FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties, which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Statements that contain these words should be read carefully because they discuss Senior Credit Investments, LLC (the “Company,” “we,” “our,” or “us”) 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. The 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, debt investments in our portfolio companies (the “Portfolio Companies”), each of which is a borrower or with which we have some other form of investment. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Item 1A. Risk Factors” in this report, 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 the forward-looking statements contained in this report. 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 operation and financial position. 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. Unitholders should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Moreover, we assume no duty and do not undertake to update the forward-looking statements and projections contained in this report. Unitholders are advised to consult any additional disclosures that we may make directly to our unitholders or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
The following factors are among those that may cause actual results to differ materially from our forward-looking statements in this report:
changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including the effects of inflation;
our future operating results;
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 prospective Portfolio Companies to achieve their objectives;
any bankruptcy, insolvency or restructuring of a Portfolio Company;
the relative and absolute performance of Jefferies Credit Management LLC (the “Investment Adviser”);
our actual and future financings and investments;
our use of financial leverage;
the potential need for liquidity in the portfolio;
our ability to make distributions;
the adequacy of our cash resources and working capital;
the timing and amount of cash flows, distributions and dividends, if any, from investments in our Portfolio Companies;
changes in interest rates, including the Secured Overnight Financing Rate (“SOFR”);
changes to the fair value of our investments;
the impact of future acquisitions and divestitures at the Portfolio Companies in which we invest;
the effect of changes in tax laws and regulations and interpretations thereof;
the tax status of the enterprises in which we may invest;
our ability to maintain our qualification as a BDC and as a regulated investment company 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 equity and capital markets;
currency fluctuations, particularly to the extent that we receive payments denominated in currency other than U.S. dollars; and
impact of terrorism and armed conflicts around the world on the global economy (including the war in Ukraine and Russia and conflict in the Middle East).
Summary of Risk Factors
The following is only a summary of the principal risks that may be materially adversely affect our business, financial condition results of operations and cash flows. Investing in our securities involves a high degree of risk. The following should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in the section entitled “Item 1A. Risk Factors” in this report.
Risks Relating to Our Business and Structure
Senior Credit Investments LLC is a relatively new company and has a limited operating history.
We are dependent upon management personnel of our Investment Adviser for our success, and our financial condition and results of operations depend on our Investment Adviser’s ability to manage our future growth effectively.
We operate in a highly competitive market for investment opportunities.
Risks Relating to Our Portfolio Company Investments
Our investments are risky and speculative.
Investing in companies in the middle market involves a number of significant 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.
Risks Related to the Investment Adviser and its Affiliates; Conflicts of Interest
Our Investment Adviser, its principals, investment professionals and employees and the members of its Investment Committee have certain conflicts of interest.
Our Investment Adviser will be paid the management fee even if the values of the investments decline, and our Investment Adviser’s incentive fee may create incentives for it to make certain kinds of investments.
The incentive fee is based on pre-incentive fee net investment income.
Risks Related to Our Operation as a Business Development Company
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.
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.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy, which would have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Debt Financing
We borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us.
We will be exposed to risks associated with changes in interest rates.
Federal Income Tax Risks
We will be subject to corporate-level U.S. federal income tax on all of our income if we are unable to qualify for tax treatment as a RIC under Subchapter M of the Code, which would have a material adverse effect on our financial performance.
We cannot predict how new tax legislation will affect us, our investments, or our unitholders, and any such legislation could adversely affect our business.
We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income.
Risks Relating to the Offering and to Our Common Units
Investors in offerings after the initial closing could receive fewer units of common units than anticipated.
Our common units are subject to significant transfer restrictions, and an investment in our common units generally will be illiquid.
Investing in our common units involves an above average degree of risk.
Item 1. Business.
Senior Credit Investments, LLC is a private, perpetually offered, externally managed, non-diversified, closed-end management investment company, which has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “Investment Company Act”), and intends to qualify as a regulated investment company (“RIC”) under the Code.
Our investment objective is to generate both current income and capital appreciation by investing primarily in senior secured loans to U.S. companies in the upper middle market. We generally use the term “upper middle market” to refer to large companies with annual earnings before interest expense, income tax expense, depreciation and amortization, or “EBITDA,” greater than $75 million. However, we may from time to time invest in smaller companies. We focus on companies backed by private equity sponsors and our capital is typically used by companies to support business growth, acquisitions, leveraged buyouts, refinancing or recapitalizations, and other related activity.