N-2
N-2 | Jul. 17, 2024 USD ($) shares | |
Cover [Abstract] | ||
Entity Central Index Key | 0001998043 | |
Amendment Flag | false | |
Document Type | 424B1 | |
Entity Registrant Name | Pearl Diver Credit Co Inc. | |
Fee Table [Abstract] | ||
Shareholder Transaction Expenses [Table Text Block] | Stockholder Transaction Expenses ( as a percentage of the offering price Sales load 0.00 % (1) Offering expenses 0.00 % (2) Dividend reinvestment plan expenses 0.00 % (3) Total stockholder transaction expenses 0.00 % | |
Sales Load [Percent] | 0% | [1] |
Dividend Reinvestment and Cash Purchase Fees | $ | $ 0 | [2] |
Underwriters Compensation [Percent] | 0% | |
Other Transaction Expenses [Abstract] | ||
Other Transaction Expenses [Percent] | 0% | [3] |
Annual Expenses [Table Text Block] | Annual Expenses (as a percentage of net assets attributable to common stock): Base management fee 1.75 % (4) Incentive fee 0.00 % (5) Interest payments on borrowed funds 1.42 % (6) Other expenses 1.00 % Total annual expenses 4.17 % 1 The Adviser or its affiliates will pay the full amount of the sales load of $1.40 per share of common stock issued in connection with this offering (excluding shares sold to our board of directors, the Adviser, its affiliates, employees of the Adviser and its affiliates and certain other persons if agreed with the underwriters, for which the sales load is $0.60 per share) which, assuming the issuance of 2,200,000 shares in connection with this offering, is expected to amount to approximately $3,080,000. Because the sales load is paid solely by the Adviser or its affiliates (and not by us), it is not reflected in the table above and will not reduce the NAV per share of our common stock. See “ Underwriting 2 The Adviser and its affiliates will pay the aggregate organizational and offering expenses. 3 The expenses of administering the DRIP are included in “other expenses.” If a participant elects by written notice to the plan administrator prior to termination of his or her account to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $0.03 per share brokerage trading fee from the proceeds. See “ Dividend Reinvestment Plan 4 We have agreed to pay the Adviser as compensation under the Investment Advisory Agreement a base management fee at an annual rate of 1.50% which is calculated and payable quarterly in arrears based on our Total Equity Base. “Total Equity Base” means the net asset value attributable to the limited liability company interests or common stock, as appliable, (prior to the application of the base management fee or incentive fee) and the paid-in or stated capital of the preferred interests in the Company (howsoever called), if any. The figure shown in the table above reflects our assumption that we incur leverage in an amount equal to approximately 25% of our total assets (as determined immediately after the leverage is incurred). These base management fees are indirectly borne by holders of our common stock and are not borne by the holders of preferred stock, if any, or the holders of any other securities that we may issue. See “ The Adviser and the Administrator — Investment Advisory Agreement — Base Management Fee and Incentive Fee 4 We have agreed to pay the Adviser as compensation under the Investment Advisory Agreement a base management fee at an annual rate of 1.50% which is calculated and payable quarterly in arrears based on our Total Equity Base. “Total Equity Base” means the net asset value attributable to the limited liability company interests or common stock, as appliable, (prior to the application of the base management fee or incentive fee) and the paid-in or stated capital of the preferred interests in the Company (howsoever called), if any.The figure shown in the table above reflects our assumption that we incur leverage in an amount equal to approximately 25% of our total assets (as determined immediately after the leverage is incurred). These base management fees are indirectly borne by holders of our common stock and are not borne by the holders of preferred stock, if any, or the holders of any other securities that we may issue. See “ The Adviser and the Administrator — Investment Advisory Agreement — Base Management Fee and Incentive Fee. 5 We have agreed to pay the Adviser as compensation under the Investment Advisory Agreement a quarterly incentive fee equal to 15% of our Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter, subject to a quarterly preferred return, or hurdle, of 2.00% (8.00% annualized) and a catch-up feature. Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. No incentive fee is payable to the Adviser on capital gains whether realized or unrealized. The incentive fee is paid to the Adviser as follows: • no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed 2.00%; • 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.35294% in any calendar quarter (9.42% annualized). We refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.35294%) as the “catch-up.” The “catch-up” is meant to provide the Adviser with 15% of our Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or exceeds 2.35294% in any calendar quarter; and • 15% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.35294% in any calendar quarter (9.42% annualized) is payable to the Adviser (that is, once the hurdle is reached and the catch-up is achieved, 15% of all Pre-Incentive Fee Net Investment Income thereafter is paid to the Adviser). For a more detailed discussion of the calculation of this fee, see “ The Adviser and the Administrator — Investment Advisory Agreement — Base Management Fee and Incentive Fee 5 We have agreed to pay the Adviser as compensation under the Investment Advisory Agreement a quarterly incentive fee equal to 15% of our Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter, subject to a quarterly preferred return, or hurdle, of 2.00% (8.00% annualized) and a catch-up feature. Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. No incentive fee is payable to the Adviser on capital gains whether realized or unrealized. The incentive fee is paid to the Adviser as follows: • no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed 2.00%; • 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.35294% in any calendar quarter (9.42% annualized). We refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.35294%) as the “catch-up.” The “catch-up” is meant to provide the Adviser with 15% of our Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or exceeds 2.35294% in any calendar quarter; and • 15% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.35294% in any calendar quarter (9.42% annualized) is payable to the Adviser (that is, once the hurdle is reached and the catch-up is achieved, 15% of all Pre-Incentive Fee Net Investment Income thereafter is paid to the Adviser). 6 This assumes that we incur borrowings or issue preferred stock or debt securities in an amount equal to approximately 25% of our total assets (as determined immediately after the leverage is incurred) with an assumed interest rate of 8.5% per annum, based on current market rates. | |
Management Fees [Percent] | 1.75% | [4] |
Interest Expenses on Borrowings [Percent] | 1.42% | [5] |
Incentive Fees [Percent] | 0% | [6] |
Other Annual Expenses [Abstract] | ||
Other Annual Expenses [Percent] | 1% | |
Total Annual Expenses [Percent] | 4.17% | |
Expense Example [Table Text Block] | The following example is furnished in response to the requirements of the SEC and illustrates the various costs and expenses that you would pay, directly or indirectly, on a $1,000 investment in shares of our common stock for the time periods indicated, assuming (1) combined offering expenses of 0%, (2) total annual expenses of 4.17% of net assets attributable to our common stock for year 1 of operations and 5.83% for following years assuming that 25% leverage is incurred for the full year starting from year 2, and (3) a 5% net annual return:* 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment, assuming a 5% annual return $ 42 $ 167 $ 306 $ 717 * The example should not be considered a representation of future returns or expenses, and actual returns and expenses may be greater or less than those shown. The example assumes that the estimated “other expenses” set forth in the Annual Expenses table are accurate, and that all dividends and distributions are reinvested at NAV. In addition, because the example assumes a 5% annual return, the example does not reflect the payment of the incentive fee which would either not be payable or would have an insignificant impact on the expense amounts shown above. Our actual rate of return may be greater or less than the hypothetical 5% return shown in the example. | |
Expense Example, Year 01 | $ | $ 42 | [7] |
Expense Example, Years 1 to 3 | $ | 167 | [7] |
Expense Example, Years 1 to 5 | $ | 306 | [7] |
Expense Example, Years 1 to 10 | $ | $ 717 | [7] |
Purpose of Fee Table , Note [Text Block] | The following table is intended to assist you in understanding the costs and expenses that an investor in shares of our common stock will bear directly or indirectly. The expenses shown in the table under “Annual Expenses” are based on estimated amounts for our first full year of operations and assume that we incur leverage in an amount equal to approximately 25% of our total assets (as determined immediately after the leverage is incurred) and that we issue shares of common stock in this offering at a public offering price of $20 per share (which price is equal to our NAV per share of common stock as of the date of this prospectus). If we issue fewer shares of common stock, all other things being equal, these expenses would increase as a percentage of net assets attributable to our common stock. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. | |
Basis of Transaction Fees, Note [Text Block] | as a percentage of the offering price | |
Other Expenses, Note [Text Block] | The Adviser’s investment team, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by the Adviser. We will bear all other costs and expenses of our operations and transactions, including: • the cost of calculating our NAV (including the costs and expenses of any independent valuation firm or pricing service); • interest payable on debt, if any, incurred to finance our investments; • fees and expenses, including legal fees and expenses and travel expenses, incurred by the Adviser or payable to third parties in performing due diligence on prospective investments, monitoring our investments and, if necessary, enforcing our rights; • amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments; • brokerage fees and commissions; • federal and state registration fees; • exchange listing fees; • federal, state and local taxes; • costs of offerings or repurchases of our common stock and other securities; • the management fees and incentive fees payable under the Investment Advisory Agreement; • distributions on our common stock and other securities; • administration, transfer agent and custody fees and expenses; • director fees and expenses; • the costs of any reports, proxy statements or other notices to our stockholders, including printing costs; • costs of holding meetings of our stockholders; • litigation, indemnification and other non-recurring or extraordinary expenses; • fees and expenses associated with marketing and investor relations efforts; • dues, fees and charges of any trade association of which we are a member; • direct costs and expenses of administration and operation, including printing, mailing, telecommunications and staff, including fees payable in connection with outsourced administration functions; • fees and expenses associated with independent audits and outside legal costs; • fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; • costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws; and • all other expenses reasonably incurred by us in connection with administering our business. | |
General Description of Registrant [Abstract] | ||
Investment Objectives and Practices [Text Block] | Our primary investment objective is to maximize our portfolio’s total return with a secondary objective to generate high current income. CLOs represent an efficient way for investors to access diversified portfolios of broadly syndicated secures loans. We seek to invest in CLO securities that the Adviser believes have the potential to generate attractive risk-adjusted returns and to outperform other similar CLO securities issued within the respective vintage period, in the primary CLO market ( i.e., i.e., We will seek to achieve our investment objectives by investing primarily in equity and junior debt tranches of CLOs, where underlying corporate debt is primarily senior secured floating-rate debt, issued by US companies. We may also invest in other securities and instruments that are related to these investments or that the Adviser believes are consistent with our investment objectives, including, senior debt tranches of CLOs and CLO Warehouse first loss investments. The amount that we will invest in other securities and instruments will vary from time to time and, as such, may constitute a material part of our portfolio on any given date, based on the Adviser’s assessment of prevailing market conditions. The Adviser’s Investment Team utilizes a variety of methods to proactively source and analyze investments, including leveraging its Investment Team’s industry experience and extensive network of contacts, performing due diligence on, and engaging in bilateral discussions with CLO collateral managers. The Adviser’s proprietary quantitative techniques and investment opportunity scraping allows Adviser’s Investment Team to benchmark CLO collateral manager performance and relative value of each investment opportunity on an ongoing basis while having fully integrated in-house fundamental credit analysis for each underlying loan. We believe that our highly agile and quantitative approach allows us to quickly react and adapt to emerging market opportunities and effectively seek relative value in CLO equity investing. The Company has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in credit instruments. The Company defines “credit instruments” as financial instruments the performance of which is derived from the performance of senior secured loans or pools thereof. Instruments that the company considers to be “credit instruments” include, but is not limited to, senior, mezzanine, and junior debt tranches of CLOs, equity tranches of CLOs, and CLO warehouses. The Company may acquire (i) CLO equity positions via primary market transactions, (ii) CLO equity positions via secondary market transactions, and (iii) positions of CLO junior debt in primary and secondary market. In acquiring these investments, the Company may employ leverage. When the Company makes a significant investment in a particular CLO equity tranche, we expect to be generally able to influence the CLO’s key terms and conditions (if acquired in the primary market). Additionally, the Adviser believes that the protective rights associated with holding a substantial position in a CLO equity tranche (such as the ability to call the CLO after the non-call period, to refinance/reprice certain CLO debt tranches after a period of time and to influence potential amendments to the governing documents that may arise) may reduce the risk and enhance returns in these investments. The Company may acquire a substantial position in a CLO tranche directly or we may benefit from the advantages of such a position where both the Company and other accounts managed by the Adviser collectively hold a substantial position, subject to any restrictions on the ability to invest alongside such other accounts. The Company may also transact in derivative or other instruments for the purposes of hedging the portfolio, or to manage risks. CLO Structure We intend to pursue an investment strategy focused on investing primarily in (i) positions in CLO equity tranches acquired in both primary and secondary market transactions; (ii) CLO debt tranches; and (iii) other related investments. CLOs are securitization vehicles backed by diversified pools of mostly broadly syndicated senior secured corporate loans. Such pools of underlying assets are often referred to as CLO “collateral.” While portfolios of most CLOs consist of broadly syndicated senior secured loans, many CLOs enable the CLO collateral manager to invest up to 10% of the portfolio in second lien loans, unsecured loans, senior secured bonds, and senior unsecured bonds. CLOs fund the purchase of their portfolios through the issuance of equity and debt securities in the form of multiple, primarily floating rate, debt tranches. The CLO debt tranches typically are rated “AAA” (or its equivalent) at the most senior level down to “BB” or “B” (or its equivalent), which is below-investment grade, at the junior level by a nationally-recognized rating agency. The interest rate on the CLO debt tranches is the lowest at the AAA-level and generally increases at each level down the rating scale. The CLO equity tranche is unrated and typically represents approximately 7% to 10% of a CLO’s capital structure. Below is an illustration to reflect a typical CLO in the market. CLOs have two priority-of-payment schedules (commonly called “waterfalls”), which are detailed in a CLO’s indenture and which govern how cash generated from a CLO’s underlying collateral is distributed to the CLO’s debt and equity investors. One waterfall (the interest waterfall) applies to interest payments received on a CLO’s underlying collateral. The second waterfall (the principal waterfall) applies to cash generated from principal on the underlying collateral, primarily through loan repayments and the proceeds from loan sales. Through the interest waterfall, any excess interest-related cashflow available — after the required quarterly interest payments to CLO debt investors are made and certain CLO expenses (such as administration and collateral management fees) are paid — is then distributed to the CLO’s equity investors each quarter, subject to compliance with certain tests. The equity tranche represents the first-loss position, but is entitles to all of residual interest and principal collections from the underlying assets and therefore exposes investors to relatively higher risk than the more senior tranches but allows for greater potential upside. Underlying Assets of CLOs CLOs are generally required to hold a portfolio of assets that is highly diversified by underlying borrower and industry and that is subject to a variety of asset concentration limitations. Most CLOs are non-static, revolving structures that allow for reinvestment over a specific period of time (the “reinvestment period”, which is typically up to five years). The terms and covenants of a typical CLO structure are, with certain exceptions, based primarily on the cashflow generated by, and the par value (as opposed to the market price) of — the collateral. These covenants include collateral coverage tests, interest coverage tests, and collateral quality tests. Broadly syndicated senior secured loans are typically originated and structured by banks on behalf of corporate borrowers with proceeds often used for leveraged buyout transactions, mergers and acquisitions, recapitalizations, refinancings, and financing capital expenditures. Broadly syndicated senior secured loans are typically distributed by the arranging bank to a diverse group of investors primarily consisting of: CLOs, senior secured loan and high yield bond mutual funds and closed-end funds, hedge funds, banks, insurance companies, and finance companies. CLOs currently represent 50%-75% of the demand for newly issued highly leveraged loans, according to S&P Capital IQ. Senior secured loans are floating rate instruments, typically making quarterly interest payments based on a spread over a benchmark rate, which is generally currently the Secured Overnight Financing Rate (“SOFR”). As floating rate instruments, they reduce some of the interest rate risk associated with fixed rate securities, especially in a period of rising rates. Senior secured loans are secured by a first priority pledge of a company’s assets. Senior secured loans are protected by sitting at the top of a corporate capital structure and cushioned by any subordinated debt or equity issued by the company. Senior secured loans are also prepayable and typically prepay on average 30% per year, per LCD. We believe that the attractive historical performance of CLO securities is attributable, in part, to the relatively low historical average default rate and relatively high historical average recovery rate on senior secured loans, which comprise the vast majority of most CLO portfolios. A CLO’s indenture typically requires that the maturity dates of a CLO’s assets (typically five to eight years from the date of issuance of a senior secured loan) be shorter than the maturity date of the CLO’s liabilities (typically 12 to 13 years from the date of issuance). However, CLO investors do face reinvestment risk with respect to a CLO’s underlying portfolio. See “ Risk Factors — Risks Related to Our Investments — We and our investments are subject to reinvestment risk. Most CLOs generally allow for reinvestment over a specific period of time (the “reinvestment period,” which is typically up to five years). Specifically, CLO collateral managers may, based on their discretion and expertise, adjust a CLO’s portfolio over time, though such discretion is typically constrained by asset eligibility and diversification criteria set out in the CLO’s indenture. We believe that skilled CLO collateral managers can add significant value to both CLO debt and equity investors through a combination of their credit expertise and a strong understanding of how to manage effectively within the rules-based structure of a CLO. After the CLO’s reinvestment period has ended, in accordance with the CLO’s principal waterfall, cash generated from principal payments or other proceeds are distributed to repay CLO debt investors in order of seniority. That is, the AAA tranche investors are repaid first, the AA tranche investors second, and so on, with any remaining principal being distributed to the equity tranche investors. In limited instances, principal may be reinvested after the end of the reinvestment period. CLOs contain structural features and covenants designed to enhance the credit protection of CLO debt investors, including overcollateralization tests and interest coverage tests. The overcollateralization tests require CLOs to maintain certain levels of overcollateralization (measured as par value of assets compared to principal amount of liabilities, subject to certain adjustments). Interest coverage tests require CLOs to maintain certain levels of interest coverage (measured as expected interest revenues on the assets compared to interest payments on the liabilities). If a CLO breaches an overcollateralization test or interest coverage test, excess interest-related cash flow that would otherwise be available for distribution to the CLO equity tranche investors is diverted to prepay CLO debt investors in order of seniority until such time as the covenant breach is cured. If the covenant breach is not or cannot be cured, the CLO equity investors (and potentially other debt tranche investors) may experience a deferral of cashflow, a partial or total loss of their investment and/or the CLO may eventually experience an event of default. For this reason, CLO equity investors are often referred to as being in a first loss position. The Adviser will have no control over whether or not the CLO is able to satisfy its relevant interest coverage tests or overcollateralization tests. CLOs also typically have interest diversion tests, which also acts to ensure that CLOs maintain adequate overcollateralization. If a CLO breaches an interest diversion test, excess interest-related cashflow that would otherwise be available for distribution to the CLO equity tranche investors is diverted to acquire new loan collateral until the test is satisfied. Such diversion would lead to payments to the equity investors being delayed and/or reduced while the test breach is continuing. Once the breach has been cured, the CLO may have more assets and so the cash flow to the CLO equity tranche may be higher than they were previously. Cashflow CLOs do not have mark-to-market triggers and, with limited exceptions (such assets rated “CCC+” or lower (or their equivalent) to the extent such assets exceed a specified concentration limit, deeply discounted purchases and defaulted assets), CLO covenants are generally calculated using the par value of collateral, not the market value or purchase price. As a result, a decrease in the market price of a CLO’s performing collateral portfolio does not generally result in a requirement for the CLO collateral manager to sell assets ( i.e. i.e. We believe knowledgeable and experienced investors with specialized experienced in CLO securities can earn an attractive risk-adjusted return through investments in CLOs. The Adviser intends to focus our investments in CLO Equity. We believe that CLO equity has the following attractive fundamental attributes: • Potential for strong absolute and risk-adjusted returns: • Protection against rising interest rates: Risk Factors — Risks Related to Our Investments — We and our investments are subject to interest rate risk” and “— CLO Overview. • Senior secured nature of the collateral: CLO securities are also subject to a number of risks as discussed elsewhere in this “Prospectus Summary” “Risk Factors” We believe that we are well positioned to take advantage of investment opportunities in CLO securities and related investments due to the following competitive advantages: • Experienced and specialist investors in CLO securities. • Track record. • Methodical investment process. In addition, the Adviser uses a process and model, for ongoing risk management and monitoring of all the portfolio of investments under management. This involves continued credit analysis and monitoring of the underlying collateral portfolios inside CLOs, combined with monitoring and reviews of the structural aspects of each CLO, including the evolution of the various tests and triggers inside CLOs. In essence, the Adviser’s highly differentiated quantitative approach allows for pricing of every single CLO tranche in the market on a daily basis, allowing the Adviser to take a “relative value” approach to all CLO investments. • Identification of investment opportunities. • Efficient vehicle for gaining exposure to CLO securities. The Adviser has historically focused considerable time and attention seeking to maximize value within their CLO equity tranche portfolios through CLO refinancings and resets. In a CLO refinancing, typically only the interest rate spread on a CLO’s debt tranches are reduced, and most other terms of the CLO remain unchanged. The reduction of a CLO’s cost of debt accrues to the benefit of the CLO’s equity investors, such as the Company. In a CLO reset, the CLO’s indenture, which sets forth the terms governing the CLO, is “re-opened” ( e.g. In both resets and refinancings, there are one-time transaction costs (e.g., dealer fees, attorney fees, and related costs) which typically reduce the next scheduled distribution to the CLO’s equity tranche. The Adviser, when deciding whether or not to effect a refinancing or reset of a CLO, performs a cost-benefit analysis that takes these costs into account. In general, a refinancing or reset of a CLO can increase cashflows to the equity positions held by the Company by lowering the cost of the CLO’s liabilities. • Long-term investment horizon. We believe that the long-term capital structure of our vehicle confers a number of advantages on our core strategy. First, as a result of our permanent, closed-end structure, we are not subject to any mandatory liquidation, dissolution or wind-up requirement and, therefore, the Adviser will never have to involuntarily liquidate a given position to meet a redemption. Involuntary liquidations of positions at inopportune times can often lead to a poor investment outcome for those positions in particular, but also for the portfolio as a whole, disadvantaging certain investors who do not redeem at the same time. Second, the Adviser can take a long-term view to making new investments that may not, in the short term, provide high income relative to their costs. Such CLO investments can often create robust returns through capital appreciation in their underlying loan portfolios rather than through high current income. Finally, our vehicle allows us to manage our portfolio to provide stable yields through market cycles. As we rarely will seek to liquidate positions, the current market value of our portfolio is not of primary concern. Rather, we seek to maximize the dividend yield and ultimate return to our shareholders. In cases where the Adviser believes a position’s future cashflows will provide an appropriate return to our shareholders, even if the current market price of that position is low, the Adviser can retain the position in the portfolio to create yield rather than decide to sell the position to prevent short-term NAV deterioration. Over time, this creates, in our opinion, a better opportunity to create a stable dividend stream for our investors. • Efficient tax structure. • Portfolio level monitoring. The Adviser’s experience and its proprietary, technology driven quantitative investment processes are expected to play a key role in enabling identification and sourcing of appropriate CLO investments in an agile manner while uncovering relative value. The closed-end fund structure will allow the Adviser to take a long-term view from a portfolio management perspective while allowing investors access liquidity through the exchange. As such, the Adviser can focus principally on maximizing long-term risk-adjusted returns for the benefit of stockholders. Leverage. We currently anticipate incurring leverage in an amount up to approximately 25% of our total assets (as determined immediately after the leverage is incurred) by entering into a credit facility or through the issuance of preferred stock or debt securities, soon after this offering and within the first twelve months following the completion of this offering. We plan to obtain revolving facilities that will allow us to draw capital in the case that current cash available to pay dividends is lower than our anticipated run-rate cash dividend, or in the case that asset values in the CLO market fall in a way as to make new investments attractive, in which case we may incur leverage in excess of approximately 25% of our total assets. The Adviser would decide whether or not it is beneficial to us to use leverage at any given time. Such facilities would be committed, but subject to certain restrictions that may not allow us to draw capital even if the Adviser deems it favorable to do so. Such facilities, if drawn, would become senior in priority to our common shares. The facilities would also earn an undrawn commitment fee that we would pay on an ongoing basis, regardless of whether we draw on the facilities or not. Instruments that create leverage are generally considered to be senior securities under the 1940 Act. With respect to senior securities representing indebtedness ( i.e. i.e. “Description of Our Capital Stock — Preferred Stock.” In connection with any credit facility, the lender may impose specific restrictions as a condition to borrowing. The credit facility fees may include upfront structuring fees and ongoing commitment fees (including fees on amounts undrawn on the facility) in addition to the traditional interest expense on amounts borrowed. The credit facility may involve a lien on our assets. Similarly, to the extent we issue shares of preferred stock or notes, we may be subject to fees, covenants, and investment restrictions required by a national securities rating agency, as a result. Such covenants and restrictions imposed by a rating agency or lender may include asset coverage or portfolio composition requirements that are more stringent than those imposed on us by the 1940 Act. While it is not anticipated that these covenants or restrictions will significantly impede the Adviser in managing our portfolio in accordance with our investment objectives and policies, if these covenants or guidelines are more restrictive than those imposed by the 1940 Act, we would not be able to utilize as much leverage as we otherwise could have, which could reduce our investment returns. In addition, we expect that any notes we issue or credit facility we enter into would contain covenants that may impose geographic exposure limitations, credit quality minimums, liquidity minimums, concentration limitations, and currency hedging requirements on us. These covenants would also likely limit our ability to pay distributions in certain circumstances, incur additional debt, change fundamental investment policies, and engage in certain transactions, including mergers and consolidations. Such restrictions could cause the Adviser to make different investment decisions than if there were no such restrictions and could limit the ability of the board of directors and our stockholders to change fundamental investment policies. While we cannot control the market value of our investments, the Adviser can determine to draw on our planned leverage facility to purchase new assets at a time of market dislocation. Such purchases, if made, can mitigate price drops in the current portfolio by making new asset purchases at a discount. Further, such purchases can potentially contribute to a higher increase in net asset value of the portfolio upon a market rebound than if the purchases were not made. Our willingness to utilize leverage, and the amount of leverage we incur, will depend on many factors, the most important of which are investment outlook, market conditions, and interest rates. Successful use of a leveraging strategy may depend on our ability to predict correctly interest rates and market movements, and there is no assurance that a leveraging strategy will be successful during any period in which it is employed. Any leveraging cannot be achieved until the proceeds resulting from the use of leverage have been invested in accordance with our investment objectives and policies. See “Risk Factors — Risks Related to Our Investments — We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and increase the risk of investing in us.” Preferred Stock. Description of Our Capital Stock — Preferred Stock.” Derivative Transactions. We have claimed an exclusion from the definition of the term “commodity pool operator” pursuant to CFTC No-Action Letter 12-38 issued by the staff of the CFTC Division of Swap Dealer and Intermediary Oversight on November 20, 2012, and we currently intend to operate in a manner that would permit us to continue to claim such exclusion. See “Risk Factors — Risks Relating to Our Business and Structure — We are subject to the risk of legislative and regulatory changes impacting our business or the markets in which we invest” “Risk Factors — Risks Related to Our Investments — We are subject to risks associated with any hedging or Derivative Transactions in which we participate.” Illiquid Transactions. Temporary Defensive Position. Co-Investment with Affiliates. www.sec.gov We intend to compete for investments in CLO securities with other investment funds (including asset managers, business development companies, mutual funds, pension funds, private equity funds, and hedge funds) as well as traditional financial services companies such as commercial banks, investment banks, finance companies, and insurance companies. Additionally, because competition for higher-yielding investment opportunities generally has increased, many new investors have entered the CLO market over the past few years. As a result of these new entrants, competition for investment opportunities in CLO securities may intensify. We believe we are able to compete with these entities on the basis of the Investment Team’s deep and highly specialized CLO market experience, the Adviser’s relative size and prominence in the CLO market, and the Investment Team’s longstanding relationships with many CLO collateral managers, complemented by the Adviser’s proprietary quantitative infrastructure that helps it identify relative value, price investments precisely and approach the markets in an agile manner. | |
Risk Factors [Table Text Block] | Investing in our common stock involves a number of significant risks. In addition to the other information contained in this prospectus, you should consider carefully the following information before making an investment in our common stock. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and performance. If any of the following events occur, our business, financial condition, and results of operations could be materially adversely affected. In such case, our NAV and the trading price of our common stock could decline, and you may lose all or part of your investment. Our investments in CLO securities and other structured finance securities involve certain risks. We may invest in primarily below investment grade (“high yield”) equity and debt securities of CLOs. The CLO mezzanine debt and equity investments purchased by us will generally represent the most junior parts of the capital structure of the CLO and will not be rated by any rating agency, or if rated, will be rated below AA/Aa. While all of our CLO investments are subject to the risk of loss, our investments in mezzanine debt and equity CLO investments will be subject to the greatest risk of loss and will be more directly affected by any losses or delays in payment on the related collateral. We will invest in CLOs that are managed by various managers, and in some CLOs with underlying collateral consisting of static pools selected by the related manager. The performance of any particular CLO will depend, among other things, on the level of defaults experienced on the related collateral, as well as the timing of such defaults and the timing and amount of any recoveries on such defaulted collateral and (except in the case of static pool CLOs) the impact of any trading of the related collateral. There can be no assurances that any level of investment return will be achieved by investors. It is possible that our investments in the CLOs will result in a loss on an aggregate basis (even if some investments do not suffer a loss) and therefore investors could incur a loss on their investment. Because the payments on certain of our CLO investments (primarily, CLO mezzanine debt and equity investments) are subordinated to payments on the senior obligations of the respective CLO, these investments represent subordinated, leveraged investments in the underlying collateral. Therefore, changes in the value of these CLO investments are anticipated to be greater than the change in the value of the underlying collateral, which themselves are subject to, among other things, credit, liquidity and interest rate risk, which are described below. Moreover, our CLO mezzanine debt and equity investments will have different degrees of leverage based on the capital structure of the CLO. Investors should consider with particular care the risks of the leverage present in our investments because, although the use of leverage by a CLO creates an opportunity for substantial returns on the related investment, the subordination of such investment to the senior debt securities issued by that CLO increases substantially the likelihood that we could lose our entire investment in such investment if the underlying collateral is adversely affected by, among other things, the occurrence of defaults. We may also invest in interests in warehousing facilities. Prior to the closing of a CLO, an investment bank or other entity that is financing the CLO's structuring may provide a warehousing facility to finance the acquisition of a portfolio of initial assets. Capital raised during the closing of the CLO is then used to purchase the portfolio of initial assets from the warehousing facility. A warehousing facility may have several classes of loans with differing seniority levels with a subordinated or "equity" class typically purchased by the manager of the CLO or other investors. One of the most significant risks to the holder of the subordinated class of a warehouse facility is the market value fluctuation of the loans acquired. Subordinated equity holders generally acquire the first loss positions which bear the impact of market losses before more senior positions upon settling the warehouse facility. Further, warehouse facility transactions often include event of default provisions and other collateral threshold requirements that grant senior holders or the administrator certain rights (including the right to liquidate warehouse positions) upon the occurrence of various triggering events including a decrease in the value of warehouse collateral. In addition, a subordinate noteholder may be asked to maintain a certain level of loan-to-value ratio to mitigate this market value risk. As a result, if the market value of collateral loans decreases, the subordinated noteholder may need to provide additional funding to maintain the warehouse lender's loan-to-value ratio. Our investments in the primary CLO market involve certain additional risks due to the need to fully “ramp” the portfolio. Between the pricing date and the effective date of a CLO, the CLO collateral manager will generally expect to purchase additional collateral obligations for the CLO. During this period, the price and availability of these collateral obligations may be adversely affected by a number of market factors, including price volatility and availability of investments suitable for the CLO, which could hamper the ability of the collateral manager to acquire a portfolio of collateral obligations that will satisfy specified concentration limitations and allow the CLO to reach the target initial par amount of collateral prior to the effective date. An inability or delay in reaching the target initial par amount of collateral may adversely affect the timing and amount of distributions on the CLO equity securities and the timing and amount of interest or principal payments received by holders of the CLO debt securities and could result in early redemptions, which may cause CLO equity and debt investors to receive less than face value of their investment. Our portfolio of investments may lack diversification among CLO securities which may subject us to a risk of significant loss if one or more of these CLO securities experience a high level of defaults on collateral. Our portfolio may hold investments in a limited number of CLO securities. As our portfolio may be less diversified than the portfolios of some larger funds, we are more susceptible to failure if one or more of the CLOs in which we are invested experiences a high level of defaults on its collateral. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. We may also invest in multiple CLOs managed by the same CLO collateral manager, thereby increasing our risk of loss in the event the CLO collateral manager were to fail, experience the loss of key portfolio management employees or sell its business. Failure to maintain adequate diversification of underlying obligors across the CLOs in which we invest would make us more vulnerable to defaults. Even if we maintain adequate diversification across different CLO issuers, we may still be subject to concentration risk since CLO portfolios tend to have a certain amount of overlap across underlying obligors. This trend is generally exacerbated when demand for bank loans by CLO issuers outpaces supply. Market analysts have noted that the overlap of obligor names among CLO issuers has increased recently, and is particularly evident across CLOs of the same year of origination, as well as with CLOs managed by the same asset manager. To the extent we invest in CLOs that have a high percentage of overlap, this may increase the likelihood of defaults on our CLO investments occurring at the same time. Our portfolio is focused on CLO securities, and the CLO securities in which we invest may hold loans that are concentrated in a limited number of industries. Our portfolio is focused on securities issued by CLOs and related investments, and the CLOs in which we invest may hold loans that are concentrated in a limited number of industries. As a result, a downturn in the CLO industry or in any particular industry that the CLOs in which we invest are concentrated could significantly impact the aggregate returns we realize. Failure by a CLO in which we are invested to satisfy certain tests will harm our operating results. The failure by a CLO in which we invest to satisfy financial covenants, including over-collateralization tests and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of CLO senior debt may be entitled to additional payments that would, in turn, reduce the payments we, as holder of equity and junior debt tranches, would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cashflows. Negative loan ratings migration may also place pressure on the performance of certain of our investments. Per the terms of a CLO’s indenture, assets rated “CCC+” or lower or their equivalent in excess of applicable limits typically do not receive full par credit for purposes of calculation of the CLO’s overcollateralization tests. As a result, negative rating migration could cause a CLO to be out of compliance with its overcollateralization tests. This could cause a diversion of cashflows away from the CLO junior debt and equity tranches in favor of the more senior CLO debt tranches until the relevant overcollateralization test breaches are cured. This could have a negative impact on our NAV and cashflows. Our investments in CLOs and other investment vehicles result in additional expenses to us. To the extent that we invest in CLO securities, we will bear our ratable share of a CLO’s expenses, including management and performance fees. In addition to the management and performance fees borne by our investments in CLOs, we will also remain obligated to pay management and incentive fees to the Adviser. With respect to each of these investments, each holder of our common stock bears his or her share of the management and incentive fee of the Adviser as well as indirectly bearing the management and performance fees charged by the underlying CLO advisor. In the course of our investing activities, we will pay management and incentive fees to the Adviser and reimburse the Adviser for certain expenses it incurs. As a result, investors in our securities invest on a “gross” basis and receive distributions on a “net” basis after expenses, potentially resulting in a lower rate of return than an investor might achieve through direct investments. Our investments in CLO securities may be less transparent to us and our stockholders than direct investments in the collateral. We invest primarily in equity tranches of CLOs and other related investments, including junior and senior debt tranches of CLOs. Generally, there may be less information available to us regarding the collateral held by such CLOs than if we had invested directly in the debt of the underlying obligors. As a result, our stockholders will not know the details of the collateral of the CLOs in which we invest or receive the reports issued with respect to such CLO. In addition, none of the information contained in certain monthly reports nor any other financial information furnished to us as an investor in a CLO is audited and reported upon, nor is an opinion expressed, by an independent public accountant. Our CLO investments are also subject to the risk of leverage associated with the debt issued by such CLOs and the repayment priority of equity holders in such CLOs. CLO investments involve complex documentation and accounting considerations. CLOs and other structured finance securities in which we intend to invest are often governed by a complex series of legal documents and contracts. As a result, the risk of dispute over interpretation or enforceability of the documentation may be higher relative to other types of investments. The accounting and tax implications of the CLO investments that we intend to make are complicated. In particular, reported earnings from CLO equity securities are recorded under U.S. generally accepted accounting principles, or “GAAP,” based upon an effective yield calculation. Current taxable earnings on certain of these investments, however, will generally not be determinable until after the end of the fiscal year of each individual CLO that ends within our fiscal year, even though the investments are generating cashflow throughout the fiscal year. The tax treatment of certain of these investments may result in higher distributable earnings in the early years and a capital loss at maturity, while for reporting purposes the totality of cashflows are reflected in a constant yield to maturity. We are dependent on the collateral managers of the CLOs in which we invest, and those CLOs are generally not registered under the 1940 Act. We rely on CLO collateral managers to administer and review the portfolios of collateral they manage. The actions of the CLO collateral managers may significantly affect the return on our investments; however, we, as investors of the CLO, typically do not have any direct contractual relationship with the collateral managers of the CLOs in which we invest. The ability of each CLO collateral manager to identify and report on issues affecting its securitization portfolio on a timely basis could also affect the return on our investments, as we may not be provided with information on a timely basis in order to take appropriate measures to manage our risks. We will also rely on CLO collateral managers to act in the best interests of a CLO it manages; however, there can be no assurance that the collateral managers will always act in the best interest of the class or classes of securities in which we are invested. If any CLO collateral manager were to act in a manner that was not in the best interest of the CLOs ( e.g. In addition, the CLOs in which we invest are generally not registered as investment companies under the 1940 Act. As investors in these CLOs, we are not afforded the protections that stockholders in an investment company registered under the 1940 Act would have. The collateral managers of the CLOs in which we intend to invest may not continue to manage such CLOs. Because we intend to invest in CLO securities issued by CLOs that are managed by collateral managers that are unaffiliated with the Adviser, there is no guarantee that, for any CLO we invest in, the collateral manager in place at the time of investment will remain in place through the life of our investment. Collateral managers are subject to removal or replacement by subject to the consent of the majority of the equity investors in the CLO, and may also voluntarily resign as collateral manager or assign their role as collateral manager to another entity. There can be no assurance that any removal, replacement, resignation or assignment of any particular CLO manager’s role will not adversely affect the returns on the CLO securities in which we intend to invest. Our investments in CLO securities may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash distributions related to such income. Some of the CLOs in which we invest may constitute “passive foreign investment companies,” or “PFICs.” If we acquire interests treated as equity for U.S. federal income tax purposes in PFICs (including equity tranche investments and certain debt tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFIC’s income for each tax year regardless of whether we receive any distributions from such PFIC. We must nonetheless distribute such income to maintain our status as a RIC. We intend to treat our income inclusion with respect to a PFIC with respect to which we have made a qualified electing fund, or “QEF,” election, as qualifying income for purposes of determining our ability to be subject to tax as a RIC if (i) there is a current distribution out of the earnings and profits of the PFIC that are attributable to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities, or currencies. As such, we may be restricted in our ability to make QEF elections with respect to our holdings in issuers that could be treated as PFICs in order to ensure our continued qualification as a RIC and/or maximize our after-tax return from these investments. If we hold 10% or more of the interests treated as equity (by vote or value) for U.S. federal income tax purposes in a foreign corporation that is treated as a controlled foreign corporation, or “CFC” (including equity tranche investments and certain debt tranche investments in a CLO treated as a CFC), we may be treated as receiving a deemed distribution (taxable as ordinary income) each tax year from such foreign corporation in an amount equal to our pro rata share of the corporation’s income for the tax year (including both ordinary earnings and capital gains). If we are required to include such deemed distributions from a CFC in our income, we will be required to distribute such income to maintain our RIC status regardless of whether or not the CFC makes an actual distribution during such tax year. We intend to treat our income inclusion with respect to a CFC as qualifying income for purposes of determining our ability to be subject to tax as a RIC either if (i) there is a distribution out of the earnings and profits of the CFC that are attributable to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities, or currencies. If we are required to include amounts from CLO securities in income prior to receiving the cash distributions representing such income, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forego new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. If a CLO in which we invest fails to comply with certain U.S. tax disclosure requirements, such CLO may be subject to withholding requirements that could materially and adversely affect our operating results and cashflows. The U.S. Foreign Account Tax Compliance Act provisions of the Code, or “FATCA,” imposes a withholding tax of 30% on U.S. source periodic payments, including interest and dividends to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amount available to distribute to junior debt and equity holders in such CLO, which could materially and adversely affect the fair value of the CLO’s securities, our operating results, and cashflows. Increased competition in the market or a decrease in new CLO issuances may result in increased price volatility or a shortage of investment opportunities. In recent years there has been a marked increase in the number of, and flow of capital into, investment vehicles established to make investments in CLO securities, even though the size of this market is relatively limited. While we cannot determine the precise effect of such competition, such increase may result in greater competition for investment opportunities, which may result in an increase in the price of such investments relative to their risk. Such competition may also result under certain circumstances in increased price volatility or decreased liquidity with respect to certain positions. In addition, the volume of new CLO issuances and CLO refinancings varies over time as a result of a variety of factors including new regulations, changes in interest rates, and other market forces. As a result of increased competition and uncertainty regarding the volume of new CLO issuances and CLO refinancings, we can offer no assurances that we will deploy all of our capital in a timely manner or at all. Prospective investors should understand that we may compete with other investment vehicles, as well as investment and commercial banking firms, which have substantially greater resources, in terms of financial wherewithal and research staffs, than may be available to us. We may be subject to risks associated with any subsidiaries. We may in the future invest indirectly through one or more subsidiaries. Such subsidiaries may include entities that are wholly-owned or primarily controlled by the Company that engage primarily in investment activities in securities or other assets. In the event that we invest through a subsidiary, we will comply with the provisions of Section 8 of the 1940 Act governing investment policies on an aggregate basis with any such subsidiary. The Company also intends to comply with the provisions of Section 18 of the 1940 Act governing capital structure and leverage on an aggregate basis with any subsidiary, including such that the Company will treat a subsidiary’s debt as its own for purposes of Section 18. Any subsidiary will comply with the provisions of the 1940 Act relating to affiliated transactions and custody. Any subsidiary would not be separately registered under the 1940 Act and would not be subject to all the investor protections and substantive regulation of the 1940 Act, although any such subsidiary will be managed pursuant to applicable 1940 Act compliance policies and procedures of the Company. In addition, changes in the laws of the jurisdiction of formation of any future subsidiary could result in the inability of such subsidiary to operate as anticipated. Additionally, any investment adviser to such subsidiaries will comply with the provisions of the 1940 Act relating to investment advisory contracts as if it were an investment adviser to the Company under Section 2(a)(20) of the 1940 Act. We and our investments are subject to interest rate risk. Since we may incur leverage (including through preferred stock and/or debt securities) to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. The Federal Reserve began raising interest rates in 2022 and continued to do so as recently as July 2023. After holding rates steady towards the end of 2023, the Federal Open Market Committee indicated in December 2023 that rate cuts could be coming in 2024. In a rising interest rate environment, any leverage that we incur may bear a higher interest rate that our current leverage. There may not, however, be a corresponding increase in our investment income. Any reduction in the level of rate of return on new investments relative to the rate of return on our current investments, and any reduction in the rate of return on our current investments, could adversely impact our net investment income, reducing our ability to service the interest obligations on, and to repay the principal of, our indebtedness, as well as our capacity to pay distributions to our stockholders. See “— Reference Rate Floor Risk.” The fair value of certain of our investments may be significantly affected by changes in interest rates. Although senior secured loans are generally floating rate instruments, our investments in senior secured loans through investments in junior debt and equity tranches of CLOs are sensitive to interest rate levels and volatility. For example, because CLO debt securities are floating rate securities, a reduction in interest rates would generally result in a reduction in the coupon payment and cashflow we receive on our CLO debt investments. Further, although CLOs are generally structured to mitigate the risk of interest rate mismatch, there may be a difference between the timing of interest rate resets on the assets and liabilities of a CLO. Such a mismatch in timing could have a negative effect on the amount of funds distributed to CLO equity investors. In addition, CLOs may not be able to enter into hedge agreements, even if it may otherwise be in the best interests of the CLO to hedge such interest rate risk. Furthermore, in the event of an economic downturn, loan defaults may increase and result in credit losses that may adversely affect our cashflow, fair value of our assets, and operating results. In the event that our interest expense were to increase relative to income, or sufficient financing became unavailable, our return on investments and cash available for distribution to stockholders or to make other payments on our securities would be reduced. In addition, future investments in different types of instruments may carry a greater exposure to interest rate risk. Reference Rate Floor Risk LIBOR Replacement Risk e.g. Interest Rate Mismatch Fluctuations in Interest Rates The senior secured loans underlying CLOs typically have floating interest rates. A rising interest rate environment may increase loan defaults, resulting in losses for the CLOs in which we invest. In addition, increasing interest rates may lead to higher prepayment rates, as corporate borrowers look to avoid escalating interest payments or refinance floating rate loans. See “— Risks Related to Our Investments — Our investments are subject to prepayment risk.” For detailed discussions of the risks associated with a rising interest rate environment, see “— Risks Related to Our Investments — We and our investments are subject to interest rate risk, — Risks Related to Our Investments — We and our investments are subject to risks associated with investing in high-yield and unrated, or “junk,” securities. Inflation or deflation may negatively affect our portfolio. Inflation risk is the risk that the value of certain assets, or income from our portfolio investments, will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the interest paid and repayments made in relation to CLOs may decline. In addition, during any periods of rising inflation, some obligors may not be able to make the interest payments on CLO Collateral instruments or refinance those obligations, resulting in payment defaults. It should be noted that, in response to recent world events, including the global financial crisis, the COVID-19 global pandemic and the conflict in Ukraine, countries around the world have injected trillions of dollars into the economy in an effort to prevent more severe economic turbulence. This unprecedented amount of government funding and support, has given rise to significant increases in government spending and (in many instances) significant increases to the amount of debt issued by governments in the international bond markets. There can be no assurance that governments will be able to repay all of this debt in a timely way, or at all. Government default on debt would have negative consequences for our portfolio, disrupting financial markets generally and potentially impacting the credit risk of our investments and also of certain assets that provide the credit support for our investments. In addition, the United States and other countries have experienced, and may in the future experience, supply chain disruptions for a number of goods in the marketplace. This potential disruption in supply of goods, combined with unprecedented levels of such government spending and monetary policy, has materially increased inflation of the US dollar and other currencies. Inflation and rapid fluctuations in inflation rates have had in the past, and in the future may have, negative effects on economic and financial markets, which may consequently have a materially adverse impact on our investment performance. Deflation risk is the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of obligors and may make obligor defaults more likely, which may result in a decline in the value of the portfolio investments. Moreover, if deflation was to persist and interest rates were to decline, obligors might refinance their obligations in relation to CLO Collateral at lower interest rates which could shorten the average life of the CLOs. Our investments are subject to credit risk. The CLOs in which we invest, and the loans underlying such CLOs, are subject to the risk of an issuer's, or debtor’s, ability to meet principal and interest payments on the obligation (known as "credit risk") and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (known as "market risk"). Lower-rated or unrated ( i.e. Adverse economic developments can disrupt the market for CLO securities and severely affect the ability of issuers, especially highly leveraged issuers (such as certain CLOs), to service their debt obligations or to repay their obligations upon maturity, which may lead to a higher incidence of default on such securities. In addition, the secondary market for CLO securities is not as liquid as the secondary market for other types of equity or fixed-income securities. As a result, it may be more difficult for us to sell these securities, or we may only be able to sell the securities at prices lower than if such securities were highly liquid. Furthermore, we may experience difficulty in valuing certain CLO securities at certain times. Under these circumstances, prices realized upon the sale of such securities may be less than the prices used in calculating the Company's NAV. Prices for CLO securities may also be affected by legislative and regulatory developments. Lower-rated tranches of CLOs also present risks based on payment expectations. If an issuer calls the obligations for redemption or if the underlying loans are paid faster than expected, we may have to replace the security with a lower-yielding security, resulting in a decreased return for investors. Additionally, we may have indirect exposure to covenant lite loans through out investments in CLOs. Covenant lite loans are loans that have fewer financial maintenance and reporting covenants. Such loans may comprise a significant portion of the senior secured loans underlying the CLOs in which we invest. Accordingly, to the extent that the CLOs in which we invest hold covenant lite loans, the CLOs may have fewer rights against a borrower and may have greater risk of loss on such investments as compared to investments in loans with more robust maintenance and reporting covenants. Our investments are subject to prepayment risk. Although the Adviser’s valuations and projections take into account certain expected levels of prepayments, the collateral of a CLO may be prepaid more quickly than expected. Prepayment rates are influenced by changes in interest rates and a variety of factors beyond our control and consequently cannot be accurately predicted. Early prepayments give rise to increased reinvestment risk, as a CLO collateral manager might realize excess cash from prepayments earlier than expected. If a CLO collateral manager is unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce our net income and the fair value of | |
Return at Minus Ten [Percent] | (16.20%) | [8] |
Return at Minus Five [Percent] | (9.50%) | [8] |
Return at Zero [Percent] | (2.80%) | [8] |
Return at Plus Five [Percent] | 3.80% | [8] |
Return at Plus Ten [Percent] | 10.50% | [8] |
Effects of Leverage, Purpose [Text Block] | Assumed Return on Our Portfolio (Net of Expenses) -10 % -5 % 0 % 5 % 10 % Corresponding Return to Common Stockholder (1) -16.2 % -9.5 % -2.8 % 3.8 % 10.5 % (1) Assumes that we incur leverage in an amount equal to approximately 25% of our total assets (as determined immediately after the leverage is incurred) and that we issue 2,200,000 shares of common stock in this offering at a public offering price of $20 per share (which price is equal to our NAV per share of common stock as of the date of this prospectus). | |
Capital Stock, Long-Term Debt, and Other Securities [Abstract] | ||
Capital Stock [Table Text Block] | The following description is based on relevant portions of the DGCL and on our certificate of incorporation and bylaws. This summary is not necessarily complete, see our certificate of incorporation and our bylaws for a more detailed description of the provisions summarized below. Our authorized stock consists of 200,000,000 shares of common stock, par value $0.001 per share, and 25,000,000 shares of preferred stock, par value $0.001 per share. There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under Delaware law, our stockholders generally are not personally liable for our debts or obligations. The following are our outstanding classes of securities upon the completion of the conversion: (1) (2) (3) (4) Common stock, par value $0.001 per share 200,000,000 0 4,266,473 Preferred stock, par value $0.001 per share 25,000,000 0 0 All shares of our common stock have equal rights as to earnings, assets, dividends, and voting and, when they are issued, will be duly authorized, validly issued, fully paid, and nonassessable. Distributions may be paid to holders of our common stock if, as and when authorized by the board of directors and declared by us out of funds legally available therefrom. Shares of our common stock have no preemptive, exchange, conversion, or redemption rights and are freely transferable, except when their transfer is restricted by U.S. federal and state securities laws or by contract. In the event of our liquidation, dissolution, or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors. Our certificate of incorporation authorizes our board of directors to classify and reclassify any unissued shares of preferred stock into other classes or series of preferred stock without stockholder approval. If we issue preferred stock, costs of the offering will be borne immediately at such time by the holders of our common stock and result in a reduction of the NAV per share of our common stock at that time. We may issue preferred stock within the first twelve months following the completion of this offering. Prior to issuance of shares of each class or series, our board of directors is required by the DGCL and by our certificate of incorporation to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, our board of directors could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. For any series of preferred stock that we may issue, our board of directors will determine and the certificate of designation and the offering documents relating to such series will describe: · the designation and number of shares of such series; · the rate and time at which, and the preferences and conditions under which, any dividends or other distributions will be paid on shares of such series, as well as whether such dividends or other distributions are participating or non-participating; · any provisions relating to convertibility or exchange ability of the shares of such series, including adjustments to the conversion price of such series; · the rights and preferences, if any, of holders of shares of such series upon our liquidation, dissolution or winding up of our affairs; · the voting powers, if any, of the holders of shares of such series; · any provisions relating to the redemption of the shares of such series; · any limitations on our ability to pay dividends or make distributions on, or acquire or redeem, other securities while shares of such series are outstanding; · any conditions or restrictions on our ability to issue additional shares of such series or other securities; · if applicable, a discussion of certain U.S. federal income tax considerations; and · any other relative powers, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof. All shares of preferred stock that we may issue will be of equal rank and identical except as to the particular terms thereof that may be fixed by our board of directors, and all shares of each series of preferred stock will be identical except as to the dates from which dividends or other distributions, if any, thereon will be cumulative. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of our common stock is made, we maintain an asset coverage ratio of at least 200%, as measured at the time of the issuance of any such shares of preferred stock and calculated as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) over the aggregate amount our outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding shares of preferred stock, after deducting the amount of such dividend, distribution or purchase price, as the case may be, (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two years or more, and (3) such class of stock have complete priority over any other class of stock as to distribution of assets and payment of dividends or other distributions, which shall be cumulative. Some matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions. | |
Outstanding Securities [Table Text Block] | (1) (2) (3) (4) Common stock, par value $0.001 per share 200,000,000 0 4,266,473 Preferred stock, par value $0.001 per share 25,000,000 0 0 | |
Risks Related To Our Investments [Member] | ||
General Description of Registrant [Abstract] | ||
Risk [Text Block] | Our investments in CLO securities and other structured finance securities involve certain risks. We may invest in primarily below investment grade (“high yield”) equity and debt securities of CLOs. The CLO mezzanine debt and equity investments purchased by us will generally represent the most junior parts of the capital structure of the CLO and will not be rated by any rating agency, or if rated, will be rated below AA/Aa. While all of our CLO investments are subject to the risk of loss, our investments in mezzanine debt and equity CLO investments will be subject to the greatest risk of loss and will be more directly affected by any losses or delays in payment on the related collateral. We will invest in CLOs that are managed by various managers, and in some CLOs with underlying collateral consisting of static pools selected by the related manager. The performance of any particular CLO will depend, among other things, on the level of defaults experienced on the related collateral, as well as the timing of such defaults and the timing and amount of any recoveries on such defaulted collateral and (except in the case of static pool CLOs) the impact of any trading of the related collateral. There can be no assurances that any level of investment return will be achieved by investors. It is possible that our investments in the CLOs will result in a loss on an aggregate basis (even if some investments do not suffer a loss) and therefore investors could incur a loss on their investment. Because the payments on certain of our CLO investments (primarily, CLO mezzanine debt and equity investments) are subordinated to payments on the senior obligations of the respective CLO, these investments represent subordinated, leveraged investments in the underlying collateral. Therefore, changes in the value of these CLO investments are anticipated to be greater than the change in the value of the underlying collateral, which themselves are subject to, among other things, credit, liquidity and interest rate risk, which are described below. Moreover, our CLO mezzanine debt and equity investments will have different degrees of leverage based on the capital structure of the CLO. Investors should consider with particular care the risks of the leverage present in our investments because, although the use of leverage by a CLO creates an opportunity for substantial returns on the related investment, the subordination of such investment to the senior debt securities issued by that CLO increases substantially the likelihood that we could lose our entire investment in such investment if the underlying collateral is adversely affected by, among other things, the occurrence of defaults. We may also invest in interests in warehousing facilities. Prior to the closing of a CLO, an investment bank or other entity that is financing the CLO's structuring may provide a warehousing facility to finance the acquisition of a portfolio of initial assets. Capital raised during the closing of the CLO is then used to purchase the portfolio of initial assets from the warehousing facility. A warehousing facility may have several classes of loans with differing seniority levels with a subordinated or "equity" class typically purchased by the manager of the CLO or other investors. One of the most significant risks to the holder of the subordinated class of a warehouse facility is the market value fluctuation of the loans acquired. Subordinated equity holders generally acquire the first loss positions which bear the impact of market losses before more senior positions upon settling the warehouse facility. Further, warehouse facility transactions often include event of default provisions and other collateral threshold requirements that grant senior holders or the administrator certain rights (including the right to liquidate warehouse positions) upon the occurrence of various triggering events including a decrease in the value of warehouse collateral. In addition, a subordinate noteholder may be asked to maintain a certain level of loan-to-value ratio to mitigate this market value risk. As a result, if the market value of collateral loans decreases, the subordinated noteholder may need to provide additional funding to maintain the warehouse lender's loan-to-value ratio. Our investments in the primary CLO market involve certain additional risks due to the need to fully “ramp” the portfolio. Between the pricing date and the effective date of a CLO, the CLO collateral manager will generally expect to purchase additional collateral obligations for the CLO. During this period, the price and availability of these collateral obligations may be adversely affected by a number of market factors, including price volatility and availability of investments suitable for the CLO, which could hamper the ability of the collateral manager to acquire a portfolio of collateral obligations that will satisfy specified concentration limitations and allow the CLO to reach the target initial par amount of collateral prior to the effective date. An inability or delay in reaching the target initial par amount of collateral may adversely affect the timing and amount of distributions on the CLO equity securities and the timing and amount of interest or principal payments received by holders of the CLO debt securities and could result in early redemptions, which may cause CLO equity and debt investors to receive less than face value of their investment. Our portfolio of investments may lack diversification among CLO securities which may subject us to a risk of significant loss if one or more of these CLO securities experience a high level of defaults on collateral. Our portfolio may hold investments in a limited number of CLO securities. As our portfolio may be less diversified than the portfolios of some larger funds, we are more susceptible to failure if one or more of the CLOs in which we are invested experiences a high level of defaults on its collateral. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. We may also invest in multiple CLOs managed by the same CLO collateral manager, thereby increasing our risk of loss in the event the CLO collateral manager were to fail, experience the loss of key portfolio management employees or sell its business. Failure to maintain adequate diversification of underlying obligors across the CLOs in which we invest would make us more vulnerable to defaults. Even if we maintain adequate diversification across different CLO issuers, we may still be subject to concentration risk since CLO portfolios tend to have a certain amount of overlap across underlying obligors. This trend is generally exacerbated when demand for bank loans by CLO issuers outpaces supply. Market analysts have noted that the overlap of obligor names among CLO issuers has increased recently, and is particularly evident across CLOs of the same year of origination, as well as with CLOs managed by the same asset manager. To the extent we invest in CLOs that have a high percentage of overlap, this may increase the likelihood of defaults on our CLO investments occurring at the same time. Our portfolio is focused on CLO securities, and the CLO securities in which we invest may hold loans that are concentrated in a limited number of industries. Our portfolio is focused on securities issued by CLOs and related investments, and the CLOs in which we invest may hold loans that are concentrated in a limited number of industries. As a result, a downturn in the CLO industry or in any particular industry that the CLOs in which we invest are concentrated could significantly impact the aggregate returns we realize. Failure by a CLO in which we are invested to satisfy certain tests will harm our operating results. The failure by a CLO in which we invest to satisfy financial covenants, including over-collateralization tests and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of CLO senior debt may be entitled to additional payments that would, in turn, reduce the payments we, as holder of equity and junior debt tranches, would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cashflows. Negative loan ratings migration may also place pressure on the performance of certain of our investments. Per the terms of a CLO’s indenture, assets rated “CCC+” or lower or their equivalent in excess of applicable limits typically do not receive full par credit for purposes of calculation of the CLO’s overcollateralization tests. As a result, negative rating migration could cause a CLO to be out of compliance with its overcollateralization tests. This could cause a diversion of cashflows away from the CLO junior debt and equity tranches in favor of the more senior CLO debt tranches until the relevant overcollateralization test breaches are cured. This could have a negative impact on our NAV and cashflows. Our investments in CLOs and other investment vehicles result in additional expenses to us. To the extent that we invest in CLO securities, we will bear our ratable share of a CLO’s expenses, including management and performance fees. In addition to the management and performance fees borne by our investments in CLOs, we will also remain obligated to pay management and incentive fees to the Adviser. With respect to each of these investments, each holder of our common stock bears his or her share of the management and incentive fee of the Adviser as well as indirectly bearing the management and performance fees charged by the underlying CLO advisor. In the course of our investing activities, we will pay management and incentive fees to the Adviser and reimburse the Adviser for certain expenses it incurs. As a result, investors in our securities invest on a “gross” basis and receive distributions on a “net” basis after expenses, potentially resulting in a lower rate of return than an investor might achieve through direct investments. Our investments in CLO securities may be less transparent to us and our stockholders than direct investments in the collateral. We invest primarily in equity tranches of CLOs and other related investments, including junior and senior debt tranches of CLOs. Generally, there may be less information available to us regarding the collateral held by such CLOs than if we had invested directly in the debt of the underlying obligors. As a result, our stockholders will not know the details of the collateral of the CLOs in which we invest or receive the reports issued with respect to such CLO. In addition, none of the information contained in certain monthly reports nor any other financial information furnished to us as an investor in a CLO is audited and reported upon, nor is an opinion expressed, by an independent public accountant. Our CLO investments are also subject to the risk of leverage associated with the debt issued by such CLOs and the repayment priority of equity holders in such CLOs. CLO investments involve complex documentation and accounting considerations. CLOs and other structured finance securities in which we intend to invest are often governed by a complex series of legal documents and contracts. As a result, the risk of dispute over interpretation or enforceability of the documentation may be higher relative to other types of investments. The accounting and tax implications of the CLO investments that we intend to make are complicated. In particular, reported earnings from CLO equity securities are recorded under U.S. generally accepted accounting principles, or “GAAP,” based upon an effective yield calculation. Current taxable earnings on certain of these investments, however, will generally not be determinable until after the end of the fiscal year of each individual CLO that ends within our fiscal year, even though the investments are generating cashflow throughout the fiscal year. The tax treatment of certain of these investments may result in higher distributable earnings in the early years and a capital loss at maturity, while for reporting purposes the totality of cashflows are reflected in a constant yield to maturity. We are dependent on the collateral managers of the CLOs in which we invest, and those CLOs are generally not registered under the 1940 Act. We rely on CLO collateral managers to administer and review the portfolios of collateral they manage. The actions of the CLO collateral managers may significantly affect the return on our investments; however, we, as investors of the CLO, typically do not have any direct contractual relationship with the collateral managers of the CLOs in which we invest. The ability of each CLO collateral manager to identify and report on issues affecting its securitization portfolio on a timely basis could also affect the return on our investments, as we may not be provided with information on a timely basis in order to take appropriate measures to manage our risks. We will also rely on CLO collateral managers to act in the best interests of a CLO it manages; however, there can be no assurance that the collateral managers will always act in the best interest of the class or classes of securities in which we are invested. If any CLO collateral manager were to act in a manner that was not in the best interest of the CLOs ( e.g. In addition, the CLOs in which we invest are generally not registered as investment companies under the 1940 Act. As investors in these CLOs, we are not afforded the protections that stockholders in an investment company registered under the 1940 Act would have. The collateral managers of the CLOs in which we intend to invest may not continue to manage such CLOs. Because we intend to invest in CLO securities issued by CLOs that are managed by collateral managers that are unaffiliated with the Adviser, there is no guarantee that, for any CLO we invest in, the collateral manager in place at the time of investment will remain in place through the life of our investment. Collateral managers are subject to removal or replacement by subject to the consent of the majority of the equity investors in the CLO, and may also voluntarily resign as collateral manager or assign their role as collateral manager to another entity. There can be no assurance that any removal, replacement, resignation or assignment of any particular CLO manager’s role will not adversely affect the returns on the CLO securities in which we intend to invest. Our investments in CLO securities may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash distributions related to such income. Some of the CLOs in which we invest may constitute “passive foreign investment companies,” or “PFICs.” If we acquire interests treated as equity for U.S. federal income tax purposes in PFICs (including equity tranche investments and certain debt tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFIC’s income for each tax year regardless of whether we receive any distributions from such PFIC. We must nonetheless distribute such income to maintain our status as a RIC. We intend to treat our income inclusion with respect to a PFIC with respect to which we have made a qualified electing fund, or “QEF,” election, as qualifying income for purposes of determining our ability to be subject to tax as a RIC if (i) there is a current distribution out of the earnings and profits of the PFIC that are attributable to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities, or currencies. As such, we may be restricted in our ability to make QEF elections with respect to our holdings in issuers that could be treated as PFICs in order to ensure our continued qualification as a RIC and/or maximize our after-tax return from these investments. If we hold 10% or more of the interests treated as equity (by vote or value) for U.S. federal income tax purposes in a foreign corporation that is treated as a controlled foreign corporation, or “CFC” (including equity tranche investments and certain debt tranche investments in a CLO treated as a CFC), we may be treated as receiving a deemed distribution (taxable as ordinary income) each tax year from such foreign corporation in an amount equal to our pro rata share of the corporation’s income for the tax year (including both ordinary earnings and capital gains). If we are required to include such deemed distributions from a CFC in our income, we will be required to distribute such income to maintain our RIC status regardless of whether or not the CFC makes an actual distribution during such tax year. We intend to treat our income inclusion with respect to a CFC as qualifying income for purposes of determining our ability to be subject to tax as a RIC either if (i) there is a distribution out of the earnings and profits of the CFC that are attributable to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities, or currencies. If we are required to include amounts from CLO securities in income prior to receiving the cash distributions representing such income, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forego new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. If a CLO in which we invest fails to comply with certain U.S. tax disclosure requirements, such CLO may be subject to withholding requirements that could materially and adversely affect our operating results and cashflows. The U.S. Foreign Account Tax Compliance Act provisions of the Code, or “FATCA,” imposes a withholding tax of 30% on U.S. source periodic payments, including interest and dividends to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amount available to distribute to junior debt and equity holders in such CLO, which could materially and adversely affect the fair value of the CLO’s securities, our operating results, and cashflows. Increased competition in the market or a decrease in new CLO issuances may result in increased price volatility or a shortage of investment opportunities. In recent years there has been a marked increase in the number of, and flow of capital into, investment vehicles established to make investments in CLO securities, even though the size of this market is relatively limited. While we cannot determine the precise effect of such competition, such increase may result in greater competition for investment opportunities, which may result in an increase in the price of such investments relative to their risk. Such competition may also result under certain circumstances in increased price volatility or decreased liquidity with respect to certain positions. In addition, the volume of new CLO issuances and CLO refinancings varies over time as a result of a variety of factors including new regulations, changes in interest rates, and other market forces. As a result of increased competition and uncertainty regarding the volume of new CLO issuances and CLO refinancings, we can offer no assurances that we will deploy all of our capital in a timely manner or at all. Prospective investors should understand that we may compete with other investment vehicles, as well as investment and commercial banking firms, which have substantially greater resources, in terms of financial wherewithal and research staffs, than may be available to us. We may be subject to risks associated with any subsidiaries. We may in the future invest indirectly through one or more subsidiaries. Such subsidiaries may include entities that are wholly-owned or primarily controlled by the Company that engage primarily in investment activities in securities or other assets. In the event that we invest through a subsidiary, we will comply with the provisions of Section 8 of the 1940 Act governing investment policies on an aggregate basis with any such subsidiary. The Company also intends to comply with the provisions of Section 18 of the 1940 Act governing capital structure and leverage on an aggregate basis with any subsidiary, including such that the Company will treat a subsidiary’s debt as its own for purposes of Section 18. Any subsidiary will comply with the provisions of the 1940 Act relating to affiliated transactions and custody. Any subsidiary would not be separately registered under the 1940 Act and would not be subject to all the investor protections and substantive regulation of the 1940 Act, although any such subsidiary will be managed pursuant to applicable 1940 Act compliance policies and procedures of the Company. In addition, changes in the laws of the jurisdiction of formation of any future subsidiary could result in the inability of such subsidiary to operate as anticipated. Additionally, any investment adviser to such subsidiaries will comply with the provisions of the 1940 Act relating to investment advisory contracts as if it were an investment adviser to the Company under Section 2(a)(20) of the 1940 Act. We and our investments are subject to interest rate risk. Since we may incur leverage (including through preferred stock and/or debt securities) to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. The Federal Reserve began raising interest rates in 2022 and continued to do so as recently as July 2023. After holding rates steady towards the end of 2023, the Federal Open Market Committee indicated in December 2023 that rate cuts could be coming in 2024. In a rising interest rate environment, any leverage that we incur may bear a higher interest rate that our current leverage. There may not, however, be a corresponding increase in our investment income. Any reduction in the level of rate of return on new investments relative to the rate of return on our current investments, and any reduction in the rate of return on our current investments, could adversely impact our net investment income, reducing our ability to service the interest obligations on, and to repay the principal of, our indebtedness, as well as our capacity to pay distributions to our stockholders. See “— Reference Rate Floor Risk.” The fair value of certain of our investments may be significantly affected by changes in interest rates. Although senior secured loans are generally floating rate instruments, our investments in senior secured loans through investments in junior debt and equity tranches of CLOs are sensitive to interest rate levels and volatility. For example, because CLO debt securities are floating rate securities, a reduction in interest rates would generally result in a reduction in the coupon payment and cashflow we receive on our CLO debt investments. Further, although CLOs are generally structured to mitigate the risk of interest rate mismatch, there may be a difference between the timing of interest rate resets on the assets and liabilities of a CLO. Such a mismatch in timing could have a negative effect on the amount of funds distributed to CLO equity investors. In addition, CLOs may not be able to enter into hedge agreements, even if it may otherwise be in the best interests of the CLO to hedge such interest rate risk. Furthermore, in the event of an economic downturn, loan defaults may increase and result in credit losses that may adversely affect our cashflow, fair value of our assets, and operating results. In the event that our interest expense were to increase relative to income, or sufficient financing became unavailable, our return on investments and cash available for distribution to stockholders or to make other payments on our securities would be reduced. In addition, future investments in different types of instruments may carry a greater exposure to interest rate risk. Reference Rate Floor Risk LIBOR Replacement Risk e.g. Interest Rate Mismatch Fluctuations in Interest Rates The senior secured loans underlying CLOs typically have floating interest rates. A rising interest rate environment may increase loan defaults, resulting in losses for the CLOs in which we invest. In addition, increasing interest rates may lead to higher prepayment rates, as corporate borrowers look to avoid escalating interest payments or refinance floating rate loans. See “— Risks Related to Our Investments — Our investments are subject to prepayment risk.” For detailed discussions of the risks associated with a rising interest rate environment, see “— Risks Related to Our Investments — We and our investments are subject to interest rate risk, — Risks Related to Our Investments — We and our investments are subject to risks associated with investing in high-yield and unrated, or “junk,” securities. Inflation or deflation may negatively affect our portfolio. Inflation risk is the risk that the value of certain assets, or income from our portfolio investments, will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the interest paid and repayments made in relation to CLOs may decline. In addition, during any periods of rising inflation, some obligors may not be able to make the interest payments on CLO Collateral instruments or refinance those obligations, resulting in payment defaults. It should be noted that, in response to recent world events, including the global financial crisis, the COVID-19 global pandemic and the conflict in Ukraine, countries around the world have injected trillions of dollars into the economy in an effort to prevent more severe economic turbulence. This unprecedented amount of government funding and support, has given rise to significant increases in government spending and (in many instances) significant increases to the amount of debt issued by governments in the international bond markets. There can be no assurance that governments will be able to repay all of this debt in a timely way, or at all. Government default on debt would have negative consequences for our portfolio, disrupting financial markets generally and potentially impacting the credit risk of our investments and also of certain assets that provide the credit support for our investments. In addition, the United States and other countries have experienced, and may in the future experience, supply chain disruptions for a number of goods in the marketplace. This potential disruption in supply of goods, combined with unprecedented levels of such government spending and monetary policy, has materially increased inflation of the US dollar and other currencies. Inflation and rapid fluctuations in inflation rates have had in the past, and in the future may have, negative effects on economic and financial markets, which may consequently have a materially adverse impact on our investment performance. Deflation risk is the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of obligors and may make obligor defaults more likely, which may result in a decline in the value of the portfolio investments. Moreover, if deflation was to persist and interest rates were to decline, obligors might refinance their obligations in relation to CLO Collateral at lower interest rates which could shorten the average life of the CLOs. Our investments are subject to credit risk. The CLOs in which we invest, and the loans underlying such CLOs, are subject to the risk of an issuer's, or debtor’s, ability to meet principal and interest payments on the obligation (known as "credit risk") and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (known as "market risk"). Lower-rated or unrated ( i.e. Adverse economic developments can disrupt the market for CLO securities and severely affect the ability of issuers, especially highly leveraged issuers (such as certain CLOs), to service their debt obligations or to repay their obligations upon maturity, which may lead to a higher incidence of default on such securities. In addition, the secondary market for CLO securities is not as liquid as the secondary market for other types of equity or fixed-income securities. As a result, it may be more difficult for us to sell these securities, or we may only be able to sell the securities at prices lower than if such securities were highly liquid. Furthermore, we may experience difficulty in valuing certain CLO securities at certain times. Under these circumstances, prices realized upon the sale of such securities may be less than the prices used in calculating the Company's NAV. Prices for CLO securities may also be affected by legislative and regulatory developments. Lower-rated tranches of CLOs also present risks based on payment expectations. If an issuer calls the obligations for redemption or if the underlying loans are paid faster than expected, we may have to replace the security with a lower-yielding security, resulting in a decreased return for investors. Additionally, we may have indirect exposure to covenant lite loans through out investments in CLOs. Covenant lite loans are loans that have fewer financial maintenance and reporting covenants. Such loans may comprise a significant portion of the senior secured loans underlying the CLOs in which we invest. Accordingly, to the extent that the CLOs in which we invest hold covenant lite loans, the CLOs may have fewer rights against a borrower and may have greater risk of loss on such investments as compared to investments in loans with more robust maintenance and reporting covenants. Our investments are subject to prepayment risk. Although the Adviser’s valuations and projections take into account certain expected levels of prepayments, the collateral of a CLO may be prepaid more quickly than expected. Prepayment rates are influenced by changes in interest rates and a variety of factors beyond our control and consequently cannot be accurately predicted. Early prepayments give rise to increased reinvestment risk, as a CLO collateral manager might realize excess cash from prepayments earlier than expected. If a CLO collateral manager is unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce our net income and the fair value of that asset. We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and increase the risk of investing in us. We may incur leverage, directly or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of Derivative Transactions, preferred stock, debt securities, and other structures and instruments, in significant amounts and on terms that the Adviser and our board of directors deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and financing of our investments, to pay fees and expenses, and for other purposes. Such leverage may b | |
Risks Relating To An Investment In Our Securities [Member] | ||
General Description of Registrant [Abstract] | ||
Risk [Text Block] | Common stock of closed-end management investment companies frequently trades at discounts to their respective NAVs, and we cannot assure you that the market price of our common stock will not decline below our NAV per share. Common stock of closed-end management investment companies frequently trades at discounts to their respective NAVs and our common stock may also be discounted in the market. This characteristic of closed-end management investment companies is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether shares of our common stock will trade above, at or below our NAV per share. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell common stock purchased in an offering soon after such offering. In addition, if our common stock trades below our NAV per share, we will generally not be able to sell additional common stock to the public at market price except (1) in connection with a rights offering to our existing stockholders, (2) with the consent of the majority of the holders of our common stock, (3) upon the conversion of a convertible security in accordance with its terms, or (4) under such circumstances as the SEC may permit. See “Provisions of the DGCL and Our Certificate of Incorporation and ByLaws — Repurchase of Shares and Other Discount Measures.” Our common stock price may be volatile and may decrease substantially. The trading price of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you paid to purchase shares of our common stock, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following: • price and volume fluctuations in the overall stock market from time to time; • investor demand for shares of our common stock; • significant volatility in the market price and trading volume of securities of registered closed-end management investment companies or other companies in our sector, which are not necessarily related to the operating performance of these companies; • changes in regulatory policies or tax guidelines with respect to RICs or registered closed-end management investment companies; • failure to qualify as a RIC, or the loss of RIC status; • any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; • changes, or perceived changes, in the value of our portfolio investments; • departures of any members of the Investment Team; • operating performance of companies comparable to us; or • general economic conditions and trends and other external factors. We and the Adviser could be the target of litigation. We or the Adviser could become the target of securities class action litigation or other similar claims if our stock price fluctuates significantly or for other reasons. The outcome of any such proceedings could materially adversely affect our business, financial condition, and/or operating results and could continue without resolution for long periods of time. Any litigation or other similar claims could consume substantial amounts of our management’s time and attention, and that time and attention and the devotion of associated resources could, at times, be disproportionate to the amounts at stake. Litigation and other claims are subject to inherent uncertainties, and a material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome in litigation or other similar claims becomes probable and reasonably estimable. In addition, we could incur expenses associated with defending ourselves against litigation and other similar claims, and these expenses could be material to our earnings in future periods. Sales in the public market of substantial amounts of our common stock may have an adverse effect on the market price of our common stock. Sales of substantial amounts of our common stock, including by selling stockholders, or the availability of such common stock for sale, whether or not actually sold, could adversely affect the prevailing market price of our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of equity securities should we desire to do so. For a discussion of the adverse effect that the concentration of beneficial ownership may have on the market price of our common stock, see “— Risks Related to Our Business and Structure — Significant stockholders may control the outcome of matters submitted to our stockholders or adversely impact the market price or liquidity of our securities.” Our stockholders will experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan. All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares of our common stock. As a result, our stockholders that do not participate in our dividend reinvestment plan will experience dilution in their ownership percentage of our common stock over time . Legislative or regulatory tax changes could adversely affect investors. At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended. Any new laws, regulations or interpretations may take effect retroactively and could adversely affect the taxation of us or our shareholders. Therefore, changes in tax laws, regulations or administrative interpretations or any amendments thereto could diminish the value of an investment in our shares or the value or the resale potential of our investments. | |
Risks Relating To Our Business And Structure [Member] | ||
General Description of Registrant [Abstract] | ||
Risk [Text Block] | We have no prior operating history as a closed-end investment company. We are a newly organized, externally managed, non-diversified, closed-end management investment company with no prior operating history. As a result, we do not have significant financial information on which you can evaluate an investment in us or our prior performance. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives and that the value of your investment could decline substantially or become worthless. We currently anticipate that it will take approximately three to six months to invest substantially all of the net proceeds of this offering in our targeted investments, depending on the availability of appropriate investment opportunities consistent with our investment objectives and market conditions. During this period, we will invest in temporary investments, such as cash, cash equivalents, U.S. government securities, and other high-quality debt investments that mature in one year or less, which we expect will have returns substantially lower than the returns that we anticipate earning from investments in CLO securities and related investments. Our investment portfolio is recorded at fair value. As a result, there may be uncertainty as to the value of our portfolio investments. Under the 1940 Act, we are required to value our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by us in accordance with our written valuation policy. Pursuant to Rule 2a-5, our board has elected to designate the Adviser as “valuation designee” to perform fair value determinations in respect of our portfolio investments that do not have readily available market quotations. Typically, there is no public market for the type of investments we target. As a result, we value these securities at least quarterly based on relevant information compiled by the Adviser and third-party pricing services (when available), and with the oversight, review, and acceptance by our board of directors. The determination of fair value and, consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree subjective and dependent on a valuation process approved and overseen by our board of directors. Certain factors that may be considered in determining the fair value of our investments include non-binding indicative bids and the number of trades (and the size and timing of each trade) in an investment. Valuation of certain investments is also based, in part, upon third party valuation models that take into account various market inputs. Investors should be aware that the models, information, and/or underlying assumptions utilized by us or such models will not always allow us to correctly capture the fair value of an asset. Because such valuations, and particularly valuations of securities that are not publicly traded like those we hold, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. Our determinations of fair value may differ materially from the values that would have been used if an active public market for these securities existed. Our determinations of the fair value of our investments have a material impact on our net earnings through the recording of unrealized appreciation or depreciation of investments, and may cause our NAV on a given date to understate or overstate, possibly materially, the value that we may ultimately realize on one or more of our investments. See “Conflicts of Interest — Valuation.” Our financial condition and results of operations depend on the Adviser’s ability to effectively manage and deploy capital. Our ability to achieve our investment objectives will depend on the Adviser’s ability to effectively manage and deploy capital, which will depend, in turn, on the Adviser’s ability to identify, evaluate, and monitor, and our ability to acquire, investments that meet our investment criteria. Accomplishing our investment objectives on a cost-effective basis will be largely a function of the Adviser’s handling of the investment process, its ability to provide competent, attentive, and efficient services and our access to investments offering acceptable terms, either in the primary or secondary markets. Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations, and prospects. The results of our operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets, and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described in this prospectus, it could adversely impact our ability to pay distributions. In addition, because the trading methods employed by the Adviser on our behalf are proprietary, stockholders will not be able to determine details of such methods or whether they are being followed. We are reliant on the Adviser to carry out our investment strategy. The Adviser manages our investments. Consequently, our success depends, in large part, upon the services of the Adviser and the skill and expertise of the Adviser’s professional personnel. Incapacity of any key personnel of the Adviser could have a material and adverse effect on our performance. There can be no assurance that the professional personnel of the Adviser will continue to serve in their current positions or continue to be employed by the Adviser. We can offer no assurance that their services will be available for any length of time or that the Adviser will continue indefinitely as our Adviser. The Adviser and the Administrator each has the right to resign on 90 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. The Adviser has the right, under the Investment Advisory Agreement, and the Administrator has the right under the Services Agreement, to resign at any time upon 90 days’ written notice, whether we have found a replacement or not. If the Adviser or the Administrator resigns, we may not be able to find a new investment adviser or hire internal management, or find a new administrator, as the case may be, with similar expertise and ability to provide the same or equivalent services on acceptable terms within 90 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business, and results of operations, as well as our ability to make distributions to our stockholders and other payments to securityholders, are likely to be adversely affected, and the market price of our securities may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Adviser and the Administrator and their affiliates. Even if we are able to retain comparable management and administration, whether internal or external, the integration of such management and their lack of familiarity with our investment objectives and operations would likely result in additional costs and time delays that may adversely affect our financial condition, business, and results of operations. Our success will depend on the ability of the Adviser to attract and retain qualified personnel in a competitive environment. Our growth will require that the Adviser attract and retain new investment and administrative personnel in a competitive market. The Adviser’s ability to attract and retain personnel with the requisite credentials, experience, and skills will depend on several factors including its ability to offer competitive compensation, benefits, and professional growth opportunities. Many of the entities, including investment funds (such as private equity funds, mezzanine funds, and business development companies) and traditional financial services companies with which the Adviser will compete for experienced personnel, have greater resources than the Adviser has. There are significant actual and potential conflicts of interest which could impact our investment returns. The professional staff of the Adviser will devote as much time to us as such professionals deem appropriate to perform their duties in accordance with the Investment Advisory Agreement. However, such persons may be committed to providing investment advisory and other services for other clients, and engage in other business ventures in which we have no interest. As a result of these separate business activities, the Adviser has conflicts of interest in allocating management time, services and functions among us, other advisory clients and other business ventures. See “Conflicts of Interest.” Our incentive fee structure may incentivize the Adviser to pursue speculative investments, use leverage when it may be unwise to do so, or refrain from de-levering when it would otherwise be appropriate to do so. The incentive fee payable by us to the Adviser may create an incentive for the Adviser to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. The incentive fee payable to the Adviser is based on our Pre-Incentive Fee Net Investment Income, as calculated in accordance with our Investment Advisory Agreement. This may encourage the Adviser to use leverage to increase the return on our investments, even when it may not be appropriate to do so, and to refrain from de-levering when it would otherwise be appropriate to do so. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our securities. See “— Risks Related to Our Investments — We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and increase the risk of investing in us.” A general increase in interest rates may have the effect of making it easier for the Adviser to receive incentive fees, without necessarily resulting in an increase in our net earnings. Given the structure of our Investment Advisory Agreement, any general increase in interest rates will likely have the effect of making it easier for the Adviser to meet the quarterly hurdle rate for payment of income incentive fees under the Investment Advisory Agreement without any additional increase in relative performance on the part of the Adviser. This risk is more acute in rising rate environment, such as the one we are in now. In addition, in view of the catch-up provision applicable to income incentive fees under the Investment Advisory Agreement, the Adviser could potentially receive a significant portion of the increase in our investment income attributable to such a general increase in interest rates. If that were to occur, our increase in net earnings, if any, would likely be significantly smaller than the relative increase in the Adviser’s income incentive fee resulting from such a general increase in interest rates. We may be obligated to pay the Adviser incentive compensation even if we incur a loss or with respect to investment income that we have accrued but not received. The Adviser is entitled to incentive compensation for each fiscal quarter based, in part, on our Pre-Incentive Fee Net Investment Income, if any, for the immediately preceding calendar quarter above a performance threshold for that quarter. Accordingly, since the performance threshold is based on a percentage of our NAV, decreases in our NAV make it easier to achieve the performance threshold. Our Pre-Incentive Fee Net Investment Income for incentive compensation purposes excludes realized and unrealized capital losses or depreciation that we may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay the Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. In addition, we accrue an incentive fee on accrued income that we have not yet received in cash. However, the portion of the incentive fee that is attributable to such income will be paid to the Adviser, without interest, only if and to the extent we actually receive such income in cash. The Adviser’s liability is limited under the Investment Advisory Agreement, and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account. Under the Investment Advisory Agreement, the Adviser does not assume any responsibility to us other than to render the services called for under the agreement and carries out its obligations subject to the oversight of the board of directors. The Adviser maintains a contractual and fiduciary relationship with us. Under the terms of the Investment Advisory Agreement, the Adviser, its officers, managers, members, agents, employees, and other affiliates are not liable to us for acts or omissions performed in accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting willful misfeasance, bad faith, gross negligence, or reckless disregard of the Adviser’s duties under the Investment Advisory Agreement. In addition, we have agreed to indemnify the Adviser and each of its officers, managers, members, agents, employees, and other affiliates from and against all damages, liabilities, costs, and expenses (including reasonable legal fees and other amounts reasonably paid in settlement) incurred by such persons arising out of or based on performance by the Adviser of its obligations under the Investment Advisory Agreement, except where attributable to willful misfeasance, bad faith, gross negligence, or reckless disregard of the Adviser’s duties under the Investment Advisory Agreement. These protections may lead the Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account. The Adviser may not be able to achieve the same or similar returns as those achieved by other portfolios managed by the Adviser. Although the Adviser manages other investment portfolios, including accounts using investment objectives, investment strategies, and investment policies similar to ours, we cannot assure you that we will be able to achieve the results realized by any other vehicles managed by the Adviser. We may experience fluctuations in our NAV and quarterly operating results. We could experience fluctuations in our NAV from month to month and in our quarterly operating results due to a number of factors, including the timing of distributions to our stockholders, fluctuations in the value of the CLO securities that we hold, our ability or inability to make investments that meet our investment criteria, the interest and other income earned on our investments, the level of our expenses (including the interest or dividend rate payable on the debt securities or preferred stock we may issue), variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, and general economic conditions. As a result of these factors, our NAV and results for any period should not be relied upon as being indicative of our NAV and results in future periods. Our board of directors may change our operating policies and strategies without stockholder approval, the effects of which may be adverse. Our board of directors has the authority to modify or waive our current operating policies, investment criteria, and strategies, other than those that we have deemed to be fundamental, without prior stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria, and strategies would have on our business, NAV, operating results, and value of our securities. However, the effects of any such changes could adversely impact our ability to pay dividends and cause you to lose all or part of your investment. Our management’s initial estimates of certain metrics relating to our financial performance for a period are subject to revision based on our actual results for such period. Our management intends to make and publish unaudited estimates of certain metrics indicative of our financial performance, including the NAV per share of our common stock and the range of NAV per share of our common stock on a monthly basis, and the range of the net investment income and realized gain/loss per share of our common stock on a quarterly basis. While any such estimate will be made in good faith based on our most recently available records as of the date of the estimate, such estimates are subject to financial closing procedures, our board of directors’ final determination of our NAV as of the end of the applicable quarter, and other developments arising between the time such estimate is made and the time that we finalize our quarterly financial results, and may differ materially from the results reported in the audited financial statements and/or the unaudited financial statements included in filings we make with the SEC. As a result, investors are cautioned not to place undue reliance on any management estimates presented in this prospectus or any related amendment to this prospectus and should view such information in the context of our full quarterly or annual results when such results are available. We will be subject to corporate-level income tax if we are unable to maintain our RIC status for U.S. federal income tax purposes. Although we intend to elect to be treated as a RIC under Subchapter M of the Code beginning with our tax year ending December 31, 2024, and intend to qualify as a RIC in each of our succeeding tax years, we can offer no assurance that we will be able to maintain RIC status. To obtain and maintain RIC tax treatment under the Code, we must meet certain annual distribution, qualifying income, and asset diversification requirements. The annual distribution requirement for a RIC will be satisfied if we distribute dividends to our stockholders each tax year of an amount generally at least equal to 90% of the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we use debt financing, we are subject to certain asset coverage requirements under the 1940 Act and may be subject to financial covenants that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. The qualifying income requirement is generally satisfied if we obtain at least 90% of our income for each tax year from dividends, interest, gains from the sale of our securities, or similar sources. The asset diversification requirement will be satisfied if we meet certain asset composition requirements at the end of each quarter of our tax year. We intend to take certain positions regarding the qualification of CLO securities under the asset diversification requirement for which there is a lack of guidance. If the IRS disagrees with any of the positions we take regarding the identity of the issuers of these securities or how CLO securities are tested under the asset diversification requirement, it could result in the failure by the Company to diversify its investments in a manner necessary to satisfy the diversification requirement. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments are expected to be in CLO securities for which there will likely be no active public market, any such dispositions could be made at disadvantageous prices and could result in substantial losses. If we fail to qualify for RIC tax treatment for any reason and remain or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions. We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income. For federal income tax purposes, we will include in income certain amounts that we have not yet received in cash, which may arise if we acquire a debt security at a significant discount to par. We also may be required to include in income certain other amounts that we have not yet, and may not ever, receive in cash. Since, in certain cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code or entirely eliminate any corporate level tax. In addition, since our incentive fee is payable on our income recognized, rather than cash received, we may be required to pay advisory fees on income before or without receiving cash representing such income. Accordingly, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forego new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. Our cash distributions to stockholders may change and a portion of our distributions to stockholders may be a return of capital. The amount of our cash distributions may increase or decrease at the discretion of our board of directors, based upon its assessment of the amount of cash available to us for this purpose and other factors. Unless we are able to generate sufficient cash through the successful implementation of our investment strategy, we may not be able to sustain a given level of distributions. Further, to the extent that the portion of the cash generated from our investments that is recorded as interest income for financial reporting purposes is less than the amount of our distributions, all or a portion of one or more of our future distributions, if declared, may comprise a return of capital. Accordingly, stockholders should not assume that the sole source of any of our distributions is net investment income. Any reduction in the amount of our distributions would reduce the amount of cash received by our stockholders and could have a material adverse effect on the market price of our shares. See “— Risks Related to Our Investments — Our investments are subject to prepayment risk” “— Any unrealized losses we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution or to make payments on our other obligations.” Our stockholders may receive shares of our common stock as distributions, which could result in adverse tax consequences to them. In order to satisfy certain annual distribution requirements to maintain RIC tax treatment under Subchapter M of the Code, we may declare a large portion of a distribution in shares of our common stock instead of in cash even if a stockholder has opted out of participation in the DRIP. As long as at least 20% of such distribution is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax on 100% of the fair market value of the distribution on the date the distribution is received by the stockholder in the same manner as a cash distribution, even though most of the distribution was paid in shares of our common stock. We will incur significant costs as a result of being a publicly traded company. Once listed on a national securities exchange, we will incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. Because we expect to distribute substantially all of our ordinary income and net realized capital gains to our stockholders, we may need additional capital to finance the acquisition of new investments and such capital may not be available on favorable terms, or at all. In order to maintain our RIC status, we will be required to distribute at least 90% of the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. As a result, these earnings will not be available to fund new investments, and we will need additional capital to fund growth in our investment portfolio. If we fail to obtain additional capital, we could be forced to curtail or cease new investment activities, which could adversely affect our business, operations, and results. Even if available, if we are not able to obtain such capital on favorable terms, it could adversely affect our net investment income. A disruption or downturn in the capital markets and the credit markets could impair our ability to raise capital and negatively affect our business. We may be materially affected by market, economic, and political conditions globally and in the jurisdictions and sectors in which we invest or operate, including conditions affecting interest rates and the availability of credit. Unexpected volatility, illiquidity, governmental action, currency devaluation, or other events in the global markets in which we directly or indirectly hold positions could impair our ability to carry out our business and could cause us to incur substantial losses. These factors are outside our control and could adversely affect the liquidity and value of our investments, and may reduce our ability to make attractive new investments. In particular, economic and financial market conditions significantly deteriorated for a significant part of the past decade as compared to prior periods. Global financial markets experienced considerable declines in the valuations of debt and equity securities, an acute contraction in the availability of credit and the failure of a number of leading financial institutions. As a result, certain government bodies and central banks worldwide, including the U.S. Treasury Department and the U.S. Federal Reserve, undertook unprecedented intervention programs, the effects of which remain uncertain. Although certain financial markets have improved, to the extent economic conditions experienced during the past decade recur, they may adversely impact our investments. Signs of deteriorating sovereign debt conditions in Europe and elsewhere and uncertainty regarding the policies of the current U.S. presidential administration, including with regard to the imposition of trade tariffs, embargoes, or other restrictions or limitations on trade, could lead to further disruption in the global markets. Trends and historical events do not imply, forecast or predict future events, and past performance is not necessarily indicative of future results. There can be no assurance that the assumptions made or the beliefs and expectations currently held by the Adviser will prove correct, and actual events and circumstances may vary significantly. We may be subject to risk arising from a default by one of several large institutions that are dependent on one another to meet their liquidity or operational needs, so that a default by one institution may cause a series of defaults by the other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries with which we interact in the conduct of our business. We also may be subject to risk arising from a broad sell-off or other shift in the credit markets, which may adversely impact our income and NAV. In addition, if the value of our assets declines substantially, we may fail to maintain the minimum asset coverage imposed upon us by the 1940 Act. See “— Risks Related to Our Investments — We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and increase the risk of investing in us” “Regulation as a Closed-End Management Investment Company.” “— If we are unable to obtain, and/or refinance debt capital, our business could be materially adversely affected.” Moreover, we are unable to predict when economic and market conditions may be favorable in future periods. Even if market conditions are broadly favorable over the long term, adverse conditions in particular sectors of the financial markets could adversely impact our business. If we are unable to obtain and/or refinance debt capital, our business could be materially adversely affected. We currently anticipate obtaining debt financing within 12 months of this offering in order to obtain funds to make additional investments and grow our portfolio of investments. See “ — Because we expect to distribute substantially all of our ordinary income and net realized capital gains to our stockholders, we may need additional capital to finance the acquisition of new investments and such capital may not be available on favorable terms, or at all.” If we are unable to obtain or refinance debt capital on commercially reasonable terms, our liquidity will be lower than it would have been with the benefit of such financings, which would limit our ability to grow our business. In addition, holders of our common stock would not benefit from the potential for increased returns on equity that incurring leverage creates. Any such limitations on our ability to grow and take advantage of leverage may decrease our earnings, if any, and distributions to stockholders, which in turn may lower the trading price of our common stock. In addition, in such event, we may need to liquidate certain of our investments, which may be difficult to sell if required, meaning that we may realize significantly less than the value at which we have recorded our investments. Furthermore, to the extent we are not able to raise capital and are at or near our targeted leverage ratios, we may receive smaller allocations, if any, on new investment opportunities under the Adviser’s allocation policy. Debt capital that is available to us in the future, if any, including upon the refinancing of then-existing debt prior to its maturity, may be at a higher cost and on less favorable terms and conditions than costs and other terms and conditions at which we can currently obtain debt capital. In addition, if we are unable to repay amounts outstanding under any such debt financings and are declared in default or are unable to renew or refinance these debt financings, we may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances that we may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S. dollar, an economic downturn, or an operational problem that affects third parties or us, and could materially damage our business. We may be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political, or regulatory occurrence. We are classified as “non-diversified” under the 1940 Act. As a result, we can invest a greater portion of our assets in obligations of a single issuer than a “diversified” fund. We may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrenc | |
Common Stock [Member] | ||
Capital Stock, Long-Term Debt, and Other Securities [Abstract] | ||
Outstanding Security, Title [Text Block] | Common stock, par value $0.001 per share | |
Outstanding Security, Authorized [Shares] | 200,000,000 | |
Outstanding Security, Held [Shares] | 0 | |
Outstanding Security, Not Held [Shares] | 4,266,473 | |
Preferred Stock [Member] | ||
Capital Stock, Long-Term Debt, and Other Securities [Abstract] | ||
Outstanding Security, Title [Text Block] | Preferred stock, par value $0.001 per share | |
Outstanding Security, Authorized [Shares] | 25,000,000 | |
Outstanding Security, Held [Shares] | 0 | |
Outstanding Security, Not Held [Shares] | 0 | |
[1]The Adviser or its affiliates will pay the full amount of the sales load of $1.40 per share of common stock issued in connection with this offering (excluding shares sold to our board of directors, the Adviser, its affiliates, employees of the Adviser and its affiliates and certain other persons if agreed with the underwriters, for which the sales load is $0.60 per share) which, assuming the issuance of 2,200,000 shares in connection with this offering, is expected to amount to approximately $3,080,000. Because the sales load is paid solely by the Adviser or its affiliates (and not by us), it is not reflected in the table above and will not reduce the NAV per share of our common stock. See “ Underwriting Dividend Reinvestment Plan The Adviser and the Administrator — Investment Advisory Agreement — Base Management Fee and Incentive Fee. |