Fair value measurements of our investments may involve subjective judgments and estimates and, due to the
uncertainty inherent in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be
materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other
events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other
restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.
Refer to Note 3 Investments for additional information regarding fair value measurements and our application of ASC 820.
Interest Income Recognition
Interest income, adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the
accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we
will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain
contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid and, in managements judgment, are likely to remain current, or, due to a
restructuring, the interest income is deemed to be collectible. As of December 31, 2019, certain of our loans to Meridian Rack & Pinion, Inc. (Meridian), The Mountain Corporation (The Mountain), PSI Molded
Plastics, Inc. (PSI Molded), and SOG Specialty Knives & Tools, LLC (SOG) were on non-accrual status, with an aggregate debt cost basis of $56.4 million, or 13.0% of the
cost basis of all debt investments in our portfolio, and an aggregate fair value of $25.7 million, or 6.4% of the fair value of all debt investments in our portfolio. As of March 31, 2019, certain of our loans to B-Dry, LLC (B-Dry), Meridian, The Mountain, PSI Molded, and SOG were on non-accrual status, with an aggregate debt cost
basis of $68.3 million, or 15.4% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $21.9 million, or 5.4% of the fair value of all debt investments in our portfolio.
Paid-in-kind (PIK) interest, computed at the contractual rate
specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. As of December 31, 2019 and March 31, 2019, we did not have any loans with a PIK interest component.
Success Fee Income Recognition
We record success fees as
income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale, and are
Dividend Income Recognition
We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to
collect such amounts in cash or other consideration. During the three months ended December 31, 2018, we recharacterized $0.6 million of dividend income from our investment in Logo Sportswear, Inc. (Logo), which was originally
recorded during our fiscal year ended March 31, 2018, as a return of capital.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents are generally cash and cash equivalents held in escrow received as part of an investment exit. Restricted cash and cash
equivalents are carried at cost, which approximates fair value.
Deferred Financing and Offering Costs
Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees and legal fees. Certain costs associated with our
revolving line of credit are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our mandatorily redeemable
preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the respective
series of preferred stock. Refer to Note 5 Borrowings and Note 6 Mandatorily Redeemable Preferred Stock for further discussion.