UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

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

For the fiscal year ended December 31, 2019

or

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

Commission file number: 000-55746

 

 

Goldman Sachs Middle Market Lending Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		81-2506508
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
200 West Street, New York, New York		10282
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (212) 902-0300

Not Applicable

Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		None		None

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

Common Stock, $0.001 per share

(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒

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

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

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

 

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

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

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

As of June 30, 2019, there was no established public market for the registrant’s common stock. The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of February 27, 2020 was 53,844,947.

 

 

 

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GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

Index to Annual Report on Form 10-K for

The fiscal year ended December 31, 2019

 

				PAGE
		Cautionary Statement Regarding Forward-Looking Statements			3
PART I.					4
ITEM 1.		Business			4
ITEM 1A.		Risk Factors			30
ITEM 1B.		Unresolved Staff Comments			58
ITEM 2.		Properties			58
ITEM 3.		Legal Proceedings			58
ITEM 4.		Mine Safety Disclosures			58
PART II.					59
ITEM 5.		Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			59
ITEM 6.		Selected Financial Data			61
ITEM 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			62
ITEM 7A.		Quantitative and Qualitative Disclosures About Market Risk			78
ITEM 8.		Consolidated Financial Statements and Supplementary Data			79
ITEM 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			119
ITEM 9A.		Controls and Procedures			119
ITEM 9B.		Other Information			119
PART III.					119
ITEM 10.		Directors, Executive Officers and Corporate Governance			119
ITEM 11.		Executive Compensation			125
ITEM 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			125
ITEM 13.		Certain Relationships and Related Transactions, and Director Independence			126
ITEM 14.		Principal Accounting Fees and Services			128
PART IV.					130
ITEM 15.		Exhibits, Financial Statement Schedules			130
ITEM 16.		Form 10-K Summary			133

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “target,” “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. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors” in this annual report on Form 10-K, as well as any cautionary language in this report, 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. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operations and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Under Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in periodic reports we file under the Exchange Act, such as this annual report on Form 10-K.

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;

•

uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;

•

our business prospects and the prospects of our portfolio companies;

•

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 current and prospective portfolio companies to achieve their objectives;

•

the relative and absolute performance of Goldman Sachs Asset Management, L.P., the investment adviser (the “Investment Adviser”) of the Company;

•

the use of borrowed money to finance a portion of our investments;

•

our ability to make distributions;

•

the adequacy of our cash resources and working capital;

•

changes in interest rates, including the decommissioning of LIBOR;

•

the timing of cash flows, if any, from the operations of our portfolio companies;

•

the impact of future acquisitions and divestitures;

•

the effect of changes in tax laws and regulations and interpretations thereof;

•

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

•

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

•

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

•

the impact on our business from new or amended legislation or regulations;

•

the availability of credit and/or our ability to access the equity and capital markets;

•

currency fluctuations, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars;

•

the ability of the parties to consummate the Merger (as defined below) on the expected timeline, or at all;

•

the ability to realize the anticipated benefits of the proposed Merger;

 

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•

the effects of disruption on our business from the proposed Merger;

•

the combined company’s plans, expectations, objectives and intentions, as a result of the Merger; and

•

any potential termination of the Merger Agreement (as defined below) or action of our stockholders or the stockholders of Goldman Sachs BDC, Inc. (“GS BDC”) with respect to any proposed transaction.

PART I.

Unless indicated otherwise in this Annual Report on Form 10-K or the context so requires, the terms “MMLC,” “Company,” “we,” “us” or “our” refer to Goldman Sachs Middle Market Lending Corp. The terms “GSAM,” our “adviser” or our “Investment Adviser” refer to Goldman Sachs Asset Management, L.P., a Delaware limited partnership. The term “Group Inc.” refers to The Goldman Sachs Group, Inc. The term “Goldman Sachs” refers to Group Inc., together with Goldman Sachs & Co. LLC (including its predecessors, “GS & Co.”), GSAM and its other subsidiaries and affiliates. Goldman Sachs advises clients in all markets and transactions and purchases, sells, holds and recommends a broad array of investments for its own accounts and for the accounts of clients and of its personnel, through client accounts and the relationships and products it sponsors, manages and advises (such Goldman Sachs or other client accounts (including us, GS BDC, Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”) and Goldman Sachs Private Middle Market Credit II LLC (“GS PMMC II”)), relationships and products, collectively, the “Accounts”).

 

ITEM 1.    BUSINESS

The Company

We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, we have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2017. From our commencement of operations on January 11, 2017 through December 31, 2019, we have originated $2.21 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

“Unitranche” loans are first lien loans that may extend deeper in a company’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, we may find another lender to provide the “first out” portion of such loan and retain the “last out” portion of such loan, in which case, the “first out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last out” portion that we would continue to hold. In exchange for the greater risk of loss, the “last out” portion generally earns a higher interest rate than the “first-out” portion. We use the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. We may make multiple investments in the same portfolio company.

We invest primarily in U.S. middle-market companies, which we believe are underserved by traditional providers of capital such as banks and the public debt markets. In describing our business, we generally use the term “middle-market companies” to refer to companies with earnings before interest, taxes, depreciation and amortization (“EBITDA”) excluding certain one-time and non-recurring items that are outside the operations of these companies of between $5 million and $125 million annually. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to us, unless, to the extent required by applicable law or exemptive relief therefrom, we only receive our allocable portion of such fees when invested in the same portfolio company as other Accounts. The companies in which we invest use our capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or refinance indebtedness.

Pending Merger with GS BDC

On December 9, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GS BDC, a Delaware corporation, Evergreen Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of GS BDC (“Merger Sub”), and GSAM, a Delaware limited partnership. The Merger Agreement provides that, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into us, with us continuing as the surviving company (the “First Merger”) and, immediately thereafter, we will merge with and into GS BDC, with GS BDC continuing as the surviving company (the “Second Merger” and, together with the First Merger, the “Merger”).

Pursuant to the First Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the First Merger will be converted into 0.9939 shares of GS BDC’s common stock (the “Exchange Ratio”) in connection with the closing of the Merger (other than certain excluded shares as described in the Merger Agreement) (the “Merger Consideration”). The Exchange Ratio will only be adjusted if, between the date of the Merger Agreement and the effective time, (i) either we or GS

 

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BDC declare or pay an extraordinary dividend, or (ii) the respective outstanding shares of GS BDC’s common stock (“GS BDC Common Stock”) or our common stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, other than shares issued pursuant to GS BDC’s distribution reinvestment plan, as permitted by the Merger Agreement. No fractional shares of GS BDC Common Stock will be issued, and holders of our common stock will receive cash in lieu of fractional shares.

The directors of GS BDC immediately prior to the First Merger will remain the directors of GS BDC and will hold office until their respective successors are duly elected and qualify, or their earlier death, resignation or removal. Notwithstanding the foregoing, upon the consummation of the Merger, (i) the GS BDC board of directors (the “GS BDC Board”) will expand the size of the GS BDC Board to eight (8) directors and will appoint our independent directors (the “MMLC Independent Directors”) as of December 9, 2019 who are also members of our board of directors (the “Board of Directors” or the “MMLC Board”) as of the date of the Closing (the “Closing Date”) to the GS BDC Board (the “MMLC Designated Directors”), and (ii) the MMLC Designated Directors will be apportioned among Class I (to serve until the 2021 annual meeting of stockholders) and Class II (to serve until the 2022 annual meeting of stockholders) of the GS BDC Board. In addition, the GS BDC Board will appoint the chairman of the Audit Committee of MMLC (the “MMLC Audit Committee”) as of the Closing Date to serve as the chairman of the Audit Committee of GS BDC (the “GS BDC Audit Committee”), effective as of the Closing Date. The officers of GS BDC immediately prior to the Merger will remain the officers of GS BDC and will hold office until their respective successors are duly appointed and qualify, or their earlier death, resignation or removal.

The Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of MMLC’s and GS BDC’s businesses during the period prior to the closing of the Merger. MMLC and GS BDC have agreed to convene and hold stockholder meetings for the purpose of obtaining the approvals required of MMLC’s and GS BDC’s stockholders, respectively, and the boards of directors of MMLC and GS BDC have agreed to recommend that their respective stockholders approve the applicable proposals (as described below).

In connection with the transaction, GS BDC will adopt an amended and restated certificate of incorporation (the “Amended and Restated GS BDC Charter”) to be effective upon the closing of the Second Merger (the “Closing”) that will generally restrict all stockholders who received shares of GS BDC Common Stock in the First Merger (the “Affected Stockholders”) from transferring their respective shares for at least 90 days following the date of filing of the Amended and Restated GS BDC Charter (the “Filing Date”), subject to a modified lock-up schedule thereafter. If approved, the Amended and Restated GS BDC Charter would provide that following the Closing, without the prior consent of the GS BDC Board, our stockholders who acquire shares of GS BDC Common Stock in the Merger (each, an “Affected Stockholder”) would not be able to transfer or sell:

 

•

any shares of GS BDC Common Stock acquired by such Affected Stockholder in the Merger for 90 days following the Filing Date, which is expected to be filed on the Closing Date;

 

•

two-thirds of the shares of GS BDC Common Stock acquired by such Affected Stockholder in the Merger for 180 days following the Filing Date; and

 

•

one-third of the shares of GS BDC Common Stock acquired by such Affected Stockholder in the Merger for 270 days following the Filing Date.

The Merger Agreement provides that neither MMLC nor GS BDC may solicit proposals relating to alternative transactions, or, subject to certain exceptions, initiate or participate in discussions or negotiations regarding, or provide information with respect to, any proposal for an alternative transaction. However, each of the MMLC Board and the GS BDC Board may, subject to certain conditions, change its recommendation to the applicable stockholders or, on payment of a termination fee of approximately $20.5 million for GS BDC and $27.8 million for MMLC, terminate the Merger Agreement and enter into an agreement with respect to, in the case of MMLC, a “MMLC Superior Proposal” or, in the case of GS BDC, a “GS BDC Superior Proposal” (each as defined in the Merger Agreement) if it determines in its reasonable good faith judgment, after consultation with its outside legal counsel and on the recommendation of the applicable Special Committee, that the failure to take such action would be reasonably likely to breach its fiduciary duty under applicable law (taking into account any changes to the Merger Agreement proposed by GS BDC or MMLC, as applicable).

Consummation of the Merger, which is currently anticipated to occur during the first half of calendar year 2020, is subject to certain closing conditions, including (a) GS BDC stockholder approval of each of (i) the Merger Agreement, (ii) the Amended and Restated GS BDC Charter, (iii) the issuance of shares of GS BDC Common Stock pursuant to the Merger Agreement, and (iv) the amendment and restatement of the investment management agreement between GS BDC and GSAM, and (b) MMLC stockholder approval of each of (i) the Merger Agreement and (ii) the Amended and Restated GS BDC Charter, and (c) certain other closing conditions

The representations and warranties and covenants set forth in the Merger Agreement have been made only for purposes of such agreement and were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including qualification by confidential disclosures made for purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, the Merger Agreement is included with this filing only to provide investors with information regarding the terms of the Merger Agreement, and not to provide investors with any factual information regarding the parties to the Merger Agreement or their respective businesses.

Available Information

We file with or submit to the SEC periodic and current reports, proxy statements and other information meeting the informational requirements of the Exchange Act. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information filed electronically by us with the SEC. Copies of these reports, proxy and information statements and other information may be obtained by electronic request at the following e-mail address: publicinfo@sec.gov.

 

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Investment Strategy

Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. Our investments typically have maturities between three and ten years and generally range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion.

Investment Portfolio

As of December 31, 2019, our portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.) consisted of the following:

 

		December 31, 2019
Investment Type		Amortized Cost				Fair Value				Percentage of Total Portfolio at Fair Value
		($ in millions)
First Lien/Senior Secured Debt		$	1,272.05			$	1,266.49				75.2	%
First Lien/Last-Out Unitranche			100.83				100.80				6.0
Second Lien/Senior Secured Debt			311.93				294.16				17.5
Preferred Stock			7.20				10.14				0.6
Common Stock			10.38				11.57				0.7
Total Investments		$	1,702.39			$	1,683.16				100.0	%

As of December 31, 2019, our portfolio consisted of 166 investments in 81 portfolio companies across 29 different industries. The largest industries in our portfolio, based on fair value as of December 31, 2019, were Health Care Providers & Services, Software and Health Care Technology, which represented 11.5%, 10.1% and 10.1%, respectively, of our portfolio at fair value.

The geographic composition of our portfolio at fair value as of December 31, 2019 was 95.6% invested in portfolio companies organized in the United States, 2.7% in portfolio companies organized in Canada and 1.7% in portfolio companies organized in Ireland.

As of December 31, 2019, the weighted average yield by asset type of our total portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.), at amortized cost and fair value, was as follows:

 

		December 31, 2019
		Amortized Cost				Fair Value
Weighted Average Yield(1)
First Lien/Senior Secured Debt(2)			8.7	%			8.7	%
First Lien/Last-Out Unitranche(2)(3)			10.1				10.1
Second Lien/Senior Secured Debt(2)			10.7				11.8
Preferred Stock(4)			–				–
Common Stock(4)			–				–
Total Portfolio			9.0	%			9.2	%

 

(1)

The weighted average yield of our portfolio does not represent the total return to our stockholders.

(2)

Computed based on (a) the annual actual interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments as of the reporting date, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

(3)

The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments.

(4)

Computed based on the (a) stated coupon rate, if any, for each income-producing investment, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

The following table presents certain selected information regarding our investment portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.) as of December 31, 2019:

 

		December 31, 2019
Number of portfolio companies			81
Percentage of performing debt bearing a floating rate (1)			100.0	%
Percentage of performing debt bearing a fixed rate (1) (2)			–	%
Weighted average leverage (net debt/EBITDA)(3)			5.9x
Weighted average interest coverage(3)			2.3x
Median EBITDA(3)		$	40.25 million

 

(1)

Measured on a fair value basis. Excludes investments, if any, placed on non-accrual.

(2)

Includes income producing preferred stock investments, if applicable.

(3)

For a particular portfolio company, we calculate the level of contractual indebtedness net of cash (“net debt”) owed by the portfolio company and compare that amount to measures of cash flow available to service the net debt. To calculate net debt, we include debt that is both senior and pari passu to the tranche of debt owned by us but exclude debt that is legally and contractually subordinated in ranking to the debt owned by us. We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual rights of repayment of the tranche of debt owned by us relative to other senior and junior creditors of a portfolio company. We typically calculate cash flow available for debt service at a portfolio company by taking EBITDA for the trailing twelve month period. Weighted average net debt to EBITDA is weighted based on the fair value of our debt investments, excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

 

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For a particular portfolio company, we also calculate the level of contractual interest expense owed by the portfolio company, and compare that amount to EBITDA (“interest coverage ratio”). We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual interest obligations of the portfolio company. Weighted average interest coverage is weighted based on the fair value of our performing debt investments, excluding investments where interest coverage may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

Median EBITDA is based on our debt investments, excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the reported end date. Statistics of the portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount.

As of December 31, 2019, investments where net debt to EBITDA may not be the appropriate measure of credit risk represented 30.4% of total debt investments at fair value.

Floating rates are primarily LIBOR plus a spread.

Corporate Structure and Private Offering

We were formed as a Delaware limited liability company on June 13, 2016 with the name Goldman Sachs Middle Market Lending LLC and were converted to a Delaware corporation on January 30, 2017, at which time our name was changed to Goldman Sachs Middle Market Lending Corp. We have elected to be regulated as a BDC under the Investment Company Act. In addition, we have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2017.

From December 29, 2016 through September 29, 2017, we were engaged in a continuous private offering of shares of our common stock in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). Investors acquiring shares of our common stock in the private offering each entered into a subscription agreement (“Subscription Agreement”) pursuant to which each investor agreed to purchase shares of our common stock for an aggregate purchase price equal to the portion of its requested capital commitment to the Company that is accepted by us (its “Commitment”). Each investor will be required to purchase shares of our common stock (up to the amount of their undrawn Commitment) each time we deliver a drawdown notice to our investors, which will be delivered in respect of such Commitment at least five business days (as defined in Rule 14d-1 of the Exchange Act) (“Business Days”) prior to the required funding date (the “Drawdown Date”). New common stock will be issued on each Drawdown Date.

An affiliate of our Investment Adviser (the “Initial Member”), made a capital contribution to us of one hundred dollars on January 13, 2017 and served as our sole initial member. We began accepting Subscription Agreements on December 29, 2016 (the “Initial Closing Date”), and cancelled the Initial Member’s interest in us on January 30, 2017, the first date on which investors (other than the Initial Member) made their initial capital contribution to purchase stock (the “Initial Drawdown Date”). We held our final closing on September 29, 2017 (the “Final Closing Date”). Subject to certain limited exceptions under the Investment Company Act, on each Drawdown Date, stockholders will be required to purchase shares of our common stock issued at a price equal to our then-current NAV per share as of the end of the most recent calendar month prior to the date of the applicable drawdown notice or issuance date, subject to the limitations of Section 23 under the Investment Company Act (which generally prohibits us from issuing shares of common stock at a price below the then-current NAV of the common stock as determined within 48 hours, excluding Sundays and holidays, of such issuance, subject to certain exceptions).

Stockholders are entitled to receive dividends or other distributions declared by the Board of Directors and are entitled to one vote for each share of common stock held on all matters submitted to a vote of the Stockholders.

As of the date indicated, we had aggregate Commitments and undrawn Commitments from investors as follows:

 

		December 31, 2019
		Capital Commitments ($ in millions)				Unfunded Capital Commitments ($ in millions)				% of Capital Commitments Funded
Common stock		$	1,034.99			$	62.15				94	%

The following table summarizes the total shares issued and proceeds received related to capital drawdowns:

 

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Share Issue Date		Shares Issued				Proceeds Received ($ in millions)
For the Year Ended December 31, 2019
March 25, 2019			4,286,182			$	82.61
June 27, 2019			2,179,196				41.55
December 27, 2019			1,092,225				20.72
Total capital drawdowns			7,557,603			$	144.88
For the Year Ended December 31, 2018
March 26, 2018			2,700,602			$	51.86
June 25, 2018			2,689,865				51.62
September 27, 2018			8,011,747				154.82
December 27, 2018			5,354,207				103.79
Total capital drawdowns			18,756,421			$	362.09
For the period from January 11, 2017 (commencement of operations) to December 31, 2017
January 30, 2017			1,520,857			$	30.42
February 27, 2017			30,240				0.58
March 24, 2017			3,226,393				61.93
April 27, 2017			390,953				7.51
June 26, 2017			5,202,980				100.05
July 27, 2017			4,221,946				80.47
September 25, 2017			4,849,366				93.13
October 27, 2017			2,120,202				40.24
December 26, 2017			2,685,522				51.54
Total capital drawdowns			24,248,459			$	465.87

Investment Period

The investment period commenced on the Initial Closing Date. On August 8, 2019, our board of directors (the “Board of Directors”) extended the investment period for one additional six-month period from September 29, 2019 to March 29, 2020. With the approval of a majority-in-interest of the stockholders, the investment period may be extended for up to one additional year thereafter (such period, including any extensions, the “Investment Period”). In addition, the Board of Directors may terminate the Investment Period at any time in its discretion.

Drawdowns may be issued at any time prior to the expiration of the Investment Period for any permitted purpose, in connection with which shares will be issued as described above.

Following the end of the Investment Period, we will have the right to issue drawdowns only (i) to pay, and/or establish reserves for, actual or our anticipated expenses, liabilities, including the payment or repayment of Financings (as defined below) or other obligations, contingent or otherwise (including the Management Fee), whether incurred before or after the end of the Investment Period, (ii) to fulfill investment commitments made or approved by the Investment Committee (as defined below) prior to the expiration of the Investment Period, (iii) to engage in hedging transactions, or (iv) to make additional investments in existing Portfolio Companies including transactions to hedge interest rate or currency risks related to an additional investment).

“Financings” are indebtedness for borrowed money (including through the issuance of notes and other evidence of indebtedness), other indebtedness, financings or extensions of credit.

Term

If we have not consummated an Exit Event (as defined below), including the Merger, by the sixth anniversary of the Final Closing Date (the “Wind-down Determination Date”), our Board of Directors (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act and the Code) will meet to consider our potential wind down and/or liquidation and dissolution.

“Exit Event” means (i) any listing of the Company’s shares of common stock on a national securities exchange (a “listing”), including in connection with an initial public offering (“IPO”), (ii) merger with another entity, including an affiliated company, subject to any limitations under the Investment Company Act or (iii) the sale of all or substantially all of the assets of the Company.

Repurchase Offers

Our Board of Directors expects to consider, in its discretion, offers to repurchase shares of our common stock in an amount of up to 5% of our outstanding shares of common stock (with the exact amount to be set by our Board of Directors) at the end of each quarter following the expiration of the Investment Period and with such offers ending prior to the time of an Exit Event. If we were to engage in a share repurchase offer, our stockholders would be able to tender their shares at a price per share that reflects our NAV per share as of a recent date. Such offers to repurchase shares of our common stock will be subject to, and conducted in accordance with, the applicable requirements of the Exchange

 

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Act and the Investment Company Act. To the extent any such repurchase may lead to adverse tax, the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or other regulatory consequences for us or our stockholders, our Board of Directors may determine not to proceed with any such share repurchases.

Our Investment Adviser

GSAM serves as our Investment Adviser and has been registered as an investment adviser with the SEC since 1990. Subject to the supervision of our Board of Directors, a majority of which is made up of independent directors (including an independent Chairman), GSAM manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. GSAM is a subsidiary of Group Inc., a public company that is a bank holding company (a “BHC”), financial holding company (a “FHC”) and a world-wide, full-service financial services organization. Group Inc. is the general partner and owner of GSAM. GSAM has been providing financial solutions for investors since 1988 and had over $1.7 trillion of assets under supervision as of December 31, 2019.

The GSAM Private Credit Group

The Private Credit Group of GSAM (the “GSAM Private Credit Group”) is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, negotiating and structuring our investments and monitoring and servicing our investments. The GSAM Private Credit Group was comprised of 25 investment professionals, as of December 31, 2019, all of whom are dedicated to the Company’s investment strategy and other funds that share a similar investment strategy with the Company. The GSAM Private Credit Group sits with a broader team known as the “GSAM Credit Alternatives Team” which has additional responsibilities other than those relating to the Company. In addition, GSAM has risk management, legal, accounting, tax, information technology and compliance personnel, among others, who provide services to us. We benefit from the expertise provided by these personnel in our operations.

The GSAM Private Credit Group is dedicated primarily to private corporate credit investment opportunities in North America and utilizes a bottom-up, fundamental research approach to lending. The senior members of the GSAM Private Credit Group have been working together since 2006 and have an average of over 15 years of experience in leveraged finance and private transactions.

All investment decisions are made by the investment committee of GSAM’s Private Credit Group (the “Investment Committee”), which currently consists of five voting members: Brendan McGovern, Jon Yoder, David Yu, Jordan Walter, and Michael Mastropaolo, as well as three non-voting members with operational and/or legal expertise. The Investment Committee is responsible for approving all of our investments. The Investment Committee also monitors investments in our portfolio and approves all asset dispositions. We expect to benefit from the extensive and varied relevant experience of the investment professionals serving on the Investment Committee, which includes expertise in privately originated and publicly traded leveraged credit, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity. The voting members of the Investment Committee collectively have over 50 years of experience in middle-market investment and activities related to middle-market investing. The membership of the Investment Committee may change from time to time.

Allocation of Opportunities

Our investment objectives and investment strategies are similar to those of other client accounts managed by our Investment Adviser (including the Accounts), and an investment appropriate for us may also be appropriate for those Accounts. This creates potential conflicts in allocating investment opportunities among us and such other Accounts, particularly in circumstances where the availability of such investment opportunities is limited, where the liquidity of such investment opportunities is limited or where co-investments by us and other Accounts are not permitted under applicable law.

We are prohibited by the Investment Company Act from participating in certain transactions with our affiliates without the prior approval of our independent directors (“Independent Directors”) and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of our outstanding voting securities is our affiliate for purposes of the Investment Company Act, and we are generally prohibited from buying or selling any assets from or to, or entering into certain “joint” transactions (which could include investments in the same portfolio company) with such affiliates, absent the prior approval of the Independent Directors. Our Investment Adviser and its affiliates, including persons that control, or are under common control with, us or our Investment Adviser, are also considered our affiliates under the Investment Company Act, and we are generally prohibited from buying or selling any assets from or to, or entering into “joint” transactions with, such affiliates without exemptive relief from the SEC.

Subject to applicable law, we may invest alongside Goldman Sachs and its Accounts. In certain circumstances, negotiated co-investments by us and other Accounts managed by our Investment Adviser may be made only pursuant to an order from the SEC permitting us to do so. Together with our Investment Adviser, GS BDC and GS PMMC, we applied for and received an exemptive order from the SEC that permits us to participate in negotiated co-investment transactions with certain affiliates (including GS BDC, GS PMMC and GS PMMC II), each of whose investment adviser is GSAM. After the date of the exemptive order, co-investments may be made subject to certain conditions, including that co-investments are made in a manner consistent with our investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief, and are allocated fairly among participants. As a result of such order, there could be significant overlap in our investment portfolio and the investment portfolios of GS BDC, GS PMMC and GS PMMC II and/or other funds managed by our Investment Adviser. If our Investment Adviser identifies an investment and we are unable to rely on our exemptive relief for that particular opportunity, our Investment Adviser will be required to determine which Accounts should make the investment at the potential exclusion of other Accounts. In such circumstances, the Investment Adviser will adhere to its investment allocation policy in order to determine the Account to which to allocate the opportunity. The policy provides that our Investment Adviser allocate opportunities through a rotation system or in such other manner as our Investment Adviser determines to be equitable. Accordingly, it is possible that we may not be given the opportunity to participate in investments made by other Accounts.

 

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We may also invest alongside other Accounts advised by our Investment Adviser and its affiliates in certain circumstances where doing so is consistent with applicable law and SEC staff guidance and interpretations. For example, we may invest alongside such Accounts consistent with guidance promulgated by the staff of the SEC permitting us and such other Accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that our Investment Adviser, acting on our behalf and on behalf of its other clients, negotiates no term other than price. We may also invest alongside other Accounts as otherwise permissible under SEC staff guidance and interpretations, applicable regulations and the allocation policy of our Investment Adviser.

To address these potential conflicts, our Investment Adviser has developed allocation policies and procedures that provide that personnel of our Investment Adviser making portfolio decisions for Accounts will make purchase and sale decisions and allocate investment opportunities among Accounts consistent with its fiduciary obligations. To the extent permitted by applicable law, these policies and procedures may result in the pro rata allocation of limited opportunities across eligible Accounts managed by a particular portfolio management team, but in many other cases the allocations reflect numerous other factors as described below. Accounts managed outside of the GSAM Private Credit Group are generally viewed separately for allocation purposes. There will be cases where certain Accounts receive an allocation of an investment opportunity when we do not and vice versa.

In some cases, due to information barriers that are in place, other Accounts may compete with us for specific investment opportunities without being aware that we are competing against each other. Goldman Sachs has a conflicts system in place above these information barriers to identify potential conflicts early in the process and determine if an allocation decision needs to be made. If the conflicts system detects a potential conflict, the legal and compliance departments of Goldman Sachs assess investment opportunities to determine whether a particular investment opportunity is required to be allocated to a particular Account (including us) or is prohibited from being allocated to a particular Account. Subject to a determination by the legal and compliance departments (if applicable), portfolio management teams are then charged with ensuring that investment opportunities are allocated to the appropriate Account.

Personnel of our Investment Adviser involved in decision-making for Accounts may make allocation related decisions for us and other Accounts by reference to one or more factors, including: the Account’s portfolio and its investment horizons, objectives, guidelines and restrictions (including legal and regulatory restrictions); strategic fit and other portfolio management considerations, including different desired levels of investment for different strategies; the expected future capacity of the applicable Accounts; limits on our Investment Adviser’s brokerage discretion; cash and liquidity considerations; and the availability of other appropriate investment opportunities. Suitability considerations, reputational matters and other considerations may also be considered. The application of these considerations may cause differences in the performance of different Accounts that have similar strategies. In addition, in some cases our Investment Adviser may make investment recommendations to Accounts where the Accounts make the investment independently of our Investment Adviser, which may result in a reduction in the availability of the investment opportunity for other Accounts (including us) irrespective of our Investment Adviser’s policies regarding allocation of investments. Additional information about our Investment Adviser’s allocation policies is set forth in Item 6 (“Performance-based Fees and Side-by-Side Management—Side-by-Side Management of Advisory Accounts; Allocation of Opportunities”) of our Investment Adviser’s Form ADV.

Our Investment Adviser, including the GSAM Credit Alternatives Team, may, from time to time, develop and implement new trading strategies or seek to participate in new investment opportunities and trading strategies. These opportunities and strategies may not be employed in all Accounts or may be employed pro rata among Accounts, even if the opportunity or strategy is consistent with the objectives of such Accounts.

During periods of unusual market conditions, our Investment Adviser may deviate from its normal trade allocation practices. For example, this may occur with respect to the management of unlevered and/or long-only Accounts that are typically managed on a side-by-side basis with levered and/or long-short Accounts.

We may or may not receive opportunities referred by Goldman Sachs businesses and affiliates, but in no event do we have any rights with respect to such opportunities. Subject to applicable law, including the Investment Company Act, such opportunities or any portion thereof may be offered to other Accounts, Goldman Sachs, all or certain investors in us, or such other persons or entities as determined by Goldman Sachs in its sole discretion. We will have no rights and will not receive any compensation related to such opportunities. Certain of such opportunities may be referred to us by employees or other personnel of GS & Co., or by third-parties. If we invest in any such opportunities, GS & Co. or such third-parties may be entitled, to the extent permitted by applicable law, including the limitations set forth in Section 57(k) of the Investment Company Act, to compensation from us or from the borrowers in connection with such investments. Any compensation we pay in connection with such referrals will be an operating expense and will accordingly be borne by us (and will not serve to offset any Management Fee or Incentive Fee payable to the Investment Adviser).

In connection with certain of our investments, following our Investment Adviser’s determination that the appropriate portion of an applicable investment opportunity has been offered to us and other Accounts in accordance with the Investment Adviser’s allocation policy and applicable legal requirements, including the Investment Company Act and, if applicable, the terms of the SEC exemptive order on co-investments disclosed herein (collectively, “Applicable Law”), we and/or our Investment Adviser may have the opportunity to offer all or a portion of the excess amounts of such investment opportunity to other persons or entities. These opportunities include, for example, where our Investment Adviser has determined that while it is in our best interests to acquire the full amount of an investment available to it if the alternative is to not make the investment at all, it is further in our best interests, due to diversification, portfolio management, leverage management, investment profile, risk tolerance or other exposure guidelines or limitations, cash flow or other considerations, for us to hold less economic exposure to the investment than such full amount. Subject to Applicable Law, such opportunities may be structured as an investment alongside us or as a purchase of a portion of the investment from us (through a syndication, participation or otherwise).

In all cases, subject to Applicable Law, our Investment Adviser has broad discretion in determining to whom and in what relative amounts to offer such opportunities, and factors our Investment Adviser may take into account, in its sole discretion, include whether such potential recipient is able to assist or provide a benefit to us in connection with the potential transaction or otherwise, whether our Investment Adviser believes the potential recipient is able to execute a transaction quickly, whether the potential recipient is expected to provide expertise or other advantages in connection with a particular investment, whether our Investment Adviser is aware of such potential recipient’s expertise or interest in these types of opportunities generally or in a subset of such opportunities or, the potential recipient’s target investment sizing. Recipients of these opportunities may, in accordance with Applicable Law, include one or more investors in us, one or more investors in other funds managed by the GSAM Credit Alternatives Team, clients or potential clients of Goldman Sachs, or funds or accounts established for any such persons. These opportunities may give rise to potential conflicts of interest. These

 

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opportunities will be offered to the recipients thereof on such terms as our Investment Adviser determines in its sole discretion, subject to Applicable Law, including on a no-fee basis or at prices higher or lower than those paid by us. As a result of these and other reasons, returns with respect to an opportunity may exceed investors’ returns with respect to our investment in the same opportunity.

For a further explanation of the allocation of opportunities and other conflicts and the risks related thereto, please see “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—Potential conflicts of interest with other businesses of Goldman Sachs could impact our investment returns.”

Market Opportunity

The GSAM Private Credit Group believes there is an attractive investment opportunity to invest in U.S. middle-market companies. Specifically:

 

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The middle-market represents a large target market opportunity. According to the National Center for the Middle Market and the CIA World Factbook, the U.S. middle market is comprised of approximately 200,000 companies that represent approximately 33% of the private sector gross domestic product, employing approximately 47.9 million people.1 The GSAM Private Credit Group believes that there is an attractive investment environment for us to provide loans to U.S. middle market companies.

 

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There have been secular changes in ownership structures of middle-market companies. The GSAM Private Credit Group has observed a transformation in the ownership structures of private and public companies. The number of U.S. private-equity companies is at its highest level since 2000. Conversely, the number of listed U.S. domestic companies has dramatically declined over the same time period, yet the average market capitalization of listed U.S. companies has grown. The GSAM Private Credit Group believes that this has resulted in a shift in the ownership of middle-market companies and thus creating a larger market opportunity for us to provide debt capital to the companies that we expect to target.

 

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There is a large amount of un-invested private equity capital for middle-market companies. There is a large amount of un-invested private equity capital for North America buyout funds. The GSAM Private Credit Group believes this creates additional capacity for us as the GSAM Private Credit Group expects private equity firms will seek to leverage their investments by combining equity capital with debt capital.

 

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Changes in business strategy by banks have further reduced the supply of capital to middle-market companies. The trend of consolidation of regional banks into money center banks has reduced the focus of these businesses on middle-market lending. Money center banks traditionally focus on lending and providing other services to large corporate clients to whom they can deploy larger amounts of capital more efficiently. The GSAM Private Credit Group believes that this has resulted in fewer bank lenders to U.S. middle-market companies and reduced the availability of debt capital to the companies that we expect to target.

 

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The capital markets have been unable to fill the void in middle-market finance left by banks. While underwritten bond and syndicated loan markets have been robust in recent years, middle-market companies are rarely able to access these markets as participants are generally highly focused on the liquidity characteristics of the bond or loan being issued. For example, mutual funds and exchange traded funds (“ETFs”) are significant buyers of underwritten bonds and broadly syndicated loans. However, mutual funds and ETFs generally require the ability to liquidate their investments quickly in order to fund investor redemptions. Accordingly, the existence of an active secondary market for their investments is an important consideration in the initial investment decision. Because there is typically no active secondary market for the debt of U.S. middle-market companies, mutual funds and ETFs generally do not provide capital to U.S. middle-market companies. The GSAM Private Credit Group believes that this is likely to be a persistent problem for the capital markets and creates an advantage for investors like us who have a more stable capital base and can therefore invest in illiquid assets.

 

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It is difficult for new lending platforms to enter the middle market and fill the capital void because it is very fragmented. While the middle market is a very large component of the U.S. economy, it is a highly fragmented space with thousands of companies operating in many different geographies and industries. Typically, companies that need capital find lenders and investors based on pre-existing relationships, referrals and word of mouth. Developing the many relationships and wide-spread recognition required to become source of capital to the middle market is a time consuming, highly resource-intensive endeavor. As a result, the GSAM Private Credit Group believes that it is difficult for new lending platforms to successfully enter the middle market, thereby providing insulation from rapid shifts in the supply of capital to the middle market that might otherwise disrupt pricing of capital.

Competitive Advantages

The Goldman Sachs Platform: Group Inc. is a leading global financial institution that provides a wide range of financial services to a substantial and diversified client base, including companies and high net worth individuals, among others. The firm is headquartered in New York, and maintains offices across the United States and in all major financial centers around the world. Group Inc.’s asset management subsidiary, GSAM, is one of the world’s leading investment managers with 698 investment professionals and approximately $1.7 trillion in assets under supervision as of December 31, 2019². GSAM’s investment teams, including the GSAM Private Credit Group, capitalize on the relationships, market insights, risk management expertise, technology and infrastructure of Goldman Sachs. The GSAM Private Credit Group believes the Goldman Sachs platform delivers a meaningful competitive advantage in the following ways:

 

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Estimate for 2019 by the National Center for the Middle Market, which defined middle market as companies with annual revenue of $10 million—$1 billion. See http://www.middlemarketcenter.org (relying on data from the CIA World Factbook, available at https://www.cia.gov/library/publications/the-world-factbook/).

 

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2	Assets Under Supervision (AUS) includes assets under management and other client assets for which Goldman Sachs does not have full discretion.

 

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Origination of Investment Opportunities: Goldman Sachs has a preeminent network of relationships and the ability to provide valued intellectual, as well as financial, capital to middle-market borrowers which the GSAM Private Credit Group believes significantly enhances its origination capability. The GSAM Private Credit Group believes that many borrowers prefer to do business with Goldman Sachs and its advised funds because of its ability to offer further services to middle-market companies as they grow in their life cycle, including financial advice, acquisition opportunities and capital markets expertise. The GSAM Private Credit Group is also able to leverage the Goldman Sachs platform to provide borrowers with access to Goldman Sachs’ broad client network, which can be utilized to find new customers and partners as they seek to grow and execute their strategic plans.

 

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Evaluation of Investment Opportunities: The GSAM Private Credit Group is comprised of seasoned professionals with significant private credit investing experience. The team draws on a diverse array of skill sets, spanning fundamental credit and portfolio management, as well as legal and transactional structuring expertise. The GSAM Private Credit Group is trained in, and utilizes, proprietary investment practices and procedures developed over many decades by Goldman Sachs, including those related to performing due diligence on prospective portfolio investments and reviewing the backgrounds of potential partners. Further, Goldman Sachs is an active participant in a wide array of industries, both in service to clients operating in many different industries and acting as a principal or customer in such industries. Accordingly, Goldman Sachs houses a tremendous amount of industry knowledge and experience. Subject to internal information barriers and related limitations, the GSAM Private Credit Group is able to draw upon these industry insights and expertise as it evaluates investment opportunities.

 

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Risk Monitoring of Investments: The GSAM Private Credit Group has significant processes and procedures in place, including proprietary information technology systems, to monitor and evaluate the performance of its investments at the asset level. In addition, the GSAM Private Credit Group benefits from Goldman Sachs’ extensive risk management capabilities, which have been developed and honed over many investment cycles. The GSAM Private Credit Group’s portfolio is regularly reviewed and stressed under various scenarios by senior risk management personnel within Goldman Sachs. These scenarios are drawn from the expertise developed by Goldman Sachs for its own balance sheet. This risk monitoring is designed to minimize the risk of capital loss and maintain an investment portfolio that is expected to perform in a broad range of economic conditions.

Operating and Regulatory Structure

We have elected to be treated as a BDC under the Investment Company Act. As a BDC, we are generally prohibited from acquiring assets other than qualifying assets unless, after giving effect to any acquisition, at least 70% of our total assets are qualifying assets. Qualifying assets generally include securities of eligible portfolio companies, cash, cash equivalents, U.S. government securities and high-quality debt instruments maturing in one year or less from the time of investment. Under the rules of the Investment Company Act, “eligible portfolio companies” include (i) private U.S. operating companies, (ii) public U.S. operating companies whose securities are not listed on a national securities exchange (e.g., the New York Stock Exchange) or registered under the Exchange Act, and (iii) public U.S. operating companies having a market capitalization of less than $250 million. Public U.S. operating companies whose securities are quoted on the over-the-counter bulletin board and through OTC Markets Group Inc. are not listed on a national securities exchange and therefore are eligible portfolio companies. In addition, we currently are an “emerging growth company,” as defined in the JOBS Act. See “—Qualifying Assets.”

We have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2017. As a RIC, we generally will not be required to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends if we meet certain source of income, distribution and asset diversification requirements. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and we may choose to carry forward taxable income for distribution in the following year and pay any applicable tax. In addition, the distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes.

Investments

We seek to create a portfolio that includes primarily direct originations of secured debt, including first lien debt, unitranche, including last out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments. We expect to make investments through both primary originations and open-market secondary purchases. We currently do not limit our focus to any specific industry. If we are successful in achieving our investment objective, we believe that we will be able to provide our stockholders with consistent dividend distributions and attractive risk adjusted total returns.

 

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As of December 31, 2019, our portfolio (excluding an investment in a money market fund, if any, managed by an affiliate of Group Inc.) on a fair value basis, was comprised of approximately 98.7% secured debt investments (81.2% in first lien debt (including 6.0% in first lien/last-out unitranche loans) and 17.5% in second lien debt), 0.6% in preferred stock and 0.7% in common stock. We expect that our portfolio will continue to include secured debt, including first lien debt, unitranche, including last out portions of such loans, and second lien debt and, to a lesser extent, equities. In addition to investments in U.S. middle-market companies, we may invest a portion of our capital in opportunistic investments, such as in large U.S. companies, foreign companies, stressed or distressed debt, structured products or private equity. Such investments are intended to enhance our risk adjusted returns to stockholders, and the proportion of these types of investments will change over time given our views on, among other things, the economic and credit environment in which we are operating, although these types of investments generally will constitute less than 30% of our total assets.

In the future, we may also securitize a portion of our investments in any or all of our assets. We expect that our primary use of funds will be to make investments in portfolio companies, distribute cash to holders of our common stock and pay our operating expenses, including debt service to the extent we borrow or issue senior securities to fund our investments.

On January 4, 2017, the SEC granted exemptive relief that permits us to co-invest with GS BDC, GS PMMC, GS PMMC II and certain other funds that may be managed by the GSAM Credit Alternatives Team in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Additionally, if our Investment Adviser forms other funds in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with the exemptive relief, applicable regulations and regulatory guidance, as well as applicable allocation procedures.

Investment Criteria

We are committed to a value-oriented philosophy implemented by our Investment Adviser, which manages our portfolio and seeks to minimize the risk of capital loss without foregoing the potential for capital appreciation. We have identified several criteria, discussed below, that GSAM believes are important in identifying and investing in prospective portfolio companies.

These criteria provide general guidelines for our investment decisions. However, not all of these criteria will be met by each prospective portfolio company in which we choose to invest. Generally, we seek to use our experience and access to market information to identify investment candidates and to structure investments quickly and effectively.

 

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Value orientation and positive cash flow. Our investment philosophy places a premium on fundamental analysis and has a distinct value orientation. We focus on companies in which we can invest at relatively low multiples of operating cash flow and that are profitable at the time of investment on an operating cash flow basis. Typically, we do not expect to invest in start-up companies or companies having speculative business plans.

 

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Experienced management and established financial sponsor relationships. We generally require that our portfolio companies have an experienced management team. We also require the portfolio companies to have proper incentives in place to induce management to succeed and to act in concert with our interests as investors. In addition, we focus our investments in companies backed by strong financial sponsors that have a history of creating value and with whom members of our Investment Adviser have an established relationship.

 

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Strong and defensible competitive market position. We seek to invest in target companies that have developed leading market positions within their respective markets and are well-positioned to capitalize on growth opportunities. We also seek companies that demonstrate significant competitive advantages versus their competitors, which should help to protect their market position and profitability while enabling us to protect our principal and avoid capital losses.

 

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Viable exit strategy. We seek to invest in companies that GSAM believes will provide a steady stream of cash flow to repay our loans and reinvest in their respective businesses. We expect that such internally generated cash flow, leading to the payment of interest on, and the repayment of the principal of, our investments in portfolio companies to be a key means by which we exit from our investments over time. In addition, we also seek to invest in companies whose business models and expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or other capital markets transactions.

 

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Due diligence. Our Investment Adviser takes a bottom-up, fundamental research approach to our potential investments. It believes it is critical to conduct extensive due diligence on investment targets and in evaluating new investments. Our Investment Adviser conducts a rigorous due diligence process that is applied to prospective portfolio companies and draws from its experience, industry expertise and network of contacts. In conducting due diligence, our Investment Adviser uses information provided by companies, financial sponsors and publicly available information as well as information from relationships with former and current management teams, consultants, competitors and investment bankers.

Our due diligence typically includes:

 

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review of historical and prospective financial information;

 

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review of the capital structure;

 

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analysis of the business and industry in which the company operates;

 

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on-site visits;

 

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interviews with management, employees, customers and vendors of the potential portfolio company;

 

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review of loan documents;

 

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background checks; and

 

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research relating to the portfolio company’s management, industry, markets, products and services and competitors.

Upon the completion of due diligence and a decision to proceed with an investment in a company, the team leading the investment presents the investment opportunity to our Investment Committee. This committee determines whether to pursue the potential investment. All new investments are required to be reviewed by the Investment Committee. The members of the Investment Committee are employees of our Investment Adviser and they do not receive separate compensation from us or our Investment Adviser for serving on the Investment Committee.

Additional due diligence with respect to any investment may be conducted on our behalf (and at our expense) by attorneys prior to the closing of the investment, as well as other outside advisers, as appropriate.

Investment Committee

All investment decisions are made by the Investment Committee which consists of five voting members, Brendan McGovern, Jon Yoder, David Yu, Jordan Walter, and Michael Mastropaolo, as well as three non-voting members with operational or legal expertise. Our Investment Committee is responsible for approving all of our investments. Our Investment Committee also monitors investments in our portfolio and approves all asset dispositions. We expect to benefit from the extensive and varied relevant experience of the investment professionals serving on our Investment Committee, which includes expertise in privately originated and publicly traded leveraged credit, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity.

The purpose of our Investment Committee is to evaluate and approve, as deemed appropriate, all investments by our Investment Adviser. Our Investment Committee process is intended to bring the diverse experience and perspectives of our Investment Committee’s members to the analysis and consideration of every investment. Our Investment Committee also serves to provide investment consistency and adherence to our Investment Adviser’s investment philosophies and policies. Our Investment Committee also determines appropriate investment sizing and suggests ongoing monitoring requirements.

In addition to reviewing investments, our Investment Committee meetings serve as a forum for discussing credit views and outlooks, as well as reviewing investments. Potential transactions and investment opportunities are also reviewed on a regular basis. Members of our Investment Adviser’s investment team are encouraged to share information and views on credits with our Investment Committee early in their analysis. This process improves the quality of the analysis and assists the deal team members to work more efficiently.

Investment Structure

Once we determine that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers, including senior, junior and equity capital providers, to structure an investment. We negotiate among these parties and use creative and flexible approaches to structure our investment relative to the other capital in the portfolio company’s capital structure.

We expect our secured debt to have terms of approximately three to ten years. We generally obtain security interests in the assets of our portfolio companies that will serve as collateral in support of the repayment of this debt. This collateral may take the form of first or second priority liens on the assets of a portfolio company.

We use the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. Mezzanine debt typically has interest-only payments in the early years, payable in cash or in-kind, with amortization of principal deferred to the later years of the mezzanine debt. In some cases, we may enter into mezzanine debt that, by its terms, converts into equity (or is issued along with warrants for equity) or additional debt securities or defers payments of interest for the first few years after our investment. Typically, our mezzanine debt investments have maturities of three to ten years.

We also invest in unitranche loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position. In a number of instances, we may find another lender to provide the “first out” portion of such loan and retain the “last out” portion of such loan, in which case, the “first out” portion of the loan would generally receive priority with respect to payment of principal, interest and other amounts due thereunder over the “last out” portion that we would continue to hold.

In the case of our secured debt and unsecured debt, including mezzanine debt investments, we seek to tailor the terms of the investments to the facts and circumstances of the transactions and the prospective portfolio companies, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio companies to achieve their business plan and improve their profitability. For example, in addition to seeking a senior position in the capital structure of our portfolio companies, we seek to limit the downside potential of our investments by:

 

•

requiring a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk;

 

•

incorporating “put” rights and call protection into the investment structure; and

 

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•

negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or participation rights.

Our investments may include equity features, such as direct investments in the equity or convertible securities of portfolio companies or warrants or options to buy a minority interest in a portfolio company. Any warrants we may receive with our debt securities generally require only a nominal cost to exercise, so as a portfolio company appreciates in value, we may achieve additional investment return from these equity investments. We may structure the warrants to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the company, upon the occurrence of specified events. In many cases, we may also obtain registration rights in connection with these equity investments, which may include demand and “piggyback” registration rights.

We expect to hold most of our investments to maturity or repayment, but may sell certain investments earlier if a liquidity event takes place, such as the sale or refinancing of a portfolio company. We also may turn over our investments to better position the portfolio as market conditions change.

Ongoing relationships with portfolio companies

Monitoring

Our Investment Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. Our Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

 

•

assessment of success in adhering to the portfolio company’s business plan and compliance with covenants;

 

•

periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments;

 

•

comparisons to our other portfolio companies in the industry, if any;

 

•

attendance at and participation in board meetings or presentations by portfolio companies; and

 

•

review of monthly and quarterly financial statements and financial projections of portfolio companies.

As part of the monitoring process, our Investment Adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Investment Adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. The grading system is as follows:

 

•

investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit;

 

•

investments with a grade of 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2;

 

•

investments with a grade of 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and

 

•

investments with a grade of 4 indicate that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, in most cases, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit.

Our Investment Adviser grades the investments in our portfolio at least quarterly, and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, the Investment Adviser enhances its level of scrutiny over the monitoring of such portfolio company.

Managerial Assistance

As a BDC, we must offer, and must provide upon request, significant managerial assistance to certain of our eligible portfolio companies within the meaning of Section 55 of the Investment Company Act. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Our Investment Adviser or an affiliate thereof may provide such managerial assistance on our behalf to portfolio companies that request such assistance. We may receive fees for these services. See “—Managerial Assistance to Portfolio Companies.”

 

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Competition

Our primary competitors provide financing to middle-market companies and include other BDCs, commercial and investment banks, commercial financing companies, collateralized loan obligations (“CLOs”), private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on us as a BDC.

While we expect to use the industry information of GSAM’s investment professionals to which we have access to assess investment risks and determine appropriate pricing for our investments in portfolio companies, we do not seek to compete primarily based on the interest rates we offer and GSAM believes that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer. Rather, we compete with our competitors based on our reputation in the market, our existing investment platform, the seasoned investment professionals of our Investment Adviser, our experience and focus on middle-market companies, our disciplined investment philosophy, our extensive industry focus and relationships and our flexible transaction structuring.

Staffing

We do not currently have any employees. Our day-to-day operations are managed by our Investment Adviser. Our Investment Adviser has hired and expects to continue to hire professionals with skills applicable to our business plan, including experience in middle-market investing, leveraged finance and capital markets.

Properties

We do not own any real estate or other properties materially important to our operations. Our principal executive offices are located at 200 West Street, New York, New York 10282. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.

Legal Proceedings

We and our Investment Adviser are not currently subject to any material legal proceedings, although we may, from time to time, be involved in litigation arising out of operations in the normal course of business or otherwise.

Our Administrator

Pursuant to our Administration Agreement, our administrator is responsible for providing various accounting and administrative services to us. Our administrator is entitled to fees as described in “—Administration Agreement.” To the extent that our administrator outsources any of its functions, the administrator will pay any compensation associated with such functions. See “—Administration Agreement.”

Management Agreements

Investment Management Agreement

The investment management and advisory agreement (the “Investment Management Agreement”) with our Investment Adviser was entered into as of January 13, 2017.

Management Services

Pursuant to the terms of the Investment Management Agreement between the Company and the Investment Adviser, GSAM, subject to the overall supervision of the Board of Directors, manages our day-to-day operations and provides investment advisory and management services to the Company.

Subject to compliance with applicable law and published SEC guidance, nothing contained in the Investment Management Agreement in any way precludes, restricts or limits the activities of the Investment Adviser or any of its respective subsidiaries or affiliated parties. See “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—Our Investment Adviser, its principals, investment professionals and employees and the members of its Investment Committee have certain conflicts of interest.”

Management Fee

The Management Fee is payable quarterly in arrears, equal to 0.375% (i.e., an annual rate of 1.50%) of our average NAV (including uninvested cash and cash equivalents) at the end of the then-current quarter and the prior calendar quarter (and, in the case of our first quarter, our NAV as of such quarter-end). The Management Fee for any partial quarter will be appropriately prorated. Following the occurrence (if any) of a listing (as defined in “—Exit Event,”), average gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of the then-current quarter and the prior calendar quarter (and, in the case of our first quarter-end following such event, our gross assets as of such quarter-end) will be used instead of average NAV to calculate the Management Fee.

 

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Management Fees are generally expected to be paid using available funds, in which case these payments will not reduce undrawn Commitments. However, we may drawdown undrawn Commitments for Management Fees, and any such amounts contributed would reduce undrawn Commitments.

For the year ended December 31, 2019, Management Fees amounted to $13.67 million. As of December 31, 2019, $3.52 million remained payable. For the year ended December 31, 2018, Management Fees amounted to $9.15 million.

 

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Incentive Fee

The Incentive Fee consists of two components that are determined independently of each other, with the result that one component may be payable even if the other is not. A portion of the Incentive Fee will be based on our income and a portion will be based on our capital gains, each as described below.

Quarterly Incentive Fee Based on Income. Our Investment Adviser is entitled to receive the Incentive Fee based on income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” (as defined below) of 1.75%. For this purpose, the hurdle is computed by reference to our NAV and does not take into account changes in the market price of our common stock (if any). The Incentive Fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since the Initial Drawdown Date) (in either case, the “Trailing Twelve Quarters”). However, following the occurrence (if any) of a listing, the Trailing Twelve Quarters will be “reset” so as to include, as of the end of any quarter, the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since the listing, rather than the number of quarters that have occurred since the Initial Drawdown Date).

The “hurdle amount” for the Incentive Fee based on income is determined on a quarterly basis, and is equal to 1.75% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which shall include all issuances by us of shares of our common stock) and distributions that occurred during the relevant Trailing Twelve Quarters. The Incentive Fee for any partial period will be appropriately prorated. For the portion of the Incentive Fee based on income, we pay our Investment Adviser a quarterly Incentive Fee based on the amount by which (A) Ordinary Income in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.”

The Incentive Fee based on income for each quarter is determined as follows:

 

•

No Incentive Fee based on income is payable to our Investment Adviser for any calendar quarter for which there is no Excess Income Amount;

 

•

100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 2.0588% (or 2.1875% in the event of a listing) multiplied by our NAV at the beginning of each applicable calendar quarter included in the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and

 

•

15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income.

The amount of the Incentive Fee based on income that will be paid to our Investment Adviser for a particular quarter will equal the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but will not exceed the Incentive Fee Cap (as described below, and will be subject to the limitations set forth in Section 205(b)(3) of the Advisers Act).

The Incentive Fee based on income that is paid to our Investment Adviser for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

“Ordinary Income” means interest income, dividend income and any other income (including any accrued income that we have not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter minus our operating expenses accrued during the calendar quarter (including the Management Fee, administrative expenses and any interest expense and dividends paid on issued and outstanding preferred stock, but excluding the Incentive Fee).

“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as defined below), if any, in respect of the relevant Trailing Twelve Quarters.

If, in any quarter, the Incentive Fee Cap is zero or a negative value, we will pay no Incentive Fee based on income to our Investment Adviser for such quarter. If, in any quarter, the Incentive Fee Cap is a positive value but is less than the Incentive Fee based on income that is payable to our Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, we will pay an Incentive Fee based on income to our Investment Adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to our Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, we will pay an Incentive Fee based on income to our Investment Adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap. In certain limited circumstances, an Incentive Fee based on income will be payable to our Investment Adviser although our net income for such quarter did not exceed the hurdle rate or the Incentive Fee will be higher than it would have been if calculated based on our performance for the applicable quarter without taking into account the Trailing Twelve Quarters. See “Item IA. Risk Factors—Risks Relating to Our Business and Structure—The Incentive Fee based on income takes into account our past performance.”

 

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“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.

The following is a graphical representation of the calculation of the Incentive Fee based on income prior to a listing, if any:

Incentive Fee based on Income

Percentage of Ordinary Income comprising the Incentive Fee based on Income

(expressed as an annualized rate⁽¹⁾ of return on the value of net assets as of the beginning

of each of the quarters included in the Trailing Twelve Quarters)

 

 

(1)	The Incentive Fee is determined on a quarterly basis but has been annualized for purposes of the above diagram. The diagram also does not reflect the Incentive Fee Cap.

The following is a graphical representation of the calculation of the Incentive Fee based on income following a listing:

Incentive Fee based on Income

Percentage of Ordinary Income comprising the Incentive Fee based on Income

(expressed as an annualized rate⁽¹⁾ of return on the value of net assets as of the beginning

of each of the quarters included in the Trailing Twelve Quarters)

 

 

(1)	The Incentive Fee is determined on a quarterly basis but has been annualized for purposes of the above diagram. The diagram also does not reflect the Incentive Fee Cap.

Annual Incentive Fee Based on Capital Gains. The Incentive Fee based on capital gains is determined and paid annually in arrears at the end of each calendar year or, in the event of a listing, the date on which such event occurs. At the end of each calendar year (or the occurrence of a listing), we will pay our Investment Adviser an Incentive Fee equal to (A) 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the difference, if positive, of the sum of our aggregate realized capital gains, if any, computed net of our aggregate realized capital losses, if any, and our aggregate unrealized capital depreciation, in each case from the Initial Drawdown Date (or, following the occurrence (if any) of a listing, from the date on which such event occurs) until the end of such calendar year or listing, as applicable, minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to our Investment Adviser from the Initial Drawdown Date (or, following the occurrence (if any) of a listing, from the date on which such event occurs) through the end of such calendar year or listing, as applicable. For the avoidance of doubt, unrealized capital appreciation is excluded from the calculation in clause (A), above.

We will accrue, but not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under accounting principles generally accepted in the United States of America (“GAAP”), we are required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, we consider the cumulative aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then we record a capital gains incentive fee equal to 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of such amount, minus the aggregate amount of actual Incentive Fees based on capital gains paid in all prior periods (or, following the occurrence (if any) of a listing, in all prior periods beginning with the date on which such event occurs).

If such amount is negative, then there is no accrual for such period. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the avoidance of doubt, the following Incentive Fee examples reflect the calculation of actual payments of the Incentive Fee rather than accruals of the Incentive Fee.

 

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Example of Calculation of the Incentive Fee based on Income Assumptions

Assumptions⁽¹⁾

 

•

Quarter 1

 

•

Net Asset Value at the start of Quarter 1 = $100.0 million

 

•

Quarter 1 Ordinary Income = $6.0 million

 

•

Quarter 1 Net Capital Gain = $1.0 million

 

•

Quarter 1 Hurdle Amount = $1.75 million (calculated based on an annualized 7.00% hurdle rate)

 

•

Quarter 1 Catch-up Amount = $2.06 million (calculated based on an annualized 8.24% rate)

 

•

Quarter 2

 

•

Net Asset Value at the start of Quarter 2 = $100.0 million

 

•

Quarter 2 Ordinary Income = $1.5 million

 

•

Quarter 2 Net Capital Gain = $1.0 million

 

•

Quarter 2 Hurdle Amount = $1.75 million (calculated based on an annualized 7.00% hurdle rate)

 

•

Quarter 2 Catch-up Amount = $2.06 million (calculated based on an annualized 8.24% rate)

 

•

Quarter 3

 

•

Net Asset Value at the start of Quarter 3 = $100.0 million

 

•

Quarter 3 Ordinary Income = $2.0 million

 

•

Quarter 3 Net Capital Loss = ($6.0) million

 

•

Quarter 3 Hurdle Amount = $1.75 million (calculated based on an annualized 7.00% hurdle rate)

 

•

Quarter 3 Catch-up Amount = $2.06 million (calculated based on an annualized 8.24% rate)

 

•

Quarter 4

 

•

Net Asset Value at the start of Quarter 4 = $100.0 million

 

•

Quarter 4 Ordinary Income = $3.5 million

 

•

Quarter 4 Net Capital Gain = $3.0 million

 

•

Quarter 4 Hurdle Amount = $1.75 million (calculated based on an annualized 7.00% hurdle rate)

 

•

Quarter 4 Catch-up Amount = $2.06 million (calculated based on an annualized 8.24% rate)

 

(1)	For illustrative purposes, Net Asset Value is assumed to be $100.0 million as of the beginning of all four quarters and does not give effect to gains or losses in the preceding quarters. The example is also based on the calculation prior to any listing.

Determination of Incentive Fee based on income

In Quarter 1, the Ordinary Income of $6.0 million exceeds the Hurdle Amount of $1.75 million and the Catch-up Amount of $2.06 million. There are no Net Capital Losses. As a result, an Incentive Fee based on income of approximately $901,000 ((100% of $310,000) + (15% of $3.94 million)) is payable to our Investment Adviser for Quarter 1.

In Quarter 2, the Quarter 2 Ordinary Income of $1.5 million does not exceed the Quarter 2 Hurdle Amount of $1.75 million, but the aggregate Ordinary Income for the Trailing Twelve Quarters of $7.5 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $3.5 million and the aggregate Catch-up Amount for the Trailing Twelve Quarters of $4.12 million. There are no Net Capital Losses. As a result, an Incentive Fee based on income of approximately $229,000 ($1.13 million ((100% of $620,000) + (15% of $3.38 million)) minus $901,000 paid in Quarter 1) is payable to our Investment Adviser for Quarter 2.

 

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In Quarter 3, the aggregate Ordinary Income of the Trailing Twelve Quarters of $9.5 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $5.25 million and the aggregate Catch-up Amount for the Trailing Twelve Quarters of $6.18 million. However, there is an aggregate Net Capital Loss of ($4.0) million for the Trailing Twelve Quarters. As a result, the Incentive Fee Cap would apply. The Incentive Fee Cap equals $(305,000), calculated as follows:

(15% x ($9.5 million minus $4.0 million)) minus $1.13 million paid in Quarters 1 and 2. Because the Incentive Fee Cap is a negative value, there is no Incentive Fee based on income payable to our Investment Adviser for Quarter 3.

In Quarter 4, the aggregate Ordinary Income of the Trailing Twelve Quarters of $13.0 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $7.0 million and the aggregate Catch-up Amount for the Trailing Twelve Quarters of $8.24 million. The calculation of the Incentive Fee based on income would be approximately $820,000 ($1.95 million (100% of $1.24 million) + (15% of $4.76 million) minus $1.13 million paid in Quarters 1 and 2). However, there is an aggregate Net Capital Loss of ($1.0) million for the Trailing Twelve Quarters. As a result, the Incentive Fee Cap would apply. The Incentive Fee Cap equals approximately $670,000 calculated as follows:

(15% x ($13.0 million minus $1.0 million)) minus $1.13 million. Because the Incentive Fee Cap is positive but less than the Incentive Fee based on income of approximately $820,000 calculated prior to applying the Incentive Fee Cap, an Incentive Fee based on income of approximately $670,000 is payable to our Investment Adviser for Quarter 4. applying the Incentive Fee Cap, an Incentive Fee based on income of $900,000 is payable to our Investment Adviser for Quarter 4.

For the year ended December 31, 2019, we incurred Incentive Fees based on income of $18.02 million. As of December 31, 2019, $3.42 million remained payable. For the year ended December 31, 2018, we incurred Incentive Fees based on income of $3.51 million.

Examples of Calculation of Incentive Fee based on Capital Gains

Assumptions⁽¹⁾

 

•

Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)

 

•

Year 2: Investment A sold for $30 million, fair value of Investment B determined to be $25 million and fair value of Investment C determined to be $27 million

 

•

Year 3: fair value of Investment B determined to be $29 million and Investment C sold for $30 million

 

•

Year 4: fair value of Investment B determined to be $40 million

Determination of Incentive Fee based on capital gains

The Incentive Fee based on capital gains, if any, would be:

 

•

Year 1: None

 

•

Year 2: $750,000, the portion of the Incentive Fee based on capital gains equals (A) 15% of the difference, if positive, of the sum of our aggregate realized capital gains, if any, computed net of our aggregate realized capital losses, if any, and our aggregate unrealized capital depreciation, if any, in each case from the Initial Drawdown Date until the end of the applicable calendar year or listing, as applicable, minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to our Investment Adviser from the Initial Drawdown Date.

Therefore, using the assumptions above, the Incentive Fee based on capital gains equals (A) 15% x ($10.0 million—$5.0 million) minus (B) $0.

Therefore, the Incentive Fee based on capital gains equals $750,000.

 

•

Year 3: $1.35 million, which is calculated as follows:

The Incentive Fee based on capital gains equals (A) 15% x ($15.0 million—$1.0 million) minus (B) $750,000.

Therefore, the Incentive Fee based on capital gains equals $1.35 million.

 

•

Year 4: $150,000, which is calculated as follows:

The Incentive Fee based on capital gains equals (x) (A) 15% x ($15.0 million—$0 million) minus (B) $2.1 million.

Therefore, the Incentive Fee based on capital gains equals $150,000.

 

(1)	The example is based on the calculation prior to any listing.

For the year ended December 31, 2019, we incurred Incentive Fees based on capital gains of $0.00 million. For the year ended December 31, 2018, the Company accrued an Incentive Fee based on capital gains under GAAP of $(0.08) million, for which none were realized.

 

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Duration and Termination

The Investment Management Agreement will remain in full force and effect for successive annual periods, but only so long as such continuance is specifically approved at least annually by (a) the vote of a majority of our Independent Directors and (b) by a vote of a majority of our Board of Directors or of a majority of our outstanding voting securities, as defined in the Investment Company Act. The Investment Management Agreement may, on 60 days’ written notice to the other party, be terminated in its entirety at any time without the payment of any penalty, by the Board of Directors, by vote of a majority of the outstanding voting securities of the Company, or by the Investment Manager. The Investment Management Agreement also will automatically terminate in the event of its assignment (as defined in the Investment Company Act). See “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—We are dependent upon management personnel of our Investment Adviser for our success.”

Board Approval of the Investment Advisory and Management Agreement

Our Board of Directors approved the Investment Management Agreement at an in person meeting held on August 8, 2019. In its consideration of the renewal of the Investment Management Agreement, the Board of Directors focused on information it had received relating to, among other things:

 

•

the nature, quality and extent of the advisory and other services to be provided to us by the Investment Adviser;

 

•

the contractual terms of the Investment Management Agreement, including the structure of the Management Fee and the Incentive Fee;

 

•

comparative data with respect to the advisory fees and other expenses paid by other externally managed BDCs with similar investment objectives and strategies;

 

•

information about the services performed and the personnel performing such services under the Investment Management Agreement;

 

•

comparative data with respect to our investment performance and the performance of other BDCs with comparable investment objectives and strategies;

 

•

any existing and potential benefits to the Investment Adviser or its affiliates from its relationship with us;

 

•

other potential benefits to us as a result of our relationship with the Investment Adviser; and

 

•

such other matters as the Board of Directors determined were relevant to their consideration of the Investment Management Agreement.

In connection with their consideration of the renewal of the Investment Management Agreement, our Board of Directors gave weight to each of the factors described above, but did not identify any one particular factor as controlling their decision. After deliberation and consideration of all of the information provided, including the factors described above, the Board of Directors concluded, in the exercise of their business judgment, that the management fees paid by us were reasonable in light of the services provided to us by the Investment Adviser, the Investment Adviser’s costs, and our current and reasonably foreseeable asset levels. The Board of Directors unanimously concluded that the Investment Adviser’s continued management likely would benefit us and our Shareholders and that the Investment Management Agreement should be approved and continued with respect to us until August 8, 2020.

For the year ended December 31, 2019, we paid our Investment Adviser a total of $31.16 million in fees (excluding fees that are accrued but not paid) pursuant to the Investment Management Agreement, which consisted of $13.04 million in Management Fees and $18.12 million in Incentive Fees. For the year ended December 31, 2018, we paid our Investment Adviser a total of $7.80 million in fees (excluding fees that are accrued but not paid) pursuant to the Investment Management Agreement, which consisted of $7.80 million in Management Fees and no Incentive Fees. For the period from January 11, 2017 (commencement of operations) to December 31, 2017, we paid our Investment Adviser a total of $1.74 million in fees (excluding fees that are accrued but not paid) pursuant to the Investment Management Agreement, which consisted of $1.74 million in Management Fees and no Incentive Fees.

Limitation of Liability of the Investment Adviser

The Investment Management Agreement provides that our Investment Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by us in connection with the matters to which the Investment Management Agreement relates, except a loss resulting from our Investment Adviser’s willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard by our Investment Adviser of its obligations and duties under the Investment Management Agreement. Any person, even though also employed by our Investment Adviser, who may be or become an employee of and paid by us will be deemed, when acting within the scope of such employment, to be acting in such employment solely for us and not as our Investment Adviser’s employee or agent. These protections may lead our Investment Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account. See “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—Our Investment Adviser will be paid the Management Fee even if the value of stockholders’ investments declines and our Investment Adviser’s Incentive Fee may create incentives for it to make certain kinds of investments.”

 

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The Investment Adviser has not assumed any responsibility to us other than to render the services described in the Investment Management Agreement, and it will not be responsible for any action of the Board of Directors in declining to follow the Investment Adviser’s advice or recommendations.

Organization of our Investment Adviser

Our Investment Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The principal executive offices of our Investment Adviser are located at 200 West Street, New York, New York 10282.

Organizational and Operating Expenses

Our primary operating expenses include the payment of the Management Fee and the Incentive Fee to our Investment Adviser, legal and professional fees, interest, fees and other expenses of Financings (as defined in “—Investment Period” above) and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our Investments. We bear all other costs and expenses of our operations and transactions in accordance with the Investment Management Agreement and Administration Agreement, including those relating to: (i) our operational and organizational expenses; (ii) fees and expenses, including travel expenses, incurred by our Investment Adviser or payable to third parties related to our Investments, including, among others, professional fees (including the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on Investments and prospective Investments; (iii) interest, fees and other expenses payable on Financings, if any, incurred by us; (iv) fees and expenses incurred by us in connection with membership in investment company organizations; (v) brokers’ commissions; (vi) fees and expenses associated with calculating our NAV (including the costs and expenses of any Independent Valuation Advisor (as defined below)); (vii) legal, auditing or accounting expenses; (viii) taxes or governmental fees; (ix) the fees and expenses of our Administrator, transfer agent or sub-transfer agent; (x) the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of the shares; (xi) the expenses of, and fees for, registering or qualifying common stock for sale, maintaining our registration and qualifying and registering us as a broker or a dealer; (xii) the fees and expenses of our Independent Directors; (xiii) the cost of preparing and distributing reports, proxy statements and notices to holders of our equity interests, the SEC and other regulatory authorities;(xiv) costs of holding stockholder meetings; (xv) listing fees, if any, (xvi) the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our organizational documents insofar as they govern agreements with any such custodian; (xvii) insurance premiums; and (xviii) costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business. Our Investment Adviser is not be required to pay expenses of activities which are primarily intended to result in sales of common stock, including all costs and expenses associated with the preparation and distribution of the Offering Memorandum related to our private offering and the Subscription Agreements (as defined in “—Formation Transactions and Private Offering ” above).

Administration Agreement

We have entered into an Administration Agreement (the “Administration Agreement”) with State Street Bank and Trust Company (the “Administrator”) under which the Administrator is responsible for providing various accounting and administrative services to us.

The Administration Agreement provides that the Administrator is not liable to us for any damages or other losses arising out of the performance of its services thereunder except under certain circumstances, and contains provisions for the indemnification of the Administrator by us against liabilities to other parties arising in connection with the performance of its services to us.

We pay the Administrator fees for its services as we determine are commercially reasonable in our sole discretion. We also reimburse the Administrator for all reasonable expenses. To the extent that our Administrator outsources any of its functions, the Administrator pays any compensation associated with such functions.

We are not obligated to retain our Administrator. The Administration Agreement may be terminated by either party without penalty upon 30 days’ written notice to the other party.

The terms of any administration agreement that we may enter with any subsequent administrator may differ materially from the terms of the Administration Agreement with State Street Bank and Trust Company in effect prior to such retention, including, without limitation, providing for a fee structure that results in us, directly or indirectly, bearing higher fees for similar services and other terms that are potentially less advantageous to us. Our stockholders will not be entitled to receive prior notice of the engagement of an alternate administrator or of the terms of any agreement that is entered into with such administrator.

Transfer Agent

Goldman Sachs & Co. LLC serves as our transfer agent, registrar and disbursing agent.

License Agreement

We are a party to a license agreement (the “License Agreement”) with an affiliate of Goldman Sachs pursuant to which we have been granted a non-exclusive, royalty-free license to use the “Goldman Sachs” name. Under this agreement, we do not have a right to use the Goldman Sachs name if GSAM or another affiliate of Goldman Sachs is not our Investment Adviser or if our continued use of such license results in a violation of applicable law, results in a regulatory burden or has adverse regulatory consequences. Other than with respect to this limited license, we have no legal right to the “Goldman Sachs” name.

 

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Regulation

We have elected to be treated as a BDC under the Investment Company Act. As with other companies regulated by the Investment Company Act, a BDC must adhere to certain substantive regulatory requirements. The Investment Company Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the Investment Company Act. In addition, the Investment Company Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as a BDC unless approved by a majority of our outstanding voting securities. A majority of the outstanding voting securities of a company is defined under the Investment Company Act as the vote: (i) of 67% or more of the voting securities present at such meeting, if the holders of more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (ii) of more than 50% of the outstanding voting securities of such company, whichever is less.

Any issuance of preferred stock must comply with the requirements of the Investment Company Act. Additionally, the Investment Company Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets (66 2/3% if certain requirements are met) after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two full years or more. Certain other matters under the Investment Company Act require a separate class vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would be entitled to vote separately as a class from the holders of common stock on a proposal involving a plan of reorganization adversely affecting such securities.

We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed a “principal underwriter” as that term is defined under the Securities Act. We may purchase or otherwise receive warrants, which offer an opportunity (not a requirement) to purchase common stock of a portfolio company in connection with an acquisition financing or other investments. Similarly, we may acquire rights that obligate an issuer of acquired securities or their affiliates to repurchase the securities at certain times, under certain circumstances.

We do not intend to acquire securities issued by any investment company whereby our investment would exceed the limits imposed by the Investment Company Act. Under these limits, we generally cannot (1) acquire more than 3% of the total outstanding voting stock of any registered investment company, (2) invest more than 5% of the value of our total assets in the securities of one registered investment company or (3) invest more than 10% of the value of our total assets in the securities of registered investment companies in general. These limitations do not apply where we acquire interests in a money market fund as long as we do not pay a sales charge or service fee in connection with the purchase. With respect to the portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of our policies described above is fundamental and each such policy may be changed without stockholder approval, subject to any limitations imposed by the Investment Company Act.

Private funds that are excluded from the definition of “investment company” pursuant to either Section 3(c)(1) or 3(c)(7) of the Investment Company Act are also subject to certain of the limits under the Investment Company Act noted above. Specifically, such private funds may not acquire directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition).

Investment companies registered under the Investment Company Act are also subject to the restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors would be required to hold a smaller position in our shares than if they were not subject to such restrictions.

We are generally not able to issue and sell the shares at a price below the then-current NAV per share. We may, however, sell the shares at a price below the then-current NAV per share if the Board of Directors determines that such sale is in our best interests and the best interests of the stockholders, and the stockholders approve such sale.

Qualifying Assets

Under the Investment Company Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the Investment Company Act, which are referred to as “qualifying assets,” unless, at the time the acquisition is made, qualifying assets (not including certain assets specified in the Investment Company Act) represent at least 70% of the BDC’s total assets. The principal categories of qualifying assets relevant to our proposed business are the following:

 

(1)

Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding thirteen months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules and regulations as may be prescribed by the SEC. An eligible portfolio company is defined in the Investment Company Act as any issuer that:

 

(a)

is organized under the laws of, and has its principal place of business in, the United States;

 

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(b)

is not an investment company (other than a small business investment company (“SBIC”) wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the Investment Company Act; and

 

(c)

satisfies any of the following:

 

•

does not have any class of securities listed on a national securities exchange or has a class of securities listed on a national securities exchange but has an aggregate market value of outstanding common equity of less than $250 million;

 

•

is controlled by a BDC or a group of companies including a BDC, and the BDC has an affiliated person who is a director of the eligible portfolio company; or

 

•

is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.

 

(2)

Securities of any eligible portfolio company that we control.

 

(3)

Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

 

(4)

Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own at least 60% of the outstanding equity of the eligible portfolio company.

 

(5)

Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of options, warrants or rights relating to such securities.

 

(6)

Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

Managerial Assistance to Portfolio Companies

A BDC must be organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above under “—Qualifying Assets.” However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must also either control the issuer of the securities or offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance (as long as the BDC does not make available significant managerial assistance solely in this fashion). Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

As a BDC, pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash items (such as money market funds), U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as “temporary investments,” so that 70% of our assets are qualifying assets. We may invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would generally not meet the asset diversification requirements in order to qualify as a RIC for U.S. federal income tax purposes.

Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Investment Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Indebtedness and Senior Securities

As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares of stock senior to our common stock if our asset coverage ratio, as defined under the Investment Company Act, is at least equal to 200% immediately after each such issuance (or 150% if certain requirements are met). The Small Business Credit Availability Act modified the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs to 150%, subject to certain approval and disclosure requirements and, in the case of BDCs without common equity listed on a national securities exchange, such as us, an offer to repurchase shares held by the BDC’s stockholders as of the date the requisite approval is obtained. As a result, BDCs are able to increase their leverage capacity if shareholders approve a proposal to do so. If a BDC receives shareholder approval, it would be allowed to increase its leverage capacity on the first day after such approval. Alternatively, the legislation allows the majority of the directors who are not “interested

 

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persons,” as defined in the Investment Company Act, of the BDC to approve an increase in its leverage capacity, and such approval would become effective after one year. In addition, except in limited circumstances, while any indebtedness and senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or stock unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. A loan is presumed to be made for temporary purposes if it is repaid within 60 days and is not extended or renewed; otherwise it is presumed to not be for temporary purposes. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.”

Code of Ethics

We have adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act and we have also adopted our Investment Adviser’s Code of Ethics in accordance with Rule 17j-1 and Rule 204A-1 under the Advisers Act. These Codes of Ethics establish, among other things, procedures for personal investments and restrict certain personal securities transactions, including transactions in securities that are held by us. Personnel subject to each code may invest in securities for their personal investment accounts, so long as such investments are made in accordance with the code’s requirements. The Codes of Ethics are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. Copies may be obtained by electronic request to publicinfo@sec.gov.

Proxy Voting Policies and Procedures

We have delegated the voting of portfolio securities to our Investment Adviser. For client accounts for which our Investment Adviser has voting discretion, our Investment Adviser has adopted policies and procedures (the “Proxy Voting Policy”) for the voting of proxies. Under the Proxy Voting Policy, our Investment Adviser’s guiding principles in performing proxy voting are to make decisions that favor proposals that tend to maximize a company’s shareholder value and are not influenced by conflicts of interest. To implement these guiding principles for investments in publicly traded equities, our Investment Adviser has developed customized proxy voting guidelines (the “Guidelines”) that it generally applies when voting on behalf of client accounts. These Guidelines address a wide variety of individual topics, including, among other matters, shareholder voting rights, anti-takeover defenses, board structures, the election of directors, executive and director compensation, reorganizations, mergers, issues of corporate social responsibility and various shareholder proposals.

The Proxy Voting Policy, including the Guidelines, is reviewed periodically to assure that it continues to be consistent with our Investment Adviser’s guiding principles. The Guidelines embody the positions and factors our Investment Adviser generally considers important in casting proxy votes.

Our Investment Adviser has retained a third-party proxy voting service (the “Proxy Service”), currently Institutional Shareholder Services, to assist in the implementation and administration of certain proxy voting-related functions including operational, recordkeeping, and reporting services. The Proxy Service also prepares a written analysis and recommendation (a “Recommendation”) of each proxy vote that reflects the Proxy Service’s application of the Guidelines to particular proxy issues. While it is our Investment Adviser’s policy generally to follow the Guidelines and Recommendations from the Proxy Service, our Investment Adviser’s portfolio management teams (the “Portfolio Management Teams”) may, on certain proxy votes, seek approval to diverge from the Guidelines or a Recommendation by following an “override” process. Such decisions are subject to a review and approval process, including a determination that the decision is not influenced by any conflict of interest. A Portfolio Management Team that receives approval through the override process to cast a proxy vote that diverges from the Guidelines and/or a Recommendation may vote differently than other Portfolio Management Teams that did not seek to override the vote. In forming their views on particular matters, the Portfolio Management Teams are also permitted to consider applicable regional rules and practices, including codes of conduct and other guides, regarding proxy voting, in addition to the Guidelines and Recommendations. Our Investment Adviser may hire other service providers to replace or supplement the Proxy Service with respect to any of the services our Investment Adviser currently receives from the Proxy Service.

From time to time, our Investment Adviser may face regulatory, compliance, legal or logistical limits with respect to voting securities that it may purchase or hold for client accounts, which can affect our Investment Adviser’s ability to vote such proxies, as well as the desirability of voting such proxies. Among other limits, federal, state and foreign regulatory restrictions or company specific ownership limits, as well as legal matters related to consolidated groups, may restrict the total percentage of an issuer’s voting securities that our Investment Adviser can hold for clients and the nature of our Investment Adviser’s voting in such securities. Our Investment Adviser’s ability to vote proxies may also be affected by, among other things: (i) late receipt of meeting notices; (ii) requirements to vote proxies in person; (iii) restrictions on a foreigner’s ability to exercise votes; (iv) potential difficulties in translating the proxy; (v) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions; and (vi) requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting.

Our Investment Adviser conducts periodic due diligence meetings with the Proxy Service which include a review of the Proxy Service’s general organizational structure, new developments with respect to research and technology, work flow improvements and internal due diligence with respect to conflicts of interest.

Our Investment Adviser has adopted policies and procedures designed to prevent conflicts of interest from influencing its proxy voting decisions that our Investment Adviser makes on behalf of a client account and to help assure that such decisions are made in accordance with our Investment Adviser’s fiduciary obligations to its clients. These policies and procedures include our Investment Adviser’s use of the Guidelines and Recommendations from the Proxy Service, the override approval process previously discussed, and the establishment of

 

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information barriers between our Investment Adviser and other Goldman Sachs’ businesses. Notwithstanding such proxy voting policies and procedures, actual proxy voting decision of our Investment Adviser may have the effect of benefitting the interest of other clients or businesses of other divisions or units of Goldman Sachs and/or its affiliates, provided that our Investment Adviser believes such voting decisions to be in accordance with its fiduciary obligations.

Voting decisions with respect to fixed income securities and the securities of privately held issuers generally will be made by our Investment Adviser based on its assessment of the particular transactions or other matters at issue.

Stockholders may obtain information about proxy voting in the Company’s annual proxy statement (the “Proxy”) filed on Schedule 14A with the SEC. Proxies are available upon request to the Company or by visiting the SEC’s website at www.sec.gov. Requests to the Company should be addressed to:

GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

71S WACKER DR

SUITE 500

CHICAGO, IL 60606

Privacy Principles

The following information is provided to help investors understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.

 

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We generally will not receive any nonpublic personal information relating to stockholders who purchase our common stock. We may collect nonpublic personal information regarding our existing investors from sources such as subscription agreements, investor questionnaires and other forms; individual investors’ account histories; and correspondence between us and individual investors. We may share information that we collect regarding an investor with our affiliates and the employees of such affiliates for everyday business purposes, for example, to service the investor’s accounts and, unless an investor opts out, provide the investor with information about other products and services offered by us or our affiliates that may be of interest to the investor. In addition, we may disclose information that we collect regarding investors to third parties who are not affiliated with us (i) as authorized by our investors in investor subscription agreements or our organizational documents; (ii) as required by applicable law or in connection with a properly authorized legal or regulatory investigation, subpoena or summons, or to respond to judicial process or government regulatory authorities having property jurisdiction; (iii) as required to fulfill investor instructions; or (iv) as otherwise permitted by applicable law to perform support services for investor accounts or process investor transactions with us or our affiliates.

Any party not affiliated with us that receives nonpublic personal information relating to investors from us is required to adhere to confidentiality agreements and to maintain appropriate safeguards to protect your information. Additionally, for officers, employees and agents of ours and our affiliates, access to such information is restricted to those who need such access to provide services to us and investors. We maintain physical, electronic and procedural safeguards to seek to guard investor nonpublic personal information.

Other

We may also be prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without the prior approval of the members of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC. The SEC has interpreted the prohibition on transactions by BDCs with affiliates to prohibit “joint” transactions among entities that share a common investment adviser or are under common control with the investment adviser. The staff of the SEC has granted no-action relief permitting purchases of a single class of privately placed securities provided that the adviser negotiates no term other than price and certain other conditions are met. Except in certain limited circumstances, we will be unable to invest in any issuer in which another client sponsored or managed by our Investment Adviser has previously invested, including GS BDC, GS PMMC and GS PMMC II. On January 4, 2017, the SEC granted exemptive relief that permits us to co-invest with GS BDC, GS PMMC, GS PMMC II and certain other funds that may be managed by the GSAM Credit Alternatives Team. As a result of the exemptive relief, there could be significant overlap in our portfolio and the investment portfolios of GS BDC, GS PMMC, GS PMMC II and/or other funds established by the GSAM Credit Alternatives Team that are able to rely on the order.

As a BDC, the SEC will periodically examine us for compliance with the Investment Company Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company, to protect against larceny and embezzlement, covering each of our officers and employees, who may singly, or jointly with others, have access to our securities or funds. Furthermore, as a BDC, we are prohibited from protecting any director, officer, the Investment Adviser or underwriter against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We and our Investment Adviser are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures.

Compliance with the Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. The Sarbanes-Oxley Act requires us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

Compliance with the JOBS Act

We are, and expect to remain, an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, as it may be amended from time to time (the “JOBS Act”) until the earliest of:

 

•

the last day of the fiscal year in which our total annual gross revenues first exceed $1.07 billion;

 

•

the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt;

 

•

the last day of a fiscal year in which we (1) have an aggregate worldwide market value of shares held by non-affiliates of $700 million or more (measured at the end of each fiscal year) as of the last business day of our most recently completed second fiscal quarter and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act); or

 

•

The date five years after the date of an initial public offering of us.

Under the JOBS Act, we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. This may increase the risk that material weaknesses or other deficiencies in our internal control over financial reporting go undetected. See “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—Efforts to comply with Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and noncompliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us.” In addition,

 

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Section 13(a) of the Exchange Act, as amended by Section 102(b) of the JOBS Act, provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. However, pursuant to Section 107 of the JOBS Act, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Compliance with the Bank Holding Company Act

As a BHC and FHC, the activities of Group Inc. and its affiliates are subject to certain restrictions imposed by the Bank Holding Company Act of 1956, as amended (the “BHCA”), and related regulations. BHCs and FHCs are subject to supervision and regulation by the Federal Reserve Board (the “Federal Reserve”). Because Group Inc. may be deemed to “control” us within the meaning of the BHCA, restrictions under the BHCA could apply to us as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including the Federal Reserve, may restrict our investments, transactions and operations and may restrict the transactions and relationships between our Investment Adviser, Group Inc. and their affiliates, on the one hand, and us on the other hand. For example, the BHCA regulations applicable to Group Inc. and us may, among other things, restrict our ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of our investments and restrict our and our Investment Adviser’s ability to participate in the management and operations of the companies in which we invest. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by Group Inc. and its affiliates (including our Investment Adviser) for client and proprietary accounts may need to be aggregated with positions held by us. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, Goldman Sachs may utilize available capacity to make investments for its proprietary accounts or for the accounts of other clients, which may require us to limit and/or liquidate certain investments. Additionally, Goldman Sachs may in the future, in its sole discretion and without notice to investors, engage in activities impacting us and/or our Investment Adviser in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulatory or other restrictions on, Goldman Sachs, us or other funds and accounts managed by our Investment Adviser and its affiliates. In addition, Goldman Sachs may cease in the future to qualify as a FHC, which may subject us to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to Goldman Sachs and us, or the interpretation thereof, will not change, or that any such change will not have a material adverse effect on us. See “Item 1A. Risk Factors—Risks Relating to Our Business and Structure—Our activities may be limited as a result of potentially being deemed to be controlled by a bank holding company.”

 

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ITEM 1A.    RISK FACTORS

Investing in our securities involves certain risks relating to our structure and investment objective. You should carefully consider these risk factors, together with all of the other information included in this report, before you decide whether to make an investment in our securities. The risks set forth below are not the only risks we face, and we may face other risks that we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the NAV of our securities could decline, and stockholders may lose all or part of their investment. References to “we,” “us,” “our,” “MMLC,” and the “Company,” mean Goldman Sachs Middle Market Lending Corp., unless otherwise specified.

Risks Relating to Our Business and Structure

We are a new company and have a limited operating history.

We are a new company with limited operating history, and as a result, we have minimal financial information on which to evaluate an investment in us or our prior performance. Stockholders must rely on us to implement our investment policies, to evaluate all of our investment opportunities and to structure the terms of our Investments rather than evaluating our Investments in advance of purchasing shares of our common stock. Because stockholders are not able to thoroughly evaluate our Investments in advance of purchasing our shares, the offering may entail more risk than other types of offerings. This additional risk may hinder the ability of our investors to achieve their own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and other objectives. Additionally, the results of any other Accounts that have or have had an investment program which is similar to, or different from, our investment program are not indicative of the results that we may achieve. We expect to have a different investment portfolio from other Accounts. Accordingly, our results may differ from and are independent of the results obtained by such other Accounts. Moreover, past performance is no assurance of future returns.

We are subject to all of the business risks and uncertainties associated with any newer business, including the risk that we will not achieve our investment objective and that the value of a stockholder’s investment could decline substantially or could become worthless. We anticipate, based on the amount of proceeds raised in the initial or subsequent closings, that it could take some time to invest substantially all of the capital we expect to raise due to market conditions generally and the time necessary to identify, evaluate, structure, negotiate and close suitable Investments in middle-market companies.

The potentially limited term of the Company and the Investment Period may impact our investment strategy.

Unless earlier liquidated by the Board of Directors or extended by the Board of Directors (and, to the extent necessary, a majority-in-interest of the stockholders), the term of the Company (the “Term”) will end on the six year anniversary of the Final Closing Date unless an Exit Event occurs prior to that time. Due to the potentially finite term of the Company, we may be required to sell Investments at an inopportune time, which could adversely affect our performance and/or cause us to seek to invest in loans with a shorter term than would be the case if the Term was longer, which might adversely affect the nature and/or quality of our Investments.

Following the expiration of the Investment Period, we will not be permitted to reinvest proceeds realized from the sale or repayment of any Investment. Accordingly, we may be required to distribute such proceeds to stockholders, which would cause our fixed expenses to increase as a percentage of assets under management. In addition, any proceeds realized from the sale or repayment of Investments could result in an increased concentration of our portfolio, which could increase the risks associated with ownership of the shares of our common stock. For more, see “—Risks Relating to Our Portfolio Company Investments—Our portfolio may be focused in a limited number of Portfolio Companies, which will subject us to a risk of significant loss if any of these companies default on their obligations under any of their debt instruments or if there is a downturn in a particular industry.”

The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States, which may have a negative impact on our business and operations.

From time to time, capital markets may experience periods of disruption and instability. For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and various foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. There have been more recent periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future. If similar adverse and volatile market conditions repeat in the future, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow. Equity capital may be particularly difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than the NAV per share without first obtaining approval for such issuance from our stockholders and our Independent Directors. Volatile economic conditions may lead to strategic initiatives such as the recent increase in merger activity in the BDC space.

Moreover, the re-appearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time or worsened market conditions, including as a result of U.S. government shutdowns or the perceived credit-worthiness of the United States, could make it difficult for us to borrow money or to extend the maturity of or refinance any indebtedness we may have under similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if any, may be at a higher cost and on less favorable terms and conditions than what we currently experience. If we are unable to raise or refinance debt, then investors in our common stock may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our Portfolio Companies.

 

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Given the periods of extreme volatility and dislocation in the capital markets from time to time, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, significant changes in the capital markets, including the extreme volatility and disruption over the past several years, has had, and may in the future have, a negative effect on asset valuation of our investments and on the potential for liquidity events involving these investments. While most of our Investments will not be publicly traded, applicable accounting standards require us to assume as part of our valuation process that our Investments are sold in a principal market to market participants (even if we plan on holding an Investment through its maturity). As a result, volatility in the capital markets can adversely affect our Investment valuations. Further, the illiquidity of our Investments may make it difficult for us to sell such Investments to access capital if required. As a result, we could realize significantly less than the value at which we have recorded our Investments if we were required to sell them for liquidity purposes. In addition, a prolonged period of market illiquidity may cause us to reduce the volume of loans and debt securities we originate and/or fund and adversely affect the value of our portfolio investments, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows. An inability to raise or access capital could have a material adverse impact on our business, financial condition or results of operations.

Global economic, political and market conditions may adversely affect our business, financial condition and results of operations, including our revenue growth and profitability.

The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, have contributed and may continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

In August 2011 and then affirmed in August 2013, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating on the United States from “AAA” to “AA+”. Additionally, in January of 2012, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating for several large European countries. These ratings negatively impacted global markets and economic conditions. Although U.S. lawmakers have taken steps to avoid further downgrades, U.S. budget deficit concerns and similar conditions in Europe, China and elsewhere have increased the possibility of additional credit-rating downgrades and worsening global economic and market conditions. There can be no assurance that current or future governmental measures to mitigate these conditions will be effective. These conditions, government actions and future developments may cause interest rates and borrowing costs to rise, which may adversely affect our ability to access debt financing on favorable terms and may increase the interest costs of our borrowers, hampering their ability to repay us. Continued or future adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.

In October 2014, the Federal Reserve announced that it was concluding its bond-buying program, or quantitative easing, which was designed to stimulate the economy and expand the Federal Reserve’s holdings of long-term securities, suggesting that key economic indicators, such as the unemployment rate, had showed signs of improvement since the inception of the program. It is possible that, without quantitative easing by the Federal Reserve, these developments, along with the United States government’s credit and deficit concerns and other global economic conditions, could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. Additionally, the Federal Reserve has raised its federal funds target rate five times since December 2016. However, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds rate may further increase and cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms and may also increase the costs of our borrowers, hampering their ability to repay us.

Legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve and the Financial Stability Oversight Council. These or other regulatory changes could result in greater competition from banks and other lenders with which we compete for lending and other investment opportunities. The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the United States. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States. Such actions could have a material adverse effect on our business, financial condition and results of operations.

Our operation as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In addition, if we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions.

The Investment Company Act imposes numerous constraints on the operations of BDCs. For example, BDCs generally are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. These constraints may hinder our Investment Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective. Furthermore, any failure to comply with the requirements imposed on BDCs by the Investment Company Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants.

 

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We may be precluded from investing in what our Investment Adviser believes are attractive investments if such investments are not qualifying assets for purposes of the Investment Company Act. If we do not invest a sufficient portion of our assets in qualifying assets, we will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo attractive investment opportunities. Similarly, these rules could prevent us from making follow-on investments in existing Portfolio Companies (which could result in the dilution of our position).

If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company that is required to register under the Investment Company Act, which would subject us to additional regulatory restrictions and significantly decrease our operating flexibility. In addition, any such failure could cause an event of default under any outstanding indebtedness we might have, which could have a material adverse effect on our business, financial condition or results of operations.

We will be subject to corporate-level U.S. federal income tax on all of our income if we are unable to maintain our qualification for tax treatment as a RIC under Subchapter M of the Code, which would have a material adverse effect on our financial performance.

Although we have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2017, we cannot assure you that we will be able to maintain RIC status. To maintain RIC status and be relieved of U.S. federal income taxes on income and gains distributed to our stockholders, we must meet the annual distribution, source-of-income and asset diversification requirements described below.

 

•

The annual distribution requirement for a RIC will generally be satisfied if we distribute to our stockholders on an annual basis at least 90% of our investment company taxable income (generally, our net ordinary income plus the excess of our realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction) for each taxable year. Because we use debt financing, we are subject to an asset coverage ratio requirement under the Investment Company Act, and we are subject to certain covenants contained in our credit agreements and other debt financing agreements. This asset coverage ratio requirement and these covenants could, under certain circumstances, restrict us from making distributions to our stockholders that are necessary for us to satisfy the distribution requirement. If we are unable to obtain cash from other sources, and thus are unable to make sufficient distributions to our stockholders, we could fail to maintain our RIC tax treatment and thus become subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes).

 

•

The source-of-income requirement will be satisfied if at least 90% of our gross income for each year is derived from dividends, interest, gains from the sale of stock or securities, payments with respect to loans of certain securities, net income derived from an interest in a “qualified publicly traded partnership” or other income derived with respect to our business of investing in such stock or securities.

 

•

The asset diversification requirement will be satisfied if, at the end of each quarter of our taxable year, at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other acceptable securities, and no more than 25% of the value of our assets is invested in the securities (other than U.S. government securities or securities of other RICs) of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain Investments quickly in order to prevent the loss of our RIC status. Because most of our Investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we fail to maintain our RIC status for any reason, and we do not qualify for certain relief provisions under the Code, we would be subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). In this event, the resulting taxes and any resulting penalties could substantially reduce our net assets, the amount of our income available for distribution and the amount of our distributions to our stockholders, which would have a material adverse effect on our financial performance.

We are dependent upon management personnel of our Investment Adviser for our future success.

We do not have any employees. We depend on the experience, diligence, skill and network of business contacts of the GSAM Credit Alternatives Team, together with other investment professionals that our Investment Adviser currently retains, or may subsequently retain, to identify, evaluate, negotiate, structure, close, monitor and manage our Investments. Our future success will depend to a significant extent on the continued service and coordination of our Investment Adviser’s senior investment professionals. The departure of any of our Investment Adviser’s key personnel, including members of the Investment Committee, or of a significant number of the investment professionals of our Investment Adviser, could have a material adverse effect on our business, financial condition or results of operations. In addition, we cannot assure stockholders that our Investment Adviser will remain our Investment Adviser or that we will continue to have access to our Investment Adviser or its investment professionals. See “—Our Investment Adviser can resign on 60 days’ notice. We may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.”

Our Investment Adviser, its principals, investment professionals and employees and the members of its Investment Committee have certain conflicts of interest.

Our Investment Adviser, its principals, affiliates, investment professionals and employees, the members of its Investment Committee and our officers and directors serve or may serve now or in the future as investment advisers, officers, directors, principals of, or in other capacities with respect to, public or private entities (including other BDCs and other investment funds) that operate in the same or a related line of business as us. For example, we have the same management and Investment Committee teams as GS BDC, GS PMMC and GS PMMC II. Therefore, we expect these individuals may have obligations to investors in such other BDCs, the fulfillment of which might not be in our best interests or the best interests of our stockholders, and we expect that investment opportunities will satisfy the investment criteria for both

 

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us and such other business development companies. In addition, GSAM and its affiliates also manage other investment funds (including vehicles in which Goldman Sachs and its personnel have an interest), and is expected to manage other vehicles in the future that have investment mandates that are similar, in whole or in part, to ours and, accordingly, may invest in asset classes similar to those targeted by us. As a result, our Investment Adviser and/or its affiliates may face conflicts in allocating investment opportunities between us and such other entities. The fact that our investment advisory fees may be lower than those of certain other funds advised by GSAM could result in this conflict of interest affecting us adversely relative to such other funds.

Subject to applicable law, Goldman Sachs or Accounts may invest alongside us. In certain circumstances, negotiated co-investments by us and other Accounts may be made only pursuant to an order from the SEC permitting us to do so. Together with our Investment Adviser, GS BDC and GS PMMC, the Company has received an exemptive order from the SEC that permits us to participate in negotiated co-investment transactions with GS BDC, GS PMMC, GS PMMC II and certain other funds that may be managed by GSAM, including the GSAM Credit Alternatives Team, in the future, subject to certain conditions, such as that co-investments be made in a manner consistent with our investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief, and are allocated fairly among participants. Under the terms of the Exemptive Relief, a “required majority” (as defined in Section 57(o) of the Investment Company Act) of our Independent Directors would need to make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our board of directors approved criteria. See “—Our ability to enter into transactions with our affiliates is restricted.”

There could be significant overlap in our investment portfolio and the investment portfolios of GS BDC, GS PMMC, GS PMMC II and/or other funds managed by our Investment Adviser that are able to rely on the order. In the absence of an SEC order, when our Investment Adviser identifies certain investments, it will be required to determine which Accounts should make the investment at the potential exclusion of other Accounts. In such circumstances, our Investment Adviser will adhere to its investment allocation policy in order to determine the Account to which to allocate the opportunity. The policy provides that our Investment Adviser allocate opportunities through a rotation system or in such other manner as our Investment Adviser determines to be equitable. Accordingly, it is possible that we may not be given the opportunity to participate in investments made by other Accounts.

Goldman Sachs’ financial and other interests may incentivize Goldman Sachs to favor other accounts.

Our Investment Adviser receives performance-based compensation in respect of its investment management activities on our behalf, which rewards our Investment Adviser for positive performance of our investment portfolio. As a result, our Investment Adviser may make investments for us that present a greater potential for return but also a greater risk of loss or that are more speculative than would be the case in the absence of performance-based compensation. In addition, our Investment Adviser may simultaneously manage other Accounts (including other BDCs (including GS BDC, GS PMMC and GS PMMC II)) for which our Investment Adviser may be entitled to receive greater fees or other compensation (as a percentage of performance or otherwise) than it receives in respect of us. In addition, subject to applicable law, Goldman Sachs may invest in other Accounts (including other BDCs (including GS BDC, GS PMMC and GS PMMC II)), and such investments may constitute substantial percentages of such other Accounts’ outstanding equity interests. Therefore, our Investment Adviser may have an incentive to favor such other Accounts over us. To address these types of conflicts, the Investment Adviser has adopted policies and procedures under which investment opportunities will be allocated in a manner that it believes is consistent with its obligations as an investment adviser. However, the amount, timing, structuring or terms of an investment by us may differ from, and performance may be different than, the investments and performance of other Accounts.

Our financial condition and results of operations depend on our Investment Adviser’s ability to manage our future growth effectively.

Our ability to achieve our investment objective depends on our Investment Adviser’s ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of the structuring of our investment process and the ability of our Investment Adviser to provide competent, attentive and efficient services to us. Our executive officers and the members of our Investment Adviser’s Investment Committee have substantial responsibilities in connection with their roles at our Investment Adviser, with respect to GS BDC, GS PMMC, GS PMMC II and other clients of our Investment Adviser, as well as responsibilities under the Investment Management Agreement. We may also be called upon to provide significant managerial assistance to certain of our Portfolio Companies. These demands on their time, which will increase as the number of Investments grow, may distract them or slow the rate of investment. In order to grow, our Investment Adviser may need to hire, train, supervise, manage and retain new employees. However, we cannot assure stockholders that they will be able to do so effectively. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

Our ability to grow depends on our access to adequate capital.

If we do not have adequate capital available for investment, our performance could be adversely affected. In addition, we have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2017. To maintain our status as a RIC, among other requirements, we are required to timely distribute to our stockholders at least 90% of our investment company taxable income (determined without regard to the dividends paid deduction), which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, if any, for each taxable year. Consequently, such distributions will not be available to fund new Investments. During the Investment Period, we may issue stock to investors, but our ability to sell additional securities may be adversely affected by a number of factors including our performance prior to such date or general market conditions. While we are permitted to reinvest proceeds realized from the sale or repayment of Investments during the Investment Period, subject to the requirements of Subchapter M of the Code and the terms of any indebtedness or preferred stock, after the expiration of the Investment Period, we will not be permitted to do so, subject to certain exceptions. Accordingly, after the Investment Period, we expect to use debt financing to fund our growth, if any. Unfavorable

 

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economic or capital market conditions may increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any.

Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. These constraints may hinder our Investment Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective.

Regulations governing our operation as a BDC affect our ability to raise additional capital, and the ways in which we can do so. Raising additional capital may expose us to risks, including the typical risks associated with leverage, and may result in dilution to our current stockholders. The Investment Company Act limits our ability to borrow amounts or issue debt securities or preferred stock, which we refer to collectively as “senior securities,” to amounts such that our asset coverage ratio, as defined under the Investment Company Act, equals at least 200% immediately after such borrowing or issuance (except in connection with certain trading practices or investments) or 150% if certain requirements are met, as described below. Consequently, if the value of our assets declines, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when this may be disadvantageous to us and, as a result, our stockholders. The Small Business Credit Availability Act modified the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs to 150%, subject to certain approval and disclosure requirements and, in the case of the BDCs without common equity listed on a national securities exchange, such as us, an offer to repurchase shares held by the BDC’s stockholders as of the date the requisite approval is obtained. Under the legislation, BDCs are able to increase their leverage capacity if shareholders approve a proposal to do so. If a BDC receives shareholder approval, it would be allowed to increase its leverage capacity on the first day after such approval. Alternatively, the legislation allows the majority of the directors who are not “interested persons,” as defined in the Investment Company Act, of the BDC to approve an increase in its leverage capacity, and such approval would become effective after one year. As a result, BDCs may be able to incur additional leverage in the future, and the risks associated with an investment in BDCs may increase.

We borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us.

As part of our business strategy, we may borrow from and issue senior debt securities to banks, insurance companies and other lenders or investors. Holders of these senior securities will have fixed-dollar claims on our assets that are superior to the claims of our common stockholders. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have if we did not employ leverage. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make distributions to our common stockholders. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures.

Also, if we have senior debt securities or other credit facilities, any obligations to such creditors may be secured by a pledge of and security interest in some or all of our assets, including our portfolio of Investments, our cash and/or our right to call Undrawn Commitments from the stockholders. If we enter into a subscription credit facility, the lenders (or their agent) may have the right on behalf of us directly to call Undrawn Commitments and enforce remedies against the stockholders. In the case of a liquidation event, lenders and other creditors would receive proceeds to the extent of their security interest before any distributions are made to our stockholders. Any credit agreement or other debt financing agreement into which we may enter may impose, financial and operating covenants that restrict our activities, including our investment activities (such as industry concentrations) and distributions, have defaults triggered by, among other things, a change of control or change of investment adviser, remedies on default and similar matters.

We may, to the extent permitted by applicable law including the Investment Company Act, become co-liable (as a joint borrower, guarantor or otherwise) for borrowings or other types of leverage of our subsidiaries or other entities in which we have an interest, including joint ventures.

In addition, we may be unable to obtain our desired leverage, which would, in turn, affect a stockholder’s return on investment.

The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.

 

Assumed Return on Our Portfolio (Net of Expenses)			(10.00	)%			(5.00	)%			0.00	%			5.00	%			10.00	%
Corresponding Return to common stockholder(1)			(21.36	)%			(12.33	)%			(3.30	)%			5.73	%			14.76	%

 

(1)

Assumes (i) $1,706.38 million in total assets including debt issuance costs as of December 31, 2019, (ii) $729.99 million in outstanding indebtedness as of December 31, 2019, (iii) $944.79 million in net assets as of December 31, 2019 and (iv) an annualized average interest rate on our indebtedness, as of December 31, 2019, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 4.27%.

 

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Based on our outstanding indebtedness of $729.99 million as of December 31, 2019 and an annualized average interest rate on our indebtedness as of December 31, 2019, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 4.27%, our investment portfolio at fair value would have had to produce an annual return of approximately 1.85% to cover annual interest payments on the outstanding debt.

We currently do not intend to enter into any collateral and asset reuse arrangements, but may decide to enter into such an arrangement in the future.

We operate in a highly competitive market for investment opportunities.

A number of entities, including GS BDC, GS PMMC and GS PMMC II, compete with us to make the types of investments that we make in middle-market companies. We compete with other BDCs, commercial and investment banks, commercial financing companies, CLOs, private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Many of our competitors are more experienced, substantially larger and have considerably greater financial, technical and marketing resources than we do. Some competitors may have a lower cost of funds, perpetual fund lives and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, certain of our competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on us as a BDC and that the Code imposes on us as a RIC. Additionally, an investment opportunity may be appropriate for one or more of us, GS BDC, GS PMMC, GS PMMC II or any other investment fund managed by our affiliates, and co-investment may not be possible. In these instances GSAM will adhere to its investment allocation policy in order to determine to which entity to allocate the opportunity. Also, as a result of this competition, we may not be able to secure attractive investment opportunities from time to time.

We do not seek to compete primarily based on the interest rates we offer and GSAM believes that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer. Rather, we compete with our competitors based on our reputation in the market, our existing investment platform, the seasoned investment professionals of our Investment Adviser, our experience and focus on middle-market companies, our disciplined investment philosophy, our extensive industry focus and relationships and our flexible transaction structuring. For a more detailed discussion of these competitive advantages, see “Item 1. Business—Competitive Advantages.”

We may lose Investment opportunities if we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive environment, we may make Investments that are on less favorable terms than what we may have originally anticipated, which may impact our return on these Investments. We cannot assure stockholders that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.

Our Investment Adviser will be paid the Management Fee even if the value of stockholders’ investments declines and our Investment Adviser’s Incentive Fee may create incentives for it to make certain kinds of investments.

The Management Fee is payable even in the event the value of stockholders’ investments declines.

In addition, the Incentive Fee payable by us to our Investment Adviser may create an incentive for our Investment Adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement and also to incur leverage, which will tend to enhance returns where our portfolio has positive returns. Our Investment Adviser receives the Incentive Fee based, in part, upon capital gains realized on our Investments. As a result, our Investment Adviser may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income-producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher Investment losses, particularly during cyclical economic downturns.

The Incentive Fee payable by us to our Investment Adviser also may create an incentive for our Investment Adviser to invest on our behalf in instruments that have a deferred interest feature. Under these Investments, we accrue the interest over the life of the Investment but do not receive the cash income from the Investment until the end of the term. Our net investment income used to calculate the income portion of our Incentive Fee, however, includes accrued interest. Thus, a portion of this Incentive Fee is based on income that we have not yet received in cash. This risk could be increased because our Investment Adviser is not obligated to reimburse us for any Incentive Fees received even if we subsequently incur losses or never receive in cash the accrued income (including accrued income with respect to original issue discount (“OID”), payment-in-kind (“PIK”) interest and zero coupon securities). Furthermore, in the event of a listing, our Investment Adviser will be able to earn a higher Incentive Fee.

The Incentive Fee based on income takes into account our past performance.

The Incentive Fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted, from the calendar quarter then ending and the Trailing Twelve Quarters. The effect of calculating the Incentive Fee using reference to the Trailing Twelve Quarters is that, in certain limited circumstances, an Incentive Fee based on income will be payable to our Investment Adviser although our net income for such quarter did not exceed the hurdle rate or the Incentive Fee will be higher than it would have been if calculated based on our performance for the applicable quarter without taking into account the Trailing Twelve Quarters. For example, if we experience a net loss for any particular quarter, an Incentive Fee may still be paid to our Investment Adviser if such net loss is less than the net loss for the most recent quarter that preceded the Trailing Twelve Quarters. In such circumstances, our Investment Adviser would be entitled to an Incentive Fee whereas it would not have been entitled to an Incentive Fee if calculated solely on the basis of our performance for the applicable quarter.

 

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We incur significant costs as a result of being registered under the Exchange Act.

We incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. We have implemented procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We have incurred, and expect to incur in the future, significant annual expenses related to these steps and directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to the Administrator to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses associated with being a public company.

The systems and resources necessary to comply with public company reporting requirements will increase further once we cease to be an “emerging growth company” under the JOBS Act. As long as we remain an emerging growth company we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

Efforts to comply with Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and noncompliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us.

Under current SEC rules, we are required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes Oxley Act. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we incur additional expenses that may negatively impact our financial performance and our ability to make distributions. This process also may result in a diversion of management’s time and attention. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations, and we may not be able to ensure that the process is effective or that our internal control over financial reporting is or will be effective in a timely manner. In the event that we are unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, we may be adversely affected.

Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the date on which we are a “large accelerated filer” or an “accelerated filer” or the date we are no longer classified as an emerging growth company under the JOBS Act. Because we do not currently have comprehensive documentation of our internal control and have not yet tested our internal control in accordance with Section 404, we cannot conclude, as required by Section 404, that we do not have a material weakness in our internal control or a combination of significant deficiencies that could result in the conclusion that we have a material weakness in our internal control. As a public entity, we will be required to complete our initial assessment in a timely manner. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our operations, financial reporting or financial results could be adversely affected. Matters impacting our internal control may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC.

Potential conflicts of interest with other businesses of Goldman Sachs could impact our investment returns.

There are significant potential conflicts of interest that could negatively impact our investment returns. A number of these potential conflicts of interest with affiliates of our Investment Adviser and Group Inc. are discussed in more detail elsewhere in this report.

Group Inc., including its affiliates and personnel, is a bank holding company and a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization, and a major participant in global financial markets that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. As such, it acts as an investor, investment banker, research provider, investment manager, financer, adviser, market maker, trader, prime broker, derivatives dealer, lender, counterparty, agent and principal. In those and other capacities, Goldman Sachs and its affiliates advise clients in all markets and transactions and purchase, sell and recommend a broad array of investments, including securities, derivatives, loans, commodities, currencies, credit default swaps, indices, baskets and other financial instruments and products for its own Accounts or for the Accounts of their customers and have other direct and indirect interests in the global fixed income, currency, commodity, equity, bank loan and other markets in which we invest or may invest. Such additional businesses and interests will likely give rise to potential conflicts of interest and may restrict the way we operate our business. For example, (1) we may not be able to conduct transactions relating to investments in Portfolio Companies because our Investment Adviser is not permitted to obtain or use material nonpublic information in effecting purchases and sales in public securities transactions for us or (2) Goldman Sachs, the clients it advises, and its personnel may engage (or consider engaging) in commercial arrangements or transactions with us (subject to any limitations under the law), and/or may compete for commercial arrangements or transactions in the same types of companies, assets, securities or other assets or instruments as us. Transactions by, advice to and activities of such Accounts (including potentially Goldman Sachs acting on a proprietary basis), may involve the same or related companies, securities or other assets or instruments as those in which we invest and may negatively affect us (including our ability to engage in a transaction or other activities) or the prices or terms at which our transactions or other activities may be effected. For example, Goldman Sachs may be

 

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engaged to provide advice to an account that is considering entering into a transaction with us, and Goldman Sachs may advise the account not to pursue the transaction with us, or otherwise in connection with a potential transaction provide advice to the account that would be adverse to us. In addition, GS & Co. may, to the extent permitted by applicable law, including the limitations set forth in Section 57(k) of the Investment Company Act, receive compensation from us or from the borrowers if we make any investments based on opportunities that such employees or personnel of GS & Co. have referred to us. Such compensation might incentivize GS & Co. or its employees or personnel to refer opportunities or to recommend investments that might otherwise be unsuitable for us. Further, any such compensation paid by us, or paid by the borrower (to which we would otherwise have been entitled) in connection with such investments, may negatively impact our returns.

Furthermore, Goldman Sachs is currently, and in the future expects to be, raising capital for new public and private investment vehicles that have, or when formed will have, the primary purpose of middle-market direct lending. These investment vehicles, as well as existing investment vehicles (including GS BDC, GS PMMC and GS PMMC II), will compete with us for investments. Although our Investment Adviser and its affiliates will endeavor to allocate investment opportunities among their clients, including us, in a fair and equitable manner and consistent with applicable allocation procedures, it is expected that, in the future, we may not be given the opportunity to participate in investments made by other clients or entities managed by our Investment Adviser or its affiliates or that we may participate in such investments to a lesser extent due to participation by such other clients or entities.

In addition, subject to applicable law, Goldman Sachs or another investment account or vehicle managed or controlled by Goldman Sachs may hold securities, loans or other instruments of a Portfolio Company in a different class or a different part of the capital structure than securities, loans or other instruments of such Portfolio Company held by us. As a result, Goldman Sachs or another investment account or vehicle may pursue or enforce rights or activities, or refrain from pursuing or enforcing rights or activities, on behalf of its own account, that could have an adverse effect on us. In addition, to the extent Goldman Sachs has invested in a Portfolio Company for its own account, Goldman Sachs may limit the transactions engaged in by us with respect to such Portfolio Company or issuer for reputational, legal, regulatory or other reasons.

Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.

Our Board of Directors has the authority to modify or waive certain of our operating policies and strategies without prior notice (except as required by the Investment Company Act or other applicable laws) and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and value of our common stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.

Changes in laws or regulations governing our operations or the operations of our portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of our or our portfolio companies’ business practices, negatively impact our or our portfolio companies’ operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.

We and our portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, are likely to change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of our or our portfolio companies’ business practices, negatively impact our or our portfolio companies’ operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition to the legal, tax and regulatory changes that are expected to occur, there may be unanticipated changes and uncertainty regarding any such changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In addition, there is significant uncertainty regarding certain legislation and the regulations that have been adopted and future regulations that will need to be adopted pursuant to such legislation) and, consequently, the full impact that such legislation will ultimately have on us and the markets in which we trade and invest is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) impacts many aspects of the financial services industry. Many of the provisions of the Dodd-Frank Act have been implemented, while others will still require final rulemaking by regulatory authorities. While the full impact of the Dodd-Frank Act on us and our portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including current rules and regulations and proposed rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of us and our portfolio companies, impose additional costs on us and our portfolio companies, intensify the regulatory supervision of us and our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.

Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.

 

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On March 23, 2018, President Trump signed into law the Small Business Credit Availability Act, which modified the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150%, subject to certain approval and disclosure requirements (including either stockholder approval or approval of both a majority of the directors who have no financial interest in the matter and a majority of the directors who are not “interested persons,” as defined in the Investment Company Act, of the BDC). As a result, BDCs may be able to incur additional leverage in the future, and the risks associated with an investment in BDCs may increase. See “—Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. These constraints may hinder our Investment Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective.”

The Tax Cuts and Jobs Act could have a negative effect on us, our subsidiaries, our portfolio companies and the holders of our Securities.

On December 22, 2017, President Trump signed H.R. 1 (the “Tax Cuts and Jobs Act”) into law. The Tax Cuts and Jobs Act makes significant changes to the United States income tax rules applicable to both individuals and entities, including corporations. The Tax Cuts and Jobs Act includes provisions that, among other things, reduce the U.S. corporate tax rate, introduce a capital investment deduction, limit the interest deduction, limit the use of net operating losses to offset future taxable income and make extensive changes to the U.S. international tax system. The Tax Cuts and Jobs Act is complex and far-reaching, and we cannot predict the impact its enactment will have on us, our subsidiaries, our portfolio companies and the holders of our securities.

Our Investment Adviser can resign on 60 days’ notice. We may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

Our Investment Adviser has the right, under the Investment Management Agreement, to resign at any time upon 60 days’ written notice, regardless of whether we have found a replacement. If our Investment Adviser resigns, we may not be able to find a new external investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the value of our common stock may decline.

Our Investment Adviser’s responsibilities and its liability to us are limited under the Investment Management Agreement, which may lead our Investment Adviser to act in a riskier manner on our behalf than it would when acting for its own account.

The Investment Adviser will not be liable for any error of judgment or mistake of law or for any loss suffered by us in connection with the matters to which the Investment Management Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Investment Adviser’s part in the performance of its duties or from reckless disregard by the Investment Adviser of its obligations and duties under the Investment Management Agreement. Any person, even though also employed by the Investment Adviser, who may be or become an employee of and paid by us shall be deemed, when acting within the scope of his or her employment by us, to be acting in such employment solely for us and not as the Investment Adviser’s employee or agent. These protections may lead the Investment Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account. See “—Our Investment Adviser will be paid the Management Fee even if the value of stockholders’ investments declines and our Investment Adviser’s Incentive Fee may create incentives for it to make certain kinds of investments.”

Our ability to enter into transactions with our affiliates is restricted.

As a BDC, we are prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without the prior approval of a majority of our Independent Directors who have no financial interest in the transaction, or in some cases, the prior approval of the SEC. For example, any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is deemed our affiliate for purposes of the Investment Company Act and, if this is the only reason such person is our affiliate, we are generally prohibited from buying any asset from or selling any asset (other than our capital stock) to such affiliate, absent the prior approval of such directors. The Investment Company Act also prohibits “joint transactions” with an affiliate, which could include joint investments in the same Portfolio Company, without approval of our Independent Directors or in some cases the prior approval of the SEC. Moreover, except in certain limited circumstances, we are prohibited from buying any asset from or selling any asset to a holder of more than 25% of our voting securities, absent prior approval of the SEC. The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.

In certain circumstances, negotiated co-investments may be made only pursuant to an order from the SEC permitting us to do so. On January 4, 2017, the SEC granted exemptive relief that permits us to co-invest with GS BDC, GS PMMC, GS PMMC II and certain other funds that may be managed by the GSAM Credit Alternatives Team in a manner consistent with our investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief. As a result of such order, there could be significant overlap in our investment portfolio and the investment portfolios of GS BDC, GS PMMC, GS PMMC II and/or other funds managed by our Investment Adviser. Additionally, if our Investment Adviser forms other funds in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with the exemptive relief, applicable regulations and regulatory guidance, as well as applicable allocation procedures.

 

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We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including interest rates payable on debt Investments we make, default rates on such Investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in certain markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods or the full fiscal year.

We are exposed to risks associated with changes in interest rates.

Our debt investments may be based on floating rates, such as LIBOR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments, the value of our securities and our rate of return on invested capital. Currently, most of our floating rate investments are linked to LIBOR and it is unclear how increased regulatory oversight and the future of LIBOR may affect market liquidity and the value of the financial obligations to be held by or issued to us that are linked to LIBOR, or how such changes could affect our investments and transactions and financial condition or results of operations. Central banks and regulators in a number of major jurisdictions (for example, the United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for interbank offered rates (“IBORs”). The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it intends not to compel panel banks to contribute to LIBOR after 2021. The E.U. Benchmarks Regulation imposed conditions under which only compliant benchmarks may be used in new contracts after 2021. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by the U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR or alternative reference rates could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us. In addition, if LIBOR ceases to exist, we may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations. As such, some or all of these credit agreements may bear a lower interest rate, which would adversely impact our financial condition or results of operations. Moreover, if LIBOR ceases to exist, we may need to renegotiate certain terms of our Truist Revolving Credit Facility. If we are unable to do so, amounts drawn under the Truist Revolving Credit Facility may bear interest at a higher rate, which would increase the cost of our borrowings and, in turn, affect our results of operations.

Because we have borrowed money, and may issue preferred stock to finance investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds or pay distributions on preferred stock and the rate that our investments yield. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. However, an increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock.

In periods of rising interest rates, to the extent we borrow money subject to a floating interest rate, our cost of funds would increase, which could reduce our net investment income. Further, rising interest rates could also adversely affect our performance if such increases cause our borrowing costs to rise at a rate in excess of the rate that our investments yield. Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as a LIBOR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.

If general interest rates rise, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.

 

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A change in the general level of interest rates can be expected to lead to a change in the interest rate we receive on many of our debt investments. Accordingly, a change in the interest rate could make it easier for us to meet or exceed the performance threshold in the Investment Management Agreement and may result in a substantial increase in the amount of incentive fees payable to our Investment Adviser with respect to the portion of the Incentive Fee based on income.

The continued uncertainty related to the sustainability and pace of economic recovery in the U.S. and globally could have a negative impact on our business.

Our business is directly influenced by the economic cycle, and could be negatively impacted by a downturn in economic activity in the U.S. as well as globally. Fiscal and monetary actions taken by U.S. and non-U.S. government and regulatory authorities could have a material adverse impact on our business. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be adversely affected. Moreover, Federal Reserve policy, including with respect to certain interest rates and the decision to end its quantitative easing policy, along with the general policies of the current Presidential administration, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return to unfavorable economic conditions could adversely affect our business.

Our activities may be limited as a result of potentially being deemed to be controlled by a bank holding company.

Goldman Sachs is a BHC under the BHCA and is therefore subject to supervision and regulation by the Federal Reserve. In addition, Goldman Sachs is a FHC under the BHCA, which is a status available to BHCs that meet certain criteria. FHCs may engage in a broader range of activities than BHCs that are not FHCs. However, the activities of FHCs and their affiliates remain subject to certain restrictions imposed by the BHCA and related regulations. Because Goldman Sachs may be deemed to “control” us within the meaning of the BHCA, these restrictions could apply to us as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including the Federal Reserve, may restrict our investments, transactions and operations and may restrict the transactions and relationships between our Investment Adviser, Goldman Sachs and their affiliates, on the one hand, and us on the other hand. For example, the BHCA regulations applicable to Goldman Sachs and us may, among other things, restrict our ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of our Investments and restrict our and our Investment Adviser’s ability to participate in the management and operations of the companies in which we invest. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by Goldman Sachs and its affiliates (including our Investment Adviser) for client and proprietary Accounts may need to be aggregated with positions held by us. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, Goldman Sachs may utilize available capacity to make investments for its proprietary Accounts or for the Accounts of other clients, which may require us to limit and/or liquidate certain Investments.

These restrictions may materially adversely affect us by, among other things, affecting our Investment Adviser’s ability to pursue certain strategies within our investment program or trade in certain securities. In addition, Goldman Sachs may cease in the future to qualify as an FHC, which may subject us to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to Goldman Sachs and us, or the interpretation thereof, will not change, or that any such change will not have a material adverse effect on us.

Goldman Sachs may in the future, in its sole discretion and without notice to investors, engage in activities impacting us and/or our Investment Adviser in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulatory or other restrictions on, Goldman Sachs, us or other funds and Accounts managed by our Investment Adviser and its affiliates. Goldman Sachs may seek to accomplish this result by causing GSAM to resign as our Investment Adviser, voting for changes to our Board of Directors, causing Goldman Sachs personnel to resign from our Board of Directors, reducing the amount of Goldman Sachs’ investment in us (if any), revoking our right to use the Goldman Sachs name or any combination of the foregoing, or by such other means as it determines in its sole discretion. Any replacement investment adviser appointed by us may be unaffiliated with Goldman Sachs.

Recent Commodity Futures Trading Commission rules may have a negative impact on us and our Investment Adviser.

The Commodity Futures Trading Commission (the “CFTC”) and the SEC have issued final rules establishing that certain swap transactions are subject to CFTC regulation. Engaging in such swap or other commodity interest transactions such as futures contracts or options on futures contracts may cause us to fall within the definition of “commodity pool” under the Commodity Exchange Act and related CFTC regulations. Our Investment Adviser has claimed relief from CFTC registration and regulation as a commodity pool operator pursuant to CFTC Rule 4.5 with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, CFTC Rule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio. Moreover, we anticipate entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of CFTC Rule 4.5.

 

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We are dependent on information systems, and systems failures, as well as operating failures, could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.

Our business is dependent on our Investment Adviser’s and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of the Investment Management Agreement or an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:

 

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sudden electrical or telecommunications outages;

 

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natural disasters such as earthquakes, tornadoes and hurricanes;

 

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disease pandemics;

 

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events arising from local or larger scale political or social matters, including terrorist acts; and

 

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cyber-attacks.

In addition to our dependence on information systems, poor operating performance by our service providers could adversely impact us.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the value of our common stock and our ability to pay distributions to our stockholders.

Terrorist attacks, acts of war, global health emergencies or natural disasters may impact the businesses in which we invest and harm our business, operating results and financial condition.

Terrorist acts, acts of war, global health emergencies or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, global health emergencies or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks, global health emergencies and natural disasters are generally uninsurable.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve a third party or our own personnel gaining unauthorized access to our information systems for purposes of obtaining ransom payments, misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for loss or misappropriation of data, stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our reputation or business relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by Goldman Sachs and third-party service providers. Goldman Sachs and these third-party service providers have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident.

Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.

In November 2019, the SEC published a proposed rule regarding the ability of a BDC (or a registered investment company) to use derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions). If adopted as proposed, BDCs that use derivatives would be subject to a value-at-risk leverage limit, certain other derivatives risk management program and testing requirements and requirements related to board reporting. These new requirements would apply unless the BDC qualified as a “limited derivatives user,” as defined in the SEC’s proposal. A BDC that enters into reverse repurchase agreements or similar financing transactions would need to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the BDC’s asset coverage ratio. Under the proposed rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. If the BDC cannot meet this test, it is required to treat unfunded commitments as a derivatives transaction subject to the requirements of the rule. Collectively, these proposed requirements, if adopted, may limit our ability to use derivatives and/or enter into certain other financial contracts.

The United Kingdom referendum decision to leave the European Union may create significant risks and uncertainty for global markets and our investments.

The decision made in the United Kingdom referendum in June 2016 to leave the European Union (commonly known as “Brexit”) has led to volatility in global financial markets, and in particular in the markets of the United Kingdom and across Europe, and may also lead to weakening in political, regulatory, consumer, corporate and financial confidence in the United Kingdom and Europe. The United Kingdom left the European Union on January 31, 2020, governed by transitional terms that will expire on December 31, 2020. During this transition phase, the United Kingdom and the EU will seek to negotiate and finalize a new, more permanent trade deal. Due to political uncertainty, it is not possible to anticipate whether the United Kingdom and the EU will be able to agree on and implement a new trade agreement or what the nature of such trade arrangement will be. In the absence of such an agreement there would be no transitional provisions the relationship between the United Kingdom and the European Union would be based on the World Trade Organization rules. The process for the United Kingdom to exit the European Union, and the longer term economic, legal, political, regulatory and social framework to be put in place between the United Kingdom and the European Union remain unclear and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. The mid-to-long term uncertainty may have a negative effect on the performance of any investments located or with operations in the United Kingdom or Europe. Additionally, the decision made in the United Kingdom referendum may lead to a call for similar referenda in other European jurisdictions which may cause increased economic volatility and uncertainty in the European and global markets. This volatility and uncertainty may have an adverse effect on the economy generally and on the ability of us and our portfolio companies to execute our respective strategies and to receive attractive returns.

 

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In particular, currency volatility may mean that the returns of us and our portfolio companies are adversely affected by market movements and may make it more difficult, or more expensive, for us to implement appropriate currency hedging. Fluctuations in the value of the British pound and/or the euro along with the potential downgrading of the United Kingdom’s sovereign credit rating, may also have an impact on the performance of our portfolio companies located in the United Kingdom or Europe.

Certain investors are limited in their ability to make significant investments in us.

Private funds that are excluded from the definition of “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act are restricted from acquiring directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the Investment Company Act are also subject to this restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors may be precluded from acquiring additional shares, at a time that they might desire to do so.

Stockholders may be subject to filing requirements under the Exchange Act as a result of their investment in us.

Ownership information for any person or group that beneficially owns more than 5% of our common stock will have to be disclosed in a Schedule 13G or other filings with the SEC. Beneficial ownership for these purposes is determined in accordance with the rules of the SEC, and includes having voting or investment power over the securities. Although we will provide in our quarterly statements the amount of outstanding stock, the responsibility for determining the filing obligation and preparing the filing remains with the investor. In addition beneficial owners of 10% or more of our common stock will be subject to reporting obligations under Section 16(a) of the Exchange Act.

Stockholders may be subject to the short-swing profits rules under the Exchange Act as a result of their investment in us.

Persons with the right to appoint a director or who beneficially own more than 10% of our common stock may be subject to Section 16(b) of the Exchange Act, which recaptures for our benefit profits from the purchase and sale of registered stock within a six-month period.

Investors may fail to pay their Undrawn Commitment.

As of December 31, 2019, approximately 94% of our commitments had been drawn, and all of the stockholders’ remaining uncalled capital commitments are expected to be called prior to the end of the Investment Period, which expires on March 29, 2020. The obligation of stockholders to fund Undrawn Commitments is without defense, counterclaim or offset of any kind. However, if a stockholder fails to pay any amount of its Commitment when called, other stockholders who have an Undrawn Commitment may be required to fund their respective Commitments sooner and in a greater amount (but not more than their Undrawn Commitment) than they otherwise would have absent such a default.

In addition, if funding of Commitments by other stockholders and borrowings by us are inadequate to cover defaulted Commitments, we may make fewer Investments and be less diversified than if all stockholders had paid their contributions. Additionally, we may be forced to obtain substitute sources of liquidity by selling Investments to meet our funding obligations. Such forced sales of investment assets by us may be at disadvantageous prices. In addition, if we are not able to obtain substitute sources of liquidity, we may default on our funding obligations.

If we consummate a listing, the Management Fee and Incentive Fee will increase.

Subsequent to a listing, the Management Fee will be calculated as a percentage of the average value of our gross assets including borrowed funds (excluding cash or cash equivalents) at the end of the prior two completed calendar quarters, which will result in a higher Management Fee for a given level of assets when compared to the current Management Fee calculated based on NAV and will create an incentive for our Investment Adviser to incur leverage. In addition, subsequent to a listing, the Incentive Fee on income will increase from 15% to 20% of our Ordinary Income and the Incentive Fee on capital gains will increase from 15% to 20% of our aggregate realized capital gains net of our aggregate realized capital losses and our aggregate unrealized capital depreciation (in each case calculated from the date of such listing).

Risks Relating to Our Portfolio Company Investments

Our Investments are very risky and highly speculative.

We will invest primarily through direct originations of secured debt, including first lien, unitranche, and last out portions of such loans; second lien debt; unsecured debt, including mezzanine debt; and select equity Investments. The securities in which we invest typically are not rated by any rating agency, and if they were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service and lower than “BBB-” by Fitch Ratings or S&P). These securities, which may be referred to as “junk bonds,” “high yield bonds” or “leveraged loans,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Therefore, our investments may result in an above average amount of risk and volatility or loss of principal. We also may invest in other assets, including U.S. government securities and structured securities. These investments entail additional risks that could adversely affect our investment returns.

 

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Secured Debt. When we make a secured debt investment, we generally take a security interest in the available assets of the Portfolio Company, including the equity interests of any subsidiaries, which we expect to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our debt investment may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the Portfolio Company to raise additional capital. In some circumstances, our lien could be subordinated to claims of other creditors, such as trade creditors. In addition, deterioration in a Portfolio Company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the debt investment. Consequently, the fact that our debt is secured does not guarantee that we will receive principal and interest payments according to the debt investment’s terms, or at all, or that we will be able to collect on the loan, in full or at all, should we enforce our remedies.

Unsecured Debt, including Mezzanine Debt. Our unsecured debt investments, including mezzanine debt investments, generally will be subordinated to senior debt in the event of an insolvency. This may result in an above average amount of risk and loss of principal.

Equity Investments. When we invest in secured debt or unsecured debt, including mezzanine debt, we may acquire equity securities from the company in which we make the investment. In addition, we may invest in the equity securities of Portfolio Companies independent of any debt investment. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we hold may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

Investing in middle-market companies involves a number of significant risks.

Investing in middle-market companies involves a number of significant risks, including:

 

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such companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;

 

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such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

 

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such companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our Portfolio Companies and, in turn, on us;

 

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such companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;

 

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there is generally little public information about these companies, they and their financial information are not subject to the reporting requirements of the Exchange Act and other regulations that govern public companies and we may be unable to uncover all material information about these companies, which may prevent us from making a fully informed investment decision and cause us to lose money on our Investments;

 

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our executive officers, directors and Investment Adviser may, in the ordinary course of business, be named as defendants in litigation arising from our Investments in the Portfolio Companies; and

 

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such companies may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness, including any debt securities held by us, upon maturity.

Many of our portfolio securities may not have a readily available market price, and we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the Investment.

The majority of our Investments are expected to be in debt instruments that do not have readily ascertainable market prices. The fair value of assets that are not publicly traded or whose market prices are not readily available are determined in good faith under procedures adopted by our Board of Directors. Our Board of Directors utilizes the services of independent third-party valuation firms (“Independent Valuation Advisors”) in determining the fair value of a portion of the securities in our portfolio as of each quarter end. Investment professionals from our Investment Adviser will also prepare Portfolio Company valuations using sources and/or proprietary models, depending on the availability of information on our assets and the type of asset being valued, all in accordance with our valuation policy.

Because fair valuations, and particularly fair valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, it may be more difficult for investors to value accurately our Investments and could lead to undervaluation or overvaluation of our common stock. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.

 

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Our NAV as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. For example, if we were required to sell a certain asset or all or a substantial portion of our assets on a particular date, the actual price that we would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in our NAV. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in our NAV.

When our NAV is determined other than on a quarter-end (such as in connection with issuances of shares of our common stock on dates occurring mid-quarter), such determinations of NAV are typically made by our Investment Adviser, acting under delegated authority from, and subject to the supervision of our Board of Directors. While such NAV determinations are made in accordance with procedures adopted by our Board of Directors, such intra-quarter NAV determinations do not follow the same procedures as quarter-end NAV determinations, such as the input of our Audit Committee or Independent Valuation Advisors, which may heighten the risks described above. However, we intend to comply at all times with the limitations of Section 23 under the Investment Company Act (which generally prohibits us from issuing shares of common stock at a price below the then-current NAV, as determined within 48 hours, excluding Sundays and holidays, of such issuance, subject to certain exceptions).

The lack of liquidity in our Investments may adversely affect our business.

Various restrictions will render our Investments relatively illiquid, which may adversely affect our business. As we will generally make investments in private companies, substantially all of these Investments are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. Our Investment Adviser is not permitted to obtain or use material non-public information in effecting purchases and sales in public securities transactions for us, which could create an additional limitation on the liquidity of our Investments. The illiquidity of our Investments may make it difficult for us to sell such Investments if the need arises. Therefore, if we are required to or desire to liquidate all or a portion of our portfolio quickly, we could realize significantly less than the value at which we have recorded our Investments or could be unable to dispose of our Investments in a timely manner or at such times as we deem advisable.

Our portfolio may be focused in a limited number of Portfolio Companies, which will subject us to a risk of significant loss if any of these companies default on their obligations under any of their debt instruments or if there is a downturn in a particular industry.

We are classified as a non-diversified investment company within the meaning of the Investment Company Act, which means that we are not limited by the Investment Company Act with respect to the proportion of our assets that we may invest in securities of a single issuer, excluding limitations on investments in certain other financial and investment companies. To the extent that we assume large positions in the securities of a small number of issuers or industries, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. In addition, the aggregate returns we realize may be significantly adversely affected if a small number of Investments perform poorly or if we need to write down the value of any one Investment. Additionally, a downturn in any particular industry in which we are invested could significantly affect our aggregate returns. Further, any industry in which we are meaningfully concentrated at any given time could be subject to significant risks that could adversely impact our aggregate returns. For example, as of December 31, 2019, Health Care Providers & Services, together with Health Care Technology and Health Care Equipment & Supplies, represented 25.8% of our portfolio at fair value. Our investments in Health Care Providers & Services and Health Care Technology and Health Care Equipment & Supplies are subject to substantial risks, including, but not limited to, the risk that the laws and regulations governing the business of health care companies, and interpretations thereof, may change frequently. Current or future laws and regulations could force our portfolio companies engaged in health care, to change their policies related to how they operate, restrict revenue, change costs, change reserve levels and change business practices. In addition, as of December 31, 2019, Software, represented 10.1% of our portfolio at fair value. Our investments in Software are subject to substantial risks, including, but not limited to, intense competition, changing technology, shifting user needs, frequent introductions of new products and services, competitors in different industries and ranging from large established companies to emerging startups, decreasing average selling prices of products and services resulting from rapid technological changes, and various legal and regulatory risks.

We will generally not be in a position to exercise control over our Portfolio Companies or to prevent decisions by management of our Portfolio Companies that could decrease the value of our investments.

We will not generally hold controlling equity positions in our Portfolio Companies. While we are obligated as a BDC to offer to make managerial assistance available to our Portfolio Companies, there can be no assurance that management personnel of our Portfolio Companies will accept or rely on such assistance. To the extent that we do not hold a controlling equity interest in a Portfolio Company, we are subject to the risk that such Portfolio Company may make business decisions with which we disagree, and the stockholders and management of such Portfolio Company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity Investments that we typically hold in our Portfolio Companies, we may not be able to dispose of our Investments in the event we disagree with the actions of a Portfolio Company, and may therefore suffer a decrease in the value of our Investments.

In addition, we may not be in a position to control any Portfolio Company by investing in its debt securities. As a result, we are subject to the risk that a Portfolio Company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.

We may be subject to risks associated with investments in real estate loans.

Our Investment Adviser, on our behalf, may periodically invest in loans related to real estate and real estate-related assets, and such investments will be subject to the risks inherent to investment in real estate-related assets generally. These risks include, but are not limited to, regional, national and international economic conditions, the supply and demand for properties, the financial resources of tenants, buyers and

 

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sellers of properties, changes in building, environmental, zoning and other laws and regulations, changes in real property tax rates, changes in interest rates and the availability of financing, which may render the sale or refinancing of properties difficult or impracticable, environmental liabilities, uninsured losses, acts of God, natural disasters, terrorist attacks, acts of war (declared and undeclared), strikes and other factors which are beyond the control of our Investment Adviser and us.

We may be subject to risks associated with investments in energy companies.

The energy industry has been in a period of disruption and volatility that has been characterized by fluctuations in oil and gas prices and production levels. This disruption and volatility has led to, and future disruptions and volatility may lead to, decreases in the credit quality and performance of our potential debt and equity Investments in energy companies, which could, in turn, negatively impact the fair value of our Investments in energy companies. Any prolonged decline in oil and gas prices or production levels could adversely impact the ability of our potential Portfolio Companies in the energy industry to satisfy financial or operating covenants that may be imposed by us and other lenders or to make payments to us as and when due, which could have a material adverse effect on our business, financial condition and results of operations. In addition, energy companies are subject to supply and demand fluctuations in the markets in which they operate, which are impacted by numerous factors, including weather, use of renewable fuel sources, natural disasters, governmental regulation and general economic conditions, in addition to the effects of increasing regulation and general operational risks, any of which could have a material adverse effect on the performance and value of our energy-related Investments as well as our cash flows from such Investments.

Our failure to make follow-on investments in our Portfolio Companies could impair the value of our portfolio.

Following an initial investment in a Portfolio Company, we may make additional investments in that Portfolio Company as “follow-on” investments, in order to:

 

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increase or maintain in whole or in part our equity ownership percentage;

 

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exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or

 

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attempt to preserve or enhance the value of our Investment.

We may elect not to make follow-on investments or may lack sufficient funds to make those investments.

We will have the discretion to make any follow-on Investments, subject to the availability of capital resources and the limitations set forth in “Item 1. Business.” The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a Portfolio Company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements, compliance with covenants contained in our credit facilities or compliance with the requirements for maintenance of our RIC status.

Our Portfolio Companies may prepay loans, which may reduce stated yields in the future if the capital returned cannot be invested in transactions with equal or greater expected yields.

Certain of the loans we make will be prepayable at any time, with some prepayable at no premium to par. We cannot predict when such loans may be prepaid. Whether a loan is prepaid will depend both on the continued positive performance of the Portfolio Company and the existence of favorable financing market conditions that permit such Portfolio Company to replace existing financing with less expensive capital. In periods of rising interest rates, the risk of prepayment of floating rate loans may increase if other financing sources are available. As market conditions change frequently, it is unknown when, and if, this may be possible for each Portfolio Company. In the case of some of these loans, having the loan prepaid early may reduce the achievable yield for us in the future below the current yield disclosed for our portfolio if the capital returned cannot be invested in transactions with equal or greater expected yields.

Investments in common and preferred equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk.

Although common stock has historically generated higher average total returns than fixed income securities over the long term, common stock also has experienced significantly more volatility in those returns. Our equity investments may fail to appreciate and may decline in value or become worthless, and our ability to recover our investment will depend on our Portfolio Company’s success. Investments in equity securities involve a number of significant risks, including:

 

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any equity investment we make in a Portfolio Company could be subject to further dilution as a result of the issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness (including trade creditors) or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;

 

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to the extent that the Portfolio Company requires additional capital and is unable to obtain it, we may not recover our investment; and

 

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in some cases, equity securities in which we invest will not pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of the Portfolio Company.

 

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Even if the Portfolio Company is successful, our ability to realize the value of our Investment may be dependent on the occurrence of a liquidity event, such as a public offering or the sale of the Portfolio Company. It is likely to take a significant amount of time before a liquidity event occurs or we can otherwise sell our Investment. In addition, the equity securities we receive or invest in may be subject to restrictions on resale during periods in which it could be advantageous to sell them.

There are special risks associated with investing in preferred securities, including:

 

•

preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If we own a preferred security that is deferring its distributions, we may be required to report income for tax purposes before we receive such distributions;

 

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preferred securities are subordinated to debt in terms of priority to income and liquidation payments, and therefore will be subject to greater credit risk than debt;

 

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preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities; and

 

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generally, preferred security holders have no voting rights with respect to the issuing company, subject to limited exceptions.

Additionally, when we invest in debt securities, we may acquire warrants or other equity securities as well. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

We may invest, to the extent permitted by law, in the equity securities of investment funds that are operating pursuant to certain exceptions to the Investment Company Act and, to the extent we so invest, will bear our ratable share of any such company’s expenses, including management and performance fees. We will also remain obligated to pay the Management Fee and Incentive Fee to our Investment Adviser with respect to the assets invested in the securities and instruments of such companies. With respect to each of these investments, each of our common stockholders will bear their pro rata share of the Management Fee and Incentive Fee due to our Investment Adviser as well as indirectly bearing the management and performance fees and other expenses of any such investment funds or advisers.

By originating loans to companies that are experiencing significant financial or business difficulties, we may be exposed to distressed lending risks.

As part of our lending activities, we may originate loans to companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to us, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. There is no assurance that we will correctly evaluate the value of the assets collateralizing our loans or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a company that we fund, we may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the loan advanced by us to the borrower.

We may be exposed to special risks associated with bankruptcy cases.

Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, there can be no assurance that a bankruptcy court would not approve actions that may be contrary to our interests. Furthermore, there are instances where creditors can lose their ranking and priority if they are considered to have taken over management of a borrower.

The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the borrower; it is subject to unpredictable and lengthy delays; and during the process a company’s competitive position may erode, key management may depart and a company may not be able to invest its capital adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during reorganization and may be adversely affected by an erosion of the issuer’s fundamental value.

In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. For example, we could become subject to a lender’s liability claim, if, among other things, the borrower requests significant managerial assistance from us and we provide such assistance as contemplated by the Investment Company Act.

Declines in market prices and liquidity in the corporate debt markets can result in significant net unrealized depreciation of our portfolio, which in turn would affect our results of operations.

As a BDC, we are required to carry our Investments at market value or, if no market value is ascertainable, at fair value as determined in good faith under procedures adopted by our Board of Directors. We may take into account the following types of factors, if relevant, in determining the fair value of our Investments: the enterprise value of a Portfolio Company (the entire value of the Portfolio Company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the Portfolio Company’s ability to make payments and its earnings and discounted cash flow (taking into consideration current market interest rates and credit spreads), the markets in which the Portfolio Company does business, a comparison of the Portfolio Company’s securities to similar publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate our valuation.

 

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While most of our Investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our Investments are sold in a principal market to market participants (even if we plan on holding an Investment through its maturity). As a result, volatility in the capital markets can also adversely affect our Investment valuations. Decreases in the market values or fair values of our Investments are recorded as unrealized depreciation. The effect of all of these factors on our portfolio can reduce our NAV by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer unrealized losses, which could have a material adverse impact on our business, financial condition and results of operations.

Economic recessions or downturns could impair our Portfolio Companies and harm our operating results.

Our Portfolio Companies may be susceptible to economic downturns or recessions and may be unable to repay our loans during these periods. Therefore, during these periods our non-performing assets may increase and the value of our portfolio may decrease if we are required to write down the values of our Investments. Adverse economic conditions may also decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.

A Portfolio Company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on the Portfolio Company’s assets representing collateral for its obligations. This could trigger cross defaults under other agreements and jeopardize our Portfolio Company’s ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting Portfolio Company.

Our Portfolio Companies may have incurred or issued, or may in the future incur or issue, debt or equity securities that rank equally with, or senior to, our Investments in such companies, which could have an adverse effect on us in any liquidation of the Portfolio Company.

Our Portfolio Companies may have, or may be permitted to incur, other debt, or issue other equity securities that rank equally with, or senior to, our Investments. By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which we are entitled to receive payments in respect of our Investments. These debt instruments would usually prohibit the Portfolio Companies from paying interest on or repaying our Investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a Portfolio Company, holders of securities ranking senior to our Investment in that Portfolio Company typically are entitled to receive payment in full before we receive any distribution in respect of our Investment. After repaying such holders, the Portfolio Company may not have any remaining assets to use for repaying its obligation to us. In the case of securities ranking equally with our Investments, we would have to share on an equal basis any distributions with other security holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant Portfolio Company.

Additionally, certain loans that we make to Portfolio Companies may be secured on a second priority basis by the same collateral securing senior secured debt, which will be secured on a first priority basis. The first priority liens on the collateral will secure the Portfolio Company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the Portfolio Company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the Portfolio Company’s remaining assets, if any.

The rights we may have with respect to the collateral securing any junior priority loans we make to our Portfolio Companies may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, we may forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights as junior lenders are adversely affected. In addition, a bankruptcy court may choose not to enforce an intercreditor agreement or other arrangement with creditors. Similar risks to the foregoing may apply where we hold the last out piece of a unitranche loan.

We may also make unsecured loans to Portfolio Companies, meaning that such loans will not benefit from any interest in collateral of such Portfolio Companies. Liens on such Portfolio Companies’ collateral, if any, will secure the Portfolio Company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the Portfolio Company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the Portfolio Company’s remaining assets, if any.

 

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Our Portfolio Companies may be highly leveraged.

Some of our Portfolio Companies may be highly leveraged, which may have adverse consequences to these Portfolio Companies and to us as an investor. These Portfolio Companies may be subject to restrictive financial and operating covenants and the leverage may impair these Portfolio Companies’ ability to finance their future operations and capital needs. As a result, these Portfolio Companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

Our Investments in non-U.S. companies may involve significant risks in addition to the risks inherent in U.S. Investments.

Our investment strategy contemplates potential Investments in securities of non-U.S. companies to the extent permissible under the Investment Company Act. Investing in non-U.S. companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of non-U.S. taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks are likely to be more pronounced for investments in companies located in emerging markets and particularly for middle-market companies in these economies.

Although most of our investments are denominated in U.S. dollars, any Investments that are denominated in a non-U.S. currency will be subject to the risk that the value of a particular currency will change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us.

We may expose ourselves to risks if we engage in hedging transactions.

Subject to applicable provisions of the Investment Company Act and applicable CFTC regulations, we may enter into hedging transactions in a manner consistent with SEC guidance, which may expose us to risks associated with such transactions. Such hedging may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may include counter-party credit risk.

Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.

The success of any hedging transactions we may enter into will depend on our ability to correctly predict movements in currencies and interest rates. Therefore, while we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to (or be able to) establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. See also “—Risks Relating to Our Business and Structure—We will be exposed to risks associated with changes in interest rates.”

We may form one or more CLOs, which may subject us to certain structured financing risks.

To the extent permissible under risk retention rulesadopted pursuant to Section 941 of the Dodd-Frank Act and applicable provisions of the Investment Company Act, to finance investments, we may securitize certain of our Investments, including through the formation of one or more CLOs, while retaining all or most of the exposure to the performance of these Investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. Any interest in any such CLO held by us may be considered a “non-qualifying asset” for purposes of the Investment Company Act.

If we create a CLO, we will depend on distributions from the CLO’s assets out of its earnings and cash flows to enable us to make distributions to our stockholders. The ability of a CLO to make distributions will be subject to various limitations, including the terms and covenants of the debt it issues. For example, tests (based on interest coverage or other financial ratios or other criteria) may restrict our ability, as holder of a CLO’s equity interests, to receive cash flow from these Investments. There is no assurance any such performance tests will be satisfied. Also, a CLO may take actions that delay distributions in order to preserve ratings and to keep the cost of present and future financings lower or the CLO may be obligated to retain cash or other assets to satisfy over-collateralization requirements commonly provided for holders of the CLO’s debt. As a result, there may be a lag, which could be significant, between the repayment or other realization on a loan or other assets in, and the distribution of cash out of, a CLO, or cash flow may be completely restricted for the life of the CLO. If we do not receive

 

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cash flow from any such CLO that is necessary to satisfy the annual distribution requirement for maintaining our RIC status, and we are unable to obtain cash from other sources necessary to satisfy this requirement, we could fail to maintain our status as a RIC, which would have a material adverse effect on our financial performance.

In addition, a decline in the credit quality of loans in a CLO due to poor operating results of the relevant borrower, declines in the value of loan collateral or increases in defaults, among other things, may force a CLO to sell certain assets at a loss, reducing their earnings and, in turn, cash potentially available for distribution to us for distribution to our stockholders.

To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by us as owner of equity interests. Finally, any equity interests that we retain in a CLO will not be secured by the assets of the CLO and we will rank behind all creditors of the CLO.

We will have broad discretion over the use of proceeds of the funds we raise from investors and will use proceeds in part to satisfy operating expenses.

There can be no assurance that we will be able to locate a sufficient number of suitable investment opportunities to allow us to successfully deploy capital that we raise from investors in a timeframe that will permit investors to earn above-market returns. To the extent we are unable to invest substantially all of the capital we raise within our contemplated timeframe, our investment income, and in turn our results of operations, will likely be materially adversely affected. Additionally, there could be a significant lag in time between any Drawdown Date and our funding of investments. See “—Risks Relating to Our Business and Structure—We are a new company and have no operating history.”

We intend to use substantially all of the proceeds from the offering of our common stock, net of expenses, to make investments in accordance with our investment objectives and using the strategies described in this report. We anticipate that the remainder will be used for working capital and general corporate purposes, including the payment of operating expenses. However, subject to the restrictions of applicable law and regulations, including the Investment Company Act and the Code, we have significant flexibility in applying the proceeds of the funds we raise from investors and may use the net proceeds in ways with which stockholders may not agree, or for purposes other than those contemplated at the time of the capital raising. We may also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new Investments, from net proceeds. Our ability to achieve our investment objective may be limited to the extent that net proceeds of the funds we raise from investors, pending full investment by us in Portfolio Companies, are used to pay operating expenses.

Risks Relating to Our Common Stock

Investing in our common stock involves an above average degree of risk.

The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our Investments in Portfolio Companies may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance.

A stockholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us.

Stockholders do not have preemptive rights to any shares we issue in the future. We may decide, in accordance with the process described below, to issue additional shares at or below the NAV per share. To the extent we issue additional shares, a stockholder’s percentage ownership interest in us may be diluted. In addition, if such shares are issued below NAV, existing stockholders may also experience dilution in the book value and fair value of their shares.

We are generally not able to issue and sell our common stock at a price per share below NAV per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV per share of our common stock (i) with the consent of a majority of our common stockholders (and a majority of our common stockholders who are not affiliates of ours) and (ii) if, among other things, a majority of our Independent Directors and a majority of our directors who have no financial interest in the transaction determine that a sale is in the best interests of us and our stockholders.

We may in the future determine to issue preferred stock, which could adversely affect the value of our common stock.

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the value of our common stock by making an investment in the common stock less attractive. In addition, the dividends on any preferred stock we issue must be cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any distributions or other payments to our common stockholders, and holders of preferred stock are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts into common stock). In addition, under the Investment Company Act, participating preferred stock and preferred stock each constitutes a “senior security” for purposes of our 200% asset coverage test.

 

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Certain provisions of our certificate of incorporation and bylaws and the Delaware General Corporation Law (“DGCL”), as well as other aspects of our structure, could deter takeover attempts and have an adverse impact on the price of our common stock.

Our certificate of incorporation and bylaws, as well as the DGCL, contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. Among other things, our certificate of incorporation and bylaws:

 

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provide that our Board of Directors will be classified in the event of a listing, which may delay the ability of our stockholders to change the membership of a majority of our Board of Directors;

 

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do not provide for cumulative voting;

 

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provide that vacancies on our Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office;

 

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provide that our directors may be removed only for cause, and only by a supermajority vote of the stockholders entitled to elect such directors upon Board classification at the time of a listing;

 

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provide that stockholders may only take action at an annual or special meeting of stockholders, and may not act by written consent;

 

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restrict stockholders’ ability to call special meetings; and

 

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require a supermajority vote of stockholders to effect certain amendments to our certificate of incorporation and bylaws.

We have provisions comparable to those of Section 203 of the DGCL (other than with respect to Group Inc. and its affiliates and certain of its or their direct or indirect transferees and any group as to which such persons are a party). These provisions generally prohibit us from engaging in mergers, business combinations and certain other types of transactions with “interested stockholders” (generally defined as persons or entities that beneficially own 15% or more of our voting stock), other than the exempt parties as described above, for a period of three years following the date the person became an interested stockholder unless, prior to such stockholder becoming an interested stockholder, our Board of Directors has approved the “business combination” that would otherwise be restricted or the transaction that resulted in the interested stockholder becoming an interested stockholder or the subsequent transaction with the interested stockholder has been approved by our Board of Directors and 66²/³% of our outstanding voting stock (other than voting stock owned by the interested stockholder). Such provisions may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.

These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value of our common stock. In addition, certain aspects of our structure, may have the effect of discouraging a third party from making an acquisition proposal for us.

We may not be able to pay you distributions on our common stock, our distributions to you may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes.

All distributions will be paid at the discretion of the Board of Directors and will depend on such factors as the Board determines to be relevant from time to time, including our earnings, financial condition and compliance with any debt covenants we may be subject to. Accordingly, we may not pay distributions to stockholders.

The distributions we pay to stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes that would reduce a holder’s adjusted tax basis in its common stock and correspondingly increase such holder’s gain, or reduce such holder’s loss, on disposition of such common stock. Distributions in excess of a holder’s adjusted tax basis in its common stock will constitute capital gains to such holder. Stockholders who periodically receive the payment of a distribution from a RIC consisting of a return of capital for U.S. federal income tax purposes may be under the impression that they are receiving a distribution of a RIC’s net ordinary income or capital gains when they are not. Accordingly, stockholders should read carefully any written disclosure accompanying a distribution from us and the information about the specific tax characteristics of our distributions provided to stockholders after the end of each calendar year, and should not assume that the source of any distribution is our net ordinary income or capital gains.

The tax treatment of a non-U.S. stockholder in its jurisdiction of tax residence will depend entirely on the laws of such jurisdiction, and may vary considerably from jurisdiction to jurisdiction.

Depending on (i) the laws of such non-U.S. stockholder’s jurisdiction of tax residence, (ii) how we are treated in such jurisdiction, and (iii) our activities, an investment in us could result in such non-U.S. stockholder recognizing adverse tax consequences in its jurisdiction of tax residence, including with respect to any generally required or additional tax filings and/or additional disclosure required in such filings in relation to the treatment for tax purposes in the relevant jurisdiction of an interest in us and/or of distributions from us and any uncertainties arising in that respect (our not being established under the laws of the relevant jurisdiction), the possibility of taxable income significantly in excess of cash distributed to a non-U.S. stockholder, and possibly in excess of our actual economic income, the possibilities of losing deductions or the ability to utilize tax basis and of sums invested being returned in the form of taxable income or gains, and the possibility of being subject to tax at unfavorable tax rates. A non-U.S. stockholder may also be subject to restrictions on the use of its share of our deductions and losses in its jurisdiction of tax residence. Each prospective investor is urged to consult its own tax advisors with respect to the tax and tax filing consequences, if any, in its jurisdiction of tax residence of an investment in us, as well as any other jurisdiction in which such prospective investor is subject to taxation.

We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income.

For U.S. federal income tax purposes, we will include in our taxable income certain amounts that we have not yet received in cash, such as OID or accruals on a contingent payment debt instrument, which may occur if we receive warrants in connection with the origination of a loan or possibly in other circumstances or contracted PIK interest, which generally represents contractual interest added to the loan balance and

 

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due at the end of the loan term. Such OID, which could be significant relative to our overall investment assets, and increases in loan balances as a result of PIK interest will be included in our taxable income before we receive any corresponding cash payments. We also may be required to include in our taxable income certain other amounts that we will not receive in cash. The credit risk associated with the collectability of deferred payments may be increased as and when a portfolio company increases the amount of interest on which it is deferring cash payment through deferred interest features. Our investments with a deferred interest feature may represent a higher credit risk than loans for which interest must be paid in full in cash on a regular basis. For example, even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is scheduled to occur upon maturity of the obligation.

Because in certain cases we may recognize taxable income before or without receiving cash representing such income, we may have difficulty making distributions to our stockholders that will be sufficient to enable us to meet the annual distribution requirement necessary for us to maintain our status as a RIC. Accordingly, we may need to sell some of our assets at times and/or at prices that we would not consider advantageous, we may need to raise additional equity or debt capital, or we may need to forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that are advantageous to our business) to enable us to make distributions to our stockholders that will be sufficient to enable us to meet the annual distribution requirement. If we are unable to obtain cash from other sources to meet the annual distribution requirement, we may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes).

Our stockholders may receive shares of our common stock as distributions, which could result in adverse tax consequences to them.

In order to satisfy the annual distribution requirement applicable to RICs, we will have the ability to declare a large portion of a distribution in shares of our common stock instead of in cash. We are not subject to restrictions on the circumstances in which we may declare a portion of a distribution in shares of our stock but would generally anticipate doing so only in unusual situations, such as, for example, if we do not have sufficient cash to meet our RIC distribution requirements under the Code. Generally, were we to declare such a distribution, we would allow stockholders to elect payment in cash and/or shares of our stock of equivalent value, with a percentage limitation on the portion of the total distribution available to be received in cash. Under published IRS guidance, the entire distribution will generally be treated as a taxable distribution for U.S. federal income tax purposes, and count towards our RIC distribution requirements under the Code, if certain conditions are satisfied. Among other things, the aggregate amount of cash available to be distributed to all stockholders is required to be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash available for distribution is required to be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock) under a formula provided in the applicable IRS guidance. The number of shares of our stock declared would thus depend on the applicable percentage limitation on cash available for distribution, the stockholders’ individual elections to receive cash or stock, and the value of the shares of our stock. Each stockholder generally would be treated as having received a taxable distribution (including for purposes of the withholding tax rules applicable to a non-U.S. stockholder) on the date the distribution is received in an amount equal to the cash that such stockholder would have received if the entire distribution had been paid in cash, even if the stockholder received all or most of the distribution in shares of our common stock. We currently do not intend to pay distributions in shares of our common stock, but there can be no assurance we will not do so in the future.

If we are not treated as a “publicly offered regulated investment company,” as defined in the Code, U.S. stockholders that are individuals, trusts or estates will be taxed as though they received a distribution of some of our expenses.

We expect to be treated as a “publicly offered regulated investment company” as a result of shares of our common stock being held by at least 500 persons at all times during a taxable year. However, we cannot assure a stockholder that we will be treated as a publicly offered regulated investment company for all years. If we are not treated as a publicly offered regulated investment company for any calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from us in the amount of such U.S. stockholder’s allocable share of the management and incentive fees paid to our Investment Adviser and certain of our other expenses for the calendar year, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholder. Miscellaneous itemized deductions of a U.S. stockholder that is an individual, trust or estate are disallowed under the Tax Cuts and Jobs Act for tax years beginning before January 1, 2026, and thereafter generally are (i) deductible by such stockholders only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, (ii) are not deductible for purposes of the alternative minimum tax and (iii) are subject to the overall limitation on itemized deductions under the Code.

Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends we pay.

Distributions of our “investment company taxable income” to a non-U.S. stockholder that are not effectively connected with the non-U.S. stockholder’s conduct of a trade or business within the United States will generally be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent of our current or accumulated earnings and profits.

Certain properly reported dividends are generally exempt from withholding of U.S. federal income tax where they are paid in respect of our (i) “qualified net interest income” (generally, our U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we or the non-U.S. stockholder are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) “qualified short-term capital gains” (generally, the excess of our net short-term capital gain over our net long-term capital loss for such taxable year), and certain other requirements are satisfied.

NO ASSURANCE CAN BE GIVEN AS TO WHETHER ANY OF OUR DISTRIBUTIONS WILL BE ELIGIBLE FOR THIS EXEMPTION FROM WITHHOLDING OF U.S. FEDERAL INCOME TAX. IN PARTICULAR, THIS EXEMPTION WILL NOT APPLY TO OUR DISTRIBUTIONS PAID IN RESPECT OF OUR NON-U.S. SOURCE INTEREST INCOME OR OUR DIVIDEND

 

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INCOME (OR ANY OTHER TYPE OF INCOME OTHER THAN GENERALLY OUR NON-CONTINGENT U.S.-SOURCE INTEREST INCOME RECEIVED FROM UNRELATED OBLIGORS AND OUR QUALIFIED SHORT-TERM CAPITAL GAINS). IN THE CASE OF OUR COMMON STOCK HELD THROUGH AN INTERMEDIARY, THE INTERMEDIARY MAY WITHHOLD U.S. FEDERAL INCOME TAX EVEN IF WE REPORT THE PAYMENT AS QUALIFIED

NET INTEREST INCOME OR QUALIFIED SHORT-TERM CAPITAL GAIN. BECAUSE OUR COMMON STOCK WILL BE SUBJECT TO SIGNIFICANT TRANSFER RESTRICTIONS, AND AN INVESTMENT IN OUR COMMON STOCK WILL GENERALLY BE ILLIQUID, NON-U.S. STOCKHOLDERS WHOSE DISTRIBUTIONS ON OUR COMMON STOCK ARE SUBJECT TO WITHHOLDING OF U.S. FEDERAL INCOME TAX MAY NOT BE ABLE TO TRANSFER THEIR SHARES OF OUR COMMON STOCK EASILY OR QUICKLY OR AT ALL.

To the extent OID and PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

Our investments may include OID instruments and PIK, interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

 

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The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans.

 

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Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation.

 

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OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cash distributions.

 

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For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid-in capital, even if the cash to pay them comes from offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by our stockholders, the Investment Company Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

Investors in offerings after the initial closing could receive fewer shares of common stock than anticipated.

The purchase price per share of our common stock in any closing after the initial closing is expected to be determined to ensure that such price is equal to our then-current NAV per share. As a result, in the event of an increase in our NAV per share, the purchase price for shares purchased in any closing after the initial closing may be higher than the prior monthly NAV per share, and therefore an investor may receive a smaller number of shares than if it had purchased shares in a prior offering. Additionally, in order to more fairly allocate such expenses among all stockholders, investors making capital commitments will be required to bear a pro rata portion of our expenses incurred in respect of legal services pertaining to our organization and formation and any administration, custody and transfer agent agreements, the performance of any research and consultation services in connection with the initial meeting of Directors, and audit fees relating to the initial registration statement and auditing the initial seed capital financial statements at the time of their first investment in us.

Our common stock is subject to significant transfer restrictions, and an investment in our common stock generally will be illiquid.

Shares of our common stock are subject to the restrictions on transfer described herein and as set forth in our certificate of incorporation. Purchasers of shares of our common stock prior to an IPO and listing (including purchasers in the offering) will not be permitted to transfer their shares after the consummation of such IPO and listing, including a transfer of solely an economic interest, without our prior written consent until a date to be established by us. If a listing does not occur, our common stockholders will be prohibited from transferring their shares without our prior written consent. An investment in our common stock is of further limited liquidity since our common stock is not freely transferable under the securities laws. Each investor in our common stock must be prepared to bear the economic risk of an investment in our common stock for an indefinite period.

We have no obligation to conduct an Exit Event and can offer no assurances as to whether or when we may conduct an Exit Event. Even if we consummate an Exit Event, we can offer no assurances as to the price at which our common stock will be valued in an Exit Event, and it could be valued below the price in the offering or the then-current NAV. Additionally, pre-Exit Event stockholders are not expected to be able to sell their common stock in any IPO.

Shares of our common stock have not been registered under the Securities Act and, therefore, under the securities laws, cannot be sold unless such shares are subsequently registered under the Securities Act or an exemption from such registration is available. Shares of our common stock are illiquid assets for which there is not a secondary market and there is no guarantee that a secondary market will develop in the future. An investment in our common stock is therefore suitable only for certain sophisticated investors that can bear the risks associated with the illiquidity of their common stock.

 

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You will have limited opportunities to sell your common stock and, to the extent you are able to sell your common stock, you may not be able to recover the amount of your investment in our common stock.

Beginning with the end of the Investment Period, until an Exit Event, we expect that our Board of Directors will consider repurchase offers to allow you to tender your shares of common stock on a quarterly basis at a price per share we expect to reflect a recent NAV per share. Any such share repurchase offer will be at the discretion of our Board of Directors and subject to applicable law and that such repurchases do not give rise to adverse tax, ERISA or other regulatory consequences to us or our stockholders. Additionally, if we determine to make one or more repurchase offers, such offers are expected to include numerous restrictions that limit your ability to sell your shares of common stock pursuant to such offers. We expect to limit the number of shares of common stock repurchased pursuant to any share repurchase offer to 5% of our outstanding shares of common stock (with the exact amount to be set by our Board of Directors).

Although we expect that our Board of Directors will consider repurchase offers on a quarterly basis beginning with the end of the Investment Period, our Board of Directors has complete and absolute discretion to determine whether we will engage in any share repurchases and, if so, the terms of such repurchases. Therefore, we may ultimately not engage in any share repurchases or may cease share repurchases at any time, and you may not be able to sell your shares of common stock at all. You should not assume or rely upon any expectation that we will offer to repurchase any of our shares of our common stock.

The repurchase price per share of future repurchase offers, if any, may be lower than the price per share that stockholders paid for their shares of our common stock. In addition, in the event that a stockholder chooses to participate in a quarterly repurchase offer, the stockholder may be required to provide us with notice of intent to participate prior to knowing what the NAV per share will be on the repurchase date. A stockholder seeking to sell shares of our common stock to us as part of our quarterly share repurchase offer may be required to do so without knowledge of what the repurchase price per share of our common stock will be on the repurchase date.

Risks Relating to the Merger

Because the market price of GS BDC Common Stock will fluctuate, our stockholders cannot be sure of the market value of the Merger Consideration they will receive until the Closing Date.

The market value of the Merger Consideration may vary from the closing price of GS BDC Common Stock on the date the Merger was announced, on the date that the joint proxy statement/prospectus is mailed to stockholders, on the date of our special meeting of stockholders (the “MMLC Special Meeting”) or GS BDC’s special meeting of stockholders (the “GS BDC Special Meeting”), and on the date the Merger is completed and thereafter. Any change in the market price of GS BDC Common Stock prior to completion of the Merger will affect the market value of the Merger Consideration that our stockholders will receive upon completion of the Merger. In addition, if the market price of GS BDC Common Stock were to decrease such that the product of the Exchange Ratio and the greater of (i) the closing market price and (ii) the NAV per share of the GS BDC Common Stock is less than the NAV per share of MMLC’s common stock (the “MMLC Common Stock”), the conditions to the closing would not be satisfied and the Merger would not close, even if all of the proposals considered at the GS BDC Special Meeting and the MMLC Special Meeting were approved by the stockholders of GS BDC and MMLC, respectively.

Accordingly, at the time of the MMLC Special Meeting, MMLC stockholders will not know or be able to calculate the market price of the Merger Consideration they would receive upon completion of the Merger. Neither MMLC nor GS BDC is permitted to terminate the Merger Agreement or resolicit the vote of their respective stockholders solely because of changes in the market price of shares of GS BDC Common Stock.

The market price and liquidity of the market for GS BDC Common Stock may be significantly affected by numerous factors, some of which are beyond GS BDC’s control and may not be directly related to GS BDC’s operating performance. These factors include:

 

•

significant volatility in the market price and trading volume of securities of BDCs or other companies in GS BDC’s sector, which are not necessarily related to the operating performance of the companies;

 

•

changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs and BDCs;

 

•

loss of GS BDC’s qualification as a RIC or a BDC;

 

•

changes in market interest rates, including the decommissioning of LIBOR, and decline in the prices of debt;

 

•

changes in earnings or variations in operating results;

 

•

changes in the value of GS BDC’s portfolio investments;

 

•

changes in accounting guidelines governing valuation of GS BDC’s investments;

 

•

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

•

departure of GSAM’s or any of its affiliates’ key personnel;

 

•

operating performance of companies comparable to GS BDC;

 

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•

general economic trends and other external factors; and

 

•

loss of a major funding source.

See “Cautionary Statement Regarding Forward-Looking Statements” for other factors that could cause the market price of GS BDC Common Stock to change.

Closing sales prices of GS BDC Common Stock as reported on the New York Stock Exchange for the year ended December 31, 2019, ranged from a low of $18.71 to a high of $22.30. However, historical trading prices are not necessarily indicative of future performance. You should obtain current market quotations for shares of GS BDC Common Stock prior to the special meetings.

Sales of shares of GS BDC Common Stock after the completion of the Merger may cause the market price of GS BDC Common Stock to decline.

Based on the number of outstanding shares of MMLC Common Stock as of December 6, 2019, GS BDC would issue approximately 49.2 million shares of GS BDC Common Stock to the MMLC stockholders who acquire shares of GS BDC Common Stock in the Merger (each, an “Affected Stockholder”) pursuant to the Merger Agreement. Subject to compliance with the lock-up provisions of the Amended and Restated GS BDC Charter, the Affected Stockholders may decide not to hold the shares of GS BDC Common Stock that they will receive pursuant to the Merger Agreement. Without the prior consent of the GS BDC Board:

 

•

for 90 days following the date of filing of the Amended and Restated GS BDC Charter (the “Filing Date”), an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber any shares of GS BDC Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement;

 

•

for 180 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber two-thirds of the shares of GS BDC Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement; and

 

•

for 270 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber one-third of the shares of GS BDC Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement.

Following the Closing and the expiration of applicable lock-up periods, subject to applicable securities laws, sales of substantial amounts of shares of GS BDC Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market prices for GS BDC Common Stock. If this occurs, it could impair GS BDC’s ability to raise additional capital through the sale of equity securities should it desire to do so. GS BDC cannot predict what effect, if any, future sales of securities, or the availability of securities for future sales, will have on the market price of GS BDC Common Stock prevailing from time to time.

In addition, certain MMLC stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of GS BDC Common Stock that they receive pursuant to the Merger Agreement. In addition, GS BDC stockholders may decide not to hold their shares of GS BDC Common Stock after completion of the Merger. In each case, such sales of GS BDC Common Stock could have the effect of depressing the market price for GS BDC Common Stock and may take place promptly following the completion of the Merger and, to the extent applicable, the expiration of the relevant lock-up periods.

MMLC stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger.

MMLC stockholders will experience a substantial reduction in their percentage ownership interests and effective voting power in respect of the combined company relative to their percentage ownership interests in MMLC prior to the Merger. Consequently, MMLC stockholders should expect to exercise less influence over the management and policies of the combined company following the Merger than they currently exercise over the management and policies of MMLC.

If the Merger were consummated as of December 6, 2019, based on the pro forma number of shares of GS BDC Common Stock to be issued and outstanding on the Closing Date, GS BDC stockholders would own approximately 45.1% of the outstanding GS BDC Common Stock and MMLC stockholders would own approximately 54.9% of the outstanding GS BDC Common Stock. In addition, prior to

 

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completion of the Merger, subject to certain restrictions in the Merger Agreement, GS BDC and MMLC may each issue additional shares of GS BDC Common Stock and MMLC Common Stock, respectively, which would further reduce the percentage ownership of the combined company to be held by MMLC stockholders. After completion of the Merger, GS BDC may issue additional shares of GS BDC Common Stock at prices below GS BDC Common Stock’s then-current NAV per share, subject to certain restrictions under the 1940 Act, including stockholder approval of such issuance. The issuance or sale by GS BDC of shares of GS BDC Common Stock at a discount to NAV poses a risk of dilution to stockholders.

GS BDC may be unable to realize the benefits anticipated by the Merger, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.

The realization of certain benefits anticipated as a result of the Merger will depend in part on the integration of MMLC’s investment portfolio with GS BDC’s and the integration of MMLC’s business with GS BDC’s. There can be no assurance that MMLC’s investment portfolio or business can be operated profitably or integrated successfully into GS BDC’s operations in a timely fashion or at all. The dedication of management resources to such integration may detract attention from the day-to-day business of the combined company and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in connection with such integration and failure of MMLC’s investment portfolio to perform as expected, could have a material adverse effect on the financial results of the combined company.

GS BDC also expects to achieve certain cost savings from the Merger when the two companies have fully integrated their portfolios. It is possible that the estimates of the potential cost savings could ultimately be incorrect. The cost savings estimates also assume GS BDC will be able to combine the operations of GS BDC and MMLC in a manner that permits those cost savings to be fully realized. If the estimates turn out to be incorrect or if GS BDC is not able to successfully combine MMLC’s investment portfolio or business with the operations of GS BDC, the anticipated cost savings may not be fully realized or realized at all or may take longer to realize than expected.

The Merger may trigger certain “change of control” provisions and other restrictions in contracts of GS BDC, MMLC or their affiliates and the failure to obtain any required consents or waivers could adversely impact the combined company.

Certain agreements of GS BDC and MMLC or their affiliates, which may include agreements governing indebtedness of GS BDC or MMLC, will or may require the consent or waiver of one or more counterparties in connection with the Merger. The failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or GS BDC’s or MMLC’s obligations under, any such agreement because the Merger or other transactions contemplated by the Merger Agreement may violate an anti-assignment, change of control or similar provision relating to any of such transactions. If this occurs, GS BDC may have to seek to replace that agreement with a new agreement or seek an amendment to such agreement. MMLC cannot assure you that GS BDC will be able to replace or amend any such agreement on comparable terms or at all. If these types of provisions are triggered in agreements governing indebtedness of GS BDC or MMLC, the lender or holder of the debt instrument could accelerate repayment under such indebtedness and negatively affect GS BDC’s business, financial condition, results of operations and cash flows.

If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of the combined company following the Merger, including preventing GS BDC from operating a material part of MMLC’s business.

In addition, the consummation of the Merger may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain agreements of GS BDC or MMLC. Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of the

combined company following completion of the Merger.

The opinion delivered to the MMLC Special Committee from the financial advisor to the MMLC Special Committee will not reflect changes in circumstances between signing the Merger Agreement and completion of the Merger.

The MMLC Special Commitee has not obtained an updated opinion as of the date of this report from the financial advisor to the MMLC Special Committee and does not anticipate obtaining an updated opinion prior to the Closing Date. Changes in the operations and prospects of MMLC, general market and economic conditions and other factors that may be beyond the control of MMLC, and on which its financial advisor’s opinion was based, may significantly alter the value of MMLC or the price of shares of GS BDC Common Stock by the time the Merger is completed. The opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. Because the MMLC Special Committee does not anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness from a financial point of view of the Exchange Ratio at the time the Merger is completed.

 

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If the Merger does not close, MMLC will not benefit from the expenses incurred in its pursuit.

The Merger may not be completed. If the Merger is not completed, MMLC will have incurred substantial expenses for which no ultimate benefit will have been received. MMLC has incurred out-of-pocket expenses in connection with the Merger for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Merger is not completed.

The termination of the Merger Agreement could negatively impact MMLC.

If the Merger Agreement is terminated, there may be various consequences, including:

 

•

MMLC’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger;

 

•

MMLC may not be able to find a party willing to pay an equivalent or more attractive price than the price GS BDC agreed to pay in the Merger; and

 

•

the payment of any termination fee, if required under the circumstances, could adversely affect the financial condition and liquidity of MMLC.

Under certain circumstances, MMLC is obligated to pay (or cause a third party to pay) a termination fee to GS BDC upon termination of the Merger Agreement.

No assurance can be given that the Merger will be completed. The Merger Agreement provides for the payment, subject to applicable law, by MMLC (or a third party), of a termination fee of $27.8 million to GS BDC, if the Merger Agreement is terminated by MMLC under certain circumstances, including if (i) the MMLC Board has changed its recommendation in favor of the proposals for its stockholders set forth in the joint proxy statement/prospectus, and/or has approved an alternative takeover proposal; MMLC fails to recommend that its stockholders vote in favor of the proposals for its stockholders set forth in the joint proxy statement/prospectus; a takeover proposal by a third party is announced and the MMLC Board fails to reaffirm its recommendation that its stockholders vote in favor of the proposals for its stockholders set forth in the joint proxy statement/prospectus; or a tender or exchange offer for MMLC Common Stock is initiated by a third party and the MMLC Board does not recommend rejection of such tender or exchange offer; (ii) MMLC materially breaches any of its obligations relating to the solicitation and administration of takeover proposals from third parties; or (iii) (1) the Merger is not completed by December 9, 2020, the MMLC stockholders do not approve the applicable proposals set forth in the joint proxy statement/prospectus, at the special meeting, or MMLC willfully or intentionally breaches its representations, warranties, covenants or agreements in the Merger Agreement, (2) an alternative takeover proposal of MMLC is disclosed after the date of the Merger Agreement and (3) MMLC enters into an agreement with respect to such takeover proposal within twelve (12) months after the Merger Agreement is terminated and such takeover is subsequently completed, subject to applicable law. GS BDC will be the entity entitled to receive such termination fee under the Merger Agreement. The MMLC Board has approved the amount of the termination fee which may be paid.

The Merger Agreement limits the ability of MMLC to pursue alternatives to the Merger.

The Merger Agreement contains provisions that limit MMLC’s ability to discuss, facilitate or commit to competing third party proposals to acquire all or a significant part of MMLC. These provisions, which are typical for transactions of this type, include a termination fee of $27.8 million payable to GS BDC, under certain circumstances, might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of MMLC from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the Merger or might result in a potential competing acquiror proposing to pay a lower per share price to acquire MMLC than it might otherwise have proposed to pay.

 

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The Merger is subject to closing conditions, including stockholder approvals, that, if not satisfied or (to the extent legally allowed) waived, will result in the Merger not being completed, which may result in material adverse consequences to MMLC’s business and operations.

The Merger is subject to closing conditions, including certain approvals of MMLC’s stockholders that, if not satisfied, will prevent the Merger from being completed. The closing condition that MMLC stockholders approve the Merger and the Amended and Restated GS BDC Charter may not be waived under applicable law and must be satisfied for the Merger to be completed. MMLC currently expects that all directors and executive officers of MMLC will vote their shares of MMLC Common Stock in favor of the proposals presented at the MMLC Special Meeting. If MMLC stockholders do not approve the Merger and the Amended and Restated GS BDC Charter and the Merger is not completed, the resulting failure of the Merger could have a material adverse impact on MMLC’s business and operations. The closing condition that GS BDC stockholders approve the Merger, the Amended and Restated GS BDC Charter and the issuance of shares of GS BDC Common Stock pursuant to the Merger Agreement (the “Merger Stock Issuance”) may not be waived under applicable law and must be satisfied for the Merger to be completed. In addition, the Closing is conditioned upon approval of the new investment management agreement (the “New Investment Management Agreement”) by GS BDC stockholders. GS BDC currently expects that all directors and executive officers of GS BDC will vote their shares of GS BDC Common Stock in favor of the proposals presented at the GS BDC Special Meeting. If GS BDC stockholders do not approve each of the Merger, the Amended and Restated GS BDC Charter, the Merger Stock Issuance and the New Investment Management Agreement and the Merger is not completed, the resulting failure of the Merger could have a material adverse impact on MMLC’s business and operations. In addition to the required approvals of MMLC’s stockholders, the Merger is subject to a number of other conditions beyond MMLC’s control that may prevent, delay or otherwise materially adversely affect its completion. MMLC cannot predict whether and when these other conditions will be satisfied.

MMLC will be subject to operational uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger may have an adverse effect on MMLC and, consequently, on the combined company following completion of the Merger. These uncertainties may cause those that deal with MMLC to seek to change their existing business relationships with MMLC. In addition, the Merger Agreement restricts MMLC from taking actions that MMLC might otherwise consider to be in its best interests. These restrictions may prevent MMLC from pursuing certain business opportunities that may arise prior to the completion of the Merger.

GS BDC and MMLC may, to the extent legally allowed, waive one or more conditions to the Merger without resoliciting stockholder approval.

Certain conditions to GS BDC’s and MMLC’s obligations to complete the Merger may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of GS BDC and MMLC. In the event that any such waiver does not require resolicitation of stockholders, the parties to the Merger Agreement will have the discretion to complete the Merger without seeking further stockholder approval. The conditions requiring the approval of GS BDC stockholders and MMLC stockholders, however, cannot be waived.

The shares of GS BDC Common Stock to be received by MMLC stockholders as a result of the Merger will have substantially the same rights associated with them as shares of MMLC Common Stock currently held by them except for the transfer restrictions imposed by the Amended and Restated GS BDC Charter.

The rights associated with GS BDC Common Stock to be received by the MMLC stockholders as a result of the Merger are substantially the same as the rights associated with the shares of MMLC Common Stock currently held by them except for the transfer restrictions imposed by the Amended and Restated GS BDC Charter. Under the Amended and Restated GS BDC Charter, transfer restrictions will be imposed on the Affected Stockholders such that, without the consent of the Board:

 

•

for 90 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber any shares of GS BDC Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement;

 

•

for 180 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber two-thirds of the shares of GS BDC Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement; and

 

•

for 270 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber one-third of the shares of GS BDC Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement.

 

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The market price of GS BDC Common Stock after the Merger may be affected by factors different from those affecting GS BDC Common Stock currently.

The businesses of GS BDC and MMLC differ in some respects and, accordingly, the results of operations of the combined company and the market price of GS BDC Common Stock after the Merger may be affected by factors different from those currently affecting the independent results of operations of each of GS BDC and MMLC, such as a larger stockholder base.

Accordingly, the historical trading prices and financial results of GS BDC may not be indicative of these matters for the combined company following the Merger.

There are risks associated with any potential merger with or asset sale to another BDC, including the Merger.

GSAM recommended the Merger to the MMLC Board and may in the future recommend to the MMLC Board that MMLC merge with or sell all or substantially all of its assets to one or more funds including a fund that could be managed by GSAM (including another BDC). MMLC does not expect that GSAM would recommend any such merger or asset sale unless it determines that it would be in MMLC’s best interests, with such determination dependent on factors it deems relevant, which may include historical and projected financial performance of MMLC and any proposed merger partner, portfolio composition, potential synergies from the merger or asset sale, available alternative options and market conditions. In addition, no such merger or asset sale would be consummated absent the meeting of various conditions required by applicable law or contract, at such time, which may include approval of the board of directors and common equity holders of both funds. If GSAM is the investment adviser of both funds, as in the Merger, various conflicts of interest exist with respect to such transaction. Such conflicts of interest may potentially arise from, among other things, differences between the compensation payable to GSAM by MMLC and by the entity resulting from such a merger or asset sale or efficiencies or other benefits to GSAM as a result of managing a single, larger fund instead of two separate funds.

If we have not consummated an Exit Event, including the Merger, by the Wind-down Determination Date, our Board of Directors (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act and the Code) will meet to consider our potential wind down and/or liquidation and dissolution.

If we have not consummated an Exit Event, including the Merger, by the Wind-down Determination Date, our Board of Directors (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act and the Code) will meet to consider our potential wind down and/or liquidation and dissolution. To the extent our Board determines to pursue a liquidation or dissolution, no assurances can be provided as to what price they will be able to obtain from selling or liquidating our Investments and we could end up being liquidated below our then NAV per share or at a price per share below what stockholders paid.

In the event of any liquidation, dissolution or winding up of our affairs, our common stockholders would receive any remaining net assets only after payment or provision or payment of our debts and other liabilities and subject to the prior rights of any outstanding preferred stock. In addition, we expect that we would incur certain costs associated with a liquidation or dissolution. Accordingly, to the extent our Board of Directors determines to proceed with our liquidation or dissolution, it could result in a loss for our common stockholders.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.    PROPERTIES.

We maintain our principal executive office at 200 West Street, New York, New York 10282. We do not own any real estate.

ITEM 3.    LEGAL PROCEEDINGS.

From time to time, we may be a party to certain legal proceedings, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.

ITEM 4.    MINE SAFETY DISCLOSURES.

Not applicable.

 

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PART II.

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There is currently no public market for the common stock, and we do not expect one to develop in the future.

Stockholders

Prior to the Initial Drawdown Date, the Initial Member, an affiliate of our Investment Adviser, was the sole owner of our membership interests, which were acquired for an initial capital contribution of one hundred dollars. We cancelled the Initial Member’s interest in us on the Initial Drawdown Date. Concurrent with the cancellation, investors (other than the Initial Member) made their initial capital contribution to purchase common stock.

As of February 27, 2020, there were approximately 4,837 stockholders of record of our common stock.

Sales of Unregistered Securities and Use of Proceeds

The following table summarizes the total common stock issued and proceeds received related to capital drawdowns:

 

Share Issue Date		Shares Issued				Proceeds Received ($ in millions)
For the Year Ended December 31, 2019
March 25, 2019			4,286,182			$	82.61
June 27, 2019			2,179,196				41.55
December 27, 2019			1,092,225				20.72
Total capital drawdowns			7,557,603			$	144.88
For the Year Ended December 31, 2018
March 26, 2018			2,700,602			$	51.86
June 25, 2018			2,689,865				51.62
September 27, 2018			8,011,747				154.82
December 27, 2018			5,354,207				103.79
Total capital drawdowns			18,756,421			$	362.09
For the Period from January 11, 2017 (commencement of operations) to December 31, 2017
January 30, 2017			1,520,857			$	30.42
February 27, 2017			30,240				0.58
March 24, 2017			3,226,393				61.93
April 27, 2017			390,953				7.51
June 26, 2017			5,202,980				100.05
July 27, 2017			4,221,946				80.47
September 25, 2017			4,849,366				93.13
October 27, 2017			2,120,202				40.24
December 26, 2017			2,685,522				51.54
Total capital drawdowns			24,248,459			$	465.87

Each of the above issuances and sales of the common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and Regulation D or Regulation S under the Securities Act. Each purchaser of common stock was required to represent that it is (i) either an “accredited investor” as defined in Rule 501 of Regulation D under the Securities Act or, in the case of stock sold outside the United States, not a “U.S. person” in accordance with Regulation S of the Securities Act and (ii) was acquiring the common stock for investment and not with a view to resell or distribute. We did not engage in general solicitation or advertising, and did not offer securities to the public, in connection with such issuance and sale.

Because the common stock was acquired by investors in one or more transactions “not involving a public offering,” they are “restricted securities” and may be required to be held indefinitely. Our common stock may not be sold, transferred, assigned, pledged or otherwise disposed of unless (i) our consent is granted, and (ii) the common stock is registered under applicable securities laws or specifically exempted from registration (in which case the stockholders may, at our option, be required to provide us with a legal opinion, in form and substance satisfactory to us, that registration is not required). Accordingly, an investor must be willing to bear the economic risk of investment in the common stock until we are liquidated. No sale, transfer, assignment, pledge or other disposition, whether voluntary or involuntary, of common stock may be made except by registration of the transfer on our books. Each purchaser of our common stock will be required to complete and deliver to the appropriate Placement Agent, if any, and us, prior to the acceptance of any order, a subscription agreement substantiating the purchaser’s eligibility to purchase shares and including limitations on resales and transfers of our common stock.

 

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Distributions

Subject to the requirements of Section 852(a) of Subchapter M of the Code, and the terms of any indebtedness or preferred stock, we intend to (i) distribute to stockholders, pro rata based on the number of shares held by each stockholder, before the end of each taxable year, or in certain cases, during the following taxable year, net proceeds attributable to the repayment or disposition of investments (together with any interest, dividends and other net cash flow in respect of such investments), except to the extent such proceeds from repayment or disposition are retained for reinvestment prior to the termination of the Investment Period in accordance with “—Recycling” below, (ii) distribute quarterly investment income (i.e. proceeds received in respect of interest payments, dividends or fees as opposed to proceeds received in connection with the disposition or repayment of an Investment) (commencing with the quarter ended December 31, 2017), and (iii) distribute substantially all of our investment company taxable income and net capital gain for each taxable year in order maintain our status as a RIC under Subchapter M of the Code for any such taxable year.

Depending upon the level of taxable income and net capital gain earned in a year, we may choose to retain certain net capital gain for reinvestment and carry forward taxable income for distribution in the following year and pay any applicable tax. Distributions to stockholders will be appropriately adjusted for any taxes payable by us or any direct or indirect subsidiary through which we invest (including any corporate, state, local, non-U.S. and withholding taxes).

No distribution shall be made to a stockholder to the extent not permitted under applicable law.

The following tables summarize the distributions declared on our common stock during the years ended December 31, 2019 and 2018:

 

Date Declared		Record Date		Payment Date		Amount Per Share
February 28, 2019		March 15, 2019		April 30, 2019		$	0.43
May 9, 2019		June 14, 2019		July 31, 2019		$	0.43
August 8, 2019		September 13, 2019		October 31, 2019		$	0.43
November 7, 2019		December 13, 2019		January 23, 2020		$	0.43

 

Date Declared		Record Date		Payment Date		Amount Per Share
March 1, 2018		March 15, 2018		April 30, 2018		$	0.43
May 3, 2018		June 15, 2018		July 31, 2018		$	0.43
August 2, 2018		September 14, 2018		October 31, 2018		$	0.43
October 31, 2018		December 14, 2018		January 23, 2019		$	0.43

During the year ended December 31, 2019, we designated 97.34% of our distributions from net investment income as interest-related dividends pursuant to Section 871(k) of the Internal Revenue Code.

During the year ended December 31, 2018, we designated 97.12% of our distributions from net investment income and short-term gains as interest-related dividends and short-term capital gain dividends pursuant to Section 871(k) of the Internal Revenue Code. Pursuant to Section 852 of the Internal Revenue Code, we designated $526,538 or, if different, the maximum amount allowable, as capital gain dividends paid during the fiscal year ended December 31, 2018.

Recycling

Subject to the requirements of Subchapter M of the Code and the terms of any indebtedness, proceeds realized by us prior to the Wind-down Determination Date from the sale or repayment of any Investment (as opposed to investment income) up to the cost of any such Investment, may be retained and reinvested by us. Any amounts so reinvested will not reduce a stockholder’s Undrawn Commitment.

To the extent that we retain net capital gains for reinvestment or carry forward taxable income for distribution in the following year, there may be certain tax consequences to us and the stockholders.

 

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ITEM 6.

SELECTED FINANCIAL DATA

The table below sets forth our selected consolidated historical financial data for the periods indicated. The selected consolidated financial data for the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, have been derived from our audited consolidated financial statements, which are included elsewhere in this annual report on Form 10-K.

The selected consolidated financial information and other data presented below should be read in conjunction with the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited consolidated financial statements and the notes thereto included elsewhere in this annual report on Form 10-K.

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Consolidated statements of operations data (in thousands):
Total investment income		$	145,743			$	84,234			$	19,845
Net expenses			62,898				28,315				10,331
Net investment income			82,845				55,919				9,514
Net realized and unrealized gains (losses)			(21,019	)			(4,281	)			515
(Provision) benefit for taxes on realized gain/loss on investments			100				(372	)			—
(Provision) benefit for taxes on unrealized appreciation/depreciation on investments			(794	)			(387	)			—
Net increase in net assets resulting from operations		$	61,132			$	50,879			$	10,029
Per share data
Net Asset Value		$	18.69			$	19.07			$	18.89
Net investment income (basic and diluted)		$	1.75			$	1.87			$	0.89
Earnings (loss) (basic and diluted)		$	1.29			$	1.70			$	0.93
Distributions declared		$	1.72			$	1.72			$	1.29
		As of December 31, 2019				As of December 31, 2018				As of December 31, 2017
Consolidated statement of assets and liabilities data (in thousands):
Total assets		$	1,706,375			$	1,131,948			$	532,129
Total investments, at fair value		$	1,683,160			$	1,107,185			$	522,046
Total liabilities		$	761,586			$	311,794			$	74,001
Total debt		$	729,986			$	286,189			$	62,000
Total net assets		$	944,789			$	820,154			$	458,128

 

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. References to “we,” “us,” “our,” and the “Company,” mean Goldman Sachs Middle Market Lending Corp., unless otherwise specified. The terms “GSAM,” our “Adviser” or our “Investment Adviser” refer to Goldman Sachs Asset Management, L.P., a Delaware limited partnership. The term “Group Inc.” refers to The Goldman Sachs Group, Inc. The term “Goldman Sachs” refers to Group Inc., together with Goldman Sachs & Co. LLC (including its predecessors, “GS & Co.”), GSAM and its other subsidiaries and affiliates. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this report.

OVERVIEW

We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, we have elected to be treated, and expect to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2017. From our commencement of operations on January 11, 2017 through December 31, 2019, we originated $2.21 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments. “Unitranche” loans are first lien loans that may extend deeper in a company’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, we may find another lender to provide the “first out” portion of such loan and retain the “last out” portion of such loan, in which case, the “first out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last out” portion that we would continue to hold. In exchange for the greater risk of loss, the “last out” portion generally earns a higher interest rate than the “first-out” portion. We use the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. We may make multiple investments in the same portfolio company.

We expect to invest, under normal circumstances, at least 80% of our net assets (plus any borrowings for investment purposes), directly or indirectly in middle-market corporate credit obligations and related instruments; including other income-producing assets. We define “credit obligations and related instruments” for this purpose as any fixed-income instrument, including loans to, and bonds and preferred stock of, portfolio companies and other instruments that provide exposure to such fixed-income instruments. “Middle market” is used to refer to companies with between $5 million and $125 million of annual earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) excluding certain one-time and non-recurring items that are outside the operations of these companies. We expect to invest primarily in U.S. middle-market companies, which we believe are underserved by traditional providers of capital such as banks and the public debt markets. However, we may from time to time invest opportunistically in large U.S. companies, non-U.S. companies, stressed or distressed debt, structured products, private equity or other opportunities, subject to limits imposed by the Investment Company Act. In addition, as a result of fluctuations in the value of one asset relative to another asset, middle-market credit obligations and related instruments may represent less than 80% of our net assets (plus any borrowings for investment purposes) at any time. Investors will be notified at least 60 days prior to any change to our 80% investment policy described above.

We expect to directly or indirectly invest at least 70% of our total assets in middle-market companies domiciled in the United States. However, we may from time to time invest opportunistically in large U.S. companies, non-U.S. companies, stressed or distressed debt, structured products, private equity or other opportunities, subject to limits imposed by the Investment Company Act.

While our investment program is expected to focus primarily on debt investments, our investments may include equity features, such as a direct investment in the equity or convertible securities of a portfolio company or warrants or options to buy a minority interest in a portfolio company. Any warrants we may receive with debt securities will generally require only a nominal cost to exercise, so as a portfolio company appreciates in value, we may achieve additional investment return from these equity investments. We may structure the warrants to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the portfolio company, upon the occurrence of specified events. In many cases, we may also obtain registration rights in connection with these equity investments, which may include demand and “piggyback” registration rights.

On December 9, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GS BDC, a Delaware corporation, Evergreen Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of GS BDC (“Merger Sub”), and GSAM, a Delaware limited partnership and investment adviser to each of us and GS BDC. The Merger Agreement provides that, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into us, with us continuing as the surviving company (the “First Merger”) and, immediately thereafter, we will merge with and into GS BDC, with GS BDC continuing as the surviving company (the “Second Merger” and, together with the First Merger, the “Merger”).

In the First Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the First Merger will be converted into 0.9939 shares of GS BDC’s common stock (the “Exchange Ratio”) in connection with the closing of the Merger (the “Merger Consideration”). The Exchange Ratio will only be adjusted if, between the date of the Merger Agreement and the effective time, (i) either we or GS BDC declare or pay an extraordinary dividend, or (ii) the respective outstanding shares of GS BDC’s common stock (“GS BDC Common Stock”) or our common stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend

 

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payable in any other securities will be declared with a record date within such period, other than shares issued pursuant to GS BDC’s distribution reinvestment plan, as permitted by the Merger Agreement. No fractional shares of GS BDC Common Stock will be issued, and holders of our common stock will receive cash in lieu of fractional shares. See “Item 1. Business—Pending Merger with GS BDC” for further information.

The investment period commenced on December 29, 2016 (the “Initial Closing Date”). On August 8, 2019, our board of directors (the “Board of Directors”) extended the investment period for one additional six-month period from September 29, 2019 to March 29, 2020. With the approval of a majority-in-interest of the stockholders, the investment period may be extended for up to one additional year thereafter (such period, including any extensions, the “Investment Period”). In addition, our Board of Directors may terminate the Investment Period at any time in its discretion.

We will continue to operate as a private BDC reporting company, until the earlier of the following events, each referred to as an “Exit Event”: (i) any listing of our shares of common stock on a national securities exchange (a “listing”), including in connection with an initial public offering (“IPO”), (ii) merger with another entity, including an affiliated company, subject to any limitations under the Investment Company Act or (iii) the sale of all or substantially all of our assets. If we have not consummated an Exit Event by the sixth anniversary of the Final Closing Date, the Board of Directors (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act and the Code) will meet to consider our potential wind down and/or liquidation and dissolution.

For a discussion of the competitive landscape we face, please see “Item 1A. Risk Factors–Risks Relating to Our Business and Structure–We operate in a highly competitive market for investment opportunities” and “Item 1. Business–Competitive Advantages.”

KEY COMPONENTS OF OPERATIONS

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.

As a BDC, we may not acquire any assets other than “qualifying assets” specified in the Investment Company Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the U.S. Securities and Exchange Commission (the “SEC”), “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

Revenues

We generate revenues in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date.

We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate revenue in the form of commitment, origination, structuring, syndication, exit fees or diligence fees, fees for providing managerial assistance and consulting fees. Portfolio company fees (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) will be paid to us, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, we receive our allocable portion of such fees when invested in the same portfolio company as other client accounts managed by our Investment Adviser (including GS BDC, GS PMMC, and GS PMMC II, collectively with other client accounts managed by our Investment Adviser, the “Accounts”), which other Accounts could receive their allocable portion of such fee. We do not expect to receive material fee income as it is not our principal investment strategy. We record contractual prepayment premiums on loans and debt securities as interest income.

Dividend income on preferred equity investments is recorded on an 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 investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.

Expenses

Our primary operating expenses include the payment of the management fee (the “Management Fee”) and the incentive fee (the “Incentive Fee”) to our Investment Adviser, legal and professional fees, interest and other debt expenses and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other expenses of our operations and transactions in accordance with our investment management agreement (the “Investment Management Agreement”) and administration agreement (the “Administration Agreement”), including those relating to:

 

•

our operational and organizational expenses;

 

•

fees and expenses, including travel expenses, incurred by our Investment Adviser or payable to third parties related to our investments, including, among others, professional fees (including the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments;

 

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•

interest, fees and other expenses payable on indebtedness for borrowed money (including through the issuance of notes and other evidence of indebtedness), other indebtedness, financings or extensions of credit, if any, incurred by us;

 

•

fees and expenses incurred by us in connection with membership in investment company organizations;

 

•

brokers’ commissions;

 

•

fees and expenses associated with calculating our net asset value (“NAV”) (including expenses of any independent valuation firm);

 

•

legal, auditing or accounting expenses;

 

•

taxes or governmental fees;

 

•

the fees and expenses of our administrator, transfer agent, or sub-transfer agent;

 

•

the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of the shares;

 

•

the expenses of, and fees for, registering or qualifying common stock for sale, maintaining our registration and qualifying and registering us as a broker or a dealer;

 

•

the fees and expenses of our independent directors;

 

•

the cost of preparing and distributing reports, proxy statements and notices to holders of our equity interests, the SEC and other regulatory authorities;

 

•

costs of holding stockholders meetings;

 

•

listing fees, if any;

 

•

the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our organizational documents insofar as they govern agreements with any such custodian;

 

•

insurance premiums; and

 

•

costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business.

We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

Leverage

We expect from time to time to borrow funds for a variety of purposes, subject to the limitations of the Investment Company Act, including to bridge fundings for investments in advance of drawdowns, as part of our investment strategy, to meet other short-term liquidity needs, including to pay the Management Fee, and to facilitate our hedging activities. Sources of leverage include the issuance of senior securities (including preferred stock) and other credit facilities (secured by Investments and/or pledges of Undrawn Commitments). We have entered into a revolving credit facility with Truist Bank (formerly known as SunTrust Bank), as administrative agent (the “Truist Revolving Credit Facility”), which allows us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as “leverage” and could increase or decrease returns to our stockholders. The use of leverage involves significant risks.

As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 200% after such borrowing (or 150% if certain requirements are met). As of December 31, 2019 and December 31, 2018, our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 228% and 381%, respectively. The Small Business Credit Availability Act modified the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs to 150%, subject to certain approval and disclosure requirements and, in the case of BDCs without common equity listed on a national securities exchange, such as us, an offer to repurchase shares held by the BDC’s stockholders as of the date the requisite approval is obtained. Under the legislation, BDCs are able to increase their leverage capacity if shareholders approve a proposal to do so. If a BDC receives shareholder approval, it would be allowed to increase its leverage capacity on the first day after such approval. Alternatively, the legislation allows the majority of the directors who are not “interested persons,” as defined in the Investment Company Act, of the BDC to approve an increase in its leverage capacity, and such approval would become effective after one year.

Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus may be subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining an asset coverage ratio of at least 200% (or 150% if the above referenced requirements are met), we may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Act’s asset coverage requirement and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing.

 

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PORTFOLIO AND INVESTMENT ACTIVITY

Our portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.) consisted of the following:

 

		As of
		December 31, 2019												December 31, 2018
		Amortized Cost				Fair Value				Percentage of Total Portfolio at Fair Value				Amortized Cost				Fair Value				Percentage of Total Portfolio at Fair Value
		($ in millions)												($ in millions)
First Lien/Senior Secured Debt		$	1,272.05			$	1,266.49				75.2	%		$	646.33			$	644.91				58.2	%
First Lien/Last-Out Unitranche			100.83				100.80				6.0				90.48				90.58				8.2
Second Lien/Senior Secured Debt			311.93				294.16				17.5				359.04				353.77				32.0
Preferred Stock			7.20				10.14				0.6				7.20				8.10				0.7
Common Stock			10.38				11.57				0.7				10.00				9.83				0.9
Total Investments		$	1,702.39			$	1,683.16				100.0	%		$	1,113.05			$	1,107.19				100.0	%

The weighted average yield on our total portfolio by asset type (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.), at amortized cost and fair value, was as follows:

 

		As of
		December 31, 2019								December 31, 2018
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Weighted Average Yield(1)
First Lien/Senior Secured Debt(2)			8.7	%			8.7	%			9.9	%			10.0	%
First Lien/Last-Out Unitranche(2)(4)			10.1				10.1				11.0				10.9
Second Lien/Senior Secured Debt(2)			10.7				11.8				11.2				11.5
Preferred Stock(3)			–				–				–				–
Common Stock(3)			–				–				–				–
Total Portfolio			9.0	%			9.2	%			10.3	%			10.4	%

 

(1)

The weighted average yield of our portfolio does not represent the total return to our stockholders.

(2)

Computed based on (a) the annual actual interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments as of the reporting date, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

(3)

Computed based on the (a) stated coupon rate, if any, for each income-producing investment, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

(4)

The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments.

As of December 31, 2019, the total portfolio weighted average yield at amortized cost and fair value was 9.0% and 9.2%, respectively, which decreased from 10.3% and 10.4%, respectively, as of December 31, 2018. Within First Lien/Senior Secured Debt, the decrease in weighted average yield at amortized cost and fair value was primarily driven by the decrease in LIBOR on our variable rate secured debt investments.

The following table presents certain selected information regarding our investment portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.):

 

		As of
		December 31, 2019				December 31, 2018
Number of portfolio companies			81				55
Percentage of performing debt bearing a floating rate(1)			100.0%				100.0%
Percentage of performing debt bearing a fixed rate(1)(2)			0.0%				0.0%
Weighted average leverage (net debt/EBITDA)(3)			5.9x				5.7x
Weighted average interest coverage(3)			2.3x				2.1x
Median EBITDA(3)		$	40.25 million			$	45.11 million

 

(1)

Measured on a fair value basis. Excludes investments, if any, placed on non-accrual.

(2)

Includes income producing preferred stock investments, if applicable.

 

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(3)

For a particular portfolio company, we calculate the level of contractual indebtedness net of cash (“net debt”) owed by the portfolio company and compare that amount to measures of cash flow available to service the net debt. To calculate net debt, we include debt that is both senior and pari passu to the tranche of debt owned by us but exclude debt that is legally and contractually subordinated in ranking to the debt owned by us. We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual rights of repayment of the tranche of debt owned by us relative to other senior and junior creditors of a portfolio company. We typically calculate cash flow available for debt service at a portfolio company by taking EBITDA for the trailing twelve month period. Weighted average net debt to EBITDA is weighted based on the fair value of our debt investments, excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

For a particular portfolio company, we also calculate the level of contractual interest expense owed by the portfolio company, and compare that amount to EBITDA (“interest coverage ratio”). We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual interest obligations of the portfolio company. Weighted average interest coverage is weighted based on the fair value of our performing debt investments, excluding investments where interest coverage may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

Median EBITDA is based on our debt investments, excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the reported end date. Statistics of the portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount. As of December 31, 2019 and December 31, 2018, investments where net debt to EBITDA may not be the appropriate measure of credit risk represented 30.4% and 32.5%, respectively, of total debt investments at fair value. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the respective reported end date. Portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount.

Floating rates are primarily LIBOR plus a spread.

Our Investment Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if it is meeting its respective business plan and to assess the appropriate course of action for each company. Our Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

 

•

assessment of success in adhering to the portfolio company’s business plan and compliance with covenants;

 

•

periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments;

 

•

comparisons to our other portfolio companies in the industry, if any;

 

•

attendance at and participation in board meetings or presentations by portfolio companies; and

 

•

review of monthly and quarterly financial statements and financial projections of portfolio companies.

As part of the monitoring process, our Investment Adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Investment Adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (e.g. at the time of origination or acquisition), although it may also take into account in certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. The grading system is as follows:

 

•

investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit;

 

•

investments with a grade of 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2;

 

•

investments with a grade of 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and

 

•

investments with a grade of 4 indicate that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, in most cases, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit.

 

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Our Investment Adviser grades the investments in our portfolio at least quarterly and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, our Investment Adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the composition of our portfolio on the 1 to 4 grading scale:

 

		As of
		December 31, 2019								December 31, 2018
Investment Performance Rating		Fair Value				Percentage of Total Portfolio at Fair Value				Fair Value				Percentage of Total Portfolio at Fair Value
		(in millions)								(in millions)
Grade 1		$	17.83				1.0	%		$	–				–	%
Grade 2			1,643.87				97.7				1,097.23				99.1
Grade 3			21.46				1.3				9.96				0.9
Grade 4			–				–				–				–
Total Investments		$	1,683.16				100.0	%		$	1,107.19				100.0	%

The increase in investments with a grade 1 investment performance rating as of December 31, 2019 compared to December 31, 2018 was driven by one portfolio company with an aggregate fair value of $17.83 million being upgraded due to a potential exit. The increase in investments with a grade 2 investment performance rating as of December 31, 2019 compared to December 31, 2018 was primarily driven by an increase in net investment activity.

The following table shows the amortized cost of our performing and non-accrual investments:

 

		As of
		December 31, 2019								December 31, 2018
		Amortized Cost				Percentage of Total Portfolio at Amortized Cost				Amortized Cost				Percentage of Total Portfolio at Amortized Cost
		(in millions)								(in millions)
Performing		$	1,702.39				100.0	%		$	1,113.05				100.0	%
Non-accrual			–				–				–				–
Total Investments		$	1,702.39				100.0	%		$	1,113.05				100.0	%

Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to the contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.

 

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The following table shows our investment activity by investment type:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018
		($ in millions)
New investment commitments at cost:
Gross originations		$	849.61			$	798.19
Less: Syndications(1)			–				–
Net amount of new investments committed at cost:		$	849.61			$	798.19
Amount of investments committed at cost(2)
First Lien/Senior Secured Debt		$	814.40			$	569.43
First Lien/Last-Out Unitranche			2.41				82.62
Second Lien/Senior Secured Debt			32.80				130.90
Preferred Stock			–				7.20
Common Stock			–				8.04
Total		$	849.61			$	798.19
Proceeds from investments sold or repaid(13):
First Lien/Senior Secured Debt		$	168.31			$	21.68
First Lien/Last-Out Unitranche			0.45				22.15
Second Lien/Senior Secured Debt			76.31				42.89
Preferred Stock			–				–
Common Stock			2.27				1.79
Total		$	247.34			$	88.51
Net increase (decrease) in portfolio		$	602.27			$	709.68
Number of new portfolio companies with new investment commitments(3)			32				30
Total new investment commitment amount in new portfolio companies(3)		$	681.09			$	647.50
Average new investment commitment amount in new portfolio companies(3)		$	21.28			$	21.58
Number of existing portfolio companies with new investment commitments(3)			20				13
Total new investment commitment amount in existing portfolio companies(3)		$	168.52			$	150.69
Weighted average remaining term for new investment commitments (in years)(3)(4)			5.1				5.2
Percentage of new debt investment commitments at floating interest rates(3)(10)			100.0%				99.9%
Percentage of new debt investment commitments at fixed interest rates(3)(10)			0.0%				0.1%
Weighted average yield on new debt and income producing investment commitments(2)(3)(5)			8.8%				9.8%
Weighted average yield on new investment commitments(2)(3)(6)			8.8%				9.6%
Weighted average yield on debt and income producing investments sold or paid down(7)(9)			9.8%				9.8%
Weighted average yield on investments sold or paid down(8)(9)			9.7%				9.6%

 

(1)

Only includes syndications, if any, that occurred at the initial close of the investment.

(2)

Net of capitalized fees, expenses and original issue discount (“OID”) that occurred at the initial close of the investment.

(3)

May include positions originated during the period but not held at the reporting date.

(4)

Calculated as of the end of the relevant period and the maturity date of the individual investments.

(5)

Computed based on (a) the annual actual interest rate on new debt and income producing investment commitments, divided by (b) the total new debt and income producing investment commitments. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes investments that are non-accrual. The annual actual interest rate used is as of the respective quarter end date when the investment activity occurred.

(6)

Computed based on (a) the annual actual interest rate on new investment commitments, divided by (b) the total new investment commitments (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments. The annual actual interest rate used is as of the respective quarter end date when the investment activity occurred.

(7)

Computed based on (a) the annual actual interest rate on debt and income producing investments sold or paid down, divided by (b) the total debt and income producing investments sold or paid down. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments and investments that are non-accrual.

(8)

Computed based on (a) the annual actual interest rate on investments sold or paid down, divided by (b) the total investments sold or paid down (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments.

(9)

Excludes unfunded commitments that may have expired or otherwise been terminated without receipt of cash proceeds or other consideration.

(10)

Computed based on amount of investments committed at cost.

 

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RESULTS OF OPERATIONS

The comparison for the year ended December 31, 2018 and for the period from January 11, 2017 (commencement of operations) to December 31, 2017 can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended December 31, 2018.

Our operating results were as follows:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018
		($ in millions)
Total investment income		$	145.74			$	84.23
Total expenses			62.90				28.31
Net investment income			82.84				55.92
Net realized gain (loss) on investments			(8.89	)			1.27
Net realized gain (loss) on foreign currency transactions			0.15				(0.26	)
Net unrealized appreciation (depreciation) on investments			(13.36	)			(6.39	)
Net unrealized appreciation (depreciation) on foreign currency forward contracts and translations			1.09				1.10
Income tax provision, realized and unrealized gain			(0.70	)			(0.76	)
Net increase in net assets resulting from operations		$	61.13			$	50.88

Net increase in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio.

Investment Income

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018
		($ in millions)
Interest		$	143.59			$	82.59
Dividend income			0.19				0.19
Other income			1.96				1.45
Total investment income		$	145.74			$	84.23

Interest

Interest from investments, which includes prepayment premiums and accelerated accretion of upfront loan origination fees and unamortized discounts, increased from $82.59 million for the year ended December 31, 2018 to $143.59 million for the year ended December 31, 2019, primarily due to an increase in recurring interest income, which resulted primarily from an increase in the size of our portfolio. The amortized cost of the portfolio increased from $1,113.05 million as of December 31, 2018 to $1,702.39 million as of December 31, 2019. Included in interest for the years ended December 31, 2019 and 2018 is $2.03 million and $0.60 million, respectively, in prepayment premiums and $2.97 million and $1.09 million, respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts.

Dividend income

Dividend income for the years ended December 31, 2019 and 2018 remained relatively consistent.

Other income

Other income for the years ended December 31, 2019 and 2018 remained relatively consistent.

 

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Expenses

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018
		($ in millions)
Interest and other debt expenses		$	24.08			$	10.86
Management fees			13.67				9.15
Incentive fees			18.02				3.43
Offering costs			–				0.04
Professional fees			3.31				1.70
Administration, custodian and transfer agent fees			2.22				1.50
Directors’ fees			0.45				0.45
Other expenses			1.15				1.18
Total expenses		$	62.90			$	28.31

Interest and other debt expenses

Interest and other debt expense increased from $10.86 million for the year ended December 31, 2018 to $24.08 million for the year ended December 31, 2019 primarily due to the increase in the weighted average interest rate for the Truist Revolving Credit Facility from 4.20% to 4.27% and the increase in average aggregate daily borrowings from $213.76 million to $512.69 million.

Management Fees and Incentive Fees

Management Fees increased from $9.15 million for the year ended December 31, 2018 to $13.67 million for the year ended December 31, 2019 as a result of capital drawdowns, which led to an increase in net assets. The accrual for Incentive Fees based on income increased from $3.51 million for the year ended December 31, 2018 to $18.02 million for the year ended December 31, 2019, as a result of Ordinary Income exceeding the hurdle amount, which was primarily driven by an increase in the size of our portfolio.

Professional fees and other general and administrative expenses

Professional fees increased from $1.70 million for the year ended December 31, 2018 to $3.31 million for the year ended December 31, 2019 primarily related to expenses incurred from our pending Merger with GS BDC. Other general and administrative expenses increased from $3.13 million for the year ended December 31, 2018 to $3.82 million for the year ended December 31, 2019 primary related to administration, custodian and transfer agent fees due to an increase in the size of the portfolio and an increase in costs associated with servicing a larger investment portfolio.

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation) on Investments

The realized gains and losses on fully exited and partially exited investments in portfolio companies consisted of the following:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018
		($ in millions)
Country Fresh Holdings, LLC		$	(10.55	)		$	–
Continuum Managed Services LLC – Class B			1.44				–
myON, LLC			–				1.29
Other, net			0.22				(0.02	)
Net realized gain (loss) on investments		$	(8.89	)		$	1.27

For the year ended December 31, 2019, net realized losses were primarily driven by our investment in Country Fresh Holdings, LLC. whereby, in April 2019, we exchanged our second lien debt for common equity, which resulted in a realized loss of $10.55 million.

In connection with the proceeds received from the exit of our equity investment in myON, LLC, we recorded an income tax provision on realized gains of $0.37 million for the year ended December 31, 2018.

 

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Any changes in fair value are recorded as a change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to “Critical Accounting Policies – Valuation of Portfolio Investments.” Net unrealized appreciation (depreciation) on investments were as follows:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018
		($ in millions)
Unrealized appreciation		$	9.22			$	2.72
Unrealized depreciation			(22.58	)			(9.11	)
Net change in unrealized appreciation (depreciation) on investments		$	(13.36	)		$	(6.39	)

The change in unrealized appreciation (depreciation) on investments consisted of the following:

 

		For the Year Ended December 31, 2019
		($ in millions)
Portfolio Company:
Accuity Delivery Systems, LLC		$	2.02
Country Fresh Holding Company Inc.			1.49
Wrike, Inc.			1.13
DocuTAP, Inc.			0.80
DiscoverOrg, LLC			0.47
Chase Industries, Inc. (dba Senneca Holdings)			(0.77	)
Other, net(1)			(0.87	)
GlobalTranz Enterprises, Inc.			(1.08	)
Spectrum Plastics Group, Inc.			(1.14	)
Empirix, Inc.			(2.83	)
Zep Inc.			(12.58	)
Total		$	(13.36	)

 

(1)

For the year ended December 31, 2019, Other, net includes gross unrealized appreciation of $3.31 million and gross unrealized depreciation of $(4.18) million.

Net change in unrealized appreciation (depreciation) in our investments for the year ended December 31, 2019 was primarily driven by the unrealized depreciation in Zep, Inc., which was due to financial underperformance.

The change in unrealized appreciation (depreciation) on investments consisted of the following:

 

		For the Year Ended December 31, 2018
		($ in millions)
Portfolio Company:
Accuity Delivery Systems, LLC		$	0.90
Datto, Inc.			0.49
Collaborative Imaging Holdco, LLC - Class B			0.26
Continuum Managed Services LLC - Class B			0.24
Intelligent Medical Objects, Inc.			0.22
Market Track, LLC			(0.46	)
Fenergo Finance 3 Limited			(0.56	)
Odyssey Logistics & Technology Corporation			(0.57	)
Country Fresh Holdings, LLC			(1.68	)
Zep Inc.			(2.59	)
Other, net(1)			(2.64	)
Total		$	(6.39	)

 

(1)

For the year ended December 31, 2018, Other, net includes gross unrealized appreciation of $0.61 million and gross unrealized depreciation of $(3.25) million.

 

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The primary use of existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.

We expect to generate cash primarily from the net proceeds of any future offerings of securities, drawdowns of capital commitments, future borrowings and cash flows from operations. To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to our existing credit facility, or issue other senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors.

As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 200% after such borrowing (or 150% if certain requirements are met). See “—Key Components of Operations—Leverage.” As of December 31, 2019 and December 31, 2018, our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 228% and 381%, respectively. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions.

We may enter into investment commitments through signed commitment letters which may ultimately become investment transactions in the future. We regularly evaluate and carefully consider our unfunded commitments using GSAM proprietary risk management framework for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage.

As of December 31, 2019, we had cash of approximately $13.39 million, a decrease of $1.63 million from December 31, 2018. Cash used by operating activities for the year ended December 31, 2019 was approximately $513.27 million, primarily driven by net purchases of investments of $589.46 million, an increase in net assets resulting from operations of $61.13 million and proceeds from other operating activities of $15.06 million. Cash provided by financing activities for the year ended December 31, 2019 was approximately $511.64 million, primarily driven by proceeds from the issuance of common stock of $144.88 million and net borrowings on debt of $443.80 million, partially offset by distributions paid of $76.29 million and other financing activities of $0.75 million.

To the extent permissible under the risk retention rules and applicable provisions of the Investment Company Act, we may raise capital by securitizing certain of our investments, including through the formation of one or more collateralized loan obligations or asset based facilities, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. We may also pursue other forms of debt financing, including potentially from the Small Business Administration through a future small business investment company (“SBIC”) subsidiary (subject to regulatory approvals).

As of the dates indicated, we had aggregate capital commitments and undrawn capital commitments from investors as follows:

 

		December 31, 2019												December 31, 2018
		Capital Commitments ($ in millions)				Unfunded Capital Commitments ($ in millions)				% of Capital Commitments Funded				Capital Commitments ($ in millions)				Unfunded Capital Commitments ($ in millions)				% of Capital Commitments Funded
Common Stock		$	1,034.99			$	62.15				94	%		$	1,035.04			$	207.08				80	%

The following table summarizes the total common shares issued and proceeds received related to capital drawdowns:

 

Share Issue Date		Shares Issued				Proceeds Received ($ in millions)
For the Year Ended December 31, 2019
March 25, 2019			4,286,182			$	82.61
June 27, 2019			2,179,196				41.55
December 27, 2019			1,092,225				20.72
Total capital drawdowns			7,557,603			$	144.88
For the Year Ended December 31, 2018
March 26, 2018			2,700,602			$	51.86
June 25, 2018			2,689,865				51.62
September 27, 2018			8,011,747				154.82
December 27, 2018			5,354,207				103.79
Total capital drawdowns			18,756,421			$	362.09

 

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Contractual Obligations

We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our Investment Adviser, are equal to (1) a percentage of our average NAV and (2) an Incentive Fee based on investment performance. Under the Administration Agreement, pursuant to which State Street Bank and Trust Company has agreed to furnish us with the administrative services necessary to conduct our day-to-day operations, we pay our administrator such fees as may be agreed between us and our administrator that we determine are commercially reasonable in our sole discretion. Either party may terminate the Investment Management Agreement without penalty on at least 60 days’ written notice to the other party. Generally, either party may terminate the Administration Agreement without penalty upon at least 90 days’ written notice to the other party.

 

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The following table shows our contractual obligations as of December 31, 2019:

 

		Payments Due by Period ($ in millions)
		Total				Less Than 1 Year				1 – 3 Years				3 – 5 Years				More Than 5 Years
Truist Revolving Credit Facility		$	676.20			$	–			$	676.20			$	–			$	–
Truist Revolving Credit Facility		€	47.95			€	–			€	47.95			€	–			€	–

Euro (“€”)

Truist Revolving Credit Facility

On September 11, 2017, we entered into the Truist Revolving Credit Facility with various lenders. Truist Bank serves as administrative agent and Bank of America, N.A. serves as syndication agent. We amended the Truist Revolving Credit Facility on September 17, 2018 and July 10, 2019.

The Truist Revolving Credit Facility is a multicurrency facility, and as of December 31, 2019, total commitments under the Truist Revolving Credit Facility were $850.00 million. The accordion feature of the Truist Revolving Credit Facility allows us, subject to the satisfaction of various conditions, to bring total commitments under the Truist Revolving Credit Facility to $900.00 million.

Borrowings under the Truist Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at our election) of either the Adjusted LIBO Rate (as defined in the Truist Revolving Credit Facility) plus the Applicable Margin (as defined in the Truist Revolving Credit Facility) or the Applicable Margin plus the higher of the Prime Rate (as defined in the Truist Revolving Credit Facility), Federal Funds Effective Rate (as provided for in the Truist Revolving Credit Facility) plus 0.5% or overnight LIBOR plus 1.0%. Interest is payable quarterly in arrears or as defined in the Truist Revolving Credit Facility. We pay a fee of 0.375% per annum on committed but undrawn amounts under the Truist Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Truist Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on September 13, 2021.

The Truist Revolving Credit Facility may be guaranteed by certain of our subsidiaries that are formed or acquired by us in the future (collectively, the “Guarantors”). Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

Our obligations to the lenders under the Truist Revolving Credit Facility are secured by a first priority security interest in substantially all of our portfolio of investments and cash, with certain exceptions. The Truist Revolving Credit Facility contains certain customary covenants, including: (i) maintaining a minimum shareholder’s equity, (ii) maintaining an asset coverage ratio of at least 2 to 1, (iii) maintaining a minimum liquidity test of at least 15% of the “covered debt amount” during any period when the “adjusted covered debt balance” is greater than 85% of the “adjusted borrowing base,” as such quoted terms are defined in the Truist Revolving Credit Facility and (iv) restrictions on industry concentrations in our investment portfolio. We are in compliance with these covenants.

The Truist Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default (including a change in control event of default trigger).

HEDGING

Subject to applicable provisions of the Investment Company Act and applicable Commodity Futures Trading Commission (“CFTC”) regulations, we may enter into hedging transactions in a manner consistent with SEC guidance. To the extent that any of our loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. Our Investment Adviser has claimed no-action relief from CFTC registration and regulation as a commodity pool operator pursuant to a CFTC Rule 4.5 with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, CFTC Rule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio. Moreover, we anticipate entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of CFTC Rule 4.5.

 

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OFF-BALANCE SHEET ARRANGEMENTS

We may become a party to investment commitments and to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet.

As of December 31, 2019, we believed that we had adequate financial resources to satisfy our unfunded commitments. Our unfunded commitments to provide funds to portfolio companies were as follows:

 

		As of December 31, 2019				As of December 31, 2018
		(in millions)
Unfunded Commitments
First Lien/Senior Secured Debt		$	124.08			$	123.31
First Lien/Last-Out Unitranche			–				7.88
Second Lien/Senior Secured Debt			4.15				16.31
Total		$	128.23			$	147.50

As of December 31, 2019, we had aggregate Commitments and undrawn Commitments from investors as follows:

 

		December 31, 2019
		Capital Commitments ($ in millions)				Unfunded Capital Commitments ($ in millions)				% of Capital Commitments Funded
Common Stock		$	1,034.99			$	62.15				94	%

RECENT DEVELOPMENTS

On February 7, 2020, we delivered a capital drawdown notice to our investors relating to the sale of 3,282,464 shares of common stock for an aggregate offering price of $61.81 million. The shares were issued on February 24, 2020. We have no remaining undrawn capital commitments.

On February 24, 2020, Carmine Rossetti notified us of his intention to resign as our Principal Accounting Officer to pursue a new professional opportunity, following a transition period not to extend beyond March 17, 2020. Mr. Rossetti’s resignation is not the result of any disagreement with us. To assist in an orderly transition, Mr. Rossetti will continue to serve in his current role during the transition period.

On February 25, 2020, we entered into a third amendment to the Truist Revolving Credit Facility to, among other things, extend the commitment termination date and final maturity date to March 11, 2021 and March 11, 2022, respectively.

On February 27, 2020, our Board of Directors declared a distribution of $0.43 per share payable on April 30, 2020 to stockholders of record as of March 16, 2020.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires 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 materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the consolidated financial statements.

Valuation of Portfolio Investments

As a BDC, we conduct the valuation of our assets, pursuant to which our NAV is determined, consistent with GAAP and the Investment Company Act. Our Board of Directors, with the assistance of our Audit Committee, determines the fair value of our assets within the meaning of the Investment Company Act, on at least a quarterly basis, in accordance with the terms of Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurement and Disclosures (“ASC 820”).

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same – to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.

 

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The three-level hierarchy for fair value measurement is defined as follows:

Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2—inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument.

Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, and the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation.

With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:

 

(1)

Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser responsible for the portfolio investment;

 

(2)

Our Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of our Investment Adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to our Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation approaches including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;

 

(3)

The Independent Valuation Advisors’ preliminary valuations are reviewed by our Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ ranges are compared to our Investment Adviser’s valuations to ensure our Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Valuation and Side Pocket Working Group of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment making decision process;

 

(4)

The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;

 

(5)

The Audit Committee of our Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, our Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and

 

(6)

Our Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of our investments in good faith, based on the input of our Investment Adviser, the Independent Valuation Advisors and the Audit Committee.

When our NAV is determined other than on a quarter-end (such as in connection with issuances of shares on dates occurring mid-quarter), it is determined by our Investment Adviser, acting under delegated authority from, and subject to the supervision of, our Board of Directors and in accordance with procedures adopted by our Board of Directors.

 

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Investment Transactions and Related Investment Income

We record our investment transactions on a trade date basis, which is the date when we assume the risks for gains and losses related to that instrument. Realized gains and losses are based on the specific identification method. Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Interest income and dividend income are presented net of withholding tax, if any. Accretion of discounts and amortization of premiums, which are included in interest income and expense, are recorded over the life of the underlying instrument using the effective interest method.

Fair value generally is based on quoted market prices, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments in securities are measured at fair value as determined by our Investment Adviser and/or by one or more independent third parties.

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. For additional information, see Note 2 “Significant Accounting Policies” to our consolidated financial statements included in this report.

Non-Accrual Status

Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the investment has sufficient collateral value and is in the process of collection. As of December 31, 2019, we had no investments on non-accrual status. As of December 31, 2018, we had no investments on non-accrual status.

Distribution Policy

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare distributions in future periods.

We have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2017. To maintain our tax treatment as a RIC, we must, among other things, timely distribute to our stockholders at least 90% of our investment company taxable income for each taxable year. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and carry forward taxable income for distribution in the following year and pay any applicable tax. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Stockholders should read carefully any written disclosure regarding a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains.

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. All distributions will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time.

To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our shareholders for U.S. federal income tax purposes. Thus, the source of a distribution to our shareholders may be the original capital invested by the shareholder rather than our income or gains. Stockholders should read written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains.

Federal Income Taxes

As a RIC, we generally will not be required to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income for each year. Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable tax. We generally will be required to pay a U.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

 

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ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, most significantly changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

As of December 31, 2019 and December 31, 2018, on a fair value basis, 100.0% of our performing debt investments bore interest at a floating rate. Our borrowings under the Truist Revolving Credit Facility bear interest at a floating rate.

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities.

Based on our December 31, 2019 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

As of December 31, 2019 Basis Point Change		Interest Income				Interest Expense				Net Income
( in millions)
Up 300 basis points		$	44.35			$	(20.38	)		$	23.97
Up 200 basis points			29.56				(13.59	)			15.97
Up 100 basis points			14.78				(6.79	)			7.99
Up 75 basis points			11.09				(5.10	)			5.99
Up 50 basis points			7.39				(3.40	)			3.99
Up 25 basis points			3.70				(1.70	)			2.00
Down 25 basis points			(3.70	)			1.70				(2.00	)
Down 50 basis points			(7.37	)			3.40				(3.97	)
Down 75 basis points			(11.00	)			5.10				(5.90	)
Down 100 basis points			(12.45	)			6.79				(5.66	)
Down 200 basis points			(13.24	)			11.97				(1.27	)
Down 300 basis points			(13.24	)			11.97				(1.27	)

We may, in the future, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act, applicable CFTC regulations and in a manner consistent with SEC guidance. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.

 

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ITEM 8     CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

		Page
Report of Independent Registered Public Accounting Firm			80
Consolidated Statements of Assets and Liabilities as of December  31, 2019 and 2018			81
Consolidated Statements of Operations for the years ended December  31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017			82
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017			83
Consolidated Statements of Cash Flows for the years ended December  31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017			84
Consolidated Schedule of Investments as of December 31, 2019 and 2018			85
Notes to Consolidated Financial Statements			95

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Goldman Sachs Middle Market Lending Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Goldman Sachs Middle Market Lending Corp. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in net assets and cash flows for each of the two years in the period ended December 31, 2019 and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations, changes in its net assets and its cash flows for each of the two years in the period ended December 31, 2019 and for the period from January 11, 2017 (commencement of operations) to December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 and 2018 by correspondence with the custodian, agent banks, portfolio company investees, transfer agent and brokers; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 27, 2020

We have served as the auditor of one or more investment companies

in the following group of business development companies

since 2012 – Goldman Sachs Middle Market Lending Corp.,

Goldman Sachs BDC, Inc.,

Goldman Sachs Private Middle Market Credit LLC, and

Goldman Sachs Private Middle Market Credit II LLC

 

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Goldman Sachs Middle Market Lending Corp.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share amounts)

 

		December 31, 2019				December 31, 2018
Assets
Investments, at fair value
Non-controlled/non-affiliated investments (cost of $1,656,685 and $1,076,982, respectively)		$	1,633,562			$	1,069,946
Non-controlled affiliated investments (cost of $45,702 and $36,072, respectively)			49,598				37,239
Cash			13,393				15,010
Unrealized appreciation on foreign currency forward contracts			46				122
Interest and dividends receivable from non-controlled/affiliated investments and non-controlled/non-affiliated investments			7,022				5,977
Deferred financing costs			2,617				3,233
Receivable for investments sold			41				66
Other assets			96				355
Total assets		$	1,706,375			$	1,131,948
Liabilities
Debt		$	729,986			$	286,189
Interest and other debt expenses payable			713				727
Management fees payable			3,520				2,899
Incentive fees payable			3,419				3,512
Distribution payable			21,272				16,190
Accrued expenses and other liabilities			2,676				2,277
Total liabilities		$	761,586			$	311,794
Commitments and Contingencies (Note 8)
Net Assets
Preferred stock, par value $0.001 per share (1,000,000 shares authorized, no shares issued and outstanding)		$	–			$	–
Common stock, par value $0.001 per share (200,000,000 shares authorized, 50,562,483 and 43,004,880 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively)			51				43
Paid-in capital in excess of par			972,476				827,483
Distributable earnings			(27,738	)			(7,372	)
TOTAL NET ASSETS		$	944,789			$	820,154
TOTAL LIABILITIES AND NET ASSETS		$	1,706,375			$	1,131,948
Net asset value per share		$	18.69			$	19.07

 

The accompanying notes are part of these consolidated financial statements.

 

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Goldman Sachs Middle Market Lending Corp.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Investment Income:
From non-controlled/non-affiliated investments:
Interest income		$	140,771			$	80,932			$	19,583
Other income			1,935				1,438				205
Total investment income from non-controlled/non-affiliated investments			142,706				82,370				19,788
From non-controlled affiliated investments:
Interest income			2,815				1,661				–
Dividend income			195				186				57
Other income			27				17				–
Total investment income from non-controlled affiliated investments			3,037				1,864				57
Total investment income		$	145,743			$	84,234			$	19,845
Expenses:
Interest and other debt expenses		$	24,076			$	10,856			$	2,167
Management fees			13,665				9,147				3,494
Incentive fees			18,024				3,435				77
Offering costs			–				41				1,380
Professional fees			3,314				1,697				1,015
Administration, custodian and transfer agent fees			2,215				1,506				669
Directors’ fees			454				452				655
Organization expenses			–				–				450
Other expenses			1,150				1,181				627
Total expenses		$	62,898			$	28,315			$	10,534
Management fees waiver		$	–			$	–			$	(203	)
Net expenses		$	62,898			$	28,315			$	10,331
NET INVESTMENT INCOME		$	82,845			$	55,919			$	9,514
Net realized and unrealized gains (losses):
Net realized gain (loss) from:
Non-controlled/non-affiliated investments		$	(8,894	)		$	1,267			$	(7	)
Foreign currency forward contracts			147				1				–
Foreign currency transactions			(3	)			(258	)			–
Net change in unrealized appreciation (depreciation) from:
Non controlled/non-affiliated investments			(16,087	)			(7,558	)			522
Non controlled affiliated investments			2,729				1,167				–
Foreign currency forward contracts			(76	)			122				–
Foreign currency translations			1,165				978				–
Net realized and unrealized gains (losses)		$	(21,019	)		$	(4,281	)		$	515
(Provision) benefit for taxes on realized gain/loss on investments		$	100			$	(372	)		$	–
(Provision) benefit for taxes on unrealized appreciation/depreciation on investments			(794	)			(387	)			–
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	61,132			$	50,879			$	10,029
Weighted average shares outstanding			47,453,793				29,908,301				10,739,306
Net investment income per share (basic and diluted)		$	1.75			$	1.87			$	0.89
Earnings per share (basic and diluted)		$	1.29			$	1.70			$	0.93

 

The accompanying notes are part of these consolidated financial statements.

 

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Goldman Sachs Middle Market Lending Corp.

Consolidated Statements of Changes in Net Assets

(in thousands, except per share amounts)

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Net assets at beginning of period		$	820,154			$	458,128			$	–
Increase (decrease) in net assets resulting from operations:
Net investment income		$	82,845			$	55,919			$	9,514
Net realized gain (loss)			(8,750	)			1,010				(7	)
Net change in unrealized appreciation (depreciation)			(12,269	)			(5,291	)			522
(Provision) benefit for taxes on realized gain/loss on investments			100				(372	)			–
(Provision) benefit for taxes on unrealized appreciation/depreciation on investments			(794	)			(387	)			–
Net increase (decrease) in net assets resulting from operations		$	61,132			$	50,879			$	10,029
Distributions to stockholders from:
Distributable earnings		$	(81,372	)		$	(50,949	)		$	(17,770	)
Total distributions to stockholders		$	(81,372	)		$	(50,949	)		$	(17,770	)
Capital transactions:
Issuance of common shares		$	144,875			$	362,096			$	465,869
Net increase (decrease) in net assets resulting from capital transactions		$	144,875			$	362,096			$	465,869
TOTAL INCREASE (DECREASE) IN NET ASSETS		$	124,635			$	362,026			$	458,128
Net assets at end of period		$	944,789			$	820,154			$	458,128
Distributions declared per share		$	1.72			$	1.72			$	1.29

 

The accompanying notes are part of these consolidated financial statements.

 

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Goldman Sachs Middle Market Lending Corp.

Consolidated Statements of Cash Flows

(in thousands, except share and per share amounts)

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations:		$	61,132			$	50,879			$	10,029
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Purchases of investments			(846,975	)			(675,770	)			(536,486	)
Payment-in-kind interest capitalized			(1,073	)			(287	)			–
Investments in affiliated money market fund, net			–				–	(1)			–	(1)
Proceeds from sales of investments and principal repayments			257,513				89,418				15,526
Net realized (gain) loss			8,903				(1,267	)			7
Net change in unrealized (appreciation) depreciation on investments			13,358				6,391				(522	)
Net change in unrealized (appreciation) depreciation on foreign currency forward contracts and transactions			64				(123	)			–
Amortization of premium and accretion of discount, net			(7,701	)			(3,624	)			(571	)
Amortization of deferred financing costs			1,361				983				947
Amortization of deferred offering costs			–				41				1,380
Increase (decrease) in operating assets and liabilities:
(Increase) decrease in interest and dividends receivable			(1,045	)			(2,341	)			(3,636	)
(Increase) decrease in receivable for investments sold			25				(66	)			–
(Increase) decrease in other assets			259				(344	)			(11	)
Increase (decrease) in interest and other debt expenses payable			(14	)			415				312
Increase (decrease) in management fees payable			621				1,347				1,552
Increase (decrease) in incentive fees payable			(93	)			3,435				77
Increase (decrease) in accrued expenses and other liabilities			399				1,507				770
Net cash provided by (used for) operating activities		$	(513,266	)		$	(529,406	)		$	(510,626	)
Cash flows from financing activities:
Proceeds from issuance of common stock		$	144,875			$	362,096			$	465,869
Offering costs paid			–				(20	)			(1,401	)
Distributions paid			(76,290	)			(44,031	)			(8,498	)
Borrowings on debt			712,347				576,189				325,000
Repayments of debt			(268,550	)			(352,000	)			(263,000	)
Financing costs paid			(745	)			(1,356	)			(3,807	)
Net cash provided by (used for) financing activities		$	511,637			$	540,878			$	514,163
Net increase (decrease) in cash			(1,629	)			11,472				3,537
Effect of foreign exchange rate changes on cash and cash equivalents			12				1				–
Cash, beginning of period			15,010				3,537				–
Cash, end of period		$	13,393			$	15,010			$	3,537
Supplemental and non-cash financing activities
Interest expense paid		$	21,796			$	8,586			$	539
Accrued but unpaid offering costs		$	–			$	–			$	18
Accrued but unpaid distributions		$	21,272			$	16,190			$	9,272
Accrued but unpaid excise tax expense		$	–			$	8			$	–
Exchange of investments		$	1,054			$	994			$	–

 

(1)

Amount rounds to less than $1.

 

The accompanying notes are part of these consolidated financial statements.

 

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Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2019

(in thousands, except share and per share amounts)

 

		Investment *		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount/Shares (++)				Cost				Fair Value
		1st Lien/Senior Secured Debt - 134.05%#
		3SI Security Systems, Inc.(1)		Commercial Services & Supplies		7.65%		L + 5.75%; 1.00% Floor		06/16/2023		$	2,249			$	2,227			$	2,227
		Accuity Delivery Systems, LLC^ (1) (2)		Health Care Providers & Services		8.75%		L + 7.00%; 1.00% Floor		06/13/2023			14,480				14,159				14,371
		Acquia, Inc.(2)		Software		8.91%		L + 7.00%; 1.00% Floor		10/31/2025			18,197				17,841				17,833
		Acquia, Inc.(2) (3)		Software				L + 7.00%; 1.00% Floor		10/31/2025			1,946				(38	)			(39	)
		Apptio, Inc.(1) (2)		IT Services		8.96%		L + 7.25%; 1.00% Floor		01/10/2025			46,452				45,634				45,639
		Apptio, Inc.(1) (2) (3)		IT Services				L + 7.25%; 1.00% Floor		01/10/2025			3,160				(53	)			(55	)
		Associations, Inc.(1) (2)		Real Estate Management & Development		9.09%		L + 7.00% (incl. 3.00% PIK); 1.00% Floor		07/30/2024			19,300				19,110				19,107
		Associations, Inc.(1) (2) (3)		Real Estate Management & Development		9.09%		L + 7.00% (incl. 3.00% PIK); 1.00% Floor		07/30/2024			4,247				2,907				2,905
		Associations, Inc.(1) (2) (3)		Real Estate Management & Development				L + 4.00%; 1.00% Floor		07/30/2024			836				(8	)			(8	)
		BJH Holdings III Corp. (dba Jack’s Family Restaurants)(1) (2)		Hotels, Restaurants & Leisure		7.55%		L + 5.75%; 1.00% Floor		08/19/2025			9,097				9,010				9,006
		Brillio, LLC(1) (2)		IT Services		6.55%		L + 4.75%; 1.00% Floor		02/06/2025			6,567				6,509				6,501
		Brillio, LLC(1) (2) (3)		IT Services				L + 4.75%; 1.00% Floor		02/06/2025			2,200				—				(22	)
		Bullhorn, Inc.(1) (2)		Professional Services		7.44%		L + 5.50%; 1.00% Floor		10/01/2025			16,109				15,876				15,868
		Bullhorn, Inc.(1) (2) (3)		Professional Services		7.46%		L + 5.50%; 1.00% Floor		10/01/2025			1,331				247				246
		Bullhorn, Inc.(1) (2) (3)		Professional Services				L + 5.50%; 1.00% Floor		10/01/2025			799				(11	)			(12	)
		Businessolver.com, Inc.(1) (2)		Health Care Technology		9.41%		L + 7.50%; 1.00% Floor		05/15/2023			30,076				29,640				29,550
		Businessolver.com, Inc.(1) (2)		Health Care Technology		9.41%		L + 7.50%; 1.00% Floor		05/15/2023			4,511				4,441				4,432
		Businessolver.com, Inc.(1) (2) (3)		Health Care Technology		9.98%		L + 7.50%; 1.00% Floor		05/15/2023			3,760				1,452				1,438
		CFS Management, LLC (dba Center for Sight Management)(1) (2)		Health Care Providers & Services		7.95%		L + 5.75%; 1.00% Floor		07/01/2024			6,992				6,927				6,923
		CFS Management, LLC (dba Center for Sight Management)(1) (2) (3)		Health Care Providers & Services				L + 5.75%; 1.00% Floor		07/01/2024			2,067				(19	)			(21	)
		Chronicle Bidco Inc. (dba Lexitas)(2)		Professional Services		7.66%		L + 5.75%; 1.00% Floor		11/14/2025			10,300				10,098				10,094
		Chronicle Bidco Inc. (dba Lexitas)(2) (3)		Professional Services				L + 5.75%; 1.00% Floor		11/14/2025			1,300				(25	)			(26	)
		Chronicle Bidco Inc. (dba Lexitas)(2) (3)		Professional Services				L + 5.75%; 1.00% Floor		11/14/2025			4,330				(42	)			(43	)
		Clarkson Eyecare, LLC (dba EyeCare Partners)(2)		Health Care Providers & Services		8.05%		L + 6.25%; 1.00% Floor		04/02/2021			10,953				10,776				10,733
		Clarkson Eyecare, LLC (dba EyeCare Partners)(2)		Health Care Providers & Services		8.05%		L + 6.25%; 1.00% Floor		04/02/2021			7,241				7,123				7,097
		Collaborative Imaging, LLC (dba Texas Radiology Associates)^^^ (1) (2)		Health Care Providers & Services		8.30%		L + 6.50%; 1.00% Floor		03/28/2025			12,700				12,547				12,478
		Collaborative Imaging, LLC (dba Texas Radiology Associates)^^^ (1) (2)		Health Care Providers & Services		8.30%		L + 6.50%		03/28/2025			9,673				9,533				9,504
		ConnectWise, LLC(2)		IT Services		7.94%		L + 6.00%; 1.00% Floor		02/28/2025			19,957				19,564				19,707
		ConnectWise, LLC(2) (3)		IT Services				L + 6.00%; 1.00% Floor		02/28/2025			1,524				(30	)			(19	)
		Convene 237 Park Avenue, LLC (dba Convene)(1) (2)		Real Estate Management & Development		9.54%		L + 7.50%; 1.50% Floor		08/30/2024			31,000				30,414				30,380
		Convene 237 Park Avenue, LLC (dba Convene)(1) (2) (3)		Real Estate Management & Development				L + 7.50%; 1.50% Floor		08/30/2024			9,120				(85	)			(182	)
		CorePower Yoga LLC(2)		Diversified Consumer Services		6.44%		L + 4.50%		05/14/2025			12,389				12,219				12,203
		CorePower Yoga LLC(2) (3)		Diversified Consumer Services				L + 4.75%		05/14/2025			1,010				(14	)			(15	)
		CorePower Yoga LLC(2) (3)		Diversified Consumer Services				L + 4.50%		05/14/2025			2,692				(36	)			(40	)
		CST Buyer Company (dba Intoxalock)(2)		Diversified Consumer Services		7.55%		L + 5.75%; 1.00% Floor		10/03/2025			18,215				17,989				18,215
		CST Buyer Company (dba Intoxalock)(2) (3)		Diversified Consumer Services				L + 5.75%; 1.00% Floor		10/03/2025			1,294				(16	)			—
		DDS USA Holding, Inc.(1) (2)		Health Care Equipment & Supplies		7.22%		L + 5.25%; 1.00% Floor		06/30/2022			5,405				5,386				5,378
		DDS USA Holding, Inc.(1) (2)		Health Care Equipment & Supplies		7.22%		L + 5.25%; 1.00% Floor		06/30/2022			5,112				5,093				5,086
		DDS USA Holding, Inc.(1) (2) (3)		Health Care Equipment & Supplies		9.00%		P + 4.25%; 1.00% Floor		06/30/2022			1,533				148				146
		Diligent Corporation(1) (2)		Professional Services		7.42%		L + 5.50%; 1.00% Floor		04/14/2022		€	22,822				26,188				25,344
		Diligent Corporation(1) (2)		Professional Services		7.58%		L + 5.50%; 1.00% Floor		04/14/2022			5,460				5,413				5,406
		Diligent Corporation(1) (2)		Professional Services		7.42%		L + 5.50%; 1.00% Floor		04/14/2022			2,103				2,084				2,082
		Diligent Corporation(1) (2) (3)		Professional Services		7.48%		L + 5.50%; 1.00% Floor		04/14/2022			1,800				1,555				1,566

 

The accompanying notes are part of these consolidated financial statements.

 

85

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2019 (continued)

(in thousands, except share and per share amounts)

 

		Investment *		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount/Shares (++)				Cost				Fair Value
		Diligent Corporation(1) (2)		Professional Services		7.56%		L + 5.50%; 1.00% Floor		04/14/2022		$	727			$	719			$	719
		Diligent Corporation(1) (2)		Professional Services		7.42%		L + 5.50%; 1.00% Floor		04/14/2022			352				348				348
		Diligent Corporation(1) (2) (3)		Professional Services				L + 5.50%; 1.00% Floor		04/14/2022			6,083				(53	)			(61	)
		DiscoverOrg, LLC(2)		Software		6.30%		L + 4.50%		02/02/2026			23,522				23,311				23,581
		DocuTAP, Inc.(1) (2)		Health Care Technology		7.30%		L + 5.50%; 1.00% Floor		05/12/2025			35,066				34,265				35,066
		E2open, LLC(1) (2)		Software		7.66%		L + 5.75%; 1.00% Floor		11/26/2024			24,239				24,015				23,997
		Elemica Parent, Inc.(1) (2)		Chemicals		7.40%		L + 5.50%		09/18/2025			4,257				4,155				4,151
		Elemica Parent, Inc.(1) (2) (3)		Chemicals		7.40%		L + 5.50%		09/18/2025			550				171				170
		Elemica Parent, Inc.(1) (2) (3)		Chemicals				L + 5.50%		09/18/2025			830				(10	)			(21	)
		Empirix, Inc.(1) (2)		Diversified Telecommunication Services		8.20%		L + 6.25%; 1.00% Floor		09/25/2024			31,492				31,036				28,343
		Empirix, Inc.(1) (2) (3)		Diversified Telecommunication Services				L + 6.25%; 1.00% Floor		09/25/2023			1,800				(24	)			(180	)
		Eptam Plastics, Ltd.(2)		Health Care Equipment & Supplies		7.30%		L + 5.50%; 1.00% Floor		12/06/2025			6,363				6,268				6,267
		Eptam Plastics, Ltd.(2) (3)		Health Care Equipment & Supplies		7.30%		L + 5.50%; 1.00% Floor		12/06/2025			1,354				318				318
		Eptam Plastics, Ltd.(2) (3)		Health Care Equipment & Supplies				L + 5.50%; 1.00% Floor		12/06/2025			2,708				(20	)			(20	)
		Fenergo Finance 3 Limited(1) (2) (4)		Diversified Financial Services		8.31%		L + 6.25%; 1.00% Floor		09/05/2024		€	25,300				28,983				28,166
		Fenergo Finance 3 Limited(1) (2) (3) (4)		Diversified Financial Services				L + 6.25%; 1.00% Floor		09/05/2024			1,683				(23	)			(13	)
		Fenergo Finance 3 Limited(1) (2) (3) (4)		Diversified Financial Services				L + 6.25%; 1.00% Floor		09/05/2024		€	2,200				(35	)			(19	)
		FWR Holding Corporation (dba First Watch Restaurants) (1)		Hotels, Restaurants & Leisure		7.29%		L + 5.50%; 1.00% Floor		08/21/2023			4,043				4,009				4,002
		FWR Holding Corporation (dba First Watch Restaurants) (1)		Hotels, Restaurants & Leisure		7.29%		L + 5.50%; 1.00% Floor		08/21/2023			3,024				2,999				2,994
		FWR Holding Corporation (dba First Watch Restaurants) (1) (3)		Hotels, Restaurants & Leisure				L + 5.50%; 1.00% Floor		08/21/2023			3,040				(25	)			(30	)
		FWR Holding Corporation (dba First Watch Restaurants)(1)		Hotels, Restaurants & Leisure		7.29%		L + 5.50%; 1.00% Floor		08/21/2023			11,408				11,219				11,294
		FWR Holding Corporation (dba First Watch Restaurants)(1)		Hotels, Restaurants & Leisure		7.29%		L + 5.50%; 1.00% Floor		08/21/2023			2,279				2,243				2,256
		FWR Holding Corporation (dba First Watch Restaurants)(1)		Hotels, Restaurants & Leisure		7.29%		L + 5.50%; 1.00% Floor		08/21/2023			1,441				1,418				1,427
		FWR Holding Corporation (dba First Watch Restaurants)(1) (3)		Hotels, Restaurants & Leisure		7.29%		L + 5.50%; 1.00% Floor		08/21/2023			1,506				1,256				1,265
		Gastro Health Holdco, LLC(1) (2)		Health Care Providers & Services		7.45%		L + 5.50%; 1.00% Floor		09/04/2024			17,963				17,668				17,693
		Gastro Health Holdco, LLC(1) (2)		Health Care Providers & Services		7.43%		L + 5.50%; 1.00% Floor		09/04/2024			7,171				7,050				7,063
		Gastro Health Holdco, LLC(1) (2) (3)		Health Care Providers & Services		7.40%		L + 5.50%; 1.00% Floor		09/04/2024			6,933				5,769				5,757
		Gastro Health Holdco, LLC(1) (2) (3)		Health Care Providers & Services				L + 5.50%; 1.00% Floor		09/04/2023			2,900				(43	)			(44	)
		Gastro Health Holdco, LLC(1) (2) (3)		Health Care Providers & Services				L + 5.50%; 1.00% Floor		09/04/2024			7,200				(59	)			(108	)
		GlobalTranz Enterprises, Inc.(2)		Road & Rail		6.79%		L + 5.00%		05/15/2026			11,444				11,230				10,414
		GlobalTranz Enterprises, Inc.(2) (3)		Road & Rail				L + 5.00%		05/15/2026			2,968				—				(267	)
		Granicus, Inc.(2)		Software		6.69%		L + 4.75%; 1.00% Floor		09/07/2022			14,565				14,446				14,419
		HS4 AcquisitionCo, Inc. (dba HotSchedules & Fourth)(1) (2)		Hotels, Restaurants & Leisure		8.71%		L + 6.75%; 1.00% Floor		07/09/2025			34,501				33,854				33,811
		HS4 AcquisitionCo, Inc. (dba HotSchedules & Fourth)(1) (2) (3)		Hotels, Restaurants & Leisure		8.54%		L + 6.75%; 1.00% Floor		07/09/2025			2,805				369				365
		Hygiena Borrower LLC		Life Sciences Tools & Services		5.94%		L + 4.00%; 1.00% Floor		08/26/2022			5,314				5,261				5,208
		Hygiena Borrower LLC(3)		Life Sciences Tools & Services				L + 4.00%; 1.00% Floor		08/26/2022			550				(5	)			(11	)
		Hygiena Borrower LLC(3)		Life Sciences Tools & Services				L + 4.00%; 1.00% Floor		08/26/2022			814				(4	)			(16	)
		iCIMS, Inc.(1) (2)		Software		8.29%		L + 6.50%; 1.00% Floor		09/12/2024			42,594				41,893				41,849
		iCIMS, Inc.(1) (2)		Software		8.29%		L + 6.50%; 1.00% Floor		09/12/2024			7,844				7,701				7,707

 

The accompanying notes are part of these consolidated financial statements.

 

86

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2019 (continued)

(in thousands, except share and per share amounts)

 

		Investment *		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount/Shares (++)				Cost				Fair Value
		iCIMS, Inc.(1) (2) (3)		Software				L + 6.50%; 1.00% Floor		09/12/2024		$	2,662			$	(42	)		$	(47	)
		Integral Ad Science, Inc.(1) (2)		Interactive Media & Services		9.05%		L + 7.25% (incl. 1.25% PIK); 1.00% Floor		07/19/2024			36,554				35,970				36,005
		Integral Ad Science, Inc.(1) (2) (3)		Interactive Media & Services				L + 6.00%; 1.00% Floor		07/19/2023			2,586				(37	)			(39	)
		Internet Truckstop Group, LLC (dba Truckstop)(1) (2)		Transportation Infrastructure		6.95%		L + 5.00%; 1.00% Floor		04/02/2025			32,377				31,651				31,892
		Internet Truckstop Group, LLC (dba Truckstop)(1) (2) (3)		Transportation Infrastructure				L + 5.00%; 1.00% Floor		04/02/2025			2,600				(57	)			(39	)
		Lithium Technologies, Inc.(1) (2)		Interactive Media & Services		10.04%		L + 8.00%; 1.00% Floor		10/03/2022			50,047				49,285				49,296
		Lithium Technologies, Inc.(1) (2) (3)		Interactive Media & Services				L + 8.00%; 1.00% Floor		10/03/2022			3,448				(48	)			(52	)
		Mailgun Technologies, Inc.(1) (2)		Interactive Media & Services		6.95%		L + 5.00%; 1.00% Floor		03/26/2025			23,170				22,749				22,765
		Mailgun Technologies, Inc.(1) (2) (3)		Interactive Media & Services				L + 5.00%; 1.00% Floor		03/26/2025			1,448				—				(25	)
		Midwest Transport, Inc.(1) (2)		Road & Rail		9.06%		L + 7.00%; 1.00% Floor		10/02/2023			16,969				16,835				16,799
		MMIT Holdings, LLC (dba Managed Markets Insight & Technology)(1) (2)		Health Care Technology		7.43%		L + 5.50%; 1.00% Floor		11/15/2024			29,732				29,211				29,212
		MMIT Holdings, LLC (dba Managed Markets Insight & Technology)(1) (2) (3)		Health Care Technology		7.44%		L + 5.50%; 1.00% Floor		11/15/2024			4,525				1,193				1,188
		Netvoyage Corporation (dba NetDocuments) (1) (2)		Software		9.55%		L + 7.75%; 1.00% Floor		03/22/2024			5,985				5,869				5,910
		Netvoyage Corporation (dba NetDocuments)(1) (2)		Software		9.55%		L + 7.75%; 1.00% Floor		03/22/2024			7,937				7,831				7,838
		Netvoyage Corporation (dba NetDocuments)(1) (2) (3)		Software				L + 7.75%; 1.00% Floor		03/24/2022			610				(5	)			(8	)
		Pathway Vet Alliance LLC(1) (2)		Health Care Providers & Services		6.30%		L + 4.50%		12/20/2024			6,956				6,896				6,886
		Pathway Vet Alliance LLC(1) (2)		Health Care Providers & Services		6.30%		L + 4.50%		12/20/2024			2,459				2,436				2,434
		Picture Head Midco LLC(1) (2)		Entertainment		8.55%		L + 6.75%; 1.00% Floor		08/31/2023			27,467				27,014				27,055
		PlanSource Holdings, Inc.(1) (2)		Health Care Technology		8.15%		L + 6.25%; 1.00% Floor		04/22/2025			33,940				33,324				33,261
		PlanSource Holdings, Inc.(1) (2) (3)		Health Care Technology				L + 6.25%; 1.00% Floor		04/22/2025			4,681				(83	)			(94	)
		Power Stop, LLC(2)		Auto Components		6.44%		L + 4.50%		10/19/2025			10,791				10,768				10,683
		Premier Imaging, LLC (dba Lucid Health)(2)		Health Care Providers & Services		7.49%		L + 5.75%; 1.00% Floor		01/02/2025			17,257				17,001				16,998
		PT Intermediate Holdings III, LLC (dba Parts Town)(2)		Trading Companies & Distributors		7.44%		L + 5.50%; 1.00% Floor		10/15/2025			17,320				17,235				17,233
		Riverpoint Medical, LLC(1) (2)		Health Care Equipment & Supplies		6.97%		L + 5.00%; 1.00% Floor		06/21/2025			13,406				13,343				13,272
		Riverpoint Medical, LLC(1) (2) (3)		Health Care Equipment & Supplies				L + 5.00%; 1.00% Floor		06/21/2025			2,450				(11	)			(25	)
		Selectquote, Inc.(2)		Insurance		7.70%		L + 6.00%; 1.00% Floor		11/05/2024			15,800				15,492				15,484
		SF Home Décor, LLC (dba SureFit Home Décor)(1) (2)		Household Products		11.70%		L + 9.75%; 1.00% Floor		07/13/2022			23,963				23,436				23,064
		Shopatron, LLC (dba Kibo)(1) (2)		Internet & Catalog Retail		9.95%		L + 8.00%; 1.00% Floor		12/18/2020			8,947				8,795				8,812
		Shopatron, LLC (dba Kibo)(1) (2) (8)		Internet & Catalog Retail		9.95%		L + 8.00%; 1.00% Floor		12/18/2020			2,757				2,729				2,716
		SPay, Inc. (dba Stack Sports)(1) (2)		Interactive Media & Services		7.55%		L + 5.75%; 1.00% Floor		06/17/2024			14,745				14,515				14,266
		SPay, Inc. (dba Stack Sports)(1) (2) (3)		Interactive Media & Services		7.52%		L + 5.75%; 1.00% Floor		06/17/2024			1,630				1,062				1,034
		SPay, Inc. (dba Stack Sports)(1) (2)		Interactive Media & Services		7.76%		L + 5.75%; 1.00% Floor		06/17/2024			543				539				526
		The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo)(1) (2)		Health Care Providers & Services		7.31%		L + 5.25%; 1.00% Floor		08/15/2025			19,578				19,300				19,236
		The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo)(1) (2) (3)		Health Care Providers & Services		7.31%		L + 5.25%; 1.00% Floor		08/15/2025			2,707				97				88
		The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo)(1) (2) (3)		Health Care Providers & Services				L + 5.25%; 1.00% Floor		08/15/2025			6,768				(54	)			(118	)
		Viant Medical Holdings, Inc.(2)		Health Care Equipment & Supplies		8.16%		L + 6.25%; 1.00% Floor		07/02/2025			19,117				18,798				18,926
		VRC Companies, LLC (dba Vital Records Control)(1)		Commercial Services & Supplies		8.30%		L + 6.50%; 1.00% Floor		03/31/2023			10,000				9,925				9,925
		VRC Companies, LLC (dba Vital Records Control)(1) (3)		Commercial Services & Supplies		8.60%		L + 6.50%; 1.00% Floor		03/31/2022			249				136				136
		WebPT, Inc.(1) (2)		Health Care Technology		8.66%		L + 6.75%; 1.00% Floor		08/28/2024			14,933				14,651				14,635
		WebPT, Inc.(1) (2) (3)		Health Care Technology				L + 6.75%; 1.00% Floor		08/28/2024			1,556				(29	)			(31	)
		WebPT, Inc.(1) (2) (3)		Health Care Technology				L + 6.75%; 1.00% Floor		08/28/2024			1,867				(17	)			(37	)

 

The accompanying notes are part of these consolidated financial statements.

 

87

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2019 (continued)

(in thousands, except share and per share amounts)

 

		Investment *		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount/Shares (++)				Cost				Fair Value
		Wine.com, LLC(1) (2)		Beverages		8.93%		L + 7.00%; 1.00% Floor		11/14/2024		$	9,000			$	8,847			$	8,820
		Wolfpack IP Co. (dba Lone Wolf Technologies)(1) (2) (4)		Real Estate Management & Development		8.29%		L + 6.50%; 1.00% Floor		06/13/2025			47,220				46,344				46,275
		Wolfpack IP Co. (dba Lone Wolf Technologies)(1) (2) (3) (4)		Real Estate Management & Development				L + 6.50%; 1.00% Floor		06/13/2025			4,722				(86	)			(94	)
		WorkForce Software, LLC(1) (2)		Software		8.41%		L + 6.50%; 1.00% Floor		07/31/2025			12,732				12,491				12,477
		WorkForce Software, LLC(1) (2) (3)		Software				L + 6.50%; 1.00% Floor		07/31/2025			1,123				(21	)			(23	)
		Wrike, Inc.(1) (2)		Professional Services		8.55%		L + 6.75%; 1.00% Floor		12/31/2024			32,260				31,670				31,615
		Wrike, Inc.(1) (2) (3)		Professional Services				L + 6.75%; 1.00% Floor		12/31/2024			2,300				(38	)			(46	)
		Xactly Corporation(1) (2)		IT Services		9.05%		L + 7.25%; 1.00% Floor		07/29/2022			34,852				34,415				34,416
		Xactly Corporation(1) (2) (3)		IT Services				L + 7.25%; 1.00% Floor		07/29/2022			2,177				(23	)			(27	)
		Yasso, Inc.(1) (2)		Food Products		9.55%		L + 7.75%; 1.00% Floor		03/23/2022			7,411				7,336				7,170
		Total 1st Lien/Senior Secured Debt															1,272,044				1,266,486
		1st Lien/Last-Out Unitranche (5) – 10.67%
		Doxim, Inc.(1) (2)		Diversified Financial Services		7.94%		L + 6.00%; 1.00% Floor		02/28/2024			27,300				26,636				26,618
		Doxim, Inc.(1) (2)		Diversified Financial Services		7.90%		L + 6.00%; 1.00% Floor		02/28/2024			22,376				21,846				21,816
		RugsUSA, LLC(1) (2)		Household Products		8.45%		L + 6.50%; 1.00% Floor		04/30/2023			8,330				8,271				8,268
		Smarsh, Inc.(1) (2)		Interactive Media & Services		9.68%		L + 7.88%; 1.00% Floor		03/31/2021			44,429				44,076				44,095
		Total 1st Lien/Last-Out Unitranche															100,829				100,797
		2nd Lien/Senior Secured Debt - 31.14%
		American Dental Partners, Inc.(1) (2)		Health Care Providers & Services		10.44%		L + 8.50%; 1.00% Floor		09/25/2023			5,333				5,246				5,239
		Chase Industries, Inc. (dba Senneca Holdings)(1) (2)		Building Products		11.55%		L + 9.50% (incl. 1.50% PIK); 1.00% Floor		05/11/2026			24,300				23,676				22,781
		DiscoverOrg, LLC(2)		Software		10.19%		L + 8.50%		02/01/2027			14,600				14,397				14,600
		ERC Finance, LLC (dba Eating Recovery Center)(1) (2)		Health Care Providers & Services		10.02%		L + 8.22%; 1.00% Floor		09/22/2025			25,400				24,948				24,955
		Genesis Acquisition Co. (dba ProCare Software)(1) (2)		Diversified Financial Services		9.60%		L + 7.50%		07/31/2025			10,000				9,788				9,750
		Genesis Acquisition Co. (dba ProCare Software)(1) (2) (3)		Diversified Financial Services				L + 7.50%		07/31/2025			2,500				(25	)			(63	)
		Hygiena Borrower LLC(1)		Life Sciences Tools & Services		9.69%		L + 7.75%; 1.00% Floor		08/26/2023			2,650				2,610				2,604
		Hygiena Borrower LLC(1) (3)		Life Sciences Tools & Services		9.69%		L + 7.75%; 1.00% Floor		08/26/2023			970				131				122
		ICP Industrial, Inc.(1) (2)		Chemicals		10.04%		L + 8.25%; 1.00% Floor		05/03/2024			28,900				28,369				28,322
		Intelligent Medical Objects, Inc.(1) (2)		Health Care Technology		10.81%		L + 8.50%; 1.00% Floor		12/22/2024			21,900				21,461				21,462
		Market Track, LLC(1) (2)		Internet & Catalog Retail		9.68%		L + 7.75%; 1.00% Floor		06/05/2025			20,000				19,545				19,250
		National Spine and Pain Centers, LLC(1) (2)		Health Care Providers & Services		10.05%		L + 8.25%; 1.00% Floor		12/02/2024			17,400				17,015				16,748
		Odyssey Logistics & Technology Corporation(2)		Road & Rail		9.80%		L + 8.00%; 1.00% Floor		10/12/2025			26,626				26,141				25,694
		SMB Shipping Logistics, LLC (dba Worldwide Express)(1) (2)		Air Freight & Logistics		9.90%		L + 8.00%; 1.00% Floor		02/03/2025			25,000				24,664				24,563
		Spectrum Plastics Group, Inc.(2)		Containers & Packaging		8.80%		L + 7.00%; 1.00% Floor		01/31/2026			6,278				6,252				4,949
		USRP Holdings, Inc. (dba U.S. Retirement Partners)(1) (2)		Insurance		10.68%		L + 8.75%; 1.00% Floor		09/29/2025			9,700				9,599				9,603
		USRP Holdings, Inc. (dba U.S. Retirement Partners)(1) (2) (3)		Insurance		10.72%		L + 8.75%; 1.00% Floor		09/29/2025			2,400				1,560				1,560
		Xcellence, Inc. (dba Xact Data Discovery)(1) (2)		IT Services		10.70%		L + 8.75%; 1.00% Floor		06/22/2024			26,100				25,568				25,708
		YI, LLC (dba Young Innovations)(1) (2)		Health Care Equipment & Supplies		9.69%		L + 7.75%; 1.00% Floor		11/07/2025			21,608				21,088				21,068
		Zep Inc.(2)		Chemicals		10.19%		L + 8.25%; 1.00% Floor		08/11/2025			30,500				29,900				15,250
		Total 2nd Lien/Senior Secured Debt															311,933				294,165

 

The accompanying notes are part of these consolidated financial statements.

 

88

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2019 (continued)

(in thousands, except share and per share amounts)

 

		Investment *		Industry				Interest Rate				Par Amount/Shares (++)				Cost				Fair Value
		Preferred Stock* - 1.07%
		Accuity Delivery Systems, LLC^ (1) (2) (6) (7)		Health Care Providers & Services								$	136,589			$	4,500			$	7,200
		Wine.com, LLC(1) (2) (6) (7)		Beverages									314,154				2,700				2,937
		Total Preferred Stock															7,200				10,137
		Common Stock* - 1.22%
		Collaborative Imaging Holdco, LLC (dba Texas Radiology Associates) - Class B^^^ (1) (2) (7)		Health Care Providers & Services									11,719				1,580				2,239
		Collaborative Imaging Holdco, LLC (dba Texas Radiology Associates) - Performance Units^^^ (1) (2) (4) (6) (7)		Health Care Providers & Services									11,060				220				643
		Country Fresh Holding Company Inc.(1) (2) (6) (7)		Food Products									843				1,053				731
		Elah Holdings, Inc.^ (1) (2) (6) (7)		Capital Markets									65,436				3,163				3,163
		National Spine and Pain Centers, LLC(1) (2) (6) (7)		Health Care Providers & Services									500				500				100
		Wrike, Inc.(1) (2) (6) (7)		Professional Services									4,949,520				3,075				4,266
		Yasso, Inc.(1) (2) (6) (7)		Food Products									790				790				433
		Total Common Stock															10,381				11,575
		TOTAL INVESTMENTS - 178.15%														$	1,702,387			$	1,683,160
		LIABILITIES IN EXCESS OF OTHER ASSETS - (78.15%)																		$	(738,371	)
		NET ASSETS - 100.00%																		$	944,789

 

*

Assets are pledged as collateral for the Truist Revolving Credit Facility. See Note 6 “Debt”.

#

Percentages are based on net assets.

 

The accompanying notes are part of these consolidated financial statements.

 

89

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2019 (continued)

(in thousands, except share and per share amounts)

 

(+)

Represents the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of December 31, 2019, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 2.00%, 1.91%, 1.91%, 1.83%, 1.76% and 1.63%, respectively. As of December 31, 2019, P was 4.75%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at December 31, 2019.

(++)

The total par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars (“$”) unless otherwise noted, Euro (“€”).

^

As defined in the Investment Company Act of 1940, the portfolio company is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio company’s outstanding voting securities. See Note 3 “Significant Agreements and Related Party Transactions”.

^^^

The portfolio company is otherwise deemed to be an “affiliated person” of the Company under the Investment Company Act of 1940. See Note 3 “Significant Agreements and Related Party Transactions”.

(1)

The fair value of the investment was determined using significant unobservable inputs. See Note 5 “Fair Value Measurement”.

(2)

Represent co-investments made with certain funds managed by the Investment Adviser in accordance with the terms of the exemptive relief that the Company received from the U.S. Securities and Exchange Commission. See Note 3 “Significant Agreements and Related Party Transactions”.

(3)

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. The negative cost, if applicable, is the result of capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount on the loan. See Note 8 “Commitments and Contingencies”.

(4)

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2019 the aggregate fair value of these securities is $74,958 or 4.39% of the Company’s total assets.

(5)

In exchange for the greater risk of loss, the “last-out” portion of the Company’s unitranche loan investment generally earns a higher interest rate than the “first-out” portions. The “first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that the Company would continue to hold.

(6)

Non-income producing security.

(7)

Securities exempt from registration under the Securities Act of 1933 (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2019, the aggregate fair value of these securities is $21,712 or 2.30% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:

 

Investment		Acquisition Date
Accuity Delivery Systems, LLC – Preferred Stock		6/13/18
Collaborative Imaging Holdco, LLC (dba Texas Radiology Associates) – Class B – Common Stock		3/30/2018
Collaborative Imaging Holdco, LLC (dba Texas Radiology Associates) – Performance Units – Common Stock		3/30/2018
Country Fresh Holding Company Inc. – Common Stock		4/29/2019
Elah Holdings, Inc. - Common Stock		5/9/2018
National Spine and Pain Centers, LLC – Common Stock		6/2/2017
Wine.com, LLC – Preferred Stock		11/14/18
Wrike, Inc. – Common Stock		12/31/2018
Yasso, Inc. – Common Stock		3/23/2017

 

(8)

The investment includes an exit fee that is receivable upon repayment of the loan. See Note 2 “Significant Accounting Policies”.

PIK – Payment-In-Kind

ADDITIONAL INFORMATION

Foreign currency forward contracts

 

Counterparty

Currency Purchased

Currency Sold

Settlement

Unrealized Appreciation (Depreciation)

Bank of America, N.A.

USD 221

EUR 200

01/06/2020

$

(3

)

Bank of America, N.A.

USD 540

EUR 446

01/06/2020

39

Bank of America, N.A.

USD 337

EUR 303

04/06/2020

(6

)

Bank of America, N.A.

USD 547

EUR 448

04/06/2020

41

Bank of America, N.A.

USD 321

EUR 288

07/06/2020

(6

)

Bank of America, N.A.

USD 549

EUR 446

07/06/2020

43

Bank of America, N.A.

USD 729

EUR 650

10/05/2020

(13

)

Bank of America, N.A.

USD 716

EUR 635

01/05/2021

(13

)

Bank of America, N.A.

USD 702

EUR 620

04/06/2021

(14

)

Bank of America, N.A.

USD 701

EUR 617

07/06/2021

(14

)

Bank of America, N.A.

USD 400

EUR 350

10/05/2021

(8

)

$

46

Currency Abbreviations:

EUR – Euro

USD – U.S. Dollar

 

The accompanying notes are part of these consolidated financial statements.

 

90

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2018

(in thousands, except share and per share amounts)

 

		Portfolio Company		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount (++)				Cost				Fair Value
		Investments at Fair Value – 135.00% #
		Corporate Debt (1) – 132.81%
		1st Lien/Senior Secured Debt – 78.63%
		Accuity Delivery Systems, LLC^ (2) (3)		Health Care Providers & Services		9.78%		L + 7.00%; 1.00% Floor		06/13/2023		$	14,480			$	14,084			$	14,082
		Apptio, Inc.(2) (4)		IT Services				L + 7.25%; 1.00% Floor		1/10/2025			37,920				–				–
		Apptio, Inc.(2) (4)		IT Services				L + 7.25%; 1.00% Floor		1/10/2025			3,160				–				–
		Associations, Inc.(2) (3)		Real Estate Management & Development		9.40%		L + 7.00% (incl. 3.00% PIK); 1.00% Floor		07/30/2024			16,796				16,598				16,628
		Associations, Inc.(2) (3) (4)		Real Estate Management & Development		9.40%		L + 7.00% (incl. 3.00% PIK); 1.00% Floor		07/30/2024			4,186				1,441				1,448
		Associations, Inc.(2) (3) (4) (5)		Real Estate Management & Development				L + 4.00%; 1.00% Floor		07/30/2024			836				(10	)			(8	)
		Bullhorn, Inc.(2) (3)		Professional Services		9.40%		L + 6.75%; 1.00% Floor		11/21/2022			17,208				17,064				17,079
		Bullhorn, Inc.(2) (3)		Professional Services		9.40%		L + 6.75%; 1.00% Floor		11/21/2022			4,553				4,516				4,519
		Bullhorn, Inc.(2) (3)		Professional Services		9.33%		L + 6.75%; 1.00% Floor		11/21/2022			899				885				892
		Businessolver.com, Inc.(2) (3)		Health Care Technology		10.12%		L + 7.50%; 1.00% Floor		05/15/2023			30,076				29,535				29,474
		Businessolver.com, Inc.(2) (3) (4)		Health Care Technology		12.00%		P + 6.50%; 2.00% Floor		05/15/2023			3,760				1,438				1,429
		Businessolver.com, Inc.(2) (3) (4)		Health Care Technology		10.12%		L + 7.50%; 1.00% Floor		05/15/2023			4,511				1,078				1,038
		Collaborative Imaging, LLC^^^ (2) (3)		Health Care Providers & Services		9.03%		L + 6.50%; 1.00% Floor		03/28/2025			12,700				12,525				12,446
		Continuum Managed Services LLC(2)(3)		IT Services		8.53%		L + 6.00%; 1.00% Floor		06/08/2023			19,198				18,779				18,814
		Continuum Managed Services LLC(2)(3)		IT Services		8.53%		L + 6.00%; 1.00% Floor		06/08/2023			5,520				5,410				5,410
		Continuum Managed Services LLC(2)(3)		IT Services		8.53%		L + 6.00%; 1.00% Floor		06/08/2023			1,626				1,593				1,593
		Continuum Managed Services LLC(2)(3) (4) (5)		IT Services				L + 6.00%; 1.00% Floor		06/08/2022			2,000				(38	)			(40	)
		Dade Paper & Bag, LLC(2) (3)		Distributors		10.02%		L + 7.50%; 1.00% Floor		06/10/2024			9,850				9,687				9,702
		Dade Paper & Bag, LLC(2) (3)		Distributors		9.52%		L + 7.00%; 1.00% Floor		06/10/2024			1,256				1,245				1,209
		Datto, Inc.(2)		IT Services		10.46%		L + 8.00%; 1.00% Floor		12/07/2022			52,418				51,572				52,024
		Datto, Inc.(2) (4) (5)		IT Services				L + 8.00%; 1.00% Floor		12/07/2022			3,529				(55	)			(26	)
		DDS USA Holding, Inc.(2)		Health Care Equipment & Supplies		8.57%		L + 5.75%; 1.00% Floor		06/30/2022			5,641				5,614				5,599
		DDS USA Holding, Inc.(2)		Health Care Equipment & Supplies		8.57%		L + 5.75%; 1.00% Floor		06/30/2022			5,459				5,433				5,418
		DDS USA Holding, Inc.(2) (4) (5)		Health Care Equipment & Supplies				L + 5.75%; 1.00% Floor		06/30/2022			1,533				(7	)			(12	)
		Diligent Corporation(2) (3)		Professional Services		8.03%		L + 5.50%; 1.00% Floor		04/14/2022		€	23,054				26,356				26,084
		Diligent Corporation(2) (3)		Professional Services		8.03%		L + 5.50%; 1.00% Floor		04/14/2022			734				724				725
		Diligent Corporation(2) (3) (4)		Professional Services		8.28%		L + 5.50%; 1.00% Floor		04/14/2022			1,800				680				697
		Diligent Corporation(2) (3) (4) (5)		Professional Services				L + 5.50%; 1.00% Floor		04/14/2022			354				(5	)			(4	)
		Diligent Corporation(2) (3) (4) (5)		Professional Services				L + 5.50%; 1.00% Floor		04/14/2022			13,670				(171	)			(171	)
		Empirix, Inc.(2) (3)		Diversified Telecommunication Services		8.93%		L + 6.25%; 1.00% Floor		09/25/2024			31,800				31,263				31,243
		Empirix, Inc.(2) (3) (4) (5)		Diversified Telecommunication Services				L + 6.25%; 1.00% Floor		09/25/2023			1,800				(30	)			(32	)
		Fenergo Finance 3 Limited(2) (3) (6)		Diversified Financial Services		9.13%		L + 6.25%; 1.00% Floor		09/05/2024		€	25,300				28,916				28,408
		Fenergo Finance 3 Limited(2) (3) (4) (5) (6)		Diversified Financial Services				L + 6.25%; 1.00% Floor		09/05/2024			1,683				(28	)			(34	)
		Fenergo Finance 3 Limited(2) (3) (4) (5) (6)		Diversified Financial Services				L + 6.25%; 1.00% Floor		09/05/2024		€	2,200				(42	)			(87	)
		FWR Holding Corporation(3)		Hotels, Restaurants & Leisure		8.26%		L + 5.75%; 1.00% Floor		08/21/2023			11,525				11,290				11,294
		FWR Holding Corporation(3)		Hotels, Restaurants & Leisure		8.26%		L + 5.75%; 1.00% Floor		08/21/2023			2,296				2,251				2,251
		FWR Holding Corporation(3)		Hotels, Restaurants & Leisure		8.26%		L + 5.75%; 1.00% Floor		08/21/2023			1,456				1,427				1,427
		FWR Holding Corporation(3) (4)		Hotels, Restaurants & Leisure		10.25%		P + 4.75%; 2.00% Floor		08/21/2023			1,506				535				535
		Gastro Health Holdco, LLC(2) (3)		Health Care Providers & Services		8.74%		L + 6.00%; 1.00% Floor		09/04/2024			14,500				14,222				14,210
		Gastro Health Holdco, LLC(2) (3) (4) (5)		Health Care Providers & Services				L + 6.00%; 1.00% Floor		09/04/2023			2,900				(54	)			(58	)

 

The accompanying notes are part of these consolidated financial statements.

 

91

---

Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2018 (continued)

(in thousands, except share and per share amounts)

 

		Portfolio Company		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount (++)				Cost				Fair Value
		Gastro Health Holdco, LLC(2) (3) (4) (5)		Health Care Providers & Services				L + 6.00%; 1.00% Floor		09/04/2024		$	7,200			$	(85	)		$	(144	)
		Hygiena Borrower LLC		Life Sciences Tools & Services		6.80%		L + 4.00%; 1.00% Floor		08/26/2022			5,369				5,297				5,261
		Hygiena Borrower LLC (4) (5)		Life Sciences Tools & Services				L + 4.00%; 1.00% Floor		08/26/2022			550				(7	)			(11	)
		Hygiena Borrower LLC (4) (5)		Life Sciences Tools & Services				L + 4.00%; 1.00% Floor		08/26/2022			814				(5	)			(16	)
		iCIMS, Inc.(2) (3)		Software		8.94%		L + 6.50%; 1.00% Floor		09/12/2024			42,594				41,776				41,742
		iCIMS, Inc.(2) (3) (4) (5)		Software				L + 6.50%; 1.00% Floor		09/12/2024			2,662				(51	)			(53	)
		Integral Ad Science, Inc.(2) (3)		Interactive Media & Services		9.78%		L + 7.25% (incl.1.25% PIK); 1.00% Floor		07/19/2024			33,817				33,185				33,141
		Integral Ad Science, Inc.(2) (3) (4) (5)		Interactive Media & Services				L + 6.00%; 1.00% Floor		07/19/2023			2,586				(47	)			(52	)
		Lithium Technologies, Inc.(2) (3)		Interactive Media & Services		10.39%		L + 8.00%; 1.00% Floor		10/03/2022			50,047				49,056				49,046
		Lithium Technologies, Inc.(2) (3) (4) (5)		Interactive Media & Services				L + 8.00%; 1.00% Floor		10/03/2022			3,448				(65	)			(69	)
		Midwest Transport, Inc.(2)		Road & Rail		9.80%		L + 7.00%; 1.00% Floor		10/02/2023			17,874				17,702				17,695
		MMIT Holdings, LLC(2)		Health Care Technology		8.02%		L + 5.50%; 1.00% Floor		11/15/2024			12,700				12,450				12,446
		MMIT Holdings, LLC(2) (4) (5)		Health Care Technology				L + 5.50%; 1.00% Floor		11/15/2024			3,620				(71	)			(72	)
		Netvoyage Corporation(2) (3)		Software		11.53%		L + 9.00%; 1.00% Floor		03/24/2022			8,018				7,903				7,918
		Netvoyage Corporation(2) (3) (4) (5)		Software				L + 9.00%; 1.00% Floor		03/24/2022			610				(8	)			(8	)
		Picture Head Midco LLC(2) (3)		Entertainment		9.27%		L + 6.75%; 1.00% Floor		08/31/2023			32,950				32,327				32,291
		Picture Head Midco LLC(2) (3) (4)		Entertainment		9.27%		L + 6.75%; 1.00% Floor		08/31/2023			3,620				1,052				1,014
		Picture Head Midco LLC(2) (3) (4) (5)		Media				L + 6.75%; 1.00% Floor		08/31/2023			3,620				(68	)			(72	)
		Power Stop, LLC(2)		Auto Components		7.55%		L + 4.75%		10/19/2025			10,900				10,873				10,845
		SF Home Décor, LLC(2) (3)		Household Products		12.31%		L + 9.50%; 1.00% Floor		07/13/2022			25,313				24,730				24,616
		SPay, Inc.(2) (3)		Interactive Media & Services		8.22%		L + 5.75%; 1.00% Floor		06/17/2024			14,700				14,428				14,332
		SPay, Inc.(2) (3) (4)		Interactive Media & Services		8.34%		L + 5.75%; 1.00% Floor		06/17/2024			1,630				1,165				1,155
		SPay, Inc.(2) (3) (4) (5)		Interactive Media & Services				L + 5.75%; 1.00% Floor		06/17/2024			8,150				(74	)			(204	)
		VRC Companies, LLC(3)(4)		Commercial Services & Supplies		9.03%		L + 6.50%; 1.00% Floor		03/31/2023			5,231				3,943				3,941
		VRC Companies, LLC(3)		Commercial Services & Supplies		9.02%		L + 6.50%; 1.00% Floor		03/31/2023			2,667				2,644				2,640
		VRC Companies, LLC(3)(4)		Commercial Services & Supplies		9.45%		L + 6.50%; 1.00% Floor		03/31/2022			249				125				125
		Wine.com, LLC(2)		Beverages		9.86%		L + 7.00%; 1.00% Floor		11/14/2024			9,000				8,823				8,820
		Wrike, Inc.(2)		Professional Services		9.28%		L + 6.75%; 1.00% Floor		12/31/2024			28,000				27,440				27,440
		Wrike, Inc.(2) (4) (5)		Professional Services				L + 6.75%; 1.00% Floor		12/31/2024			2,300				(46	)			(46	)
		Xactly Corporation(2) (3)		IT Services		9.78%		L + 7.25%; 1.00% Floor		07/29/2022			29,320				28,863				28,880
		Xactly Corporation(2) (3) (4) (5)		IT Services				L + 7.25%; 1.00% Floor		07/29/2022			2,177				(32	)			(33	)
		Yasso, Inc.(2) (3)		Food Products		10.27%		L + 7.75%; 1.00% Floor		03/23/2022			7,495				7,390				7,139
		Total 1st Lien/Senior Secured Debt															646,334				644,913
		1st Lien/Last-Out Unitranche (7) – 11.05%
		Intelligent Document Solutions, Inc.(2) (3)		Diversified Financial Services		8.80%		L + 6.00%; 1.00% Floor		02/28/2024			27,300				26,508				26,481
		Intelligent Document Solutions, Inc.(2) (3) (4)		Diversified Financial Services		8.79%		L + 6.00%; 1.00% Floor		02/28/2024			19,900				11,454				11,422
		RugsUSA, LLC(2) (3)		Household Products		9.31%		L + 6.50%; 1.00% Floor		04/30/2023			8,330				8,256				8,247
		Smarsh, Inc.(2) (3)		Interactive Media & Services		10.41%		L + 7.88%; 1.00% Floor		03/31/2021			44,881				44,265				44,432
		Total 1st Lien/Last-Out Unitranche															90,483				90,582
		2nd Lien/Senior Secured Debt – 43.13%
		American Dental Partners, Inc.(2) (3)		Health Care Providers & Services		11.30%		L + 8.50%; 1.00% Floor		09/25/2023			5,333				5,228				5,226
		Chase Industries, Inc.(2) (3)		Building Products		10.61%		L + 8.00%; 1.00% Floor		05/11/2026			24,300				23,610				23,510
		Chase Industries, Inc.(2) (3) (4) (5)		Building Products				L + 8.00%; 1.00% Floor		05/11/2026			6,100				(169	)			(198	)
		Country Fresh Holdings, LLC(2) (3)		Food Products		11.20%		L + 8.75%; 1.00% Floor		10/02/2023			11,800				11,606				9,794
		DuBois Chemicals, Inc.(2)		Chemicals		10.52%		L + 8.00%; 1.00% Floor		03/15/2025			24,450				24,035				23,961

 

The accompanying notes are part of these consolidated financial statements.

 

92

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Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2018 (continued)

(in thousands, except share and per share amounts)

 

		Portfolio Company		Industry		Interest Rate (+)		Reference Rate and Spread (+)		Maturity		Par Amount (++)				Cost				Fair Value
		ERC Finance, LLC(2) (3)		Health Care Providers & Services		10.74%		L + 8.22%; 1.00% Floor		09/22/2025		$	25,400			$	24,892			$	24,892
		Genesis Acquisition Co.(2) (3)		Diversified Financial Services		10.02%		L + 7.50%		07/31/2025			10,000				9,760				9,725
		Genesis Acquisition Co.(2) (3) (4) (5)		Diversified Financial Services				L + 7.50%		07/31/2025			2,500				(30	)			(69	)
		Hygiena Borrower LLC(3)		Life Sciences Tools & Services		10.55%		L + 7.75%; 1.00% Floor		08/26/2023			2,650				2,601				2,604
		Hygiena Borrower LLC(3) (4)		Life Sciences Tools & Services		10.55%		L + 7.75%; 1.00% Floor		08/26/2023			970				128				121
		ICP Industrial, Inc.(2) (3)		Chemicals		10.68%		L + 8.25%; 1.00% Floor		05/03/2024			28,900				28,276				28,250
		Institutional Shareholder Services Inc.(2)		Diversified Financial Services		10.55%		L + 7.75%; 1.00% Floor		10/16/2025			7,200				7,168				7,056
		Intelligent Medical Objects, Inc.(2) (3)		Health Care Technology		11.27%		L + 8.50%; 1.00% Floor		12/22/2024			17,500				17,109				17,325
		Market Track, LLC(2) (3)		Internet Catalog & Retail		10.18%		L + 7.75%; 1.00% Floor		06/05/2025			20,000				19,484				19,000
		National Spine and Pain Centers, LLC(2) (3)		Health Care Providers & Services		10.77%		L + 8.25%; 1.00% Floor		12/02/2024			17,400				16,958				16,965
		Odyssey Logistics & Technology Corporation(2)		Road & Rail		10.52%		L + 8.00%; 1.00% Floor		10/12/2025			26,626				26,082				25,894
		RSC Acquisition, Inc.(2) (3)		Insurance		10.53%		L + 8.00%; 1.00% Floor		11/30/2023			12,100				11,993				11,979
		RSC Acquisition, Inc.(2) (3)		Insurance		10.80%		L + 8.00%; 1.00% Floor		11/30/2023			7,840				7,767				7,762
		RSC Acquisition, Inc.(2) (3) (4) (5)		Insurance				L + 8.00%; 1.00% Floor		11/30/2023			6,100				(52	)			(61	)
		SMB Shipping Logistics, LLC(2)		Air Freight & Logistics		10.86%		L + 8.00%; 1.00% Floor		02/03/2025			25,000				24,616				24,500
		Spectrum Plastics Group, Inc.(2)		Containers & Packaging		9.52%		L + 7.00%; 1.00% Floor		01/31/2026			6,278				6,249				6,089
		USRP Holdings, Inc.(2) (3)		Insurance		11.55%		L + 8.75%; 1.00% Floor		09/29/2025			9,700				9,587				9,579
		USRP Holdings, Inc.(2) (3) (4)		Insurance		11.43%		L + 8.75%; 1.00% Floor		09/29/2025			2,400				1,557				1,554
		Viant Medical Holdings, Inc.(2)		Health Care Equipment & Supplies		10.55%		L + 7.75%		07/02/2026			11,770				11,657				11,417
		Xcellence, Inc.(2) (3)		IT Services		11.57%		L + 8.75%; 1.00% Floor		06/22/2024			18,400				17,986				18,032
		YI, LLC(2) (3)		Health Care Equipment & Supplies		10.55%		L + 7.75%; 1.00% Floor		11/07/2025			21,700				21,115				21,103
		Zep Inc.(2)		Chemicals		11.05%		L + 8.25%; 1.00% Floor		08/11/2025			30,500				29,826				27,755
		Total 2nd Lien/Senior Secured Debt															359,039				353,765
		Total Corporate Debt															1,095,856				1,089,260
		Portfolio Company		Industry		Coupon						Shares				Cost				Fair Value
		Preferred Stock (1) – 0.99%
		Accuity Delivery Systems, LLC^ (2) (3) (8) (9)		Health Care Providers & Services									136,589			$	4,500			$	5,400
		Wine.com, LLC(2) (8) (9)		Beverages									314,154				2,700				2,700
		Total Preferred Stock															7,200				8,100
		Common Stock (1) – 1.20%
		Collaborative Imaging Holdco, LLC – Class B^^^ (2) (3) (8)		Health Care Providers & Services									11,719				1,580				1,842
		Collaborative Imaging Holdco, LLC – Class C^^^ (2) (3) (6) (8) (9)		Health Care Providers & Services									11,060				220				306
		Continuum Managed Services LLC – Class A(2) (3) (8) (9)		IT Services									663				663				762
		Continuum Managed Services LLC – Class B(2) (3) (8) (9)		IT Services									449,713				7				243
		Elah Holdings, Inc.^ (2) (3) (8) (9)		Capital Markets									65,436				3,163				3,163
		National Spine and Pain Centers, LLC(2) (3) (8) (9)		Health Care Providers & Services									500				500				265
		Wrike, Inc.(2) (8) (9)		Professional Services									494,952				3,075				3,075
		Yasso, Inc.(2) (3) (8) (9)		Food Products									790				790				169
		Total Common Stock															9,998				9,825
		TOTAL INVESTMENTS – 135.00%														$	1,113,054			$	1,107,185
		LIABILITIES IN EXCESS OF OTHER ASSETS – (35.00%)																		$	(287,031	)
		NET ASSETS – 100.00%																		$	820,154

 

#

Percentages are based on net assets.

(+)

The Consolidated Schedule of Investments discloses the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of December 31, 2018, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 3.01%, 2.88%, 2.81%, 2.61%, 2.50% and 2.41%, respectively. As of December 31, 2018, P was 5.50%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at December 31, 2018.

(++)

Par amount is denominated in U.S. Dollars (“$”) unless noted as denominated in Euro (“€”).

^

As defined in the Investment Company Act of 1940, the portfolio company is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio company’s outstanding voting securities. See Note 3 “Significant Agreements and Related Party Transactions”.

^^^

The portfolio company is otherwise deemed to be an “affiliated person” of the Company under the Investment Company Act of 1940. See Note 3 “Significant Agreements and Related Party Transactions”.

(1)

Assets are pledged as collateral for the Truist Revolving Credit Facility. See Note 6 “Debt”.

(2)

Represent co-investments made with certain funds managed by the Investment Adviser in accordance with the terms of the exemptive relief that the Company received from the U.S. Securities and Exchange Commission. See Note 3 “Significant Agreements and Related Party Transactions”.

(3)

The fair value of the investment was determined using significant unobservable inputs. See Note 5 “Fair Value Measurement”.

(4)

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. See Note 8 “Commitments and Contingencies”.

(5)

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(6)

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2018 the aggregate fair value of these securities is $28,593 or 2.53% of the Company’s total assets.

 

The accompanying notes are part of these consolidated financial statements.

 

93

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Goldman Sachs Middle Market Lending Corp.

Consolidated Schedule of Investments as of December 31, 2018 (continued)

(in thousands, except share and per share amounts)

 

(7)

In exchange for the greater risk of loss, the “last-out” portion of the Company’s unitranche loan investment generally earns a higher interest rate than the “first-out” portions. The “first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that the Company would continue to hold.

(8)

Securities exempt from registration under the Securities Act, and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2018, the aggregate fair value of these securities is $17,925 or 2.19% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:

 

Investment		Acquisition Date
Accuity Delivery Systems, LLC – Preferred Stock		6/13/2018
Collaborative Imaging Holdco, LLC – Class B – Common Stock		3/30/2018
Collaborative Imaging Holdco, LLC – Class C – Common Stock		3/30/2018
Continuum Managed Services LLC – Class A – Common Stock		6/8/2017
Continuum Managed Services LLC – Class B – Common Stock		6/8/2017
Elah Holdings, Inc. – Common Stock		5/9/2018
National Spine and Pain Centers, LLC – Common Stock		6/2/2017
Wine.com, LLC – Preferred Stock		11/14/2018
Wrike, Inc. – Common Stock		12/31/2018
Yasso, Inc. – Common Stock		3/23/2017

 

(9)

Non-income producing security.

PIK – Payment-In-Kind

ADDITIONAL INFORMATION

Foreign currency forward contracts

 

Counterparty

Currency Purchased

Currency Sold

Settlement

Unrealized Appreciation (Depreciation)

Bank of America, N.A

USD 481

EUR 411

01/04/2019

$

10

Bank of America, N.A

USD 394

EUR 335

02/05/2019

9

Bank of America, N.A

USD 486

EUR 412

04/03/2019

11

Bank of America, N.A

USD 423

EUR 357

05/06/2019

10

Bank of America, N.A

USD 514

EUR 432

07/03/2019

11

Bank of America, N.A

USD 426

EUR 357

08/05/2019

10

Bank of America, N.A

USD 541

EUR 451

10/04/2019

12

Bank of America, N.A

USD 444

EUR 369

11/05/2019

10

Bank of America, N.A

USD 540

EUR 446

01/06/2020

12

Bank of America, N.A

USD 547

EUR 448

04/06/2020

13

Bank of America, N.A

USD 549

EUR 446

07/06/2020

14

$

122

Currency Abbreviations:

EUR – Euro

USD – U.S. Dollar

 

The accompanying notes are part of these consolidated financial statements.

 

94

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Goldman Sachs Middle Market Lending Corp.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

 

1.	ORGANIZATION

Goldman Sachs Middle Market Lending LLC (“MMLC LLC”) was formed on June 13, 2016. Effective January 30, 2017, MMLC LLC converted from a Delaware limited liability company to a Delaware corporation named Goldman Sachs Middle Market Lending Corp. (the “Company”), which, by operation of law, is deemed for purposes of Delaware law the same entity as MMLC LLC. The Company commenced operations on January 11, 2017. On January 30, 2017, the Company’s initial investors (other than the Initial Member (as defined below)) funded the initial portion of their capital commitment to purchase shares of common stock, at which time the Initial Member’s initial capital contribution to MMLC LLC was canceled. The Company has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2017.

The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation. The Company will seek to achieve this objective, primarily through direct originations of secured debt, including first lien debt, unitranche, including last out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

Goldman Sachs Asset Management, L.P. (“GSAM”), a Delaware limited partnership and an affiliate of Goldman Sachs & Co. LLC (including its predecessors, “GS & Co.”), is the investment adviser (the “Investment Adviser”) of the Company. The term “Goldman Sachs” refers to The Goldman Sachs Group, Inc. (“Group Inc.”), together with GS & Co., GSAM and its other subsidiaries.

From December 29, 2016 through September 29, 2017 (the “Final Closing Date”) the Company conducted an offering pursuant to which investors made capital commitments (each, a “Commitment”) to purchase shares of the Company’s common stock pursuant to subscription agreements (“Subscription Agreements”) entered into with the Company pursuant to which each investor agreed to purchase common stock for an aggregate purchase price equal to its Commitment. Each investor is required to purchase shares of the Company’s common stock each time the Company delivers a drawdown notice at least five business days prior to the required funding date (the “Drawdown Date”). The offering and sale of common stock is exempt from registration pursuant to Regulation D and Regulation S promulgated under the U.S. Securities Act of 1933, as amended, for offers and sales of securities that do not involve a public offering and for offers and sale of securities outside of the United States.

GS & Co. and Goldman Sachs International assisted the Company in conducting its private placement offering pursuant to agreements between the Company and each of GS & Co. and Goldman Sachs International.

The investment period commenced on December 29, 2016 (the “Initial Closing Date”). On August 8, 2019, the board of directors (the “Board of Directors”) extended the investment period for one additional six-month period from September 29, 2019 to March 29, 2020. With the approval of a majority-in-interest of the stockholders, the investment period may be extended for up to one additional year thereafter (such period, including any extensions, the “Investment Period”). In addition, the Board of Directors may terminate the Investment Period at any time in its discretion.

Following the end of the investment period, the Company will have the right to issue drawdowns only (i) to pay, and/or establish reserves for, actual or anticipated Company expenses, liabilities, including the payment or repayment of indebtedness for borrowed money (including through the issuance of notes and other evidence of indebtedness), other indebtedness, financings or extensions of credit, or other obligations, contingent or otherwise, including the Management Fee (as defined below), whether incurred before or after the end of the investment period, (ii) to fulfill investment commitments made or approved by the investment committee of GSAM’s Private Credit Group (the “Investment Committee”) prior to the expiration of the Investment Period, (iii) to engage in hedging transactions or (iv) to make additional investments in existing portfolio companies (including transactions to hedge interest rate or currency risks related to such additional investment).

The Company will continue to operate as a private BDC reporting company, until the earlier of the following events, each referred to as an “Exit Event”: (i) any listing of the Company’s shares of common stock on a national securities exchange (a “listing”), including in connection with an initial public offering (“IPO”), (ii) merger with another entity, including an affiliated company, subject to any limitations under the Investment Company Act or (iii) the sale of all or substantially all of the assets of the Company. If the Company has not consummated an Exit Event by the sixth anniversary of the Final Closing Date, the Board of Directors (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act and the Code) will meet to consider the Company’s potential wind down and/or liquidation and dissolution.

An affiliate of the Investment Adviser, (the “Initial Member”), made a capital contribution to the Company of one hundred dollars on January 13, 2017 and served as the sole initial member of the Company. The Company cancelled the Initial Member’s interest in the Company on January 30, 2017, the first date on which investors (other than the Initial Member) made their initial capital contribution to purchase stock (the “Initial Drawdown Date”).

The Company has formed wholly owned subsidiaries, which are structured as Delaware limited liability companies, to hold certain equity or equity-like investments in portfolio companies.

On December 9, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Goldman Sachs BDC, Inc., a Delaware corporation (“GS BDC”), Evergreen Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of GS BDC (“Merger Sub”), and GSAM, a Delaware limited partnership and investment adviser to each of the Company and GS BDC. The Merger Agreement provides that, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company (the “First Merger”) and, immediately thereafter, the Company will merge with and into GS BDC, with GS BDC continuing as the surviving company (the “Second Merger” and, together with the First Merger, the “Merger”).

 

95

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2.	SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s functional currency is U.S. dollars (“USD”) and these consolidated financial statements have been prepared in that currency. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X. This requires the Company to make certain estimates and assumptions that may affect the amounts reported in the consolidated financial statements and accompanying notes. These consolidated financial statements reflect normal and recurring adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Actual results may differ from the estimates and assumptions included in the consolidated financial statements.

Certain prior period information has been reclassified to conform to the current period presentation. The reclassification has no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported.

As an investment company, the Company applies the accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies (“ASC 946”) issued by the Financial Accounting Standards Board (“FASB”).

Basis of Consolidation

As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the financial position and results of operations of its wholly owned subsidiaries, MMLC Blocker I, LLC (formerly known as My-On MMLC Blocker, LLC), MMLC Blocker II, LLC, and MMLC Wine I, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

The Company records its investment transactions on a trade date basis, which is the date when the Company assumes the risks for gains and losses related to that investment. Realized gains and losses are based on the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums to par value on investments purchased are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount (“OID”) and market discounts or premiums are capitalized and amortized into interest income using the effective interest method or straight-line method, as applicable. Exit fees that are receivable upon repayment of a loan or debt security are amortized into interest income over the life of the respective investment. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income, for which the Company has earned the following:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Prepayment premiums		$	2,028			$	596			$	–
Accelerated amortization of upfront loan origination fees and unamortized discounts		$	2,967			$	1,097			$	26

Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to the Company, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, the Company only receives its allocable portion of such fees when invested in the same portfolio company as another account managed by the Investment Adviser.

Dividend income on preferred equity investments is recorded on an 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 investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.

Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the principal amount or shares (if equity) of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon the investment being called by the issuer. PIK is recorded as interest or dividend income, as applicable. If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest or dividend income, respectively.

Certain structuring fees, amendment fees, syndication fees and commitment fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered over time.

 

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Non-Accrual Investments

Investments are placed on non-accrual status when it is probable that principal, interest, or dividends will not be collected according to contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. The Company may make exceptions to this treatment if an investment has sufficient collateral value and is in the process of collection. As of December 31, 2019, the Company did not have any investments on non-accrual status. As of December 31, 2018, the Company did not have any investments on non-accrual status.

Investments

The Company carries its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the FASB, which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations or alternative price sources. In the absence of quoted market prices, broker or dealer quotations or alternative price sources, investments are measured at fair value as determined by the Company’s Board of Directors within the meaning of the Investment Company Act.

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See Note 5 “Fair Value Measurement”.

The Company generally invests in illiquid securities, including debt and equity investments, of middle-market companies. The Board of Directors has delegated to the Investment Adviser day-to-day responsibility for implementing and maintaining internal controls and procedures related to the valuation of the Company’s portfolio investments. Under valuation procedures adopted by the Board of Directors, market quotations are generally used to assess the value of the investments for which market quotations are readily available. The Investment Adviser obtains these market quotations from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available; otherwise from a principal market maker or a primary market dealer. To assess the continuing appropriateness of pricing sources and methodologies, the Investment Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing services or brokers, and any differences are reviewed in accordance with the valuation procedures. If the Board of Directors or Investment Adviser has a bona fide reason to believe any such market quotation does not reflect the fair value of an investment, it may independently value such investment in accordance with valuation procedures for investments for which market quotations are not readily available.

With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by the Board of Directors contemplate a multi-step valuation process each quarter, as described below:

 

(1)

The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment;

 

(2)

The Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser and the portfolio companies as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation approaches including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;

 

(3)

The Independent Valuation Advisors’ preliminary valuations are reviewed by the Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ valuation ranges are compared to the Investment Adviser’s valuations to ensure the Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Valuation and Side Pocket Working Group of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment decision making process;

 

(4)

The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;

 

(5)

The Audit Committee of the Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, the Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and

 

(6)

The Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of the investments in good faith, based on the inputs of the Investment Adviser, the Independent Valuation Advisors and the Audit Committee.

 

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Money Market Funds

Investments in money market funds are valued at net asset value (“NAV”) per share. See Note 3 “Significant Agreements and Related Party Transactions”.

Cash

Cash consists of deposits held at a custodian bank. As of December 31, 2019 and December 31, 2018, the Company held an aggregate cash balance of $13,393 and $15,010, respectively. Foreign currency of $1,299 (acquisition cost of $1,286) and $252 (acquisition cost of $250) is included in cash as of December 31, 2019 and December 31, 2018, respectively.

Foreign Currency Translation

Amounts denominated in foreign currencies are translated into USD on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into USD based upon currency exchange rates effective on the last business day of the period; and (ii) purchases and sales of investments, borrowings and repayments of such borrowings, income, and expenses denominated in foreign currencies are translated into USD based upon currency exchange rates prevailing on the transaction dates.

The Company does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gains or losses on investments. Fluctuations arising from the translation of non-investment assets and liabilities are included with the net change in unrealized gains (losses) on foreign currency translations on the Consolidated Statements of Operations.

Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

Derivatives

The Company may enter into foreign currency forward contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies. In a foreign currency forward contract, the Company agrees to receive or deliver a fixed quantity of one currency for another, at a pre-determined price at a future date. Forward foreign currency contracts are marked-to-market at the applicable forward rate. Unrealized appreciation (depreciation) on foreign currency forward contracts are recorded on the Consolidated Statements of Assets and Liabilities by counterparty on a net basis, not taking into account collateral posted which is recorded separately, if applicable. Notional amounts of foreign currency forward contract assets and liabilities are presented separately on the Consolidated Schedules of Investments. Purchases and settlements of foreign currency forward contracts having the same settlement date and counterparty are generally settled net and any realized gains or losses are recognized on the settlement date.

The Company does not utilize hedge accounting and as such, the Company recognizes its derivatives at fair value with changes in the net unrealized appreciation (depreciation) on foreign currency forward contracts recorded on the Consolidated Statements of Operations.

Income Taxes

The Company recognizes tax positions in its consolidated financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The Company reports any interest expense related to income tax matters in income tax expense, and any income tax penalties under expenses in the Consolidated Statements of Operations.

The Company’s tax positions have been reviewed based on applicable statutes of limitation for tax assessments, which may vary by jurisdiction, and based on such review, the Company has concluded that no additional provision for income tax is required in the consolidated financial statements. The Company is subject to potential examination by certain taxing authorities in various jurisdictions. The Company’s tax positions are subject to ongoing interpretation of laws and regulations by taxing authorities.

The Company has elected to be treated as a RIC commencing with its taxable year ended December 31, 2017. So long as the Company maintains its status as a RIC, it will generally not be required to pay corporate-level U.S. federal income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any U.S. federal income tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

To maintain our tax treatment as a RIC, the Company must meet specified source-of-income and asset diversification requirements and timely distribute to its stockholders for each taxable year at least 90% of its investment company taxable income (generally, its net ordinary income plus the excess of its realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction). 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. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required.

 

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Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes. Income tax expense, if any, is included under the income category for which it applies in the Consolidated Statements of Operations.

Distributions

Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. The Company may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce a stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent they are charged or credited to paid-in capital in excess of par, accumulated undistributed net investment income or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return. Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by the Investment Adviser. The Company may pay distributions to its stockholders in a year in excess of its net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and may carry forward taxable income for distribution in the following year and pay any applicable tax. The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of and amendments to the revolving credit facility between the Company and Truist Bank (formerly known as SunTrust Bank) (the “Truist Revolving Credit Facility”). These costs are amortized using the straight-line method over the term of the Truist Revolving Credit Facility. Deferred financing costs related to the Truist Revolving Credit Facility are presented separately as an asset on the Company’s Consolidated Statements of Assets and Liabilities.

Organization Costs

Organization costs include costs relating to the formation and organization of the Company. These costs are expensed as incurred. Upon the Initial Drawdown Date, stockholders bore such costs. Stockholders that made capital commitments after the Initial Drawdown Date bore a pro rata portion of such costs at the time of their first investment in the Company.

Offering Costs

Offering costs consist primarily of fees and expenses incurred in connection with the continuous offering of shares, including legal, printing and other costs, as well as costs associated with the preparation and filing of the Company’s registration statement on Form 10. Offering costs are recognized as a deferred charge and are amortized on a straight line basis over 12 months beginning on the date of commencement of operations. All costs have been fully amortized through January 11, 2018.

 

3.	SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS

Investment Management Agreement

The Company entered into an investment management agreement effective as of January 13, 2017 (the “Investment Management Agreement”) with the Investment Adviser, pursuant to which the Investment Adviser manages the Company’s investment program and related activities.

Management Fee

The Company pays the Investment Adviser a management fee (the “Management Fee”), payable quarterly in arrears, equal to 0.375% (i.e., an annual rate of 1.50%) of the average NAV of the Company (including un-invested cash and cash equivalents) at the end of the then-current quarter and the prior calendar quarter (and, in the case of the Company’s first quarter, the NAV as of such quarter-end). The Management Fee for any partial quarter will be appropriately prorated. Following the occurrence (if any) of a listing, average gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of the then-current quarter and the prior calendar quarter (and, in the case of the Company’s first quarter-end following such event, the Company’s gross assets as of such quarter-end) will be used instead of average NAV to calculate the Management Fee.

For the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, Management Fees amounted to $13,665, $9,147 and $3,494, respectively. For the period from January 11, 2017 (commencement of operations) to December 31, 2017, the Investment Adviser voluntarily agreed to permanently waive $203 of the Management Fees. As of December 31, 2019, net Management Fees payable amounted to $3,520.

 

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Incentive Fee

Pursuant to the Investment Management Agreement, the Company pays to the Investment Adviser an incentive fee (the “Incentive Fee”) as follows:

The Incentive Fee will consist of two components that are determined independently of each other, with the result that one component may be payable even if the other is not. A portion of the Incentive Fee will be based on the Company’s income and a portion will be based on the Company’s capital gains, each as described below.

i. Quarterly Incentive Fee Based on Income

For the portion of the Incentive Fee based on income, the Company’s Investment Adviser is entitled to receive the Incentive Fee based on income from the Company if the Company’s Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” (as defined below) of 1.75%. For this purpose, the hurdle is computed by reference to the Company’s NAV and does not take into account changes in the market price of the Company’s common stock (if any). The Incentive Fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to the Company’s aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since the Initial Drawdown Date) (in either case, the “Trailing Twelve Quarters”). However, following the occurrence (if any) of a listing, the Trailing Twelve Quarters will be “reset” so as to include, as of the end of any quarter, the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since the listing, rather than the number of quarters that have occurred since the Initial Drawdown Date).

The “hurdle amount” for the Incentive Fee based on income is determined on a quarterly basis, and is equal to 1.75% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which shall include all issuances by the Company of shares of its common stock) and distributions that occurred during the relevant Trailing Twelve Quarters. The Incentive Fee for any partial period will be appropriately prorated. For the portion of the Incentive Fee based on income, the Company pays the Investment Adviser a quarterly Incentive Fee based on the amount by which (A) Ordinary Income in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.”

The Incentive Fee based on income for each quarter is determined as follows:

 

•

No Incentive Fee based on income is payable to the Investment Adviser for any calendar quarter for which there is no Excess Income Amount;

 

•

100% of the Ordinary Income (as defined below), if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 2.0588% (or 2.1875% in the event of a listing) multiplied by the Company’s NAV at the beginning of each applicable calendar quarter included in the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and

 

•

15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income.

The amount of the Incentive Fee based on income that will be paid to the Investment Adviser for a particular quarter will equal the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but will not exceed the Incentive Fee Cap (as described below, and will be subject to the limitations set forth in Section 205(b)(3) of the Advisers Act).

The Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

“Ordinary Income” means interest income, dividend income and any other income (including any accrued income that we have not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter minus our operating expenses accrued during the calendar quarter (including the Management Fee, administrative expenses and any interest expense and dividends paid on issued and outstanding preferred stock, but excluding the Incentive Fee).

“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as defined below), if any, in respect of the relevant Trailing Twelve Quarters.

If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no Incentive Fee based on income to the Investment Adviser for such quarter. If, in any quarter, the Incentive Fee Cap is a positive value but is less than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap. In certain limited circumstances, an Incentive Fee based on income will be payable to the Investment Adviser although the net income for such quarter did not exceed the hurdle rate or the Incentive Fee will be higher than it would have been if calculated based on the Company’s performance for the applicable quarter without taking into account the Trailing Twelve Quarters.

 

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“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.

ii. Annual Incentive Fee Based on Capital Gains

The portion of Incentive Fee based on capital gains is determined and paid annually in arrears at the end of each calendar year or, in the event of a listing, the date on which such event occurs. At the end of each calendar year (or the occurrence of a listing), the Company will pay the Investment Adviser an Incentive Fee equal to (A) 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the difference, if positive, of the sum of the Company’s aggregate realized capital gains, if any, computed net of the Company’s aggregate realized capital losses, if any, and the Company’s aggregate unrealized capital depreciation, in each case from the Initial Drawdown Date (or, following the occurrence (if any) of a listing, from the date on which such event occurs) until the end of such calendar year or listing, as applicable, minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to the Investment Adviser from the Initial Drawdown Date (or, following the occurrence (if any) of a listing, from the date on which such event occurs) through the end of such calendar year or listing, as applicable. For the avoidance of doubt, unrealized capital appreciation is excluded from the calculation in clause (A), above.

The Company accrues, but does not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under GAAP, the Company is required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, the Company considers the cumulative aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then the Company records a capital gains incentive fee equal to 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of such amount, minus the aggregate amount of actual Incentive Fees based on capital gains paid in all prior periods (or, following the occurrence (if any) of a listing, in all prior periods beginning with the date on which such event occurs). If such amount is negative, then there is no accrual for such period. There can be no assurance that such unrealized capital appreciation will be realized in the future.

For the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, the Company accrued an Incentive Fee based on income of $18,024, $3,512 and $0, respectively. As of December 31, 2019, $3,419 remained payable.

For the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, the Company accrued an Incentive Fee based on capital gains under GAAP of $0, $(77) and $77, respectively, for which none were realized.

Administration and Custodian Fees

The Company has entered into an administration agreement with State Street Bank and Trust Company (the “Administrator”) under which the Administrator provides various accounting and administrative services to the Company. The Company pays the Administrator fees for its services as it determines are commercially reasonable in its sole discretion. The Company also reimburses the Administrator for all reasonable expenses. To the extent that the Administrator outsources any of its functions, the Administrator pays any compensation associated with such functions. The Administrator also serves as the Company’s custodian (the “Custodian”).

For the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, the Company incurred expenses for services provided by the Administrator and the Custodian of $1,121, $774 and $388, respectively. As of December 31, 2019, $96 remained payable.

Transfer Agent Fees

The Company has entered into a transfer agency agreement (the “Transfer Agency Agreement”), with GS & Co. pursuant to which GS & Co. serves as the Company’s transfer agent (“Transfer Agent”), registrar and disbursing agent. The Company pays the Transfer Agent fees at an annual rate of 0.12% of the average NAV of the Company at the end of the then-current quarter and the prior calendar quarter (and, in the case of the Company’s first quarter, the Company’s NAV as of such quarter-end).

For the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, the Company incurred expenses for services provided by the Transfer Agent of $1,094, $732 and $281, respectively. As of December 31, 2019, $282 remained payable.

 

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Affiliates

The table below presents the Company’s affiliated investments:

 

		Beginning Fair Value Balance				Gross Additions(2)				Gross Reductions(3)				Net Realized Gain (Loss)				Net Change in Unrealized Appreciation (Depreciation)				Ending Fair Value Balance				Dividend, Interest and Other Income
For the Year Ended December 31, 2019
Non-Controlled Affiliates
Goldman Sachs Financial Square Government Fund (1)		$	–			$	205,169			$	(205,169	)		$	–			$	–			$	–			$	45
Accuity Delivery Systems, LLC			19,482				75				–				–				2,014				21,571				1,479
Collaborative Imaging Holdco, LLC (dba Texas Radiology Associates)			14,594				9,555				–				–				715				24,864				1,513
Elah Holdings, Inc.			3,163				–				–				–				–				3,163				–
Total Non-Controlled Affiliates		$	37,239			$	214,799			$	(205,169	)		$	–			$	2,729			$	49,598			$	3,037
For the Year Ended December 31, 2018
Non-Controlled Affiliates
Goldman Sachs Financial Square Government Fund (1)		$	–	(4)		$	212,620			$	(212,620	)		$	–			$	–			$	–			$	55
Accuity Delivery Systems, LLC			–				18,584				–				–				898				19,482				810
Collaborative Imaging, LLC			–				14,325				–				–				269				14,594				999
Elah Holdings, Inc.			–				3,163				–				–				–				3,163				–
Total Non-Controlled Affiliates		$	–	(4)		$	248,692			$	(212,620)			$	–			$	1,167			$	37,239			$	1,864

 

(1)

Fund advised by an affiliate of Goldman Sachs.

(2)

Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

(3)

Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

(4)

Amount rounds to less than $1.

Due to Affiliates

The Investment Adviser paid certain general and administrative expenses, including legal expenses, on behalf of the Company in the ordinary course of business. As of December 31, 2019 and December 31, 2018, there were $417 and $475, respectively, included within accrued expenses and other liabilities paid by the Investment Adviser and its affiliates on behalf of the Company.

Co-investment Activity

In certain circumstances, negotiated co-investments by the Company and other funds managed by the Investment Adviser may be made only pursuant to an order from the SEC permitting the Company to do so. On January 4, 2017, the SEC granted exemptive relief (“Exemptive Relief”) that permits the Company to co-invest with GS BDC, Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”), Goldman Sachs Private Middle Market Credit II LLC (“GS PMMC II”) and certain other funds that may be managed by GSAM, including the GSAM Credit Alternatives Team, after the date of the exemptive order, subject to certain conditions including that co-investments are made in a manner consistent with the Company’s investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the Exemptive Relief, and are allocated fairly among participants. The GSAM Credit Alternatives Team is comprised of investment professionals dedicated to the Company’s investment strategy and other funds that share a similar investment strategy with the Company, who are responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, negotiating and structuring the Company’s investments and monitoring and servicing the Company’s investments, together with investment professionals who are primarily focused on investment strategies in syndicated, liquid credit. Under the terms of the Exemptive Relief, a “required majority” (as defined in Section 57(o) of the Investment Company Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to the Company and the Company’s stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the then-current investment objectives and strategies of the Company. As a result of the Exemptive Relief, there could be significant overlap in the Company’s investment portfolio and the investment portfolios of GS BDC, GS PMMC, GS PMMC II and/or other funds established by the GSAM Credit Alternatives Team that could avail themselves of the Exemptive Relief.

 

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4.	INVESTMENTS

As of the dates indicated, the Company’s investments (excluding an investment in a money market fund, if any, managed by an affiliate of Group Inc.) consisted of the following:

 

		December 31, 2019								December 31, 2018
Investment Type		Cost				Fair Value				Cost				Fair Value
1st Lien/Senior Secured Debt		$	1,272,044			$	1,266,486			$	646,334			$	644,913
1st Lien/Last-Out Unitranche			100,829				100,797				90,483				90,582
2nd Lien/Senior Secured Debt			311,933				294,165				359,039				353,765
Preferred Stock			7,200				10,137				7,200				8,100
Common Stock			10,381				11,575				9,998				9,825
Total Investments		$	1,702,387			$	1,683,160			$	1,113,054			$	1,107,185

As of the dates indicated, the industry composition of the Company’s portfolio at fair value and net assets was as follows:

 

		December 31, 2019								December 31, 2018
Industry		Fair Value				Net Assets				Fair Value				Net Assets
Health Care Providers & Services			11.5	%			20.5	%			8.6	%			11.6	%
Software			10.1				18.0				4.5				6.0
Health Care Technology			10.1				18.0				5.6				7.5
Interactive Media & Services			10.0				17.8				12.8				17.3
IT Services			7.8				14.0				11.3				15.3
Real Estate Management & Development			5.9				10.4				1.6				2.2
Professional Services			5.8				10.3				7.3				9.9
Diversified Financial Services			5.1				9.1				7.5				10.1
Health Care Equipment & Supplies			4.2				7.5				3.9				5.3
Hotels, Restaurants & Leisure			3.9				7.0				1.4				1.9
Road & Rail			3.1				5.6				3.9				5.3
Chemicals			2.8				5.1				7.2				9.8
Transportation Infrastructure			1.9				3.4				–				–
Household Products			1.9				3.3				3.0				4.0
Internet & Catalog Retail			1.8				3.3				1.7				2.3
Diversified Consumer Services			1.8				3.2				–				–
Diversified Telecommunication Services			1.7				3.0				2.8				3.8
Entertainment			1.6				2.9				3.0				4.1
Insurance			1.6				2.8				2.8				3.8
Air Freight & Logistics			1.5				2.6				2.2				3.0
Building Products			1.4				2.4				2.1				2.8
Trading Companies & Distributors			1.0				1.8				–				–
Commercial Services & Supplies			0.7				1.3				0.6				0.8
Beverages			0.7				1.3				1.0				1.4
Auto Components			0.6				1.1				1.0				1.3
Food Products			0.5				0.9				1.6				2.1
Life Sciences Tools & Services			0.5				0.8				0.7				1.0
Containers & Packaging			0.3				0.5				0.6				0.7
Capital Markets			0.2				0.3				0.3				0.4
Distributors			–				–				1.0				1.3
Total			100.0	%			178.2	%			100.0	%			135.0	%

As of the dates indicated, the geographic composition of the Company’s portfolio at fair value was as follows:

 

Geographic		December 31, 2019				December 31, 2018
United States			95.6	%			97.4	%
Canada			2.7				–
Ireland			1.7				2.6
Total			100.0	%			100.0	%

 

5.	FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

 

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The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:

Basis of Fair Value Measurement

Level 1 – Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2 – Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3 – Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 “Significant Accounting Policies” should be read in conjunction with the information outlined below.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 Instruments.

 

Level 2 Instruments		Valuation Techniques and Significant Inputs
Equity and Fixed Income		The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.   Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.
Derivative Contracts		OTC derivatives (both centrally cleared and bilateral) are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, calibration to market-clearing transactions, broker or dealer quotations, or other alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms of, and specific risks inherent in, the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, voluntary and involuntary prepayment rates, loss severity rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment. OTC derivatives are classified within Level 2 of the fair value hierarchy when significant inputs are corroborated by market evidence.

 

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The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 3 Instruments.

 

Level 3 Instruments		Valuation Techniques and Significant Inputs
Bank Loans, Corporate Debt, and Other Debt Obligations		Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis.
Equity		Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available: •  Transactions in similar instruments; •  Discounted cash flow techniques; •  Third party appraisals; and •  Industry multiples and public comparables. Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including: •  Current financial performance as compared to projected performance; •  Capitalization rates and multiples; and •  Market yields implied by transactions of similar or related assets.

The tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets and liabilities as of December 31, 2019 and December 31, 2018. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien/Senior Secured Debt is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets and liabilities.

 

Level 3 Instruments		Level 3 Assets as of December 31, 2019(1)		Significant Unobservable Inputs by Valuation Techniques(2)		Range(3) of Significant Unobservable Inputs (Weighted Average(4)) as of December 31, 2019
Bank Loans, Corporate Debt, and Other Debt Obligations		1st Lien/Senior Secured Debt		Discounted cash flows:
		$1,031,569		•  Discount Rate		6.5% – 13.3% (8.7%)
		1st Lien/Last-Out Unitranche		Discounted cash flows:
		$100,797		•  Discount Rate		8.5% – 10.1% (9.8%)
		2nd Lien/Senior Secured Debt		Discounted cash flows:
		$233,672		•  Discount Rate		9.9% – 12.4% (10.7%)
Equity		Preferred Stock		Comparable multiples:
		$10,137		•  EV/EBITDA(5)		4.2x – 30.2x (19.0x)
				Comparable multiples:
				•  EV/Revenue		1.0x – 3.2x (1.3x)
		Common Stock		Discounted cash flows:
		$11,575		•  Discount Rate		13.9% – 31.0% (23.9%)
				Comparable multiples:
				•  EV/EBITDA(5)		8.5x – 12.7x (9.7x)
				Comparable multiples:
				•  EV/Revenue		2.3x – 9.7x (9.6x)

 

(1)

Included within Level 3 assets of $1,579,087 is an amount of $191,337 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions). The income approach was used in the determination of fair value for $1,366,038 or 87.7% of Level 3 bank loans, corporate debt, and other debt obligations.

(2)

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

(3)

The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment.

(4)

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(5)

Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”).

 

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Level 3 Instruments		Level 3 Assets as of December 31, 2018(1)		Significant Unobservable Inputs by Valuation Techniques(2)		Range(3) of Significant Unobservable Inputs (Weighted Average(4)) as of December 31, 2018
Bank Loans, Corporate Debt, and Other Debt Obligations		1st Lien/Senior Secured Debt		Discounted cash flows:
		$499,548		•  Discount Rate		8.4% – 13.0% (9.9%)
		1st Lien/Last-Out Unitranche		Discounted cash flows:
		$90,582		•  Discount Rate		9.3% – 10.9% (10.6%)
		2nd Lien/Senior Secured Debt		Discounted cash flows:
		$227,093		•  Discount Rate		10.8% – 16.5% (11.5%)
Equity		Preferred Stock		Comparable multiples:
		$5,400		•  EV/EBITDA(5)		4.0x – 27.6x (18.9x)
		Common Stock		Discounted cash flows:
		$6,750		•  Discount Rate		14.6% – 31.0% (24.5%)
				Comparable multiples:
				•  EV/EBITDA(5)		8.4x – 13.0x (11.7x)

 

(1)

Included within Level 3 assets of $1,053,536 is an amount of $224,163 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions).

(2)

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

(3)

The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment.

(4)

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(5)

Enterprise value of portfolio company as a multiple of EBITDA.

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of December 31, 2019 and December 31, 2018. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease, respectively, in the fair value.

As of the dates indicated, the following is a summary of the Company’s assets categorized within the fair value hierarchy.

 

		December 31, 2019																December 31, 2018
Assets		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
1st Lien/Senior Secured Debt		$	–			$	58,830			$	1,207,656			$	1,266,486			$	–			$	–			$	644,913			$	644,913
1st Lien/Last-Out Unitranche			–				–				100,797				100,797				–				–				90,582				90,582
2nd Lien/Senior Secured Debt			–				45,243				248,922				294,165				–				53,649				300,116				353,765
Preferred Stock			–				–				10,137				10,137				–				–				8,100				8,100
Common Stock			–				–				11,575				11,575				–				–				9,825				9,825
Total Assets		$	–			$	104,073			$	1,579,087			$	1,683,160			$	–			$	53,649			$	1,053,536			$	1,107,185
Foreign currency forward contracts (asset)(1)		$	–			$	46			$	–			$	46			$	–			$	122			$	–			$	122

 

(1)

Amounts disclosed represent the unrealized appreciation on the foreign currency forward contracts.

 

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The below table presents a summary of changes in fair value of Level 3 assets by investment type:

 

Level 3		Beginning Balance				Purchases(1)				Net Realized Gain (Loss)				Net Change in Unrealized Appreciation (Depreciation)(2)				Sales and Settlements(1)				Net Amortization of Premium/ Discount				Transfers In				Transfers Out				Ending Balance				Net Change in Unrealized Appreciation (Depreciation) for assets still held
For the Year Ended December 31, 2019
1st Lien/Senior Secured Debt		$	644,913			$	746,302			$	(48	)		$	(3,239	)		$	(174,745	)		$	5,319			$	–			$	(10,846	)		$	1,207,656			$	(2,751	)
1st Lien/Last-Out Unitranche			90,582				10,294				–				(131	)			(452	)			504				–				–				100,797				(131	)
2nd Lien/Senior Secured Debt			300,116				17,898				(10,449	)			(11,296	)			(70,605	)			1,590				27,755				(6,087	)			248,922				(13,559	)
Preferred Stock			8,100				–				–				2,037				–				–				–				–				10,137				2,037
Common Stock			9,825				1,054				1,596				1,366				(2,266	)			–				–				–				11,575				1,701
Total assets		$	1,053,536			$	775,548			$	(8,901	)		$	(11,263	)		$	(248,068	)		$	7,413			$	27,755			$	(16,933	)		$	1,579,087			$	(12,703	)
For the Year Ended December 31, 2018
1st Lien/Senior Secured Debt		$	199,464			$	468,855			$	(24	)		$	(1,196	)		$	(23,588	)		$	1,402			$	–			$	–			$	644,913			$	(1,196	)
1st Lien/Last-Out Unitranche			37,138				74,739				–				(40	)			(22,139	)			884				–				–				90,582				91
2nd Lien/Senior Secured Debt			226,781				110,913				–				(3,123	)			(42,893	)			1,220				7,218				–				300,116				(3,087	)
Preferred Stock			–				7,200				–				900				–				–				–				–				8,100				900
Common Stock			2,070				8,038				1,291				217				(1,791	)			–				–				–				9,825				217
Total assets		$	465,453			$	669,745			$	1,267			$	(3,242	)		$	(90,411	)		$	3,506			$	7,218			$	–			$	1,053,536			$	(3,075	)

 

(1)

Purchases may include PIK and securities received in corporate actions and restructurings. Sales and Settlements may include securities delivered in corporate actions and restructuring of investments.

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. For the year ended December 31, 2019, transfers from Level 3 to Level 2 were primarily due to increased price transparency and transfers from Level 2 to Level 3 were primarily due to decreased price transparency. For the year ended December 31, 2018, transfers from Level 2 to Level 3 were primarily due to decreased price transparency.

Debt Not Carried at Fair Value

The fair value of the Company’s debt, which would have been categorized as Level 3 within the fair value hierarchy as of December 31, 2019 and December 31, 2018, approximates its carrying value because the Truist Revolving Credit Facility has variable interest based on selected short-term rates.

 

6.

DEBT

In accordance with the Investment Company Act, with certain exceptions, the Company is currently allowed to borrow amounts such that its asset coverage ratio, as defined in the Investment Company Act, is at least 200% after such borrowing (or 150% if certain requirements are met). As of December 31, 2019 and December 31, 2018, the Company’s asset coverage ratio based on the aggregate amount outstanding of senior securities was 228% and 381%, respectively.

As of the dates indicated, the Company’s outstanding debt was as follows:

 

		As of
		December 31, 2019												December 31, 2018
		Aggregate Borrowing Amount Committed				Amount Available				Carrying Value				Aggregate Borrowing Amount Committed				Amount Available				Carrying Value
Truist Revolving Credit Facility (1)(2)		$	850,000			$	120,648			$	729,986			$	600,000			$	314,401			$	286,189
Total Debt		$	850,000			$	120,648			$	729,986			$	600,000			$	314,401			$	286,189

 

(1)

The Company may borrow amounts in USD or certain other permitted currencies. Debt outstanding denominated in currencies other than USD have been converted to USD using the applicable foreign currency exchange rate as of the applicable reporting date. As of December 31, 2019, the Company had outstanding borrowings denominated in USD of $676,200 and in Euros (EUR) of EUR 47,950. As of December 31, 2018, the Company had outstanding borrowings denominated in USD of $231,250 and in Euros (EUR) of EUR 47,950.

(2)

Provides, under certain circumstances, a total borrowing capacity of $900,000.

 

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The combined weighted average interest rate of the aggregate borrowings outstanding for the years ended December 31, 2019 and 2018 were 4.27% and 4.20%, respectively.

HSBC Revolving Credit Facility

The Company entered into the HSBC Revolving Credit Facility on March 15, 2017 with HSBC Bank USA, National Association, as administrative agent (the “Administrative Agent”) and a lender.

On April 12, 2017, the Company amended the HSBC Revolving Credit Facility to, among other things, increase the maximum committed principal amount of the HSBC Revolving Credit Facility by $90,000 to $200,000.

On September 11, 2017, the Company repaid in full all indebtedness, liabilities and other obligations under, and terminated, the HSBC Revolving Credit Facility. In connection with the termination of the HSBC Revolving Credit Facility, all liens on collateral securing the HSBC Revolving Credit Facility were released.

The maximum principal amount of the HSBC Revolving Credit Facility was subject to availability under the “Borrowing Base”. The Borrowing Base was calculated based on the unfunded capital commitments of the investors meeting various eligibility requirements (subject to investor concentration limits) multiplied by specified advance rates.

Interest rates on obligations under the HSBC Revolving Credit Facility were based on prevailing London Interbank Offered Rate (“LIBOR”) for one, two- or three- months or an Alternate Base Rate (the greater of (i) the prime rate of the Administrative Agent and (ii) the federal funds rate plus 2.00%) (“ABR”), plus, in each case, 1.80% per annum. The Company had the ability to elect either LIBOR or ABR at the time of draw-down, and loans could have been converted from one rate to another at any time, subject to certain conditions.

Amounts drawn under the HSBC Revolving Credit Facility could have been prepaid at any time without premium or penalty, subject to applicable breakage costs. Loans were subject to mandatory prepayment for amounts exceeding the Borrowing Base or the lenders’ aggregate commitment and to the extent required to comply with the Investment Company Act, as applied to BDCs. Transfers of interests in the Company by investors were subject to certain restrictions under the HSBC Revolving Credit Facility and could have triggered mandatory prepayment obligations.

The HSBC Revolving Credit Facility was secured by a perfected first priority security interest in the unfunded capital commitments of the Company’s investors (with certain exceptions) and the proceeds thereof, including assignment of the right to make capital calls, receive and apply capital contributions, and enforce remedies and claims related thereto, and a pledge of the collateral account into which capital call proceeds are deposited. Additionally, under the HSBC Revolving Credit Facility, the lenders were able to directly require stockholders to fund their capital commitments, but lenders could not seek recourse against a stockholder in excess of such stockholder’s obligation to contribute capital to the Company.

The HSBC Revolving Credit Facility contained customary representations, warranties, and affirmative and negative covenants on the Company, including without limitation treatment as a RIC under the Code and as a BDC under the Investment Company Act and restrictions on certain operations, including without limitation certain distributions. The HSBC Revolving Credit Facility included customary conditions precedent to draw-down of loans and customary events of default. The Company was in compliance with these covenants.

Costs of $712 were incurred in connection with obtaining, amending and terminating the HSBC Revolving Credit Facility. The cost incurred in connection with obtaining and amending the HSBC Revolving Credit Facility were recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and were amortized over the life of the HSBC Revolving Credit Facility using the straight-line method. As of December 31, 2019 and December 31, 2018, outstanding deferred financing costs were $0 and $0, respectively.

The below table presents the summary information of the HSBC Revolving Credit Facility.

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Borrowing interest expense		$	N/A			$	N/A			$	200
Facility fees			N/A				N/A				304
Amortization of financing costs			N/A				N/A				710
Total		$	N/A			$	N/A			$	1,214
Weighted average interest rate			N/A				N/A				3.27	%
Average outstanding balance		$	N/A			$	N/A			$	12,392	*#

 

*

Average outstanding debt balance was calculated beginning on March 15, 2017, the date on which the Company entered into the HSBC Revolving Credit Facility.

#

Average outstanding debt balance was calculated ending on September 11, 2017, the date on which the Company terminated the HSBC Revolving Credit Facility.

 

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Truist Revolving Credit Facility

On September 11, 2017, the Company entered into the Truist Revolving Credit Facility with various lenders. Truist Bank serves as administrative agent and Bank of America, N.A. serves as syndication agent. The Company amended the Truist Revolving Credit Facility on September 17, 2018 and July 10, 2019.

The Truist Revolving Credit Facility is a multicurrency facility, and as of December 31, 2019, total commitments under the Truist Revolving Credit Facility were $850,000. The accordion feature of the Truist Revolving Credit Facility allows the Company, subject to the satisfaction of various conditions, to bring total commitments under the Truist Revolving Credit Facility to $900,000.

Borrowings under the Truist Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at the Company’s election) of either the Adjusted LIBO Rate (as defined in the Truist Revolving Credit Facility) plus the Applicable Margin (as defined in the Truist Revolving Credit Facility) or the Applicable Margin plus the higher of the Prime Rate (as defined in the Truist Revolving Credit Facility), Federal Funds Effective Rate (as defined in the Truist Revolving Credit Facility) plus 0.5% or overnight London Interbank Offered Rate (“LIBOR”) plus 1.0%. Interest is payable quarterly in arrears or as defined in the Truist Revolving Credit Facility. The Company pays a fee of 0.375% per annum on committed but undrawn amounts under the Truist Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Truist Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on September 13, 2021.

The Truist Revolving Credit Facility may be guaranteed by certain of the Company’s subsidiaries that are formed or acquired by the Company in the future (collectively, the “Guarantors”). Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

The Company’s obligations to the lenders under the Truist Revolving Credit Facility are secured by a first priority security interest in substantially all of the Company’s portfolio of investments and cash, with certain exceptions. The Truist Revolving Credit Facility contains certain customary covenants, including: (i) maintaining a minimum shareholder’s equity, (ii) maintaining an asset coverage ratio of at least 2 to 1, (iii) maintaining a minimum liquidity test of at least 15% of the “covered debt amount” during any period when the “adjusted covered debt balance” is greater than 85% of the “adjusted borrowing base,” as such quoted terms are defined in the Truist Revolving Credit Facility and (iv) restrictions on industry concentrations in the Company’s investment portfolio.

The Truist Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default (including a change in control event of default trigger).

Costs of $5,196 were incurred in connection with obtaining and amending the Truist Revolving Credit Facility and exercising its right under the accordion feature, which have been recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and are being amortized over the life of the Truist Revolving Credit Facility using the straight-line method. As of December 31, 2019 and December 31, 2018, deferred financing costs were $2,617 and $3,233, respectively.

The below table presents the summary information of the Truist Revolving Credit Facility.

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Borrowing interest expense		$	21,872			$	8,988			$	421
Facility fees			843				885				295
Amortization of financing costs			1,361				983				237
Total		$	24,076			$	10,856			$	953
Weighted average interest rate			4.27	%			4.20	%			3.88	%
Average outstanding balance		$	512,687			$	213,762			$	35,429	*

 

*

Average outstanding debt balance was calculated beginning on September 11, 2017, the date on which the Company entered into the Truist Revolving Credit Facility.

 

7.	DERIVATIVES

The Company enters into foreign currency forward contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies.

In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty risk, the Company may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or a similar agreement with its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Company and a counterparty that governs OTC derivatives, including foreign currency forward contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.

 

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For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Company and cash collateral received from the counterparty, if any, is included in the Consolidated Statements of Assets and Liabilities as due to/due from a broker. The Company minimizes counterparty credit risk by only entering into agreements with counterparties that they believe to be in good standing and by monitoring the financial stability of those counterparties.

For the year ended December 31, 2019 and for the period from August 8, 2018 to December 31, 2018, the Company’s average USD notional exposure to foreign currency forward contracts was $4,012 and $4,405, respectively. The Company did not hold any derivative instruments prior to August 8, 2018.

As of the dates indicated, the table below sets forth the Company’s net exposure to foreign currency forward contracts by counterparty that are subject to ISDA Master Agreements or similar agreements.

 

		Gross Amount of Assets				Gross Amount of (Liabilities)				Net Amount of Assets or (Liabilities)				Collateral (Received) Pledged (1)				Net Amounts (2)
December 31, 2019
Bank of America, N.A.		$	46			$	–			$	46			$	–			$	46
December 31, 2018
Bank of America, N.A.		$	122			$	–			$	122			$	–			$	122

 

(1)	Amount excludes excess cash collateral paid.

(2)	Net amount represents the net amount due (to) from counterparty in the event of a default based on the contractual setoff rights under the agreement. Net amount excludes any over-collateralized amounts.

The effect of transactions in derivative instruments to the Consolidated Statements of Operations was as follows:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Net realized gain (loss) on foreign currency forward contracts		$	147			$	1			$	–
Net change in unrealized appreciation (depreciation) on foreign currency forward contracts			(76	)			122				–
Total net realized and unrealized gains (losses) on foreign currency forward contracts		$	71			$	123			$	–

 

8.	COMMITMENTS AND CONTINGENCIES

Capital Commitments

The Company had aggregate capital commitments and undrawn capital commitments from investors as follows as of the dates indicated:

 

		December 31, 2019												December 31, 2018
		Capital Commitments				Unfunded Capital Commitments				% of Capital Commitments Funded				Capital Commitments				Unfunded Capital Commitments				% of Capital Commitments Funded
Common Stock		$	1,034,992			$	62,152				94	%		$	1,035,043			$	207,078				80	%

 

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Portfolio Company Commitments

The Company may enter into investment commitments to fund investments through signed commitment letters which in certain circumstances may be disclosed by the Company. In many circumstances, borrower acceptance and final terms are subject to transaction-related contingencies. These are disclosed as commitments upon execution of a final agreement to fund investments. As of December 31, 2019, the Company believed that it had adequate financial resources to satisfy its unfunded commitments. As of the dates indicated, the Company had the following unfunded commitments by investment types:

 

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						Unfunded Commitment Balances(2)								Fair Value(3)
		Commitment Expiration Date(1)				December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
1st Lien/Senior Secured Debt
Gastro Health Holdco, LLC			4/13/2020			$	1,072			$	–			$	(16	)		$	–
GlobalTranz Enterprises, Inc.			5/15/2020				2,968				–				(267	)			–
Hygiena Borrower LLC			6/29/2020				814				808				(16	)			(16	)
Convene 237 Park Avenue, LLC (dba Convene)			8/30/2020				9,120				–				(182	)			–
Diligent Corporation			12/19/2020				6,083				13,670				(61	)			(171	)
Brillio, LLC			2/6/2021				2,200				–				(22	)			–
FWR Holding Corporation (dba First Watch Restaurants)			2/28/2021				3,040				–				(30	)			–
CorePower Yoga LLC			5/14/2021				2,692				–				(40	)			–
CFS Management, LLC (dba Center for Sight Management)			7/1/2021				2,067				–				(21	)			–
Associations, Inc.			7/30/2021				1,299				2,696				(13	)			(27	)
The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo)			8/15/2021				6,768				–				(118	)			–
WebPT, Inc.			8/28/2021				1,867				–				(37	)			–
Gastro Health Holdco, LLC			9/13/2021				7,200				–				(108	)			–
Elemica Parent, Inc.			9/18/2021				830				–				(21	)			–
Bullhorn, Inc.			10/1/2021				1,065				–				(16	)			–
Chronicle Bidco Inc. (dba Lexitas)			11/14/2021				4,330				–				(43	)			–
Eptam Plastics, Ltd.			12/6/2021				2,708				–				(20	)			–
Netvoyage Corporation (dba NetDocuments)			3/24/2022				610				610				(8	)			(8	)
VRC Companies, LLC (dba Vital Records Control)			3/31/2022				111				122				(1	)			(1	)
Diligent Corporation			4/14/2022				216				1,080				(2	)			(14	)
DDS USA Holding, Inc.			6/30/2022				1,380				1,533				(7	)			(12	)
Xactly Corporation			7/29/2022				2,177				2,177				(27	)			(33	)
Hygiena Borrower LLC			8/26/2022				550				550				(11	)			(11	)
Lithium Technologies, Inc.			10/3/2022				3,448				3,448				(52	)			(69	)
Businessolver.com, Inc.			5/15/2023				2,256				2,256				(39	)			(45	)
Integral Ad Science, Inc.			7/19/2023				2,586				2,586				(39	)			(52	)
FWR Holding Corporation (dba First Watch Restaurants)			8/21/2023				226				941				(2	)			(19	)
Gastro Health Holdco, LLC			9/4/2023				2,900				2,900				(44	)			(58	)
Empirix, Inc.			9/25/2023				1,800				1,800				(180	)			(32	)
SPay, Inc. (dba Stack Sports)			6/17/2024				543				435				(18	)			(11	)
Associations, Inc.			7/30/2024				836				836				(8	)			(8	)
WebPT, Inc.			8/28/2024				1,556				–				(31	)			–
Fenergo Finance 3 Limited			9/5/2024				2,468				2,521				(19	)			(87	)
Fenergo Finance 3 Limited			9/5/2024				1,683				1,683				(13	)			(34	)
iCIMS, Inc.			9/12/2024				2,662				2,662				(47	)			(53	)
MMIT Holdings, LLC (dba Managed Markets Insight & Technology)			11/15/2024				3,258				3,620				(57	)			(72	)
Wrike, Inc.			12/31/2024				2,300				2,300				(46	)			(46	)
Apptio, Inc.			1/10/2025				3,160				3,097				(55	)			–
ConnectWise, LLC			2/28/2025				1,524				–				(19	)			–
Mailgun Technologies, Inc.			3/26/2025				1,448				–				(25	)			–
Internet Truckstop Group, LLC (dba Truckstop)			4/2/2025				2,600				–				(39	)			–
PlanSource Holdings, Inc.			4/22/2025				4,681				–				(94	)			–
CorePower Yoga LLC			5/14/2025				1,009				–				(15	)			–
Wolfpack IP Co. (dba Lone Wolf Technologies)			6/13/2025				4,722				–				(94	)			–
Riverpoint Medical, LLC			6/21/2025				2,450				–				(25	)			–
HS4 AcquisitionCo, Inc. (dba HotSchedules & Fourth)			7/9/2025				2,384				–				(48	)			–
WorkForce Software, LLC			7/31/2025				1,123				–				(23	)			–
The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo)			8/15/2025				2,572				–				(45	)			–
Elemica Parent, Inc.			9/18/2025				366				–				(9	)			–
Bullhorn, Inc.			10/1/2025				799				–				(12	)			–
CST Buyer Company (dba Intoxalock)			10/3/2025				1,294				–				–				–
Acquia, Inc.			10/31/2025				1,946				–				(39	)			–
Chronicle Bidco Inc. (dba Lexitas)			11/14/2025				1,300				–				(26	)			–
Eptam Plastics, Ltd.			12/6/2025				1,015				–				(15	)			–
Picture Head Midco LLC			3/31/2019				–				3,620				–				(72	)
VRC Companies, LLC (dba Vital Records Control)			9/27/2019				–				1,238				–				(12	)
Businessolver.com, Inc.			5/15/2020				–				3,350				–				(68	)
SPay, Inc. (dba Stack Sports)			6/15/2020				–				8,069				–				(204	)
Diligent Corporation			8/3/2020				–				354				–				(4	)

 

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						Unfunded Commitment Balances(2)								Fair Value(3)
		Commitment Expiration Date(1)				December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
Gastro Health Holdco, LLC			9/4/2020			$	—			$	7,146			$	—			$	(144	)
Continuum Managed Services LLC			6/8/2022				—				2,000				—				(40	)
Datto, Inc.			12/7/2022				—				3,529				—				(26	)
Picture Head Midco LLC			8/31/2023				—				2,509				—				(51	)
Apptio, Inc.			1/10/2025				—				37,161				—				—
Total 1st Lien/Senior Secured Debt						$	124,082			$	123,307			$	(2,265	)		$	(1,500	)
1st Lien/Last-Out Unitranche
Doxim, Inc.			2/28/2020			$	—			$	7,880			$	—			$	(236	)
Total 1st Lien/Last-Out Unitranche						$	—			$	7,880			$	—			$	(236	)
2nd Lien/Senior Secured Debt
USRP Holdings, Inc. (dba U.S. Retirement Partners)			3/29/2020			$	816			$	816			$	(8	)		$	(10	)
Hygiena Borrower LLC			6/29/2020				831				823				(15	)			(15	)
Genesis Acquisition Co. (dba ProCare Software)			7/31/2020				2,500				2,469				(63	)			(69	)
RSC Acquisition, Inc.			3/5/2020				—				6,100				—				(61	)
Chase Industries, Inc. (dba Senneca Holdings)			5/11/2020				—				6,100				—				(198	)
Total 2nd Lien/Senior Secured Debt						$	4,147			$	16,308			$	(86	)		$	(353	)
Total						$	128,229			$	147,495			$	(2,351	)		$	(2,089	)

 

(1)

Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.

(2)

Unfunded commitments denominated in currencies other than U.S. dollars have been converted to U.S. dollars using the applicable foreign currency exchange rate as of the applicable reporting date.

(3)

The fair value is reflected as investments, at fair value on the Consolidated Statements of Assets and Liabilities.

Contingencies

In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.

 

9.	NET ASSETS

Capital Drawdowns

The following table summarizes the total shares issued and proceeds received related to capital drawdowns:

 

Share Issue Date		Shares Issued				Proceeds Received
For the Year Ended December 31, 2019
March 25, 2019			4,286,182			$	82,610
June 27, 2019			2,179,196				41,545
December 27, 2019			1,092,225				20,720
Total capital drawdowns			7,557,603			$	144,875
For the Year Ended December 31, 2018
March 26, 2018			2,700,602			$	51,856
June 25, 2018			2,689,865				51,620
September 27, 2018			8,011,747				154,825
December 27, 2018			5,354,207				103,795
Total capital drawdowns			18,756,421			$	362,096
For the period from January 11, 2017 (commencement of operations) to December 31, 2017
January 30, 2017			1,520,857			$	30,417
February 27, 2017			30,240				585
March 24, 2017			3,226,393				61,929
April 27, 2017			390,953				7,511
June 26, 2017			5,202,980				100,051
July 27, 2017			4,221,946				80,469
September 25, 2017			4,849,366				93,132
October 27, 2017			2,120,202				40,240
December 26, 2017			2,685,522				51,535
Total capital drawdowns			24,248,459			$	465,869

 

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Distributions

The following table reflects the distributions declared on shares of the Company’s common stock:

 

Date Declared		Record Date		Payment Date		Amount Per Share
For the Year Ended December 31, 2019
February 28, 2019		March 15, 2019		April 30, 2019		$0.43
May 9, 2019		June 14, 2019		July 31, 2019		$0.43
August 8, 2019		September 13, 2019		October 31, 2019		$0.43
November 7, 2019		December 13, 2019		January 23, 2020		$0.43
For the Year Ended December 31, 2018
March 1, 2018		March 15, 2018		April 30, 2018		$0.43
May 3, 2018		June 15, 2018		July 31, 2018		$0.43
August 2, 2018		September 14, 2018		October 31, 2018		$0.43
October 31, 2018		December 14, 2018		January 23, 2019		$0.43
For the period from January 11, 2017 (commencement of operations) to December 31, 2017
May 4, 2017		June 15, 2017		August 15, 2017		$0.43
August 3, 2017		September 15, 2017		October 31, 2017		$0.43
November 1, 2017		December 15, 2017		January 23, 2018		$0.43

 

10.	EARNINGS PER SHARE

The following information sets forth the computation of basic and diluted earnings per share:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Net increase in net assets resulting from operations		$	61,132			$	50,879			$	10,029
Weighted average shares outstanding			47,453,793				29,908,301				10,739,306
Basic and diluted earnings per share		$	1.29			$	1.70			$	0.93

Diluted earnings per share equal basic earnings per share because there were no common share equivalents outstanding during the period presented.

 

11.	TAX INFORMATION

The tax character of distributions for the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, were as follows:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Distributions paid from:
Ordinary Income		$	81,372			$	50,423			$	17,770
Net Long-Term Capital Gains		$	–			$	526			$	–
Total Taxable Distributions		$	81,372			$	50,949			$	17,770

As of December 31, 2019 and December 31, 2018, the components of Accumulated Earnings (Losses) on a tax basis were as follows:

 

		December 31, 2019				December 31, 2018
Undistributed Ordinary Income – net		$	–			$	–
Undistributed Long-Term Capital Gains		$	–			$	–
Total Undistributed Earnings		$	–			$	–
Perpetual Long-Term Capital Loss Carryforward		$	(6,708)			$	–
Timing Differences (Dividend Payable, Organizational Costs and Late Year Ordinary Loss Deferral)		$	(3,810)			$	(2,070)
Unrealized Earnings (Losses) – net		$	(17,220)			$	(5,302)
Total Accumulated Earnings (Losses) – net		$	(27,738)			$	(7,372)

 

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As of December 31, 2019 and December 31, 2018, the Company’s aggregate unrealized appreciation and depreciation on investments based on cost for U.S. federal income tax purposes were as follows:

 

		December 31, 2019				December 31, 2018
Tax cost		$	1,701,388			$	1,113,201
Gross unrealized appreciation		$	10,148			$	3,239
Gross unrealized depreciation		$	(27,368)			$	(8,541)
Net unrealized appreciation/(depreciation)		$	(17,220)			$	(5,302)

The difference between GAAP-basis and tax basis unrealized gains (losses) is attributable primarily to net mark to market gains/(losses) on foreign currency contracts and differences in the tax treatment of material modification of debt securities.

In order to present certain components of the Company’s capital accounts on a tax-basis, certain reclassifications have been recorded to the Company’s accounts. These reclassifications have no impact on the net asset value of the Company and result primarily from certain non-deductible expenses, and differences in the tax treatment of underlying fund investments. For the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, the Company reclassified $126, $946 and $(1,385), respectively, from distributable earnings to paid-in capital in excess of par.

The following reconciles net increase in net assets resulting from operations to taxable income for the years ended December 31, 2019 and 2018, and for the period from January 11, 2017 (commencement of operations) to December 31, 2017:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Net increase in net assets resulting from operations		$	61,132			$	50,879			$	10,029
Adjustments:
Net unrealized loss (gain) on investments and foreign currency forward contracts and translations			13,063				5,678				(522	)
Income not currently taxable			(18	)			(1,366	)			–
Income for tax but not book			(25	)			151				–
Expenses not currently deductible			(138	)			314				1,894
Realized gain (loss) differences			(782	)			25				–
Taxable income net of capital loss carryforward		$	73,232			$	55,681			$	11,401
Capital loss carryforward			6,708				–				–
Taxable income (1)		$	79,940			$	55,681			$	11,401

 

(1)

Taxable income is an estimate and is not fully determined until the Company’s tax return is filed.

ASC 740 Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance on the accounting for and disclosure of uncertainty in tax position. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Based on its analysis of its tax position for all open tax years (the current year, as applicable), the Company has concluded that it does not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740. Such open tax year remains subject to examination and adjustment by tax authorities.

 

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12.	FINANCIAL HIGHLIGHTS

Below presents the schedule of financial highlights of the Company:

 

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				For the period from January 11, 2017 (commencement of operations) to December 31, 2017
Per Share Data:(1)
NAV, beginning of period		$	19.07			$	18.89			$	20.00
Net investment income			1.75				1.87				0.89
Net realized and unrealized gains (losses)(2)			(0.40	)			0.06				(0.71	)
Income tax provision, realized and unrealized gains			(0.01	)			(0.03	)			—
Net increase (decrease) in net assets resulting from operations(2)			1.34				1.90				0.18
Distributions declared from net investment income			(1.72	)			(1.72	)			(1.29	)
Total increase (decrease) in net assets			(0.38	)			0.18				(1.11	)
NAV, end of period		$	18.69			$	19.07			$	18.89
Shares outstanding, end of period			50,562,483				43,004,880				24,248,459
Weighted average shares outstanding			47,453,793				29,908,301				10,739,306
Total return based on NAV(3)			7.03%				10.06%				0.90%
Ratio/Supplemental Data:
Net assets, end of period		$	944,789			$	820,154			$	458,128
Ratio of net expenses to average net assets			7.05%				4.98%				5.18%	(4)
Ratio of expenses (without incentive fees and interest and other debt expenses) to average net assets			2.33%				2.47%				4.15%	(4)
Ratio of interest and other debt expenses to average net assets			2.70%				1.91%				1.09%	(4)
Ratio of incentive fees to average net assets			2.02%				0.60%				0.04%	(4)
Ratio of total expenses to average net assets			7.05%				4.98%				5.28%	(4)
Ratio of net investment income to average net assets			9.29%				9.83%				4.84%	(4)
Average debt outstanding		$	512,687			$	213,762			$	21,228	(5)
Average debt per share(6)		$	10.80			$	7.15			$	1.98
Portfolio turnover			18%				11%				7%

 

(1)

The per share data was derived by using the weighted average shares outstanding during the applicable period, except for distributions declared, which reflects the actual amount of distributions declared per share for the applicable period.

(2)

The amount shown may not correspond with the aggregate amount for the period as it includes the effect of the timing of the distribution.

(3)

Total return based on NAV is calculated as the change in NAV per share during the period plus dividends declared per share, divided by the beginning NAV per share.

(4)

Annualized, except for, as applicable, unvested Incentive Fees and certain operating expenses.

(5)

Average outstanding debt balance was calculated beginning on March 15, 2017, the date on which the Company entered into the HSBC Revolving Credit Facility.

(6)

Average debt per share is calculated as average debt outstanding divided by the weighted average shares outstanding during the applicable period.

 

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13.	SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

The following are the quarterly results of operations for each quarter during the years indicated. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

 

		Quarter Ended
		December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
Investment income		$	41,067			$	38,389			$	35,780			$	30,507
Expenses:
Total expenses			17,612				15,291				15,286				14,709
Net investment income			23,455				23,098				20,494				15,798
Net realized and unrealized gains (losses)			(3,892	)			(4,427	)			(4,658	)			(8,042	)
(Provision) benefit for taxes on realized and unrealized gains			(180	)			(171	)			(240	)			(103	)
Net increase in net assets resulting from operations after tax		$	19,383			$	18,500			$	15,596			$	7,653
Net investment income per share (basic and diluted)		$	0.47			$	0.47			$	0.43			$	0.36
Earnings per share (basic and diluted)		$	0.39			$	0.37			$	0.33			$	0.18
Weighted average shares outstanding			49,529,617				49,470,258				47,386,851				43,338,250
		Quarter Ended
		December 31, 2018				September 30, 2018				June 30, 2018				March 31, 2018
Investment income		$	29,057			$	22,646			$	17,301			$	15,230
Expenses:
Total expenses			12,308				7,053				4,694				4,260
Net investment income			16,749				15,593				12,607				10,970
Net realized and unrealized gains (losses)			(4,050	)			(656	)			(1,199	)			1,624
(Provision) benefit for taxes on realized and unrealized gains			(182	)			(205	)			1				(373	)
Net increase in net assets resulting from operations after tax		$	12,517			$	14,732			$	11,409			$	12,221
Net investment income per share (basic and diluted)		$	0.44			$	0.52			$	0.46			$	0.45
Earnings per share (basic and diluted)		$	0.33			$	0.49			$	0.42			$	0.50
Weighted average shares outstanding			37,941,663				29,987,263				27,126,415				24,428,499

The sum of quarterly per share amounts may not equal per share amounts reported for the years indicated. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.

 

14.	PENDING MERGER WITH GS BDC

On December 9, 2019, the Company entered into the Merger Agreement with GS BDC, Merger Sub, and the Investment Adviser. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company and, immediately thereafter, the Company will merge with and into GS BDC, with GS BDC continuing as the surviving company. The parties to the Merger Agreement intend the Merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Code.

Pursuant to the Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into 0.9939 shares of GS BDC’s common stock (the “Exchange Ratio”) in connection with the closing of the Merger (other than certain excluded shares as described in the Merger Agreement). The Exchange Ratio will only be adjusted if, between the date of the Merger Agreement and the effective time, (i) either the Company or GS BDC declares or pays an extraordinary dividend, or (ii) the respective outstanding shares of GS BDC’s common stock or the Company’s common stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, other than shares issued pursuant to GS BDC’s distribution reinvestment plan, as permitted by the Merger Agreement. No fractional shares of GS BDC’s common stock will be issued, and holders of the Company’s common stock will receive cash in lieu of fractional shares.

The Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of MMLC’s and GS BDC’s businesses during the period prior to the closing of the Merger. MMLC and GS BDC have agreed to convene and hold stockholder meetings for the purpose of obtaining the approvals required of MMLC’s and GS BDC’s stockholders, respectively, and the boards of directors of MMLC and GS BDC have agreed to recommend that their respective stockholders approve the applicable proposals (as described below).

The directors of GS BDC immediately prior to the First Merger will remain the directors of GS BDC and will hold office until their respective successors are duly elected and qualify, or their earlier death, resignation or removal. Notwithstanding the foregoing, upon the consummation of the Merger, (i) the GS BDC board of directors (the “GS BDC Board”) will expand the size of the GS BDC Board to eight (8) directors and will appoint our independent directors (the “MMLC Independent Directors”) as of December 9, 2019 who are also members of our Board of Directors as of the date of the Closing (the “Closing Date”) to the GS BDC Board (the “MMLC Designated Directors”), and (ii) the MMLC Designated Directors will be apportioned among Class I (to serve until the 2021 annual meeting of stockholders) and Class II (to serve until the 2022 annual meeting of stockholders) of the GS BDC Board. In addition, the GS BDC Board will appoint the chairman of the Audit

 

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Committee of MMLC (the “MMLC Audit Committee”) as of the Closing Date to serve as the chairman of the Audit Committee of GS BDC (the “GS BDC Audit Committee”), effective as of the Closing Date. The officers of GS BDC immediately prior to the Merger will remain the officers of GS BDC and will hold office until their respective successors are duly appointed and qualify, or their earlier death, resignation or removal.

In connection with the transaction, GS BDC will adopt an amended and restated certificate of incorporation (the “Amended and Restated GS BDC Charter”) to be effective upon the closing of the Second Merger (the “Closing”) that will generally restrict all stockholders who received shares of GS BDC Common Stock in the First Merger (the “Affected Stockholders”) from transferring their respective shares for at least 90 days following the date of filing of the Amended and Restated GS BDC Charter (the “Filing Date”), subject to a modified lock-up schedule thereafter. If approved, the Amended and Restated GS BDC Charter would provide that following the Closing, without the prior consent of the GS BDC Board, our stockholders who acquire shares of GS BDC Common Stock in the Merger (each, an “Affected Stockholder”) would not be able to transfer or sell:

 

•

any shares of GS BDC Common Stock acquired by such Affected Stockholder in the Merger for 90 days following the Filing Date, which is expected to be filed on the Closing date;

 

•

two-thirds of the shares of GS BDC Common Stock acquired by such Affected Stockholder in the Merger for 180 days following the Filing Date; and

 

•

one-third of the shares of GS BDC Common Stock acquired by such Affected Stockholder in the Merger for 270 days following the Filing Date.

The Merger Agreement provides that neither MMLC nor GS BDC may solicit proposals relating to alternative transactions, or, subject to certain exceptions, initiate or participate in discussions or negotiations regarding, or provide information with respect to, any proposal for an alternative transaction. However, each of the MMLC Board and the GS BDC Board may, subject to certain conditions, change its recommendation to the applicable stockholders or, on payment of a termination fee of approximately $20.5 million for GS BDC and $27.8 million for MMLC, terminate the Merger Agreement and enter into an agreement with respect to, in the case of MMLC, a “MMLC Superior Proposal” or, in the case of GS BDC, a “GS BDC Superior Proposal” (each as defined in the Merger Agreement) if it determines in its reasonable good faith judgment, after consultation with its outside legal counsel and on the recommendation of the applicable Special Committee, that the failure to take such action would be reasonably likely to breach its fiduciary duty under applicable law (taking into account any changes to the Merger Agreement proposed by GS BDC or MMLC, as applicable).

Consummation of the Merger, which is currently anticipated to occur during the first half of calendar year 2020, is subject to certain closing conditions, including (a) GS BDC stockholder approval of each of (i) the Merger Agreement, (ii) the Amended and Restated GS BDC Charter, (iii) the issuance of shares of GS BDC Common Stock pursuant to the Merger Agreement, and (iv) the amendment and restatement of the investment management agreement between GS BDC and GSAM, and (b) MMLC stockholder approval of each of (i) the Merger Agreement and (ii) the Amended and Restated GS BDC Charter, and (c) certain other closing conditions.

 

15.	SUBSEQUENT EVENTS

Subsequent events after the Consolidated Statements of Assets and Liabilities date have been evaluated through the date the consolidated financial statements were issued. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the consolidated financial statements.

On February 7, 2020, the Company delivered a capital drawdown notice to its investors relating to the sale of 3,282,464 shares of common stock for an aggregate offering price of $61,806. The shares were issued on February 24, 2020. The Company has no remaining undrawn capital commitments.

On February 25, 2020, the Company entered into a third amendment to the Truist Revolving Credit Facility to, among other things, extend the commitment termination date and final maturity date to March 11, 2021 and March 11, 2022, respectively.

On February 27, 2020, the Board of Directors declared a distribution of $0.43 per share payable on April 30, 2020 to stockholders of record as of March 16, 2020.

 

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Goldman Sachs Middle Market Lending Corp. — Tax Information (unaudited)

During the year ended December 31, 2019, the Company designated 97.34% of its distributions from net investment income as interest-related dividends pursuant to Section 871(k) of the Internal Revenue Code.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2019. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2019.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

ITEM 9B.    OTHER INFORMATION

On February 24, 2020, Carmine Rossetti notified us of his intention to resign as our Principal Accounting Officer to pursue a new professional opportunity, following a transition period not to extend beyond March 17, 2020. Mr. Rossetti’s resignation is not the result of any disagreement with us. To assist in an orderly transition, Mr. Rossetti will continue to serve in his current role during the transition period.

On February 25, 2020, we entered into a third amendment to the Truist Revolving Credit Facility to, among other things, extend the commitment termination date and final maturity date to March 11, 2021 and March 11, 2022, respectively. See Exhibit 10.5.14 to this annual report on Form 10-K.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our business and affairs are managed under the direction of our Board of Directors. The Board of Directors consists of four directors, three of whom are Independent Directors. “Independent Directors” are directors who (1) are not deemed to be “interested persons,” of the Company (as defined in the Investment Company Act), (2) meet the definition of “independent directors” under the corporate governance standards of the New York Stock Exchange and (3) meet the independence requirements of Section 10A(m)(3) of the Exchange Act. The Board of Directors elects our officers, who serve at the discretion of the Board of Directors. The responsibilities of the Board of Directors include quarterly valuation of our assets, corporate governance activities, oversight of our financing arrangements and oversight of our investment activities.

The Board of Directors’ role in our management is one of oversight. Oversight of our investment activities extends to oversight of the risk management processes employed by our Investment Adviser as part of its day-to-day management of our investment activities. The Board of Directors reviews risk management processes at both regular and special Board meetings throughout the year, consulting with appropriate representatives of our Investment Adviser as necessary and periodically requesting the production of risk management reports or presentations. The goal of the Board of Directors’ risk oversight function is to ensure that the risks associated with our investment activities are accurately identified, thoroughly investigated and responsibly addressed. The Board’s oversight function cannot, however, eliminate all risks or ensure that particular events do not adversely affect the value of the investments held by us. The Board of Directors also has primary responsibility for the valuation of our assets.

 

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The Board of Directors has established an Audit Committee, Governance and Nominating Committee, Compliance Committee and Contract Review Committee. The scope of each committee’s responsibilities is discussed in greater detail below.

Timothy Leach, an Independent Director, serves as Chair (“Chair”) of the Board of Directors. The Board of Directors believes that it is in the best interests of Shareholders for Mr. Leach to lead the Board of Directors because of his broad corporate background and experience with financial and investment matters, as described below. The Chair will generally act as a liaison between our management, officers and attorneys between meetings of the Board of Directors and preside over all executive sessions of the Independent Directors without management. The Board of Directors believes that its leadership structure is appropriate because the structure allocates areas of responsibility among the individual directors and the committees in a manner that enhances effective oversight. The Board of Directors also believes that its size creates an efficient corporate governance structure that provides opportunity for direct communication and interaction between management and the Board of Directors.

The Board of Directors had seven formal meetings in 2019. Each director that was a member of the Board of Directors during the fiscal year ended December 31, 2019 attended 100% of the aggregate number of meetings of the Board of Directors and of the respective committees on which he or she served. To promote effectiveness of the Board of Directors, directors are strongly encouraged to attend regularly scheduled Board of Director meetings in person.

 

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Board of Directors and Executive Officers

Directors

Information regarding the members of the Board of Directors is as follows:

 

Name and Age (1)		Term of Office		Principal Occupation(s) During Past 5 Years		Other Directorships
Independent Directors
Carlos E. Evans (68)		Director since June 2016		Mr. Evans is retired. He is Director, Sykes Enterprises, Inc. (2016-Present); Chairman, Highwoods Properties, Inc. (2018-Present); Director, Highwoods Properties, Inc. (2015-2018); Director, National Coatings and Supplies Inc. (2015-Present); Director, Warren Oil Company, LLC (2016-Present); Director, American Welding & Gas Inc. (2015-Present); and Director, Johnson Management (2015-Present). He was formerly Executive Vice President and Group Head of Wells Fargo Eastern Commercial Banking and National Head of Government and Institutional Banking (2009-2014).		Sykes Enterprises, Inc. (an international provider of outsourced customer contact management services); Highwoods Properties, Inc. (a real estate investment trust); National Coatings and Supplies Inc.; Warren Oil Company, LLC; American Welding & Gas Inc.; and Johnson Management
				Director—the Company
Richard A. Mark (66)		Director since June 2016		Mr. Mark is retired. He is Director, Mylan N.V. (2019–Present); and Director, Almost Home Kids (2016–Present). He was formerly Partner, Deloitte & Touche LLP (2002–2015) and Chairman and member of the Audit Committee, Katy Industries, Inc. (2015-2016).   Director—the Company		Mylan N.V. (a global generics and specialty pharmaceuticals company); Almost Home Kids (an organization which provides care to children with complicated health needs)
Timothy J. Leach (64)		Director since July 2016		Mr. Leach is retired. He is Chairman and interim Chief Executive Officer, Habitat for Humanity of Sonoma County (2019-Present); Director, Habitat for Humanity of Sonoma County (2017–2019). He was formerly Chief Investment Officer, US Bank Wealth Management (2008–2016) and Treasurer and Director, National Committee to Preserve Social Security & Medicare (2014–2019).   Director (Chairman)—the Company		Habitat for Humanity of Sonoma County
Interested Director*
Katherine (“Kaysie”) Uniacke (59)		Director since June 2016		Chair of the Board–Goldman Sachs Asset Management International (2013–Present); Director–Goldman Sachs Funds, plc (2013–Present); Advisory Director–Goldman Sachs (2013–Present); Global Chief Operating Officer–GSAM (2007–2012); Partner, Goldman Sachs (2002–2012); and Managing Director—Goldman Sachs (1997–2002).   Director—the Company, Goldman Sachs BDC, Inc., a BDC (“GS BDC”), Goldman Sachs Private Middle Market Credit LLC, a BDC (“PMMC”), and Goldman Sachs Private Middle Market Credit II LLC, a BDC (“PMMC II”)		None

 

*

Ms. Uniacke is considered to be an “Interested Director” because she holds positions with Goldman Sachs and owns securities issued by Group Inc. Ms. Uniacke holds comparable positions with certain other companies of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser, administrator and/or distributor.

 

(1)	Each director may be contacted by writing the director, c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282.

 

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Executive Officers

Information regarding our executive officers who are not directors is as follows:

 

Name		Age				Position(s)		Officer Since
Brendan McGovern			48			Chief Executive Officer and President			2016
Jon Yoder			46			Chief Operating Officer			2016
Jonathan Lamm			45			Chief Financial Officer and Treasurer			2016
Julien Yoo			48			Chief Compliance Officer			2019
David Yu			38			Executive Vice President and Head of Research			2016
Jordan Walter			39			Executive Vice President			2018
Michael Mastropaolo			41			Executive Vice President			2019
Carmine Rossetti			41			Principal Accounting Officer			2017

The address for each director and executive officer is c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282. Each officer holds office at the pleasure of the Board until the next election of officers or until his or her successor is duly elected and qualifies.

Biographical Information

Directors

Independent Directors:

Carlos E. Evans. Mr. Evans has served on the Board of Directors since June 2016. Mr. Evans is retired. Mr. Evans is currently a member of the Board of Directors of Sykes Enterprises, Incorporated, an international provider of outsourced customer contact management services, and is chairman of the Board of Directors of Highwoods Properties, Inc., a real estate investment trust, where he serves as chair of the Compensation/Governance Committee and as a member of the Executive Committee. Prior to his retirement in 2014, Mr. Evans worked for Wells Fargo Bank, most recently serving as executive vice president and group head of the eastern division of Wells Fargo commercial banking. From 2006 until Wachovia Corporation’s merger with Wells Fargo in 2009, Mr. Evans served as wholesale banking executive and an executive vice president for the Wachovia general banking group. Previously, he held senior management positions with First Union National Bank and with Bank of America and its predecessors, including NationsBank, North Carolina National Bank and Bankers Trust of South Carolina, which he joined in 1973. Mr. Evans is chairman emeritus of the board of the Spoleto Festival USA and was previously chairman of the board of the Medical University of South Carolina Foundation. Mr. Evans also serves on the boards of four private companies, National Coatings and Supplies Inc., Warren Oil Company, LLC, American Welding & Gas Inc. and Johnson Management. Based on the foregoing, Mr. Evans is experienced with financial and investment matters.

Richard A. Mark. Mr. Mark has served on the Board of Directors since June 2016. Mr. Mark has been designated as the Board’s “audit committee financial expert” given his extensive accounting and finance experience. Mr. Mark is retired. Prior to his retirement in 2015, Mr. Mark was a partner at Deloitte & Touche LLP, most recently leading the corporate development function of the advisory business of Deloitte. Mr. Mark began his career at Arthur Andersen & Co. and held various positions with Arthur Andersen, including audit partner, before joining Deloitte in 2002. Since June 2019, Mr. Mark has served on the Board of Directors of Mylan N.V., a global generics and specialty pharmaceuticals company. Mr. Mark also served from July 2015 until August 2016 as chairman of the board of directors and as a member of the audit committee of Katy Industries, Inc., a manufacturer, importer and distributor of commercial cleaning and consumer storage products. Mr. Mark is a Director of Almost Home Kids, an affiliate of Lurie Children’s Hospital of Chicago, which provides care to children with complicated health needs. Mr. Mark is a certified public accountant. Based on the foregoing, Mr. Mark is experienced with accounting, financial and investment matters.

Timothy J. Leach. Mr. Leach has served on the Board of Directors since July 2016 and on March 2, 2017 was appointed as Lead Independent Director. Mr. Leach was appointed as Chairperson of the Board on December 11, 2017. Mr. Leach is retired. From 2008 until his retirement in July 2016, Mr. Leach served as chief investment officer of US Bank Wealth Management. Prior to joining US Bank, Mr. Leach held senior management positions with U.S. Trust Company and various investment advisers and asset managers, including Wells Fargo Private Investment Advisors, Wells Fargo Alternative Asset Management, ABN Amro Global Asset Management, ABN Amro Asset Management (USA) and Qualivest Capital Management. Mr. Leach currently serves as chairman of the board of directors and as interim chief executive officer of Habitat for Humanity of Sonoma County. Based on the foregoing, Mr. Leach is experienced with financial and investment matters.

 

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Interested Director:

Kaysie Uniacke. Ms. Uniacke has served on the Board of Directors since June 2016. Ms. Uniacke served as Chairperson of the Board from June 2016 until December 11, 2017. Ms. Uniacke is the chair of the board of Goldman Sachs Asset Management International, serves on the boards of the Goldman Sachs Luxembourg and Dublin family of funds, several GSAM-managed pooled vehicles organized in the Cayman Islands, GS BDC, GS PMMC and GS PMMC II and is an advisory director to Group Inc. Previously, she was global chief operating officer of GSAM’s portfolio management business until 2012 and served on the Investment Management Division Client and Business Standards Committee. Prior to this, she was president of Goldman Sachs Trust, the GS mutual fund family, and was head of the Fiduciary Management business within Global Manager Strategies, responsible for business development and client service globally. Earlier in her career, Ms. Uniacke managed GSAM’s U.S. and Canadian Distribution groups. In that capacity, she was responsible for overseeing all North American institutional and third-party sales channels, marketing and client service functions, for which client assets exceeded $200 billion. Before that, Ms. Uniacke was head of GSAM’s Global Cash Services business, where she was responsible for overseeing the management of assets exceeding $100 billion. Ms. Uniacke worked at Goldman Sachs from 1983 to 2012 where she was named managing director in 1997 and partner in 2002. Ms. Uniacke serves on the board of Person-to-Person, a non-profit organization that supports the working poor in lower Fairfield County, CT. Based on the foregoing, Ms. Uniacke is experienced with financial and investment matters.

Executive Officers who are not Directors:

Brendan McGovern. Mr. McGovern has served as chief executive officer and president of the Company since June 2016. Mr. McGovern heads GSAM’s Private Credit Group, is chief executive officer and president of GS BDC, GS PMMC and GS PMMC II and also serves as co-head and senior portfolio manager of the GSAM Credit Alternatives portfolio management team. He is also the Chair and a voting member of the Private Credit Group’s Investment Committee, which is responsible for evaluating and approving all of the Company’s investments. Mr. McGovern joined the firm in 2006. Prior to joining the firm, Mr. McGovern served as a managing director in the Global Investment Group at Amaranth Advisors, where he co-headed the fund’s private placement efforts for both debt and equity linked products in the United States. He is also on the board of directors for the Oxalosis and Hyperoxaluria Foundation.

Jon Yoder. Mr. Yoder has served as chief operating officer of the Company since June 2016. Mr. Yoder is the chief operating officer of GS BDC, GS PMMC and GS PMMC II and a member of GSAM’s Private Credit Group with a focus on sourcing, structuring and executing privately negotiated debt financings. He is also a voting member of the Private Credit Group’s Investment Committee, which is responsible for evaluating and approving all of the Company’s investments. Mr. Yoder joined the firm in 2005. Prior to joining the firm, he was a member of the mergers and acquisitions and private equity groups at Paul, Weiss, Rifkind, Wharton & Garrison, LLP.

Jonathan Lamm. Mr. Lamm has served as chief financial officer and treasurer of the Company since June 2016. Mr. Lamm is also the chief financial officer and treasurer of GS BDC, GS PMMC and GS PMMC II and chief operating officer of the GSAM Credit Alternatives portfolio management team, responsible for the operations of the business, including business financials, infrastructure support, and IT project management, as well as the continuous improvement of the control environment. Mr. Lamm is secretary and a non-voting member of the Private Credit Group’s Investment Committee, which is responsible for evaluating and approving all of the Company’s investments. He joined the firm in 2002. Prior to joining the firm, Mr. Lamm worked in the securities audit practice at Deloitte & Touche, LLP.

Julien Yoo. Ms. Yoo is the chief compliance officer of the Company and has served in such capacity since June 2019. Ms. Yoo is the Managing Director of GSAM Compliance, Head of the U.S. Regulatory Committee Compliance team within GSAM Compliance, and Chief Compliance Officer of GS BDC, GS PMMC and GS PMMC II. Prior to joining Goldman Sachs, Ms. Yoo was a Vice President in the legal department of Morgan Stanley Investment Management for 5 years. Prior to joining Morgan Stanley, she was an associate at Shearman & Sterling, LLP and at Swidler Berlin Shereff Friedman, LLP.

David Yu. Mr. Yu has served as an executive vice president and Head of Research of the Company since June 2016. Mr. Yu is executive vice president of GS BDC, GS PMMC and GS PMMC II and a member of the GSAM Private Credit Group with a focus on sourcing, structuring and executing privately negotiated debt financings and serves as its Head of Research. Mr. Yu is a voting member of the Private Credit Group’s Investment Committee, which is responsible for evaluating and approving all of the Company’s investments. Mr. Yu joined the firm in 2006. Prior to joining the firm, Mr. Yu was an associate in the Global Investments Group at Amaranth Advisors, where he similarly worked with public and private issuers to structure and execute debt and equity financings. Prior to joining Amaranth, he worked in the Leveraged Finance and Sponsor Coverage Group at CIBC World Markets.

Jordan Walter. Mr. Walter has served as an executive vice president of the Company since March 2018. Mr. Walter is executive vice president of GS BDC, GS PMMC and GS PMMC II and a member of the GSAM Private Credit Group with a focus on sourcing, structuring and executing privately negotiated debt financings. He is also a voting member of the Private Credit Group’s Investment Committee, which is responsible for evaluating and approving all of the Company’s investments. Mr. Walter joined the firm in 2014. Prior to joining the firm, Mr. Walter was a vice president at MCG Capital where he originated and managed middle market debt and equity investments. Prior to joining MCG Capital, Mr. Walter was in the Financial Management Program at General Electric.

 

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Michael Mastropaolo. Mr. Mastropaolo has served as an executive vice president of the Company since January 2019. Mr. Mastropaolo is also an executive vice president of GS BDC, PMMC and PMMC II and a member of the GSAM Credit Alternatives Team with a focus on sourcing, structuring and executing privately negotiated debt financings. He is also a voting member of the Private Credit Group’s Investment Committee, which is responsible for evaluating and approving all of the Company’s investments. Mr. Mastropaolo joined the firm in 2016. Prior to joining the firm, Mr. Mastropaolo was a Director at Golub Capital where he originated and managed middle market debt and equity investments. Mr. Mastropaolo began his career investing in middle market credit at General Electric in the Investment Analyst training program at GE Capital.

Carmine Rossetti. Mr. Rossetti has served as principal accounting officer of the Company since May 2017. Mr. Rossetti is also the principal accounting officer of GS BDC, GS PMMC and GS PMMC II and head of the GSAM Hedge Fund and BDC Controllers teams. Mr. Rossetti is responsible for fund accounting and financial reporting oversight as well as the continuous improvement of the control environment. Mr. Rossetti joined Goldman Sachs & Co. LLC in 2004. Prior to joining Goldman Sachs & Co. LLC, he worked in the audit practice at Ernst & Young LLP.

Committees of the Board of Directors

Our Board of Directors’ standing committees and their primary functions are described below.

Audit Committee

The members of the Audit Committee are Carlos E. Evans, Timothy J. Leach, and Richard A. Mark, each of whom is an Independent Director and meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act and none of whom is an “interested person” of the Company as defined in Section 2(a)(19) of the Investment Company Act. Richard A. Mark serves as Chairperson of the Audit Committee. The Board of Directors and the Audit Committee have determined that Richard A. Mark is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K under the Exchange Act. The Audit Committee is responsible for overseeing matters relating to the appointment and activities of the Company’s auditors, audit plans and procedures, various accounting and financial reporting issues and changes in accounting policies, and reviewing the results and scope of the audit and other services provided by the Company’s independent public accountants. The Audit Committee is also responsible for aiding the Board of Directors in fair value pricing debt and equity securities that are not publicly traded or for which current market values are not readily available.

The Audit Committee held four formal meetings in 2019.

Governance and Nominating Committee

The members of the Governance and Nominating Committee are Carlos E. Evans, Timothy J. Leach, Richard A. Mark and Kaysie Uniacke. Timothy J. Leach serves as the Chairperson of the Governance and Nominating Committee. The Governance and Nominating Committee is responsible for identifying, researching and nominating Independent Directors for election by the Company’s stockholders, when necessary, selecting nominees to fill vacancies on the Board of Directors or a committee of the Board of Directors, developing and recommending to the Board of Directors a set of corporate governance principles and overseeing the evaluation of the Board of Directors and the Company’s management. The Governance and Nominating Committee will consider nominees recommended by the Company’s stockholders that are properly submitted in accordance with the Company’s bylaws.

The Governance and Nominating Committee held three formal meetings in 2019.

Compliance Committee

The members of the Compliance Committee are Carlos E. Evans, Timothy J. Leach, Richard A. Mark and Kaysie Uniacke. Timothy J. Leach serves as Chairperson of the Compliance Committee. The Compliance Committee is responsible for overseeing the Company’s compliance processes, and, insofar as they relate to services provided to us, the compliance processes of the Company’s Investment Adviser, principal underwriters (if any), administrator and transfer agent, except that compliance processes relating to the accounting and financial reporting processes and certain related matters are overseen by the Audit Committee. In addition, the Compliance Committee provides assistance to the full Board with respect to compliance matters.

The Compliance Committee held four formal meetings in 2019.

Contract Review Committee

The members of the Contract Review Committee are Carlos E. Evans, Timothy J. Leach, Richard A. Mark and Kaysie Uniacke. Timothy J. Leach serves as Chairperson of the Contract Review Committee. The Contract Review Committee is responsible for overseeing the processes of the Board of Directors for reviewing and monitoring performance under the Company’s investment management, placement agent (if any), underwriting (if any), transfer agent and certain other agreements with the Company’s Investment Adviser and its affiliates. The Contract Review Committee provides appropriate assistance to the Board of Directors in connection with the Board of Directors’ approval, oversight and review of the Company’s other service providers, including the Company’s custodian/accounting agent, sub-transfer agents, placement agent, professional (legal and accounting) firms and printing firms.

The Contract Review Committee had one formal meeting in 2019.

Code of Ethics

We have adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act and we have also approved the Company’s Investment Adviser’s Code of Ethics that it adopted in accordance with Rule 17j-1 and Rule 204A-1 under the Investment Advisers Act of 1940, as amended. These Codes of Ethics establish, among other things, procedures for personal investments and restrict certain personal securities transactions, including transactions in securities that are held by the Company. Personnel subject to each code may invest in securities for their personal investment accounts, so long as such investments are made in accordance with the code’s requirements. Our Code of Ethics is discussed under “Business—Code of Ethics” and a copy of our Code of Ethics is filed as an exhibit to this annual report on Form 10-K.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics which applies to, among others, the Company’s Chief Executive Officer and Chief Financial Officer. The Company intends to disclose any material amendment to or waivers of required provisions of the Code of Business Conduct and Ethics on a current report on Form 8-K. Our Code of Business Conduct and Ethics is filed as an exhibit to this annual report on Form 10-K.

 

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Corporate Governance Guidelines and Director Charter

We have adopted Corporate Governance Guidelines and a Director Charter which applies to, among other things, the authority and duties of the directors, the composition of the Board of Directors and the election and role of the Chairperson of the Board of Directors.

ITEM 11.    EXECUTIVE COMPENSATION.

Compensation of Executive Officers

None of our executive officers are currently compensated by us. We do not currently have any employees. Our day-to-day operations are managed by the Investment Adviser.

Compensation of Directors

For the year ended December 31, 2019, each Independent Director was compensated with a $125,000 annual fee for his or her services as a director. In addition, the Chair earned an annual fee of $25,000 and the director designated as “audit committee financial expert” received an additional $15,000 for their additional services in such capacities. The Independent Directors are also reimbursed for travel and other expenses incurred in connection with attending meetings.

In addition, we purchase liability insurance on behalf of our directors. We may also pay the incidental costs of a director to attend training or other types of conferences relating to the BDC industry.

 

		Total Compensation From the Company for the Year Ended December 31, 2019 (4)				Total Compensation From the Goldman Sachs Fund Complex for the Year Ended December 31, 2019
Interested Director
Kaysie Uniacke (1)			–				–
Independent Directors
Carlos E. Evans		$	125,000			$	125,000
Richard A. Mark (2)		$	140,000			$	140,000
Timothy J. Leach (3)		$	150,000			$	150,000

(1)

Kaysie Uniacke is an interested director and, as such, does not receive compensation from the Company or the Goldman Sachs Fund Complex for her service as director or trustee.

 

(2)

Includes compensation as “audit committee financial expert.”

 

(3)

Includes compensation as Chairperson of the Board.

 

(4)

The Company does not have a profit-sharing plan, and directors do not receive any pension or retirement benefits from the Company.

No Compensation will be paid to directors who are “interested persons,” as that term is defined in the Investment Company Act.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of February 27, 2020, certain ownership information with respect to our Shares for those persons who directly or indirectly own, control or hold with the power to vote, five percent or more of our outstanding Shares and all executive officers and directors, on an individual and group basis. Unless otherwise indicated, the Company believes that each beneficial owner set forth in the table has sole voting and investment power over such Shares.

 

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Name and Address (1)

Type of Ownership

Number of Shares Owned(2)

Percentage

Beneficial owners of 5% or more

Interested Director

Kaysie Uniacke

Record/Beneficial

5,195

*

Independent Directors

Carlos E. Evans

Record/Beneficial

10,390

*

Richard A. Mark

Record/Beneficial

15,585

*

Timothy J. Leach

Record/Beneficial

15,585

*

Executive Officers

Brendan McGovern

Record/Beneficial

5,195

*

Jon Yoder

–

–

–

Jonathan Lamm

Record/Beneficial

2,597

*

Julien Yoo

–

–

–

David Yu

Record/Beneficial

1,299

*

Jordan Walter

–

–

–

Michael Mastropaolo

–

–

–

Carmine Rossetti

–

–

–

All officers and directors as a group (12 persons)

Record/Beneficial

55,846

*

(1)	The business address for each of our officers and directors is c/o Goldman Sachs Middle Market Lending Corp., 200 West Street New York, New York 10282.

 

(2)	Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

*	Amount rounds to less than 1%.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

(a) Transactions with Related Persons; Review, Approval or Ratification of Transaction with Related Persons

Investment Management and Advisory Agreement

The Company is party to an investment management agreement (the “Investment Management Agreement”), pursuant to which the Company pays GSAM, a wholly owned subsidiary of Group Inc., a quarterly fee for investment management services equal to 0.375% (i.e., an annual rate of 1.50%) of our average NAV (including uninvested cash and cash equivalents), and a two-part incentive fee based on (a) the amount by which our ordinary income exceeds certain “hurdle rates,” and (b) our capital gains. Certain of the Company’s officers are also officers and employees of GSAM.

For the year ended December 31, 2019, the Company paid GSAM a total of $31.16 million in fees (excluding fees that are accrued but not paid) pursuant to the Investment Management Agreement, which consisted of $13.04 million in management fees and $18.12 million in incentive fees.

License Agreement

The Company is party to a license agreement with an affiliate of Goldman Sachs pursuant to which the Company has been granted a non-exclusive, royalty-free license to use the “Goldman Sachs” name. Under this agreement, the Company shall not have a right to use the Goldman Sachs name if GSAM or another affiliate of Goldman Sachs is not the Company’s Investment Adviser or if the Company’s continued use of such license results in a violation of applicable law, results in a regulatory burden or has adverse regulatory consequences. Other than with respect to this limited license, the Company has no legal right to the “Goldman Sachs” name.

Co-Investment Opportunities

The Company has in the past co-invested, and in the future may co-invest, on a concurrent basis with other funds managed by GSAM and its affiliates, but not if such co-investment is impermissible under existing regulatory guidance, applicable regulations or GSAM’s allocation procedures. Certain types of negotiated co-investments may be made only if the Company receives an order from the SEC permitting the Company to do so. On January 4, 2017, the SEC granted exemptive relief that permits the Company to co-invest with GS BDC, GS PMMC, GS PMMC II and certain other funds that may be managed by the GSAM Credit Alternatives Team.

 

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Transfer Agent Agreement

The Company has entered into a transfer agency agreement (the “Transfer Agency Agreement”), with Goldman Sachs & Co. LLC, an affiliate of GSAM, pursuant to which Goldman Sachs & Co. LLC, serves as the Company’s transfer agent (“Transfer Agent”), registrar and disbursing agent. The Company pays the Transfer Agent fees at an annual rate of 0.12% of the average NAV of the Company at the end of the then-current quarter and the prior calendar quarter (and, in the case of the Company’s first quarter, the Company’s NAV as of such quarter-end).

 

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For the year ended December 31, 2019, the Company paid Goldman Sachs & Co. LLC a total of $1.04 million in fees pursuant to the Transfer Agent Agreement.

Placement Agent Agreements

The Company has entered into an agreement with each of Goldman Sachs & Co. LLC and Goldman Sachs International (each, a “Placement Agent” and together with various sub-placement agents, the “Placement Agents”) pursuant to which the Placement Agents will assist the Company in conducting private placement offerings. The Placement Agents have entered into or will enter into sub-placement agreements (together with the agreements with Goldman Sachs & Co. LLC and Goldman Sachs International, the “Placement Agent Agreements”) with various sub-placement agents to assist in conducting the private placement offering. The Placement Agents are not expected to be compensated by the Company for their services, but may charge investors a placement fee with respect to their investment in the Company. The Placement Agents may also be compensated by the Investment Adviser, in its discretion, for certain services including promotional and marketing support, shareholder servicing, operational and recordkeeping, sub-accounting, networking or administrative services. These payments are made out of the Investment Adviser’s own resources and/or assets, including from the revenues or profits derived from the advisory fees the Investment Adviser receives from the Company.

Related Party Transaction Review Policy

The Audit Committee conducts quarterly reviews of any potential related party transactions brought to its attention and, during these reviews, it also considers any conflicts of interest brought to its attention pursuant to the Company’s Code of Ethics. Each of the Company’s directors and executive officers is instructed and periodically reminded to inform GSAM Compliance of any potential related party transactions. In addition, each such director and executive officer completes a questionnaire on an annual basis designed to elicit information about any potential related party transactions.

Proxy Voting by the Investment Adviser

Our Investment Adviser has implemented processes designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including us, and to help ensure that such decisions are made in accordance with its fiduciary obligations to its clients. Notwithstanding such proxy voting processes, proxy voting decisions made by our Investment Adviser with respect to securities held by us may benefit the interests of Goldman Sachs and Accounts other than us.

Director Independence

For information regarding the independence of our directors, see “Item 10. Directors, Executive Officers and Corporate Governance.”

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate audit fees billed by PricewaterhouseCoopers LLP for the years ended December 31, 2019 and 2018 were $360,000 and $300,000, respectively.

Fees included in the audit fees category are those associated with the annual audits of financial statements, review of the financial statements included in the Company’s Quarterly Reports on Form 10-Q and services that are normally provided in connection with statutory and regulatory filings.

Audit-Related Fees

The aggregate audit-related fees were billed by PricewaterhouseCoopers LLP for the years ended December 31, 2019 and 2018 were $13,500 and $0, respectively.

Audit-related fees are for any services rendered to the Company that are reasonably related to the performance of the audits or reviews of the Company’s consolidated financial statements (but not reported as audit fees above). These services include attestation services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.

The aggregate audit-related fees billed by PricewaterhouseCoopers LLP to GSAM, and any entity controlling, controlled by, or under common control with, GSAM, that provides ongoing services to the Company, for engagements directly related to the Company’s operations and financial reporting, for the years ended December 31, 2019 and December 31, 2018 were $1,200,000 and $1,133,433, respectively. These amounts represent fees PricewaterhouseCoopers LLP billed to GSAM for services related to SSAE 18 reports.

Tax Fees

The aggregate fees billed by PricewaterhouseCoopers LLP for services rendered to the Company for tax compliance, tax advice and tax planning for the years ended December 31, 2019 and 2018 were $0 and $58,000, respectively.

 

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Fees included in the tax fees category comprise all services performed by professional staff in the independent registered public accountant’s tax division except those services related to the audits. This category comprises fees for tax compliance services provided in connection with the preparation and review of the Company’s tax returns.

No tax fees were billed by the Company’s independent registered public accountant to GSAM, and any entity controlling, controlled by, or under common control with, GSAM, that provides ongoing services to the Company, for engagements directly related to the Company’s operations and financial reporting, for the years ended December 31, 2019 and December 31, 2018.

All Other Fees

No fees were billed by PricewaterhouseCoopers LLP for products and services provided to the Company, other than the services reported in “Audit Fees,” and “Tax Fees” above, for the years ended December 31, 2019 and 2018.

Other than services reported under “Audit-Related Fees,” no other fees were billed by the Company’s independent registered public accountant to GSAM, and any entity controlling, controlled by, or under common control with, GSAM, that provides ongoing services to the Company, for engagements directly related to the Company’s operations and financial reporting, for the for the years ended December 31, 2019 and 2018.

Aggregate Non-Audit Fees

No non-audit fees were billed to the Company’s investment adviser and service affiliates by PricewaterhouseCoopers LLP for non-audit services for the years ended December 31, 2019 and 2018. This includes any non-audit services required to be pre-approved or non-audit services that did not require pre-approval since they did not directly relate to the Company’s operations or financial reporting.

Pre-Approval of Audit and Non-Audit Services Provided to the Company

The Audit and Non-Audit Services Pre-Approval Policy (the “Policy”) adopted by the Audit Committee sets forth the procedures and the conditions pursuant to which services performed by an independent auditor for the Company may be pre-approved. Services may be pre-approved specifically by the Audit Committee as a whole or, in certain circumstances, by the Audit Committee Chairman or the person designated as the audit committee financial expert. In addition, subject to specified cost limitations, certain services may be pre-approved under the provisions of the Policy. The Policy provides that the Audit Committee will consider whether the services provided by an independent auditor are consistent with the SEC’s rules on auditor independence. The Policy provides for periodic review and pre-approval by the Audit Committee of the services that may be provided by the independent auditor.

De Minimis Waiver. The pre-approval requirements of the Policy may be waived with respect to the provision of non-audit services that are permissible for an independent auditor to perform, provided (1) the aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues subject to pre-approval that was paid to the independent auditors during the fiscal year in which the services are provided; (2) such services were not recognized by the Company at the time of the engagement to be non-audit services; and (3) such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee to whom authority to grant such approvals has been delegated by the Audit Committee, pursuant to the pre-approval provisions of the Policy.

Pre-Approval of Non-Audit Services Provided to GSAM. The Policy provides that, in addition to requiring pre-approval of audit and non-audit services provided to the Company, the Audit Committee will pre-approve those non-audit services provided to the Company’s investment adviser (and entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the Company) where the engagement relates directly to the operations or financial reporting of the Company.

The Audit Committee has considered these fees and the nature of the services rendered, and has concluded that they are compatible with maintaining the independence of PricewaterhouseCoopers LLP. The Audit Committee did not approve any of the audit-related, tax, or other non-audit fees described above pursuant to the “de minimis exceptions” set forth in Rule 2-01(c)(7)(i)(C) and Rule 2-01(c)(7)(ii) of Regulation S-X. PricewaterhouseCoopers LLP did not provide any audit-related services, tax services or other non-audit services to GSAM or any entity controlling, controlled by or under common control with GSAM that provides ongoing services to the Company that the Audit Committee was required to approve pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee considered whether the provision of non-audit services rendered to GSAM and any entity controlling, controlled by, or under common control with GSAM that provides ongoing services to the Company that were not pre-approved by the Audit Committee because the engagement did not relate directly to the operations and financial reporting of the Company is compatible with maintaining PricewaterhouseCoopers LLP’s independence.

 

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PART IV.

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

 

(1)

Financial Statements—Financial statements are included in Item 8. See the Index to the Consolidated Financial Statements on page 79 of this annual report on Form 10-K.

 

(2)

Financial Statement Schedules—None. We have omitted financial statements schedules because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements included in this annual report on Form 10-K.

 

(3)

Exhibits—The following is a list of all exhibits filed as a part of this annual report on Form 10-K, including those incorporated by reference.

 

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INDEX TO EXHIBITS

 

EXHIBIT NO.		EXHIBIT
2.1		Agreement and Plan of Merger, by and among Goldman Sachs BDC, Inc., Goldman Sachs Middle Market Lending Corp., Evergreen Merger Sub Inc., and Goldman Sachs Asset Management, L.P., dated as of December 9, 2019 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on December 9, 2019).
3.1		Form of Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 (File No. 000-55746), filed on January 27, 2017).
3.2		Form of Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10 (File No. 000-55746), filed on January 27, 2017).
4.1*		Description of Securities.
10.1		Investment Management Agreement, dated as of January 13, 2017, between the Company and Goldman Sachs Asset Management, L.P (incorporated by reference to Exhibit 10.1 to Pre-Effective Amendment No. 1 to our Registration Statement on Form 10 (file no. 000-55746), filed on March 17, 2017).
10.2		Administration Agreement, dated as of February 21, 2017, between the Company and State Street Bank and Trust Company (incorporated by reference to Exhibit 10.2 to Pre-Effective Amendment No. 1 to our Registration Statement on Form 10 (file no. 000-55746), filed on March 17, 2017).
10.3		License Agreement, dated as of July 1, 2016, between the Company and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.3 to Pre-Effective Amendment No. 1 to our Registration Statement on Form 10 (file no. 000-55746), filed on March 17, 2017).
10.4		Custodian Contract, dated as of February 23, 2017, between the Company and State Street Bank and Trust Company (incorporated by reference to Exhibit 10.4 to Pre-Effective Amendment No. 1 to our Registration Statement on Form 10 (file no. 000-55746), filed on March 17, 2017).
10.5		Senior Secured Revolving Credit Agreement, dated as of September 11, 2017, by and among the Company, as the borrower, the lenders from time to time party thereto, and SunTrust Bank, as the administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on September 14, 2017).
10.5.1		Increasing Lender Agreement, dated as of April 6, 2018, by Citibank, N.A., as Increasing Lender, in favor of the Company as Borrower, and SunTrust Bank, as administrative agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on April 11, 2018).
10.5.2		Joinder Agreement, dated as of April 6, 2018, by Industrial and Commercial Bank of China Limited, New York Branch, as Assuming Lender, in favor of the Company as Borrower, and SunTrust Bank, as administrative agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on April 11, 2018).
10.5.3		Joinder Agreement, dated as of April 6, 2018, by Signature Bank, as Assuming Lender, in favor of the Company as Borrower, and SunTrust Bank, as administrative agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on April 11, 2018).

 

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EXHIBIT NO.		EXHIBIT
10.5.4		Joinder Agreement, dated as of August 20, 2018, by Bank of Montreal, as Assuming Lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on August 21, 2018).
10.5.5		Joinder Agreement, dated as of August 20, 2018, by ING Capital LLC, as Assuming Lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on August 21, 2018).
10.5.6		First Amendment to Senior Secured Revolving Credit Agreement, dated as of September 17, 2018, among the Company, as borrower, the lenders party thereto, and SunTrust Bank, as administrative agent and as collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on September 18, 2018).
10.5.7		Joinder Agreement, dated as of September 17, 2018, by Barclays Bank PLC, as Assuming Lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on September 18, 2018).
10.5.8		Joinder Agreement, dated as of September 17, 2018, by CIBC Bank USA , as Assuming Lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-55746), filed on September 18, 2018).
10.5.9		Joinder Agreement, dated as of May 24, 2019, by BNP Paribas, as Assuming Lender, in favor of the Company, as borrower, and SunTrust Bank, as administrative agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 28, 2019).
10.5.10		Second Amendment to Senior Secured Revolving Credit Agreement, dated as of July 10, 2019, among the Company, as Borrower, the lenders party thereto and SunTrust Bank, as Administrative Agent and as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-55746), filed on July 11, 2019).
10.5.11		Joinder Agreement, dated as of July 10, 2019, by SMBC, as Assuming Lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-55746), filed on July 11, 2019).
10.5.12		Increase Agreement, dated as of July 10, 2019, by SunTrust Bank, Bank of America, N.A. and HSBC Bank USA, N.A., each as an increasing lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-55746), filed on July 11, 2019).
10.5.13		Joinder Agreement, dated as of August 16, 2019, by MUFG Union Bank, N.A., as the Assuming Lender, in favor of the Company, as Borrower, and SunTrust Bank, as Administrative Agent under the Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-55746), filed on August 20, 2019).
10.5.14*		Third Amendment to Senior Secured Revolving Credit Agreement, dated as of February 25, 2020, among the Company, as Borrower, the subsidiary guarantors party thereto, the lenders party thereto and Truist Bank (as successor by merger to SunTrust Bank), as Administrative Agent and as Collateral Agent.
14.1*		Code of Ethics of the Registrant.
14.2*		Code of Business Conduct and Ethics.
24.1*		Power of attorney (included on the signature page hereto).
31.1*		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

*	Filed herewith.

 

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ITEM 16.     FORM 10-K SUMMARY

None.

SIGNATURES

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

 

Date: February 27, 2020						GOLDMAN SACHS MIDDLE MARKET LENDING CORP.
						/s/ Brendan McGovern
						Name: Brendan McGovern
						Title: Chief Executive Officer and President

Each person whose signature appears below constitutes and appoints Brendan McGovern, Jonathan Lamm and Caroline Kraus, and each of them, such person’s true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for such person and in such person’s name, place and stead, in any and all capacities, to sign one or more Annual Reports on Form 10-K for the fiscal year ended December 31, 2019, and any and all amendments thereto, and to file same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 27, 2020.

 

Signature		Title
/s/ Brendan McGovern Brendan McGovern		Chief Executive Officer and President (Principal Executive Officer)
/s/ Jonathan Lamm Jonathan Lamm		Chief Financial Officer and Treasurer (Principal Financial Officer)
/s/ Carmine Rossetti Carmine Rossetti		Principal Accounting Officer
/s/ Timothy J. Leach Timothy J. Leach		Chairman of the Board of Directors
/s/ Carlos E. Evans Carlos E. Evans		Director
/s/ Richard A. Mark Richard A. Mark		Director
/s/ Katherine Uniacke Katherine Uniacke		Director

 

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