Part I
In this annual report in Form 10-K, except as otherwise indicated, the terms:
“Company,” "we," "us" and "our" refer to BlackRock Direct Lending Corp., a Delaware corporation;
The “Advisor” refers to BlackRock Capital Investment Advisors, LLC, a Delaware limited liability company and the investment manager;
“Administrator” refers to BlackRock Financial Management, Inc, a Delaware corporation, an affiliate of the Advisor and administrator of the Company.
Summary of Risk Factors
The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in Item 1A of this Annual Report on Form 10-K and the other reports and documents filed by us with the SEC.
Risks Related to Our Business
Market disruptions and other geopolitical or macroeconomic events could create market volatility that negatively impacts our business, financial condition and earnings.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
We are subject to risks related to inflation.
Changes in legal, tax and regulatory regimes could negatively impact our business, financial condition and earnings.
Rising interest rates or changes in interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations.
We may not replicate the historical performance of other investment companies and funds with which our investment professionals have been affiliated.
We may suffer credit losses.
Our use of borrowed funds to make investments exposes us to risks typically associated with leverage.
We are subject to certain risks from leverage under our credit agreement.
The disposition of our investments may result in contingent liabilities.
The lack of liquidity in our investments may adversely affect our business.
A substantial portion of our portfolio investments are recorded at fair value as determined using a consistently applied valuation process in accordance with our documented valuation policy that has been reviewed and approved by our board of directors, and, as a result, there may be uncertainty regarding the value of our portfolio investments.
A portion of our distributions to stockholders may include a return of stockholder capital.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
To the extent “original issue discount”, or OID and payment-in-kind (“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.
Because we are required to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will continue to need additional capital to finance our growth.
Our Advisor and its affiliates and employees may have certain conflicts of interest.
We may in the future determine to fund a portion of our investments by issuing preferred stock, which would magnify the potential gains or losses and the risks of investing in us in the same manner as our borrowings.
We may experience fluctuations in our periodic operating results.
Because we intend to distribute substantially all of our income to our stockholders to maintain our status as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986 (the “Code”), we will continue to need additional capital to finance growth. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired.
The highly competitive market in which we operate may limit our investment opportunities.
Risks related to our investments
Our investments are risky and highly speculative, and we could lose all or part of our investment.
Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our investments, which could adversely affect the determination of our net asset value.
We and the Advisor may be a party to legal proceedings in connection with our investments in our portfolio companies.
We may 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.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
We may invest in “covenant-lite” loans, which could have limited investor protections.
Risks related to our operations as a BDC
While our ability to enter into transactions with our affiliates is restricted under the Investment Company Act of 1940 (the “1940 Act”), we have received an exemptive order from the SEC permitting certain affiliated investments subject to certain conditions. As a result, the Advisor may face conflicts of interests and investments made pursuant to the exemptive order conditions could in certain circumstances adversely affect the price paid or received by us or the availability or size of the position purchased or sold by us.
Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations and may hinder the Advisor's ability to take advantage of attractive investment opportunities and to achieve our investment objective.
There is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital.
We may experience cyber-security incidents and are subject to cyber-security risks.
We are subject to the cybersecurity risks of our Service Providers, which could negatively impact the Company and its
shareholders.
We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.
Risks Related to Our Common Stock and Other Securities
Shares of our common stock are not insured or guaranteed by any person or entity.
Shares of our common stock are subject to restrictions on transfer.
We cannot assure you that a trading market for our common stock will develop or be maintained.
Item 1. Business
The Company is an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to target high risk-adjusted returns produced primarily from current income generated by investing primarily in senior secured corporate debt instruments. The Company primarily targets investments in companies headquartered in North America but will have the ability to invest in compelling opportunities in other jurisdictions, subject to regulatory limitations and other investment restrictions.
The Company has elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements.
To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Internal Revenue Code of 1986, as amended (the “Code”), for each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.
The Company was formed in October 2020. The Company has offered and may continue to offer and sell shares of common stock in private placement transactions pursuant to certain exemptions of the Securities Act, the laws of the states and jurisdictions where any offering is made. The Company expects to enter into separate “subscription agreements” with investors, pursuant to which investors make commitments to purchase shares of common stock (referred to herein as “Capital Commitments”). Investors are required to make capital contributions to purchase shares of common stock each time the Company delivers a capital call notice, in an aggregate amount not to exceed each investor’s respective remaining Capital Commitment. Until the Final Closing Date (as defined herein), the Company may accept additional Capital Commitments from time to time from new investors as well as existing investors that wish to increase their commitment in the Company.