Attached files
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EX-32.2 - EX-32.2 - Stone Point Credit Corp | d550939dex322.htm |
EX-32.1 - EX-32.1 - Stone Point Credit Corp | d550939dex321.htm |
EX-31.2 - EX-31.2 - Stone Point Credit Corp | d550939dex312.htm |
EX-31.1 - EX-31.1 - Stone Point Credit Corp | d550939dex311.htm |
Table of Contents
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 March 31, 2021
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 814-01375
Stone Point Credit Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
20 Horseneck Lane
Greenwich, Connecticut 06830
(Address of principal executive offices)
85-3149929
(I.R.S. Employer Identification No.)
(203) 862-2900
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered | ||
None | None | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
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, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and 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 ☒
The issuer had 7,912,383 shares of common stock, $0.001 par value per share, outstanding as of May 13, 2021.
Table of Contents
Stone Point Credit Corporation
Form 10-Q for the Quarter Ended March 31, 2021
Index |
Page No. | |||||
PART I. | FINANCIAL INFORMATION |
|||||
Item 1. | 3 | |||||
Statements of Assets and Liabilities as of March 31, 2021 (Unaudited) and December 31, 2020 |
3 | |||||
Statement of Operations for the three months ended March 31, 2021 (Unaudited) |
4 | |||||
Statement of Changes in Net Assets for the three months ended March 31, 2021 (Unaudited) |
5 | |||||
Statement of Cash Flows for the three months ended March 31, 2021 (Unaudited) |
6 | |||||
Schedule of Investments as of March 31, 2021 (Unaudited) and December 31, 2020 |
7 | |||||
8 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
21 | ||||
Item 3. | 37 | |||||
Item 4. | 37 | |||||
PART II. | 38 | |||||
Item 1. | 38 | |||||
Item 1A. | 38 | |||||
Item 2. | 38 | |||||
Item 3. | 38 | |||||
Item 4. | 38 | |||||
Item 5. | 39 | |||||
Item 6. | 39 | |||||
SIGNATURES | 40 |
Table of Contents
Item 1. | Financial Statements |
Stone Point Credit Corporation
Statements of Assets and Liabilities
March 31, 2021 (Unaudited) |
December 31, 2020 | |||||||
Assets: |
||||||||
Investments at fair value: |
||||||||
Non-controlled/non-affiliated investments (amortized cost of $163,406,597 and $14,327,196, respectively) |
$ | 163,645,729 | $ | 14,324,987 | ||||
Cash and cash equivalents |
96,429,608 | 27,127,738 | ||||||
Interest receivable |
779,967 | 26,957 | ||||||
Deferred offering expenses |
266,191 | 336,270 | ||||||
Prepaid expenses and other assets |
36,000 | 37,308 | ||||||
|
|
|
|
|||||
Total assets |
$ | 261,157,495 | $ | 41,853,260 | ||||
|
|
|
|
|||||
Liabilities: |
||||||||
Revolving credit facility payable (net of deferred financing costs of $415,227 and $535,984, respectively) (Note 6) |
$ | 104,584,773 | $ | 16,464,016 | ||||
Base management fees payable (Note 3) |
287,825 | 2,877 | ||||||
Organizational and offering expenses payable |
| 559,978 | ||||||
Accounts payable and accrued expenses |
546,770 | 587,496 | ||||||
Interest and credit facility fees payable |
216,751 | 5,983 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 105,636,119 | $ | 17,620,350 | ||||
|
|
|
|
|||||
Commitments and contingencies (Note 5) |
||||||||
Net Assets: |
||||||||
Preferred stock, $0.001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2021 and December 31, 2020 |
$ | | | |||||
Common stock, $0.001 par value, 250,000,000 shares authorized, 7,912,383 and 1,250,050 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively |
7,912 | 1,250 | ||||||
Paid in capital in excess of par |
154,461,526 | 24,469,188 | ||||||
Distributable (accumulated) earnings (losses) |
1,051,938 | (237,528 | ) | |||||
|
|
|
|
|||||
Total net assets |
155,521,376 | 24,232,910 | ||||||
|
|
|
|
|||||
Total liabilities and net assets |
$ | 261,157,495 | $ | 41,853,260 | ||||
|
|
|
|
|||||
Net asset value per common share |
$ | 19.66 | $ | 19.39 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
Table of Contents
Stone Point Credit Corporation
Statement of Operations
Three Months Ended March 31, 2021 (Unaudited) |
||||
Investment income: |
||||
Interest income from non-controlled/non-affiliated investments |
$ | 1,456,472 | ||
Interest income from cash and cash equivalents |
247 | |||
|
|
|||
Total interest income |
1,456,719 | |||
Fee income |
1,040,625 | |||
|
|
|||
Total fee income |
1,040,625 | |||
|
|
|||
Total investment income |
2,497,344 | |||
|
|
|||
Operating expenses: |
||||
Base management fees (Note 3) |
$ | 287,825 | ||
Interest and credit facility fees (Note 6) |
404,468 | |||
Offering costs (Note 4) |
96,029 | |||
Professional fees |
554,448 | |||
Directors fees |
93,125 | |||
Insurance expense |
13,324 | |||
|
|
|||
Total expenses |
1,449,219 | |||
|
|
|||
Net investment income (loss) |
$ | 1,048,125 | ||
|
|
|||
Realized and unrealized appreciation (depreciation) on investments: |
||||
Net change in unrealized appreciation (depreciation): |
||||
Non-controlled/non-affiliated investments |
$ | 241,341 | ||
|
|
|||
Total net change in unrealized appreciation (depreciation) |
$ | 241,341 | ||
|
|
|||
Net increase (decrease) in net assets resulting from operations |
$ | 1,289,466 | ||
|
|
|||
Per share information - basic and diluted: |
||||
Net investment income (loss) |
$ | 0.38 | ||
|
|
|||
Net increase (decrease) in net assets resulting from operations |
$ | 0.47 | ||
|
|
|||
Weighted average shares outstanding |
2,759,806 | |||
|
|
The accompanying notes are an integral part of these financial statements.
4
Table of Contents
Stone Point Credit Corporation
Statement of Changes in Net Assets
Three Months Ended March 31, 2021 (Unaudited) |
||||
Increase in net assets resulting from operations: |
||||
Net investment income (loss) |
$ | 1,048,125 | ||
Total net change in unrealized appreciation (depreciation) |
241,341 | |||
|
|
|||
Net increase in net assets resulting from operations |
1,289,466 | |||
|
|
|||
Increase in net assets resulting from capital share transactions: |
||||
Issuance of common shares |
129,999,000 | |||
|
|
|||
Net increase in net assets resulting from capital share transactions |
129,999,000 | |||
|
|
|||
Total increase in net assets |
131,288,466 | |||
Net assets, beginning of period |
24,232,910 | |||
|
|
|||
Net assets, end of period |
$ | 155,521,376 | ||
|
|
|||
Net asset value per share |
$ | 19.66 | ||
|
|
|||
Common shares outstanding at the end of the period |
7,912,383 | |||
|
|
The accompanying notes are an integral part of these financial statements.
5
Table of Contents
Stone Point Credit Corporation
Statement of Cash Flows
Three Months Ended March 31, 2021 (Unaudited) |
||||
Cash flows from operating activities: |
||||
Net increase (decrease) in net assets resulting from operations |
$ | 1,289,466 | ||
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |
||||
Total net change in unrealized appreciation (depreciation) |
(241,341 | ) | ||
Amortization of premiums and discounts |
(90,044 | ) | ||
Purchases of investments |
(148,989,357 | ) | ||
Changes in operating assets and liabilities: |
||||
Interest receivable |
(753,010 | ) | ||
Deferred offering expenses |
70,079 | |||
Prepaid expenses and other assets |
1,308 | |||
Base management fees payable |
284,948 | |||
Organizational and offering expenses payable |
(559,978 | ) | ||
Accounts payable and accrued expenses |
(40,726 | ) | ||
Interest and credit facility fees payable |
210,768 | |||
|
|
|||
Net cash used in operating activities |
(148,817,887 | ) | ||
|
|
|||
Cash flows from financing activities: |
||||
Borrowings under revolving credit facility |
88,000,000 | |||
Deferred financing costs |
120,757 | |||
Proceeds from issuance of common shares |
129,999,000 | |||
|
|
|||
Net cash provided by financing activities |
218,119,757 | |||
|
|
|||
Net increase in cash and cash equivalents |
69,301,870 | |||
Cash and cash equivalents, beginning of period |
27,127,738 | |||
|
|
|||
Cash and cash equivalents, end of period |
$ | 96,429,608 | ||
|
|
The accompanying notes are an integral part of these financial statements.
6
Table of Contents
Stone Point Credit Corporation
Schedule of Investments
As of March 31, 2021 (Unaudited)
Portfolio Company 1, 2, 3 |
Type of |
Reference Rate |
Interest Rate |
Maturity | Par Amount |
Cost 4 | Fair Value | Percentage of Net Assets 5 |
||||||||||||||||||||
Non-Controlled/Non-Affiliated Investments |
||||||||||||||||||||||||||||
Debt Investments - 105.2% |
||||||||||||||||||||||||||||
Diversified Financial Services |
||||||||||||||||||||||||||||
TA/WEG Intermediate Holdings, LLC |
First Lien Delayed Draw Term Loan | LIBOR + 5.75%, 1.00% Floor 8 9 | 6.75 | % | 10/2/2025 | 7,990,584 | $ | 7,772,807 | $ | 7,799,063 | 5.0 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Diversified Financial Services |
7,772,807 | 7,799,063 | 5.0 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Health Care Providers & Services |
||||||||||||||||||||||||||||
MB2 Dental Solutions, LLC |
First Lien Term Loan | LIBOR + 6.00%, 1.00% Floor 10 | 7.00 | % | 1/29/2027 | 11,032,803 | 10,790,568 | 10,838,222 | 7.0 | % | ||||||||||||||||||
MB2 Dental Solutions, LLC |
First Lien Delayed Draw Term Loan | LIBOR + 6.00%, 1.00% Floor 8 10 | 7.00 | % | 1/29/2027 | 422,066 | 417,849 | 352,098 | 0.2 | % | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Health Care Providers & Services |
11,208,417 | 11,190,320 | 7.2 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Health Care Technology |
||||||||||||||||||||||||||||
Quantum Health, Inc. |
First Lien Term Loan | LIBOR + 5.00%, 0.75% Floor 9 | 5.75 | % | 12/22/2027 | 10,000,000 | 9,758,359 | 9,750,000 | 6.3 | % | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Health Care Technology |
9,758,359 | 9,750,000 | 6.3 | % | ||||||||||||||||||||||||
|
|
|
|
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Insurance |
||||||||||||||||||||||||||||
2-10 Holdco, Inc. |
First Lien Term Loan | LIBOR + 6.00%, 0.75% Floor 10 | 6.75 | % | 3/26/2026 | 40,000,000 | 39,401,413 | 39,400,000 | 25.3 | % | ||||||||||||||||||
Galway Partners Holdings LLC |
Second Lien Term Loan | LIBOR + 8.00%, 1.00% Floor 10 | 9.00 | % | 1/31/2027 | 10,077,385 | 9,837,355 | 10,050,877 | 6.5 | % | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Insurance |
49,238,768 | 49,450,877 | 31.8 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
IT Services |
||||||||||||||||||||||||||||
Dcert Buyer, Inc. 6 |
Second Lien Term Loan | LIBOR + 7.00% 7 | 7.11 | % | 2/19/2029 | 10,000,000 | 9,975,008 | 10,043,800 | 6.5 | % | ||||||||||||||||||
|
|
|
|
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Total IT Services |
9,975,008 | 10,043,800 | 6.5 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Professional Services |
||||||||||||||||||||||||||||
Tempus, LLC |
First Lien Term Loan | LIBOR + 6.25%, 1.00% Floor 8 10 | 7.25 | % | 2/5/2027 | 25,540,541 | 24,969,145 | 24,954,055 | 16.0 | % | ||||||||||||||||||
Tempus, LLC |
First Lien Delayed Draw Term Loan | LIBOR + 6.25%, 1.00% Floor 8 | 7.25 | % | 2/5/2027 | | (111,145 | ) | (113,514 | ) | (0.1 | )% | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Professional Services |
24,858,000 | 24,840,541 | 16.0 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Software |
||||||||||||||||||||||||||||
Diligent Corporation |
First Lien Term Loan | LIBOR + 5.75%, 1.00% Floor 10 | 6.75 | % | 8/4/2025 | 30,000,000 | 29,705,993 | 29,700,000 | 19.1 | % | ||||||||||||||||||
GovDelivery Holdings, LLC |
First Lien Term Loan | LIBOR + 6.50%, 1.00% Floor 10 | 7.50 | % | 1/29/2027 | 21,551,676 | 20,968,451 | 21,062,778 | 13.5 | % | ||||||||||||||||||
GovDelivery Holdings, LLC |
First Lien Delayed Draw Term Loan | LIBOR + 6.50%, 1.00% Floor 8 | 7.50 | % | 1/29/2027 | | (44,024 | ) | (136,893 | ) | (0.1 | )% | ||||||||||||||||
GovDelivery Holdings, LLC |
First Lien Revolving Loan | LIBOR + 6.50%, 1.00% Floor 8 | 7.50 | % | 1/29/2027 | | (35,182 | ) | (54,757 | ) | 0.0 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Software |
50,595,238 | 50,571,128 | 32.5 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Non-Controlled/Non-Affiliated Investments |
$ | 163,406,597 | $ | 163,645,729 | 105.2 | % | ||||||||||||||||||||||
|
|
|
|
(1) | All of the Companys investments are domiciled in the United States. |
(2) | Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy. |
(3) | All investments were qualifying assets as defined under Section 55(a) of the Investment Company Act of 1940. |
(4) | Cost represents the original cost adjusted for amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. |
(5) | Percentage is based on net assets of $155,521,376 as of March 31, 2021. |
(6) | Represents securities categorized as Level 2 assets under the definition of ASC 820 fair value hierarchy. |
(7) | The interest rate on this security is subject to a base rate plus 1 Month 1M LIBOR, which at March 31, 2021 was 0.11%. |
(8) | This investment has an unfunded commitment as of March 31, 2021. For further details, see Note 5. Fair value includes an analysis of the unfunded commitment. |
(9) | The interest rate on this security is subject to a base rate plus 6 Month 6M LIBOR, which at March 31, 2021 was 0.21%. |
(10) | The interest rate on this security is subject to a base rate plus 3 Month 3M LIBOR, which at March 31, 2021 was 0.19%. |
The accompanying notes are an integral part of these financial statements.
Stone Point Credit Corporation
Schedule of Investments
As of December 31, 2020 9
Portfolio Company 1, 2, 3 |
Type of |
Reference Rate |
Interest Rate |
Maturity | Par Amount |
Cost 4 | Fair Value | Percentage of Net Assets 5 |
||||||||||||||||||||
Non-Controlled/Non-Affiliated Investments |
||||||||||||||||||||||||||||
Debt Investments - 59.1% |
||||||||||||||||||||||||||||
Diversified Financial Services |
||||||||||||||||||||||||||||
TA/WEG Intermediate Holdings, LLC 7 |
First Lien Delayed Draw Term Loan | LIBOR + 5.75%, 1.00% Floor 8 | 6.75 | % | 10/2/2025 | 4,703,564 | $ | 4,500,591 | $ | 4,499,537 | 18.6 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Diversified Financial Services |
4,500,591 | 4,499,537 | 18.6 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Insurance |
||||||||||||||||||||||||||||
Galway Partners Holdings LLC |
Second Lien Term Loan | LIBOR + 8.00%, 1.00% Floor 6 | 9.00 | % | 1/31/2027 | 10,077,385 | $ | 9,826,605 | $ | 9,825,450 | 40.5 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Diversified Financial Services |
9,826,605 | 9,825,450 | 40.5 | % | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total Non-Controlled/Non-Affiliated Investments |
$ | 14,327,196 | $ | 14,324,987 | 59.1 | % | ||||||||||||||||||||||
|
|
|
|
(1) | All of the Companys investments are domiciled in the United States. |
(2) | Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy. |
(3) | All investments were qualifying assets as defined under Section 55(a) of the Investment Company Act of 1940. |
(4) | Cost represents the original cost adjusted for amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. |
(5) | Percentage is based on net assets of $24,232,910 as of December 31, 2020. |
(6) | The interest rate on this security is subject to a base rate plus 1 Month 1M LIBOR, which at December 31, 2020 was 0.140%. |
(7) | This investment has an unfunded commitment as of December 31, 2020. For further details, see Note 5. Fair value includes an analysis of the unfunded commitment. |
(8) | The interest rate on this security is subject to a base rate plus 6 Month 6M LIBOR, which at December 31, 2020 was 0.256%. |
(9) | The December 31, 2020 presentation has been revised to conform to the current period presentation. |
The accompanying notes are an integral part of these financial statements.
7
Table of Contents
Stone Point Credit Corporation
Notes to Financial Statements
March 31, 2021
Note 1. | Organization |
Organization
Stone Point Credit Corporation (the Company) was formed as a Delaware limited liability company on September 8, 2020 with the name Stone Point Capital Credit LLC. The Company has elected to be regulated as a business development company (a BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In connection with its election to be regulated as a BDC, the Company converted to a Delaware corporation, changed its name to Stone Point Credit Corporation, and commenced operations on December 1, 2020. In addition, for tax purposes, Stone Point Credit Corporation intends to elect to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code).
The Company is managed by Stone Point Credit Adviser LLC (the Adviser). The Adviser is a Delaware limited liability company that is registered with the Securities Exchange Commission (SEC) as an investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act). Subject to the supervision of the Companys board of directors (the Board), the Adviser manages the day-to-day operations of the Company and provides the Company with investment advisory and management services. The Adviser is an affiliate of Stone Point Capital LLC (Stone Point), which is a privately held firm specializing in investments within the global financial services industry.
The Companys investment objective is to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. The Company intends to invest primarily in senior secured or unsecured loans and, to a lesser extent, subordinated loans, mezzanine loans and equity-related securities including warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity.
Note 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (ASC) Topic 946, Financial Services Investment Companies. The Companys fiscal year ends on December 31. The functional currency of the Company is U.S. dollars.
Interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, they may not include all information and notes required by U.S. GAAP for annual financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current periods results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2021.
Use of Estimates
The preparation of the 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 financial statements. Actual results could differ from those estimates and such differences could be material.
8
Table of Contents
Cash and Cash Equivalents
Cash and cash equivalents consists of deposits in a money market account and demand deposits held at a custodian bank. Cash and cash equivalents are carried at cost, which approximates fair value. The Companys deposits may, at times, exceed the insured limits under applicable law.
Deferred Financing Costs
Financing costs incurred in connection with the Companys borrowings (see Note 6) are deferred and amortized over the life of the corresponding facility.
Organizational and Offering Expenses
Organizational expenses are costs associated with the organization of the Company and are expensed as incurred. Offering expenses are costs associated with the offering of common shares of the Company and are capitalized as deferred offering expenses in the Statement of Assets and Liabilities. Deferred offering expenses are amortized over a twelve-month period beginning with the latter of either December 1, 2020 (Commencement of Operations) or from incurrence.
Income Taxes
The Company intends to elect to be treated, and intends to qualify annually, as a RIC under the Code. So long as the Company maintains its tax treatment as a RIC, it generally will not be subject to corporate-level U.S. federal income taxes on any ordinary income or capital gains distributed to shareholders as dividends. To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements as well as distribute each taxable year dividends for U.S. federal income tax purposes of an amount generally at least equal to 90% of the Companys investment company taxable income, which is generally the Companys net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses and determined without regard to any deduction for dividends paid. 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 while preparing its 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 later based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. There were no material uncertain income tax positions through March 31, 2021.
Valuation of Portfolio Securities
Valuations of investments are approved by the Board at the end of each calendar quarter. In instances where there is no readily available market value, the Companys investments are valued at fair value with the input of the Advisers valuation committee and an external, independent valuation firm that is retained by the Adviser to review the Companys investments as needed. Investments for which market quotations are readily available may be priced by independent pricing services.
The Companys investment portfolio is recorded at fair value as determined in good faith in accordance with procedures established by the Board and, as a result, there is and will be uncertainty as to the value of the Companys portfolio investments. Under the 1940 Act, the Company is required to carry its portfolio investments at market value or, if there is no readily available market value, at fair value as determined in accordance with procedures established by the Board. There is not a public market or active secondary market for many of the types of investments in privately held companies that the Company intends to hold and make. The Companys investments may not be publicly traded or actively traded on a secondary market but, instead, may be traded on a privately negotiated over-the-counter secondary market for institutional investors, if at all. As a result, these investments are valued quarterly at fair value as determined in good faith in accordance with valuation policy and procedures approved by the Board.
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The determination of fair value, and thus the amount of unrealized appreciation or depreciation the Company may recognize in any reporting period, is to a degree subjective, and the Adviser has a conflict of interest in making recommendations of fair value. The types of factors that may be considered in determining the fair values of the Companys investments include the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, current market interest rates, precedent transactions and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value in accordance with procedures established by the Board may differ materially from the values that would have been used if an active market and market quotations existed for such investments. The Companys net asset value could be adversely affected if the determinations regarding the fair value of the investments were materially higher than the values that the Company ultimately realizes upon the disposal of such investments.
Company Common Stock Share Valuation
In accordance with U.S. GAAP, the net asset value per share of the outstanding shares of common stock is determined at least quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. 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 realized.
Interest and Dividend Income Recognition
Interest income is recorded on the accrual basis and includes amortization of premiums or accretion of discounts. Discounts and premiums to par value on securities purchased are accreted and amortized, respectively, into interest income over the contractual life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of premiums or accretion of discounts, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period. Loan origination fees, original issue discount and market discounts are capitalized and the amounts are amortized into income using the effective interest method.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon managements judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in managements judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of March 31, 2021, no investments were on non-accrual status.
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. There were no dividend income generating investments for the three months ended March 31, 2021.
Fee Income
The Company, or its affiliates, may receive fees for capital structuring services. These fees are generally non-recurring and are recognized as fee income by the Company on the investment closing date. During the three months ended March 31, 2021, the Company earned fee income of $1,040,625.
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Note 3. | Agreements and Related Party Transactions |
Investment Advisory Agreement
Subject to the supervision of the Board and pursuant to an investment advisory agreement between the Company and the Adviser (the Investment Advisory Agreement), the Adviser manages the day-to-day operations of the Company and provides the Company with investment advisory and management services. Among other things, the Adviser (i) determines the composition and allocation of the Companys investment portfolio, the nature and timing of the changes therein and the manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments made by the Company; (iii) performs due diligence on prospective portfolio companies; (iv) executes, closes, services and monitors the Companys investments; (v) determines the securities and other assets that the Company will purchase, retain or sell; (vi) arranges financings and borrowing facilities for the Company and (vii) provides the Company with such other investment advisory, research and related services as the Company may, from time to time, reasonably require for the investment of its fund and (viii) to the extent permitted under the 1940 Act and the Advisers Act, on the Companys behalf, and in coordination with any sub-adviser and any administrator, provides significant managerial assistance to those portfolio companies to which the Company is required to provide such assistance under the 1940 Act, including utilizing appropriate personnel of the Adviser to, among other things, monitor the operations of the Companys portfolio companies, participate in board and management meetings, consult with and advise officers of portfolio companies and provide other organizational and financial consultation. The Advisers services under the Investment Advisory Agreement are not exclusive, and the Adviser is generally free to furnish similar services to other entities so long as its performance under the Investment Advisory Agreement is not adversely affected.
Under the Investment Advisory Agreement, the Company will pay the Adviser (i) a base management fee and (ii) an incentive fee as compensation for the investment advisory and management services it provides the Company thereunder.
Base Management Fee
The Company will pay to the Adviser an asset-based fee (the Management Fee) for management services in an amount equal to an annual rate of 1.30% of the average value of the Companys gross assets (excluding cash and cash equivalents) for the most recently completed calendar quarter payable quarterly in arrears. The Management Fee for any partial quarter will be appropriately prorated and adjusted for any share issuances or repurchases during the relevant calendar months or quarters. For the three months ended March 31, 2021, the Company incurred management fees of $287,825.
Incentive Fee
Beginning on the fourth anniversary of the date on which shareholders are required to fund their initial drawdown (the Incentive Commencement Date), the Company will pay the Adviser an incentive fee (Incentive Fee) as set forth below. The Incentive Fee will consist of two parts. The first part (the Investment Income Incentive Fee) will be calculated and payable following the Incentive Commencement Date on a quarterly basis, in arrears, and will equal 15% of pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a quarterly preferred return of 1.75% (i.e., 7% annualized) measured on a quarterly basis and a catch-up feature. For purposes of computing the initial installment of the Investment Income Incentive Fee, if the Incentive Commencement Date does not fall on the first day of a calendar quarter, then the initial payment of the Investment Income Incentive Fee shall be payable for the period that commences on the Incentive Commencement Date through the last day of the first complete calendar quarter immediately following the Incentive Commencement Date and, thereafter, at the end of each subsequent calendar quarter as described above. The second part (the Capital Gains Incentive Fee) will be an annual fee that will also commence with the period beginning on the Incentive Commencement Date and will be determined and payable following the Incentive Commencement Date, in arrears, as of the end of each calendar year (or upon termination of the Investment Advisory Agreement) in an amount equal to 15% of realized capital gains, if any, determined on a cumulative basis from the Incentive Commencement Date (based on the fair market value of each investment as of such date) through the end of such calendar year (or upon termination of the Investment Advisory Agreement), computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis from the Incentive Commencement Date (based on the fair market value of each investment as of such date) through the end of such calendar year (or upon termination of the Investment Advisory Agreement), less the aggregate amount of any previously paid Capital Gains Incentive Fees. For the three months ended March 31, 2021, the Company did not incur any performance-based incentive fees.
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Administration Agreement
The Adviser also serves as the administrator of the Company (in such capacity, the Administrator). Subject to the supervision of the Board, the Administrator provides the administrative services necessary for the Company to operate and the Company will utilize the Administrators office facilities, equipment and recordkeeping services. The Company will reimburse the Administrator for all reasonable costs and expenses incurred by the Administrator in providing these services, facilities and personnel, as provided by the administration agreement by and between the Company and the Administrator (the Administration Agreement). In addition, the Administrator is permitted to delegate its duties under the Administration Agreement to affiliates or third parties, and the Company will reimburse the expenses of these parties incurred directly and/or paid by the Administrator on the Companys behalf.
The Company will reimburse the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and recordkeeping services at such facilities, as well as providing the Company with other administrative services. In addition, the Company will reimburse the Administrator for the fees and expenses associated with performing compliance functions, and the Companys allocable portion of the compensation of certain of the Companys officers, including the Companys Chief Financial Officer, Chief Compliance Officer and any support staff. The Adviser can waive any amounts owed to it under the Administration Agreement, at its discretion.
For the three months ended March 31, 2021, the Company incurred $116,548 of administrative overhead expenses that were included in the Statement of Operations as professional fees, all of which remained payable on the Statements of Assets and Liabilities as accounts payable and accrued expenses as of March 31, 2021. For the three months ended March 31, 2021, the Administrator has elected to waive additional charges that would have otherwise been eligible for reimbursement under the terms of the Administration Agreement which are not subject to recoupment.
Sub-Administration and Custodian Fees
On January 22, 2021, the Adviser entered into a sub-administration agreement with U.S. Bank Global Fund Services (the Sub-Administrator) under which the Sub-Administrator provides various accounting and other administrative services with respect to the Company. The Company pays the Sub-Administrator fees for services the Adviser determines are commercially reasonable in its sole discretion. The Company also reimburses the Sub-Administrator for all reasonable expenses. To the extent that the Sub-Administrator outsources any of its functions, the Sub-Administrator pays any compensation associated with such functions. The Sub-Administrator also serves as the Companys custodian (the Custodian).
For the three months ended March 31, 2021, the Company incurred expenses for services provided by the Sub-Administrator and the Custodian of $44,994 on the Statement of Operations as professional fees. As of March 31, 2021, $55,226 remained payable on the Statements of Assets and Liabilities as accounts payable and accrued expenses.
Transfer Agent Fees
On December 1, 2020, the Company entered into a transfer agent servicing agreement with U.S. Bank Global Fund Services (the Transfer Agent). For the three months ended March 31, 2021, the Company incurred expenses for services provided by the Transfer Agent of $12,500 on the Statement of Operations as professional fees. As of March 31, 2021, $31,971 remained payable on the Statements of Assets and Liabilities as accounts payable and accrued expenses.
Note 4. | Offering and Organizational Expenses |
The Company has and may continue to bear expenses relating to its organization and offering of its common stock, including the listing of its common stock on a national securities exchange. Organizational expenses include, without limitation, the cost of incorporation, including legal fees related to the creation and organization of the Company, its related documents of organization and its election to be regulated as a BDC. Offering expenses include, without limitation, legal, accounting, printing and other offering costs including those associated with the preparation of a registration statement in connection with any offering of common stock.
For the three months ended March 31, 2021, the Company incurred offering costs of $96,029 on the Statement of Operations, none of which was payable as of March 31, 2021.
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Note 5. | Commitments and Contingencies |
Litigation and Regulatory Matters
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 Companys rights under contracts with the Companys portfolio companies. The Company and the Adviser are not currently a party to any material legal proceedings.
Unfunded Portfolio Company Commitments
From time to time, the Company may enter into commitments to fund investments. As of March 31, 2021 and December 31, 2020, the Company had the following unfunded portfolio company commitments under loan and financing agreements:
March 31, 2021 | December 31, 2020 | |||||||||
Portfolio Company |
Type of Investment |
Par | Par | |||||||
GovDelivery Holdings, LLC | First Lien Delayed Draw Term Loan | $ | 6,034,517 | $ | | |||||
GovDelivery Holdings, LLC | First Lien Revolving Loan | 2,413,807 | | |||||||
MB2 Dental Solutions, LLC | First Lien Delayed Draw Term Loan | 3,545,131 | | |||||||
TA/WEG Intermediate Holdings, LLC | First Lien Delayed Draw Term Loan | 14,509,416 | 17,796,436 | |||||||
Tempus, LLC | First Lien Delayed Draw Term Loan | 5,675,676 | | |||||||
Tempus, LLC | First Lien Term Loan | 3,783,784 | | |||||||
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|
|
|
|||||||
Total Par | $ | 35,962,331 | $ | 17,796,436 | ||||||
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|
|
|
The unrealized appreciation or depreciation associated with unfunded portfolio company commitments is recorded in the financial statements and reflected as an adjustment to the valuation of the related security in the Schedule of Investments as of March 31, 2021 and December 31, 2020. The par amount of the unfunded portfolio company commitments is not recognized by the Company until the commitment is funded.
The credit agreements of the unfunded portfolio company commitments contain customary lending provisions which are subject to the portfolio companys achievement of certain milestones. In instances where the underlying company experiences material adverse effects that would impact the financial condition or business outlook of the company, there is relief to the Company from funding obligations for previously made commitments. Unfunded portfolio company commitments may expire without being drawn upon, and therefore, do not necessarily represent future cash requirements or future earning assets for the Company. We believe that we maintain sufficient liquidity in the form of cash, financing capacity and undrawn capital commitments from our investors to cover any outstanding unfunded portfolio company commitments we may be required to fund.
Note 6. | Borrowings |
In accordance with the 1940 Act, with certain limitations, BDCs are allowed to borrow amounts such that their asset coverage ratios, as defined in the 1940 Act, are at least 200% (or 150% if certain conditions are met) after such borrowing. As a result of complying with the requirements set forth in the Small Business Credit Availability Act, the Company is able to borrow amounts such that its asset coverage ratio is at least 150%, rather than 200%. As of March 31, 2021 and December 31, 2020, the Companys asset coverage ratios were 248% and 243%, respectively.
Effective as of December 29, 2020 (the Closing Date), the Company entered into a revolving credit agreement (the Revolving Credit Agreement) by and among, inter alios, the Company as the initial borrower, the lenders from time-to-time party thereto (collectively, the Lenders) and Capital One, National Association, as the administrative agent (the Administrative Agent), sole lead arranger and a Lender.
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The Revolving Credit Agreement provides for a maximum commitment of up to $200,000,000 for a period of up to two years (including extension terms) from the Closing Date subject to the terms set forth in the Revolving Credit Agreement. Under the Revolving Credit Agreement, an unused commitment fee at the rate of 0.35% per annum on the unused portion of the commitment of the Lenders is payable by the Company to the Administrative Agent.
The proceeds of the loans under the Revolving Credit Agreement may be used to acquire portfolio investments and such other uses as permitted under the Revolving Credit Agreement. At the Companys option, the Revolving Credit Agreement will accrue interest at a rate per annum based on (i) an adjusted LIBOR rate plus an applicable margin of 1.75% or (ii) the greatest of (1) the prime rate plus an applicable margin of 0.75%, (2) the federal funds effective rate plus 0.5% plus an applicable margin of 0.75% or (3) daily LIBOR plus an applicable margin of 1.75%.
The maturity date is the earliest of: (a) December 29, 2021; (b) the date upon which the Administrative Agent declares the Companys obligations under the Revolving Credit Agreement (the Obligations) due and payable after the occurrence of an event of default under the Revolving Credit Agreement; (c) 45 days prior to the termination of the Companys Operative Documents (as defined in the Revolving Credit Agreement); (d) 45 days prior to the date on which the Companys ability to call capital commitments for the purpose of repaying the Obligations is terminated, and (e) the date upon which the Company terminates the commitments of the Lenders pursuant to Section 3.6 of the Revolving Credit Agreement or otherwise.
The Revolving Credit Agreement includes customary covenants as well as usual and customary events of default for revolving credit facilities of this nature.
As of March 31, 2021 and December 31, 2020, the carrying amount of the Companys borrowings under the Revolving Credit Agreement approximated their fair value. As of March 31, 2021, and December 31, 2020, unamortized financing costs of $415,227 and $535,984, respectively, are being deferred over the remaining term of the Revolving Credit Agreement. As of March 31, 2021 and December 31, 2020, the Company had an outstanding balance of $105,000,000 and $17,000,000, respectively. Revolving credit facility is presented in the Statements of Assets and Liabilities which is the net of the unamortized financing costs and the outstanding balance, totaling $104,584,773 as of March 31, 2021 and $16,464,016 as of December 31, 2020. During the three months ended March 31, 2021, the Company incurred a total of $404,468 in interest and credit facility fees on the Statement of Operations, comprised of $133,256 in financing fees and $271,212 in interest expenses.
Note 7. | Net Assets |
Unregistered Sales of Equity Securities
On November 17, 2020, the Adviser committed to contribute $1,000 of capital to the Company. In exchange for this contribution, the Adviser received 50 shares of the Companys common stock, par value $0.001 per share (the Common Stock).
Since inception, the Company has completed the following share issuances:
Common Share Issuance Date |
Number of Common Shares Issued |
Aggregate Offering Price |
||||||
March 30, 2021 |
3,687,064 | $ | 71,877,447 | |||||
February 26, 2021 |
1,429,493 | 28,121,553 | ||||||
February 4, 2021 |
1,545,776 | 30,000,000 | ||||||
December 24, 2020 |
744,307 | 14,886,136 | ||||||
December 21, 2020 |
505,693 | 10,113,864 | ||||||
November 17, 2020 |
50 | 1,000 | ||||||
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Total |
7,912,383 | $ | 155,000,000 | |||||
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The sales of Common Stock were made pursuant to subscription agreements entered into by the Company and its investors. Under the terms of the subscription agreements, investors are required to fund drawdowns to purchase shares of Common Stock up to the amount of their respective capital commitments on an as-needed basis with a minimum of ten business days prior notice to the funding date.
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Each of the sales of Common Stock is exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder. The Company has not engaged in general solicitation or advertising with regard to the issuance and sale of the Common Stock and has not offered securities to the public in connection with such issuance and sale. The Company relied, in part, upon representations from the investors in the subscription agreements that each investor was an accredited investor as defined in Regulation D under the Securities Act.
Note 8. | Investments |
The following table presents the composition of the Companys investment portfolio at cost and fair value as of March 31, 2021 and December 31, 2020.
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
Investments: |
Amortized Cost |
Fair Value |
Percent of Total Portfolio at Fair Value |
Amortized Cost |
Fair Value |
Percent of Total Portfolio at Fair Value |
||||||||||||||||||
First Lien Loans |
$ | 143,594,234 | $ | 143,551,052 | 87.7 | % | $ | 4,500,591 | $ | 4,499,537 | 31.4 | % | ||||||||||||
Second Lien Loans |
19,812,363 | 20,094,677 | 12.3 | % | 9,826,605 | 9,825,450 | 68.6 | % | ||||||||||||||||
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|
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Total Investments |
$ | 163,406,597 | $ | 163,645,729 | 100.0 | % | $ | 14,327,196 | $ | 14,324,987 | 100.0 | % | ||||||||||||
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The geographic composition of investments based on fair value as of March 31, 2021 and December 31, 2020 was as follows:
March 31, 2021 | December 31, 2020 | |||||||
U.S. |
100.0 | % | 100.0 | % | ||||
Non-U.S. |
| | ||||||
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Total |
100.0 | % | 100.0 | % | ||||
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The industry composition of investments based on fair value as of March 31, 2021 and December 31, 2020 was as follows:
March 31, 2021 | December 31, 2020 | |||||||
Diversified Financial Services |
4.8 | % | 31.4 | % | ||||
Health Care Providers & Services |
6.8 | | ||||||
Health Care Technology |
6.0 | | ||||||
Insurance |
30.2 | 68.6 | ||||||
IT Services |
6.1 | | ||||||
Professional Services |
15.2 | | ||||||
Software |
30.9 | | ||||||
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|
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Total |
100.0 | % | 100.0 | % | ||||
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Note 9. | Fair Value of Investments |
Under ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between a willing buyer and a willing seller at the measurement date. For the Companys portfolio securities, fair value is generally the amount that the Company might reasonably expect to receive upon the current sale of the security. The fair value measurement assumes that the sale occurs in the principal market for the security, or in the absence of a principal market, in the most advantageous market for the security. If no market for the security exists or if the Company does not have access to the principal market, the security should be valued based on the sale occurring in a hypothetical market.
ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:
Level 1 Inputs include quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs include inputs that are unobservable and significant to the fair value measurement.
A financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized as Level 3 investments within the tables below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Transfers between levels, if any, will be recognized at the beginning of the quarter in which the transfer occurred.
The Companys investment portfolio will include certain debt and equity instruments of privately held companies for which quoted prices or other inputs falling within the categories of Level 1 and Level 2 are generally not available. In such cases, the Company determines the fair value of the Companys investments in good faith primarily using Level 3 inputs. In certain cases, quoted prices or other observable inputs exist, and if so, the Company assesses the appropriateness of the use of these third-party quotes in determining fair value based on (i) the Companys understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer and (ii) the depth and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio company.
There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of the Companys Level 3 investments may differ significantly from fair values that would have been used had an active market for the securities existed. 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 valuations currently assigned.
The following tables present the fair value hierarchy as of March 31, 2021.
Fair Value Hierarchy as of March 31, 2021 | ||||||||||||||||
Description |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
First Lien Loans |
$ | | $ | | $ | 143,551,052 | $ | 143,551,052 | ||||||||
Second Lien Loans |
| 10,043,800 | 10,050,877 | 20,094,677 | ||||||||||||
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Total |
$ | | $ | 10,043,800 | $ | 153,601,929 | $ | 163,645,729 | ||||||||
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The following tables present the fair value hierarchy as of December 31, 2020.
Fair Value Hierarchy as of December 31, 2020 | ||||||||||||||||
Description |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
First Lien Loans |
$ | | $ | | $ | 4,499,537 | $ | 4,499,537 | ||||||||
Second Lien Loans |
| | 9,825,450 | 9,825,450 | ||||||||||||
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|
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Total |
$ | | $ | | $ | 14,324,987 | $ | 14,324,987 | ||||||||
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The following tables present changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three months ended March 31, 2021 and the fiscal period ended December 31, 2020:
Three Months Ended March 31, 2021 |
First Lien Loans |
Second Lien Loans |
Total | |||||||||
Fair value, beginning of period |
$ | 4,499,537 | $ | 9,825,450 | $ | 14,324,987 | ||||||
Purchases of investments |
139,014,358 | | 139,014,358 | |||||||||
Proceeds from principal payments |
| | | |||||||||
Net change in unrealized appreciation/(depreciation) |
(44,271 | ) | 214,677 | 170,406 | ||||||||
Net accretion of discount and amortization of investments |
81,428 | 10,750 | 92,178 | |||||||||
Transfers into (out of) Level 3 |
| | | |||||||||
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|
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|
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Fair value, end of period |
$ | 143,551,052 | $ | 10,050,877 | $ | 153,601,929 | ||||||
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For the Period September 8, 2020 |
First Lien Loans |
Second Lien Loans |
Total | |||||||||
Fair value, beginning of period |
$ | | $ | | $ | | ||||||
Purchases of investments |
4,499,537 | 9,825,450 | 14,324,987 | |||||||||
Proceeds from principal payments |
| | | |||||||||
Net change in unrealized appreciation/(depreciation) |
(1,054 | ) | (1,155 | ) | (2,209 | ) | ||||||
Net accretion of discount and amortization of investments |
1,054 | 1,155 | 2,209 | |||||||||
Transfers into (out of) Level 3 |
| | | |||||||||
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|
|
|||||||
Fair value, end of period |
$ | 4,499,537 | $ | 9,825,450 | $ | 14,324,987 | ||||||
|
|
|
|
|
|
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The following table presents the net change in unrealized appreciation (depreciation) for the period relating to these Level 3 assets that were still held by the Company at the three months ended March 31, 2021 and the fiscal period ended December 31, 2020.
Three Months Ended |
||||
Net Change in Unrealized Appreciation (Depreciation) |
March 31, 2021 | |||
First Lien Loans |
$ | (44,271 | ) | |
Second Lien Loans |
214,677 | |||
|
|
|||
Total |
$ | 170,406 | ||
|
|
|||
For the Period September 8, 2020 (inception) through |
||||
Net Change in Unrealized Appreciation (Depreciation) |
December 31, 2020 | |||
First Lien Loans |
$ | (1,054 | ) | |
Second Lien Loans |
(1,155 | ) | ||
|
|
|||
Total |
$ | (2,209 | ) | |
|
|
The following table presents quantitative information about the significant unobservable inputs of the Companys Level 3 investments as of March 31, 2021. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the Companys determination of fair value.
March 31, 2021 | ||||||||||||||||
Type of Investment |
Fair Value | Valuation technique | Unobservable input | Range (weighted average) | ||||||||||||
First Lien Loans |
$ | 7,799,063 | |
Discounted Cash Flow |
|
Discount Rate | 7.5% | |||||||||
First Lien Loans |
135,751,989 | |
Market Transaction |
|
|
Market Transaction |
|
N/A | ||||||||
Second Lien Loan |
10,050,877 | |
Discounted Cash Flow |
|
Discount Rate | 10.0% | ||||||||||
|
|
|||||||||||||||
Total |
$ | 153,601,929 | ||||||||||||||
|
|
The following table presents quantitative information about the significant unobservable inputs of the Companys Level 3 investments as of December 31, 2020. The December 31, 2020 presentation has been revised to conform to the current period presentation. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the Companys determination of fair value.
December 31, 2020 | ||||||||||||||||
Type of Investment |
Fair Value | Valuation technique | Unobservable input | Range (weighted average) | ||||||||||||
First Lien Loans |
$ | 4,499,537 | |
Market Transaction |
|
|
Market Transaction |
|
N/A | |||||||
Second Lien Loan |
9,825,450 | |
Market Transaction |
|
|
Market Transaction |
|
N/A | ||||||||
|
|
|||||||||||||||
Total |
$ | 14,324,987 | ||||||||||||||
|
|
Increases or decreases in unobservable inputs in isolation would result in a higher or lower fair value measurement for such assets. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Companys investments.
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Note 10. | Earnings Per Share |
In accordance with the provisions of ASC Topic 260, Earnings per Share (ASC 260), basic and diluted net increase in net assets resulting from operations per common share is computed by dividing the net increase in net assets resulting from operations by the weighted average number of shares outstanding during the period. The methodology for the weighted average number of shares outstanding during the period utilizes the weighted average number of shares from December 31, 2020 through March 31, 2021. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. As of March 31, 2021, there were no dilutive shares.
The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2021:
Three Months Ended March 31, 2021 (Unaudited) |
||||
Net increase in net assets resulting from operations |
$ | 1,289,466 | ||
Weighted average common shares of common stock outstanding - basic and diluted |
2,759,806 | |||
Basic and diluted net increase in net assets resulting from operations per common share |
$ | 0.47 |
Note 11. | Taxes |
The Company intends to qualify as a regulated investment company, to distribute substantially all of its income and to comply with the other requirements of the Internal Revenue Code applicable to regulated investment companies. Accordingly, no provision for federal taxes is required. In addition, by distributing during each calendar year substantially all of its net investment income, net realized capital gains and certain other amounts, if any, the Company intends not to be subject to a federal excise tax. The Company did not have any liabilities for uncertain tax positions or unrecognized tax benefits.
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Note 12. | Financial Highlights |
The following per common share data has been derived from information provided in the financial statements. The following is a schedule of financial highlights for the three months ended March 31, 2021:
Three Months Ended March 31, 2021 (Unaudited) |
||||
Per common share operating performance | ||||
Net asset value, beginning of period |
$ | 19.39 | ||
Results of operations: |
||||
Net investment income 1 |
0.38 | |||
Net unrealized appreciation (depreciation) 2 |
(0.11 | ) | ||
|
|
|||
Net increase (decrease) in net assets resulting from operations |
0.27 | |||
|
|
|||
|
|
|||
Net asset value, end of period |
$ | 19.66 | ||
|
|
|||
Shares outstanding, end of period |
7,912,383 | |||
Ratio/Supplemental data | ||||
Net assets, end of period |
$ | 155,521,376 | ||
Weighted average shares outstanding |
2,759,806 | |||
Total return 3 |
1.39 | % | ||
Portfolio turnover 4 |
| |||
Ratio of operating expenses to average net assets 5 |
6.21 | % | ||
Ratio of net investment loss to average net assets 5 |
5.06 | % |
1 | The per common share data was derived by using weighted average shares outstanding. |
2 | The amount shown at this caption is the balancing amount derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the period does not agree with the change in the aggregate appreciation and depreciation in portfolio securities for the period because of the timing of sales of the Companys shares in relation to fluctuating market values for the portfolio. For the three months ended March 31, 2021, net unrealized appreciation was $0.09 per weighted average share outstanding. |
3 | Total return is based upon the change in net asset value per share between the opening and ending net asset values per share. Total return is not annualized and does not include a sales load. |
4 | Portfolio turnover is not applicable. |
5 | The ratios reflect an annualized amount. Non-recurring expenses were not annualized. During the period, the Company incurred $96,029 of Offering Expenses, which were deemed to be non-recurring. |
Note 13. | Equity |
For the three months ended March 31, 2021, the Company issued 6,662,333 shares of common stock at an average price of $19.51 per share through private placement offerings resulting in gross proceeds of the Company of $130.0 million. The Company had 7,912,383 shares outstanding as of March 31, 2021. As of March 31, 2021, the Company has received capital commitments totaling $1,072.5 million, of which, $917.5 million remains available.
Note 14. | Subsequent Events |
Management has evaluated subsequent events and transactions for potential recognition and/or disclosure through the date the financial statements were issued.
On April 1, 2021, the Company executed a letter agreement (the Amendment) to amend its Revolving Credit Agreement. The Amendment increased the maximum borrowing capacity of the Company under the Revolving Credit Agreement to $200 million from $125 million.
The Company elected RIC status with the Internal Revenue Service upon the filing of its 2020 Form 1120-RIC, U.S. Income Tax Return of Regulated Investment Company, extension request in April of 2021.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Unless indicated otherwise, the Company, we, us, and our refer to Stone Point Credit Corporation, and the Adviser refers to Stone Point Credit Adviser LLC, an affiliate of Stone Point Capital LLC (together with the Adviser and their other affiliates, collectively, Stone Point).
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Such statements are not historical facts and are based on current expectations, estimates, projections, opinions and/or beliefs of the Company and/or Stone Point. You can identify these statements by the use of forward-looking terminology such as may, will, should, expect, anticipate, project, estimate, intend, continue or believe or the negatives thereof or other variations thereon or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. These forward-looking statements include, but are not limited to, information in this Form 10-Q regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a BDC and the expected performance of, and the yield on, our portfolio companies. In particular, there are forward-looking statements under Managements Discussion and Analysis of Financial Condition and Results of Operations. There may be events in the future, however, that we are not able to predict accurately or control. The factors referenced under Part II Item 1A. Risk Factors, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form 10-Q could have a material adverse effect on our business, results of operation and financial position. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
| our future operating results; |
| changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets, or other external factors, including the current COVID-19 pandemic; |
| our business prospects and the prospects of our prospective portfolio companies, including our and their ability to achieve our respective objectives as a result of the current COVID-19 pandemic; |
| the impact of investments that we expect to make; |
| the impact of increased competition; |
| our contractual arrangements and relationships with third parties; |
| the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| the ability of our prospective portfolio companies to achieve their objectives; |
| the relative and absolute performance of our Adviser; |
| the ability of our Adviser and its affiliates to attract and retain talented professionals; |
| our expected financings and investments; |
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| our ability to pay dividends or make distributions; |
| the adequacy of our cash resources and working capital; |
| the timing of cash flows, if any, from the operations of our prospective portfolio companies; |
| the impact of future acquisitions and divestitures; |
| the timing and manner in which we conduct an initial public offering (IPO) and/or listing, if at all; |
| the timing and manner in which we conduct any share repurchase offers; and |
| our regulatory structure and tax status as a BDC and a regulated investment company (a RIC) |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those referenced in the section entitled Part II Item 1A. Risk Factors and elsewhere in this Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law.
COVID-19 Developments
The rapid spread of the COVID-19 pandemic, and associated impacts on the U.S. and global economies, has negatively impacted, and is likely to continue to negatively impact, the business operations of some of our portfolio companies. We cannot at this time fully predict the impact of COVID-19 on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies operating results or our own results of operations or financial condition. We expect that certain of our portfolio companies will continue to experience economic distress for the foreseeable future and may significantly limit business operations if subjected to prolonged economic distress. These developments could result in a decrease in the value of our investments.
The adverse effects of COVID-19 may require us to restructure certain of our investments, which could result in reductions to our investment income or in impairments on our investments. In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas. These market disruptions and illiquidity are likely to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions caused by COVID-19 can also be expected to increase our funding costs and limit our access to the capital markets. These events may impact our investment originations.
We will continue to carefully monitor the impact of the COVID-19 pandemic on our business and the business of our portfolio companies. Because the full effects of the COVID-19 pandemic are not capable of being known at this time, we cannot estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows.
Overview
We were incorporated under the laws of the State of Delaware on September 8, 2020. The Company has elected to be treated as a BDC under the Investment Company Act and intends to elect to be treated as a regulated investment company for federal income tax purposes. 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 taxable income and tax-exempt interest.
As of March 31, 2021, the Company has called equity capital in the amount of $155 million. See Subscriptions and Drawdowns under Financial Condition, Liquidity and Capital Resources below for further details. Management anticipates calling additional equity capital for investment purposes through drawdowns in respect of capital commitments made by investors pursuant to Private Offerings.
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Investment Objective and Strategy
The Companys investment objective is to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. The Company seeks to invest primarily in senior secured or unsecured loans and, to a lesser extent, subordinated loans, mezzanine loans and equity-related securities including warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity.
The Company generally expects to invest in middle market companies with earnings before interest expense, income tax expense, depreciation and amortization, or EBITDA, between $30 million and $125 million annually, and/or annual revenue of $75 million to $1.5 billion. Typical middle market senior loans may be issued by middle market companies in the context of leveraged buyouts, acquisitions, debt refinancings, recapitalizations, and other similar transactions. Notwithstanding the foregoing, the Adviser may determine whether companies qualify as middle market in its sole discretion, and the Company may from time to time invest in larger or smaller companies if an attractive opportunity presents itself, especially when there are dislocations in the capital markets, including the high yield and syndicated loan markets. The Companys target credit investments will typically have maturities between 3 and 6 years and generally range in size between $20 million and $100 million. The investment size will vary with the size of the Companys capital base. The Company has adopted a non-fundamental policy to invest, under normal market conditions, at least 75% of the value of its total assets (measured at the time of each such investment taking into account certain initial assumptions regarding the expected amount of total assets of the Company once fully invested) in portfolio companies that are in the financial services, business services, software and technology or healthcare services sectors. The remaining 25% of the value of the Companys total assets (measured at the time of each such investment taking into account certain initial assumptions regarding the expected amount of total assets of the Company once fully invested) may be invested across a wide range of sectors (although the Company expects to avoid businesses which at the time of the Companys investment participate in certain sectors such as payday lending, pawn shops, automobile title and tax refund anticipation loans, credit repair services, strip mining, drug paraphernalia, marijuana related businesses, tax evasion gaming and pornography).
Market Opportunity and Competitive Advantages
The Adviser believes the Company presents an attractive investment opportunity for several reasons:
Increasing Demand for Debt Capital. Private equity sponsors have unprecedented levels of capital available for investment, which the Adviser believes will continue to drive demand for direct lending over the coming years as private equity firms seek to deploy capital through leveraged buyouts. The Company believes this dynamic, coupled with the Advisers strong relationships in the middle market, will provide significant investment opportunities for the Company.
Proactive Sourcing and Relationship-Driven Deal Flow. The Adviser believes that focusing its activities on proactive, outbound, multi-year searches produces higher quality investment opportunities. The Adviser seeks investment opportunities in sectors that it believes are attractive using a focused three-prong origination strategy. In sourcing investments for the Company, the Adviser leverages (i) its dedicated team of origination professionals and Stone Points broker-dealer professionals focusing on sponsor communities and financial intermediaries within targeted sectors, (ii) its extensive network of private equity investment professionals, focused on more than 70 financial services-related end markets, and (iii) its longstanding relationships with commercial banks who may provide investment opportunities to the Company.
Disciplined Underwriting Process. The Adviser seeks investment opportunities that it believes are attractive using a rigorous top down and bottom up process. The Adviser regularly evaluates and selects sectors on which to focus based on an investment thesis (top down approach) and designates a team of investment professionals to identify leading companies and managers in these sectors (bottom up approach). For more than 70 identified sectors of the financial services industry, this process includes:
| Firm-wide discussions to prioritize the identified sectors |
| Dedicating small teams of investment professionals to study these sectors |
| Interaction with industry experts and attendance at key industry conferences |
| Proactive outbound calling efforts and meetings with private equity sponsors and management teams |
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The Adviser employs a triangulation approach in evaluating the quality of a credit, focused on borrower characteristics, loan structure and quality of sponsorship. The Adviser generally seeks to invest in companies that are led by experienced management teams, have market-leading positions and high barriers to entry, and generate predictable free cash flow across market cycles. In structuring a loan, the Adviser is generally focused on determining appropriate leverage levels (with a significant focus on adjustments and free cash flow), ensuring sufficient minimum sponsor equity and seeking to mitigate downside risk through structural protections. Finally, the Adviser seeks to invest in companies with strong financial sponsor ownership, focused on underwriting a sponsors ability to support the borrower.
Sector Focus. The Company will make its investments primarily in sectors in which Stone Point has developed a longstanding network and can leverage real-time insights from private portfolio companies to provide a discernible origination and underwriting edge. The Adviser currently expects to focus the Companys investments in the financial services, business services, software and technology, and healthcare services sectors. As a result of this specialization by the investment team at the Adviser, the Adviser believes that it is well positioned to source proprietary deals and evaluate a broad range of investments with a deep understanding of the market dynamics and cycles for these sectors.
Further, the Adviser believes the Companys focus on the financial services, business services, software and technology, and healthcare services sectors will provide strong downside protection, given the low default rates in these industries, as well as Stone Points investment experience. The Companys targeted sectors have performed well across market cycles, consistently generating lower cumulative default rates compared with non-financial sectors, which should contribute to enhanced risk adjusted returns.
Ability to Leverage Stone Points Highly Experienced Investment Team. The Adviser intends to utilize Stone Points significant resources and expertise throughout the life cycle of each investment to support the Stone Point Credit investment teams credit activities. On an as-needed basis, certain other investment professionals will contribute a portion of their time, effort and expertise to support credit activities. Stone Point has a long, successful record of making investments and managing businesses in the financial services industry. Stone Point has raised eight private equity funds with an investment track record of over 25 years and a focus on investments in companies in the global financial services industry and related sectors. Stone Point Capital and its affiliates have invested in 26 asset management platforms over 15 years and Stone Point believes that its experience investing in and building businesses across a variety of credit strategies, positions the Company for success in the direct lending middle market. The Stone Point Credit investment team is responsible for making all investment and disposition recommendations to the Investment Committee. The Investment Committee will make all investment and disposition decisions, subject to Board oversight. As of March 31, 2021, the investment team is comprised of approximately 65 investment professionals (a substantial majority of whom are primarily focused in the private equity markets), operating partners and senior advisors who bring to Stone Point considerable experience with Stone Point and/or from other leading private equity, private debt, investment banking, financial services, corporate law, and accounting firms.
Highly Experienced Investment Committee. The Investment Committee for the Adviser is comprised of James D. Carey, Charles A. Davis, Stephen Friedman, David J. Wermuth and Nicolas D. Zerbib. The Investment Committee currently leads the investment activities of the Stone Point funds, has worked together at Stone Point for approximately 20 years investing across multiple credit cycles and different investing environments and, previously, Mr. Davis and Mr. Friedman worked together for more than 20 years at Goldman Sachs.
| Mr. Carey is a Managing Director at Stone Point. Prior to joining Stone Point, he was in the Financial Institutions Investment Banking Group at Merrill Lynch & Co. and prior to that time was an attorney with Kelley Drye & Warren LLP. |
| Mr. Davis is the Chief Executive Officer at Stone Point and the Chairman of the Investment Committees of the Trident Funds. He is a former Vice Chairman of Marsh & McLennan and the former head of the Financial Services Industry Group and head of Investment Banking Services worldwide at Goldman Sachs. |
| Mr. Friedman is the Chairman at Stone Point and is the former Chairman of Goldman Sachs, where he was instrumental in creating the firms principal investment business. He also previously served as Assistant to President George W. Bush for Economic Policy and Director of the National Economic Council. |
| Mr. Wermuth is a Managing Director and the General Counsel at Stone Point. Prior to joining Stone Point, he was an attorney specializing in mergers and acquisitions at Cleary, Gottlieb, Steen & Hamilton LLP and prior to that time an auditor for KPMG Peat Marwick. |
| Mr. Zerbib is a Managing Director at Stone Point. Prior to joining Stone Point, he was in the Financial Institutions Group at Goldman Sachs. |
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All investment decisions are reviewed and approved by the Investment Committee, which has principal responsibility for approving new investments and overseeing the management of existing investments. This senior management team is supported by a team of investment professionals, operating partners and senior advisors who bring to Stone Point considerable experience with Stone Point.
The following table sets forth the length of experience of Stone Points Investment Committee:
Stone Point Senior Investment Team |
Years in Financial Services |
Years at Stone Point |
||||||
James D. Carey, Managing Director Member of the Investment Committee |
27 | 24 | ||||||
Charles A. Davis, Chief Executive Officer Chairman of the Investment Committee |
30+ | 23 | ||||||
Stephen Friedman, Chairman Member of the Investment Committee |
30+ | 21 | ||||||
David J. Wermuth, Managing Director, General Counsel Member of the Investment Committee |
24 | 21 | ||||||
Nicolas D. Zerbib, Managing Director Member of the Investment Committee |
26 | 23 |
Key Components of Operations
Investments
Our level of investment activity can and will vary substantially from period to period depending on many factors, including the amount of debt 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 type of investments we make.
As a BDC, the Company must invest at least 70% of its assets in qualifying assets, which may include investments in eligible portfolio companies. Under the relevant SEC rules, the term eligible portfolio company includes all U.S. private operating companies and small U.S. public operating companies with a market capitalization of less than $250 million.
As a BDC, we may also invest up to 30% of our portfolio opportunistically in non-qualifying portfolio investments, such as investments in non-U.S. companies.
Revenues
The Company expects to generate revenues primarily through receipt of interest income from its investments. In addition, the Company may generate income from capital gains on the sales of loans and debt and equity related securities and various loan origination and other fees and dividends on direct equity investments.
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Expenses
The Company does not currently have any employees and does not expect to have any employees. The Companys day-to-day investment operations are managed by the Adviser, and services necessary for the Companys business, including the origination and administration of its investment portfolio, are provided by individuals who are employees of the Adviser and Administrator, pursuant to the terms of the Investment Advisory Agreement and the Administration Agreement. The Company will reimburse the Administrator for its allocable portion of expenses incurred by it in performing its obligations under the Administration Agreement, including its allocable portion of the cost of certain of the Companys officers and their respective staff, and the Adviser for certain expenses under the Investment Advisory Agreement. The Company bears its allocable portion of the compensation paid by Stone Point to the Companys Chief Compliance Officer and Chief Financial Officer and their respective staff (based on a percentage of time such individuals devote, on an estimated basis, to the Companys business affairs). The Company bears all other costs and expenses of the Companys operations, administration and transactions, including, but not limited to (i) investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Investment Advisory Agreement; (ii) the Companys allocable portion of overhead and other expenses incurred by Administrator in performing its administrative obligations under the Administration Agreement, and (iii) all other expenses of its operations and transactions including, without limitation, those relating to:
| the Companys initial organizational costs incurred prior to the commencement of the Companys operations; |
| operating costs incurred prior to the commencement of the Companys operations; |
| the cost of calculating the Companys net asset value, including the cost of any third-party valuation services; |
| the cost of effecting sales and repurchases of shares of the Common Stock and other securities, including, as otherwise noted below, in connection with the Private Offering; |
| fees payable to third parties relating to making investments, including the Advisers or its affiliates travel expenses, research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments; |
| interest expense and other costs associated with the Companys indebtedness; |
| transfer agent, dividend reinvestment plan administrator and custodial fees; |
| out-of-pocket fees and expenses associated with marketing efforts; |
| federal and state registration fees and any stock exchange listing fees; |
| U.S. federal, state and local taxes; |
| Independent Directors fees and expenses; |
| brokerage commissions and markups; |
| fidelity bond, directors and officers liability insurance and other insurance premiums; |
| direct costs, such as printing, mailing, long distance telephone and staff; |
| fees and expenses associated with independent audits and outside legal costs; |
| costs associated with the Companys reporting and compliance obligations U.S. federal and state securities laws, including, the Securities Act, the Exchange Act and the 1940 Act; and |
| other expenses incurred by the Administrator or the Company in connection with administering the Companys business, including payments under the Administration Agreement that will be based upon the Companys allocable portion (subject to the review and approval of the Board) of overhead. |
The Adviser can waive any amounts owed to it under the Administration Agreement, at its discretion. From time to time, the Adviser or its affiliates may pay third-party providers of goods or services. The Company will subsequently reimburse the Adviser for such amounts paid on the Companys behalf. There is no contractual cap on the amount of reasonable costs and expenses for which the Adviser will be reimbursed.
The Company has entered into a credit facility to partially fund the Companys operations, and may incur costs and expenses including commitment, origination, legal and/or structuring fees and the related interest costs associated with any amounts borrowed. See Revolving Credit Facility under Financial Condition, Liquidity and Capital Resources below for further details.
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The Company has had little operating history and therefore this statement concerning additional expenses is necessarily an estimate and may not match the Companys actual results of operations in the future.
Leverage
The amount of leverage that the Company employs will depend on the Advisers and the Boards assessment of market and other factors at the time of any proposed borrowing. In accordance with the 1940 Act, with certain limitations, BDCs are allowed to borrow amounts such that their asset coverage ratios, as defined in the 1940 Act, are at least 200% (or 150% if certain conditions are met) after such borrowing. As a result of complying with the requirements set forth in the Small Business Credit Availability Act, the Company is able to borrow amounts such that its asset coverage ratio is at least 150%, rather than 200%. As of March 31, 2021 and December 31, 2020, the Companys asset coverage ratio was 248% and 243%, respectively.
In any period, our interest expense will depend largely on the extent of our borrowing and we expect interest expense will increase as we increase our leverage over time within the limits of the 1940 Act. In addition, we may dedicate assets or capital commitments as collateral to financing facilities.
Financial and Operating Highlights
Three Months Ended | ||||
March 31, 2021 | ||||
Total investment income |
$ | 2,497,344 | ||
Total expenses |
1,449,219 | |||
|
|
|||
Net investment income (loss) |
1,048,125 | |||
|
|
|||
Total net change in unrealized appreciation/(depreciation) |
241,341 | |||
|
|
|||
Net increase (decrease) in net assets resulting from operations |
$ | 1,289,466 | ||
|
|
|||
Per share information - basic and diluted |
||||
Net investment income (loss) |
$ | 0.38 | ||
|
|
|||
Net increase (decrease) in net assets resulting from operations |
$ | 0.47 |
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Table of Contents
Consolidated balance sheet data |
As of March 31, 2021 | As of December 31, 2020 | ||||||
Cash and cash equivalents |
$ | 96,429,608 | $ | 27,127,738 | ||||
Investments at fair value |
163,645,729 | 14,324,987 | ||||||
Total assets |
261,157,495 | 41,853,260 | ||||||
Total debt (net of unamortized debt issuance costs) |
104,584,773 | 16,464,016 | ||||||
Total liabilities |
105,636,119 | 17,620,350 | ||||||
Total net assets |
$ | 155,551,376 | $ | 24,232,910 | ||||
Net asset value per share |
$ | 19.66 | $ | 19.39 | ||||
Other data: |
||||||||
Number of portfolio companies |
9 | 2 | ||||||
Distributions declared per share |
N/A | N/A | ||||||
Total return based on net asset value |
1.39 | % | (3.05 | )% |
Portfolio and Investment Activity
Our investment activity for the three months ended March 31, 2021 is presented below (information presented herein is at par value unless otherwise indicated).
Three Months Ended | ||||
March 31, 2021 | ||||
Net investment commitments: |
||||
Total new investment commitments |
$ | 170,000,001 | ||
|
|
|||
Principal amount of investments funded: |
||||
First lien loans |
$ | 141,834,105 | ||
Second lien loans |
10,000,000 | |||
|
|
|||
Total principal amount of investments funded |
$ | 151,834,105 | ||
|
|
|||
Principal amount of investments sold or repaid: |
||||
First lien loans |
| |||
Second lien loans |
| |||
|
|
|||
Total principal amount of investments sold or repaid |
$ | | ||
|
|
|||
Number of new investment commitments in new portfolio companies |
7 | |||
Average new investment commitment amount in new portfolio companies |
24,285,714 | |||
Percentage of new debt investment commitments at floating rates |
100.0 | % | ||
Percentage of new debt investment commitments at fixed rates |
| |||
Weighted average yield on funded debt and other income producing securities1 |
7.7 | % | ||
Weighted average yield on debt and other income producing securities sold or repaid |
|
1 | Weighted average yield is calculated by weighing the effective yield of each investment by fair value. Effective yield includes interest income, amortization of premiums and loan origination fees, accretion of discounts, and prepayment premiums, but excludes nonrecurring income such as capital structuring fees. |
As of March 31, 2021, the Company had 13 debt investments in nine portfolio companies with an aggregate fair value of $163.6 million. As of December 31, 2020, the Company had two debt investments in two portfolio companies with an aggregate value of $14.3 million.
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Table of Contents
As of March 31, 2021 and December 31, 2020, the Companys investments consisted of the following:
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
Investments: |
Amortized Cost |
Fair Value |
Percent of Total Portfolio at Fair Value |
Amortized Cost |
Fair Value |
Percent of Total Portfolio at Fair Value |
||||||||||||||||||
First Lien Loans |
$ | 143,594,234 | $ | 143,551,052 | 87.7 | % | $ | 4,500,591 | $ | 4,499,537 | 31.4 | % | ||||||||||||
Second Lien Loans |
19,812,363 | 20,094,677 | 12.3 | % | 9,826,605 | 9,825,450 | 68.6 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Investments |
163,406,597 | 163,645,729 | 100.0 | % | 14,327,196 | 14,324,987 | 100.0 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The industry composition of investments based on fair value as of March 31, 2021 and December 31, 2020 was as follows:
March 31, 2021 | December 31, 2020 | |||||||
Diversified Financial Services |
4.8 | % | 31.4 | % | ||||
Health Care Providers & Services |
6.8 | | ||||||
Health Care Technology |
6.0 | | ||||||
Insurance |
30.2 | 68.6 | ||||||
IT Services |
6.1 | | ||||||
Professional Services |
15.2 | | ||||||
Software |
30.9 | | ||||||
|
|
|
|
|||||
Total |
100.0 | % | 100.0 | % | ||||
|
|
|
|
The geographic composition of investments based on fair value as of March 31, 2021 and December 31, 2020 was as follows:
March 31, 2021 | December 31, 2020 | |||||||
U.S. |
100.0 | % | 100.0 | % | ||||
Non-U.S. |
| | ||||||
|
|
|
|
|||||
Total |
100.0 | % | 100.0 | % | ||||
|
|
|
|
The following table presents certain selected information regarding our investment portfolio as of March 31, 2021:
As of | ||||
March 31, 2021 | ||||
Number of portfolio companies |
9 | |||
Weighted Average EBITDA (based on par) |
$ | 111 million | ||
Percentage of performing debt bearing a floating rate |
100 | % | ||
Percentage of performing debt bearing a fixed rate |
| % | ||
Weighted average yield on debt and other income producing investments (at fair value)1 |
7.9 | % |
1 | Weighted average yield is calculated by weighing the effective yield of each investment by fair value. Effective yield includes interest income, amortization of premiums and loan origination fees, accretion of discounts, and prepayment premiums, but excludes non-recurring income such as capital structuring fees. |
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Table of Contents
The following table presents the maturity schedule of our debt investments, excluding unfunded portfolio company commitments, based on fair value as of March 31, 2021 and December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||||||||||||
Maturity Year |
Fair Value | Percentage of Portfolio |
Fair Value | Percentage of Portfolio |
||||||||||||
2021 |
| | | | ||||||||||||
2022 |
| | | | ||||||||||||
2023 |
| | | | ||||||||||||
2024 |
| | | | ||||||||||||
2025 |
$ | 37,499,063 | 22.9 | $ | 4,499,537 | 31.4 | ||||||||||
2026 |
39,400,000 | 24.1 | | | ||||||||||||
2027 |
76,702,866 | 46.9 | 9,825,450 | 68.6 | ||||||||||||
2028 |
| | | | ||||||||||||
2029 |
10,043,800 | 6.1 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 163,645,729 | 100.0 | % | $ | 14,324,987 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
The following table presents the amortized cost and fair value of our performing and non-accrual investments as of March 31, 2021 and December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||||||||||||
Amortized Cost | Percentage | Amortized Cost |
Percentage | |||||||||||||
Performing |
$ | 163,406,597 | 100.0 | % | $ | 14,327,196 | 100.0 | % | ||||||||
Non-accrual |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 163,406,597 | 100.0 | % | $ | 14,327,196 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
March 31, 2021 | December 31, 2020 | |||||||||||||||
Fair Value | Percentage | Fair Value | Percentage | |||||||||||||
Performing |
$ | 163,645,729 | 100.0 | % | $ | 14,324,987 | 100.0 | % | ||||||||
Non-accrual |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 163,645,729 | 100.0 | % | $ | 14,324,987 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
30
Table of Contents
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon managements judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in managements judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
The Adviser believes that actively managing an investment allows it to identify problems early and work with companies to develop constructive solutions when necessary. The Adviser will monitor our portfolio with a focus toward anticipating negative credit events. In seeking to maintain portfolio company performance and help to ensure a successful exit, the Adviser will work closely with, as applicable, the lead equity sponsor, portfolio company management, consultants, advisers and other security holders to discuss financial position, compliance with covenants, financial requirements and execution of the companys business plan. In addition, the Advisers personnel may occupy a seat or serve as an observer on a portfolio companys board of directors or similar governing body.
Typically, the Company will receive financial reports detailing operating performance, sales volumes, margins, cash flows, financial position and other key operating metrics typically on a quarterly basis from portfolio companies. The Company will use this data, combined with the knowledge gained through due diligence of the companys customers, suppliers, competitors, market research and other methods, to conduct an ongoing assessment of the companys operating performance and prospects.
Results of Operations
The following table presents the operating results for the three months ended March 31, 2021:
Three Months Ended March 31, 2021 |
||||
Total investment income |
$ | 2,497,344 | ||
Less: total expenses |
1,449,219 | |||
|
|
|||
Net investment income (loss) |
1,048,125 | |||
Net change in unrealized appreciation (depreciation) on investments |
241,341 | |||
|
|
|||
Net increase (decrease) in net assets resulting from operations |
$ | 1,289,466 | ||
|
|
Investment Income
Total investment income was $2,497,344 for the three months ended March 31, 2021. Total investment income consisted of interest income from investments, interest from cash and cash equivalents and fee income.
Three Months Ended March 31, 2021 |
||||
Interest income from investments |
$ | 1,456,472 | ||
Interest from cash and cash equivalents |
247 | |||
Fee income |
1,040,625 | |||
|
|
|||
Total investment income |
$ | 2,497,344 | ||
|
|
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Expenses
Operating expenses for the three months ended March 31, 2021 were as follows:
Three Months Ended March 31, 2021 |
||||
Base management fees |
$ | 287,825 | ||
Interest and credit facility fees |
404,468 | |||
Offering costs |
96,029 | |||
Professional fees |
554,448 | |||
Directors fees |
93,125 | |||
Insurance expenses |
13,324 | |||
|
|
|||
Total expenses |
$ | 1,449,219 | ||
|
|
Under the Administration Agreement, we will reimburse the Administrator for all reasonable costs and expenses incurred for services performed for us. In addition, the Administrator is permitted to delegate its duties under the Administration Agreement to affiliates or third parties, and we will reimburse the expenses of these parties incurred directly and/or paid by the Administrator on the Companys behalf. The Adviser can waive any amounts owed to it under the Administration Agreement, at its discretion.
For the three months ended March 31, 2021, the Company incurred $116,548 of administrative overhead expenses that were payable to the Administrator as of March 31, 2021. For the three months ended March 31, 2021, the Administrator has elected to waive additional charges that would have otherwise been eligible for reimbursement under the terms of the Administration Agreement which are not subject to recoupment.
Income Taxes, Including Excise Taxes
We intend to elect to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, we must, among other things, distribute to our shareholders in each taxable year generally at least 90% of the sum of our investment company taxable income, as defined by the Code (without regard to the deduction for dividends paid), and net tax-exempt income for that taxable year. To maintain our tax treatment as a RIC, we, among other things, intend to make the requisite distributions to our stockholders, which generally relieve us from corporate-level U.S. federal income taxes.
Net Unrealized Appreciation on Investments
We determine the fair value our portfolio investments quarterly and any changes in fair value are recorded as unrealized appreciation or depreciation. During the three months ended March 31, 2021, net unrealized appreciation on our investment portfolio was comprised of the following:
Three Months Ended | ||||
March 31, 2021 | ||||
Net change in unrealized appreciation (depreciation): |
$ | 241,341 | ||
|
|
|||
Total net change in unrealized appreciation (depreciation) |
$ | 241,341 | ||
|
|
32
Table of Contents
Financial Condition, Liquidity and Capital Resources
The Company intends to generate further cash from (1) future offerings of the Companys common or preferred stock, (2) cash flows from operations and (3) borrowings from banks or other lenders. The Company will seek to enter into bank debt, credit facility or other financing arrangements on at least customary market terms; however, the Company cannot assure you it will be able to do so.
The Companys primary use of cash will be for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including paying the Adviser), (3) debt service of any borrowings and (4) cash distributions to the holders of the Companys stock.
Equity
Subscriptions and Drawdowns
On November 17, 2020, the Adviser committed to contribute $1,000 of capital to the Company. In exchange for this contribution, the Adviser received 50 shares of the Companys common stock, par value $0.001 per share (the Common Stock).
Since inception, the Company has completed the following share issuances:
Common Share Issuance Date |
Number of Common Shares Issued |
Aggregate Offering Price | ||||||
March 30, 2021 |
3,687,064 | $ | 71,877,447 | |||||
February 26, 2021 |
1,429,493 | 28,121,553 | ||||||
February 4, 2021 |
1,545,776 | 30,000,000 | ||||||
December 24, 2020 |
744,307 | 14,886,136 | ||||||
December 21, 2020 |
505,693 | 10,113,864 | ||||||
November 17, 2020 |
50 | 1,000 | ||||||
|
|
|
|
|||||
Total |
7,912,383 | $ | 155,000,000 | |||||
|
|
|
|
The sales of Common Stock were made pursuant to subscription agreements entered into by the Company and its investors. Under the terms of the subscription agreements, investors are required to fund drawdowns to purchase shares of Common Stock up to the amount of their respective capital commitments on an as-needed basis with a minimum of ten business days prior notice to the funding date.
Each of the sales of Common Stock is exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder. The Company has not engaged in general solicitation or advertising with regard to the issuance and sale of the Common Stock and has not offered securities to the public in connection with such issuance and sale. The Company relied, in part, upon representations from the investors in the subscription agreements that each investor was an accredited investor as defined in Regulation D under the Securities Act.
Debt
Revolving Credit Facility
March 31, 2021 | ||||||||||||||||
Aggregate Principal Committed | Outstanding Principal | Amount Available | Net Carrying Value | |||||||||||||
Revolving Credit Facility |
$ | 125,000,000 | $ | 105,000,000 | $ | 20,000,000 | $ | 104,584,773 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 125,000,000 | $ | 105,000,000 | $ | 20,000,000 | $ | 104,584,773 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2020 | ||||||||||||||||
Aggregate Principal Committed | Outstanding Principal | Amount Available | Net Carrying Value | |||||||||||||
Revolving Credit Facility |
$ | 125,000,000 | $ | 17,000,000 | $ | 108,000,000 | $ | 16,464,016 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 125,000,000 | $ | 17,000,000 | $ | 108,000,000 | $ | 16,464,016 | ||||||||
|
|
|
|
|
|
|
|
33
Table of Contents
Effective as of December 29, 2020 (the Closing Date), the Company entered into a Revolving Credit Agreement by and among, inter alios, the Company as the initial borrower, the lenders from time to time party thereto (collectively, the Lenders) and Capital One, National Association, as the administrative agent (the Administrative Agent), sole lead arranger and a Lender.
The Revolving Credit Agreement provides for a maximum commitment of up to $200,000,000 for a period of up to two years (including extension terms) from the Closing Date subject to the terms set forth in the Revolving Credit Agreement. Under the Revolving Credit Agreement, an unused commitment fee at the rate of 0.35% per annum on the unused portion of the commitment of the Lenders is payable by the Company to the Administrative Agent.
The proceeds of the loans under the Revolving Credit Agreement may be used to acquire portfolio investments and such other uses as permitted under the Revolving Credit Agreement. At the Companys option, the Revolving Credit Agreement will accrue interest at a rate per annum based on (i) an adjusted LIBOR rate plus an applicable margin of 1.75% or (ii) the greatest of (1) the prime rate plus an applicable margin of 0.75%, (2) the federal funds effective rate plus 0.5% plus an applicable margin of 0.75% or (3) daily LIBOR plus an applicable margin of 1.75%.
The maturity date is the earliest of: (a) December 29, 2021; (b) the date upon which the Administrative Agent declares the Companys obligations under the Revolving Credit Agreement (the Obligations) due and payable after the occurrence of an event of default under the Revolving Credit Agreement; (c) 45 days prior to the termination of the Companys Operative Documents (as defined in the Revolving Credit Agreement); (d) 45 days prior to the date on which the Companys ability to call capital commitments for the purpose of repaying the Obligations is terminated, and (e) the date upon which the Company terminates the commitments of the Lenders pursuant to Section 3.6 of the Revolving Credit Agreement or otherwise.
The Revolving Credit Agreement includes customary covenants as well as usual and customary events of default for revolving credit facilities of this nature.
On April 1, 2021, the Company executed a letter agreement (the Amendment) to amend its Revolving Credit Agreement. The Amendment increased the maximum borrowing capacity of the Company under the Revolving Credit Agreement to $200 million from $125 million.
Liquidity
Operating liquidity is our ability to meet our short-term liquidity needs. The following table presents our operating liquidity position as of March 31, 2021 and December 31, 2020:
As of | ||||||||
March 31, 2021 | December 31, 2020 | |||||||
Cash and cash equivalents |
$ | 96,429,608 | $ | 27,127,738 | ||||
Unused borrowing capacity |
20,000,000 | 108,000,000 | ||||||
Unfunded portfolio company commitments |
(35,962,331 | ) | (17,796,436 | ) | ||||
Undrawn capital commitments |
917,492,792 | 691,895,152 | ||||||
|
|
|
|
|||||
Total operational liquidity |
$ | 997,960,069 | $ | 809,226,454 | ||||
|
|
|
|
34
Table of Contents
Commitments and Off-Balance Sheet Arrangements
Litigation and Regulatory Matters
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 Companys rights under contracts with the Companys portfolio companies. The Company and the Adviser are not currently a party to any material legal proceedings.
Unfunded Portfolio Company Commitments
From time to time, the Company may enter into commitments to fund investments. As of March 31, 2021 and December 31, 2020, the Company had the following unfunded portfolio company commitments under loan and financing agreements:
March 31, 2021 | December 31, 2020 | |||||||||
Portfolio Company |
Type of Investment |
Par | Par | |||||||
GovDelivery Holdings, LLC |
First Lien Delayed Draw Term Loan | $ | 6,034,517 | $ | | |||||
GovDelivery Holdings, LLC |
First Lien Revolving Loan | 2,413,807 | | |||||||
MB2 Dental Solutions, LLC |
First Lien Delayed Draw Term Loan | 3,545,131 | | |||||||
TA/WEG Intermediate Holdings, LLC |
First Lien Delayed Draw Term Loan | 14,509,416 | 17,796,436 | |||||||
Tempus, LLC |
First Lien Delayed Draw Term Loan | 5,675,676 | | |||||||
Tempus, LLC |
First Lien Term Loan | 3,783,784 | | |||||||
|
|
|
|
|||||||
Total Par |
$ | 35,962,331 | $ | 17,796,436 | ||||||
|
|
|
|
We believe that we maintain sufficient liquidity in the form of cash, financing capacity and undrawn capital commitments from our investors to cover any outstanding unfunded portfolio company commitments we may be required to fund.
Investor Commitments
As of March 31, 2021, the Company has received capital commitments totaling $1,072.5 million, of which, $917.5 million remains available.
Contractual Obligations
Our payment obligations for repayment of debt, which total our contractual obligations on March 31, 2021, include $105,000,000 of financing under the Revolving Credit Agreement maturing in less than one year.
Payments Due by Period | ||||||||||||||||||||
Total | Less Than 1 Year |
1 - 3 Years |
3 - 5 Years |
More Than 5 Years |
||||||||||||||||
Revolving Credit Facility |
$ | 105,000,000 | $ | 105,000,000 | $ | | $ | | $ | |
35
Table of Contents
Hedging
In connection with certain portfolio investments, the Company may employ hedging techniques designed to reduce the risk of adverse movements in interest rates, securities prices and currency exchange rates. While such transactions may reduce certain risks, such transactions themselves may entail certain other risks. Thus, while the Company may benefit from the use of these hedging mechanisms, unanticipated changes in interest rates, securities prices, currency exchange rates and other factors may result in a poorer overall performance for the Company than if it had not entered into such hedging transactions. The successful utilization of hedging and risk management transactions requires skills that are separate from the skills used in selecting and monitoring investments.
Critical Accounting Policies
This discussion of the Companys operating plan is based upon the Companys financial statements, which are prepared in accordance with GAAP. The preparation of these financial statements requires the Companys management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, the Company describes its critical accounting policies in the notes to the Companys financial statements.
Valuation of Investments
The Company will measure the value of the Companys investments in accordance with fair value accounting guidance promulgated under GAAP, which establishes a hierarchical disclosure framework which ranks the observability inputs used in measuring financial instruments at fair value. See the Notes to Financial Statements for a description of the hierarchy for fair value measurements and a description of the Companys valuation procedures.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Investment transactions are recorded on the trade date. The Company will measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation and depreciation, when gains or losses are realized.
Revenue Recognition
The Company records interest income on an accrual basis to the extent that the Company expects to collect such amounts. The Company does not accrue as a receivable interest on loans and debt securities for accounting purposes if the Company has reason to doubt the Companys ability to collect such interest. OIDs, market discounts or premiums are accreted or amortized over the life of the respective security using the effective interest method as interest income. The Company records prepayment premiums on loans and debt securities as interest income.
Other Income
Other income may include income such as consent, waiver, amendment, unused, syndication and prepayment fees associated with the Companys investment activities as well as any fees for managerial assistance services rendered by the Company to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees are amortized into other income over the life of the guarantee.
Offering and Organizational Expenses
The Company has and will continue to bear expenses relating to the organization of the Company and this Private Offering and any subsequent offering of Common Stock, including an Exchange Listing. Organizational expenses include, without limitation, the cost of incorporation, including legal fees related to the creation and organization of the Company, its related documents of organization and its election to be regulated as a BDC. Offering expenses include, without limitation, legal, accounting, printing and other offering costs including those associated with the preparation of a registration statement in connection with any subsequent offering of Common Stock. The Adviser has agreed to bear the
36
Table of Contents
aggregate organizational and offering costs in connection with the Private Offering in excess of $1,250,000. Organizational costs to establish the Company are charged to expense as incurred. These expenses consist primarily of legal fees and other costs of organizing the Company. Offering costs in connection with the offering of common shares of the Company are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months beginning with the latter of either the commencement of operations or from incurrence. These expenses consist primarily of legal fees and other costs incurred with Companys share offerings, the preparation of the Companys registration statement, and registration fees.
U.S. Federal Income Taxes
The Company intends to elect to be taxed as a RIC under Subchapter M of the Code. As a RIC, the Company generally will not be subject to corporate-level U.S. federal income taxes on any ordinary income or capital gains distributed to shareholders. To qualify as a RIC, the Company must maintain an election under the 1940 Act to be regulated as a BDC, meet specified source-of-income and asset diversification requirements as well as distribute each taxable year dividends for U.S. federal income tax purposes generally of an amount at least equal to 90% of the Companys investment company taxable income, which is generally the Companys net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses and determined without regard to any deduction for dividends paid. See Note 11. Taxes.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The Company is subject to financial market risks, including changes in interest rates. The Company plans to invest primarily in illiquid debt securities of private companies. Most of the Companys investments will not have a readily available market price, and the Company will value these investments at fair value as determined in good faith by the Board in accordance with the Companys 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 the Company makes.
Item 4. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
As of March 31, 2021 (the end of the period covered by this report), our management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Principal Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b) Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements.
37
Table of Contents
Management performed an assessment of the effectiveness of the Companys internal control over financial reporting as of March 31, 2021 based upon the criteria in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on managements assessment, management determined that the Companys internal control over financial reporting was effective as of March 31, 2021.
Due to the Companys status as an emerging growth company under the JOBS Act, the Company was not required to obtain an attestation report from the Companys independent registered public accounting firm on the Companys internal control over financial reporting as of March 31, 2021.
(c) Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-af(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings |
Neither we nor the Adviser are currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us or the Adviser. From time to time, we or the Adviser may be a 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 these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. | Risk Factors |
With the exception of the below risk factors, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 30, 2021.
Recent Developments
None
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended March 31, 2021, the Company had further common stock issuances, as detailed in the following table. These issuances of the shares of common stock were exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof.
Date |
Shares issued and sold | Aggregate purchase price | ||||||
February 4, 2021 |
1,429,493 | $ | 30,000,000 | |||||
February 26, 2021 |
1,545,776 | $ | 28,121,553 | |||||
March 30, 2021 |
3,687,064 | $ | 71,877,447 |
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosure |
Not applicable.
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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:
(1) | Previously filed as an exhibit to Amendment No. 1 to the Companys registration statement on Form 10 (File No. 000-56209) filed with the SEC on November 25, 2020. |
* | Filed herewith. |
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Pursuant to the requirements 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.
Stone Point Credit Corporation | ||||||
Date: May 14, 2021 | ||||||
By: | /s/ Scott Bronner | |||||
Name: Scott Bronner | ||||||
Title: Principal Executive Officer | ||||||
Date: May 14, 2021 | By: | /s/ Gene Basov | ||||
Name: Gene Basov | ||||||
Title: Principal Financial Officer |
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