may, from time to time, enter into repurchase agreements with
Macquarie US Trading LLC ("Macquarie"), whereby we sell to Macquarie an investment that Macquarie holds, and we
concurrently enter into an agreement to repurchase the same investment (any such obligation, a "Repurchase Obligation")
at an agreed-upon price at a future date, not to exceed 90-days from the date such investment was sold.
We entered into two repurchase agreements on May 1, 2024 which were collateralized by the Company's term loans to
each of Salt Dental Collective (the "Salt Repurchase Obligation") and Med Learning Group, LLC (the "MLG Repurchase
Obligation" and together with the Salt Repurchase Obligation, the "May 2024 Repurchase Obligations"). Interest under
each of the May 2024 Repurchase Obligations was calculated as (a) the product of the funded amount of the loan and (b)
the product of (i) the number of days the loan is outstanding (subject to number of minimum days per the agreement) and
(ii) daily fee rate. We maintain effective control over the security because we are entitled and obligated to repurchase the
security before its maturity. Therefore, the repurchase agreement is treated as a secured borrowing and not a sale.
On July 30, 2024 we repurchased our obligations under the MLG Repurchase Obligation and on October 2, 2024, we
repurchased our obligations under the Salt Dental Obligation.
As of December 31, 2025and December 31, 2024, we had no outstanding borrowings from the May 2024 Repurchase
Obligations.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Repurchase Obligations for the years ended December 31, 2025, December 31, 2024and December 31, 2023(dollar
amounts in thousands, except per share data, unless otherwise indicated):
For the year ended
December 31, 2025
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Interest expense
$-
$625
$376
Non-usage fee
-
-
-
Amortization of financing costs
-
-
-
Weighted average stated interest rate
-%
9.01%
8.68%
Weighted average outstanding balance
$-
$6,928
$4,339
Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet
the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve,
to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of
December 31, 2025and December 31, 2024, we were not party to any off-balance sheet arrangements.
Recent Developments
On January 8, 2026, January 29, 2026, January 30, 2026, February 4, 2026, February5, 2026, February 12, 2026, February
26, 2026, February 27, 2026, March 2, 2026, March 4, 2026, and March 12, 2026,the Company invested in a senior
secured first lien revolver credit facility in Rotolo Consultants Inc, with fundings totaling $6.6 million. This loan bears an
interest rate of 3M Term SOFR + 5.50%, and matureson January 31, 2031.
On January 15, 2026, the Company investedin a senior secured first lien term loan in Ally Medical Holdings, LLC,
totaling $14.9 million, bearing an interest rate of 3M Term SOFR + 7.00%, maturing on January 15, 2030.
On January 8, 2026, January 29, 2026, February 9, 2026, February 19, 2026, and February 26, 2026, the Company invested
in a senior secured first lien revolver credit facility in C Speed LLC, with fundings totaling $3.0 million. This loan bears an
interest rate of 3M Term SOFR + 5.90%, and matures onOctober 1, 2029.
On January 8, 2026 and February 6, 2026, the Company invested in a seniorsecured first lien term loan in Rock Gate
Capital, LLC totaling $2.8million, bearing an interest rate of 3M Term SOFR + 6.75%, maturing on May 30, 2029.
On January 13, 2026, the Company invested in an equity holding in Studio Lafayette, LLC totaling $0.5 million.
On January 13, 2026 and February 11, 2026, the Company invested in a senior secured first lien delayed draw term loan of
Straine Dental Management, LLC with a funding of $0.2 million. This loan bears interest at an annual rate of 1M Term
SOFR + 7.42% and matures onNovember 25, 2030.
On January 14, 2026, February 27, 2026, and March 6, 2026, the Company invested in a senior secured first lien revolver
credit facility in Synergi LLC, with fundings totaling $0.4 million. This loan bears an interest rate of 3M Term SOFR +
7.45%, and matures on December 17, 2027.
On January 15, 2026 and February 17, 2026, the Company invested in a senior secured first lien delayed draw term loan of
DRS Imaging Services LLC with a funding of $4.3 million. This loan bears interest at an annual rate of 3M Term SOFR +
6.25% and matures on March 28, 2030.
On January 28, 2026, the Company invested in an equity holding in Lafayette Square SBLC, LLC totaling $0.5 million. On
March 16, 2026, Lafayette Square SBLC, LLC acquired an SBA 7(a) lending licenseand is authorized to originate SBA
7(a) loans, which provide government-guaranteed financing to eligible small businesses.
On January 28, 2026 and March 11, 2026, the Company invested in an equity holdings in Lafayette Square Technologies,
LLC totaling $1.5 million.
On January 29, 2026 and February 27, 2026, the Company invested in a seniorsecured first lien revolver credit facility in
Flatworld Intermediate Corporation, totaling $0.8 million, bearing an interest rate of 3M Term SOFR + 5.50%, maturing on
March 25, 2030.
On January 13, 2026, January 28, 2026, February 25, 2026 and March 11, 2026, the Company invested in a senior secured
first lien revolver credit facility in ZRG Partners LLC, with fundings totaling $1.3 million, bearing an interest rate of Prime
+ 5.00%, maturing on June 14, 2030. On March 11, 2026, the Company also funded a senior secured first lien delayed
draw term loan in ZRG Partners LLC totaling $1.0 million, bearing an interest rate of 3M Term SOFR + 6.00%, maturing
on June 14, 2030.
On January 30, 2026, the Company invested in an equity holding in Lafayette Square Mortgage Solutions, LLC totaling
$0.9 million.
On February 9, 2026, the Company invested in a senior secured first lien delayed draw term loan of truCurrent LLC with a
funding of $12.0 million. This loan bears an interest rate of 3M Term SOFR + 7.20%, maturing on February 12, 2029.
On March 3, 2026, the Company made an additional equity investment in NW1LS Co-Invest LP totaling $39 thousand.
On March 4, 2026, the Company invested in a senior secured first lien revolver credit facility in Trilon Group LLC, with a
funding of $0.2 million, bearing an interest rate of 3M Term SOFR + 4.50%, maturing on May 25, 2029.
On March 9, 2026, TCFIII OWL Buyer LLC repaid in full its outstanding senior secured first lien term loans, with
aggregate repayments totaling approximately $10.7 million.
On March 19, 2026, the Company invested in a senior secured first lien revolver credit facility in CentralBDC Enterprises,
LLC, with a funding of $0.3 million, bearing an interest rate of 3M Term SOFR + 5.25%, maturing on June 11, 2029.
On March 16, 2026, the Company issued a capital call notice to its investors in the amount of $21.0 million, with funding
due on March 27, 2026.
On March 24, 2026, the board of directors of the Company declared a regular distribution to stockholders in the amount of
$0.28 per share and a supplemental distribution in the amount of $0.05 per share, or approximately $9.2 million. The
distribution will paid on or about April 23, 2026 to stockholders of record as of March 24, 2026.
Inaddition, as of March 23, 2026, we had an investment backlog and pipeline of approximately $161.9million and $555.5
million, respectively. For purposes of this Report, "investment backlog" includes transactions approved by the Adviser's
investment committee and/or for which we have issued a formal mandate, letter of intent or a term sheet. We therefore
believe such investments have a strong likelihood of closing. The term "investment pipeline" includes transactions where
initial due diligence has begun and/or analysis is in process, but we have issued no formal mandate, letter of intent or term
sheets to the prospective borrower. The consummation of any of the investments in our backlog and pipeline depends upon
one or more of the following occurring: satisfactory completion of our due diligence investigation of the prospective
portfolio company, our acceptance of the terms and structure of such investment and the negotiation, execution, and
delivery of satisfactory transaction documentation. In addition, we may sell all or a portion of these investments and certain
of these investments may result in the repayment of existing investments. We cannot make any assurances that we will
make any of these investments or that we will sell all or any portion of these investments.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could materially differ from those estimates. We have identified the following items as critical
accounting policies.
Fair Value Measurements
We value investments for which market quotations are readily available at their market quotations. However, a readily
available market value is not expected for many of the investments in our portfolio, and we value these portfolio
investments at fair value as determined in good faith by the Adviser and our valuation policy and process.
The valuation process is a multi-step endeavor, which includes the following:
•the quarterly valuation process commences with each portfolio company or investment being initially evaluated by
the investment professionals of the Adviser responsible for the monitoring of the portfolio investment;
•the Adviser's Valuation Committee reviews the valuations provided by the independent third-party valuation firm
(other than immaterial investments, which are internally valued quarterly unless otherwise deemed appropriate by
the Valuation Committee, and subsequently corroborated by an independent valuation firm on an annual basis)
and develops a valuation recommendation;
•the Adviser's Valuation Committee reviews each valuation recommendation to confirm they have been calculated
in accordance with our valuation policy and compares such valuations to the independent valuation firms'
valuation ranges to ensure the Adviser's valuations are reasonable;
•the Adviser's Valuation Committee then determines fair value marks for each of our portfolio investments; and
•the Board and Audit Committee periodically reviews the valuation process and provides oversight in accordance
with the requirements of Rule 2a-5 under the 1940 Act.
The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value
Measurement (ASC 820), as amended, which establishes a framework for measuring fair value in accordance with U.S.
GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be
received for an investment in a current sale, which assumes an orderly transaction between market participants on the
measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market
(which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance
with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of
activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in
determination of fair value.
The three-tier hierarchy of inputs is summarized below.
•Level 1 - Quoted prices are available in active markets/exchanges for identical investments as of the reporting
date.
•Level 2 - Pricing inputs are observable inputs including, but not limited to, prices quoted for similar assets or
liabilities in active markets/exchanges or prices quoted for identical or similar assets or liabilities in markets that
are not active, and fair value is determined through the use of models or other valuation methodologies.
•Level 3 - Pricing inputs are unobservable for the investment and include activities where there is little, if any,
market activity for the investment. The inputs into determination of fair value require significant management
judgment and estimation.
Investments
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the
net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification
method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged
off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented
in the Consolidated Statements of Operations in Part I, Item 1 of this Form 10-Kreflects the net change in the fair value of
investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are
realized.
Revenue Recognition
Investment and Related Investment Income
The Company records interest income, including amortization of premium and accretion of discount 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 or straight-line interest method, as applicable, and 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 expect to collect
such amount. 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 us 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. 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.
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 December 31, 2025,we had one investment partially on non-accrual status. The non-accrual portion
of this investment represents 0.9% of total investments at fair value. As of December 31, 2024, there were no investments
on non-accrual status.
Income Taxes
The Company has elected to be treated as a RIC under Subchapter M of the IRC and intends to maintain such election in
future taxable years. However, there is no guarantee that the Company will qualify to make such an election for any future
taxable year. In order to qualify and be subject to tax as a RIC, among other things, the Company is required to meet
certain source of income and asset diversification requirements and timely distribute dividends for U.S. federal income tax
purposes to its stockholders of an amount at least equal to 90% of its investment company taxable income, as defined by
the IRC and determined without regard to any deduction for dividends paid, for each tax year. As a RIC, the Company
would intend to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S.
federal income taxes with respect to all income distributed to its stockholders.
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) any income and gains recognized, but not
distributed, from the previous years. 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 distribution requirement.
The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes ("ASC Topic 740"). ASC
Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in
consolidated financial statements. ASC Topic 740 requires the evaluation of 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. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax expense or tax benefit in the current year. It is the Company's policy to recognize accrued interest and
penalties related to uncertain tax benefits in income tax expense. There were no material unrecognized net tax benefits or
unrecognized net tax liabilities related to uncertain income tax positions as of and through December 31, 2025and
December 31, 2024.
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