Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Investments

v3.22.2.2
Fair Value of Investments
9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value of Investments Fair Value of Investments
Investments
The following tables present the fair value hierarchy of investments as of September 30, 2022 and December 31, 2021:
Fair Value Hierarchy as of September 30, 2022
($ in thousands) Level 1 Level 2 Level 3 Total
First-lien senior secured debt investments $ —  $ 485  $ 9,263,764  $ 9,264,249 
Second-lien senior secured debt investments —  95,509  1,750,922  1,846,431 
Unsecured debt investments —  —  237,375  237,375 
Preferred equity investments —  —  329,451  329,451 
Common equity investments(1)
523  —  843,979  844,502 
Subtotal $ 523  $ 95,994  $ 12,425,491  $ 12,522,008 
Investments measured at NAV(2)
—  —  —  313,910 
Total Investments at fair value $ 523  $ 95,994  $ 12,425,491  $ 12,835,918 
_______________
(1)Includes equity investment in Wingspire, Amergin, and Chapford SMA.
(2)Includes equity investment in ORCC SLF.
Fair Value Hierarchy as of December 31, 2021
($ in thousands) Level 1 Level 2 Level 3 Total
First-lien senior secured debt investments $ —  $ —  $ 9,539,774  $ 9,539,774 
Second-lien senior secured debt investments —  —  1,921,447  1,921,447 
Unsecured debt investments —  —  196,485  196,485 
Preferred equity investments
—  —  260,869  260,869 
Common equity investments(1)
3,873  515  571,616  576,004 
Subtotal $ 3,873  $ 515  $ 12,490,191  $ 12,494,579 
Investments measured at NAV(2)
—  —  —  247,061 
Total Investments at fair value $ 3,873  $ 515  $ 12,490,191  $ 12,741,640 
_______________
(1)Includes equity investment in Wingspire.
(2)Includes equity investment in ORCC SLF.

The following tables present changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three and nine months ended September 30, 2022 and 2021:
As of and for the Three Months Ended September 30, 2022
($ in thousands) First-lien senior secured debt
investments
Second-lien senior secured
debt investments
Unsecured debt investments Preferred equity investments Common equity
investments
Total
Fair value, beginning of period $ 9,242,688  $ 1,763,979  $ 269,752  $ 296,766  $ 730,326  $ 12,303,511 
Purchases of investments, net 1,233,610  36,326  —  24,302  51,092  1,345,330 
Payment-in-kind 19,822  1,948  6,224  3,872  159  32,025 
Proceeds from investments, net (1,279,615) (11,688) (22,512) —  (8,575) (1,322,390)
Net change in unrealized gain (loss) 37,819  (7,765) (14,343) 4,295  70,977  90,983 
Net realized gains (losses) 494  —  (1,865) —  —  (1,371)
Net amortization/accretion of premium/discount on investments 8,946  811  119  216  —  10,092 
Transfers into (out of) Level 3(1) —  (32,689) —  —  —  (32,689)
Fair value, end of period $ 9,263,764  $ 1,750,922  $ 237,375  $ 329,451  $ 843,979  $ 12,425,491 
________________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the three months ended September 30, 2022, transfers out of Level 3 from Level 2 were a result of changes in the observability of significant inputs for certain portfolio companies.
As of and for the Nine Months Ended September 30, 2022
($ in thousands) First-lien senior secured debt
investments
Second-lien senior secured debt
investments
Unsecured debt investments Preferred equity investments Common equity investments Total
Fair value, beginning of period $ 9,539,774  $ 1,921,447  $ 196,485  $ 260,869  $ 571,616  $ 12,490,191 
Purchases of investments, net 4,157,703  337,290  89,239  98,241  330,519  5,012,992 
Payment-in-kind 64,774  7,689  15,002  13,303  467  101,235 
Proceeds from investments, net (4,432,479) (335,797) (22,512) (33,693) (137,306) (4,961,787)
Net change in unrealized gain (loss) (95,391) (80,797) (39,286) (14,933) 78,683  (151,724)
Net realized gains (losses) 670  —  (1,865) 4,482  —  3,287 
Net amortization/accretion of premium/discount on investments 29,227  2,751  312  1,182  —  33,472 
Transfers into (out of) Level 3(1)
(514) (101,661) —  —  —  (102,175)
Fair value, end of period $ 9,263,764  $ 1,750,922  $ 237,375  $ 329,451  $ 843,979  $ 12,425,491 
_______________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the nine months ended September 30, 2022, transfers out of Level 3 into Level 2 were a result of changes in the observability of significant inputs for certain portfolio companies.

As of and for the Three Months Ended September 30, 2021
($ in thousands) First-lien senior secured debt
investments
Second-lien senior secured
debt investments
Unsecured debt investments
Preferred equity investments
Common equity
investments
Total
Fair value, beginning of period $ 9,067,137  $ 1,960,154  $ 194,928  $ 174,335  $ 331,058  $ 11,727,612 
Purchases of investments, net 2,509,627  70,480  —  —  140,794  2,720,901 
Payment-in-kind 6,170  —  7,250  3,446  144  17,010 
Proceeds from investments, net (2,283,113) (278,636) —  (1,000) (61,551) (2,624,300)
Net change in unrealized gain (loss) (1,170) 205  (7,540) 2,832  16,761  11,088 
Net realized gains (losses) 1,981  37  —  —  (19) 1,999 
Net amortization of discount on investments 21,421  3,414  74  156  —  25,065 
Transfers into (out of) Level 3(1)
—  —  —  —  —  — 
Fair value, end of period $ 9,322,053  $ 1,755,654  $ 194,712  $ 179,769  $ 427,187  $ 11,879,375 
________________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur.
As of and for the Nine Months Ended September 30, 2021
($ in thousands) First-lien senior secured debt
investments
Second-lien senior secured debt
investments
Unsecured debt investments
Preferred equity investments(2)
Common equity investments(2)
Total
Fair value, beginning of period $ 8,389,486  $ 1,949,703  $ 59,562  $ 22,157  $ 230,307  $ 10,651,215 
Purchases of investments, net 4,118,038  487,457  130,137  148,832  291,064  5,175,528 
Payment-in-kind 24,643  —  9,542  6,778  381  41,344 
Proceeds from investments, net (3,311,548) (705,356) —  (1,000) (133,551) (4,151,455)
Net change in unrealized gain (loss) 53,619  43,407  (4,762) 2,719  39,345  134,328 
Net realized gains (losses) 2,538  (30,181) —  —  (359) (28,002)
Net amortization of discount on investments 44,430  10,624  233  283  —  55,570 
Transfers into (out of) Level 3(1)
847  —  —  —  —  847 
Fair value, end of period $ 9,322,053  $ 1,755,654  $ 194,712  $ 179,769  $ 427,187  $ 11,879,375 
_______________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the nine months ended September 30, 2021, transfers into Level 3 from Level 2 were a result of changes in the observability of significant inputs for certain portfolio companies.

The following tables present information with respect to net change in unrealized gains on investments for which Level 3 inputs were used in determining the fair value that are still held by the Company for the three and nine months ended September 30, 2022 and 2021:
Net change in unrealized gain (loss) for the Three Months Ended September 30, 2022 on Investments Held at September 30, 2022 Net change in unrealized gain (loss) for the Three Months Ended September 30, 2021 on Investments Held at September 30, 2021
First-lien senior secured debt investments $ 28,663  $ 9,803 
Second-lien senior secured debt investments (7,756) 1,350 
Unsecured debt investments (14,345) (7,540)
Preferred equity investments 4,295  2,832 
Common equity investments 73,339  16,741 
Total Investments $ 84,196  $ 23,186 
Net change in unrealized gain (loss) for the Nine Months Ended September 30, 2022 on Investments Held at September 30, 2022 Net change in unrealized gain (loss) for the Nine Months Ended September 30, 2021 on Investments Held at September 30, 2021
First-lien senior secured debt investments $ (97,931) $ 57,778 
Second-lien senior secured debt investments (80,309) 18,539 
Unsecured debt investments (39,287) (4,762)
Preferred equity investments (14,675) 2,719 
Common equity investments 75,774  39,342 
Total Investments $ (156,428) $ 113,616 
The following tables present quantitative information about the significant unobservable inputs of the Company’s Level 3 investments as of September 30, 2022 and December 31, 2021. The weighted average range of unobservable inputs is based on fair value of investments. The tables are not intended to be all-inclusive but instead capture the significant unobservable inputs relevant to the Company’s determination of fair value.

As of September 30, 2022
($ in thousands) Fair Value Valuation Technique Unobservable Input (Range) Weighted Average Impact to Valuation from an
Increase in Input
First-lien senior secured debt investments $ 8,989,042  Yield Analysis Market Yield
(9.1% - 33.1%) 12.6%
Decrease
215,687  Recent Transaction Transaction Price
(97.5% - 99.0%) 97.9%
Increase
59,035  Collateral Analysis Recovery Rate
(69.0% - 69.0%) 69.0%
Increase
Second-lien senior secured debt investments $ 1,740,416  Yield Analysis Market Yield
(11.8% - 23.2%) 15.5%
Decrease
10,506  Collateral Analysis Recovery Rate
(16.5% - 16.5%) 16.5%
Increase
Unsecured debt investments $ 232,240  Yield Analysis Market Yield
(10.2% - 20.0%) 12.6%
Decrease
5,135  Market Approach EBITDA Multiple
(14.0x - 14.0x) 14.0x
Increase
Preferred equity investments $ 305,431  Yield Analysis Market Yield
(12.0% - 16.8%) 13.8%
Decrease
23,975  Recent Transaction Transaction Price
(97.0% - 97.0%) 97.0%
Increase
45  Market Approach EBITDA Multiple
(11.5x - 11.5x) 11.5x
Increase
Common equity investments $ 799,574  Market Approach EBITDA Multiple
(1.2x - 24.3x) 5.6x
Increase
21,962  Market Approach Revenue
(1.1x - 16.6x) 12.9x
Increase
18,401  Recent Transaction Transaction Price
(95.7% - 123.5%) 103.7%
Increase
3,917  Market Approach Transaction Price
($70.00 - $70.00) $70.00
Increase
125  Market Approach Gross Profit
(10.0x - 10.0x) 10.0x
Increase
As of December 31, 2021
($ in thousands) Fair Value Valuation Technique Unobservable Input Range (Weighted Average) Impact to Valuation from an
Increase in Input
First-lien senior secured debt investments $ 8,670,821  Yield Analysis Market Yield
(5.3% - 20.0%) 8.7%
Decrease
868,953  Recent Transaction Transaction Price
(90.5% - 99.4%) 97.4%
Increase
Second-lien senior secured debt investments(1)
$ 1,459,187  Yield Analysis Market Yield
(7.8% - 15.0%) 9.6%
Decrease
395,865  Recent Transaction Transaction Price
(98.0% - 99.0%) 98.6%
Increase
15,919  Collateral Analysis Recovery Rate
(25.0% - 25.0%) 25.0%
Increase
Unsecured debt investments(2)
$ 179,730  Yield Analysis Market Yield
(7.2% - 9.4%) 8.8%
Decrease
5,135  Market Approach EBITDA Multiple
(14.8x - 14.8x) 14.8x
Increase
Preferred equity investments $ 181,394  Yield Analysis Market Yield
(11.4% - 14.6%) 11.9%
Decrease
75,863  Recent Transaction Transaction Price
(97.3% - 100.0%) 98.1%
Increase
3,612  Market Approach EBITDA Multiple
(9.3x - 9.3x) 9.3x
Increase
Common equity investments $ 488,629  Market Approach EBITDA Multiple
(1.2x - 24.0x) 5.0x
Increase
79,900  Recent Transaction Transaction Price
(100.0% - 100.0%) 100.0%
Increase
2,334  Market Approach Transaction Price
($560.00 - $560.00) $560.00
Increase
753  Market Approach Gross Profit Multiple
(27.0x - 27.0x) 27.0x
Increase
_______________
(1)Excludes investments with an aggregate fair value amounting to $50.5 million, which the Company valued using indicative bid prices obtained from brokers.
(2)Excludes investments with an aggregate fair value amounting to $11.6 million, which the Company valued using indicative bid prices obtained from brokers.
The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to its total enterprise value, and the rights and remedies of the Company’s investment within the portfolio company’s capital structure.
Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. For the Company’s Level 3 equity investments, a market approach, based on comparable publicly-traded company and comparable market transaction multiples of revenues, earnings before income taxes, depreciation and amortization (“EBITDA”) or some combination thereof and comparable market transactions typically would be used.
Debt Not Carried at Fair Value
Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available. The following table presents the carrying and fair values of the Company’s debt obligations as of September 30, 2022 and December 31, 2021.
September 30, 2022 December 31, 2021
($ in thousands)
Net Carrying
Value(1)
Fair Value
Net Carrying
Value(2)
Fair Value
Revolving Credit Facility $ 391,769  $ 391,769  $ 879,943  $ 879,943 
SPV Asset Facility II 245,107  245,107  95,668  95,668 
SPV Asset Facility III 249,208  249,208  188,979  188,979 
SPV Asset Facility IV 73,863  73,863  152,727  152,727 
CLO I 387,253  387,253  386,989  386,989 
CLO II 257,127  257,127  256,942  256,942 
CLO III 258,098  258,098  257,937  257,937 
CLO IV 287,674  287,674  287,342  287,342 
CLO V 506,965  506,965  194,167  194,167 
CLO VI 258,246  258,246  258,093  258,093 
CLO VII 237,266  237,266  —  — 
2024 Notes 384,328  396,000  406,481  427,000 
2025 Notes 420,841  398,438  419,674  443,063 
July 2025 Notes 494,912  458,750  493,637  518,750 
2026 Notes 492,635  455,000  491,085  526,250 
July 2026 Notes 981,868  860,000  978,537  1,017,500 
2027 Notes 433,638  401,250  497,537  488,750 
2028 Notes 835,356  648,125  833,588  837,250 
Total Debt $ 7,196,154  $ 6,770,139  $ 7,079,326  $ 7,217,350 
_______________
(1)The carrying value of the Company’s Revolving Credit Facility, SPV Asset Facility II, SPV Asset Facility III, SPV Asset Facility IV, CLO I, CLO II, CLO III, CLO IV, CLO V, CLO VI, CLO VII, 2024 Notes, 2025 Notes, July 2025 Notes, 2026 Notes, July 2026 Notes, 2027 Notes and 2028 Notes are presented net of deferred financing costs of $15.1 million, $4.9 million, $0.8 million, $2.6 million, $2.7 million, $2.9 million, $1.9 million, $4.8 million, $2.7 million, $1.8 million, $1.9 million, $3.4 million, $4.2 million, $5.1 million, $7.4 million, $18.1 million, $8.4 million and $14.6 million, respectively.
(2)The carrying value of the Company’s Revolving Credit Facility, SPV Asset Facility II, SPV Asset Facility III, SPV Asset Facility IV, CLO I, CLO II, CLO III, CLO IV, CLO V, CLO VI, 2024 Notes, 2025 Notes, July 2025 Notes, 2026 Notes, July 2026 Notes, 2027 Notes and 2028 Notes are presented net of deferred financing costs of $12.4 million, $4.3 million, $1.0 million, $2.2 million, $3.0 million, $3.1 million, $2.1 million, $5.2 million, $1.8 million, $1.9 million, $5.0 million, $5.3 million, $6.4 million, $8.9 million, $21.5 million, $9.7 million and $16.4 million, respectively.
The following table presents fair value measurements of the Company’s debt obligations as of September 30, 2022 and December 31, 2021:
($ in thousands) September 30, 2022 December 31, 2021
Level 1 $ —  $ — 
Level 2 3,617,563  4,258,563 
Level 3 3,152,576  2,958,787 
Total Debt $ 6,770,139  $ 7,217,350 
Financial Instruments Not Carried at Fair Value
As of September 30, 2022 and December 31, 2021, the carrying amounts of the Company’s assets and liabilities, other than investments at fair value and debt, approximate fair value due to their short maturities.