| ☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware | 88-1890628 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
500 Park Avenue New York, N.Y. | 10022 | |
(Address of principal executive offices) | (Zip Code) | |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
N/A | N/A | N/A |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller Reporting company | ☐ | |||
| Emerging growth company | ☒ | |||||
SLR PRIVATE CREDIT BDC II LLC
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
| * | Commencement of operations |
2
September 30, 2023 (unaudited) | ||||
Assets | ||||
| Investments at fair value: | ||||
Non-controlled/non-affiliated | $ | 7,378 | ||
| Cash | 3,619 | |||
| Cash equivalents (cost: $2,978) | 2,978 | |||
| Interest receivable | 30 | |||
| Prepaid expenses | 40 | |||
Total assets | $ | 14,045 | ||
Liabilities | ||||
| Revolving credit facility due March 2025 (the “Subscription Facility”) ($5,700 face amount, reported net of unamortized debt issuance costs of $386. See note 5) | $ | 5,314 | ||
| Payable for cash equivalents purchased | 2,978 | |||
| Management fee payable (see note 3) | 58 | |||
| Administration fee payable (see note 3) | 1 | |||
| Interest payable (see note 5) | 50 | |||
| Other liabilities and accrued expenses | 204 | |||
Total liabilities | $ | 8,605 | ||
| Commitments and contingencies (see note 6) | ||||
Unitholders’ Capital | ||||
| Common Unitholders’ capital (337,661 units issued and outstanding) | 6,424 | |||
| Accumulated distributable net loss | (984 | ) | ||
Total unitholders’ capital | $ | 5,440 | ||
Total liabilities and unitholders’ capital | $ | 14,045 | ||
Net asset value per unit | $ | 16.11 | ||
Three months ended September 30, 2023 | For the period January 18, 2023* to September 30, 2023 | |||||||
Investment Income: | ||||||||
Interest income from non-controlled/non-affiliated | $ | 131 | $ | 174 | ||||
| Total investment income | 131 | 174 | ||||||
Expenses: | ||||||||
| Management fees (see note 3) | $ | 47 | $ | 58 | ||||
| Administration fees (see note 3) | 1 | 1 | ||||||
| Interest and other credit facility expenses (see note 5) | 187 | 341 | ||||||
| Legal expenses | 77 | 271 | ||||||
| Organizational expenses | — | 131 | ||||||
| Audit and tax preparation expenses | 29 | 80 | ||||||
| Other general and administrative expenses | 109 | 292 | ||||||
| Total expenses | 450 | 1,174 | ||||||
| Net investment loss | $ | (319 | ) | $ | (1,000 | ) | ||
Realized and unrealized gain (loss) on investments and cash equivalents: | ||||||||
Net realized loss on non-controlled/non-affiliated | $ | — | $ | — | ||||
Net change in unrealized gain on non-controlled/non-affiliated | 17 | 16 | ||||||
Net realized and unrealized gain on non-controlled/non-affiliated | 17 | 16 | ||||||
Net Decrease in Unitholders’ Capital Resulting From Operations | $ | (302 | ) | $ | (984 | ) | ||
Net Loss Per Unit | $ | (2.42 | ) | $ | (8.04 | ) | ||
| * | Commencement of operations |
Three months ended September 30, 2023 | For the period January 18, 2023* to September 30, 2023 | |||||||
Increase (decrease) in unitholders’ capital resulting from operations: | ||||||||
| Net investment loss | $ | (319 | ) | $ | (1,000 | ) | ||
| Net realized loss | — | — | ||||||
| Net change in unrealized gain | 17 | 16 | ||||||
| Net decrease in unitholders’ capital resulting from operations | (302 | ) | (984 | ) | ||||
Increase (decrease) in unitholders’ capital resulting from capital activity: | ||||||||
| Contributions | 3,500 | 6,501 | ||||||
| Less offering costs | (2 | ) | (76 | ) | ||||
| Cancellation | — | (1 | ) | |||||
| Net increase in unitholders’ capital resulting from capital activity | 3,498 | 6,424 | ||||||
| Total increase in unitholders’ capital | 3,196 | 5,440 | ||||||
| Unitholders’ capital, beginning of period | 2,244 | — | ||||||
| Unitholders’ capital, end of period | $ | 5,440 | $ | 5,440 | ||||
Capital unit activity | ||||||||
| Units issued | 217,661 | 337,701 | ||||||
| Units canceled | — | (40 | ) | |||||
| Net increase from capital unit activity | 217,661 | 337,661 | ||||||
| * | Commencement of operations |
For the period January 18, 2023* to September 30, 2023 | ||||
Cash Flows from Operating Activities: | ||||
Net decrease in unitholders’ capital resulting from operations | $ | (984 | ) | |
| Adjustments to reconcile net decrease in unitholders’ capital resulting from operations to net cash used in operating activities: | ||||
| Net realized loss on investments and cash equivalents | — | |||
| Net change in unrealized gain on investments | (16 | ) | ||
| Deferred financing costs | 157 | |||
(Increase) decrease in operating assets: | ||||
| Purchase of investments | (7,370 | ) | ||
| Net accretion of discount on investments | (5 | ) | ||
| Proceeds from disposition of investments | 13 | |||
| Interest receivable | (30 | ) | ||
| Prepaid expenses | (40 | ) | ||
Increase in operating liabilities: | ||||
| Payable for cash equivalents purchased | 2,978 | |||
| Management fee payable | 58 | |||
| Administration fee payable | 1 | |||
| Interest payable | 50 | |||
| Other liabilities and accrued expenses | 204 | |||
Net Cash Used in Operating Activities | (4,984 | ) | ||
Cash Flows from Financing Activities: | ||||
| Contributions from unitholders | 6,501 | |||
| Offering costs | (76 | ) | ||
| Cancellation of units | (1 | ) | ||
| Proceeds from borrowings | 6,907 | |||
| Repayments of borrowings | (1,750 | ) | ||
Net Cash Provided by Financing Activities | 11,581 | |||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 6,597 | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | |||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 6,597 | ||
Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest | $ | 291 | ||
| * | Commencement of operations |
Description | Industry | Spread above Index (2) | Floor | Interest Rate (1) | Acquisition Date | Maturity Date | Par Amount | Cost | Fair Value | |||||||||||||||||||||||||
Bank Debt/Senior Secured Loans — 135.5% | ||||||||||||||||||||||||||||||||||
| Alkeme Intermediary Holdings, LLC | Insurance | S+650 | 1.00 | % | 11.92 | % | 9/20/2023 | 10/28/2026 | $ | 668 | $ | 648 | $ | 648 | ||||||||||||||||||||
| CVAUSA Management, LLC | Health Care Providers & Services | S+650 | 1.00 | % | 11.59 | % | 5/22/2023 | 5/22/2029 | 980 | 952 | 951 | |||||||||||||||||||||||
| Higginbotham Insurance Agency, Inc. | Insurance | S+550 | 1.00 | % | 10.92 | % | 8/24/2023 | 11/25/2028 | 1,745 | 1,745 | 1,745 | |||||||||||||||||||||||
| Peter C. Foy & Associates Insurance Services, LLC | Insurance | S+650 | 0.75 | % | 11.82 | % | 7/19/2023 | 11/1/2028 | 378 | 370 | 370 | |||||||||||||||||||||||
| The Townsend Company, LLC | Commercial Services & Supplies | S+625 | 1.00 | % | 11.57 | % | 8/21/2023 | 8/15/2029 | 789 | 770 | 770 | |||||||||||||||||||||||
| United Digestive MSO Parent, LLC | Health Care Providers & Services | S+675 | 1.00 | % | 12.29 | % | 3/30/2023 | 3/30/2029 | 689 | 670 | 689 | |||||||||||||||||||||||
| UVP Management, LLC | Health Care Providers & Services | S+625 | 1.00 | % | 11.79 | % | 9/18/2023 | 9/15/2025 | 934 | 911 | 910 | |||||||||||||||||||||||
| Vertos Medical, Inc. | Health Care Equipment & Supplies | S+515 | 4.75 | % | 10.48 | % | 6/14/2023 | 7/1/2028 | 397 | 393 | 392 | |||||||||||||||||||||||
West-NR Parent, Inc. | Insurance | S+625 | 1.00 | % | 11.72 | % | 8/1/2023 | 12/27/2027 | 918 | 900 | 900 | |||||||||||||||||||||||
Total Bank Debt/Senior Secured Loans | $ | 7,359 | $ | 7,375 | ||||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||
Warrants — 0.1% | ||||||||||||||||||||||||||||||||||
| Vertos Medical, Inc.* | Health Care Equipment & Supplies | 6/14/2023 | 9,646 | $ | 3 | $ | 3 | |||||||||||||||||||||||||||
Total Warrants | $ | 3 | $ | 3 | ||||||||||||||||||||||||||||||
Total Investments (3) — 135.6% | $ | 7,362 | $ | 7,378 | ||||||||||||||||||||||||||||||
Cash Equivalents — 54.8% | ||||||||||||||||||||||||||||||||||
| U.S. Treasury Bill | Government | 9/29/2023 | 11/21/2023 | $ | 3,000 | $ | 2,978 | $ | 2,978 | |||||||||||||||||||||||||
Total Investments & Cash Equivalents— 190.4% | $ | 10,340 | $ | 10,356 | ||||||||||||||||||||||||||||||
| Liabilities in Excess of Other Assets — (90.4%) | (4,916 | ) | ||||||||||||||||||||||||||||||||
Net Assets — 100.0% | $ | 5,440 | ||||||||||||||||||||||||||||||||
| (1) | Floating rate debt investments typically bear interest at a rate determined by reference to either the Secured Overnight Financing Rate (“SOFR”) or the prime index rate (“PRIME” or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment the Company has provided the current interest rate in effect as of September 30, 2023. |
| (2) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the SOFR or PRIME rate. These instruments are often subject to a SOFR or PRIME rate floor. |
| (3) | Aggregate net unrealized depreciation for U.S. federal income tax purposes is $120; aggregate gross unrealized appreciation and depreciation for U.S. federal tax purposes is $0 and $120, respectively, based on a tax cost of $7,498. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated. |
| * | Non-income producing security. |
Industry Classification | Percentage of Total Investments (at fair value) as of September 30, 2023 | |||
| Insurance | 49.6 | % | ||
| Health Care Providers & Services | 34.6 | % | ||
| Commercial Services & Supplies | 10.4 | % | ||
| Health Care Equipment & Supplies | 5.4 | % | ||
| Total Investments | 100.0 | % | ||
| (a) | Investment transactions are accounted for on the trade date; |
| (b) | In accordance with GAAP and the 1940 Act, the Company’s assets will generally be valued as follows: |
| (i) | securities or other instruments (other than as referred to in clauses (ii) and (iii) below) for which market quotes are readily available and deemed to represent fair value under GAAP will be valued based on quotes obtained from a quotation reporting system, market makers or pricing services (when deemed to represent fair value under GAAP); |
| (ii) | exchange-traded options, futures and options on futures will be valued at the settlement price determined by the exchange or through the use of a model such as Black-Scholes; |
| (iii) | short-term investments with maturities of sixty (60) days or less generally will be valued at amortized cost; and |
| (iv) | securities, loans or other instruments for which market quotes are not readily available or reliable under GAAP will be valued as described below: |
| a. | the quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of SLR responsible for the Portfolio Investment; |
| b. | preliminary valuation conclusions are then documented and discussed with senior management of the Adviser; |
| c. | the audit committee of the Board reviews the preliminary valuations of the Adviser and third-party valuation specialist, if any, that may from time to time be engaged by the Board, and responds to the valuation recommendations to reflect any comments; and |
| d. | the Board discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of the Adviser, the audit committee, and third-party valuation specialist, if any. |
| (c) | Gains or losses on investments are calculated by using the specific identification method. |
| (d) | The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned. |
| (e) | The Company intends to comply with the applicable provisions of the Code pertaining to RICs to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate. |
| (f) | Book and tax basis differences relating to Unitholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP. |
| (g) | Distributions to Unitholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. |
| (h) | In accordance with Regulation S-X and ASC Topic 810—Consolidation |
| (i) | The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against the U.S. dollar on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company. |
| (j) | In accordance with ASC 835-30, the Company reports origination and other expenses related to certain debt issuances, if any, as a direct deduction from the carrying amount of the debt liability. Applicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and/or when it approximates the effective yield method. |
| (k) | The Company records expenses related to applicable equity offering costs as a charge to capital upon the sale of units, in accordance with ASC 946-20-25. |
| (l) | Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Suchnon-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment. |
| (m) | The Company records expenses directly related to its organization as incurred. |
| (n) | The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents. |
| • | Pre-Exchange ListingPre-Exchange Listing Management Fee will be calculated as of the close of business on the last day of each calendar quarter in an amount equal to 1.50% per annum of Invested Capital (defined as, as of any date, the sum of (i) capital contributions to the Company used to make Portfolio Investments and (ii) the total amount of credit drawn on subscription or similarly structured credit facilities). |
| • | Post-Exchange Listing . Following an Exchange Listing, the Post-Exchange Listing Management Fee will be an amount equal to 1.50% per annum of the average value of the Company’s total assets at the end of the two most recently completed calendar quarters; provided, however, the Post-Exchange Listing Management Fee will be calculated at an annual rate of 1.00% of the average value of the Company’s total assets at the end of the two most recently completed calendar quarters that exceeds the product of (i) 200% and (ii) the value of the Company’s total net assets at the end of the immediately preceding calendar quarter. |
| (i) | Pre-Incentive Fee Net Investment Income. One part will be calculated and payable quarterly in arrears based on the net investment income for the immediately preceding calendar quarter. |
| a. | For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Post-Exchange Listing Management Fees, expenses payable under an administration agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Post-Exchange Listing Incentive Fee). |
| b. | Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 1.75% per quarter (7.00% annualized). The Company’sPre-Incentive Fee Net Investment Income used to calculate this part of the Post-Exchange Listing Incentive Fee is also included in the amount of its gross assets used to calculate the 1.50% Post-Exchange Listing Management Fees. |
| c. | The Company will pay the Adviser a Post-Exchange Listing Incentive Fee with respect to the Company’s Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: |
| i. | no Post-Exchange Listing Incentive Fee in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the quarterly hurdle rate of 1.75%; |
| ii. | 100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of suchPre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter (8.75% annualized); this portion of thePre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.1875%) is referred to herein as the“catch-up.” The“catch-up” is meant to provide the Adviser with 20% of the Company’sPre-Incentive Fee Net Investment Income as if a hurdle did not apply if thisPre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter; and |
| iii. | 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) payable to the Adviser (once the hurdle is reached and thecatch-up is achieved, 20% of allPre-Incentive Fee Net Investment Income thereafter is allocated to the Adviser). |
| a) | Quoted prices for similar assets or liabilities in active markets; |
| b) | Quoted prices for identical or similar assets or liabilities in non-active markets; |
| c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability; and |
| d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
| Bank Debt/Senior Secured Loans | $ | — | $ | — | $ | 7,375 | $ | 7,375 | ||||||||
| Warrants | — | — | 3 | 3 | ||||||||||||
| Total Investments | $ | — | $ | — | $ | 7,378 | $ | 7,378 | ||||||||
Bank Debt/Senior Secured Loans | Warrants | Total | ||||||||||
Fair value, June 30, 2023 | $ | 1,781 | $ | 3 | $ | 1,784 | ||||||
| Total gains or losses included in earnings: | ||||||||||||
| Net realized loss | — | — | — | |||||||||
| Net change in unrealized gain | 17 | — | 17 | |||||||||
Purchase of investment securities * | 5,588 | — | 5,588 | |||||||||
| Proceeds from dispositions of investment securities | (11 | ) | — | (11 | ) | |||||||
| Transfers into Level 3 | — | — | — | |||||||||
| Transfers out of Level 3 | — | — | — | |||||||||
Fair value, September 30, 2023 | $ | 7,375 | $ | 3 | $ | 7,378 | ||||||
| Unrealized gains for the period relating to those Level 3 assets that were still held by the Company at the end of the period: | ||||||||||||
| Net change in unrealized gain | $ | 17 | $ | — | $ | 17 | ||||||
Bank Debt/Senior Secured Loans | Warrants | Total | ||||||||||
Fair value, January 18, 2023 | $ | — | $ | — | $ | — | ||||||
| Total gains or losses included in earnings: | ||||||||||||
| Net realized loss | — | — | — | |||||||||
| Net change in unrealized gain | 16 | — | 16 | |||||||||
Purchase of investment securities * | 7,372 | 3 | 7,375 | |||||||||
| Proceeds from dispositions of investment securities | (13 | ) | — | (13 | ) | |||||||
| Transfers into Level 3 | — | — | — | |||||||||
| Transfers out of Level 3 | — | — | — | |||||||||
Fair value, September 30, 2023 | $ | 7,375 | $ | 3 | $ | 7,378 | ||||||
| Unrealized gains for the period relating to those Level 3 assets that were still held by the Company at the end of the period: | ||||||||||||
| Net change in unrealized gain | $ | 16 | $ | — | $ | 16 | ||||||
| * | Includes PIK capitalization and accretion of discount |
Asset or Liability | Fair Value at September 30, 2023 | Principal Valuation Technique/Methodology | Unobservable Input | Range (Weighted Average) | ||||||||
| Bank Debt / Senior Secured Loans | Asset | $ | 7,375 | Income Approach | Market Yield | 11.2% - 13.4% (12.5%) | ||||||
| Warrants | Asset | $ | 3 | Market Approach | Volatility | 17.8% - 17.8% (17.8%) | ||||||
September 30, 2023 | ||||
| Cerapedics, Inc. | $ | 2,340 | ||
| Human Interest, Inc. | 1,032 | |||
| CVAUSA Management, LLC | 948 | |||
| Alkeme Intermediary Holdings, LLC | 669 | |||
West-NR Parent, Inc. | 395 | |||
| Peter C. Foy & Associates Insurance Services, LLC | 378 | |||
| The Townsend Company, LLC | 279 | |||
| United Digestive MSO Parent, LLC | 273 | |||
| UVP Management, LLC | 265 | |||
| Vertos Medical, Inc. | 198 | |||
| Total Commitments | $ | 6,777 | ||
Three months ended September 30, 2023 | For the period January 18, 2023* to September 30, 2023 | |||||||
| Units at beginning of period | 120,000 | — | ||||||
| Units issued | 217,661 | 337,701 | ||||||
| Units canceled | — | (40 | ) | |||||
| Units issued and outstanding at end of period | 337,661 | 337,661 | ||||||
| * | Commencement of operations |
For the period January 18, 2023* to September 30, 2023 | ||||
| Per Share Data: (a) | ||||
| Net asset value per Unit, beginning of period | $ | — | ||
| Net investment loss | (8.17 | ) | ||
| Net realized and unrealized gain | 0.13 | |||
| Net decrease in Unitholders’ capital resulting from operations | (8.04 | ) | ||
| Issuance of units | 24.77 | ** | ||
| Offering costs | (0.62 | ) | ||
| Net asset value per Unit, end of period | $ | 16.11 | ||
| Total Return (b)(c) | (35.56 | %) | ||
| Unitholders’ capital, end of period | $ | 5,440 | ||
| Units outstanding, end of period | 337,661 | |||
| Ratios to average net assets of Unitholders’ Capital (c): | ||||
| Net investment loss | (40.58 | %) | ||
| Operating expenses | 33.82 | % | ||
| Interest and other credit facility expenses | 13.85 | % | ||
| Total expenses | 47.67 | % | ||
| Average debt outstanding | $ | 1,231 | ||
| Portfolio turnover ratio | 0.5 | % | ||
| (a) | Calculated using the average Units outstanding method. Weighted average units outstanding for the period March 31, 2023 (date of first sale of Units to Unitholders) through September 30, 2023 was 122,366. |
| (b) | Calculated as the change in net asset value (“NAV”) per Unit during the period plus distributions declared per Unit, divided by the beginning NAV per Unit. Total return does not include a sales load. The beginning NAV per unit was determined to be as of the date of the first sale of Units to Unitholders as management considers this to be the most meaningful disclosure for investors. |
| (c) | Not annualized for periods less than one year. Average net assets are calculated for the period March 31, 2023 (date of first sale of Units to Unitholders) through September 30, 2023. |
| * | Commencement of operations |
| ** | Includes the impact of the different Unit amounts used in calculating per Unit data as a result of calculating certain per Unit data based upon the weighted average Units outstanding during the period and certain per Unit data based on the Units outstanding as of a period end. |
| /s/ KPMG LLP |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about SLR Private Credit BDC II LLC, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| • | our future operating results, including our ability to achieve objectives; |
| • | our business prospects and the prospects of our portfolio companies; |
| • | the impact of investments that we expect to make; |
| • | 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 impact of any protracted decline in the liquidity of credit markets on our business; |
| • | the ability of our portfolio companies to achieve their objectives; |
| • | the valuation of our investments in portfolio companies, particularly those having no liquid trading market; |
| • | market conditions and our ability to access alternative debt markets and additional debt and equity capital; |
| • | our expected financings and investments; |
| • | the adequacy of our cash resources and working capital; |
| • | the timing of cash flows, if any, from the operations of our portfolio companies; |
| • | the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments; |
| • | the ability of our investment adviser to attract and retain highly talented professionals; |
| • | the ability of our investment adviser to adequately allocate investment opportunities among the Company and its other advisory clients; |
| • | any conflicts of interest posed by the structure of the management fee and incentive fee to be paid to the Adviser; |
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| • | changes in political, economic or industry conditions, relations between the United States, Russia, Ukraine and other nations, the interest rate environment or conditions affecting the financial and capital markets; |
| • | the escalating conflict in the Middle East; |
| • | changes in the general economy, slowing economy, rising inflation, risk of recession and risks in respect of a failure to increase the U.S. debt ceiling; and |
| • | our ability to anticipate and identify evolving market expectations with respect to environmental, social and governance matters, including the environmental impacts of our portfolio companies’ supply chains and operations. |
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| • | an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
| • | a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; |
| • | interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; |
| • | currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and |
| • | the risks, uncertainties and other factors we identify in Item 1A. Risk Factors contained in our Amendment No. 1 to our Form 10 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 (the “Form 10”), elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled “Item 1A. Risk Factors” and elsewhere in this report. These forward-looking statements apply only as of the date of this report. Moreover, we assume no duty and do not undertake to update the forward-looking statements.
The following analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
Overview
SLR Private Credit BDC II LLC (the “Company”, “we”, “us” or “our”) was formed as a limited liability company under the laws of the State of Delaware on April 18, 2022 as a closed-end, externally managed investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and intends to elect to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a BDC and a RIC, we are required to comply with certain regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, RIC asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.
SLR Capital Partners, LLC (the “Adviser” or “SLR”) serves as the Company’s investment adviser pursuant to an investment management agreement with the Company (as amended, restated or otherwise modified from time to time, the “Investment Management Agreement”). Subject to the overall supervision of the Company’s Board of Directors (the “Board”), the Adviser is responsible for managing the Company’s business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring our investments, and monitoring the Company’s portfolio companies on an ongoing basis through a team of investment professionals.
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Prior to the Company’s units (“Units”) being listed for trading on a national securities exchange (an “Exchange Listing”), the Adviser has also been appointed to provide administrative and coordination services to the Company (in such capacity, the “Administrative Coordinator”). The Administrative Coordinator supervises or provides the Company’s administrative services, including operational trade support, net asset value calculations, financial reporting, fund accounting and registrar and transfer agent services. The Administrative Coordinator also provides assistance to the Adviser in connection with communicating with investors and other persons with respect to the Company.
The Company is organized for investors who may invest through one or more investment funds created by one or more financial institutions unaffiliated with the Company (collectively, the “Access Fund”). Certain other investors may also invest directly in the Company. For those investors who invest through the Access Fund, we expect the Access Fund will issue a pro rata interest to each investor in the Access Fund (the “Access Fund LPs”) that, with respect to each Access Fund LP’s investment in the Access Fund, corresponds to such Access Fund LP’s pro rata share of the Units issued by the Company to the Access Fund. To purchase an interest in the Access Fund, each Access Fund LP will be required to represent that it is an “accredited investor” within the meaning of Rule 501(a) of Regulation D (an “Accredited Investor”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). To purchase Units, investors must be Accredited Investors and “qualified purchasers” for purposes of Section 3(c)(7) of the 1940 Act, or “knowledgeable employees” or companies owned exclusively by “knowledgeable employees” for purposes of the rules promulgated under the 1940 Act. Any sale of Units outside of the United States will be conducted in accordance with Regulation S under the Securities Act. We expect the Access Fund will pass its voting rights in respect of any Units of the Company held by the Access Fund through to the Access Fund LPs.
The Company’s principal focus is to invest in first lien senior secured floating rate loans primarily to upper-middle-market leveraged companies with EBITDA between approximately $25 million and $250 million that have significant free cash flow and are in non-cyclical industries in which the Adviser has significant experience (“Sponsor Finance”). Sponsor Finance loans are generally expected to have a five to six year final maturity and are often repaid within three years. In addition to Sponsor Finance loans, the Company intends to invest a significant portion of its assets in Specialty Finance (defined below) loans. The Company’s specialty finance investments will encompass asset-based lending (“ABL”) to asset-rich middle-market companies in a variety of industries, as well as to commercial finance companies, and life science lending (“Life Science Finance” and, together with ABL, “Specialty Finance”). ABL loans are secured by certain of the borrower’s assets as collateral and requires the lender to have highly specialized experience in collateral valuation and liquidation. The ABL loans are generally expected to have a five-year final maturity with a four to five year average duration. The ABL loans are often repaid within two years. The Life Science Finance loans generally are expected to have an initial interest-only period and then straight-line amortization with a four to five year final maturity. The Company expects to primarily invest in non-investment grade debt instruments. Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” or “junk” securities and may be considered “high risk” compared to debt instruments that are rated investment grade. The Company also expects that some of its investments will contain delayed-draw term loan type features (which is a legally binding commitment by the Company to fund additional term loans to a borrower in the future) and/or other types of unfunded commitments. The Company will seek to be a primary lender for portfolio companies by leveraging the significant capital base at SLR for co-investment opportunities where appropriate. The Company believes many financial sponsors and individual corporate management teams are looking for a single lender to provide the entire debt financing to streamline and simplify the debt negotiation process. The Company expects to co-invest with other vehicles managed by SLR including: (i) SLR Investment Corp. (Nasdaq: SLRC), a publicly traded BDC (“SLRC”), (ii) SCP Private Credit Income BDC LLC, a private BDC (“PCI BDC”), (iii) SLR HC BDC LLC, a private BDC (“HC BDC” and, together with SLRC and PCI BDC, the “SLR BDCs”) and (iv) various private funds and separately managed accounts (together with the SLR BDCs, the “SLR Funds”). The Company and the SLR Funds are under common control with SLR.
SLR has received an Order (defined below) that permits the Company to participate in negotiated co-investment transactions with certain affiliates. If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating basis. Thus, there can be no assurance
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that the Company will be able to co-invest with such other funds, including as a result of legal restrictions and contractual restrictions and, as a result, the Company may not be able to meet its investment objective. The Company believes the potential scale resulting from co-investments with vehicles managed by SLR will provide the Company a significant advantage to source loans over other lenders that do not have the capital base to provide the entire debt financing. The Company’s investments in portfolio companies are referred to herein as “Portfolio Investments”.
The Adviser believes the broad experience of its senior investment team is likely to enable the Adviser to successfully identify, assess and structure customized senior secured floating rate loans and to manage potential risks and returns at all stages of the economic cycle. As a private BDC, the Company will not be subject to many of the regulatory limitations that govern traditional lending institutions, such as banks. This lack of regulation allows the Company to be more flexible than regulated lending institutions in selecting and structuring investments, adjusting investment criteria, transaction structures and, in some cases, the types of securities in which the Company is expected to invest. The Adviser believes financial sponsors and management teams see this flexibility as a benefit, making it an attractive financing partner. The Adviser believes that this approach is likely to enable it to procure attractive investment opportunities throughout the economic cycle so that it can make investments consistent with its stated investment objective even during turbulent periods in the capital markets.
Moreover, the Company may opportunistically seek to acquire investments in the secondary market, typically sourced on a proprietary basis (i.e., not as a participant in auctions or similar processes), in certain volatile periods at attractive entry points. In analyzing such investments, the Company will employ the same analytical process it uses for its primary investments as well as any prior knowledge of the target company.
Under normal circumstances, the Company will invest at least 80% of its total assets (defined for purposes of this policy as net assets plus borrowings for investment purposes) after the Company’s portfolio is fully ramped-up in private credit investments (which the Company defines as loans, bonds, preferred stock and other credit instruments that are issued in private offerings or issued by private companies). If the Company changes this 80% test, the Company will provide unitholders of the Company (“Unitholders”) with at least 60 days’ prior notice of such change.
The Adviser will seek to create a predominantly floating rate investment portfolio for the Company. For the avoidance of doubt, any investment guidelines discussed in this Quarterly Report on Form 10-Q apply to a fully ramped-up portfolio of investments (i.e., after the Company has invested substantially all of the capital available to the Company in accordance with the Company’s investment strategy) and are based on total available capital including unfunded equity commitments from our Unitholders and total expected leverage, as reasonably determined by the Adviser. There is no guarantee that the Adviser will achieve any investment guidelines discussed in this Quarterly Report on Form 10-Q, or that even if achieved, an investment in the Company will result in gains to an investor. The Company will not be required to take any action (including unwinding or liquidating any position) in the event that such guideline is exceeded subsequent to the investment date, whether as a result of changes in the market value of the Company’s portfolio or otherwise.
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 and the Company may from time to time take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act.
Recent Developments
On October 20, 2023, the Company delivered a capital drawdown notice to its investor, the Access Fund, relating to the sale of approximately 214 thousand of the Company’s Units, for an aggregate offering price of $3.4 million. The sale closed on November 3, 2023.
The sale of Units is being made pursuant to a subscription agreement (the “Subscription Agreement”) and the amended and restated limited liability company agreement (the “LLC Agreement”) entered into by the Company and the Access Fund. Under the terms of the Subscription Agreement and the LLC Agreement, the Access Fund is required to fund drawdowns to purchase Units up to the amount of its capital commitment on an as-needed basis with a minimum of 10 business days’ prior notice to the Access Fund.
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The issuance and sale of the Units are exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
Revenues
The Company generates revenue primarily in the form of interest income from the securities it holds and capital gains, if any, on investment securities that it may sell. Our debt investments typically bear interest at a floating rate usually determined on the basis of a benchmark Secured Overnight Financing Rate (“SOFR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly. We may also generate revenue in the form of commitment, origination, structuring fees, and fees for providing managerial assistance.
The Company’s principal focus is to invest in Sponsor Finance loans which will encompass first lien senior secured floating rate loans primarily to upper middle market leveraged companies with EBITDA between approximately $25 million and $250 million that have significant free cash flow and are in non-cyclical industries in which the Adviser has significant experience. In addition to Sponsor Finance loans, the Company intends to invest a significant portion of its assets in Specialty Finance loans. The Company’s Specialty Finance investments will encompass ABL to asset-rich middle market companies in a variety of industries, as well as to commercial finance companies, and Life Science Finance. ABL loans are secured by certain of the borrower’s assets as collateral and requires the lender to have highly specialized experience in collateral valuation and liquidation. The Company will seek to leverage the significant capital base of the SLR platform to co-invest alongside other SLR managed investment vehicles enabling the Company to participate in larger, more attractive upper-middle-market financings and have more control over structuring through greater ownership of a financing tranche.
Expenses
The Company (directly or indirectly) bears:
| (i) | all of its fees, costs, expenses and liabilities, all of its investment-related fees, costs, expenses and liabilities (including with respect to amounts incurred prior to the Company’s initial closing) and all of its other operating fees, costs, expenses and liabilities, including all fees, due diligence costs and other fees, costs, expenses and liabilities related to the identification, sourcing, evaluation, pursuit, acquisition, holding, appraisals, asset management, restructuring and disposing of investments, including all reasonable travel-related fees, costs, expenses and liabilities, including lodging and meals, all fees, costs, expenses and liabilities of legal counsel and financial and other advisers incurred in connection therewith, all fees, costs, expenses and liabilities of information technology services relating to the ongoing management of investments, and all other investment-related fees, costs, expenses and liabilities (to the extent not reimbursed by the relevant portfolio company); |
| (ii) | all fees, costs, expenses and liabilities related to any audits or agreed upon procedures, tax forms and return preparations and filings, custodian fees and expenses, fund accounting, administrator services, financial statement preparation and reporting, web services for the benefit of Unitholders, delivery costs and expenses in connection with reporting obligations and communications and compliance services; |
| (iii) | all fees, costs, expenses and liabilities relating to insurance policies (including director and officer liability insurance) maintained by or for the Company, including in respect of Portfolio Investments and/or personnel of the Adviser, the Adviser in its capacity as Administrative Coordinator and their affiliates; |
| (iv) | other administrative fees, costs, and liabilities; |
| (v) | all fees, costs, expenses and liabilities of brokers, transaction finders and other intermediaries, including brokerage commissions and spreads, and all other transaction-related fees, costs, expenses and liabilities, including reverse break-up fees; |
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| (vi) | all fees, costs, expenses and liabilities relating to derivatives and hedging transactions; |
| (vii) | all principal amounts of, and interest expense on, borrowings and guarantees, and all other fees, costs, expenses and liabilities arising out of borrowings and guarantees, including the arranging and maintenance thereof, whether incurred by the Company or incurred or facilitated by a special purpose vehicle that makes Portfolio Investments; |
| (viii) | management fees and incentive fees; |
| (ix) | administration expenses; |
| (x) | all fees, costs, expenses and liabilities incurred through the use or engagement of service providers; |
| (xi) | all taxes, fees, penalties and other governmental charges levied against the Company and all fees, costs, expenses, penalties and liabilities related to tax compliance; |
| (xii) | all fees, costs, expenses and liabilities of the Company’s legal counsel related to extraordinary matters, including expenses for any dispute resolution (including litigation and regulatory-related legal expenses); |
| (xiii) | all fees, costs, expenses and liabilities relating to legal, governance and regulatory compliance and filings, including securities law filings relating to Portfolio Investments; |
| (xiv) | all fees, costs, expenses and liabilities related to the Company’s indemnification or contribution obligations; |
| (xv) | all fees, costs, expenses and liabilities for subscription services (to the extent such subscription is required by a placement agent); |
| (xvi) | any required regulatory filings and related legal fees; |
| (xvii) | all fees, costs, expenses and liabilities related to liquidating the Company; |
| (xviii) | transfer agent services; |
| (xix) | any other fees, costs, expenses and liabilities not specifically assumed by the Adviser or the Administrative Coordinator; |
| (xx) | all fees, costs, expenses and liabilities of the independent directors, including resources retained by the independent directors, or on their behalf, while representing and/or acting on behalf of all Unitholders; and |
| (xxi) | all fees, costs, expenses and liabilities related to an exchange listing (including any transactions effectuated in connection therewith) or other business combination. |
In addition, prior to an Exchange Listing, the aggregate amount of the operating expenses relating to Unitholders investing directly in the Company set forth in clauses (ii)-(iv) and the operating expenses included in clauses (xiii) and (xvi) related to U.S. regulatory bodies above borne by the Company (directly or indirectly) will not exceed the following limits in any fiscal year: (A) if the Company has less than or equal to $400 million in capital commitments (“Commitments”), an amount equal to the sum of (x) the product of the Commitments and 0.0025 and (y) $1.25 million, or (B) if the Company has greater than $400 million in Commitments, $2.25 million (such figure, the “Operating Expense Cap”). Any amount in excess of the Operating Expense Cap for any fiscal year will be paid by the Adviser. Solely by way of example, if Commitments equal $350 million, the Operating Expense Cap will be equal to $2.125 million. For the avoidance of doubt, (i) the Operating Expense Cap will not apply to any fees, costs, expenses and liabilities allocable to persons investing indirectly in the Company through any Unitholder or in connection with (xxi) above, (ii) the Company will not bear the costs of any third-party valuation agent engaged solely for purposes of valuing the Portfolio Investments at each quarter end and (iii) the Operating Expense Cap will no longer apply upon the effectuation of an Exchange Listing.
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The Adviser or Administrative Coordinator and/or their affiliates may advance to the Company organizational fees, costs, expenses and liabilities of the Company, including legal expenses, incurred in connection with the initial offering of Units and the formation and establishment of the Company (the “Organizational Expenses”). The Adviser or Administrative Coordinator (or such affiliate) will be reimbursed by the Company for such advanced expenses in an amount not to exceed $0.5 million. The Company will be responsible for and pay (or reimburse) the Organizational Expenses subject to the cap described in the preceding sentence. Accordingly, $0.1 million of offering expenses were charged to capital and $0.1 million of organizational costs were expensed in the period ended September 30, 2023.
Portfolio and Investment Activity
During the three months ended September 30, 2023, we invested $5.6 million across 7 portfolio companies. Investments sold or prepaid during the three months ended September 30, 2023 were de minimis.
At September 30, 2023, our portfolio consisted of 9 portfolio companies and was invested >99.9% directly in senior secured loans and <0.1% in warrants, in each case, measured at fair value.
At September 30, 2023, 100% of our income producing investment portfolio was floating rate, measured at fair value.
Critical Accounting Policies
The preparation of the financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) will require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods covered by such financial statements. Actual results could materially differ from those estimates, which the Company will evaluate on an ongoing basis. The Company has identified the following items as critical accounting policies. The Company will disclose these and any other critical accounting policies in the notes to its future financial statements.
Valuation of Portfolio Investments
In December 2020, the SEC adopted new Rule 2a-5 under the 1940 Act addressing fair valuation of fund investments. The new rule sets forth requirements for good faith determinations of fair value, as well as for the performance of fair value determinations, including related oversight and reporting obligations. The new rule also defines “readily available market quotations” for purposes of the definition of “value” under the 1940 Act, and the SEC noted that this definition will apply in all contexts under the 1940 Act. The Company complies with Rule 2a-5’s valuation requirements.
The Company conducts the valuation of its assets, pursuant to which the Company’s net asset value (the “NAV”) is determined, at all times consistent with GAAP and the 1940 Act. The Board will (1) periodically assess and manage valuation risks; (2) establish and apply fair value methodologies; (3) test fair value methodologies; (4) oversee and evaluate third-party pricing services, as applicable; (5) oversee the reporting required by Rule 2a-5 under the 1940 Act; and (6) maintain recordkeeping requirements under Rule 2a-5.
It is anticipated that in respect of many of the Company’s assets, readily available market quotations will not be obtainable and that such assets will be valued at fair value. A market quotation is readily available for a security only when that quotation is a quoted price (unadjusted) in active markets for identical investments that the Company can access at the measurement date, provided that a quotation will not be readily available if it is not reliable. If the Company anticipates using a market quotation for a security, it will also monitor for circumstances that may necessitate the use of fair value, such as significant events that may cause concern over the reliability of a market quotation.
For purposes of calculating the NAV, the Company’s assets will generally be valued as described in Note 2(b) to the Company’s Financial Statements.
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Hedging
We may, but are not required to, enter into interest rate, foreign exchange or other derivative agreements to hedge interest rate, currency, credit or other risks, but we do not generally intend to enter into any such derivative agreements for speculative purposes. Any derivative agreements entered into for speculative purposes are not expected to be material to the Company’s business or results of operations. These hedging activities, which will be in compliance with applicable legal and regulatory requirements, may include the use of futures, options and forward contracts. We will bear the costs incurred in connection with entering into, administering and settling any such derivative contracts. There can be no assurance any hedging strategy we employ will be successful.
Leverage
The Company is required to comply with the asset coverage requirements of the 1940 Act. The Company expects to employ leverage and otherwise expects to incur indebtedness with respect to its portfolio both on a recourse and non-recourse basis (including and potentially through guarantees, derivatives, forward commitments and reverse repurchase agreements), but will not exceed the maximum amount permitted by the 1940 Act. The Company is generally permitted, under specified conditions, to issue senior securities in amounts such that the Company’s asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after such issuance. In connection with the organization of the Company, the Adviser, as the initial Unitholder, has authorized the Company to adopt the 150% asset coverage ratio. In connection with their subscriptions for Units, our Unitholders are required to acknowledge the Company’s ability to operate with an asset coverage ratio that may be as low as 150%. The Company (either directly or through a wholly-owned subsidiary) may borrow under a commitment-based subscription credit facility and/or a revolving credit facility that is secured by the Company’s assets and, as a result, the Company will be exposed to the risks of leverage, which may be considered a speculative investment technique. See “Financial Condition, Liquidity and Capital Resources Debt” below for more information regarding the Company’s commitment-based subscription credit facility. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to the Adviser, will be borne by our Unitholders. As of September 30, 2023, the Company had $5.7 million of senior securities, for an asset coverage ratio of 195.4%.
Subsidiaries
If we form a wholly-owned subsidiary through which we make any investments, we expect such subsidiary would be organized as a corporation or limited liability company and would not be registered under the 1940 Act. Such subsidiaries may be formed to obtain favorable tax benefits or to obtain financing on favorable terms due to their bankruptcy-remote characteristics. The Board has oversight responsibility for the Company’s investment activities, including the Company’s investment in any subsidiary, and the Company’s role as sole stockholder of any subsidiary. To the extent applicable to the investment activities of a subsidiary, the subsidiary would follow the same compliance policies and procedures as the Company. The Company would “look through” any such subsidiary to determine compliance with its investment policies, and would generally expect to consolidate any such wholly-owned subsidiary for purposes of the Company’s financial statements and compliance with the 1940 Act. Furthermore, the Company intends to comply with the current requirements under the Code and U.S. Treasury regulations for income derived from the Company’s investment in the subsidiary to be treated as “qualifying income” from which a RIC must derive at least 90% of its annual gross income.
Taxation as a Regulated Investment Company
The Company intends to elect to be treated as a RIC under Subchapter M of the Code and intends to qualify for taxation as a RIC annually thereafter. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it timely distributes to Unitholders as dividends. In order to qualify for taxation as a RIC, the Company is required, among other things, to be diversified at each quarter end and to timely distribute to its Unitholders at least 90% of investment company taxable income, as defined by the Code, for each year. There is no guarantee the Company will be able to maintain its status as a RIC. Depending on the level of taxable income earned in a given tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company will accrue an estimated excise tax, if any, on estimated excess taxable income.
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Results of Operations
Results are shown for the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023:
Investment Income
For the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023, gross investment income totaled $0.1 million and $0.2 million, respectively.
Expenses
Expenses totaled $0.5 million and $1.2 million, respectively, for the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023, of which $48 thousand and $59 thousand, respectively, were management fees and administration fees and $187 thousand and $341 thousand, respectively, were interest and other credit facility expenses. Administrative services, organization and other general and administrative expenses totaled $215 thousand and $774 thousand, respectively, for the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023. Expenses generally consist of management fees, administration fees, performance-based incentive fees, administrative services fees, insurance, legal expenses, directors’ expenses, audit and tax expenses and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others.
Net Investment Loss
The Company’s net investment loss totaled $0.3 million and $1.0 million, or $2.55 and $8.17 per average unit, respectively, for the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023.
Net Realized Loss
The Company’s investment sales and prepayments for the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023 were de minimis. Net realized loss over the same periods was de minimis.
Net Change in Unrealized Gain
For the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023, net change in unrealized gain on the Company’s assets totaled $17 thousand and $16 thousand, respectively. Net unrealized gain for both measurement periods was primarily due to appreciation on our investment in United Digestive MSO Parent, LLC.
Net Decrease in Unitholders’ Capital Resulting From Operations
For the three months ended September 30, 2023 and the period January 18, 2023 (commencement of operations) to September 30, 2023, the Company had a net decrease in Unitholders’ capital resulting from operations of $302 thousand and $984 thousand, respectively. For the same periods, loss per average unit was $2.42 and $8.04, respectively.
Financial Condition, Liquidity and Capital Resources
Our primary uses of cash are for (i) investments in portfolio companies and other investments to comply with certain portfolio RIC diversification requirements, (ii) the cost of operations (including paying the Adviser), (iii) debt service of any borrowings, and (iv) cash distributions to our Unitholders.
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Equity
During the period January 18, 2023 (commencement of operations) to September 30, 2023, on a net basis, the Company sold and issued 337,661 common units at an average price of $19.25 per unit, for net proceeds of $6.5 million. All of our outstanding units were issued and sold in reliance upon the available exemptions from registration requirements of Section 4(a)(2) of the Securities Act. Unfunded equity capital commitments totaled $60.3 million at September 30, 2023.
Debt
Subscription Facility—On March 20, 2023, the Company established the $25 million Subscription Facility with ING Capital LLC as administrative agent and lender. The stated interest rate on the Subscription Facility is SOFR plus 2.75-3.00% and the current stated maturity date is March 20, 2025. Under the terms of the Subscription Facility, the Company has made certain customary representations and warranties and is required to comply with various covenants, including reporting requirements and other customary requirements for similar credit facilities. The Subscription Facility also includes usual and customary events of default for credit facilities of this nature. As of September 30, 2023, there $5.7 million of borrowings outstanding under the Subscription Facility.
Cash Equivalents
We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, from time-to-time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our credit facilities, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded for purposes of computing the asset base upon which the management fee is determined. We held a face amount of $3 million of cash equivalents as of September 30, 2023.
Contractual Obligations
We have entered into certain contracts under which we have material future commitments. We have entered into the Investment Management Agreement with the Adviser in accordance with the 1940 Act. Pursuant to the Investment Management Agreement we have entered into with the Adviser, we intend to pay the Adviser certain management and incentive fees prior to and following an Exchange Listing. Prior to an Exchange Listing, we intend to pay the Adviser, in its capacity as Administrative Coordinator, the Pre-Exchange Listing Administration Fee for administrative and coordination services. Following an Exchange Listing, the Company intends to enter into a separate administration agreement with an affiliate pursuant to which administrative services would be provided to the Company, as described further below. The Pre-Exchange Listing Administration Fee will not offset any fees paid to the Adviser. Under the Investment Management Agreement, prior to an Exchange Listing, the Administrative Coordinator may engage or delegate certain administrative functions to third parties or affiliates on behalf of the Company. The Administrative Coordinator will be responsible for all expenses of its own staff responsible for (i) certain on-going, routine, non-investment-related administrative services for the Company, (ii) the coordination of various third-party services needed or required by the Company, and (iii) certain Unitholder servicing functions.
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A summary of our significant contractual payment obligations is as follows as of September 30, 2023:
Payments due by Period as of September 30, 2023 (dollars in millions) | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
Subscription Facility (1) | $ | 5.7 | $ | — | $ | 5.7 | $ | — | $ | — | ||||||||||
| (1) | At September 30, 2023, we had a total of $19.3 million of unused borrowing capacity under our Subscription Facility, subject to borrowing base limits. |
If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under the Investment Management Agreement. Any new investment advisory agreement would also be subject to approval by our Unitholders.
Off-Balance Sheet Arrangements
From time-to-time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company’s liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded capital commitments at September 30, 2023:
| September 30, 2023 | ||||
(in millions) | ||||
Cerapedics, Inc. | $ | 2.3 | ||
Human Interest, Inc. | 1.0 | |||
CVAUSA Management, LLC | 0.9 | |||
Alkeme Intermediary Holdings, LLC | 0.7 | |||
West-NR Parent, Inc. | 0.4 | |||
Peter C. Foy & Associates Insurance Services, LLC | 0.4 | |||
The Townsend Company, LLC | 0.3 | |||
United Digestive MSO Parent, LLC | 0.3 | |||
UVP Management, LLC | 0.3 | |||
Vertos Medical, Inc. | 0.2 | |||
|
| |||
Total Commitments | $ | 6.8 | ||
The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the respective portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of September 30, 2023, the Company had sufficient cash available and/or liquid securities available to fund its commitments and had reviewed them for any appropriate fair value adjustment.
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Related Parties
We have entered into the Investment Management Agreement with the Adviser pursuant to which we will pay management fees, administrative coordinator fees and incentive fees to the Adviser. The Board held a virtual meeting on August 2, 2022 to consider and approve the Investment Management Agreement and related matters. In reliance on certain exemptive relief provided by the SEC, the Board undertook to ratify the Investment Management Agreement at its next in-person meeting. Subject to certain restrictions, the Investment Management Agreement will remain in effect for a period of two years from January 27, 2023, the date it first became effective, and will remain in effect from year to year thereafter if approved annually by a majority of the Board, including a majority of independent directors, or by the holders of a majority of our outstanding voting securities until terminated by the Company, or by the Adviser, upon 60 days’ prior written notice.
Michael S. Gross, our Chairman, Co-Chief Executive Officer and President and Bruce Spohler, our Co-Chief Executive Officer, Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial and controlling interests in, the Adviser. In addition, Shiraz Y. Kajee, our Chief Financial Officer and Treasurer serves as the Chief Financial Officer for the Adviser. The Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Adviser presently serves as investment adviser to SLR Investment Corp., a publicly traded BDC, which focuses on investing in senior secured loans, including financing leases and to a lesser extent, unsecured loans and equity securities. In addition, Mr. Gross, our Chairman, Co-Chief Executive Officer and President, Mr. Spohler, our Co-Chief Executive Officer and Chief Operating Officer, and Mr. Kajee, our Chief Financial Officer, serve in similar capacities for SLR Investment Corp., SCP Private Credit Income BDC LLC and SLR HC BDC LLC. The Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Adviser’s allocation procedures. On June 13, 2017, the Adviser received an exemptive order that permits the Company to participate in negotiated co-investment transactions with certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the “Order”). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating basis. Although the Adviser’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its Unitholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Adviser. In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware Limited Liability Company Act.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. Uncertainty with respect to rising interest rates, inflationary pressures, risks in respect of a failure to increase the U.S. debt ceiling or a downgrade in the U.S. credit rating, the wars between Ukraine and Russia and health epidemics and pandemics introduced significant volatility in the financial markets, and the effects of this volatility have materially impacted and could continue to materially impact our market risks. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In a low interest rate environment, including a reduction of SOFR to zero, the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest bearing liabilities may be compressed, reducing our net interest income and potentially adversely affecting our operating results. Conversely, in a rising interest rate environment, such as the current economic environment, such difference could potentially increase thereby increasing our net investment income. During the period January 18, 2023 (commencement of operations) to September 30, 2023, certain investments in our investment portfolio had floating interest rates. These floating rate investments were primarily based on floating SOFR and typically have durations of one to three months after which they reset to current market interest rates. Additionally, some of these investments have floors. The Company also has revolving credit facilities that are generally based on floating SOFR. Assuming no changes to our balance sheet as of September 30, 2023 and no new defaults by portfolio companies, a
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hypothetical one percent decrease in SOFR on our comprehensive floating rate assets and liabilities would decrease our net investment income by approximately four cents per average unit over the next twelve months. Assuming no changes to our balance sheet as of September 30, 2023 and no new defaults by portfolio companies, a hypothetical one percent increase in SOFR on our comprehensive floating rate assets and liabilities would increase our net investment income by approximately five cents per average unit over the next twelve months. However, we may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options, swaps and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in any benefits of certain changes in interest rates with respect to our portfolio of investments. At September 30, 2023, we have no interest rate hedging instruments outstanding on our balance sheet.
Increase (Decrease) in SOFR | (1.00 | %) | 1.00 | % | ||||
Increase in Net Investment Income Per Unit Per Year | $ | (0.04 | ) | $ | 0.05 |
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2023 (the end of the period covered by this report), our management, including our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the Co-Chief Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b) Changes in Internal Controls Over Financial Reporting
Management has not identified any change in the Company’s internal control over financial reporting that occurred during the third quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations beyond what has been disclosed within these financial statements.
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Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in our Form 10, which could materially affect our business, financial condition and/or operating results. The risks described in our Form 10 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. Other than the risk factors below, there have been no material changes during the period ended September 30, 2023 to the risk factors discussed in “Risk Factors” in the Form 10.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could have a material adverse effect on us, the Adviser and our portfolio companies.
Cash not held in custody accounts and held by us, our Adviser and by our portfolio companies in non-interest-bearing and interest-bearing operating accounts could, at times, exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. If such banking institutions were to fail, we, our Adviser, or our portfolio companies could lose all or a portion of those amounts held in excess of such insurance limits. In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems, which could adversely affect our, our Adviser’s and our portfolio companies’ business, financial condition, results of operations, or prospects.
Although we and our Adviser assess our and our portfolio companies’ banking and financing relationships as we believe necessary or appropriate, our and our portfolio companies’ access to funding sources and other credit arrangements in amounts adequate to finance or capitalize current and projected future business operations could be significantly impaired by factors that affect the financial institutions with which we, our Adviser or our portfolio companies have arrangements directly or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we, our Adviser or our portfolio companies have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us, our Adviser, or our portfolio companies to acquire financing on acceptable terms or at all.
The alternative reference rates that have replaced LIBOR in our credit arrangements and other financial instruments may not yield the same or similar economic results as LIBOR over the life of such transactions.
The London Interbank Offered Rate (“LIBOR”) is an index rate that historically was widely used in lending transactions and was a common reference rate for setting the floating interest rate on private loans. LIBOR was typically the reference rate used in floating-rate loans extended to our portfolio companies.
The ICE Benchmark Administration (“IBA”) (the entity that is responsible for calculating LIBOR) ceased providing overnight, one, three, six and twelve months USD LIBOR tenors on June 30, 2023. In addition, the United Kingdom’s Financial Conduct Authority (“FCA”), which oversees the IBA, now prohibits entities supervised by the FCA from using LIBORs, including USD LIBOR, except in very limited circumstances.
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In the United States, SOFR is the preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. SOFR is published by the Federal Reserve Bank of New York each U.S. Government Securities Business Day, for transactions made on the immediately preceding U.S. Government Securities Business Day. Alternative reference rates that may replace LIBOR, including SOFR for USD transactions, may not yield the same or similar economic results as LIBOR over the lives of such transactions.
As of the filing date of this Quarterly Report on Form 10-Q, many of our loans that referenced LIBOR have been amended to reference the forward-looking term rate published by CME Group Benchmark Administration Limited based on SOFR (“CME Term SOFR”) or CME Term SOFR plus a fixed spread adjustment. CME Term SOFR rates are forward-looking rates that are derived by compounding projected overnight SOFR rates over one, three, and six months taking into account the values of multiple consecutive, executed, one-month and three-month CME Group traded SOFR futures contracts and, in some cases, over-the-counter SOFR Overnight Indexed Swaps as an indicator of CME Term SOFR reference rate values. CME Term SOFR and the inputs on which it is based are derived from SOFR. Since CME Term SOFR is a relatively new market rate, there will likely be no established trading market for credit agreements or other financial instruments when they are issued, and an established market may never develop or may not be liquid. Market terms for instruments referencing CME Term SOFR rates may be lower than those of later-issued CME Term SOFR indexed instruments. Similarly, if CME Term SOFR does not prove to be widely used, the trading price of instruments referencing CME Term SOFR may be lower than those of instruments indexed to indices that are more widely used. Further, the composition and characteristics of SOFR and CME Term SOFR are not the same as those of LIBOR. Even with the application of a fixed spread adjustment, LIBOR and CME Term SOFR will not have the same composition and characteristics, and there can be no assurance that the replacement rate, as so adjusted, will be a direct substitute for LIBOR.
There can be no guarantee that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in loans referencing SOFR. If the manner in which SOFR or CME Term SOFR is calculated is changed, that change may result in a reduction of the amount of interest payable on such loans and the trading prices of the SOFR Loans. In addition, there can be no guarantee that loans referencing SOFR or CME Term SOFR will continue to reference those rates until maturity or that, in the future, our loans will reference benchmark rates other than CME Term SOFR. Should any of these events occur, our loans, and the yield generated thereby, could be affected. Specifically, the anticipated yield on our loans may not be fully realized and our loans may be subject to increased pricing volatility and market risk.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
There were no unregistered sales of equity securities other than those already disclosed in certain Form 8-Ks filed with the SEC.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 6. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
| 3.1 |
| 3.2 |
| 4.1 |
| 10.1 | Investment Management Agreement with SLR Capital Partners, LLC(2) |
| 10.2 |
| 10.3 | Custodial Services Election Agreement by and between the Company and Citibank, N.A.(2) |
| 10.4 |
| 31.1 |
| 31.2 |
| 31.3 |
| 32.1 |
| 32.2 |
| 32.3 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded with the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
| 104 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| * | Filed herewith. |
| (1) | Previously filed as an exhibit to the Registrant’s Registration Statement on Form 10 (File No. 000-56518) filed with the SEC on February 1, 2023. |
| (2) | Previously filed as an exhibit to Amendment No. 1 to the Registrant’s Registration Statement on Form 10 (File No. 000-56518) filed with the SEC on March 31, 2023. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 7, 2023.
| SLR PRIVATE CREDIT BDC II LLC | ||
| By: | /s/ MICHAEL S. GROSS | |
Michael S. Gross Co-Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ BRUCE J. SPOHLER | |
Bruce J. Spohler Co-Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ SHIRAZ Y. KAJEE | |
Shiraz Y. Kajee Chief Financial Officer (Principal Financial and Accounting Officer) |
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