Part
I
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.
Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the U.S. and abroad, which may have a negative impact on our business and operations.
Price declines and illiquidity in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.
Changes in legal, tax and regulatory regimes could negatively impact our business, financial condition and earnings.
Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us.
Uncertainty regarding the impact of the United Kingdom's departure from the European Union 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.
Changes relating to the London Interbank Offer Rate (“LIBOR”) calculation process, the phase-out of LIBOR and the use of replacement rates for LIBOR may adversely affect the value of our portfolio securities.
We may not replicate the historical performance of other investment companies and funds with which our investment professionals have been affiliated.
We are not managed by BlackRock, but rather one of its subsidiaries and may not replicate the success of that entity or BlackRock.
Our business model depends upon the development and maintenance of strong referral relationships with other asset managers and investment banking firms.
The Advisor’s liability is limited under the investment management agreement, and we are required to indemnify the Advisor against certain liabilities, which may lead the Advisor to act in a riskier manner on our behalf than it would when acting for its own account.
We may suffer credit losses.
Our use of borrowed funds, including under our leverage program, to make investments exposes us to risks typically associated with leverage.
In addition to regulatory restrictions that restrict our ability to raise capital, our leverage program contains various covenants which, if not complied with, could accelerate repayment under our credit facilities, thereby materially and adversely affecting our liquidity, financial condition and results of operations.
Any inability to renew, extend or replace our credit facilities could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders.
The creditors under our credit facilities have a first claim on all of the Company’s assets included in the collateral for the respective facilities.
Lenders under certain of our credit facilities may have a veto power over the Company’s investment policies.
The small business investment company (“SBIC”) may be unable to make distributions to us that will enable us to meet or maintain regulated investment company (“RIC”) status under Subchapter M of the Internal Revenue Code of 1986 (the “Code”), which could result in the imposition of an entity-level tax.
Our SBIC is subject to Small Business Administration (“SBA”) regulations, and any failure to comply with SBA regulations could have an adverse effect on our operations.
SBA regulations limit the outstanding dollar amount of SBA-guaranteed debentures that may be issued by an SBIC or group of SBICs under common control.
The disposition of our investments may result in contingent liabilities.
If we incur additional leverage, it will increase the risk of investing in shares of our common stock.
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.
Our use of borrowed funds to make investments exposes us to risks typically associated with leverage.
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.
Any unrealized losses we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
Our Advisor and its affiliates and employees may have certain conflicts of interest.
Our incentive compensation may induce our Advisor to make certain investments, including speculative investments.
We may be obligated to pay the Advisor incentive compensation payments in excess of the amounts we would have paid if such compensation was subject to clawback arrangements.
Our Advisor’s liability is limited under the investment management agreement, and we are required to indemnify our Advisor against certain liabilities, which may lead our Advisor to act in a riskier manner on our behalf than it would when acting for its own account.
We are dependent upon senior management personnel of the Advisor for our future success, and if the Advisor is unable to retain qualified personnel or if the Advisor loses any member of its senior management team, our ability to achieve our investment objective could be significantly harmed.
The Advisor can resign on 60 days’ notice, and 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.
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.
If we fail to maintain our status as a business development company (“BDC”), our business and operating flexibility could be significantly reduced.
Because we intend to distribute substantially all of our income to our stockholders to maintain our status as a RIC, 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.
Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effect of which may be adverse.
Risks related to our investments
Our investments are risky and highly speculative, and we could lose all or part of our investment.
A trading market or market value of our debt securities may fluctuate.
We may expose ourselves to risks if we engage in hedging transactions.
We are subject to credit risk related to investments in our portfolio companies and with our financial institutions and counterparties.