ARES CAPITAL CORP - Quarter Report: 2020 September (Form 10-Q)

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(1)

Other than the Company’s investments listed in footnote 5 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of September 30, 2020 represented 206% of the Company’s net assets or 96% of the Company’s total assets, are subject to legal restrictions on sales.

(2)	These assets are pledged as collateral under the Company’s or the Company’s consolidated subsidiaries’ various revolving credit facilities and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the obligations under each of the respective facilities (see Note 5).

(3)	Investments without an interest rate are non-income producing.

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(4)

As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions as of and during the nine months ended September 30, 2020 in which the issuer was an Affiliated Person of the Company (but not a portfolio company that the Company is deemed to Control) are as follows:

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(5)

As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions as of and during the nine months ended September 30, 2020 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are as follows:

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Together with Varagon Capital Partners (“Varagon”) and its clients, the Company has co-invested through the Senior Direct Lending Program, LLC (d/b/a the “Senior Direct Lending Program” or the “SDLP”). The SDLP has been capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SDLP must be approved by an investment committee of the SDLP consisting of representatives of the Company and Varagon (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SDLP, the Company does not believe that it has control over the SDLP (for

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(6)

This portfolio company is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets. Pursuant to Section 55(a) of the Investment Company Act, 18% of the Company's total assets are represented by investments at fair value and other assets that are considered "non-qualifying assets" as of September 30, 2020.

(7)

Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either the London Interbank Offered Rate (“LIBOR”) or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

(8)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $56.0 in aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(9)

The Company sold a participating interest of approximately $24.7 in aggregate principal amount of the portfolio company’s first lien senior secured term loan. As the transaction did not qualify as a “true sale” in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company recorded a corresponding $23.2 secured borrowing, at fair value, included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

(10)	Loan was on non-accrual status as of September 30, 2020.

(11)	Loan includes interest rate floor feature.

(12)	In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SDLP’s loan portfolio, after expenses, which may result in a return to the Company greater than the contractual stated interest rate.

(13)	As of September 30, 2020, no amounts were funded by the Company under this first lien senior secured revolving loan; however, there were letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 for further information on letters of credit commitments related to certain portfolio companies.

(14)	As of September 30, 2020, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 for further information on letters of credit commitments related to certain portfolio companies.

(15)

As of September 30, 2020, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. Such commitments are subject to the satisfaction of certain conditions set forth in the documents governing these loans and letters of credit and there can be no assurance that such conditions will be satisfied. See Note 7 for further information on revolving and delayed draw loan commitments, including commitments to issue letters of credit, related to certain portfolio companies.

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(16)	As of September 30, 2020, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

(17)	As of September 30, 2020, the Company had commitments to co-invest in the SDLP for its portion of the SDLP’s commitment to fund delayed draw loans of up to $66.8. See Note 4 for more information on the SDLP.

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(18)	Other than the investments noted by this footnote, the fair value of the Company’s investments is determined using unobservable inputs that are significant to the overall fair value measurement. See Note 8 for more information regarding the fair value of the Company’s investments.

(19)	As of September 30, 2020, the estimated net unrealized loss for federal tax purposes was $0.7 billion based on a tax cost basis of $15 billion. As of September 30, 2020, the estimated aggregate gross unrealized loss for federal income tax purposes was $1.1 billion and the estimated aggregate gross unrealized gain for federal income tax purposes was $0.4 billion.

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(1)

Other than the Company’s investments listed in footnote 5 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of December 31, 2019 represented 193% of the Company’s net assets or 97% of the Company’s total assets, are subject to legal restrictions on sales.

(2)	These assets are pledged as collateral under the Company’s or the Company’s consolidated subsidiaries’ various revolving credit facilities and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the obligations under each respective credit facilities (see Note 5).

(3)	Investments without an interest rate are non-income producing.

(4)

As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions as of and during the year ended December 31, 2019 in which the issuer was an Affiliated Person of the Company (but not a portfolio company that the Company is deemed to Control) are as follows:

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(5)

As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions as of and during the year ended December 31, 2019 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are as follows:

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(6)

This portfolio company is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. Pursuant to Section 55(a) of the Investment Company Act, 16% of the Company’s total assets are represented by investments at fair value and other assets that are considered “non-qualifying assets” as of December 31, 2019.

(7)

Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either the London Interbank Offered Rate (“LIBOR”) or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the weighted average interest rate in effect on the date presented.

(8)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $58.7 in aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(9)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $38.4 in aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(10)

The Company sold a participating interest of approximately $1.7 in aggregate principal amount of the portfolio company’s first lien senior secured term loan.  As the transaction did not qualify as a “true sale” in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company recorded a corresponding $1.7 secured borrowing included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

(11)	The Company sold a participating interest of approximately $24.9 in aggregate principal amount of the portfolio company’s first lien senior secured term loan.  As the transaction did not qualify as a “true sale” in accordance with GAAP, the Company recorded a corresponding $24.9 secured borrowing included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

(12)	Loan was on non-accrual status as of December 31, 2019.

(13)	Loan includes interest rate floor feature.

(14)	In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SDLP’s loan portfolio, after expenses, which may result in a return to the Company greater than the contractual stated interest rate.

(15)	As of December 31, 2019, no amounts were funded by the Company under this first lien senior secured revolving loan; however, there were letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 for further information on letters of credit commitments related to certain portfolio companies.

(16)	As of December 31, 2019, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 for further information on letters of credit commitments related to certain portfolio companies.

(17)

As of December 31, 2019, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. Such commitments are subject to the satisfaction of certain conditions set forth in the documents governing these loans and letters of credit and there can be no assurance that such conditions will be satisfied. See Note 7 for further information on revolving and delayed draw loan commitments, including commitments to issue letters of credit, related to certain portfolio companies.

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(18)	As of December 31, 2019, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

(19)	As of December 31, 2019, the Company had commitments to co-invest in the SDLP for its portion of the SDLP’s commitment to fund delayed draw loans of up to $94. See Note 4 to the consolidated financial statements for more information on the SDLP.

(20)	Other than the investments noted by this footnote, the fair value of the Company’s investments is determined using unobservable inputs that are significant to the overall fair value measurement. See Note 8 to the consolidated financial statements for more information regarding the fair value of the Company’s investments.

(21)	As of December 31, 2019, the net estimated unrealized loss for federal tax purposes was $0.3 billion based on a tax cost basis of $14.7 billion. As of December 31, 2019, the estimated aggregate gross unrealized loss for federal income tax purposes was $0.7 billion and the estimated aggregate gross unrealized gain for federal income tax purposes was $0.4 billion.

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•	The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the Company’s portfolio management team.

•	Preliminary valuations are reviewed and discussed with the Company’s investment adviser’s management and investment professionals, and then valuation recommendations are presented to the Company’s board of directors.

•	The audit committee of the Company’s board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms who have reviewed a portion of the investments in the Company’s portfolio at fair value.

•	The Company’s board of directors discusses valuations and ultimately determines the fair value of each investment in the Company’s portfolio without a readily available market quotation in good faith based on, among other things, the input of the Company’s investment adviser, audit committee and, where applicable, independent third-party valuation firms.

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(1)	Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

(2)	Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

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•	No income based fee in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the hurdle rate;

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100% of the Company’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter. The Company refers to this portion of its pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.1875%) as the “catch-up” provision. The “catch-up” is meant to provide the Company’s investment adviser with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeded 2.1875% in any calendar quarter; and

•	20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter.

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(1)	Calculated in accordance with GAAP as discussed below.

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(1)	The amortized cost represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

(2)	First lien senior secured loans include certain loans that the Company classifies as “unitranche” loans. The total amortized cost and fair value of the loans that the Company classified as “unitranche” loans were $2,165 and $2,053, respectively, as of September 30, 2020, and $1,959 and $1,885, respectively, as of December 31, 2019.

(3)	The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans to 22 and 23 different borrowers as of September 30, 2020 and December 31, 2019, respectively.

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(1)	Includes the Company’s investment in the SDLP, which had made first lien senior secured loans to 22 and 23 different borrowers as of September 30, 2020 and December 31, 2019, respectively. The portfolio companies in the SDLP are in industries similar to the companies in the Company’s portfolio.

(1)	Includes the Company’s investment in the SDLP, which represented 6.5% and 6.3% of the total investment portfolio at fair value as of September 30, 2020 and December 31, 2019, respectively.

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(1)	At principal amount.

(2)	First lien senior secured loans include certain loans that the SDLP classifies as “unitranche” loans. As of September 30, 2020 and December 31, 2019, the total principal amount of loans in the SDLP portfolio that the SDLP classified as “unitranche” loans was $3,664 and $3,643, respectively.

(3)	As discussed above, these commitments have been approved by the investment committee of the SDLP.

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(1)	Represents the total aggregate amount committed or outstanding, as applicable, under such instrument. Borrowings under the committed Revolving Credit Facility, Revolving Funding Facility, SMBC Funding Facility and BNP Funding Facility (each as defined below) are subject to borrowing base and other restrictions.

(2)	Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility (as defined below) to a maximum of $5,408.

(3)	Provides for a feature that allows ACJB (as defined below), under certain circumstances, to increase the size of the SMBC Funding Facility (as defined below) to a maximum of $1,000.

(4)

Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below). As of September 30, 2020, the total unamortized debt issuance costs and the unaccreted discount for the 2022 Convertible Notes and the 2024 Convertible Notes (each as defined below) were $7 and $12, respectively. As of December 31, 2019, the total unamortized debt issuance costs and the unaccreted discount for the 2022 Convertible Notes and the 2024 Convertible Notes were $11 and $14, respectively.

(5)	Represents the aggregate principal amount outstanding of the 2022 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2022 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and unaccreted discount was $2 and $3, respectively.

(6)	Represents the aggregate principal amount outstanding of the 2023 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2023 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and unaccreted discount was $3 and $4, respectively.

(7)	Represents the aggregate principal amount outstanding of the 2024 Notes (as defined below), less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuance of the 2024 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and net unaccreted discount was $4 and $5, respectively.

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(8)	Represents the aggregate principal amount outstanding of the March 2025 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the March 2025 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and unaccreted discount was $5 and $6, respectively.

(9)	Represents the aggregate principal amount outstanding of the July 2025 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the July 2025 Notes. As of September 30, 2020, the total unamortized debt issuance costs and unaccreted discount was $9.

(10)	Represents the aggregate principal amount outstanding of the 2026 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2026 Notes. As of September 30, 2020, the total unamortized debt issuance costs and net unaccreted discount was $9.

(11)	Represents the aggregate principal amount outstanding of the 2047 Notes (as defined below), less unamortized debt issuance costs and unaccreted discount recorded as part of the Allied Acquisition (as defined below). As of September 30, 2020 and December 31, 2019, the total unaccreted purchased discount was $45 and $46, respectively.

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(1)	Represents conversion price and conversion rate, as applicable, as of September 30, 2020, taking into account any applicable de minimis adjustments that will be made on the conversion date.

(1)	At time of issuance.

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(2)	At time of issuance and as of September 30, 2020.

(1)	The effective interest rate of the debt component of the Convertible Unsecured Notes is equal to the stated interest rate plus the accretion of original issue discount.

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•	Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

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•	Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•	Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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(1)	Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(2)	The fair value of unfunded revolving and delayed draw loan commitments is included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

(1)	Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(2)	The fair value of unfunded revolving and delayed draw loan commitments is included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

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(1)	For the nine months ended September 30, 2020, transfers into Level 3 from Level 2 were as a result of changes in the observability of significant inputs for certain portfolio companies.

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(1)	For the three months ended September 30, 2019, transfers out of Level 3 to Level 1 were as a result of the exchange of

(1)	For the nine months ended September 30, 2019, transfers out of Level 3 to Level 1 were as a result of the exchange of

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(1)	The Revolving Credit Facility, the Revolving Funding Facility and the SMBC Funding Facility carrying values are the same as the principal amounts outstanding.

(2)	Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuances of such notes.

(3)	Represents the aggregate principal amount outstanding of the 2022 Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2022 Notes.

(4)	Represents the aggregate principal amount outstanding of the 2023 Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2023 Notes.

(5)	Represents the aggregate principal amount outstanding of the 2024 Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2024 Notes.

(6)	Represents the aggregate principal amount outstanding of the March 2025 Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the March 2025 Notes.

(7)	Represents the aggregate principal amount outstanding of the July 2025 Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the July 2025 Notes.

(8)	Represents the aggregate principal amount outstanding of the 2026 Notes less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuance of the 2026 Notes.

(9)	Represents the aggregate principal amount outstanding of the 2047 Notes less the unaccreted purchased discount.

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(10)	Total principal amount of debt outstanding totaled $7,646 and $7,060 as of September 30, 2020 and December 31, 2019, respectively.

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(1)	The net assets used equals the total stockholders’ equity on the consolidated balance sheet.

(2)	Weighted average basic per share data.

(3)	Includes additional dividend of $0.06 per share for the nine months ended September 30, 2019.

(4)

For the nine months ended September 30, 2020, the total return based on market value equaled the decrease of the ending market value at September 30, 2020 of $13.95 per share from the ending market value at December 31, 2019 of $18.65 per share plus the declared and payable dividends of $1.20 per share for the nine months ended September 30, 2020, divided by the market value at December 31, 2019. For the nine months ended September 30, 2019, the total return based on market value equaled the increase of the ending market value at September 30, 2019 of $18.64 per share from the ending market value at December 31, 2018 of $15.58 per share plus the declared and payable dividends of $1.26 per share for the nine months ended September 30, 2019, divided by the market value at December 31, 2018. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

(5)

For the nine months ended September 30, 2020, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.20 per share for the nine months ended September 30, 2020, divided by the beginning net asset value for the period. For the nine months ended September 30, 2019, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.26 per share for the nine months ended September 30, 2019, divided by the beginning net asset value for the period. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan, the issuance of common stock in connection with any equity offerings and the equity components of any convertible notes issued during the period. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

(6)	The ratios reflect an annualized amount.

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(7)

For the nine months ended September 30, 2020, the ratio of operating expenses to average net assets consisted of 3.09% of base management fees, 1.32% of income based fees and capital gains incentive fees, 4.52% of the cost of borrowing and 0.57% of other operating expenses. For the nine months ended September 30, 2019, the ratio of operating expenses to average net assets consisted of 2.74% of base management fees, 2.55% of income based fees and capital gains incentive fees, net of the Fee Waiver (3.10% of income based fees and capital gains incentive fees, excluding the Fee Waiver), 3.86% of the cost of borrowing and 0.63% of other operating expenses.

(8)	The ratio of net investment income to average net assets excludes income taxes related to realized gains and losses.

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•	our, or our portfolio companies’, future business, operations, operating results or prospects;

•	the return or impact of current and future investments;

•	the impact of global health epidemics, such as the current novel coronavirus (“COVID-19”) pandemic, on our or our portfolio companies’ business and the global economy;

•	the impact of a protracted decline in the liquidity of credit markets on our business;

•	the impact of the elimination of the London Interbank Offered Rate (“LIBOR”) on our operating results;

•	the impact of fluctuations in interest rates on our business;

•	the impact of changes in laws or regulations (including the interpretation thereof), including the Tax Cuts and Jobs Act and the Coronavirus Aid, Relief and Economic Security Act, governing our operations or the operations of our portfolio companies or the operations of our competitors;

•	the expiration of the Securities and Exchange Commission’s (“the SEC”) exemptive order allowing co-investments with certain other funds managed by the investment adviser or its affiliates;

•	the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

•	our ability to recover unrealized losses;

•	market conditions and our ability to access alternative debt markets and additional debt and equity capital and our ability to manage our capital resources effectively;

•	our contractual arrangements and relationships with third parties, including parties to our co-investment program;

•	the general economy and its impact on the industries in which we invest;

•	uncertainty surrounding the financial stability of the United States, Europe and China;

•	the social, geopolitical, financial, trade and legal implications of Brexit;

•	Middle East turmoil and the potential for volatility in energy prices and its impact on the industries in which we invest;

•	the financial condition of our current and prospective portfolio companies and their ability to achieve their objectives;

•	our expected financings and investments;

•	our ability to successfully complete and integrate any acquisitions;

•	the outcome and impact of any litigation;

•	the adequacy of our cash resources and working capital;

•	the timing, form and amount of any dividend distributions;

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

•	the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments.

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(1)	New investment commitments include new agreements to fund revolving loans or delayed draw loans. See “Off Balance Sheet Arrangements” as well as Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2020, for more information on our commitments to fund revolving loans or delayed draw loans.

(2)	Includes both funded and unfunded commitments. Of these new investment commitments, we funded $0.4 billion and $1.8 billion, respectively, for the three months ended September 30, 2020 and 2019.

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(3)	Includes both funded and unfunded commitments. For the three months ended September 30, 2020 and 2019, investment commitments exited included exits of unfunded commitments of $39 million and $242 million, respectively.

(4)	For the three months ended September 30, 2020, net repayments of first lien secured revolving loans were $153 million. For the three months ended September 30, 2019, net fundings of first lien secured revolving loans were $2 million.

(5)	See “Senior Direct Lending Program” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2020 for more information on the SDLP (as defined below).

(6)	Number of new investment commitments represents each commitment to a particular portfolio company or a commitment to multiple companies as part of an individual transaction (e.g., the purchase of a portfolio of investments).

(7)

“Weighted average yield of debt and other income producing securities” is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value, as applicable.

(8)	Represents fair value for investments in the portfolio as of the most recent prior quarter end, if applicable.

(1)	As of September 30, 2020, the fair value of our investments was negatively impacted by the uncertainty surrounding the impact of the COVID-19 pandemic. For more information, see “Results of Operations - Net Unrealized Gains/Losses.”

(2)	First lien senior secured loans include certain loans that we classify as “unitranche” loans. The total amortized cost and fair value of the loans that we classified as “unitranche” loans were $2,165 million and $2,053 million, respectively, as of September 30, 2020, and $1,959 million and $1,885 million, respectively, as of December 31, 2019.

(3)	The proceeds from these certificates were applied to co-investments with Varagon Capital Partners (“Varagon”) and its clients to fund first lien senior secured loans to 22 and 23 different borrowers as of September 30, 2020 and December 31, 2019, respectively.

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(1)

“Weighted average yield of debt and other income producing securities” is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value as applicable.

(2)	“Weighted average yields” are computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on the relevant accruing debt and other income producing securities, divided by (b) the total relevant investments at amortized cost or at fair value as applicable.

(3)	The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans.

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(2)	First lien senior secured loans include certain loans that the SDLP classifies as “unitranche” loans. As of September 30, 2020 and December 31, 2019, the total principal amount of loans in the SDLP portfolio that the SDLP classified as “unitranche” loans was $3,664 million and $3,643 million, respectively.

(3)	Computed as (a) the annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.

(4)	As discussed above, these commitments have been approved by the investment committee of the SDLP.

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(1)	Represents the weighted average annual stated interest rate as of September 30, 2020. All stated interest rates are payable in cash, except for portions of the stated interest rates which are payment-in-kind for investments in D4C Dental Brands, Inc., Emergency Communications Network, LLC, Excelligence Learning Corporation, KeyImpact Holdings, Inc., Nordco Inc. and Towne Holdings, Inc.

(2)	Represents the fair value in accordance with Accounting Standards Codification 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). The determination of such fair value is not included in our board of directors valuation process described elsewhere herein.

(3)	We also hold a portion of this company’s first lien senior secured loan.

(4)	We hold an equity investment in this company.

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(1)	Represents the weighted average annual stated interest rate as of December 31, 2019. All stated interest rates are payable in cash.

(2)	Represents the fair value in accordance with ASC 820-10. The determination of such fair value is not included in our board of directors valuation process described elsewhere herein.

(3)	We also hold a portion of this company’s first lien senior secured loan.

(4)	We hold an equity investment in this company.

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(1)	Calculated in accordance with U.S. generally accepted accounting principles (”GAAP”) as discussed below.

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(1)

Includes $19 million and $798 million of loans sold to IHAM and certain vehicles managed by IHAM during the three and nine months ended September 30, 2020, respectively, and $109 million and $876 million during the comparable periods in 2019, respectively. Net realized losses of $0 million and $21 million were recognized on these transactions with IHAM during the three and nine months ended September 30, 2020, respectively. Net realized losses of $0 million and $2 million were recognized on these transactions with IHAM during the three and nine months ended September 30, 2019, respectively. See Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2020 for more information on IHAM and its managed vehicles.

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(1)	The net unrealized (appreciation) depreciation reversed related to net realized gains or losses represents the unrealized appreciation or depreciation recorded on the related asset at the end of the prior period.

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(1)	Represents the total aggregate amount committed or outstanding, as applicable, under such instrument. Borrowings under the committed Revolving Credit Facility, Revolving Funding Facility, SMBC Funding Facility and BNP Funding Facility (each as defined below) are subject to borrowing base and other restrictions.

(2)	Provides for a feature that allows us, under certain circumstances, to increase the size of the Revolving Credit Facility (as defined below) to a maximum of $5.4 billion.

(3)	Provides for a feature that allows ACJB (as defined below), under certain circumstances, to increase the size of the SMBC Funding Facility (as defined below) to a maximum of $1.0 billion.

(4)

Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below). As of September 30, 2020, the total unamortized debt issuance costs and the unaccreted discount for the 2022 Convertible Notes and the 2024 Convertible Notes (each as defined below) were $7 million and $12 million, respectively. As of December 31, 2019, the total unamortized debt issuance costs and the unaccreted discount for the 2022 Convertible Notes and the 2024 Convertible Notes were $11 million and $14 million, respectively.

(5)	Represents the aggregate principal amount outstanding of the 2022 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2022 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and unaccreted discount was $2 million and $3 million, respectively.

(6)	Represents the aggregate principal amount outstanding of the 2023 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2023 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and unaccreted discount was $3 million and $4 million, respectively.

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(7)	Represents the aggregate principal amount outstanding of the 2024 Notes (as defined below), less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuance of the 2024 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and net unaccreted discount was $4 million and $5 million, respectively.

(8)	Represents the aggregate principal amount outstanding of the March 2025 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the March 2025 Notes. As of September 30, 2020 and December 31, 2019, the total unamortized debt issuance costs and unaccreted discount was $5 million and $6 million, respectively.

(9)	Represents the aggregate principal amount outstanding of the July 2025 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the July 2025 Notes. As of September 30, 2020, the total unamortized debt issuance costs and unaccreted discount was $9 million.

(10)	Represents the aggregate principal amount outstanding of the 2026 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the 2026 Notes. As of September 30, 2020, the total unamortized debt issuance costs and net unaccreted discount was $9 million.

(11)	Represents the aggregate principal amount outstanding of the 2047 Notes (as defined below), less unamortized debt issuance costs and unaccreted discount recorded as part of the Allied Acquisition (as defined below). As of September 30, 2020 and December 31, 2019, the total unaccreted purchased discount was $45 million and $46 million, respectively.

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(1)	Represents conversion price and conversion rate, as applicable, as of September 30, 2020, taking into account any applicable de minimis adjustments that will be made on the conversion date.

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•	Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management team.

•	Preliminary valuations are reviewed and discussed with our investment adviser’s management and investment professionals, and then valuation recommendations are presented to our board of directors.

•	The audit committee of our board of directors reviews these valuations, as well as the input of third parties, including independent third‑party valuation firms who have reviewed a portion of the investments in our portfolio at fair value.

•	Our board of directors discusses valuations and ultimately determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on, among other things, the input of our investment adviser, audit committee and, where applicable, independent third‑party valuation firms.

•	Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.

•	Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•	Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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(1)	Includes the impact of the interest rate swap (discussed above) as a result of changes in interest rates.

(2)	Excludes the impact of income based fees. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2020 for more information on the income based fees.

(1)	Includes the impact of the interest rate swap (discussed above) as a result of changes in interest rates.

(2)	Excludes the impact of income based fees. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2020 for more information on the income based fees.

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*	Filed herewith

(1)	Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K (File No. 814-00663) for the year ended December 31, 2018, filed on February 12, 2019.

(2)	Incorporated by reference to Exhibits 4.1 and 4.2, as applicable, to the Company’s Form 8-K (File No. 814-00663), filed on July 15, 2020.

(3)	Incorporated by reference to Exhibit 10.1 to the Company’s Form 8‑K (File No. 814‑00663), filed on August 10, 2020.

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