Advances under the Credit Facility generally bear interest at 30-day
LIBOR, subject to a floor of 0.5%, plus 2.85% per annum until August 21, 2021, with the margin then increasing to 3.10% for the period from August 22, 2021 to August 21, 2022, and increasing further to 3.35% thereafter. The Credit
Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused
commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.
Interest is payable monthly during the term of the Credit Facility. Available borrowings are subject to various constraints and applicable advance rates,
which are generally based on the size, characteristics, and quality of the collateral pledged by Business Investment. The Credit Facility also requires that any interest and principal payments on pledged loans be remitted directly by the borrower
into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once a month.
Among other
things, the Credit Facility contains covenants that require Business Investment to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions)
and restrict certain material changes to our credit and collection policies without the lenders consent. The Credit Facility also generally seeks to restrict distributions to stockholders to the sum of (i) our net investment income,
(ii) net capital gains, and (iii) amounts deemed by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code. Loans eligible to be pledged as collateral are subject to
certain limitations, including, among other things, restrictions on geographic concentrations, industry concentrations, loan size, payment frequency and status, average life, portfolio company leverage, and lien property. The Credit Facility also
requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of
obligors required in the borrowing base. Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term
preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to
$231.0 million as of December 31, 2020, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by
Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of December 31, 2020, and as defined in the performance guaranty of the Credit Facility, we had a net worth of
$517.0 million, asset coverage on our senior securities representing indebtedness of 671.0%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of December 31,
2020, we had availability, after adjustments for various constraints based on collateral quality, of $96.0 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.
Notes Offering
In May 2020, we entered into a
dealer manager agreement (Dealer Manager Agreement) with our affiliated dealer manager, Gladstone Securities, under which we may sell a maximum of $350.0 million aggregate principal amount of our 6.00% notes due 2040 (the
Notes). However, we can only offer for sale up to $200.0 million aggregate principal amount of the Notes pursuant to a prospectus supplement dated May 22, 2020 and a base prospectus dated July 24, 2019 relating to the
registration statement on Form N-2 (File No. 333- 232124) under the Securities Act of 1933, as amended.
The Notes will mature on November 1, 2040. We will pay interest on the Notes on the first day of each month, commencing on the first day of the month
following the issuance of such Note. Subject to certain limitations, holders of the Notes will have the option to tender their Notes for redemption at a redemption price of $22.50 per Note until the earlier of the date upon which our Board of
Directors, by resolution, suspends or terminates the optional redemption right of the holders or the date, if any, on which the Notes are listed on Nasdaq Global Select Market or another national securities exchange. In addition, we will repurchase
the Notes, upon request, in the event of the holders death at a redemption price of $25.00 per Note. Except upon the occurrence of certain events that would constitute a change in control of us or to comply with applicable law, we may not
redeem the Notes at our option until the later of (1) the one-year anniversary of the termination of the offering of the Notes and (2) July 1, 2025. After such date, we may, at our sole option,
redeem all or a portion of the Notes at a redemption price of $25.00 per Note. The Notes will be our direct unsecured obligations and rank equal in right of payment with all outstanding and future unsecured, unsubordinated indebtedness issued by us.
As of December 31, 2020, no Notes have been issued.
OFF-BALANCE SHEET ARRANGEMENTS
Unlike PIK income, we generally do not recognize success fees as income until payment has been received. Due to the contingent nature of success fees, there
are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of December 31, 2020 and March 31, 2020, we had unrecognized, contractual off-balance sheet success fee receivables of $44.6 million and $37.6 million (or approximately $1.34 and $1.14 per common share), respectively, on our debt investments. Consistent with GAAP, we have not
recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.
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