BC Partners Lending Corp - FORM 10-Q

Attached files

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EX-32.2 - EX-32.2 - BC Partners Lending Corp	bcpl-ex322_9.htm
EX-32.1 - EX-32.1 - BC Partners Lending Corp	bcpl-ex321_7.htm
EX-31.2 - EX-31.2 - BC Partners Lending Corp	bcpl-ex312_6.htm
EX-31.1 - EX-31.1 - BC Partners Lending Corp	bcpl-ex311_8.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 814-01269

BC Partners Lending Corporation

(Exact Name of Registrant as Specified in its Charter)

Maryland		82-4654271
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

650 Madison Avenue New York, New York		10022
(Address of Principal Executive Office)		(Zip Code)

(212) 891-2880

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
None	N/A			N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 5, 2020, the registrant had 1,647,320 shares of common stock outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION	3

Item 1.	Consolidated Financial Statements	3

	Consolidated Statements of Assets and Liabilities as of September 30, 2020 (Unaudited) and December 31, 2019	3

	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited)	4

	Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2020 and 2019 (Unaudited)	5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited)	7

	Consolidated Schedules of Investments as of September 30, 2020 (Unaudited) and December 31, 2019	8

	Notes to Consolidated Financial Statements (Unaudited)	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

PART II	OTHER INFORMATION	42

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

Signatures		46

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about BC Partners Lending Corporation (the “Company,” “we,” “us,” or “our”), our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

•

an economic downturn 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;

•

such an economic downturn could disproportionately impact the companies which we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies;

•

such an economic downturn could also impact availability and pricing of our financing;

•

economic and political instability in the United States and international markets;

•

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;

•

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;

•

the extent to which the coronavirus (COVID-19) outbreak and measures taken in response thereto impact our business, portfolio companies, results of operations and financial condition;

•

an economic downturn, including, as a result of the impact of COVID-19, could have a material adverse effect on our portfolio companies’ results of operations and financial condition, which could lead to a loss on some or all of our investments in such portfolio companies and have a material effect on our results of operations and financial condition;

•

our future operating results;

•

our business prospects and the prospects of our portfolio companies;

•

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 as well as any estimates regarding potential use of leverage;

•

the adequacy of our available liquidity, 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 BC Partners Advisors L.P. (the “Adviser”) to locate suitable investments for us and to monitor and administer our investments;

•

the ability of the Adviser to attract and retain highly talented professionals;

•

actual and potential conflicts of interest with the Adviser and its affiliates;

•

our ability to qualify and maintain our qualification as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and as a business development company (“BDC”);

•

the effect of legal, tax and regulatory changes on us and our portfolio companies; and

•

other risks, uncertainties and other factors we identify elsewhere in this Quarterly Report and under “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 5, 2020 and under “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2020 and August 5, 2020.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. These forward-looking statements apply only as of the date of this Quarterly Report. Moreover, we assume no duty and do not undertake to update the forward-looking statements. Because we are an investment company, the forward-looking statements and projections contained in this Quarterly Report are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act of 1934 (the “1934 Act”).

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

BC Partners Lending Corporation

Consolidated Statements of Assets and Liabilities

	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments (amortized cost of $60,833,249 and $34,087,424, respectively)	$	60,802,149	$	34,167,653
Forward contracts, at fair value (cost of $0 as of September 30, 2020)		112,992		—
Cash		9,493,553		2,814,003
Restricted cash		2,530,507		21,685,442
Receivable for unsettled trades		4,828,132		—
Interest and dividends receivable		169,465		49,833
Due from affiliate		—		581,560
Prepaid expenses and other asset		152,113		37,503
Total assets	$	78,088,911	$	59,335,994
Liabilities
Credit facility (net of deferred financing costs of $750,466 and $657,271, respectively)	$	29,249,534	$	19,342,729
Payable for unsettled trades		5,457,257		17,276,182
Due to affiliate		1,045,646		353,860
Management fees payable		155,734		21,751
Incentive fees payable		186,168		13,428
Interest expense payable		134,188		35,367
Financing costs payable		—		584,877
Accounts payable and accrued expenses		728,099		452,394
Total liabilities	$	36,956,626	$	38,080,588
Commitments and contingencies (Note 9)
Net Assets
Common stock, $0.001 par value, 1,000,000,000 shares authorized; 1,647,320 and 846,633 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	$	1,647	$	847
Additional paid-in capital		40,470,546		21,165,041
Total distributable earnings (loss)		660,092		89,518
Total net assets		41,132,285		21,255,406
Total liabilities and net assets	$	78,088,911	$	59,335,994
Net asset value per share	$	24.97	$	25.11

See notes to consolidated financial statements.

BC Partners Lending Corporation

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019 ⁽¹⁾		2020			2019 ⁽¹⁾
Investment income:
Interest income:
Non-control/non-affiliate investments	$	1,163,038		$	—	$	2,666,990		$	—
Fee and other income		11,336			—		135,789			—
Total investment income		1,174,374			—		2,802,779			—
Operating expenses:
Organization and offering costs		99,000			—		222,375			—
Management fees		155,733			—		388,088			—
Incentive fees		186,168			—		172,740			—
Administrative fees		134,000			—		409,978			—
Interest and debt expenses		204,230			—		735,488			—
Audit fees		80,000			—		201,730			—
Legal fees		(360,711	)		—		121,575			—
Professional fees		101,245			—		160,435			—
Directors' fees		37,500			—		112,500			—
Other expenses		178,112			—		400,394			—
Total expenses before expense support		815,277			—		2,925,303			—
Expense support from related parties		(67,783	)		—		(1,165,428	)		—
Net expenses		747,494			—		1,759,875			—
Net investment income		426,880			—		1,042,904			—
Realized and unrealized gain (loss):
Net realized gain on investments		310,776			—		568,911			—
Net change in unrealized appreciation (depreciation) on investments		452,573			—		(111,329	)		—
Net change in unrealized appreciation on derivatives		112,992			—		112,992			—
Net realized and unrealized gain		876,341			—		570,574			—
Net increase in net assets resulting from operations	$	1,303,221		$	—	$	1,613,478		$	—
Net investment income per share — basic and diluted	$	0.31		$	—	$	0.93		$	—
Net increase in net assets resulting from operations per share - basic and diluted	$	0.93		$	—	$	1.42		$	—
Weighted average shares outstanding — basic and diluted		1,395,262			4,000		1,138,172			4,000

(1)	The Company commenced operations on October 2, 2019. Accordingly, there is no activity in the comparable period for the three and nine months ended September 30, 2019.

See notes to consolidated financial statements.

BC Partners Lending Corporation

Consolidated Statements of Changes in Net Assets

(Unaudited)

	Common Stock
Nine Months Ended September 30, 2020	Number of shares		Par Value		Additional paid in capital		Total distributable earnings (loss)			Total net assets
Balance as of December 31, 2019		846,633	$	847	$	21,165,041	$	89,518		$	21,255,406
Net investment income		—		—		—		262,457			262,457
Net realized gain		—		—		—		135,866			135,866
Net change in unrealized depreciation		—		—		—		(1,356,493	)		(1,356,493	)
Issuance of common shares		291,400		291		6,774,709		—			6,775,000
Distributions declared and payable to stockholders		—		—		—		(262,457	)		(262,457	)
Stock issued in connection with dividend reinvestment plan		2,507		3		62,936		—			62,939
Balance as of March 31, 2020		1,140,540	$	1,141	$	28,002,686	$	(1,131,109	)	$	26,872,718
Net investment income		—		—		—		353,567			353,567
Net realized gain		—		—		—		122,269			122,269
Net change in unrealized appreciation		—		—		—		792,591			792,591
Issuance of common shares		230,833		231		5,599,769		—			5,600,000
Distributions declared and payable to stockholders		—		—		—		(353,567	)		(353,567	)
Stock issued in connection with dividend reinvestment plan		5,658		5		133,303		—			133,308
Balance as of June 30, 2020		1,377,031	$	1,377	$	33,735,758	$	(216,249	)	$	33,520,886
Net investment income		—		—		—		426,880			426,880
Net realized gain		—		—		—		310,776			310,776
Net change in unrealized appreciation		—		—		—		565,565			565,565
Issuance of common shares		264,741		265		6,599,735		—			6,600,000
Distributions declared and payable to stockholders		—		—		—		(426,880	)		(426,880	)
Stock issued in connection with dividend reinvestment plan		5,548		5		135,053		—			135,058
Balance as of September 30, 2020		1,647,320	$	1,647	$	40,470,546	$	660,092		$	41,132,285

	Common Stock
Nine Months Ended September 30, 2019 ⁽¹⁾	Number of shares		Par Value		Additional paid in capital		Total distributable earnings		Total net assets
Balance as of December 31, 2018		4,000	$	4	$	99,996	$	—	$	100,000
Net investment income		—		—		—		—		—
Net realized gain on investments		—		—		—		—		—
Net change in unrealized appreciation on investments		—		—		—		—		—
Issuance of common stock		—		—		—		—		—
Distributions to stockholders		—		—		—		—		—
Stock issued in connection with dividend reinvestment plan		—		—		—		—		—
Balance as of March 31, 2019		4,000	$	4	$	99,996	$	—	$	100,000
Net investment income		—		—		—		—		—
Net realized gain on investments		—		—		—		—		—
Net change in unrealized appreciation on investments		—		—		—		—		—
Issuance of common stock		—		—		—		—		—
Distributions to stockholders		—		—		—		—		—
Stock issued in connection with dividend reinvestment plan		—		—		—		—		—
Balance as of June 30, 2019		4,000	$	4	$	99,996	$	—	$	100,000
Net investment income		—		—		—		—		—
Net realized gain on investments		—		—		—		—		—
Net change in unrealized appreciation on investments		—		—		—		—		—
Issuance of common stock		—		—		—		—		—
Distributions to stockholders		—		—		—		—		—
Stock issued in connection with dividend reinvestment plan		—		—		—		—		—
Balance as of September 30, 2019		4,000	$	4	$	99,996	$	—	$	100,000

(1)	The Company commenced operations on October 2, 2019. Accordingly, there is no activity in the comparable period for the nine months ended September 30, 2019.

See notes to consolidated financial statements.

BC Partners Lending Corporation

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2020			2019 ⁽¹⁾
Operating activities:
Net increase in net assets resulting from operations	$	1,613,478		$	—
Adjustments to reconcile net increase in net assets from operations
to net cash used in operating activities:
Net realized gain from investments		(568,911	)		—
Net change in unrealized depreciation on investments		111,329			—
Net change in unrealized appreciation on derivatives		(112,992	)
Net accretion of discount on investments		(170,548	)		—
Amortization of deferred financing costs		61,805			—
Payment-in-kind interest income		(77,621	)		—
Purchases of investments		(60,700,292	)		—
Sales and repayments of investments		34,771,547			—
(Increase) decrease in operating assets:					—
Receivable for unsettled trades		(4,828,132	)		—
Interest and dividends receivable		(119,632	)		—
Due from affiliate		581,560			—
Prepaid expenses and other asset		(114,610	)		—
Increase (decrease) in operating liabilities:					—
Payable for unsettled trades		(11,818,925	)		—
Due to affiliate		691,786			—
Management fees payable		133,983			—
Incentive fees payable		172,740			—
Interest expense payable		98,821			—
Accounts payable and accrued expenses		275,705			—
Net cash used in operating activities		(39,998,909	)		—
Financing activities:
Proceeds from issuance of shares of common stock		18,975,000			—
Stockholder distributions paid		(711,599	)		—
Proceeds from debt		10,000,000			—
Payments of financing costs		(739,877	)		—
Net cash provided by financing activities		27,523,524			—
Net decrease in cash and restricted cash		(12,475,385	)		—
Cash and restricted cash at beginning of period		24,499,445			100,000
Cash and restricted cash at end of period	$	12,024,060		$	100,000
Reconciliation of cash and restricted cash
Cash		9,493,553			100,000
Restricted cash		2,530,507			—
Total cash and restricted cash	$	12,024,060		$	100,000
Supplemental information:
Interest paid during the period	$	574,862		$	—
Taxes, including excise tax, paid during the period	$	—		$	—
Supplemental disclosure of non-cash information:
Reinvestment of dividends	$	331,305		$	—

(1)	The Company commenced operations on October 2, 2019. Accordingly, there is no activity in the comparable period for the nine months ended September 30, 2019.

See notes to consolidated financial statements.

BC Partners Lending Corporation

Consolidated Schedule of Investments

September 30, 2020

(Unaudited)

Portfolio Company ^{(1) (2)} ⁽³⁾	Investment Type	Initial Acquisition Date	Maturity Date	Spread Above Index ⁽⁴⁾	Interest Rate			Par / Units		Amortized Cost ^{(12) (13)}			Fair Value			% of Net Assets
Non-control/Non-affiliate Investments - United States
Debt Investments
Collateralized Loan Obligation - Debt Class
Churchill Middle Market CLO IV Ltd., Class E-2 Notes ⁽¹⁴⁾	Structured Note	12/12/2019	1/23/2032	N/A		10.31	%		1,400,000		1,330,000			1,275,890			3.1	%
Halsey Point CLO II Ltd., Class D ^{(9) (14)}	Structured Note	7/7/2020	7/21/2031	L+3.00%		3.30	%		333,333		279,800			265,893			0.6	%
Halsey Point CLO II Ltd., Class E ^{(9) (14)}	Structured Note	7/7/2020	7/21/2031	L+3.00%		3.14	%		333,333		232,533			251,716			0.6	%
Collateralized Loan Obligation - Debt Class Total											1,842,333			1,793,499			4.3	%
Communication Services
STX Financing, LLC ^{(7) (8) (9)}	Senior Secured Loan	9/17/2020	10/7/2021	1M L+3.00%		3.19	%		1,718,015		1,627,257			1,627,257			4.0	%
Wonder Love Inc ^{(7) (9)}	Senior Secured Loan	11/18/2019	11/18/2024	3M L+5.00%		6.00	%		925,000		909,427			861,453			2.1	%
Communication Services Total											2,536,684			2,488,710			6.1	%
Consumer Discretionary
Colibri Group, LLC ^{(7) (9) (15)}	Senior Secured Loan	3/31/2020	5/1/2025	3M L+8.05%		9.05	%		1,508,498		1,497,184			1,493,865			3.6	%
Colibri Group, LLC, Second Amendment Term Loan^{(7) (9) (15)}	Senior Secured Loan	3/31/2020	5/1/2025	3M L+8.05%		9.05	%		172,602		171,307			170,927			0.4	%
Colibri Group, LLC (Delayed Draw) ^{(7) (9) (15)}	Senior Secured Loan	3/31/2020	5/1/2025	3M L+8.05%		9.05	%		233,246		231,496			230,983			0.6	%
Location Services LLC (Revolver) ^{(7) (8) (9)}	Senior Secured Loan	11/7/2019	11/7/2020	L+6.75%		7.75	%		916,667		890,424			879,167			2.1	%
Nasco Healthcare Inc. ^{(7) (9)}	Senior Secured Loan	5/22/2020	6/30/2021	3M L+4.50%		5.50	%		1,989,501		1,787,135			1,821,587			4.3	%
TLE Holdings, LLC ^{(7) (9)}	Senior Secured Loan	10/22/2019	6/28/2024	3M L+6.00%		7.00	%		989,873		985,473			934,243			2.3	%
Consumer Discretionary Total											5,563,019			5,530,772			13.3	%
Consumer Staples
C. J. FOODS, INC. ⁽⁷⁾	Senior Secured Loan	9/17/2020	3/16/2027	L+6.00%		7.00	%		1,994,987		1,895,585			1,895,238			4.6	%
Florida Food Products, LLC ^{(7) (9)}	Senior Secured Loan	8/7/2020	9/6/2025	L+7.25%		8.25	%		997,500		929,270			927,675			2.3	%
Consumer Staples Total											2,824,855			2,822,913			6.9	%
Financials
Advantage Capital Holdings LLC ^{(9) (17)}	Senior Secured Loan	1/29/2020	1/29/2025	N/A		12.00	%		1,737,631		1,737,631			1,739,890			4.2	%
Advantage Capital Holdings LLC (Delayed Draw) ^{(8) (9) (17)}	Senior Secured Loan	1/29/2020	1/29/2025	N/A		13.00	%		667,386		667,386			669,963			1.6	%
Alera Group Intermediate Holdings, Inc. ^{(7) (9)}	Senior Secured Loan	12/18/2019	8/1/2025	6M L+4.00%		4.15	%		1,979,798		2,001,752			1,960,000			4.8	%
Financials Total											4,406,769			4,369,853			10.6	%
Healthcare
Pharmalogic Holdings Corp. ⁽⁷⁾	Senior Secured Loan	10/22/2019	6/12/2023	1M L+4.00%		4.15	%		989,873		988,999			934,242			2.3	%
Premier Imaging, LLC ⁽⁷⁾	Senior Secured Loan	10/22/2019	1/2/2025	1M L+5.75%		6.75	%		989,924		983,048			957,158			2.3	%
Premier Imaging, LLC ⁽⁷⁾	Senior Secured Loan	11/25/2019	1/2/2025	1M L+5.75%		6.75	%		990,000		981,425			957,231			2.3	%
The PromptCare Companies Inc. (Delayed Draw) ^{(7) (9)}	Senior Secured Loan	2/20/2020	12/30/2026	6M L+5.25%		6.25	%		216,545		214,551			216,502			0.5	%
The PromptCare Companies Inc. (Delayed Draw) ^{(8) (9) (11)}	Senior Secured Loan	2/20/2020	12/30/2026	N/A		1.00	%		—		(995	)		(1,091	)		0.0	%
The PromptCare Companies Inc. ^{(7) (9)}	Senior Secured Loan	2/28/2020	12/30/2026	6M L+5.25%		6.25	%		1,551,909		1,537,430			1,551,599			3.8	%
Radiology Partners, Inc., Term B Loan ^{(5) (7) (9)}	Senior Secured Loan	10/18/2019	7/9/2025	L+4.25%		5.99	%		3,250,000		3,116,850			3,127,313			7.6	%
Healthcare Total											7,821,308			7,742,954			18.8	%
Industrials
C.P. Converters, Inc., Seventh Amendment Acquisition Loan ⁽⁷⁾	Senior Secured Loan	6/24/2020	6/18/2023	3M L+5.50%		8.75	%		1,975,000		1,929,290			1,957,225			4.8	%
Deliver Buyer, Inc. ^{(7) (9)}	Senior Secured Loan	7/1/2020	5/1/2024	L+6.25%		7.25	%		2,000,000		1,942,816			1,940,000			4.7	%
MAG DS CORP. ⁽⁷⁾	Senior Secured Loan	9/21/2020	4/1/2027	1M L+5.50%		6.65	%		3,000,000		2,850,000			2,850,000			6.9	%
Mileage Plus Holdings LLC ^{(5) (7)}	Bond	6/25/2020	6/25/2027	N/A		6.50	%		4,000,000		3,951,789			4,171,560			10.1	%
Mileage Plus Holdings LLC ^{(5) (7)}	Senior Secured Loan	6/25/2020	6/20/2027	L+5.25%		6.25	%		1,000,000		980,457			1,017,990			2.5	%

BC Partners Lending Corporation

Consolidated Schedule of Investments

September 30, 2020

(Unaudited)

PHI Group, Inc ^{(5) (7) (9)}	Senior Secured Loan	10/22/2019	7/10/2024	1M L+7.00%	8.00	%		2,362,691		2,344,695		2,409,945	5.9	%
Syndigo LLC, Incremental Term Loan ^{(7) (9)}	Senior Secured Loan	12/16/2019	10/24/2024	3M L+5.50%	6.50	%		2,970,000		2,916,570		2,879,712	6.9	%
Industrials Total										16,915,617		17,226,432	41.8	%
Information Technology
Allied Universal Holdco LLC ^{(5) (7) (9)}	Senior Secured Loan	12/20/2019	7/10/2026	1M L+4.25%	4.40	%		2,183,365		2,106,627		2,164,064	5.3	%
Drilling Info Holdings, Inc., 2020 Term Loan ^{(7) (9)}	Senior Secured Loan	2/10/2020	7/30/2025	1M L+4.50%	4.65	%		1,990,000		1,981,121		1,881,744	4.7	%
Drilling Info Holdings, Inc., Initial Term Loan ^{(7) (9)}	Senior Secured Loan	10/22/2019	7/30/2025	1M L+4.25%	4.40	%		989,902		987,800		939,714	2.3	%
Help/Systems Holdings, Inc.⁽⁵⁾ ⁽⁷⁾	Senior Secured Loan	12/18/2019	11/9/2026	L+4.75%	5.75	%		2,985,000		2,978,055		2,965,597	7.2	%
Idera, Inc. ^{(5) (7) (9)}	Senior Secured Loan	12/18/2019	6/28/2024	6M L+4.00%	5.00	%		2,838,479		2,765,149		2,808,916	6.8	%
Monotype Imaging Holdings Corp., Incremental Tranche A-3 Term Loan ^{(5) (7) (9)}	Senior Secured Loan	11/12/2019	10/9/2026	3M L+5.50%	6.50	%		987,500		932,810		927,638	2.3	%
San Vicente Capital LLC ⁽⁷⁾	Senior Secured Loan	6/10/2020	6/10/2025	3M L+8.00%	9.50	%		2,000,000		1,971,599		2,000,000	4.9	%
1A Smart Start LLC ^{(5) (7)}	Senior Secured Loan	8/14/2020	8/13/2027	L+4.75%	5.75	%		3,000,000		2,970,346		3,008,130	7.3	%
Smartronix, Inc, ^{(7) (9)}	Senior Secured Loan	5/1/2020	12/19/2025	3M L+6.00%	7.50	%		1,989,975		1,895,823		1,916,147	4.7	%
Information Technology Total										18,589,330		18,611,950	45.5	%
Total Debt Investments										60,499,915		60,587,083	147.3	%
Collateralized Loan Obligation - Equity Class
Halsey Point CLO II Ltd., Class Subordinated Notes ^{(9) (14) (16)}	Subordinated Structured Note	7/7/2020	7/21/2031	N/A	45.13	%		333,334		333,334		215,066	0.5	%
Collateralized Loan Obligation - Equity Class Investments Total										333,334		215,066	0.5	%
Equity Investments
Advantage Capital Holdings LLC ^{(6) (9) (10)}	Common Equity - Class A Units	3/31/2020					449			—		—	0.0	%
Total Equity Investments										—		—	0.0	%
Total Investments ⁽¹³⁾									$	60,833,249	$	60,802,149	147.8	%

Forward contracts ⁽¹⁸⁾:

Security

Counterparty

Settlement Date

Par

Unrealized Appreciation (Depreciation)

Halsey Point CLO II, Ltd.

Class D

Advantage Capital Holdings, LLC

7/1/2022

333,333

18,473

Halsey Point CLO II, Ltd.

Class E

Advantage Capital Holdings, LLC

7/1/2022

333,333

26,884

Halsey Point CLO II, Ltd.

Class Subordinated Notes

Advantage Capital Holdings, LLC

7/1/2022

333,333

67,635

112,992

(1)	All of the Company's investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of the Company's investments are issued by U.S. portfolio companies unless otherwise noted.

(2)	All investments are non-controlled/non-affiliated investments as defined by the 1940 Act. The provisions of the 1940 Act classify investments based on the level of control that the Company maintains in a particular portfolio company.

(3)	Except as otherwise noted, certain of the Company’s portfolio company investments are subject to legal restrictions on sales.

(4)

Variable rate loans bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“P”), which resets monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread and the current contractual interest rate in effect at September 30, 2020. Certain investments may be subject to an interest rate floor, or rate cap.

(5)	Other than the investments noted by this footnote, the fair value of these investments is determined in good faith using significant unobservable inputs by the Company’s board of directors. (See Note 4 in the accompanying notes to the consolidated financial statements).

(6)	Ownership of equity investments may occur through a holding company.

(7)

Security, or a portion thereof, is held through Great Lakes BCPL Funding Ltd., a wholly-owned subsidiary and a bankruptcy remote special purpose entity, and is pledged as collateral supporting the amounts outstanding under the debt financing facility at Great Lakes BCPL Funding Ltd. (See Note 5 in the accompanying consolidated financial statements).

(8)	All or a portion of this commitment was unfunded at September 30, 2020.

(9)	Represents co-investment made with the Company's affiliates in accordance with the terms of the exemptive relief that the Company received from the U.S Securities and Exchange Commission. (See Note 3 in the accompanying consolidated financial statements).

(10)	Non-income producing investment.

BC Partners Lending Corporation

Consolidated Schedule of Investments

September 30, 2020

(Unaudited)

(11)	The date disclosed represents the commitment period of the unfunded term loan.

(12)	The amortized cost represents the initial cost adjusted for the accretion of discount or amortization of premium, as applicable, on debt investments using the effective interest method.

(13)	As of September 30, 2020, the estimated cost basis of investments for U.S. federal tax purposes was $60,833,249, resulting in estimated gross unrealized appreciation and depreciation of $736,247 and $(654,355), respectively.

(14)

Investments the Company has determined are not qualifying assets under Section 55(a) of the 1940 Act. The status of these assets under the 1940 Act is subject to change. The Company monitors the status of these assets on an ongoing basis. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. Non-qualifying assets represented 2.6% of total assets as of September 30, 2020.

(15)

The Company is entitled to receive additional interest, in addition to the interest earned based on the stated interest rate of this security, as a result of an arrangement with other lenders in the syndication, whereby the “first out” tranche will have priority over the Company’s “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder from the borrower.

(16)

This investment is in the subordinated note of the collateralized loan obligation security, which is entitled to recurring distributions that are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments in debt holders and fund expenses. The current estimated yield, calculated using amortized cost, is based on the current projections of this excess cash flow taking into account assumptions made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.

(17)

Investment bears interest at 12% per year with such interest to be paid, at the election of the borrower in cash or paid-in kind (“PIK”) interest. To the extent that any portion of interest is in the form of PIK interest, the interest rate is increased to 13% with a minimum of 5% of the total interest in the form of cash interest (i.e., 5% cash interest and 8% PIK interest).

(18)

The Company may sell any of the referenced securities in whole or in part to any third-party prior to the settlement date of the forward contracts without consent of the counterparty. Upon such sale to a third-party, the Company and counterparty shall have no further obligations in respect of that specific amount of referenced security sold.

See notes to consolidated financial statements.

Partners Lending Corporation

Consolidated Schedule of Investments

December 31, 2019

Portfolio Company ^{(1) (2)} ⁽³⁾	Investment Type	Initial Acquisition Date	Maturity Date	Spread Above Index ⁽⁴⁾	Interest Rate			Principal Value		Amortized Cost ^{(12) (13)}		Fair Value		% of Net Assets ⁽⁶⁾
Non-control/Non-affiliate Investments
Non-control/Non-affiliate Investments - United States
Consumer Discretionary
Location Services LLC (Revolver) ^{(7) (8) (9)}	Senior Secured First Lien Debt	11/7/2019	11/7/2022	L+6.75%		8.53	%	$	791,667	$	756,049	$	765,117		3.6	%
TLE Holdings, LLC	Senior Secured First Lien Debt	10/22/2019	6/28/2024	L+5.50%		7.30	%		997,468		992,517		986,297		4.6	%
Consumer Discretionary Total											1,748,566		1,751,414		8.2	%
Financials
Acrisure, LLC ^{(5) (7) (10)}	Senior Secured First Lien Debt	10/18/2019	11/22/2023	L+4.25%		6.19	%		1,994,898		1,981,724		2,003,625		9.4	%
Alera Group Intermediate Holdings, Inc. ^{(7) (10)}	Senior Secured First Lien Debt	12/18/2019	8/1/2025	L+4.50%		6.30	%		1,994,949		2,019,886		2,019,886		9.5	%
Churchill Middle Market CLO IV ⁽¹⁴⁾	Collateralized Securities	12/12/2019	1/23/2032	L+9.27%		11.04	%		1,400,000		1,330,000		1,330,000		6.3	%
Financials Total											5,331,610		5,353,511		25.2	%
Healthcare
Pharmalogic Holdings Corp. ⁽⁷⁾	Senior Secured First Lien Debt	12/16/2019	6/12/2023	L+4.00%		5.80	%		997,468		996,296		996,271		4.7	%
Premier Imaging, LLC ⁽⁷⁾	Senior Secured First Lien Debt	10/22/2019	1/2/2025	L+5.75%		7.43	%		997,481		989,487		987,506		4.6	%
Premier Imaging, LLC ⁽⁷⁾	Senior Secured First Lien Debt	12/5/2019	1/2/2025	L+5.75%		7.43	%		997,500		987,549		987,525		4.7	%
Radiology Partners, Inc. ^{(5) (7) (10)}	Senior Secured First Lien Debt	10/18/2019	7/9/2025	L+4.75%		6.62	%		2,992,424		2,972,528		3,012,384		14.2	%
Healthcare Total											5,945,860		5,983,686		28.2	%
Industrials
PHI Group, Inc ^{(7) (10)}	Senior Secured First Lien Debt	10/22/2019	7/10/2024	L+7.00%		8.80	%		2,938,410		2,908,047		2,911,964		13.7	%
Syndigo LLC ^{(7) (10)}	Senior Secured First Lien Debt	10/25/2019	10/24/2024	L+5.50%		7.30	%		2,992,500		2,932,650		2,932,650		13.8	%
Teneo Holdings LLC ⁽⁷⁾	Senior Secured First Lien Debt	10/18/2019	7/11/2025	L+5.25%		6.92	%		997,500		948,227		951,615		4.5	%
Industrials Total											6,788,924		6,796,229		32.0	%
Information Technology
Allied Universal Holdco LLC ^{(7) (10)}	Senior Secured First Lien Debt	12/20/2019	7/10/2026	L+4.50%		6.30	%		2,729,730		2,753,615		2,753,615		12.9	%
Allied Universal Holdco LLC (Delayed Draw) ^{(7) (10) (11)}	Senior Secured First Lien Debt	12/20/2019	7/10/2026	L+4.25%		6.05	%		270,270		272,635		272,635		1.3	%
Drilling Info Holdings, Inc. ⁽⁷⁾	Senior Secured First Lien Debt	10/22/2019	7/30/2025	L+4.25%		6.05	%		997,475		995,042		994,982		4.7	%
Help/Systems Holdings, Inc. ^{(5) (7) (10)}	Senior Secured First Lien Debt	12/18/2019	11/19/2026	L+4.75%		6.55	%		3,000,000		2,992,500		2,987,670		14.0	%
Idera, Inc. ^{(7) (10)}	Senior Secured First Lien Debt	12/18/2019	6/28/2024	L+4.50%		6.30	%		1,857,905		1,867,195		1,867,195		8.8	%
Monotype Imaging Holdings Corp. ^{(7) (9) (10)}	Senior Secured First Lien Debt	11/12/2019	10/9/2026	L+5.50%		7.48	%		1,000,000		940,000		940,000		4.4	%
The Dun & Bradstreet Corporation ^{(5) (7)}	Senior Secured First Lien Debt	10/18/2019	2/6/2026	L+5.00%		6.79	%		1,500,000		1,505,440		1,515,000		7.1	%
Information Technology Total											11,326,427		11,331,097		53.2	%
Materials
Sepro Corporation ⁽⁷⁾	Senior Secured First Lien Debt	10/22/2019	2/7/2025	L+4.50%		6.69	%		997,487		990,006		990,006		4.7	%
Materials Total											990,006		990,006		4.7	%
Telecommunication Services
PTI US Acquisitions, LLC ⁽⁷⁾	Senior Secured First Lien Debt	10/22/2019	12/24/2023	L+5.00%		6.94	%		1,000,000		993,997		999,300		4.7	%
Wonder Love Inc ^{(7) (9)}	Senior Secured First Lien Debt	11/18/2019	11/18/2024	L+5.00%		6.80	%		981,250		962,034		962,410		4.5	%
Telecommunication Services Total											1,956,031		1,961,710		9.2	%

Total Investments ⁽¹³⁾					Total					$	34,087,424	$	34,167,653		160.7	%

(1)	All of the Company's investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of the Company's investments are issued by U.S. portfolio companies unless otherwise noted.

(2)	All investments are non-controlled/non-affiliated investments as defined by the 1940 Act. The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company.

(3)	Except as otherwise noted, certain of the Company’s portfolio company investments are subject to legal restrictions on sales.

(4)

The majority of the investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) which resets monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR and the current contractual interest rate in effect at December 31, 2019. Certain investments may be subject to a LIBOR interest rate floor, or rate cap.

(5)	Other than the investments noted by this footnote, the fair value of these investments is determined in good faith using significant unobservable inputs by the Company’s board of directors. (See Note 4 in the accompanying notes to the consolidated financial statements).

(6)	Percentages are based on net assets of $21,255,406 as of December 31, 2019.

(7)	Security is pledged as collateral supporting the amounts outstanding under the debt financing facility at Great Lakes BCPL Funding Ltd. (See Note 5 in the accompanying consolidated financial statements).

(8)	All or a portion of this commitment was unfunded at December 31, 2019.

(9)	Represents co-investment made with the Company's affiliates in accordance with the terms of the exemptive relief that the Company received from the U.S Securities and Exchange Commission. (See Note 3 in the accompanying consolidated financial statements).

(10)	Investment position or portion thereof unsettled as of December 31, 2019.

(11)	The date disclosed represents the commitment period of the unfunded term loan.

(12)	The amortized cost represents the initial cost adjusted for the accretion of discount or amortization of premium, as applicable, on debt investments using the effective interest method.

(13)	As of December 31, 2019, the estimated cost basis of investments for U.S. federal tax purposes was $34,087,424, resulting in estimated gross unrealized appreciation and depreciation of $93,369 and $(13,140), respectively.

(14)

Investments the Company has determined are not qualifying assets under Section 55(a) of the 1940 Act. The status of these assets under the 1930 Act is subject to change. The Company monitors the status of these assets on an ongoing basis. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. Non-qualifying assets represented 2.2% of total assets as of December 31, 2019.

See notes to consolidated financial statements.

BC Partners Lending Corporation

Notes to Consolidated Financial Statements

Note 1. Organization

BC Partners Lending Corporation (“BCPL” or the “Company”) is a Maryland corporation formed on December 22, 2017. The Company was formed primarily to invest in the U.S. middle-market credit sector. The Company’s investment objective is to make investments that generate current income and, to a lesser extent, capital appreciation. The Company intends to invest primarily in private middle-market companies in the form of secured debt, unsecured debt, other debt and/or equity securities. In addition, to a lesser extent, the Company may invest in securities of public companies and in structured products. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for U.S. federal income tax purposes, and to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and the Company will take advantage of the extended transition period for complying with certain new or revised accounting standards provided for emerging growth companies in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”).

The Company commenced operations on October 2, 2019.

On October 25, 2019, the Company formed a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Great Lakes BCPL Funding Ltd. (“BCPL Funding”), a Cayman Islands exempted company, which holds certain of the Company’s portfolio loan investments that are used as collateral for the debt financing facility at BCPL Funding. On January 28, 2020, the Company formed a wholly-owned, bankruptcy-remote subsidiary, BCPL Sub Holdings LLC, a Delaware limited liability company, which holds the Company’s equity investment.

The Company is managed by BC Partners Advisors L.P. (the “Adviser”), an affiliate of BC Partners LLP (“BC Partners”). BC Partners Management LLC (the “Administrator”), also an affiliate of BC Partners, provides administrative services necessary for the Company to operate.

The Company conducts private offerings (each, a “Private Offering”) of its common stock to accredited investors in reliance on exemptions from the registration requirements of the Securities Act. At the closing of each Private Offering, each investor makes a capital commitment (a “Capital Commitment”) to purchase shares of the Company’s common stock pursuant to a subscription agreement entered into with the Company. Investors are required to fund drawdowns to purchase shares of the Company’s common stock up to the amount of their respective Capital Commitment on an as-needed basis each time the Company delivers a drawdown notice to its investors. The Company’s initial Private Offering closed on September 26, 2019 (the “Initial Closing”).

On April 20, 2020, the Company submitted to the SEC an application for exemptive relief to initiate one or more transactions intended to provide investors with liquidity options with respect to their investments in shares of the Company’s common stock (each, a “Reorganization”), pursuant to which an investor would have the option to exchange their shares and any remaining commitment, or a portion of their shares and any remaining commitment, in the Company for an interest in an entity (a “Liquidating Company”) that generally would seek to liquidate and distribute the proceeds of its investments, as they are received, to its equity holders over time, such that it would likely substantially complete its liquidation within a reasonable period of time following the date of the Reorganization. It is anticipated that, if initiated, the first Reorganization would occur as soon as reasonably practicable following the end of the fiscal year during which the third anniversary of the initial closing date occurs (the “Initial Reorganization”). Immediately following a Reorganization, the applicable Liquidating Company would hold a proportionate share of the assets and liabilities held by the Company immediately prior to the Reorganization based on investor participation levels. The costs of a Reorganization will be borne by the applicable Liquidating Company. There can be no assurance that the Company will be able to obtain any required exemptive and/or no-action relief from the SEC or that the Company’s board of directors (the “Board”) will authorize the Reorganization. If the Company does not obtain any required exemptive and/or no-action relief, or if the Company does receive the required relief but the Board determines not to proceed with a Reorganization, then the Company will wind down its operations within ten years after the Initial Closing unless the Board and/or stockholders determine to take different action, including listing our common stock on a national securities exchange or periodic repurchases or tender offers.

The Company’s fiscal year ends on December 31.

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair presentation of the financial position and results of operations as of and for the periods presented herein. The Company is an investment company under U.S. GAAP and therefore applies the accounting and reporting guidance applicable to investment companies. The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates, and such differences could be material.

Consolidation

In accordance with U.S. GAAP guidance on consolidation, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company’s wholly-owned subsidiaries in its consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

Segments

In accordance with U.S. GAAP guidance on segment reporting, the Company has determined that its operations comprise only a single reporting segment.

Cash and Restricted Cash

Cash consists of deposits held at a custodian bank. Restricted cash consists of deposits pledged as collateral. Cash and restricted cash are held at major financial institutions and, at times, may exceed the insured limits under applicable law.

Investments

Investment transactions are recorded on the trade date. Realized gains or losses on investments are calculated using the specific identification method as the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are recognized.

Investments for which market quotations are available are typically valued at those market quotations. To validate market quotations, the Company will utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations.

Debt that is not publicly traded but for which there are external pricing sources available as of the valuation date is valued using independent broker-dealer, market maker quotations or independent pricing services. To the extent the valuation committee, comprised of members of the Adviser, (the “Valuation Committee”) can observe narrow bid/ask quotation spreads a mean or mid quotation will be used. Otherwise, the bid or ask will be accepted. The Valuation Committee subjects these quotes to various criteria including, but not limited to, the number and quality of quotes, the deviation among the quotes and information derived from analyzing the Company’s own transactions in such investments throughout the reporting period. Generally, such investments are categorized in level 2 of the fair value hierarchy, unless the Valuation Committee determines that the quality, quantity or deviation among quotes warrants significant adjustment to the inputs utilized.

Investments that are not publicly traded or whose market prices are not readily available, as is expected to be the case for substantially all of the Company’s investments, are valued at fair value as determined in good faith by the Board, based on, among other things, input of the Adviser, the Audit Committee and independent third-party valuation firm(s) engaged at the direction of the Board.

The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:

•

The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the Company’s portfolio management team. The Company utilizes an independent valuation firm to provide valuation on each material illiquid security at least once every trailing 12-month period;

•

Preliminary valuations are reviewed and discussed with management of the Adviser and investment professionals. Agreed upon valuation recommendations will be presented to the Audit Committee;

•

The Audit Committee will review the valuations presented and recommend values for each investment to the Board; and

•

The Board will review the recommended valuations and determine the fair value of each investment. Valuations that are not based on readily available market quotations will be valued in good faith based on, among other things, the input of the Adviser, the Audit Committee and, where applicable, other third parties.

As part of the valuation process, the Company may consider other information and may use valuation methods including but not limited to (i) bids and asks for similar investments, (ii) recent trading activity, (iii) discounting forecasted cash flows of the investment, (iv) models that consider the implied yields from comparable debt, (v) third party appraisal, (vi) sale negotiations and purchase offers received from independent parties and (vii) estimated value of underlying assets to be received in liquidation or restructuring.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes valuation techniques that maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible to the Company.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Significant inputs that are unobservable for an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments for which no external pricing sources are available as of the valuation date are included in level 3 of the fair value hierarchy.

Forward Contracts

The Company may enter into forward purchase contracts primarily to manage credit risk. When entering into a forward purchase contract, the Company agrees to deliver a fixed quantity of securities for an agreed-upon price on an agreed future date. Forward contracts entered into by the Company are not designated as hedging instruments, and as a result, the Company presents changes in fair value through net change in unrealized appreciation (depreciation) on derivative instruments in the consolidated statements of operations. Realized and unrealized gains and losses of derivative instruments are included in the consolidated statements of operations. These instruments involve market risk, credit risk, or both kinds of risks. Risks arise from the possible inability of counterparties to meet the terms of their contracts and movements in fair value. The Company attempts to limit counterparty risk by only dealing with well-known counterparties.

Revenue Recognition

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion of discounts and amortization of premiums, if any.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. Accrued interest is generally reversed when a loan is placed on non-accrual status. Payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability of the outstanding principal and interest. Non-accrual loans may be restored to accrual status when past due principal and interest is paid current and are likely to remain current based on management’s judgment.

Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.

Loan origination fees, original issue discount and market discount are capitalized, and the Company amortizes such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

Payment-in-Kind Interest

Payment-in-kind (“PIK”) interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income and generally becomes due at maturity. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.

Deferred Financing Costs

Origination and other expenses related to the Company’s borrowings are recorded as deferred financing costs and amortized as part of interest expense using the straight-line method over the stated life of the debt instrument. Unamortized deferred financing costs are presented as a direct deduction to the respective debt instrument.

Organization and Offering Costs

Organization costs include, among other things, the cost of incorporating, including the cost of legal services and other fees pertaining to the Company’s organization. Costs associated with the organization of the Company are expensed as incurred. Offering costs include, among other things, marketing expenses and printing, legal fees, due diligence fees, and other costs in connection with the Company’s offering of shares of its common stock, including the preparation of the Company’s registration statement, and salaries and direct expenses of the Adviser’s personnel, employees of its affiliates and others while engaged in such activities. Offering costs are capitalized as deferred offering expenses and are amortized over twelve months from incurrence.

Earnings per Share

Basic earnings per share is calculated by dividing net income or loss attributable to common stockholders by the weighted average number of common stock outstanding during the period. Diluted earnings per share is calculated in the same manner, with further adjustments to reflect the dilutive effect of common stock equivalents outstanding.

Income Taxes

The Company has elected to be treated for U.S. federal income tax purposes, and to qualify annually, as a RIC under the Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

To qualify for and maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess, if any, of its realized net short-term capital gains over its realized net long-term capital losses. In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included 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.

Dividends to Common Stockholders

Distributions to the Company’s stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the Board and is generally based upon earnings estimated by the Adviser. Net realized capital gains, if any, would generally be distributed at least annually, although the Company may decide to retain such capital gains.

The Company has adopted an “opt out” distribution reinvestment plan (“DRP”) for its stockholders. As a result, if the Company makes a cash dividend, its stockholders will have their cash dividends reinvested in additional shares of the Company’s common stock, including fractional shares as necessary, unless they specifically “opt out” of the DRP to receive the distribution in cash. Under the DRP, cash distributions to participating stockholders will be reinvested in additional shares of the Company’s common stock at a purchase price equal to the net asset value per share as of the last day of the calendar quarter immediately preceding the date such distribution was declared.

The Company may distribute taxable dividends that are payable in cash or shares of its common stock at the election of each stockholder. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treated as taxable dividends. The Internal Revenue Service has published guidance indicating that this rule will apply even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. Under this guidance, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock). If the Company decides to make any distributions consistent with this guidance that are payable in part in its stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, shares of the Company’s stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of the Company’s current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the Company’s stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, the Company may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transaction, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company expects that the adoption of this guidance will not have a material impact on the Company’s financial position, results of operations or cash flows.

Note 3. Related Party Transactions

Administration Agreement

On April 23, 2018, the Company entered into an Administration Agreement (the “Administration Agreement”) with the Administrator. Under the terms of the Administration Agreement, the Administrator will perform (or oversee, or arrange for, the performance of) the administrative services necessary for the operation of the Company, which includes office facilities, equipment, bookkeeping and recordkeeping services and such other services as the Administrator, subject to review by the Board, shall from time to time determine to be necessary or useful to perform its obligations under this Administration Agreement.

The Company will reimburse the Administrator for services performed under the terms of the Administration Agreement. In addition, pursuant to the Administration Agreement, the Administrator may delegate its obligations under the Administration Agreement to affiliates or third-parties and the Company pays or reimburses the Administrator for certain expenses incurred by any such affiliates or third-parties for work done on its behalf.

The Administration Agreement had an initial term of two years from its effective date and will remain in effect from year-to-year thereafter if approved annually by (i) the vote of the Board, or by the vote of a majority of the outstanding voting securities of the Company, and (ii) the vote of a majority of the Company’s Board who are not parties to the Administration Agreement or “interested persons” of the Company, of the Adviser or of any of their respective affiliates, as defined in the 1940 Act. The Administration Agreement was most recently approved on March 5, 2020. The Administration Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written notice, by the vote of a majority of the outstanding voting shares of the Company or by the vote of the Board or by the Administrator.

No person who is an officer, director or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Administrator (or its affiliates) for an allocable portion of the compensation paid by the Administrator (or its affiliates) to the Company’s Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to the business affairs of the Company).

For the three and nine months ended September 30, 2020, the Company incurred administrative fees of $0.1 million and $0.4 million, respectively. As of September 30, 2020, such amounts were partially offset against amounts due from the Adviser in connection with the Expense Support and Conditional Reimbursement Agreement (the “Expense Support Agreement”), as described below.

Investment Advisory Agreement

On April 23, 2018, the Company entered into an Investment Advisory Agreement with the Adviser which was amended and restated on November 7, 2018 and further amended on July 9, 2019 (as amended, the “Investment Advisory Agreement”). The amendments were each approved at the time by the Company’s sole stockholder. Under the terms of the Investment Advisory Agreement, the Adviser will be responsible for managing the Company’s business and activities, including sourcing investment opportunities, conducting research, performing due diligence on potential investments, structuring its investments, monitoring its portfolio companies and providing managerial assistance to portfolio companies.

Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser a base management fee and may also pay to it certain incentive fees.

The base management fee is payable quarterly in arrears at an annual rate of 1.00% (1.50% if an exchange listing occurs) of the Company’s average gross assets, excluding cash and cash equivalents but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters. The management fee for any partial month or quarter will be appropriately prorated and adjusted for any share issuances or repurchases during the relevant month or quarter.

On August 20, 2019, the Company entered into a letter agreement (the “Letter Agreement”) with the Adviser pursuant to which, for the period ended December 31, 2019, the Adviser waived 50% of the base management fee to be paid by the Company under the Investment Advisory Agreement. The waiver was prorated for any partial month or quarter. Management fees waived are not subject to recoupment by the Adviser.

For the three and nine months ended September 30, 2020, the Company incurred management fees of $0.2 million and $0.4 million, respectively. As of September 30, 2020, such amounts were partially offset against amounts due from the Adviser in connection with the Expense Support Agreement, as described below.

The incentive fee consists of two parts, as follows:

(i)

The first component, the income incentive fee, payable at the end of each quarter in arrears, equals 100% of the pre-incentive fee net investment income in excess of a 1.50% quarterly preferred return but less than 1.76% (1.818% if an exchange listing occurs), the upper level breakpoint, and 15% (17.50% if an exchange listing occurs) of the amount of pre-incentive fee net investment income that exceeds 1.76% (1.818% if an exchange listing occurs) in any calendar quarter. For purposes of determining whether pre-incentive fee net investment income exceeds the hurdle rate, pre-incentive fee net investment income is expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter.

(ii)

The second component, the capital gains incentive fee, payable at the end of each calendar year in arrears, equals 15.0% of cumulative realized capital gains from inception through the end of such calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fee for prior periods. The Company accrues, but does not pay, a capital gains incentive fee with respect to unrealized capital appreciation because a capital gains incentive fee would be owed to the Adviser if the Company were to sell the relevant investment and realize a capital gain.

For both the three and nine months ended September 30, 2020, the Company incurred incentive fees of $0.2 million.

The Investment Advisory Agreement will be in effect for a period of two years from its effective date and will remain in effect from year-to-year thereafter if approved annually by (i) the vote of the Board, or by the vote of a majority of the outstanding voting securities of the Company, and (ii) the vote of a majority of the Company’s Board who are not parties to the Investment Advisory Agreement or “interested persons” of the Company, of the Adviser or of any of their respective affiliates, as defined in the 1940 Act. The Investment Advisory Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written notice and, in certain circumstances, upon 120 days’ written notice, by the vote of a majority of the outstanding voting shares of the Company or by the vote of the Board or by the Adviser.

The Adviser may, from time to time, pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms. Prior to the Company’s commencement of operations, the Adviser and its affiliates have incurred operating expenses on behalf of the Company in the amount of $1.2 million, including audit fees of $0.2 million, legal fees of $0.5 million, professional fees of $22.3 thousand, directors’ fees of $0.2 million, insurance of $0.2 million and other expenses of $62.4 thousand. The Company will have no responsibility for such costs until the Adviser submits such costs, or a portion thereof, for reimbursement. For the period ended December 31, 2019, the Company recognized operating expenses reimbursable to the Adviser of $1.2 million. Amounts incurred by the Adviser subsequent to the Company’s commencement of operations were offset against amounts due from the Adviser in connection with the Expense Support Agreement, as described below. For the three and nine months ended September 30, 2020, the Adviser paid operating expenses on behalf of the Company in the amount of $0.8 million and $1.6 million, respectively. As of September 30, 2020, such amounts were partially offset against amounts due from the Adviser in connection with the Expense Support Agreement, as described below.

Co-investment Exemptive Relief

As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term. On October 23, 2018, the SEC issued an order granting the Company’s application for exemptive relief to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions, with other funds managed by the Adviser or its affiliates, including BCP Special Opportunities Fund I LP, BCP Special Opportunities Fund II LP, Portman Ridge Finance Corporation and any future funds that are advised by the Adviser or its affiliated investment advisers. Under the terms of the exemptive order, in order for the Company to participate in a co-investment transaction a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must conclude that (i) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching with respect of the Company or its stockholders on the part of any person concerned, and (ii) the proposed transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objectives and strategies and certain criteria established by the Board.

Organization and Offering Costs

Under the Investment Advisory Agreement and the Administrative Agreement, the Company, either directly or through reimbursements to the Adviser or its affiliates, is responsible for its organization and offering costs in an amount up to 1.50% of total capital commitments. Prior to the Company’s commencement of operations, the Adviser funded the Company’s organization and offering costs in the amount of $1.4 million. The Company will have no responsibility for such costs until the Adviser submits such costs, or a portion thereof, for reimbursement, subject to a cap of 1.50% of the Company’s total commitments and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. For the three and nine months ended September 30, 2020, the Company accrued organization and offering costs of $0.1 million and $0.2 million, respectively.

Amounts due to the Adviser for the expected recoveries of organization, offering and operating expenses incurred on behalf of the Company, and amounts due from the Adviser under the Expense Support Agreement for such amounts are reflected on a net basis in amounts due to/from affiliates on the consolidated statements of assets and liabilities.

Expense Support Agreement

On August 22, 2019, the Company entered into the Expense Support Agreement with the Adviser, the purpose of which is to ensure that no portion of distributions made to the Company’s stockholders will be paid from the Company’s offering proceeds or borrowings (the “Distribution Objective”).

Commencing with the fourth quarter of 2019 and on a quarterly basis thereafter, the Adviser will reimburse the Company for operating expenses in an amount sufficient to meet the Distribution Objective. Any payment so required to be made by the Adviser is referred to herein as an “Expense Payment.”

The Adviser’s obligation to make an Expense Payment becomes a liability of the Adviser, and the right to such Expense Payment becomes an asset of the Company, no later than the last business day of the applicable calendar quarter. The Expense Payment for any calendar quarter shall, as promptly as possible, be: (i) paid by the Adviser to the Company in any combination of cash or other immediately available funds, and/or (ii) offset against amounts due from the Company to the Adviser.

Pursuant to the Expense Support Agreement, “Available Operating Funds” means the sum of (i) the Company’s net investment company taxable income (including net short-term capital gains reduced by net long-term capital losses), (ii) the Company’s 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 or otherwise earned by the Company 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.)

Following any calendar quarter in which Available Operating Funds exceed the cumulative distributions paid to the Company’s stockholders in such calendar quarter (the amount of such excess being hereinafter referred to as “Excess Operating funds”), the Company shall pay such Excess Operating Funds, or a portion thereof in accordance with the stipulation below, as applicable, to the Adviser until such time as all Expense Payments made by the Adviser to the Company within three years prior to the last business day of such calendar quarter have been reimbursed or waived. Any payments required to be made by the Company pursuant to the preceding sentence are referred to herein as a “Reimbursement Payment.”

The amount of the Reimbursement Payment for any calendar quarter will be equal to the lesser of (i) the Excess Operating Funds in such calendar quarter, and (ii) the aggregate amount of all Expense Payments made by the Adviser to the Company within three years prior to the last business day of such calendar quarter that have not been previously reimbursed by the Company to the Adviser.

The Company’s obligation to make a Reimbursement Payment becomes a liability to the Company, and the right to such Reimbursement Payment becomes an asset of the Adviser, no later than the last business day of the applicable calendar quarter. The Reimbursement Payment for any calendar quarter shall, as promptly as possible, be paid by the Company to the Adviser in any combination of cash or other immediately available funds. Any Reimbursement Payments shall be deemed to have reimbursed the Adviser for Expense Payments in chronological order beginning with the oldest Expense Payment eligible for reimbursement.

The Expense Support Agreement may be terminated at any time, without penalty, by the Company or the Adviser, with or without notice. The Expense Support Agreement automatically terminates in the event of (a) the termination by the Company of the Investment Advisory Agreement, or (b) the Board determines to dissolve or liquidate the Company. Upon termination of the Expense Support Agreement, the Company will be required to pay the Adviser an amount equal to all Expense Payments paid by the Adviser to the Company within three years prior to the date of such termination and that have not been previously reimbursed by the Company to the Adviser. Such repayment shall be made to the Adviser no later than 30 days after such date of termination or the date of such event, as applicable.

For the three and nine months ended September 30, 2020, the total Expense Payment provided to the Company by the Adviser was $0.1 million and $1.2 million, respectively, which includes the accrual of $0.1 million and $0.2 million, respectively, of eligible recoveries from the Adviser under the Expense Support Agreement for organization and offering costs paid on behalf of the Company prior to commencement of operations. Management believes that the Reimbursement Payments by the Company to the Adviser are not probable under the terms of the Expense Support Agreement as of September 30, 2020. The following table reflects the Expense Payments that may be subject to reimbursement pursuant to the Expense Support Agreement:

Quarter Ended	Expense Payment Received from Adviser ⁽¹⁾		Reimbursement Payment made to Adviser		Unreimbursed Expense Payment		Eligible for Reimbursement through ⁽¹⁾
December 31, 2019	$	2,165,309	$	—	$	2,165,309	December 31, 2022
March 31, 2020		345,503		—		345,503	March 31, 2023
June 30, 2020		752,142		—		752,142	June 30, 2023
September 30, 2020		67,783		—		67,783	September 30, 2023
	$	3,330,737	$	—	$	3,330,737

(1)	The actual date that the estimated Expense Payment is eligible for reimbursement will be determined when such Expense Payment is actually made by the Adviser.

Potential Conflicts of Interest

The members of the senior management and investment teams of the Adviser serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as the Company does, or of investment vehicles managed by the same personnel. In serving in these multiple and other capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may or may not be in the Company’s best interests or in the best interest of the Company’s stockholders. The Company’s investment objectives may overlap with the investment objectives of such investment funds, accounts or other investment vehicles.

Note 4. Investments and Fair Value Measurements

The following table summarizes the composition of the Company’s investment portfolio at amortized cost and fair value as of September 30, 2020:

	September 30, 2020
	Amortized		Percentage of			Fair		Percentage of
	Cost		Portfolio			Value		Portfolio
Senior Secured Loan	$	54,705,793		89.9	%	$	54,622,024		89.7	%
Structured Note		1,842,333		3.0	%		1,793,499		3.0	%
Subordinated Structured Note		333,334		0.6	%		215,066		0.4	%
Bond		3,951,789		6.5	%		4,171,560		6.9	%
Equity/Other		—		0.0	%		—		0.0	%
Total	$	60,833,249		100.0	%	$	60,802,149		100.0	%

The following table summarizes the composition of the Company’s investment portfolio at amortized cost and fair value as of December 31, 2019:

	December 31, 2019
	Amortized		Percentage of			Fair		Percentage of
	Cost		Portfolio			Value		Portfolio
Senior Secured First Lien Debt	$	32,757,424		96.1	%	$	32,837,653		96.1	%
Subordinated Structured Note		1,330,000		3.9	%		1,330,000		3.9	%
Total	$	34,087,424		100.0	%	$	34,167,653		100.0	%

Generally, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned more than 25% of its voting securities or it had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities. As of September 30, 2020 and December 31, 2019, the Company did not “control” and was not an “affiliated person” of any of its portfolio companies, each as defined in the 1940 Act.

The following tables summarize the industry and geographic composition of the Company’s investment portfolio based on amortized cost and fair value as of September 30, 2020:

	September 30, 2020
	Amortized		Percentage of			Fair		Percentage of
	Cost		Portfolio			Value		Portfolio
Collateralized Loan Obligation - Debt Class	$	1,842,333		3.0	%	$	1,793,499		2.9	%
Collateralized Loan Obligation - Equity Class		333,334		0.6	%		215,066		0.4	%
Communication Services		2,536,684		4.2	%		2,488,710		4.1	%
Consumer Discretionary		5,563,019		9.1	%		5,530,772		9.1	%
Consumer Staples		2,824,855		4.6	%		2,822,913		4.6	%
Financials		4,406,769		7.2	%		4,369,853		7.2	%
Healthcare		7,821,308		12.9	%		7,742,954		12.7	%
Industrials		16,915,617		27.8	%		17,226,432		28.4	%
Information Technology		18,589,330		30.6	%		18,611,950		30.6	%
Total	$	60,833,249		100.0	%	$	60,802,149		100.0	%

	September 30, 2020
	Amortized		Percentage of			Fair		Percentage of
	Cost		Portfolio			Value		Portfolio
United States	$	58,657,582		96.4	%	$	58,793,584		96.7	%
International		2,175,667		3.6	%		2,008,565		3.3	%
Total	$	60,833,249		100.0	%	$	60,802,149		100.0	%

The following tables summarize the industry and geographic composition of the Company’s investment portfolio based on amortized cost and fair value as of December 31, 2019:

	December 31, 2019
	Amortized		Percentage of			Fair		Percentage of
	Cost		Portfolio			Value		Portfolio
Consumer Discretionary	$	1,748,566		5.1	%	$	1,751,414		5.1	%
Financials		5,331,610		15.6	%		5,353,511		15.7	%
Healthcare		5,945,860		17.4	%		5,983,686		17.5	%
Industrials		6,788,924		19.9	%		6,796,229		19.9	%
Information Technology		11,326,427		33.3	%		11,331,097		33.2	%
Materials		990,006		2.9	%		990,006		2.9	%
Telecommunication Services		1,956,031		5.8	%		1,961,710		5.7	%
Total	$	34,087,424		100.0	%	$	34,167,653		100.0	%

	December 31, 2019
	Amortized		Percentage of			Fair		Percentage of
	Cost		Portfolio			Value		Portfolio
United States	$	32,757,424		96.1	%	$	32,837,653		96.1	%
International		1,330,000		3.9	%		1,330,000		3.9	%
Total	$	34,087,424		100.0	%	$	34,167,653		100.0	%

The following table summarizes the fair value hierarchy of the Company’s investment portfolio as of September 30, 2020:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Senior Secured Loan	$	—	$	18,429,593	$	36,192,431	$	54,622,024
Structured Note		—		—		1,793,499		1,793,499
Subordinated Structured Note		—		—		215,066		215,066
Bond		—		4,171,560		—		4,171,560
Equity/Other		—		—		—		—
Total	$	—	$	22,601,153	$	38,200,996	$	60,802,149
Forward contracts		—		—		112,992		112,992
Total	$	—	$	22,601,153	$	38,313,988	$	60,915,141

The following table summarizes the fair value hierarchy of the Company’s investment portfolio as of December 31, 2019:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Senior Secured First Lien Debt	$	—	$	9,518,680	$	23,318,973	$	32,837,653
Subordinated Structured Note		—		—		1,330,000		1,330,000
Total	$	—	$	9,518,680	$	24,648,973	$	34,167,653

The following is a reconciliation of the Company’s investment portfolio for which level 3 inputs were used in determining fair value for the nine months ended September 30, 2020:

	Senior Secured Loan			Senior Secured Note			Senior Unsecured Note			Structured Note			Subordinated Structured Note			Bond			Repurchases Agreement			Total Investments			Forward Contracts
Balance as of January 1, 2020	$	23,318,973		$	—		$	—		$	1,330,000		$	—		$	—		$	—		$	24,648,973		$	—
Purchases of investments		30,881,924			1,500,000			500,000			512,333			333,334			4,805,719			1,290,409			39,823,719			—
Proceeds from principal repayments and sales of investments		(9,803,601	)		(1,513,125	)		(510,625	)		—			—			(4,921,868	)		(1,290,409	)		(18,039,628	)		—
Payment in-kind interest income		77,621			—			—			—			—			—						77,621			—
Net accretion of discounts (amortization of premiums)		114,427			—			—			—			—			310			—			114,737			—
Net change in unrealized depreciation on investments		(334,371	)		—			—			(48,834	)		(118,268	)		—			—			(501,473	)		112,992
Net realized gain on investments		119,481			13,125			10,625			—			—			115,839			—			259,070			—
Transfers into level 3		1,515,000			—			—			—			—			—			—			1,515,000			—
Transfers out of level 3		(9,697,023	)		—			—			—			—			—			—			(9,697,023	)		—
Balance as of September 30, 2020	$	36,192,431		$	—		$	—		$	1,793,499		$	215,066		$	—		$	—		$	38,200,996		$	112,992
Net change in unrealized depreciation on Level 3 investments still held	$	(319,507	)	$	—		$	—		$	(48,834	)	$	(118,268	)	$	—		$	—		$	(486,609	)	$	112,992

There were no investments held by the Company for the nine months ended September 30, 2019

The valuation techniques and significant unobservable inputs used in the valuation of level 3 investments as of September 30, 2020 were as follows:

Quantitative Information about Level 3 Fair Value Measurements

Asset Category

Fair Value

Valuation

Technique/

Methodology

Unobservable

Input

Range

(Weighted

Average)

Impact to

Valuation

from an Increase

in Input

Senior Secured Loan

9,240,170

Recent Transaction

Transaction Price

93.0 - 97.0 (95.7)

Increase

Senior Secured Loan

26,952,261

Discounted Cash Flows

Market Yield

5.5% - 18.3% (9.4%)

Decrease

Structured Note

1,793,499

Discounted Cash Flows

Market Yield

2.0% - 13.0% (9.5%)

Decrease

Subordinated Structured Note

215,066

Discounted Cash Flows

Discount Rate

12.3% - 14.3% (13.3%)

Decrease

Probability of Default

2.0% - 3.5% (2.8%)

Loss Severity

20.0% - 30.0% (25.0%)

Recovery Rate

70.0% - 80.0% (75.0%)

Prepayment Rate

0.0% - 25.0% (12.5%)

38,200,996

Forward Contracts

112,992

Option Pricing Model

Expected Volatility

11:4% - 14.4% (13.4%)

Decrease

The valuation techniques and significant unobservable inputs used in the valuation of level 3 investments as of December 31, 2019 were as follows:

Quantitative Information about Level 3 Fair Value Measurements

Asset Category

Fair Value

Valuation

Technique/

Methodology

Unobservable

Input

Range

(Weighted

Average)

Impact to

Valuation

from an Increase

in Input

Senior Secured First Lien Debt

15,742,271

Recent Transaction

Transaction Price

94.0% - 101.3% (99.4%)

Increase

Senior Secured First Lien Debt

7,576,702

Discounted Cash Flows

Market Yield

7.1% - 15.0% (9.3%)

Decrease

Subordinated Structured Note

1,330,000

Recent Transaction

Transaction Price

95.0% - 95.0% (95.0%)

Increase

24,648,973

The Company considers the par amounts at September 30, 2020 to be representative of the volume of its derivative activities during the nine months ended September 30, 2020.

As of September 30, 2020, the Company’s open forward contracts⁽¹⁾ were as follows:

Security

Counterparty

Settlement Date

Par

Unrealized Appreciation (Depreciation)

Halsey Point CLO II, Ltd.

Class D

Advantage Capital Holdings, LLC

7/1/2022

333,333

18,473

Halsey Point CLO II, Ltd.

Class E

Advantage Capital Holdings, LLC

7/1/2022

333,333

26,884

Halsey Point CLO II, Ltd.

Class Subordinated Notes

Advantage Capital Holdings, LLC

7/1/2022

333,333

67,635

112,992

The following table identifies the fair value amount of the forward contracts included in the consolidated statements of assets and liabilities at September 30, 2020. The following table also identifies the realized and unrealized gain and loss amounts included in the consolidated statements of operations for the nine months ended September 30, 2020.

Type of Contract

Derivative

Assets

Derivative

Liabilities

Realized

Gain (Loss)

Unrealized Appreciation

Forward contracts - credit risk

112,992

—

112,992

—

112,992

The outbreak of the novel coronavirus, or COVID-19, in many countries continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. The global impact of the outbreak has been rapidly evolving, and as cases of the virus have continued to be identified in additional countries, many countries have reacted by instituting quarantines, restrictions on travel and other measures to mitigate the impact of this pandemic. While many of these measures have been relaxed, spread of the virus continues and restrictions generally remain in place. Such actions have created disruption in global supply chains, and have adversely impacted a number of industries, including, among others, transportation, hospitality and entertainment. The outbreak could have a continued adverse impact on economic and market conditions and has triggered a period of global economic slowdown and continued volatility. The rapid development and fluidity of this situation precludes any prediction as to the duration and extent of this pandemic and its impact on the Company’s business, financial condition and results of operations, as well as the business, financial condition and results of operations of the Company’s portfolio companies. Nevertheless, the novel coronavirus presents material uncertainty and risk with respect to the Company and the Company’s portfolio companies’ performance and financial results. The Company is actively monitoring developments with respect to this pandemic and its impact as part of the Company’s overall investment objective and strategy. To the extent the Company’s portfolio companies are adversely impacted by the effects of COVID-19, it may have a material adverse impact on the Company’s future net investment income, the fair value of its portfolio investments, its financial condition and the results of operations and financial condition of the Company’s portfolio companies.

Note 5. Borrowings

In accordance with the 1940 Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% (or 150% if certain conditions are met) after such borrowing. Our Board and initial stockholder have approved our ability to utilize the increased leverage limit, which requires asset coverage of at least 150%. As of September 30, 2020 and December 31, 2019, the Company’s asset coverage was 237.1% and 206.3%, respectively.

On December 16, 2019, the Company, through BCPL Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which up to $50.0 million will be made available to the Company (the “Facility”).

Pursuant to the Facility, the Company sold certain loans in its portfolio having an aggregate market value of $17.2 million to BCPL Funding (the “Initial Loans”), in consideration for certain Class A Notes (the “Class A Notes”) issued by BCPL Funding. The Initial Loans secure the obligations of BCPL Funding under the Class A Notes, issued pursuant to an indenture between BCPL Funding and U.S. Bank National Association, as trustee (the “Indenture”). Principal on the Class A Notes will be due and payable at maturity on December 16, 2029. The Class A Notes do not provide for interest payments. The Class A Notes are issued in the amount of up to $76.9 million. The Indenture contains events of default customary for similar transactions, including: (a) the failure to make principal payments on the Class A Notes at their stated maturity or redemption date or to make payments with respect to expenses due under the Indenture within three business days of when due; (b) an event of default occurs under the Repurchase Agreement (defined below); and (c) BCPL Funding is required to register as an investment company under the 1940 Act.

The Company, in turn, entered into a confirmation in respect of a repurchase transaction with UBS (the “Confirmation”), which supplements, forms part of, and is subject to the SIFMA/ICMA Global Master Repurchase Agreement (2011 version), dated as of December 12, 2019 and amended on August 14,2020 (including any annexes thereto, the “GMRA,” and such GMRA, as supplemented and evidenced by the Confirmation, the “Repurchase Agreement”). Pursuant to the Repurchase Agreement, UBS purchased the Class A Notes held by the Company for an initial purchase price of $20.0 million, which price may increase from time to time up to an aggregate purchase price of $50.0 million, in exchange for the purchase by UBS of the increased funded outstanding principal amount of the Class A Notes held by the Company. Such increases in the purchase price under the Repurchase Agreement are conditioned upon the satisfaction of certain criteria with respect to the characteristics and total value of the Portfolio Assets held by BCPL Funding, and composition of the Portfolio Assets, in each case as set forth in the Indenture, among others, which criteria are customary for similar transactions. The scheduled Repurchase Date under the Confirmation is December 19, 2022. The financing fee under the Facility is equal to the three-month LIBOR plus a spread of 2.65% per year for the relevant period. Pursuant to the Repurchase Agreement, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other requirements customary for similar transactions. In addition to customary events of default included in similar transactions, the Repurchase Agreement also contains the following events of default, among others: (a) the failure to pay the repurchase price upon the applicable payment dates; (b) the failure to make a voluntary contribution of cash to BCPL Funding if the settlement for the commitment the Company made for the voluntary contribution of Portfolio Assets under the Contribution Agreement does not occur, each within the periods as set forth in the Repurchase Agreement, caused by negative changes in the value or composition of the Portfolio Assets that result in a failure to satisfy the criteria with respect thereto set forth in the Indenture; (c) the occurrence of an act by the Company that constitutes fraud or criminal negligence in respect of its investment activity pursuant to the Collateral Management Agreement; and (d) any officer or employee of the Company who has direct responsibility for the management of the Portfolio Assets is indicted for any act constituting fraud or criminal negligence in respect of investment activity and such person fails to be removed from such person’s managing the Portfolio Assets within the period as set forth in the Collateral Management Agreement.

The Company had provided a make-whole guarantee to the lender in the event that the pledged assets were insufficient to satisfy the repayment of the Facility.

Debt obligations consisted of the following as of September 30, 2020:

	September 30, 2020
	Total Aggregate Borrowing Capacity		Total Principal Outstanding		Less Deferred Financing Costs			Amount per Consolidated Statements of Assets and Liabilities
Credit Facility	$	50,000,000	$	30,000,000	$	(750,466	)	$	29,249,534
Total Debt	$	50,000,000	$	30,000,000	$	(750,466	)	$	29,249,534

Debt obligations consisted of the following as of December 31, 2019:

	December 31, 2019
	Total Aggregate Borrowing Capacity		Total Principal Outstanding		Less Deferred Financing Costs			Amount per Consolidated Statements of Assets and Liabilities
Credit Facility	$	50,000,000	$	20,000,000	$	(657,271	)	$	19,342,729
Total Debt	$	50,000,000	$	20,000,000	$	(657,271	)	$	19,342,729

Due to the short-term nature of the Facility, the outstanding principal balance approximates fair value. The fair value of the credit facility would be categorized as Level 3.

For the three and nine months ended September 30, 2020, the components of interest expense were as follows:

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Interest expense	$	183,706		$	673,683
Amortization of deferred financing costs		20,524			61,805
Total interest expense	$	204,230		$	735,488
Average debt outstanding		28,695,652			23,509,091
Weighted average interest rate		3.0	%		3.8	%

Note 6. Share Transactions

The Company is authorized to issue 1,000,000,000 shares of common stock at $0.001 par value per share.

On April 10, 2018, the Company issued 4,000 shares of common stock to an affiliate of the Adviser for aggregate proceeds of $100,000.

The Company has entered into subscription agreements (the “Subscription Agreements”) with investors, including the Adviser and its affiliates, providing for the private placement of shares of the Company’s common stock. Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase shares of the Company’s common stock up to the amount of their respective capital commitment on an as-needed basis each time the Company delivers a drawdown notice to its investors with a minimum of 10 business days prior notice. As of September 30, 2020 and December 31, 2019, the Company had received capital commitments totaling $40.4 million and $27.1 million, respectively.

The following table summarizes the total shares issued and proceeds received related to capital drawdowns delivered pursuant to the Subscription Agreements during the nine months ended September 30, 2020:

Capital Drawdown Notice Date	Common Share Issuance Date	Number of Common Shares Issued		Aggregate Offering Price
March 13, 2020	March 27, 2020		291,400	$	6,775,000
June 11, 2020	June 25, 2020		230,833		5,600,000
September 11, 2020	September 25, 2020		264,741		6,600,000
Total			786,974	$	18,975,000

Distributions

The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from the Adviser, which are subject to recoupment. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its taxable earnings. As a result, it is possible that a portion of the distributions the Company makes may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities.

The following table summarizes the distribution declarations for the nine months ended September 30, 2020:

Date Declared	Record Date	Payment Date	Amount Per Share		Distributions Declared
February 5, 2020	February 18, 2020	March 19, 2020	$	0.31	$	262,457
May 6, 2020	May 20, 2020	June 17, 2020		0.31		353,567
August 5, 2020	August 17, 2020	September 15, 2020		0.31		426,880
Total distributions declared			$	0.93	$	1,042,904

With respect to distributions, we have adopted an “opt out” dividend reinvestment plan (“DRP”) for common stockholders. As a result, in the event of a declared distribution, each shareholder that has not “opted out” of the DRP 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 common stock issued pursuant to the dividend reinvestment plan during the nine months ended September 30, 2020:

Date Declared	Record Date	Payment Date	Shares
February 5, 2020	February 18, 2020	March 19, 2020		2,507
May 6, 2020	May 20, 2020	June 17, 2020		5,658
August 5, 2020	August 17, 2020	September 15, 2020		5,548
Total shares issued pursuant to the DRP				13,713

Note 7. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common stock for the three and nine months ended September 30, 2020:

	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Increase in net assets resulting from operations per share - basic and diluted	$	1,303,221	$	1,613,478
Weighted average shares of common stock outstanding - basic and diluted		1,395,262		1,138,172
Net increase in net assets resulting from operations per share - basic and diluted	$	0.93	$	1.42

Note 8. Financial Highlights

The following is a schedule of financial highlights for the nine months ended September 30, 2020 and 2019:

	Nine Months Ended September 30,
	2020			2019 ⁽⁷⁾
Per share data:
Net asset value, beginning of period	$	25.11		$	25.00
Results of operations:
Net investment income ⁽¹⁾		0.93			—
Net realized and unrealized loss ⁽⁶⁾		(0.14	)		—
Net increase in net assets resulting from operations ⁽¹⁾		0.79			—
Stockholder distributions: ⁽²⁾
Distributions from net investment income		(0.93	)		—
Net decrease in net assets resulting from stockholder distributions		(0.93	)		—
Net asset value, end of period	$	24.97		$	25.00
Shares outstanding, end of period		1,647,320			4,000
Total return based on net asset value ⁽³⁾		3.3	%		0.0	%
Ratio/Supplemental Data:
Net assets, end of period	$	41,132,285		$	100,000
Ratio of net investment income to average net assets ⁽⁴⁾		5.0	%		0.0	%
Ratio of total expenses to average net assets ⁽⁴⁾		13.0	%		0.0	%
Ratio of net expenses to average net assets ⁽⁴⁾		7.9	%		0.0	%
Average debt outstanding	$	23,509,091		$	—
Portfolio turnover		73.3	%		0.0	%
Total amount of senior securities outstanding	$	30,000,000		$	—
Asset coverage per unit ⁽⁵⁾	$	2,371		$	—
Total committed capital, end of period	$	40,438,858		$	100,000
Ratio of total contributed capital to total committed capital, end of period		99.3	%		100.0	%

(1)	The per share data was derived by using the weighted average shares outstanding during the period.

(2)	The per share data for distributions reflects the actual amount of distributions paid during the period.

(3)

Total return based on net asset value is calculated as the change in net asset value per share during the period, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan divided by the beginning net asset value per share. Total return is not annualized.

(4)	The computation of average net assets during the period is based on averaging net assets for the period reported. Ratio, excluding incentive fees, and nonrecurring expenses, such as organization and offering costs, is annualized.

(5)

Asset coverage per unit is the ratio of the carrying value of the Company’s consolidated total assets, less liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness and is calculated on a consolidated basis.

(6)

The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption is derived from total change in net asset value during the period and differs from the amount calculated using average shares because of the timing of issuances of the Company’s shares in relation to changes in net asset value during the period.

(7)	The Company commenced operations on October 2, 2019. Accordingly, there is no activity in the comparable period for the nine months ended September 30, 2019.

Note 9. Commitments and Contingencies

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Adviser has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. As of September 30, 2020, the Company is not aware of any pending or threatened litigation.

The Adviser and its affiliates have incurred organization and offering costs and operating expenses on behalf of the Company in the amount of approximately $1.4 million and $1.2 million, respectively, from December 22, 2017 (inception) to October 2, 2019 (commencement of operations). The Company will have no responsibility for any organization and offering costs, nor operating expenses funded by the Adviser prior to the commencement of operations until the Adviser submits such costs, or a portion thereof, for reimbursement, subject to a cap of 1.50% of the Company’s total commitments for organization and offering costs and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. For the period from October 2, 2019 (commencement of operations) through September 30, 2020, the Company accrued organization and offering costs of $0.6 million and recognized operating expenses funded by the Advisor prior to the Company’s commencement of operations of $1.2 million.

See Note 3 for a discussion of the Company’s conditional reimbursement to the Adviser under the Expense Support Agreement.

The Company may, from time to time, enter into commitments to fund investments. As of September 30, 2020 and December 31, 2019, the Company had the following outstanding commitments to fund investments in current portfolio companies:

Portfolio Company	Investment	September 30, 2020		December 31, 2019
Advantage Capital Holdings LLC	Senior Secured Loan	$	1,315,333	$	—
Location Services LLC	Senior Secured Loan		583,333		708,333
STX Financing, LLC	Senior Secured Loan		1,307,251		—
The PromptCare Companies Inc.	Senior Secured Loan		218,182		—
Total Unfunded Portfolio Company Commitments		$	3,424,099	$	708,333

The Company maintains sufficient capacity to cover outstanding unfunded portfolio company commitments that the Company may be required to fund.

Note 10. Subsequent Events

On November 6, 2020, the Board declared a quarterly dividend of $0.31 per share for Company stockholders of record as of November 16, 2020, payable on December 15, 2020.

Also on November 6, 2020, the Board unanimously approved the renewal of the Investment Advisory Agreement for a period of twelve months.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information contained in this section should be read in conjunction with the consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report. This discussion includes forward-looking statements that involve substantial risks and uncertainties and should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Statements” set forth on page 2 of this Quarterly Report on Form 10-Q for further information regarding forward-looking statements. Except as otherwise indicated, the terms “we,” “us,” “our,” the “Company” and “BCPL” refer to BC Partners Lending Corporation.

Overview

The Company was incorporated under the laws of the State of Maryland on December 22, 2017. We have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes, and to qualify annually as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As such, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our investment company taxable income and tax-exempt interest. Qualifying assets include investments in “eligible portfolio companies.” Under the relevant Securities and Exchange Commission (“SEC”) rules, the term “eligible portfolio company” includes most private companies, whose principal place of business is the United States, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. These rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition. In addition, we will not invest more than 30% of our total assets in companies whose principal place of business is outside the United States. The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and the Company is taking advantage of the extended transition period for complying with certain new or revised accounting standards provided for emerging growth companies in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”). Depending on the duration of the novel coronavirus, or COVID-19, pandemic and the extent of its impact on our portfolio companies’ operations and our net investment income, any future distributions to our stockholders may be for amounts less than our historical distributions, may be made less frequently than historical practices, and may be made in part cash and part stock, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution, or 10% subject to temporary relief from the U.S. Internal Revenue Service.

Our investment objective is to make investments that generate current income and, to a lesser extent, capital appreciation. We intend for our investments primarily to take the form of debt investments, which may include secured debt, unsecured debt, other debt and/or equity in private middle-market companies (we define “middle-market companies” as those with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) between $10 million and $50 million). In addition, to a lesser extent, we may invest in the securities of public companies and in structured products. While our primary focus will be on investments within the United States, we may, on occasion, invest in securities of non-U.S. entities.

We are managed by BC Partners Advisors L.P. (the “Adviser”) and supervised by our board of directors (the “Board”), a majority of whom are not “interested persons” of the Company or the Adviser as defined in the 1940 Act. On April 23, 2018, we entered into an Investment Advisory Agreement which was amended and restated on November 7, 2018 and further amended on July 9, 2019 (the “Investment Advisory Agreement”) with the Adviser. Under the Investment Advisory Agreement, we have agreed to pay the Adviser a base management fee based on average gross assets, excluding cash and cash equivalents but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters and an incentive fee based on our performance. We engaged BC Partners Management LLC (the “Administrator”) to act as our administrator. On April 23, 2018, we entered into an Administration Agreement (the “Administration Agreement”) with the Administrator. Under the Administration Agreement, we have agreed to reimburse the Administrator for certain services performed to enable us to operate.

On October 25, 2019, we formed a wholly-owned subsidiary, Great Lakes BCPL Funding Ltd. (“BCPL Funding”), a Cayman Islands exempted company, which holds certain of our portfolio loan investments. On December 16, 2019, we, through BCPL Funding, entered into a debt financing facility, pursuant to which up to $50 million is available to us to fund investments and for other general corporate purposes (the “Facility”). See “—Financial Condition, Liquidity and Capital Resources-Debt” below. On January 28, 2020, we formed a wholly-owned subsidiary, BCPL Sub Holdings LLC, a Delaware limited liability company, which holds our equity investment.

Business Environment and Developments/Outlook

The U.S. capital markets are experiencing a period of extreme volatility and disruption. In December 2019, a novel strain of coronavirus (also known as “COVID-19”) surfaced in China and has since been detected in numerous countries, including the United States. COVID-19 has spread quickly and has been identified as a global pandemic by the World Health Organization. In response, governmental authorities have imposed restrictions on travel and the temporary closure of many corporate offices, retail stores, restaurants and manufacturing facilities and factories in affected jurisdictions, including, beginning in March 2020, in the United States.

While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments. In addition, we have continued to make, and expect to continue to make, investments in new loans.

We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S. governmental authorities. As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which COVID-19 pandemic will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies will experience financial distress and possibly default on their financial obligations to us and their other capital providers. It is possible that some of our portfolio companies may significantly curtail business operations, furlough or lay off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which would likely impair their business on a permanent basis. These developments would likely result in a decrease in the value of our investment in any such portfolio company.

The pandemic and the resulting economic dislocations have had adverse consequences for the business operations of some of our portfolio companies and have adversely affected, and threaten to continue to adversely affect, our operations, even as certain jurisdictions begin the process of reopening and easing restrictions on social interactions. The operational and financial performance of the portfolio companies in which we make investments depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn impact our valuation of the portfolio companies.

The COVID-19 pandemic and the related disruption and financial distress experienced by our portfolio companies may have material adverse effects on our investment income, particularly our interest income received from our investments. In connection with the adverse effects of the COVID-19 pandemic, we may need to restructure our investments in some of our portfolio companies, which could result in reduced interest payments, an increase in the amount of PIK interest we receive, or result in permanent impairments on our investments.

We are required to carry our investments at fair value as determined in good faith by or under the direction of our Board. Decreases in fair values of our investments are recorded as unrealized depreciation. Depending on market conditions, we could incur substantial losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations.

We have had a reduction in our net asset value per share since December 31, 2019 which is primarily the result of the impact of the COVID-19 pandemic. The decrease in net asset value per share as of September 30, 2020 primarily resulted from an increase in the aggregate unrealized depreciation of our investment portfolio resulting from decreases in the fair value of some of our portfolio company investments primarily due to the expected immediate adverse economic effects of the COVID-19 pandemic and the continuing uncertainty surrounding its long-term impact, as well as the re-pricing of credit risk in the market.

We are permitted under the 1940 Act, as a BDC, to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. In addition, our outstanding borrowings contain affirmative and negative covenants and events of default relating to minimum stockholders’ equity, minimum obligors’ net worth, minimum asset coverage, minimum liquidity and maintenance of RIC and BDC status, as well as cross-default provisions relating to other indebtedness.

As of September 30, 2020, we are in compliance with our asset coverage requirements under the 1940 Act and we are in compliance with all of the covenants pertaining to all of our borrowings. However, any continued increase in unrealized depreciation of our investment portfolio or further significant reductions in our net asset value as a result of the effects of the COVID-19 pandemic, or otherwise, increases the risk of breaching the relevant covenants, including those relating to minimum stockholders’ equity, minimum obligor net worth, and minimum asset coverage. If we fail to satisfy the respective covenants in our borrowings, or are unable to cure any event of default or obtain a waiver from the lender, it could result in foreclosure by the lenders under the credit facility, which would accelerate our repayment obligations under the facility and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders. See “Item 1A - “Risk Factors - Risks Relating to our Business and Structure” included in our most recent Annual Report on Form 10-K and the other risk factors contained therein and in our subsequent filings with the SEC, including our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

As of September 30, 2020, our Board approved the fair value of our investment portfolio in good faith in accordance with our valuation procedures, with input from the Adviser based on information available at the time of approval. We believe that the COVID-19 pandemic represents an extraordinary circumstance that has materially impacted the fair value of our investments. In addition, as a result of the COVID-19 pandemic, the fair value of our portfolio investments may be further negatively impacted after September 30, 2020 by circumstances and events that are not yet known.

Subscription Agreement

We are authorized to issue 1,000,000,000 shares of common stock at $0.001 par value per share.

We have entered into subscription agreements (the “Subscription Agreements”) with investors providing for the private placement of shares of our common stock. Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase shares of our common stock up to the amount of their respective capital commitment on an as-needed basis each time we deliver a drawdown notice to our investors with a minimum of 10 business days prior notice. Our initial private offering closed on September 26, 2019 (the “Initial Closing Date”).

As of September 30, 2020 and December 31, 2019, we had received capital commitments totaling $40.4 million and $27.1 million, respectively.

During the nine months ended September 30, 2020, we delivered the following capital call notices to investors:

Capital Drawdown Notice Date	Common Share Issuance Date	Number of Common Shares Issued		Aggregate Offering Price
March 13, 2020	March 27, 2020		291,400	$	6,775,000
June 11, 2020	June 25, 2020		230,833		5,600,000
September 11, 2020	September 25, 2020		264,741		6,600,000
Total			786,974	$	18,975,000

Liquidity

On April 20, 2020, we submitted to the SEC an application for exemptive relief to initiate one or more transactions intended to provide investors with liquidity options with respect to their investments in shares of our common stock (each, a “Reorganization”), pursuant to which an investor would have the option to exchange their shares and any remaining commitment, or a portion of their shares and any remaining commitment, in us for an interest in an entity (a “Liquidating Company”) that generally would seek to liquidate and distribute the proceeds of its investments, as they are received, to its equity holders over time, such that it would likely substantially complete its liquidation within a reasonable period of time following the date of the Reorganization. It is anticipated that, if initiated, the first Reorganization would occur as soon as reasonably practicable following the end of the fiscal year during which the third anniversary of the initial closing date occurs (the “Initial Reorganization”). Immediately following a Reorganization, the applicable Liquidating Company would hold a proportionate share of the assets and liabilities held by the Company immediately prior to the Reorganization based on investor participation levels. The costs of a Reorganization will be borne by the applicable Liquidating Company.

If the SEC grants us the exemptive relief permitting Reorganizations, it is possible that the SEC may impose certain conditions on us and each Reorganization. Our ability to initiate a Reorganization will depend upon applicable legal, tax and other relevant considerations at the time of the Reorganization.

In order to effect the Reorganization and provide stockholders optionality, we expect to, after determining the net asset value per share of our common stock as of the end of the fiscal year in which the third anniversary of the Initial Closing Date occurs, transfer a portion of our assets and liabilities to a Liquidating Company (which may be a wholly-owned subsidiary of the Company), and thereafter provide stockholders the opportunity to own interests in the Liquidating Company in exchange for all or a portion of their shares of common stock and any remaining commitments.

In establishing a Liquidating Company, all (i) assets, (ii) liabilities and (iii) investors’ uncalled capital commitments would be split pro rata between us and the Liquidating Company, and the pro rata portion would be transferred to the Liquidating Company. Assets may include funded commitments to portfolio companies. Liabilities may include unfunded commitments to portfolio companies, subscription-based financing (in the case of a continuous offering) and asset-based financing. We may need to call some or all of our uncalled capital commitments from stockholders, including stockholders not participating in a Reorganization, in order to pay down some or all of our existing debt prior to the Reorganization. While no assurances can be provided, the Board expects that a Liquidating Company will be treated as a BDC that is taxed as a RIC for U.S. federal income tax purposes.

Following the Initial Reorganization, if initiated, we expect to offer additional liquidity opportunities through corporate action, which may include the creation of additional Liquidating Companies at the end of every third fiscal year following the year of the creation of the initial Liquidating Company (if permitted by applicable law and/or the SEC).

Because the Adviser intends to manage the Liquidating Company, to the extent the 1940 Act continues to prohibit entities under common control from engaging in certain transactions at the time of the Reorganization, we may be required to obtain exemptive and/or no-action relief from the SEC in order to transfer assets to a Liquidating Company. If we do not obtain any required exemptive and/or no-action relief, or if it is determined that no such relief is necessary, our Board will make the determination as to if and when it is appropriate us to undertake the Reorganization.

We may not propose a Reorganization, even if we receive exemptive relief, unless we have been advised by tax counsel or other advisers that effecting the Reorganization will not have material adverse tax consequences for the Company. Stockholders that exchange their shares for interests in a Liquidating Company may, however, recognize taxable gain in connection with the exchange, and all stockholders should consult their tax advisers with respect to the tax consequences of any such exchange and the ownership of interests in the Liquidating Company. Even if the Company does receive exemptive relief to pursue a Reorganization, we may determine not to proceed with a Reorganization if the Board determines that it would not be in the best interest of stockholders or there is insufficient Stockholder interest in participating in a Reorganization.

There can be no assurance that we will be able to obtain any required exemptive and/or no-action relief from the SEC or that the Board will authorize the Reorganization. If we do not obtain any required exemptive and/or no-action relief, or if we do receive the required relief but the Board determines not to proceed with a Reorganization, then we will wind down our operations within ten years after the Initial Closing Date unless the Board and/or stockholders determine to take different action, including listing our common stock on a national securities exchange or periodic repurchases or tender offers.

Our Investment Framework

We are a Maryland corporation organized to invest primarily in private middle-market companies in the form of secured debt, unsecured debt, other debt and/or equity securities. Our investment objective is to make investments that generate current income and, to a lesser extent, capital appreciation. We define “middle-market companies” as those with EBITDA between $10 million and $50 million.

As of September 30, 2020 and December 31, 2019, the average investment size in each of our portfolio companies was approximately $2.0 million and $1.7 million, respectively, based on fair value.

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) can and does vary 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.

In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.

We may invest up to 30% of the investment portfolio in “non-qualifying” opportunistic investments, including investments in high-yield bonds, debt and equity securities of collateralized loan obligation funds, foreign investments, joint ventures, managed funds, partnerships and distressed debt or debt and equity securities of large cap public companies. At September 30, 2020 and December 31, 2019, the total amount of non-qualifying assets to total assets was approximately 2.6% and 2.2%, respectively.

Revenues

The principal measure of our financial performance is net increase or decrease in net assets resulting from operations, which includes net investment income or loss, net realized gain or loss on investments, net realized gain or loss on foreign currency, net change in unrealized appreciation or depreciation on investments, and net change in unrealized appreciation or depreciation on foreign currency. Net investment income or loss is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for any non-U.S. dollar denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net change in unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized appreciation or depreciation on foreign currency for any non-U.S. dollar denominated investments. Net change in unrealized appreciation or depreciation on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.

We principally generate revenues in the form of interest income on the debt investments we hold. Our debt investments typically have a term of three to ten years, and bear interest at a floating rate usually determined on the basis of a benchmark, such as London Interbank Offered Rate (“LIBOR”), or an alternate base rate, such as the Prime Rate. Interest on debt securities is generally payable quarterly or semi-annually. In addition, some of our investments may provide for PIK interest. Such amounts of accrued PIK interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. To a lesser extent, we may also generate revenues in the form of dividends and other distributions on the equity or other securities we anticipate holding. In addition, we may generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized when earned.

Expenses

Our primary operating expenses include the payment of management and incentive fees, if any, and other expenses under the Investment Advisory Agreement, interest expense from financing arrangements, and other expenses necessary for our operations. The management and incentive fees will compensate the Adviser for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. On August 20, 2019, the Company entered into a letter agreement (the “Letter Agreement”) with the Adviser pursuant to which, for the period ending December 31, 2019, the Adviser waived 50% of the base management fee to be paid by the Company under the Investment Advisory Agreement. The waiver was prorated for any partial month or quarter. Management fees waived are not subject to recoupment by the Adviser.

We reimburse the Administrator for expenses necessary to perform services related to our administration and operations, including the Adviser’s portion of the compensation and related expenses for certain personnel who provide administrative services. Such services include, among other things, clerical, bookkeeping and recordkeeping services, investor relations, performing or overseeing the performance of our corporate operations (which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC), assisting us in calculating the net asset value per share, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

We will also bear all other costs and expenses of our operations, administration and transactions, including but not limited to:

•

the cost of our organization and the offering, subject to a cap of 1.50% of the Company’s total capital commitments, and further bound by a time limitation;

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the cost of calculating our net asset value, including the cost of any third-party valuation services;

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the cost of effecting any sales and repurchases of our common stock and other securities;

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fees and expenses payable under any dealer manager or placement agent agreements, if any;

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administration fees payable under the Administration Agreement and any sub-administration agreements, including related expenses;

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debt service and other costs of borrowings or other financing arrangements;

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costs of hedging;

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expenses, including travel expense, incurred by the Adviser, or members of the investment team, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, enforcing our rights;

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transfer agent and custodial fees;

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fees and expenses associated with marketing efforts;

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federal and state registration fees, any stock exchange listing fees and fees payable to rating agencies;

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federal, state and local taxes;

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independent directors’ fees and expenses including certain travel expenses;

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costs of preparing financial statements and maintaining books and records and 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 of the foregoing;

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the costs of any reports, proxy statements or other notices to stockholders (including printing and mailing costs), the costs of any stockholder or director meetings and the compensation of personnel responsible for the preparation of the foregoing and related matters;

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commissions and other compensation payable to brokers or dealers;

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research and market data;

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fidelity bond, directors’ and officers’ errors and omissions liability insurance and other insurance premiums;

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direct costs and expenses of administration, including printing, mailing, long distance telephone and staff;

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fees and expenses associated with independent audits, outside legal and consulting costs;

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costs of winding up our affairs;

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costs incurred by either the Administrator or us in connection with administering our business, including payments under the Administration Agreement;

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extraordinary expenses (such as litigation or indemnification); and

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costs associated with reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws.

We are obligated to reimburse the Adviser for expense payments made by the Adviser to us in connection with the Expense Support Agreement following any calendar quarter in which we have available operating funds. The amount of the reimbursement payment for any calendar quarter will be equal to the lesser of (i) the excess operating funds in such calendar quarter, and (ii) the aggregate amount of all expense payments made by the Adviser to us within three years prior to the last business day of such calendar quarter that have not been previously reimbursed by us to the Adviser.

In addition, we and our Administrator have contracted with U.S. Bank N.A. to provide custodial and various accounting and administrative services, including but not limited to, preparing preliminary financial information for review by the Adviser, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing in respect to RIC compliance.

We expect that our general and administrative expenses will increase in dollar terms during periods of asset growth, but will decline as a percentage of total assets during such periods.

Leverage

The amount of leverage we intend to 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%. Our Board and initial stockholder have approved the decreased asset coverage ratio.

On April 8, 2020, in connection with the outbreak of the COVID-19 pandemic, the SEC issued the Order Under Sections 6(c), 17(d), 38(a) and 57(i) of the Investment Company Act of 1940 and Rule 17d-1 Thereunder Granting Exemptions from Specified Provisions of the Investment Company Act and Certain Rules Thereunder, Investment Company Act Release No. 33837 (Apr. 8, 2020) (the “April 2020 Order”), which provides exemptions from certain requirements of the 1940 Act. Section II of the April 2020 Order (i) affords BDCs greater flexibility in calculating asset coverage ratios for purposes of the 1940 Act asset coverage requirements, (ii) requires a BDC’s board of directors, including a required majority of such board, as defined in Section 57(o) of the 1940 Act, to determine that the issuance or sale of senior securities is permitted by the April 2020 Order and is in the best interests of the BDC and its stockholders, (iii) requires prior disclosure on Form 8-K of the election to rely on Section II of the April 2020 Order, and (iv) includes certain limitations on new investments, among other requirements, as detailed in the April 2020 Order.

In particular, an election to be subject to Section II of the April 2020 Order would permit us to use a modified formula to calculate our asset coverage ratios for purposes of the 1940 Act asset coverage requirements and, in doing so, would permit us to rely in part on the fair value of our assets as of December 31, 2019. The overall effect of any election to be subject to Section II of the April 2020 Order would be to make it easier for us to meet our applicable asset coverage ratios for purposes of the 1940 Act asset coverage requirements, as well as for purposes of covenants referencing the 1940 Act asset coverage requirements. As of the date of this filing, the Board has no intention to elect to be subject to Section II of the April 2020 Order but will continue to assess its potential benefits to us with respect to providing additional flexibility to manage our portfolio and support our portfolio companies during the economic disruption caused by the COVID-19 pandemic.

Portfolio and Investment Activity

In October 2019, the Company closed on its first portfolio company investments. As of September 30, 2020 we had investments in 30 portfolio companies with an aggregate fair value of $60.8 million.

For the three months ended September 30, 2020, we invested $16.6 million in 9 portfolio companies and received principal repayments of $14.9 million. For the nine months ended September 30, 2020, we invested $60.7 million in 30 portfolio companies and received principal repayments of $34.8 million. As of September 30, 2020, our portfolio was invested 89.7% in first-lien investments and 10.3% in other investments. As of September 30, 2020, the average investment size in each of our portfolio companies was approximately $2.0 million based on fair value.

Our investment activity for the three months ended September 30, 2020 and 2019 was as follows (information presented herein is at par value unless otherwise indicated):

	Three Months Ended September 30,
	2020			2019 ⁽¹⁾
Investments made in portfolio companies	$	18,682,933		$	—
Investments sold		(15,500,361	)		—
Net investment activity before investments repaid		3,182,572			—
Investments repaid		(796,523	)		—
Net investment activity	$	2,386,049		$	—

Portfolio companies at beginning of period	29				—
New portfolio companies		7			—
Exited portfolio companies		(6	)		—
Portfolio companies at end of period		30			—
Number of investments made in existing portfolio companies		2			—
Percentage of investment commitments at floating rates		89.1	%		0.0	%
Percentage of investment commitments at fixed rates		10.9	%		0.0	%
Weighted average contractual interest rate of investment commitments based on par		6.0	%		0.0	%

(1)	The Company commenced operations on October 2, 2019. Accordingly, there is no activity in the comparable period for the three months ended September 30, 2019.

As of September 30, 2020, our investments consisted of the following:

	September 30, 2020
	Amortized Cost		Fair Value
Senior Secured Loan	$	54,705,793	$	54,622,024
Structured Note		1,842,333		1,793,499
Subordinated Structured Note		333,334		215,066
Bond		3,951,789		4,171,560
Equity/Other		—		—
Total	$	60,833,249	$	60,802,149

As of December 31, 2019, our investments consisted of the following:

	December 31, 2019
	Amortized Cost		Fair Value
Senior Secured First Lien Debt	$	32,757,424	$	32,837,653
Subordinated Structured Note		1,330,000		1,330,000
Total	$	34,087,424	$	34,167,653

The following table shows the fair value of our performing and non-accrual investments as of September 30, 2020:

	September 30, 2020
	Fair Value		Percentage
Performing	$	60,802,149		100.0	%
Non-accrual		—		—
Total	$	60,802,149		100.0	%

The following table shows the fair value of our performing and non-accrual investments as of December 31, 2019:

	December 31, 2019
	Fair Value		Percentage
Performing	$	34,167,653		100.0	%
Non-accrual		—		—
Total	$	34,167,653		100.0	%

Results of Operations

We commenced operations on October 2, 2019 and therefore have no prior periods with which to compare our operating results.

Our operating results for the three and nine months ended September 30, 2020 were as follows:

	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Investment income	$	1,174,374	$	2,802,779
Net expenses		747,494		1,759,875
Net investment income		426,880		1,042,904
Net realized and unrealized gain		876,341		570,574
Net increase in net assets resulting from operations	$	1,303,221	$	1,613,478
Net investment income per share — basic and diluted	$	0.31	$	0.93
Net increase in net assets resulting from operations per share - basic and diluted	$	0.93	$	1.42

Investment Income

We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and fees generated from the structuring of new deals. Our investments in debt securities will typically have loan maturities of three to ten years and bear interest at a fixed or floating rate.

As of September 30, 2020, our portfolio, based on fair value, consisted of 89.7% first-lien debt investments and 10.3% other investments. As of December 31, 2019, our portfolio, based on fair value, consisted of 96.1% first-lien debt investments and 3.9% other investments. As of September 30, 2020, we had investments in 30 portfolio companies, with an average investment size of approximately $2.0 million based on fair value. As of December 31, 2019, we had investments in 20 portfolio companies, with an average investment size of approximately $1.7 million based on fair value. As of September 30, 2020 and December 31, 2019, the largest single investment based on fair value represented 6.9% and 8.8%, respectively, of our total investment portfolio. As of September 30, 2020 and December 31, 2019, 89.1% and 100.0%, respectively, of the debt investments based on fair value in our portfolio were at floating rates indexed to LIBOR or Prime.

On July 27, 2017, the Financial Conduct Authority (“FCA”) announced that it would phase out the LIBOR as a benchmark by the end of 2021 and the FCA has indicated that market participants should not rely on LIBOR being available after 2021. As an alternative to LIBOR, for example, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements, backed by Treasury securities. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and our existing financial instruments which reference LIBOR. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR, or any changes announced with respect to such reforms, may result in a sudden or prolonged increase or decrease in the reported LIBOR rates and the value of LIBOR-based loans and securities, including those of other issuers we or our funds currently own or may in the future own. It remains uncertain how such changes would be implemented and the effects such changes would have on us, issuers of instruments in which we invest and financial markets generally.

The expected discontinuation of LIBOR could have a significant impact on our business. The dollar amount of our outstanding debt investments and borrowings that are linked to LIBOR with maturity dates after the anticipated discontinuation date of 2021 is material. We anticipate significant operational challenges for the transition away from LIBOR including, but not limited to, amending existing loan agreements with borrowers on investments that may have not been modified with fallback language and adding effective fallback language to new agreements in the event that LIBOR is discontinued before maturity. Beyond these challenges, we anticipate there may be additional risks to our current processes and information systems that will need to be identified and evaluated by us. Due to the uncertainty of the replacement for LIBOR, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us and could have a material adverse effect on our business, financial condition and results of operations.

Investment income for the three and nine months ended September 30, 2020 was as follows:

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Interest income	$	1,163,038		$	2,666,990
Fee and other income		11,336			135,789
Total investment income	$	1,174,374		$	2,802,779
Weighted average contractual interest rate on income producing debt investments at par		6.0	%		6.0	%
Weighted average contractual interest rate on income producing debt investments (adjusted for non-accrual and partial non-accrual) at par		6.0	%		6.0	%

For the three and nine months ended September 30, 2020, we have generated interest income of $1.2 million and $2.7 million, respectively. Such revenues represent cash interest earned as well as non-cash portions relating to accretion of discounts. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

The level of interest income we receive is generally related to the principal balance of income-producing investments, multiplied by the contractual interest rates of our investments. Fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees and other non-recurring fees. As such, fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees. Any such fees generated will be recognized as earned. We expect the dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases.

Expenses

Expenses for the three and nine months ended September 30, 2020 were as follows:

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Organization and offering costs	$	99,000		$	222,375
Management fees		155,733			388,088
Incentive fees		186,168			172,740
Administrative fees		134,000			409,978
Interest and debt expenses		204,230			735,488
Audit fees		80,000			201,730
Legal fees		(360,711	)		121,575
Professional fees		101,245			160,435
Directors' fees		37,500			112,500
Other expenses		178,112			400,394
Total expenses before expense support		815,277			2,925,303
Expense support from related parties		(67,783	)		(1,165,428	)
Net expenses	$	747,494		$	1,759,875

Total expenses were $0.8 million and $2.9 million for the three and nine months ended September 30, 2020, respectively. Management fees were $0.2 million and $0.4 million for the three and nine months ended September 30, 2020, respectively. All organization and offering costs since inception through September 30, 2020 were funded by the Adviser and we will have no responsibility for such costs until the Adviser submits such costs, or a portion thereof, for reimbursement, subject to a cap of 1.50% of our total commitments and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. For the three and nine months ended September 30, 2020, the Company accrued organization and offering costs of $0.1 million and $0.2 million, respectively. For the three months ended September 30, 2020, legal fees were reduced by $0.4 million as a result of lower fees agreed between the Company and its legal counsel.

We expect our operating expenses related to our ongoing operations to increase in the next several quarters because of the anticipated growth in the size of our asset base. We expect operating expenses as a percentage of our total assets to decrease during periods of asset growth.

On August 22, 2019, we entered into an Expense Support Agreement with the Adviser to ensure that no portion of distributions made to our stockholders will be paid from our offering proceeds or borrowings. Commencing with the fourth quarter 2019 and on a quarterly basis thereafter, pursuant to the Expense Support Agreement between us and the Adviser, the Adviser will reimburse us for operating expenses in an amount that is sufficient to ensure that our net investment income and net short-term capital gains are equal to or greater than the cumulative distributions paid to our stockholders in each quarter. This arrangement is designed to ensure that no portion of distributions made to our stockholders will be paid from offering proceeds or borrowings. The specific amount of expenses reimbursed by the Adviser, if any, will be determined at the end of each quarter. During the three and nine months ended September 30, 2020, reimbursements from the Adviser totaled $ 0.1 million and $1.2 million, respectively.

Amounts due to the Adviser for the expected recoveries of organization, offering and operating expenses incurred on behalf of the Company, and amounts due from the Adviser under the Expense Support Agreement for such amounts, are reflected on a net basis in amounts due to/from affiliates on the consolidated statements of assets and liabilities.

Net Realized and Unrealized Gains or Losses

Our investments are generally purchased at a discount to par. We sold and received principal repayments of $14.9 million during the three months ended September 30, 2020, from which we realized net gains totaling $0.3 million. We sold and received principal repayments of $34.8 million during the nine months ended September 30, 2020, from which we realized net gains totaling $0.6 million. We recognized gains on partial principal repayments we received at par value. For the three and nine months ended September 30, 2020, the net change in unrealized appreciation (depreciation) on investments totaled $0.5 million and $(0.1) million, respectively, which was primarily due to the negative economic impact and the increased uncertainty caused by COVID-19 offset by partial recovery for the three months ended September 30 ,2020.

Net Increase in Net Assets Resulting from Operations

For the three months ended September 30, 2020, the net increase in net assets resulting from operations was $1.3 million or $0.93 per share. For the nine months ended September 30, 2020, the net increase in net assets resulting from operations was $1.6 million or $1.42 per share.

Financial Condition, Liquidity and Capital Resources

Our liquidity and capital resources are generated from the net proceeds of capital drawdowns of our private placement offerings of shares of our common stock, as well as from proceeds from principal repayments, income earned on investments and cash equivalents, and borrowings from the Facility. We intend to continue to generate cash primarily from future offerings of shares of our common stock, future borrowings and cash flows from operations. We may from time to time enter into additional debt facilities or increase the size of existing facilities to borrow funds to make investments, including before we have fully invested the net proceeds from our private placement offering, to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board determines that leveraging our portfolio would be in our best interests and the best interests of our stockholders. In accordance with the 1940 Act, with certain limited exceptions, we are allowed to incur borrowings, issue debt securities or issue preferred stock if immediately after the borrowing or issuance our ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. As of September 30, 2020, our asset coverage ratio was 237.1%. We seek to carefully consider our unfunded commitments for the purpose of planning our capital resources and ongoing liquidity including our financial leverage. Further, we maintain sufficient borrowing capacity within the 150% asset coverage limitation under the 1940 Act and the asset coverage limitation under our credit facility to cover any outstanding unfunded commitments we are required to fund.

The primary uses of cash, including the net proceeds from our issuance and sale of our common stock, are for investments in portfolio companies, repayment of indebtedness, if any, cash distributions to our stockholders, and the cost of operations. The Adviser and its affiliates have incurred organization and offering costs and operating expenses on behalf of the Company in the amount of approximately $1.4 million and $1.2 million, respectively, from December 22, 2017 (inception) to September 30, 2020. All organization and offering costs, and operating expenses prior to our commencement of operations were funded by the Adviser and we will not have responsibility for such costs until the Adviser submits such costs or a portion thereof for reimbursement, subject to a cap of 1.50% of our total capital commitments for organization and offering costs and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. For the period from October 2, 2019 (commencement of operations) through September 30, 2020, the Company accrued organization and offering costs and operating expenses of $0.6 million and $1.2 million, respectively.

As of September 30, 2020 we had $12.0 million in cash and cash equivalents on hand, plus $20.0 million available to us under our borrowing facility, which is expected to be sufficient for our investing activities and to conduct our operations in the foreseeable future. However, as the impact of the COVID-19 pandemic on the economy and our business evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.

Equity

We are authorized to issue 1,000,000,000 shares of common stock at $0.001 par value per share.

On April 10, 2018, we issued 4,000 shares of common stock to an affiliate of the Adviser.

As of September 30, 2020, we had received capital commitments totaling $40.4 million. On October 2, 2019, pursuant to the Subscription Agreements, we delivered our first capital drawdown notice to investors relating to the issuance of 842,554 common stock for an aggregate offering price of $21.1 million, of which $10.8 million is from the Adviser and its affiliates, executives and employees of the Adviser, and directors of the Company.

The following table summarizes the total shares issued and proceeds received related to capital drawdowns delivered pursuant to the Subscription Agreements for the nine months ended September 30, 2020:

Capital Drawdown Notice Date	Common Share Issuance Date	Number of Common Shares Issued		Aggregate Offering Price
March 13, 2020	March 27, 2020		291,400	$	6,775,000
June 11, 2020	June 25, 2020		230,833		5,600,000
September 11, 2020	September 25, 2020		264,741		6,600,000
Total			786,974	$	18,975,000

Distributions and Dividend Reinvestment

We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends.

We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treated as taxable dividends. The Internal Revenue Service has published guidance indicating that this rule will apply even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. Under this guidance, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock). If we decide to make any distributions consistent with this guidance that are payable in part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, shares of our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

We may not be able to achieve operating results that will allow us to make dividends and distributions at a specific level or to increase the amount of these dividends and distributions from time to time. In addition, we may be limited in our ability to make dividends and distributions due to the asset coverage test for borrowings when applicable to us as a business development company under the 1940 Act and due to provisions in future credit facilities. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure stockholders that they will receive any dividends and distributions or dividends and distributions at a particular level.

With respect to the dividends paid to stockholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies was treated as taxable income and accordingly, distributed to stockholders.

We declared our first distribution on December 19, 2019. Subject to the Board’s discretion and applicable legal restrictions, our Board intends to continue to authorize and declare a quarterly distribution amount per share of our common stock. On August 22, 2019, we entered into an Expense Support Agreement with the Adviser to ensure that no portion of distributions made to our stockholders will be paid from our offering proceeds or borrowings.

As described above, we are prohibited by the 1940 Act from making distributions on our common stock if, at the time of declaration, our asset coverage, as defined in the 1940 Act, is below 150% (subject to any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain its status as a RIC under the Code). In any such event, we would be prohibited from making distributions required in order to maintain our status as a RIC unless made in accordance with any such exemptive or no-action relief granted by the SEC.

The following table reflects the distributions declared on shares of our common stock during the nine months ended September 30, 2020:

Date Declared	Record Date	Payment Date	Distribution per Share
February 5, 2020	February 18, 2020	March 19, 2020	$	0.31
May 6, 2020	May 20, 2020	June 17, 2020		0.31
August 5, 2020	August 17, 2020	September 15, 2020		0.31
Total distributions per share			$	0.93

The following table reflects the common stock issued pursuant to the dividend reinvestment plan during the nine months ended September 30, 2020:

Date Declared	Record Date	Payment Date	Shares
February 5, 2020	February 18, 2020	March 19, 2020		2,507
May 6, 2020	May 20, 2020	June 17, 2020		5,658
August 5, 2020	August 17, 2020	September 15, 2020		5,548
Total shares issued pursuant to the DRP				13,713

Debt

On December 16, 2019, we, through BCPL Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which up to $50.0 million was be made available to us (the “Facility”). The interest rate applicable to borrowings under the Facility is based on the three-month LIBOR plus a spread of 265 basis points. The Facility is secured by a security interest in virtually all of our portfolio investments (including cash), subject to certain exceptions. We have provided a make-whole guarantee to the lender in the event that the pledged assets were insufficient to satisfy the repayment of the Facility. The Facility contains covenants and events of default customary for financings of this type. See “Note 5. Borrowings.”

Contractual Obligations

The following table shows the contractual maturities of our debt obligations as of September 30, 2020:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Credit Facility	$	30,000,000	$	—	$	30,000,000	$	—	$	—
Total debt obligations	$	30,000,000	$	—	$	30,000,000	$	—	$	—

Related-Party Transactions

We have entered into certain contracts under which we have future commitments with affiliated or related parties. We entered into an Investment Advisory Agreement with the Adviser to provide us with investment advisory services under which we will pay our Adviser an annual base management fee based on our average gross assets, excluding cash and cash equivalents, and an incentive fee based on our performance. We also entered into an administrative agreement with the Administrator to perform (or oversee, or arrange for, the performance of) the administrative services necessary to enable us to operate and under which we will reimburse the Administrator for administrative expenses incurred on our behalf. See “Note 3. Related Party Transactions – Administration Agreement” and “– Investment Advisory Agreement” for a description of our obligations under these agreements. We also entered into an Expense Support Agreement with the Adviser, the purpose of which is to ensure that no portion of distributions made to our stockholders will be paid from our offering proceeds or borrowings. We are obligated to reimburse the Adviser for expense payments made by the Adviser to us in connection with the Expense Support Agreement following any calendar quarter in which we have available operating funds. The amount of the reimbursement payment for any calendar quarter will be equal to the lesser of (i) the excess operating funds in such calendar quarter, and (ii) the aggregate amount of all expense payments made by the Adviser to us within three years prior to the last business day of such calendar quarter that have not been previously reimbursed by us to the Adviser.

Off-Balance Sheet Arrangements

Portfolio Company Commitments

As of September 30, 2020 and December 31, 2019, we had the following outstanding commitments to fund investments in current portfolio companies:

Portfolio Company	Investment	September 30, 2020		December 31, 2019
Advantage Capital Holdings LLC	Senior Secured Loan	$	1,315,333	$	—
Location Services LLC	Senior Secured Loan		583,333		708,333
STX Financing, LLC	Senior Secured Loan		1,307,251		—
The PromptCare Companies Inc.	Senior Secured Loan		218,182		—
Total Unfunded Portfolio Company Commitments		$	3,424,099	$	708,333

Recent Developments

On November 6, 2020, the Board declared a quarterly dividend of $0.31 per share for Company stockholders of record as of November 16, 2020, payable on December 15, 2020.

Also on November 6, 2020, the Board unanimously approved the renewal of the Investment Advisory Agreement for a period of twelve months.

Critical Accounting Policies

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.

Investments at Fair Value

Investments for which market quotations are available are typically valued at those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations.

Debt that is not publicly traded but for which there are external pricing sources available as of the valuation date is valued using independent broker-dealer, market maker quotations or independent pricing services. The Valuation Committee subjects these quotes to various criteria including, but not limited to, the number and quality of quotes, the deviation among the quotes and information derived from analyzing our own transactions in such investments throughout the reporting period.

Investments that are not publicly traded or whose market prices are not readily available, as is expected to be the case for substantially all of the Company’s investments, are valued at fair value as determined in good faith by the Board, based on, among other things, the input of the Adviser, the Audit Committee and independent third-party valuation firm(s).

The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:

•

Preliminary valuations are reviewed and discussed with management of the Adviser and investment professionals. Agreed upon valuation recommendations will be presented to the Audit Committee;

•

The Audit Committee will review the valuations presented and recommend values for each investment to the Board; and

•

As part of the valuation process, we may consider other information and may use valuation methods including but not limited to (i) bids and asks for similar investments, (ii) recent trading activity, (iii) discounting forecasted cash flows of the investment, (iv) models that consider the implied yields from comparable debt, (v) third party appraisal, (vi) sale negotiations and purchase offers received from independent parties and (vii) estimated value of underlying assets to be received in liquidation or restructuring.

We classify the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible to the Company.

Level 3: Significant inputs that are unobservable inputs for an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Revenue Recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we will not accrue PIK interest if management determines that the PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount, and market discount are capitalized and then we amortize such amounts as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We further record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

Income Taxes

We have elected to be treated for U.S. federal income tax purposes, and to qualify annually, as a RIC under the Code. To qualify for and maintain qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements, and make minimum distributions to stockholders. We will be subject to a 4% nondeductible U.S. federal excise tax on undistributed income. See “Note 2. Significant Accounting Policies – Income Taxes.”

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including valuation risk, interest rate risk, and currency risk. Generally, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we may hold and to declines in the value of any fixed rate investments we may hold. However, for those variable rate investments we may hold that provide for an interest rate floor, our interest income will not decrease below a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the upper level breakpoint of the pre-incentive fee net investment income incentive fee, and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to the Adviser with respect to our increased pre-incentive fee net investment income. Conversely, a decline in the general level of interest rates, including the current environment, can be expected to lead to lower interest rates applicable to any variable rate investments we may hold and to increases in the value of any fixed rate investments we may hold. Such a decrease would make it more difficult for us to meet or exceed the hurdle rate applicable to the upper level breakpoint of the pre-incentive fee net investment income incentive fee, and may result in a substantial decrease in our net investment income and to the amount of incentive fees payable to the Adviser with respect to our decreased pre-incentive fee net investment income.

In addition, we borrow funds in order to make additional investments. Our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or any future subsidiaries have debt outstanding or financing arrangements in effect, our interest expense will increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.

We invest primarily in illiquid debt of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board, based on, among other things, the input of the Adviser, our Audit Committee and independent third-party valuation firm(s) engaged at the direction of the Board, and in accordance with our valuation policy. There is no single technique for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If, in the future, we are required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.

Valuation Risk

We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments do not have a readily available market price, and we value these investments at fair value as determined in good faith by the Board in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.

Interest Rate Risk

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We intend to continue to fund portions of our investments with borrowings, and at such time, our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income.

As of September 30, 2020, 89.1% of the debt investments based on fair value in our portfolio were at floating rates indexed to LIBOR or Prime, as was our outstanding debt.

The following table shows the estimated annualized impact on net investment income based on hypothetical base rate changes in interest rates on our loan portfolio and outstanding debt as of September 30, 2020, assuming there are no changes in our investment and borrowing structure.

	Interest			Interest			Net
Basis Point Change	Income			Expense			Investment Income
Up 300 basis points	$	1,711,793		$	900,000		$	811,793
Up 200 basis points		1,141,195			600,000			541,195
Up 100 basis points		570,598			300,000			270,598
Down 100 basis points		(570,598	)		(300,000	)		(270,598	)
Down 200 basis points		(1,141,195	)		(600,000	)		(541,195	)
Down 300 basis points		(1,711,793	)		(900,000	)		(811,793	)

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.

Currency Risk

From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. As of September 30, 2020, we had no assets or liabilities denominated in currencies other than U.S. dollars.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

As required by Rule 13a-15(b) under the 1934 Act, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act) as of September 30, 2020. Based on the foregoing evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2020, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level that we would meet our disclosure obligations.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the 1934 Act) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of these legal or regulatory proceedings cannot be predicted with certainty, we do not expect that any these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A. Risk Factors.

Other than as provided below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 5, 2020 and those in our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2020 and August 5, 2020.

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

We are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our and our portfolio companies’ business; while, due to the evolving and highly uncertain nature of this event, it currently is not possible to estimate its total impact precisely, the COVID-19 pandemic has and could continue to impact our business, financial condition, results of operations, liquidity or prospects and those of our portfolio companies in a number of ways. For instance, our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and may continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome. Moreover, changes in interest rates, reduced liquidity or a continued slowdown in U.S. or global economic conditions has, and may continue to, adversely affect our business, financial condition, results of operations, liquidity and/or prospects and those of our portfolio companies. Further, extreme market volatility may leave us and our portfolio companies unable to react to market events in a prudent manner consistent with our historical practices in dealing with more orderly markets. Although it is impossible to predict with certainty the potential full magnitude of the business and economic ramifications, COVID-19 has impacted, and may further impact, our business in various ways, including but not limited to:

•

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

•

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

•

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

•

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

•

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

•

Many of our portfolio companies operate in industries that are materially impacted by COVID-19, including but not limited to healthcare, travel, entertainment and hospitality. Many of these companies are facing operational and financial hardships resulting from the spread of COVID-19 and related governmental measures, such as the closure of stores, restrictions on travel, quarantines or stay-at-home orders. If the disruptions caused by COVID-19 continue and the restrictions put in place are not lifted, the businesses of these portfolio companies could suffer materially or become insolvent, which would decrease the value of our investments. Even if restrictions are lifted, as is the case in many jurisdictions in the U.S. and worldwide, business levels may not return to pre-pandemic levels and continuing outbreaks of COVID-19 could discourage people from resuming normal activities and governments may put restrictions back in place;

•

An extended period of remote working by our Adviser’s employees could strain its technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic; and

•

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

We are currently operating in a period of capital markets disruption and economic recession.

The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in December 2019. Some economists, major investment banks and The World Bank have indicated that current indicators point to a global recession that started in February 2020. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity have had, and is expected to continue to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments.

In addition to the foregoing, the pandemic is exacerbating many of the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.

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

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

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

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

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

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

•

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

•

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

There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have a material adverse effect on our business, result of operations, financial condition, and unit price.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Refer to “Item 1. Consolidated Financial Statements—Notes to Consolidated Financial Statements—Note 6. Share Transactions” in this Form 10-Q for issuances of our shares during the quarter. Such issuances were part of a private offering pursuant to Section 4(a)(2) of the 1933 Act and Regulation D thereunder.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC (and are numbered in accordance with Item 601 of Regulation S-K):

Exhibit Number		Description of Document

3.1		Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to Form 10 filed on April 23, 2018)

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to Form 10 filed on April 23, 2018)


31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BC Partners Lending Corporation

Date: November 6, 2020	By:	/s/ Edward Goldthorpe
	Name:	Edward Goldthorpe
	Title:	Chief Executive Officer

Date: November 6, 2020	By:	/s/ Edward U. Gilpin
	Name:	Edward U. Gilpin
	Title:	Chief Financial Officer

BC Partners Lending Corp - FORM 10-Q - November 6, 2020

Attached files

BC Partners Lending Corp Reports