10-K: Annual report [Section 13 and 15(d), not S-K Item 405]
Published on March 20, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2025
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from __________ to __________
Commission File Number 814-01431
________________________________________________________________________________________________
(Exact name of Registrant as specified in its Charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (212 ) 287-6767
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| None | None | None | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | o | Accelerated filer | o | ||||||||
| x | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of December 31, 2025, there was no established public market for the Registrant’s common shares of beneficial interest ("Common Shares").
The Registrant’s Common Shares, $0.01 par value per share, outstanding as of March 10, 2026 was 207,774,660 , 46,080,265 , 231,024,842 and 33,599,792 of Class I, Class D, Class F and Class S common shares, respectively. Common shares outstanding exclude March 1, 2026 subscriptions since the issuance price is not yet finalized at the date of this filing.
Table of Contents
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about HPS Corporate Lending Fund (together, with its consolidated subsidiaries, the “Company”, “we” or “our”), our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
•our future operating results;
•our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our respective objectives as a result of inflation, the imposition of tariffs, increases in borrowing costs and a potential global recession;
•the impact of geo-political conditions, including revolution, insurgency, terrorism or war, including those arising out of the ongoing conflict between Russia and Ukraine and the broader Middle East conflict;
•the impact of the investments that we expect to make;
•our ability to raise sufficient capital to execute our investment strategy;
•our current and expected financing arrangements and investments;
•the adequacy of our cash resources, financing sources and working capital;
•changes in the general interest rate environment, including a sustained elevated interest rate environment, and uncertainty about the Federal Reserve’s intentions regarding interest rates in the future;
•the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;
•our contractual arrangements and relationships with third parties;
•risks associated with the demand for liquidity under our share repurchase program and the continued approval of quarterly tender offers by the Board of Trustees (the "Board" or the "Board of Trustees");
•actual and potential conflicts of interest with HPS Advisors, LLC (the “Adviser”) or any of its affiliates;
•the elevated level of inflation, and its impact on our portfolio companies and on the industries in which we invest;
•the dependence of our future success on the general economy and its effect on the industries in which we may invest;
•the availability of credit and/or our ability to access the capital markets;
•our use of financial leverage;
•the ability of the Adviser to source suitable investments for us and to monitor and administer our investments;
•the ability of the Adviser or its affiliates to attract and retain highly talented professionals;
•our ability to qualify for and maintain our qualification as a regulated investment company and as a business development company (“BDC”);
•the impact on our business of new or amended legislation or regulations;
•currency fluctuations, particularly to the extent that we receive payments denominated in currency other than U.S. dollars;
•the effect of changes to tax legislation and our tax position; and
•the tax status of the enterprises in which we may invest, including the imposition of tariffs upon either the supplies utilized by those enterprises or the enterprises’ end products.
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of any projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. Moreover, we assume no duty and do not undertake to update the forward-looking statements, except as required by applicable law. Because we are an investment company, the forward-looking statements and projections contained in this report are excluded from the safe harbor protection provided by Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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Risk Factor Summary
The following is only a summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The following should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in the section entitled “Item 1A. Risk Factors” in this report.
Risks Related to Our Business and Structure
•We are Dependent on the Investment Team.
•An Investment in Us is Illiquid and There are Restrictions on Withdrawal.
•There Can be No Assurance We will be Able to Obtain Leverage.
•We are Subject to Risks Relating to Use of Leverage.
•We are Subject to Risks Relating to Obtaining a Rating from One or More Credit Rating Agencies.
•The Adviser May be Required to Expedite Investment Decisions.
•We are Subject to Risks Relating to Portfolio Valuation.
•We are Subject to Risks Relating to Lack of Diversification.
•We are Subject to Risks Relating to the Timing of Realization of Investments.
•We are Subject to Risks Associated with Sourcing, Operating or Joint Venture Partners.
•We are Subject to Risks Relating to Distributions.
•Our Board has the Discretion to Not Repurchase Common Shares and to Suspend the Share Repurchase Program.
•We Face Risks Associated With the Deployment of Capital.
•The Capital Markets May Experience Periods of Disruption and Instability. Such Market Conditions May Materially Affect Debt and Equity Capital Markets, Which May Have Negative Impact on Our Business and Operations.
•We are Exposed to Risks Associated With Changes in Interest Rates, Including the Current Elevated Interest Rate Environment.
Risks Relating to Our Investments
•Our Portfolio Companies May be Highly Leveraged.
•We are Subject to Risks Due to Our Reliance on Portfolio Company Management.
•We May Be Subject to Risks Due to Not Holding Controlling Equity Interests in Portfolio Companies.
•We are Subject to Risks Relating to Defaults by Portfolio Companies.
•We are Subject to Risks Relating to Third Party Litigation.
•Economic Conditions May Have Adverse Effects on Us and Our Portfolio Companies.
•We Invest in Loans with Limited Amortization Requirements.
•We are Subject to Risks Relating to Potential Early Redemption of Some Investments.
•We are Subject to Risks of Investments in Certain Countries.
•We are Subject to Risks Associated with Management of Distressed Investments.
•We are Subject to Risks Associated with Revolver, Delayed-Draw and Line of Credit Investments.
Risks Relating to Certain Regulatory and Tax Matters
•We are Subject to Risks Relating to Regulations Governing Our Operation as a BDC.
•We Must Invest a Sufficient Portion of Assets in Qualifying Assets.
•We May Incur Significant Costs as a Result of Being an Exchange Act Reporting Company.
•We are Subject to Risks Relating to General Data Protection Regulations.
Federal Income Tax Risks
•We are Subject to RIC Qualification Risks.
•We May Experience Difficulty with Paying Required Distributions.
•Some Investments May be Subject to Corporate-Level Income Tax.
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Website Disclosure
We use our website (www.hlend.com) as a channel of distribution of company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and webcasts. The contents of our website are not, however, a part of this report.
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PART I
Item 1. Business.
Our Company
HPS Corporate Lending Fund was formed on December 23, 2020, as a Delaware statutory trust. We seek to invest primarily in newly originated senior secured debt and other securities, including syndicated loans, of private U.S. companies within the upper middle market. We are a non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We are externally managed by HPS Advisors, LLC (the “Adviser”), a wholly-owned subsidiary of HPS Investment Partners, LLC (the “Administrator” or “HPS”). HPS is part of BlackRock Inc. (“BlackRock”), one of the world’s leading providers of investment, advisory, and risk management solutions. We have elected to be treated for federal income tax purposes, and intend to qualify annually thereafter, as a regulated investment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a BDC and a RIC, we will be required to comply with certain regulatory requirements.
Our investment objective is to generate attractive risk-adjusted returns, predominately in the form of current income, with select investments exhibiting the ability to capture long-term capital appreciation. Our investment strategy focuses primarily on newly originated, privately negotiated senior secured term loans in high quality, established upper middle market companies, and in select situations, companies in special situations. The loans within the portfolio are typically floating rate instruments that often pay current income on a quarterly basis. We expect returns to be generated from ongoing interest income as well as from original issue discount, closing payments, commitment fees, prepayments and related fees. We use the term “upper middle market companies” generally to mean companies with earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $75 million to $1 billion annually or $250 million to $5 billion in revenue annually, at the time of investment. We have and may continue to invest in smaller or larger companies if an opportunity presents attractive investment characteristics and risk-adjusted returns. While our investment strategy primarily focuses on companies in the United States, we also intend to leverage HPS’s global presence to invest in companies in Europe, Australia and other locations outside the U.S., subject to compliance with BDC requirements to invest at least 70% of assets in “eligible portfolio companies.” In addition to corporate level obligations, our investments in these companies may also opportunistically include private asset-based financings such as equipment financings, financings against mission-critical corporate assets and mortgage loans. We may also selectively make investments that represent equity in portfolios of loans, receivables or other debt instruments. We may also participate in programmatic investments in partnership with one or more unaffiliated banks or other financial institutions, where our partner assumes senior exposure to each investment, and we participate in the junior exposure.
Our investment strategy also includes a smaller allocation to more liquid credit investments such as non-investment grade broadly syndicated loans, leveraged loans, secured and unsecured corporate bonds, and securitized credit. Our liquid credit instruments have included and may continue to include senior secured loans, senior secured bonds, high yield bonds and structured credit instruments. We intend to use these investments to maintain liquidity for our share repurchase program and manage cash before investing subscription proceeds into originated loans, while also seeking attractive investment returns. We may also invest in publicly traded securities of larger corporate issuers on an opportunistic basis when market conditions create compelling potential return opportunities, subject to compliance with BDC requirements to invest at least 70% of assets in “eligible portfolio companies.”
Under normal circumstances, we invest at least 80% of our total assets (net assets plus borrowings for investment purposes) in credit and credit-related instruments issued by corporate issuers (including loans, notes, bonds and other corporate debt securities).
Our investments in newly originated secured debt have taken and may continue to take the form of first lien senior secured and unitranche loans, notes, bonds and other corporate debt securities, bridge loans, assignments, participations, total return swaps and other derivatives. We seek to invest primarily in first lien senior secured debt and unitranche loans but may also invest in second lien and subordinated debt. We invest primarily in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. A portion of our investments may also be composed of “covenant-lite loans,” although such loans are not expected to comprise a significant portion of our portfolio. We also have the ability to acquire investments through secondary transactions, including through loan portfolios, receivables, contractual obligations to purchase subsequently originated loans and other debt instruments.
Although not expected to be a primary component of our investment strategy, we may also make certain opportunistic investments in instruments other than secured debt with a view to enhancing returns, such as mezzanine debt, payment-in-kind notes, convertible debt and other unsecured debt instruments, structured debt that is not secured by financial or other assets, debtor-in-possession financings and equity in loan portfolios or portfolios of receivables (“Opportunistic Investments”), in each case taking into account availability of leverage for such investments and our target risk/return profile. We may, to a limited extent, invest in junior debt (whether secured or unsecured), including mezzanine loans, as part of our investment strategy and upon approval of each such investment by our
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portfolio management team. We may also invest in preferred equity, or our debt investments may be accompanied by equity-related securities (such as options or warrants) and/or select common equity investments. While we expect our assets to be primarily directly originated, we may also invest in structured products or broadly syndicated transactions where HPS and/or its affiliates seek an anchor-like or otherwise influential role in certain traded instruments as part of our liquid portfolio.
The loans within the portfolio are typically floating rate instruments that often pay current income on a quarterly basis, and we look to generate return from a combination of ongoing interest income, original issue discount, closing payments, commitment fees, prepayments and related fees. Our investments generally have stated terms of three to seven years, and the expected average life of our investments is generally two to three years. However, there is no limit to the maturity or duration of any investment that we may hold in our portfolio. We expect most of our debt investments to be unrated. When rated by a nationally recognized statistical ratings organization, our investments would generally carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investor Service, Inc. or lower than “BBB-” by Standard & Poor’s Rating Services). Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be illiquid and difficult to value.
Subject to the limitations of the 1940 Act, we may invest in loans or other securities, the proceeds of which may refinance or otherwise repay debt or securities of companies whose debt is owned by other funds and accounts sponsored or managed by the Adviser or HPS. We expect to invest in co-investment transactions with other funds and accounts sponsored or managed by the Adviser or HPS. See “Regulation as a BDC—Affiliated Transactions” and “Allocation of Investment Opportunities—Co-Investment Relief.
We have, and may in the future enter into interest rate, foreign exchange, and/or other derivative arrangements to hedge against interest rate, currency, and/or other credit related risks through the use of futures, swaps, options and forward contracts. These hedging activities are subject to the applicable legal and regulatory compliance requirements; however, there can be no assurance any hedging strategy employed will be successful. We have and may also seek to borrow capital in local currency as a means of hedging our non-U.S. dollar denominated investments.
To seek to enhance our returns, we have and intend to continue to employ leverage as market conditions permit and at the discretion of the Adviser, but we are subject to the limitations set forth in the 1940 Act, which currently allows us to borrow up to a 2:1 debt to equity ratio. We have and intend to continue to use leverage in the form of borrowings, including loans from certain financial institutions and the issuance of debt securities. We may also use leverage in the form of the issuance of preferred shares, but do not currently intend to do so. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook. Any such leverage, if incurred, would be expected to increase the total capital available for investment by us.
We are currently offering on a continuous basis up to $15.0 billion of common shares of beneficial interest, par value $0.01 per share (“Common Shares”), pursuant to an offering (the “Offering”) registered with the Securities and Exchange Commission (the “SEC”). We expect to offer to sell any combination of four classes of Common Shares, Class I shares, Class D shares, Class F shares and Class S shares, with a dollar value up to the maximum offering amount. The share classes have different ongoing shareholder servicing and/or distribution fees. The initial purchase price for the Common Shares was $25.00 per share for Class I shares, Class D shares and Class F shares and $25.11 for Class S shares. Thereafter, the purchase price per share for each class of Common Shares will equal the net asset value (“NAV”) per share, as of the effective date of the monthly share purchase date. HPS Securities, LLC (the “Managing Dealer”) will use its best efforts to sell shares, but is not obligated to purchase or sell any specific amount of shares in the Offering. Prior to April 11, 2024, Emerson Equity LLC was our managing dealer. We may also engage in private offerings of our Common Shares.
Our Investment Adviser and Administrator
Our investment activities are managed by the Adviser, an investment adviser registered with the SEC under the Advisers Act and a wholly-owned subsidiary of HPS that has access to the same resources and investment personnel to manage us that HPS utilizes for the management of other funds and accounts. HPS is a part of BlackRock, one of the world’s leading providers of investment, advisory, and risk management solutions. Our Adviser is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis.
The Administrator provides or oversees the performance of administrative and compliance services. We reimburse the Administrator for its costs, expenses and our allocable portion of compensation (including salaries, bonuses and benefits) of the Administrator’s personnel and other expenses incurred by the Administrator in performing its administrative obligations under the administration agreement (the “Administration Agreement”); provided, that such expenses exclude (1) rent or depreciation, utilities, capital equipment and other administrative items of the Administrator, and (2) salaries, fringe benefits, travel expenses and other administrative
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items incurred or allocated to any “Controlling Person” (as defined in the North American Securities Administrators Association’s Omnibus Guidelines Statement of Policy, as amended from time to time (the “Omnibus Guidelines”)) of the Administrator.
HPS, a part of BlackRock, is a leading global, credit-focused alternative investment manager that seeks to provide creative capital solutions and generate attractive risk-adjusted returns for its clients. HPS manages various strategies across the capital structure, including privately negotiated senior debt; privately negotiated junior capital solutions in debt, preferred equity and common equity formats; liquid credit including syndicated leveraged loans, collateralized loan obligations and high yield bonds; asset-based finance and real estate. The scale and breadth of the HPS platform offers the flexibility to invest in companies large and small, through standard or customized solutions.
HPS was established in 2007 as a unit of Highbridge Capital Management, LLC (“HCM”), a subsidiary of JPMorgan Asset Management (“JPMAM”). On March 31, 2016, the senior executives of HPS acquired HPS and its subsidiaries from JPMAM and HCM (the “Transaction”)1. Following the Transaction, JPMAM retained a passive minority investment in HPS, which was subsequently redeemed in April 2022. In June 2018, affiliates of Dyal Capital Partners made a passive minority investment in HPS. In February 2022, an affiliate of The Guardian Life Insurance Company of America made a passive minority investment in HPS, which was subsequently increased in August 2024.
On July 1, 2025, BlackRock acquired the business and assets of HPS, with 100% of consideration paid in BlackRock equity (the “HPS/BlackRock Transaction”). The HPS/BlackRock Transaction brings together BlackRock’s corporate and asset owner relationships with HPS’s diversified origination and capital flexibility. BlackRock and HPS have formed a new private financing solutions business unit, led by Scott Kapnick, Scot French, and Michael Patterson, creating an integrated franchise with approximately $381 billion in client assets, including $254 billion of private credit assets2. This combined platform, which has more than 610 investment professionals and more than 1,400 employees globally3, offers broad capabilities across senior and junior credit solutions, asset-based finance, real estate, CLOs and GP-LP solutions. As part of the HPS/BlackRock Transaction, Scott Kapnick, Scot French, and Michael Patterson have joined BlackRock’s Global Executive Committee, and Scott Kapnick has been appointed as an observer to the BlackRock board of directors. The Adviser remains responsible for our investment activities.
Market Opportunity
Private credit as an asset class has grown considerably since the global financial crisis of 2008, and it is estimated that the total market size of private credit has grown to reach $1.8 trillion as of December 31, 20254. We expect this growth to continue and, along with the factors outlined below, to provide a robust backdrop to what HPS believes will be a significant number of attractive investment opportunities aligned to our investment strategy.
•Senior Secured Loans Offer Attractive Investment Characteristics. HPS believes that senior secured loans benefit from their relative priority position, typically sitting as the most senior obligation in an issuer’s capital structure, often with a direct security interest in the issuer’s (or its subsidiaries’) assets. Senior secured loans generally offer floating rate cash interest coupons that HPS believes can be an attractive return attribute in an elevated interest rate environment. In addition to a current income component, senior secured loans typically include original issue discount, closing payments, commitment fees, Secured Overnight Financing Rate (“SOFR”) (or similar rate) floors, call protection, and/or prepayment penalties and related fees that are additive components of total return. The relative seniority and security of senior secured loans, coupled with the privately negotiated nature of direct lending, help mitigate downside risk.
1 Prior to the Transaction, HPS was a subsidiary of HCM, which is a subsidiary of JPMAM, which in turn is a subsidiary of JPMorgan Chase & Co. (together with its affiliates, “JPM”). Immediately following the closing of the Transaction, the portfolio managers and other HPS employees responsible for the investment activities of HPS separated from JPM and continued to be employees of HPS. HPS is no longer deemed affiliated with JPM.
2 Represents the US Dollar equivalent combined AUM of HPS funds (including ElmTree funds) and BlackRock funds that form Private Financing Solutions (“PFS”) as of December 31, 2025. The AUM of heritage HPS funds is calculated as follows: (i) for private credit funds, related managed accounts and certain other closed-ended liquid credit funds: as capital commitments during such funds’ investment periods and, post such funds’ investment periods, as the cost of investment or latest available net asset value (including fund-level leverage but in all cases capped at capital commitments), (ii) for liquid credit open-ended funds and related managed accounts other than CLOs: as the latest available net asset value, (iii) for CLOs and warehouses: as the par value of collateral assets and cash in the portfolio and (iv) for business development companies: net asset value plus leverage (inclusive of drawn and undrawn amounts) as of the prior month-end. The AUM of ElmTree funds represents the gross asset value plus uncalled commitments over a fund’s life with the exception of the AUM of ElmTree Unity Debt Fund, LP, which represents total commitments of the fund. The AUM of heritage BlackRock funds represents: (i) for evergreen funds, closed-ended commingled funds and mandates in their investment period: the sum of fee-earning and any non-fee-earning client commitments and co-investments, and the effective leverage for any levered credit vehicles; (ii) for closed-ended commingled funds and mandates in runoff: the aggregate of each fund's fee-earning assets under management; (iii) for liquid and semi-liquid credit open-ended funds and related managed accounts other than CLOs: as the aggregate of each fund's net asset value; and (iv) for CLOs and warehouses: the par value of collateral assets and cash in the portfolio. In all cases, AUM is inclusive of internal BlackRock allocations.
3 Headcount as of December 31, 2025.
4 Source: Preqin, Preqin Special Report: The Future of Alternatives in 2030. Data as of December 31, 2025.
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•Regulatory Actions Continue to Drive Demand towards Private Financing. The direct lending market has seen notable growth and has become a viable alternative solution for middle to upper middle market borrowers seeking financing capital. Global regulatory actions that followed the 2008 financial crisis have significantly increased the cost of capital requirements for commercial banks, limiting the willingness of commercial banks to originate and retain illiquid, non-investment grade credit commitments on their balance sheets, particularly with respect to middle and upper middle market-sized issuers. Instead, many commercial banks have adopted an “underwrite-and-distribute” approach, which HPS believes is often less attractive to corporate borrowers seeking certainty of capital. As a result, commercial banks’ share of the leveraged loan market declined from approximately 71% in 1994 to less than 25% in 20225. Access to the syndicated leveraged loan market has also become challenging for both first time issuers and smaller scale issuers, who previously had access to the capital markets. Issuers of tranche sizes representing less than $500 million account for approximately 5% of the new issue market in 2025 as compared to over 49% in 20006. HPS believes that these regulatory actions have caused a shift in the role that commercial banks play in the direct lending market for middle to upper middle market borrowers, creating a void in the financing marketplace. This void has been filled by direct lending platforms which seek to provide borrowers an alternative “originate and retain” solution. In response, corporate borrower behavior has increasingly shifted to a more conscious assessment of the benefits that direct lending platforms of strategic financing partners can offer.
•Volatility in Credit Markets has made Availability of Capital Less Predictable. HPS believes that the value of direct lending platforms for borrowers hinges on providing certainty of capital at a fair economic price. Volatility in the credit markets, coupled with changes to the regulatory framework over the past several years, has resulted in an imbalance between the availability of new loans to middle market borrowers and the demand from borrowers requiring capital for acquisitions, capital expenditures, recapitalizations, refinancings and restructurings. HPS believes that the scarcity of the supply of traditional loan capital relative to the demand has created an environment where direct lenders can often negotiate loans with attractive returns and creditor protections compared to public markets.
•Increasingly Larger Borrowers Are Finding Value in Private Solutions. HPS believes the opportunity set has subtly shifted toward larger borrowers in recent times. The private credit focus on the middle market was traditionally driven by borrowers’ inefficient access to capital, and the fact that such borrowers were too small to have a syndicated loan or high yield bond. At the upper end of the middle market, companies have traditionally had the option to pursue a broadly syndicated loan, but volatility has increased the value they appear to be placing on the confidentiality, efficiency and execution certainty that is available in the private credit market. HPS believes that as borrowers and debt advisors become more aware of the depth in the private debt market that has been created by scaled providers, they will increasingly weigh this option for financing against public market alternatives for larger companies. HPS believes the benefits of this growing opportunity set at the upper end of the market will accrue to the largest direct lending players, like HPS, as scale is a prerequisite for providing certainty.
Potential Competitive Strengths
HPS is a leading global, credit-focused alternative investment firm that seeks to provide creative capital solutions and generate attractive risk-adjusted returns for its clients. The scale and breadth of HPS’s platform offers the flexibility to invest in companies large and small across the capital structure through both standard and highly customized structures.
Since its inception in 2007, HPS has committed approximately $212 billion in privately originated transactions across more than 1,000 investments7. We benefit from the following key competitive strengths of HPS in pursuing our investment strategy:
•Breadth of HPS’s Credit Investment Platform. HPS is a global alternative investment firm with strategies that seek to capitalize on non-investment grade credit opportunities across the capital structure. As a multi-strategy credit platform, seeking opportunities across both private and liquid credit. HPS’s team of over 290 investment professionals managed approximately $177 billion as of December 31, 2025. HPS believes that its multi-strategy approach may provide a distinctive vantage point to evaluate relative value and better positions the firm to provide borrowers with a comprehensive and diverse set of potential financing solutions, which may enable us to see more investment opportunities. In addition, HPS believes that its global footprint enables us to view and potentially benefit from relative value opportunities across geographies.
•Scaled Capital with an Ability to Speak for the Full Debt Quantum. Scaled capital has been a key factor in capturing investment opportunities for prior funds managed by HPS. The scale of HPS’s direct lending platform enables it to invest in and hold loans in
5 Source: S&P LCD Quarterly Leveraged Lending Review 4Q 2022, Primary Investor Market: Banks vs. Non-Bank.
6 S&P LCD Middle Market Deal Size Category Factsheet 4Q 2025.
7 As of December 31, 2025. Based on the total face value committed to private credit investments that are part of the Strategic Investment Partners strategy, Special Situations Opportunities strategy (private special situations investments), Specialty Direct Lending strategy, Core Senior Lending strategy, and any additional private credit investments made by one or more business development companies, private credit CLOs, separately managed funds or accounts, or private credit-focused joint ventures, excluding investments that are solely part of the High Grade Corporate-Focused, High Grade Asset-Based, Real Estate, Asset Value, or Sustainability & Energy Transition strategies.
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excess of $1 billion as the sole lender. HPS believes that there is a finite set of competitors who can provide and solely hold investments of this size and service these larger scale borrowers. HPS believes that many borrowers in this segment value the confidentiality, efficiency and execution certainty available in the private credit market. HPS also believes that being the sole or majority investor in a debt tranche can also provide the funds it or its affiliates advise with enhanced downside protection. Additionally, due to favorable competitive dynamics with fewer capital providers with the ability to deliver scaled capital solutions, HPS believes that HPS’s direct lending platform has, to date, been successful in capturing attractive risk-adjusted returns for providing solutions to larger, more diversified borrowers. Having the scale to provide a complete capital solution to larger borrowers has also been an important factor in HPS’s ability to make investments in an increasingly competitive market environment.
•Diversified Sourcing Network. HPS believes its diversified sourcing approach sets its platform apart from many of its peers. While the vast majority of peers focus their sourcing almost exclusively on financial sponsors and lending to businesses controlled by them, HPS has built an extensive relationship network across a breadth of private and public companies, management teams, banks, debt advisors, other financial intermediaries and financial sponsors. As a result, HPS has historically sourced a majority of its private credit investments from channels other than financial sponsors8. HPS believes that its ability to source from non-sponsor channels significantly reduces the level of competitive intensity and allows it to focus on structuring improved economics, stricter financial covenants and stronger loan documentation. In addition, the direct dialogue with management teams can result in a better understanding of the underlying borrowers and better positioning to actively manage investments throughout their life. HPS is also actively engaged with financial sponsors, and its exposure to sponsor transactions tends to increase in times of public market dislocation (when certainty of capital and speed of execution with a single counterparty is often sought after and highly valued). HPS believes that the ability to flex in and out of both sponsor and non-sponsor markets allows us to remain nimble and optimize our opportunity set across different market dynamics. While HPS seeks to source investments from non-sponsor channels for us, as of December 31, 2025, we have sourced only a minority of our overall private credit investments from non-sponsor channels. We may not, in the future, obtain our desired allocation to investments from the non-sponsor channel, which could adversely impact returns.
•Willingness to Navigate Complexity to Evaluate a Mispriced Opportunity. HPS believes that its willingness to embrace complexity, such as complicated business models, esoteric underlying collateral, strained capital structures, and/or timing pressures, is a key differentiating factor relative to many competitors. In these situations, risk is often mispriced by the market, which HPS believes may offer a disproportionate return opportunity as there may be fewer willing lenders with the requisite expertise to underwrite these investment opportunities and borrowers tend to be more willing to pay for secured financing. HPS seeks to use its understanding of market structures to pursue these investment opportunities, identifying structures or deal dynamics that dissuade competing capital that view the opportunities as more “complex.” HPS believes that addressing complexity through creative pricing and structure can generate potential investment opportunities that can offer attractive, uncorrelated returns taking into account the additional work that is required. Leveraging HPS’s multi-strategy approach to credit may provide us with distinctive vantage points in determining the relative value of, as well as insight into appropriately pricing, the investment opportunity in light of the risk. HPS believes that the capability to navigate complexity to identify a potentially mispriced investment opportunity is important in environments where volatility and uncertainty around economic growth is common.
•Focus on the Upper Middle Market. HPS’s direct lending platform generally targets the upper-end of the middle market. As HPS believes that the market is in its later stages of the existing credit cycle, HPS intends to position the portfolio by focusing on larger, more resilient companies that generally generate $75 million to $1 billion of EBITDA annually or $250 million to $5 billion in revenue annually. In comparison, the Pitchbook LCD definition of middle market is defined as companies with $50 million of EBITDA or less. HPS believes the upper end of the middle market has a favorable supply/demand dynamic relative to the lower end of the middle market, with substantial demand resulting from regulatory driven structural shifts in the financial landscape and limited supply as many other direct lending providers focus on small to middle market borrowers. HPS also believes that the upper middle market segment of the market can offer greater downside protection, as larger businesses typically possess the benefits of scale and a greater critical mass through diversification of customers and supplier base. As a result of these dynamics, HPS believes that it can generally negotiate commensurate or better terms with respect to borrowers in the upper middle market segment and that those borrowers can provide us with increased downside protection, with the potential for attractive risk-adjusted returns compared to the smaller-end and core-middle market.
8 As of December 31, 2025. Based on the total face value committed to private credit investments that are part of the Specialty Direct Lending strategy, Core Senior Lending strategy, and any additional private credit investments made by one or more business development companies, private credit CLOs, separately managed funds or accounts, or private credit-focused joint ventures, excluding investments that are solely part of the Strategic Investment Partners, Special Situations Opportunities (private special situations investments), High Grade Corporate-Focused, High Grade Asset-Based, Real Estate, Asset Value, or Sustainability & Energy Transition strategies. We had a lower percentage of private credit investments sourced from channels other than financial sponsors as of December 31, 2025. There is no guarantee that we will be able to source a similar or higher percentage of private credit investments from channels other than financial sponsors.
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•Emphasis on Capital Preservation. Capital preservation is a core component of HPS’s investment philosophy. In addition to its focus on stable, established upper middle market companies, HPS employs a highly selective and rigorous “private equity-like” diligence and investment evaluation process focused on identification of potential risks, when evaluating its directly originated investments. HPS believes tight credit structuring is a fundamental part of the risk and recovery calculus, as the illiquidity in private credit means that secondary market liquidity is not a reliable risk mitigant. HPS has also built a deep bench of restructuring, workout and value enhancement professionals with an average of 30 years of workout experience as of December 31, 2025, who work on an integrated basis to actively manage each investment throughout its life.
The Board
Overall responsibility for oversight of us rests with our Board of Trustees (the “Board” and each member of the Board, a “Trustee”). We have entered into the Investment Advisory Agreement with the Adviser, pursuant to which the Adviser manages us on a day-to-day basis. The Board is responsible for overseeing the Adviser and other service providers in our operations in accordance with the provisions of the 1940 Act, our Bylaws and applicable provisions of state and other laws. The Adviser will keep the Board well informed as to the Adviser’s activities on our behalf and our investment operations and provide the Board with additional information as the Board may, from time to time, request. The Board is currently composed of five members, four of whom are Trustees who are not “interested persons” of us or the Adviser as defined in the 1940 Act (“Independent Trustees”).
Investment Selection and Process for Private Investment Portfolio
We believe that much of the value HPS creates for our private investment portfolio comes on the front end through the diversity of HPS’s sourcing capabilities. To source transactions, HPS leverages the breadth of its global credit platform and its shared knowledge and insights gleaned across both private and public credit to cast a wide net to drive transaction flow. HPS seeks to generate investment opportunities across its various sourcing channels, including financial intermediaries such as investment banks and debt advisory firms, direct relationships with companies and management teams, private equity sponsors and formal partnerships and strategic arrangements with select financial institutions. We believe that this multi-pronged approach to sourcing provides a significant pipeline of investment opportunities for us that could strengthen our portfolio with attractive investment economics and risk/reward profile.
The Adviser and HPS evaluate and manage directly originated investments by adhering to the core principles of rigorous fundamental analysis, thorough due diligence, active portfolio monitoring and risk management.
Rigorous Investment Screening and Selection Process
HPS expects us to benefit from its global sourcing platforms and seeks to build a strong pipeline of investment opportunities. From this pipeline, certain investments proceed to an initial screening discussion that focuses on establishing the framework for the viability of the investment opportunity and the reasons to make the investment (e.g., leading market share, sustainable franchise and brand value, and value-add products or services). When evaluating a loan, our investment team (the “Investment Team”) expects to focus on a combination of business stability, asset values and contractual loan protections. We focus on lending to borrowers that the Investment Team believes demonstrate or are expected to develop attractive characteristics. These characteristics may include: (i) leading market share, (ii) sustainable competitive advantages and strong barriers to entry, (iii) substantial free cash flow conversion and EBITDA margins, (iv) liquidity to withstand market cycles, and/or (v) high-quality, proven management teams. When evaluating asset value, the Investment Team intends to focus on evaluating: (a) the liquidity and stability of the secondary market for the collateral, (b) the ability to effectively enforce security provisions and/or (c) the level of over-collateralization offered by the borrower’s underlying assets. This process seeks to prioritize the Investment Team’s time and resources by focusing on screening for opportunities where the borrower may place greater emphasis on certain non-economic characteristics, such as certainty of scaled capital, creative financing solutions, an ability to understand complexity of capital structure or business risk and/or confidentiality of operating and financial performance. HPS believes that when facing these characteristics, we have a competitive edge over certain syndicated financing solutions or other competitive direct lending platforms (both of which typically have a lower cost of capital). This rigorous selection process helps the Investment Team focus on situations where the Adviser believes we have a competitive edge to capitalize on an investment opportunity.
Fundamental Analysis, Due Diligence, and Capital Preservation
The Investment Team’s approach to investment selection is anchored around seeking to conduct rigorous upfront, “private equity-like” due diligence. The Investment Team’s due diligence and risk management processes seek to utilize and benefit from the substantial resources within HPS, as well as the Investment Team’s extensive relationships with management teams, industry experts, consultants, and outside advisors. We may at times retain outside consultants, expert networks, research firms and accounting and audit services to help enhance due diligence in certain areas of focus. The Investment Team intends to work closely with involved counterparties, such as financial intermediaries, or directly with a borrower’s management team, which is expected to provide certain due diligence advantages by
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facilitating access to the information needed to complete each step of the Investment Team’s screening, due diligence and monitoring process. In addition, the Investment Team seeks to employ a comprehensive investment process, which may include in-depth due diligence and full credit analysis on transaction drivers, investment thesis, review of business, industry and borrower risks and mitigants, undertaking a competitive analysis, management calls/meetings, reviewing and performing financial analysis of historical results, preparing detailed models with financial forecasts, examining legal structure/terms/collateral, performing relative value analysis, employing external consultants and/or other considerations that the Investment Team deems appropriate. This investment process typically includes:
i.Review of historical filings, financial information and other publicly-available information;
ii.Assessment of monthly, quarterly and annual financial projections;
iii.Business and industry diligence including meetings with senior management team, often in conjunction with retained third party experts;
iv.Site/plant visits (where relevant), in certain cases in conjunction with retained industry-specific independent engineers;
v.Accounting and quality of earnings review, often through retained external accountants;
vi.“Channel checks” on the company, industry and management team, utilizing the Investment Team’s relationships as well as the institutional relationships of HPS;
vii.Background checks on senior management and members of the board of directors using external providers; and/or
viii.Detailed legal and structural analysis of the borrower and negotiation of the investment documentation.
HPS generally seeks to employ a “cradle to grave” approach with respect to its investments such that the Investment Team is responsible for sourcing the investment, investment due diligence, and monitoring the investment until the investment is exited. HPS believes that this is a distinctive approach that can lead to (i) greater connectivity between HPS and a borrower’s management teams, (ii) enhanced access to the borrower details and (iii) increased accountability to help reduce the inherent risk of knowledge loss in circumstances where the sourcing, diligence and monitoring roles are fragmented.
Post-Closing – Active Monitoring and Value-Added Collaboration with Portfolio Companies
The Investment Team intends to monitor the activities and the financial condition of each portfolio company through active dialogue with members of the management team. Currently, portfolio holdings are reviewed on a monthly basis and, on a quarterly basis, the Investment Team holds in-depth portfolio review discussions led by the portfolio manager. Typically, during these discussions, each investment is assessed and ranked based on a risk scale that seeks to classify an investment by both operating and company/industry performance relative to its initial base-case plan. Based on these risk rankings, any investments that are undergoing strategic or financial challenges are typically reviewed and assessed on a weekly basis by the portfolio manager. The frequency of these discussions is intended to inform the Investment Team of any movement in the underlying operating and credit performance of the challenged investments on a nearly real-time basis.
Furthermore, HPS believes that these challenged investments benefit from the dedicated focus by HPS’s Value Enhancement Team (“VET”). The VET’s goal is to enhance values in positions with a high degree of risk and/or sufficient control, particularly in investments that have received reorganized equity post-restructuring. The VET seeks to work closely with the investment’s deal team through any workout processes, with a focus on preserving principal and enhancing post-reorganization equity value. The VET seeks to achieve this through a variety of activities, which may include the selection of new management teams, board members, setting of management incentives, engaging industry consultants, and/or identifying and implementing the go-forward strategy of the borrower. Where needed, the VET expects to work fluidly with the investment’s deal team and/or restructuring team and expects to act as an additional resource on challenged investments. Overall, this hands-on approach is designed to allow the Investment Team to proactively identify, address and mitigate downside risk to underperforming investments early in the life of the investment.
Disciplined Approach
The Investment Team expects to combine a disciplined investment approach with a substantial platform for transaction sourcing. Through this platform, the Investment Team expects to identify and invest in a select number of attractive investment opportunities. By adhering to the platform’s core principles of rigorous fundamental analysis, significant due diligence and active risk management, the Investment Team seeks to build an investment portfolio of consisting primarily of senior secured loan investments that the Investment Team believes will generate an attractive risk-adjusted return profile.
Investment Committee
Our investment activities are under the direction of the Investment Committee and the Board. The Investment Committee is currently comprised of Michael Patterson, Scott Kapnick, Scot French, Purnima Puri, Faith Rosenfeld, Colbert Cannon, Michael Fenstermacher, Jeffrey Fitts, Vikas Keswani, and Grishma Parekh. Our day-to-day activities are overseen by our Investment Team, each
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member of which is an officer or employee of HPS or its affiliate. The Investment Team includes individuals with substantial experience in both secured loan and public credit investing and risk management. HPS may change the composition of the Investment Committee and the Investment Team at any time, and HPS may add additional senior Investment Team members to the Investment Committee over time. The culmination of the private investment process is typically a comprehensive Investment Committee recommendation package that details the merits, risks and research conducted to reach the investment conclusion. This package is then presented, reviewed and deliberated by the Investment Team and the Investment Committee members during the Investment Committee Meeting, subject to any information barriers. The Investment Committee Meeting is the forum in which Investment Committee members can raise key questions, counter opinions, and deliberate on the investment opportunity.
Investments
As of December 31, 2025, the fair value of our investments was approximately $25,337.4 million in 380 portfolio companies.
The composition of our investment portfolio at cost and fair value is as follows (dollar amounts in thousands):
December 31, 2025 | |||||||||||||||||
| Amortized Cost | Fair Value | % of Total Investments at Fair Value | |||||||||||||||
| First lien debt | $ | 24,169,132 | $ | 24,395,495 | 96.29 | % | |||||||||||
| Second lien debt | 26,807 | 27,881 | 0.11 | ||||||||||||||
| Other secured debt | 223,932 | 226,763 | 0.89 | ||||||||||||||
| Unsecured debt | 60,746 | 60,145 | 0.24 | ||||||||||||||
| Structured finance investments | 88,264 | 88,664 | 0.35 | ||||||||||||||
| Investments in joint ventures | 402,400 | 416,244 | 1.64 | ||||||||||||||
| Equity investments | 138,127 | 122,228 | 0.48 | ||||||||||||||
| Total | $ | 25,109,408 | $ | 25,337,420 | 100.00 | % | |||||||||||
The industry composition of our investments at fair value is as follows:
| December 31, 2025 | |||||
| Aerospace & Defense | 5.13 | % | |||
| Air Freight & Logistics | 0.34 | ||||
| Asset Based Lending and Fund Finance | 0.49 | ||||
| Automobile Components | 1.14 | ||||
| Beverages | 0.39 | ||||
| Broadline Retail | 0.10 | ||||
| Building Products | 1.06 | ||||
| Capital Markets | 1.35 | ||||
| Chemicals | 0.66 | ||||
| Commercial Services & Supplies | 4.86 | ||||
| Communications Equipment | 0.22 | ||||
| Construction & Engineering | 0.47 | ||||
| Consumer Finance | 0.10 | ||||
| Consumer Staples Distribution & Retail | 2.06 | ||||
| Containers & Packaging | 0.79 | ||||
| Distributors | 0.06 | ||||
| Diversified Consumer Services | 3.03 | ||||
| Diversified Telecommunication Services | 0.07 | ||||
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| December 31, 2025 | |||||
| Electric Utilities | 0.30 | ||||
| Electrical Equipment | 0.50 | ||||
| Electronic Equipment, Instruments & Components | 1.06 | ||||
| Energy Equipment & Services | 0.29 | ||||
| Entertainment | 2.31 | ||||
| Financial Services | 5.53 | ||||
| Food Products | 0.70 | ||||
| Gas Utilities | 0.16 | ||||
| Health Care Equipment & Supplies | 3.92 | ||||
| Health Care Providers & Services | 12.50 | ||||
| Health Care Technology | 0.44 | ||||
| Hotels, Restaurants & Leisure | 3.24 | ||||
| Household Durables | 0.27 | ||||
| Independent Power and Renewable Electricity Producers | 1.13 | ||||
| Insurance | 2.67 | ||||
| Interactive Media & Services | 0.59 | ||||
| Investments in Joint Ventures | 1.64 | ||||
| IT Services | 1.93 | ||||
| Life Sciences Tools & Services | 3.52 | ||||
| Machinery | 1.21 | ||||
| Media | 1.60 | ||||
| Metals & Mining | 0.84 | ||||
| Multi-Utilities | 0.02 | ||||
| Oil, Gas & Consumable Fuels | 0.01 | ||||
| Personal Care Products | 0.74 | ||||
| Pharmaceuticals | 2.46 | ||||
| Professional Services | 4.07 | ||||
| Real Estate Management & Development | 0.41 | ||||
| Semiconductors & Semiconductor Equipment | 0.05 | ||||
| Software | 18.83 | ||||
| Specialty Retail | 1.50 | ||||
| Structured Finance | 0.35 | ||||
| Textiles, Apparel & Luxury Goods | 0.22 | ||||
| Trading Companies & Distributors | 1.12 | ||||
| Transportation Infrastructure | 0.34 | ||||
| Wireless Telecommunication Services | 1.21 | ||||
| Total | 100.00 | % | |||
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The geographic composition of our investments is as follows:
December 31, 2025 | |||||
| United States | 82.10 | % | |||
| United Kingdom | 7.11 | ||||
| Sweden | 2.28 | ||||
| Australia | 1.59 | ||||
| France | 1.21 | ||||
| Spain | 1.13 | ||||
| Germany | 1.06 | ||||
| Canada | 0.70 | ||||
| Austria | 0.67 | ||||
| Belgium | 0.65 | ||||
| Lithuania | 0.54 | ||||
| Czech Republic | 0.25 | ||||
| Taiwan | 0.20 | ||||
| Israel | 0.18 | ||||
| Italy | 0.17 | ||||
| Singapore | 0.14 | ||||
| Ireland | 0.01 | ||||
| Netherlands | 0.01 | ||||
| Total | 100.00 | % | |||
See the Consolidated Schedule of Investments as of December 31, 2025, in our consolidated financial statements in “Item 8. Consolidated Financial Statements and Supplementary Data—Consolidated Schedule of Investments” for more information on these investments.
As of December 31, 2025, we had outstanding commitments to fund delayed draw term loans and revolvers totaling $3,421.9 million.
Allocation of Investment Opportunities
General
Our Adviser, HPS and/or certain of their affiliates provide investment management services to registered investment companies, investment funds, client accounts and proprietary accounts that the Adviser, HPS and/or such affiliates may establish.
Our Adviser shares any investment and sale opportunities with its, HPS’s and such affiliates’ other clients and us in accordance with the Advisers Act and firm-wide allocation policies. Subject to the Advisers Act and as further set forth in this annual report, certain other clients of the Adviser or certain clients of HPS and/or their affiliates may receive certain priority or other allocation rights with respect to certain investments, subject to various conditions set forth in such other clients’ respective governing agreements.
In addition, as a BDC regulated under the 1940 Act, we are subject to certain limitations relating to co-investments and joint transactions with affiliates, which, in certain circumstances, limit our ability to make investments or enter into transactions alongside other clients.
Co-Investment Relief
Affiliates of the Adviser and us have received an exemptive order from the SEC that permits us to co-invest with certain other persons, including, but not limited to, certain affiliates of the Adviser and certain funds and accounts managed and controlled by the Adviser or its affiliates. Subject to the 1940 Act and the conditions of any such co-investment order issued by the SEC, we may, under certain circumstances co-invest with certain affiliated accounts in investments that are suitable for us and one or more of such affiliated accounts. Even though we and any such affiliated account co-invest in the same securities, any of these co-investment opportunities may
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give rise to conflicts of interest or perceived conflicts of interest among us and the other participating funds and/or accounts. To mitigate these conflicts, the Adviser and its affiliates managing other funds and accounts participating in transactions under the order will seek to allocate such transactions for all of the participating investment accounts, including us, on a fair and equitable basis and in accordance with their respective allocation policies, and the other applicable conditions of the co-investment exemptive relief. If the Adviser determines that an investment is not appropriate for us, the investment will not be allocated to us. On a quarterly basis, the Adviser will provide the Board with reports or other information requested by the Board related to our participation in co-investment transactions and a summary of related matters, if any, deemed significant that may have arisen during the relevant period.
Competition
The business of investing in debt investments is highly competitive and involves a high degree of uncertainty. Market competition for investment opportunities includes traditional lending institutions, including commercial and investment banks, as well as a growing number of non-traditional participants, such as private credit funds, hedge funds, private equity funds, mezzanine funds, and other private investors, as well as BDCs, and debt-focused competitors, such as issuers of CLOs, and other structured loan funds. In addition, given our target investment size and investment type, the Adviser expects a large number of competitors for investment opportunities. Some of these competitors may have access to greater amounts of capital and to capital that may be committed for longer periods of time or may have different return thresholds than us, and thus these competitors may have advantages not shared by us. In addition, competitors may have incurred, or may in the future incur, leverage to finance their debt investments at levels or on terms more favorable than those available to us. Furthermore, competitors may offer loan terms that are more favorable to borrowers, such as less onerous borrower financial and other covenants, borrower rights to cure defaults, and other terms more favorable to borrowers than current or historical norms. Strong competition for investments could result in fewer investment opportunities for us, as certain of these competitors have established or are establishing investment vehicles that target the same or similar investments that we intend to purchase.
Over the past several years, many investment funds have been formed with investment objectives similar to ours, and many such existing funds have grown in size and have added larger successor funds to their platform. These and other investors may make competing offers for investment opportunities identified by the Adviser which may affect our ability to participate in attractive investment opportunities and/or cause us to incur additional risks when competing for investment opportunities. Moreover, identifying attractive investment opportunities is difficult and involves a high degree of uncertainty. The Adviser may identify an investment that presents an attractive investment opportunity but may not be able to complete such investment in a manner that meets our objectives. We may incur significant expenses in connection with the identification of investment opportunities and investigating other potential investments that are ultimately not consummated, including expenses related to due diligence, transportation and legal, accounting and other professional services as well as the fees of other third-party service providers.
Non-Exchange Traded, Perpetual-Life BDC
We are non-exchange traded, meaning our shares are not listed for trading on a stock exchange or other securities market, and a perpetual-life BDC, meaning we are an investment vehicle of indefinite duration, whose Common Shares are intended to be sold monthly on a continuous basis at a price generally equal to our monthly NAV per share. In our perpetual-life structure, we may, at our discretion, offer investors an opportunity to repurchase their shares on a quarterly basis, but we are not obligated to offer to repurchase any in any particular quarter. We believe that our perpetual nature enables us to execute a patient and opportunistic strategy and be able to invest across different market environments. This may reduce our risk of being a forced seller of assets in market downturns compared to non-perpetual funds. While we may consider a liquidity event at any time in the future, we currently do not intend to undertake a liquidity event, and we are not obligated by our Declaration of Trust (as amended or restated from time to time, the “Declaration of Trust”) or otherwise to effect a liquidity event at any time.
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Employees
We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided by individuals who are employees of the Adviser or its affiliates pursuant to the terms of the Investment Advisory Agreement and the Administrator or its affiliates pursuant to the Administration Agreement, as applicable. Each of our executive officers described in “Part III, Item 10. Directors, Executive Officers and Corporate Governance” in this Form 10-K is employed by the Adviser or its affiliates. Our day-to-day investment operations are managed by the Adviser. Most of the services necessary for the originating and administration of our investment portfolio are provided by investment professionals employed by the Adviser or its affiliates. The Investment Team will focus on origination, non-originated investments and transaction development and the ongoing monitoring of our investments. In addition, we reimburse the Administrator for its costs, expenses and allocable portion of overhead, including compensation (including salaries, bonuses and benefits) paid by the Administrator (or its affiliates) to our chief compliance officer and chief financial officer and their respective staffs as well as other administrative personnel (based on the percentage of time such individuals devote, on an estimated basis, to our business and affairs); provided, that such expenses shall exclude (1) rent or depreciation, utilities, capital equipment and other administrative items of the Administrator, and (2) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any “Controlling Person” (as defined in the Omnibus Guidelines) of the Administrator.
Regulation as a BDC
The following discussion is a general summary of the material prohibitions and descriptions governing BDCs generally. It does not purport to be a complete description of all of the laws and regulations affecting BDCs.
Qualifying Assets. Under the 1940 Act, a BDC may not acquire any asset other than Qualifying Assets, unless, at the time the acquisition is made, Qualifying Assets represent at least 70% of the company’s total assets. The principal categories of Qualifying Assets relevant to our business are any of the following:
1.Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an Eligible Portfolio Company (as defined below), or from any person who is, or has been during the preceding 13 months, an affiliated person of an Eligible Portfolio Company, or from any other person, subject to such rules as may be prescribed by the SEC. An “Eligible Portfolio Company” is defined in the 1940 Act as any issuer which:
a.is organized under the laws of, and has its principal place of business in, the United States;
b.is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and
c.satisfies any of the following:
i.does not have any class of securities that is traded on a national securities exchange;
ii.has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;
iii.is controlled by a BDC or a group of companies, including a BDC and the BDC has an affiliated person who is a director of the Eligible Portfolio Company; or
iv.is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.
2.Securities of any Eligible Portfolio Company controlled by us.
3.Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.
4.Securities of an Eligible Portfolio Company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the Eligible Portfolio Company.
5.Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.
6.Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.
In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.
Significant Managerial Assistance. A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above. However, in order to count portfolio securities as Qualifying Assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must
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offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group makes available such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its trustees, officers or employees, offers to provide and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance.
Temporary Investments. Pending investment in other types of Qualifying Assets, as described above, our investments can consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which are referred to herein, collectively, as temporary investments, so that 70% of our assets would be Qualifying Assets.
Warrants. Under the 1940 Act, a BDC is subject to restrictions on the issuance, terms and amount of warrants, options or rights to purchase shares that it may have outstanding at any time. In particular, the amount of shares that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase shares cannot exceed 25% of the BDC’s total outstanding shares.
Leverage and Senior Securities; Coverage Ratio. We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares senior to our Common Shares if our asset coverage, as defined in the 1940 Act, would at least equal 150% immediately after each such issuance. On August 30, 2021, our sole shareholder approved the adoption of this 150% threshold pursuant to Section 61(a)(2) of the 1940 Act and such election became effective the following day. As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities. In addition, while any senior securities remain outstanding, we will be required to make provisions to prohibit any distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We are also permitted to borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes, which borrowings would not be considered senior securities.
We have entered into credit facilities, unsecured notes, debt securitization issuances and other financing arrangements to facilitate our investment objectives. Such credit facilities typically bear interest at floating rates spreads over SOFR or other applicable reference rates. Shareholders will bear the costs associated with any borrowings under our financing arrangements. In connection with a credit facility or other borrowings, lenders may require us to pledge assets, commitments and/or drawdowns (and the ability to enforce the payment thereof) and may ask to comply with positive or negative covenants that could have an effect on our operations. In addition, from time to time, our losses on leveraged investments may result in the liquidation of other investments held by us and may result in additional drawdowns to repay such amounts.
We may enter into a total return swap (“TRS”) agreement. A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Because of the unique structure of a TRS, a TRS often offers lower financing costs than are offered through more traditional borrowing arrangements. We would typically have to post collateral to cover this potential obligation.
We have created, and may in the future also create, leverage by securitizing our assets (including in CLOs) and retaining the equity portion of, and/or the subordinated notes issued by, the securitized vehicle. See “Risk Factors—We are Subject to Risks Associated with Forming CLOs.” We may also from time to time make secured loans of our marginable securities to brokers, dealers and other financial institutions.
Code of Ethics. We and the Adviser have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code are permitted to invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. You may read and copy this code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. You may also obtain copies of the codes of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
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Affiliated Transactions. We may be prohibited under the 1940 Act from conducting certain transactions with our affiliates without the prior approval of our Trustees who are not interested persons and, in some cases, the prior approval of the SEC. Affiliates of the Adviser and us have received an exemptive order from the SEC that permits us, among other things, to co-invest with certain other persons, including certain affiliates of the Adviser and certain funds and accounts managed and controlled by the Adviser and its affiliates, subject to certain terms and conditions.
Other. We will be periodically examined by the SEC for compliance with the 1940 Act, and be subject to the periodic reporting and related requirements of the Exchange Act.
We are also required to provide and maintain a bond issued by a reputable fidelity insurance company to protect against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any Trustee or officer against any liability to our shareholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
We are also required to designate a chief compliance officer and to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws and to review these policies and procedures annually for their adequacy and the effectiveness of their implementation.
We are not permitted to change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company’s shares present at a meeting if more than 50% of the outstanding shares of such company are present or represented by proxy, or (ii) more than 50% of the outstanding shares of such company.
Financial Condition, Liquidity and Capital Resources
We generate cash primarily from the net proceeds of the Offering of Common Shares, proceeds from net borrowings on our credit facilities, unsecured debt issuances, debt securitization issuances, income earned and repayments on principal on our debt investments.
The primary uses of our cash and cash equivalents are for (i) originating and purchasing debt investments, (ii) funding the costs of our operations (including fees paid to our Adviser and expense reimbursements paid to our Administrator), (iii) debt service, repayment and other financing costs of our borrowings, (iv) funding repurchases under our share repurchase program and (v) cash distributions to our shareholders.
Investment Advisory Agreement
The Adviser provides management services to us pursuant to the investment advisory agreement (the “Investment Advisory Agreement”). Under the terms of the Investment Advisory Agreement, the Adviser is responsible for the following:
•determining the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes in accordance with our investment objective, policies and restrictions;
•identifying investment opportunities and making investment decisions for us, including negotiating the terms of investments in, and dispositions of, portfolio securities and other instruments on our behalf;
•monitoring our investments;
•performing due diligence on prospective portfolio companies;
•exercising voting rights in respect of portfolio securities and other investments for us;
•serving on, and exercising observer rights for, boards of directors and similar committees of our portfolio companies;
•negotiating, obtaining and managing financing facilities and other forms of leverage; and
•providing us with such other investment advisory and related services as we may, from time to time, reasonably require for the investment of capital.
The Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities, and it intends to do so, so long as its services to us are not impaired.
In connection with the closing of the HPS/BlackRock Transaction effective July 1, 2025, our second amended and restated investment advisory agreement was automatically terminated (the “Prior Investment Advisory Agreement”). Prior thereto, the Board approved a new investment advisory agreement between us and the Adviser (i.e., the Investment Advisory Agreement), subject to
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shareholder approval. At a special meeting of shareholders on April 16, 2025, shareholders approved the Investment Advisory Agreement between us and the Adviser, which became effective upon the closing of the HPS/BlackRock Transaction. A “Fee Provision” was added in the Investment Advisory Agreement, in order to prevent early payment of advisory fees under the termination provisions of the Prior Investment Advisory Agreement. Under the Fee Provision, the Investment Advisory Agreement (i) provides for payment of all management and incentive fees for the respective monthly, quarterly, and annual periods for the full applicable period, including portions of that period that may have occurred before the effective date of the Investment Advisory Agreement; and (ii) in consideration for these payments, require the Adviser to waive all fees it may have been due for the same periods under the Prior Investment Advisory Agreement. Effectively, this will result in shareholders paying fees at the same time and in the same amount as if the Prior Investment Advisory Agreement was not terminated by the closing of the HPS/BlackRock Transaction..
Compensation of Adviser
We pay the Adviser a fee for its services under the Investment Advisory Agreement consisting of two components: a management fee and an incentive fee. The cost of both the management fee and the incentive fee is ultimately borne by the shareholders.
Management Fee
The management fee is payable monthly in arrears at an annual rate of 1.25% of the value of our net assets as of the beginning of the first calendar day of the applicable month. For purposes of the Investment Advisory Agreement, net assets means our total assets less the carrying value of liabilities, determined on a consolidated basis in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”).
Incentive Fee
The incentive fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee is based on a percentage of our income and a portion is based on a percentage of our capital gains, each as described below.
Incentive Fee Based on Income
The portion based on our income is based on Pre-Incentive Fee Net Investment Income Returns. “Pre-Incentive Fee Net Investment Income Returns” means dividends, cash interest or other distributions or other cash income and any third-party fees received from portfolio companies (such as upfront fees, commitment fees, origination fee, amendment fees, ticking fees and break-up fees, as well as prepayments premiums, but excluding fees for providing managerial assistance) accrued during the month, minus operating expenses for the month (including the management fee, taxes, any expenses payable under the Investment Advisory Agreement and an administration agreement with our administrator, any expense of securitizations, and interest expense or other financing fees and any dividends paid on preferred shares, but excluding the incentive fee and shareholder servicing and/or distribution fees). Pre-Incentive Fee Net Investment Income Returns includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind (“PIK”) interest and zero-coupon securities), accrued income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income Returns do not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The impact of expense support payments and recoupments are also excluded from Pre-Incentive Fee Net Investment Income Returns.
Pre-Incentive Fee Net Investment Income Returns, expressed as a rate of return on the value of our net assets at the end of the immediate preceding quarter, is compared to a “hurdle rate” of return of 1.25% per quarter (5.0% annualized).
We pay the Adviser an incentive fee quarterly in arrears with respect to our Pre-Incentive Fee Net Investment Income Returns in each calendar quarter as follows:
•No incentive fee based on Pre-Incentive Fee Net Investment Income Returns in any calendar quarter in which our Pre-Incentive Fee Net Investment Income Returns do not exceed the hurdle rate of 1.25% per quarter (5.0% annualized);
•100% of the dollar amount of our Pre-Incentive Fee Net Investment Income Returns with respect to that portion of such Pre-Incentive Fee Net Investment Income Returns, if any, that exceeds the hurdle rate but is less than a rate of return of 1.43% (5.72% annualized). We refer to this portion of our Pre-Incentive Fee Net Investment Income Returns (which exceeds the hurdle rate but is less than 1.43%) as the “catch-up.” The “catch-up” is meant to provide the Adviser with approximately 12.5% of our Pre-Incentive Fee Net Investment Income Returns as if a hurdle rate did not apply if this net investment income exceeds 1.43% in any calendar quarter; and
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•12.5% of the dollar amount of our Pre-Incentive Fee Net Investment Income Returns, if any, that exceed a rate of return of 1.43% (5.72% annualized). This reflects that once the hurdle rate is reached and the catch-up is achieved, 12.5% of all Pre-Incentive Fee Net Investment Income Returns thereafter are allocated to the Adviser.
Pre-Incentive Fee Net Investment Income
(expressed as a percentage of the value of net assets per quarter)
Percentage of Pre-Incentive Fee Net Investment Income
Allocated to Quarterly Incentive Fee
These calculations are pro-rated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. You should be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to the Adviser with respect to Pre-Incentive Fee Net Investment Income Returns. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a calendar quarter in which we incur an overall loss taking into account capital account losses. For example, if we receive Pre-Incentive Fee Net Investment Income Returns in excess of the quarterly hurdle rate, we will pay the applicable incentive fee even if we have incurred a loss in that calendar quarter due to realized and unrealized capital losses.
Incentive Fee Based on Capital Gains
The second component of the incentive fee, the capital gains incentive fee, is payable at the end of each calendar year in arrears. The amount payable equals 12.5% of cumulative realized capital gains from inception through the end of such calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fee on capital gains as calculated in accordance with GAAP.
Each year, the fee paid for the capital gains incentive fee is net of the aggregate amount of any previously paid capital gains incentive fee by the applicable share class for all prior periods. We will accrue, but will not pay, a capital gains incentive fee with respect to unrealized appreciation because a capital gains incentive fee would be owed to the Adviser if we were to sell the relevant investment and realize a capital gain. In no event will the capital gains incentive fee payable pursuant to the Investment Advisory Agreement be in excess of the amount permitted by the Advisers Act, including Section 205 thereof.
For purposes of computing our incentive fee on income and the incentive fee on capital gains, the calculation methodology looks through derivative financial instruments or swaps as if we owned the reference assets directly. The fees that are payable under the Investment Advisory Agreement for any partial period will be appropriately prorated.
Administration Agreement
On January 20, 2022, we entered into an administration agreement, subsequently amended and restated on November 27, 2024 (as in effect prior to its termination as of July 1, 2025, the “Prior Administration Agreement”) with the Administrator. In connection with the closing of the HPS/BlackRock Transaction on July 1, 2025, we entered into a new Administration Agreement, dated as of July 1, 2025, between us and the Administrator (i.e., Administration Agreement) with the material terms unchanged from the Prior Administration Agreement. Under the terms of the Administration Agreement, the Administrator provides or oversees the performance of administrative and compliance services, including, but not limited to, maintaining financial records, overseeing the calculation of NAV, compliance monitoring (including diligence and oversight of our other service providers), preparing reports to shareholders and reports filed with the SEC and other regulators, preparing materials and coordinating meetings of our Board, managing the payment of expenses, the payment and receipt of funds for investments and the performance of administrative and professional services rendered by others and providing office space, equipment and office services. We reimburse the Administrator for the costs and expenses incurred by the Administrator in performing its obligations under the Administration Agreement. Such reimbursement includes our allocable portion of compensation (including salaries, bonuses and benefits) and other expenses incurred by the Administrator in performing its administrative obligations under the Administration Agreement, including but not limited to: (i) our chief compliance officer, chief financial officer and their respective staffs; (ii) investor relations, legal, operations and other non-investment professionals at the Administrator that perform duties for us; and (iii) any internal audit group personnel of HPS or any of its affiliates, subject to the limitations described in Advisory and
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Administration Agreements. In addition, pursuant to the terms of the Administration Agreement, the Administrator may delegate its obligations under the Administration Agreement to an affiliate or to a third party and we will reimburse the Administrator for any services performed for us by such affiliate or third party. The Administrator has hired a sub-administrator to assist in the provision of administrative services. The sub-administrator receives compensation for its sub-administrative services under a sub-administration agreement.
The amount of the reimbursement payable to the Administrator will be the lesser of (1) the Administrator’s actual costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative service providers for comparable services in the same geographic location. The Administrator is required to allocate the cost of such services to us based on factors such as assets, revenues, time allocations and/or other reasonable metrics. We do not reimburse the Administrator for any services for which it receives a separate fee, or for (1) rent or depreciation, utilities, capital equipment and other administrative items of the Administrator, and (2) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any “Controlling Person” (as defined in the Omnibus Guidelines) of the Administrator.
Certain Terms of the Investment Advisory Agreement and Administration Agreement
Each of the Investment Advisory Agreement and the Administration Agreement has been approved by the Board. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect for an initial period of two years and the Administration Agreement will remain in effect for an initial one-year period, and thereafter each will remain in effect from year-to-year thereafter if approved annually by a majority of the Board or by the holders of a majority of our outstanding voting securities and, in each case, a majority of the Independent Trustees. We may terminate the Investment Advisory Agreement upon 60 days’ written notice, and the Administration Agreement upon 120 days’ written notice, without payment of any penalty. The decision to terminate either agreement may be made by a majority of the Board or the shareholders holding a majority of our outstanding voting securities, which means the lesser of (1) 67% or more of the voting securities present at a meeting if more than 50% of the outstanding voting securities are present or represented by proxy, or (2) more than 50% of the outstanding voting securities. In addition, without payment of any penalty, the Adviser may terminate the Investment Advisory Agreement upon 120 days’ written notice and the Administrator may terminate the Administration Agreement upon 120 days’ written notice. The Investment Advisory Agreement will automatically terminate in the event of its assignment within the meaning of the 1940 Act and related SEC guidance and interpretations.
Each of the Adviser and the Administrator shall not be liable for any error of judgment or mistake of law or for any act or omission or any loss suffered by us in connection with the matters to which the Investment Advisory Agreement and Administration Agreement, respectively, relate, provided that each of the Adviser and the Administrator shall not be protected against any liability to us or our shareholders to which it would otherwise be subject by reason of willful misfeasance, bad faith, misconduct, negligence or gross negligence on its part in the performance of its duties or by reason of the reckless disregard of its duties and obligations or, solely with respect to the Adviser, by reason of the Adviser’s violation of the fiduciary duty owed by the Adviser to us and our shareholders (“disabling conduct”). Each of the Investment Advisory Agreement and the Administration Agreement provide that, absent disabling conduct, the Adviser, the Administrator and their officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it (collectively, the “Indemnified Parties”) will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Investment Advisory Agreement and the Administrator’s services under the Administration Agreement or otherwise as adviser or administrator for us. Each of the Adviser and the Administrator shall not be liable under their respective agreements with us or otherwise for any loss due to the mistake, action, inaction, negligence, dishonesty, fraud or bad faith of any broker or other agent; provided, that such broker or other agent shall have been selected, engaged or retained and monitored by the Adviser and/or the Administrator in good faith, unless such action or inaction was made by reason of disabling conduct, or in the case of a criminal action or proceeding, where the Adviser and/or the Administrator had reasonable cause to believe its conduct was unlawful. In addition, we will not provide for indemnification of an Indemnified Party for any liability or loss suffered by such Indemnified Party, nor will we provide that an Indemnified Party be held harmless for any loss or liability suffered by us, unless: (1) we have determined, in good faith, that the course of conduct that caused the loss or liability was in our best interest; (2) the Indemnified Party was acting on behalf of or performing services for us; (3) we have determined, in good faith, such liability or loss was not the result of (A) negligence or misconduct, in the case that the Indemnified Party is the Adviser, the Administrator or an affiliate thereof, or (B) gross negligence or willful misconduct, in the case that the Indemnified Party is our trustee who is also not an officer to us, an officer of the Adviser or the Administrator, or an affiliate of the Adviser or the Administrator; and (4) the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from our shareholders.
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Expense Support and Conditional Reimbursement Agreement
We have entered into an Expense Support and Conditional Reimbursement Agreement (the “Expense Support Agreement”) with the Adviser. Pursuant to the Expense Support Agreement, the Adviser is obligated to advance all of our Other Operating Expenses to the effect that such expenses do not exceed 1.00% (on an annualized basis) of our NAV. Any Required Expense Payment must be paid by the Adviser to us in any combination of cash or other immediately available funds and/or offset against amounts due from us to the Adviser or its affiliates.
The Adviser may elect to pay certain additional expenses on our behalf, provided that no portion of the payment will be used to pay any interest expense or our shareholder servicing and/or distribution fees. Any Voluntary Expense Payment that the Adviser has committed to pay must be paid by the Adviser to us in any combination of cash or other immediately available funds no later than forty-five days after such commitment was made in writing, and/or offset against amounts due from us to the Adviser or its affiliates.
Following any calendar month in which Available Operating Funds (as defined below) exceed the cumulative distributions accrued to our shareholders based on distributions declared with respect to record dates occurring in such calendar month (the amount of such excess being hereinafter referred to as “Excess Operating Funds”), we shall pay such Excess Operating Funds, or a portion thereof, to the Adviser until such time as all Expense Payments made by the Adviser to us within three years prior to the last business day of such calendar month have been reimbursed. Any payments required to be made by us shall be referred to herein as a “Reimbursement Payment.” “Available Operating Funds” means the sum of (i) our net investment company taxable income (including net short-term capital gains reduced by net long-term capital losses), (ii) our net capital gains (including the excess of net long-term capital gains over net short-term capital losses) and (iii) dividends and other distributions paid to us on account of investments in portfolio companies (to the extent such amounts listed in clause (iii) are not included under clauses (i) and (ii) above).
No Reimbursement Payment for any quarter shall be made if: (1) the Effective Rate of Distributions Per Share declared by us at the time of such Reimbursement Payment is less than the Effective Rate of Distributions Per Share at the time the Expense Payment was made to which such Reimbursement Payment relates, (2) our Operating Expense Ratio at the time of such Reimbursement Payment is greater than the Operating Expense Ratio at the time the Expense Payment was made to which such Reimbursement Payment relate, or (3) our Other Operating Expenses at the time of such Reimbursement Payment exceeds 1.00% of our net asset value. “Effective Rate of Distributions Per Share” means the annualized rate (based on a 365 day year) of regular cash distributions per share exclusive of returns of capital, distribution rate reductions due to shareholder servicing and/or distribution fees, and declared special dividends or special distributions, if any. The “Operating Expense Ratio” is calculated by dividing Operating Expenses, less organizational and offering expenses, base management and incentive fees owed to the Adviser, shareholder servicing and/or distribution fees, and interest expense, by our net assets. “Operating Expenses” means all of our operating costs and expenses incurred, as determined in accordance with generally accepted accounting principles for investment companies.
Our obligation to make a Reimbursement Payment shall automatically become our liability on the last business day of the applicable calendar month, except to the extent the Adviser has waived its right to receive such payment for the applicable month.
Class I Shares
No upfront selling commissions are paid for sales of any Class I shares; however, if you purchase Class I shares from certain financial intermediaries, they may directly charge you transaction or other fees, including upfront placement fees or brokerage commissions, in such amount as they may determine, provided that they limit such charges to a 2.0% cap on NAV for Class I shares. Class I shares are subject to a minimum initial investment of $1,000,000, which is waived or reduced by the Managing Dealer to $10,000 or less for certain investors. All subsequent purchases of Class I shares, except for those made under our distribution reinvestment plan, are subject to a minimum investment size of $500 per transaction. The Managing Dealer can waive the initial or subsequent minimum investment at its discretion.
No shareholder servicing and/or distribution fees are paid for sales of any Class I shares.
Class I shares are generally available for purchase in the Offering only (1) through fee-based programs, also known as wrap accounts, sponsored by participating brokers or other intermediaries that provide access to Class I shares, (2) by endowments, foundations, pension funds and other institutional investors, (3) through participating brokers that have alternative fee arrangements with their clients to provide access to Class I shares, (4) through transaction/brokerage platforms at participating brokers, (5) by our executive officers and Trustees and their immediate family members, as well as officers and employees of the Adviser or other affiliates and their immediate family members, and, if approved by our Board, joint venture partners, consultants and other service providers, or (6) by other categories
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of investors that we name in an amendment or supplement to the Offering prospectus. In certain cases, where a holder of Class D, Class F or Class S shares exits a relationship with a participating broker for the Offering and does not enter into a new relationship with a participating broker for the Offering, such holder’s shares may be exchanged into an equivalent NAV amount of Class I shares. We may also offer Class I shares to certain feeder vehicles primarily created to hold our Class I shares, which in turn offer interests in themselves to investors; we expect to conduct such offerings pursuant to exceptions to registration under the Securities Act and not as a part of the Offering. Such feeder vehicles may have additional costs and expenses, which would be disclosed in connection with the offering of their interests. We may also offer Class I shares to other investment vehicles.
Without limiting the foregoing, the Managing Dealer waives or reduces to $10,000 or less Class I investment minimums for purchases: (1) through fee-based programs, also known as wrap accounts, sponsored by participating brokers or other intermediaries that provide access to Class I shares, (2) through participating brokers that have alternative fee arrangements with their clients to provide access to Class I shares, (3) through transaction/brokerage platforms at participating brokers, (4) by our executive officers and Trustees and their immediate family members, as well as officers and employees of the Adviser or other affiliates and their immediate family members, and, if approved by our Board, joint venture partners, consultants and other service providers, and (5) by other categories of investors that we name in an amendment or supplement to the offering prospectus. The foregoing categories of investors who are granted waivers or reductions by the Managing Dealer from the Class I investment minimums include investors described in the foregoing sentence who make purchases for eligible retirement plans and IRAs. Waivers and reductions are subject to the terms and conditions of agreements that the Managing Dealer enters into with participating intermediaries, as applicable.
Class D Shares
No upfront selling commissions are paid for sales of any Class D shares; however, if you purchase Class D shares from certain financial intermediaries, they may directly charge you transaction or other fees, including upfront placement fees or brokerage commissions, in such amount as they may determine, provided that they limit such charges to a 2.0% cap on NAV for Class D shares. Class D shares are subject to a minimum initial investment of $2,500. All subsequent purchases of Class D shares, except for those made under our distribution reinvestment plan, are subject to a minimum investment size of $500 per transaction. The Managing Dealer can waive the initial or subsequent minimum investment at its discretion.
We pay the Managing Dealer selling commissions over time as a shareholder servicing fee with respect to our outstanding Class D shares equal to 0.25% per annum of the aggregate NAV of all our outstanding Class D shares, including any Class D shares issued pursuant to our distribution reinvestment plan. The shareholder servicing fees are paid monthly in arrears. The Managing Dealer reallows (pays) all or a portion of the shareholder servicing fees to participating brokers and servicing brokers for ongoing shareholder services performed by such brokers, and will waive shareholder servicing fees to the extent a broker is not eligible to receive it for failure to provide such services. The Managing Dealer agreed to waive shareholder servicing fees for Class D shares for the first nine months following the Escrow Break Date.
Class D shares are generally available for purchase in the Offering only (1) through fee-based programs, also known as wrap accounts, sponsored by participating brokers or other intermediaries that provide access to Class D shares, (2) through participating brokers that have alternative fee arrangements with their clients to provide access to Class D shares, (3) through transaction/ brokerage platforms at participating brokers, (4) through certain registered investment advisers, (5) through bank trust departments or any other organization or person authorized to act in a fiduciary capacity for its clients or customers or (6) by other categories of investors that we name in an amendment or supplement to the offering prospectus.
Class F Shares
No upfront selling commissions are paid for sales of any Class F shares; however, if you purchase Class F shares from the Founding Distributor, it may directly charge you transaction or other fees, including upfront placement fees or brokerage commissions, in such amount as it may determine, provided that it limits such charges to a 2.0% cap on NAV for Class F shares. Class F shares are subject to a minimum initial investment of $2,500. All subsequent purchases of Class F shares, except for those made under our distribution reinvestment plan, are subject to a minimum investment size of $500 per transaction. The Managing Dealer can waive the initial or subsequent minimum investment at its discretion.
We pay the Managing Dealer selling commissions over time as a shareholder servicing and/or distribution fee with respect to our outstanding Class F shares equal to 0.50% per annum of the aggregate NAV of our outstanding Class F shares, including any Class F shares issued pursuant to our distribution reinvestment plan. The Managing Dealer agreed to waive shareholder servicing and/or distribution fees for Class F shares for the first nine months following the Escrow Break Date.
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Class F shares are generally available for purchase in the Offering only by the participating broker with whom we were launched on an exclusive basis in 2022 (the “Founding Distributor”). In this context, Class F Shares can be purchased (1) through fee-based programs, also known as wrap accounts, sponsored by the Founding Distributor, (2) in instances where the Founding Distributor has alternative fee arrangements with its clients to provide access to Class F shares, (3) through transaction/brokerage platforms at the Founding Distributor, or (4) by other categories of investors that we name in an amendment or supplement to the Offering prospectus.
Class S Shares
No upfront selling commissions are paid for sales of any Class S shares; however, if you purchase Class S shares from certain financial intermediaries, they may directly charge you transaction or other fees, including upfront placement fees or brokerage commissions, in such amount as they may determine, provided that they limit such charges to a 3.5% cap on NAV for Class S shares. Class S shares are subject to a minimum initial investment of $2,500. All subsequent purchases of Class S shares, except for those made under our distribution reinvestment plan, are subject to a minimum investment size of $500 per transaction. The Managing Dealer can waive the initial or subsequent minimum investment at its discretion.
We pay the Managing Dealer selling commissions over time as a shareholder servicing and/or distribution fee with respect to our outstanding Class S shares equal to 0.85% per annum of the aggregate NAV of our outstanding Class S shares, including any Class S shares issued pursuant to our distribution reinvestment plan. The shareholder servicing and/or distribution fees are paid monthly in arrears. The Managing Dealer reallows (pays) all or a portion of the shareholder servicing and/or distribution fees to participating brokers and servicing brokers for ongoing shareholder services performed by such brokers, and will waive shareholder servicing and/or distribution fees to the extent a broker is not eligible to receive it for failure to provide such services. The Managing Dealer agreed to waive shareholder servicing fees for Class S shares for the first nine months following the Escrow Break Date.
Purchase Price
During the escrow period, the per share purchase price for the class of share being purchased was $25.00. After the close of the escrow period, shares were sold at the then-current NAV per share. Each class of shares may have a different NAV per share because shareholder servicing and/or distribution fees differ with respect to each class.
Distributions
We have declared distributions each month beginning in February 2022 through the date of this report and expect to continue to pay regular monthly distributions. Any distributions we make will be at the discretion of our Board, considering factors such as our earnings, cash flow, capital needs and general financial condition and the requirements of Delaware law. As a result, our distribution rates and payment frequency may vary from time to time.
Our Board’s discretion as to the payment of distributions will be directed, in substantial part, by its determination to cause us to comply with the RIC requirements. To maintain our treatment as a RIC, we generally are required to make aggregate annual distributions to our shareholders of at least 90% of investment company taxable income. See “Material U.S. Federal Income Tax Considerations.”
The per share amount of distributions on Class I, Class D, Class F and Class S shares generally differ because of different class-specific shareholder servicing and/or distribution fees that are deducted from the gross distributions for each share class. Specifically, distributions on Class S shares will be lower than Class I shares, Class D shares and Class F shares, distributions on Class F shares will be lower than Class I shares and Class D shares, and distributions on Class D shares will be lower than Class I shares because we are required to pay higher ongoing shareholder servicing and/or distribution fees with respect to the Class S shares (compared to Class I shares, Class D shares and Class F shares), we are required to pay higher ongoing shareholder servicing and/or distribution fees with respect to the Class F shares (compared to Class I shares and Class D shares), and we are required to pay higher ongoing shareholder servicing fees with respect to Class D shares (compared to Class I shares).
There is no assurance we will pay distributions in any particular amount, if at all. We may fund any distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings or return of capital, and we have no limits on the amounts we may pay from such sources. The use of borrowings to pay distributions is subject to the limitations in Section 5.4(f) of the Declaration of Trust and Section VI.K. of the Omnibus Guidelines. The extent to which we pay distributions from sources other than cash flow from operations will depend on various factors, including the level of participation in our distribution reinvestment plan, how quickly we invest the proceeds from this offering and any future offering and the performance of our investments. Funding distributions from the sales of assets, borrowings, return of capital or proceeds of the Offering will result in us having less funds available
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to acquire investments. As a result, the return you realize on your investment may be reduced. Doing so may also negatively impact our ability to generate cash flows. Likewise, funding distributions from the sale of additional securities will dilute your interest in us on a percentage basis and may impact the value of your investment especially if we sell these securities at prices less than the price you paid for your shares.
From time to time, we may also pay special distributions in the form of cash or Common Shares at the discretion of our Board.
Distribution and Servicing Plan
The Board approved a distribution and servicing plan (the “Distribution and Servicing Plan”). The following table shows the shareholder servicing and/or distribution fees we pay the Managing Dealer with respect to the Class I, Class D, Class F, and Class S on an annualized basis as a percentage of our NAV for such class.
| Shareholder Servicing and/or Distribution Fee as a % of NAV | |||||
| Class I shares | — | % | |||
| Class D shares | 0.25 | % | |||
| Class F shares | 0.50 | % | |||
| Class S shares | 0.85 | % | |||
The shareholder servicing and/or distribution fees are paid monthly in arrears, calculated using the NAV of the applicable class as of the beginning of the first calendar day of the month and subject to FINRA and other limitations on underwriting compensation.
The Managing Dealer will reallow (pay) all or a portion of the shareholder servicing and/or distribution fees to participating brokers and servicing brokers for ongoing shareholder services performed by such brokers, and will waive shareholder servicing and/or distribution fees to the extent a broker is not eligible to receive it for failure to provide such services. Because the shareholder servicing and/or distribution fees with respect to Class D shares, Class F shares and Class S shares are calculated based on the aggregate NAV for all of the outstanding shares of each such class, it reduces the NAV with respect to all shares of each such class, including shares issued under our distribution reinvestment plan.
Eligibility to receive the shareholder servicing and/or distribution fee is conditioned on a broker providing the following ongoing services with respect to the Class D, Class F or Class S shares: assistance with recordkeeping, answering investor inquiries regarding us, including regarding distribution payments and reinvestments, helping investors understand their investments upon their request, and assistance with share repurchase requests. If the applicable broker is not eligible to receive the shareholder servicing and/or distribution fee due to failure to provide these services, the Managing Dealer will waive the shareholder servicing fee and/or distribution that broker would have otherwise been eligible to receive. The shareholder servicing and/or distribution fees are ongoing fees that are not paid at the time of purchase.
Distribution Reinvestment Plan
We have adopted a distribution reinvestment plan, pursuant to which we will reinvest all cash distributions declared by the Board on behalf of our shareholders who do not elect to receive their distributions in cash as provided below. As a result, if the Board authorizes, and we declare, a cash distribution or other distribution, then our shareholders who have not opted out of our distribution reinvestment plan will have their cash distributions automatically reinvested in additional shares as described below, rather than receiving the cash distribution or other distribution. Distributions on fractional shares will be credited to each participating shareholder’s account to three decimal places.
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Share Repurchase Program
We have commenced a share repurchase program in which we intend to repurchase, in each quarter, up to 5% of our Common Shares outstanding (by number of shares) as of the close of the previous calendar quarter. Our Board may amend or suspend the share repurchase program if it deems such action to be in our best interest and the best interest of our shareholders. As a result, share repurchases may not be available each quarter. We intend to conduct such repurchase offers in accordance with the requirements of Rule 13e-4 promulgated under the Securities Exchange Act of 1934, as amended, and the 1940 Act. All shares purchased pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued shares.
Under our share repurchase program, to the extent we offer to repurchase shares in any particular quarter, we expect to repurchase shares pursuant to tender offers using a purchase price equal to the NAV per share as of the last calendar day of the applicable quarter, except that shares that have not been outstanding for at least one year will be repurchased at 98% of such NAV (an “Early Repurchase Deduction”). The one-year holding period is measured as of the subscription closing date immediately following the prospective repurchase date. The Early Repurchase Deduction may be waived, at our discretion, in the case of repurchase requests arising from the death, divorce or qualified disability of the holder. The Early Repurchase Deduction will be retained by us for the benefit of remaining shareholders.
Valuation Procedures
We expect to determine our NAV for each class of shares each month as of the last day of each calendar month. The NAV per share for each class of shares is determined by dividing the value of total assets attributable to the class minus the carrying value of liabilities attributable to the class by the total number of Common Shares outstanding of the class at the date as of which the determination is made. We conduct the valuation of our investments, upon which our NAV is based, at all times consistent with GAAP and the 1940 Act. We value our investments in accordance with ASC 820, which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the applicable measurement date. ASC 820 prioritizes the use of observable market prices or values derived from such prices over entity-specific inputs. Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material.
Investments that are listed or traded on an exchange and are freely transferrable are valued at either the closing price (in the case of securities and futures) or the mean of the closing bid and offer (in the case of options) on the principal exchange on which the investment is listed or traded. Investments for which other market quotations are readily available will typically be valued at those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Where it is possible to obtain reliable, independent market quotations from a third party vendor, we use these quotations to determine the value of our investments. We utilize mid-market pricing (i.e., mid-point of average bid and ask prices) to value these investments. The Adviser obtains these market quotations from independent pricing services, if available; otherwise from one or more broker quotes. To assess the continuing appropriateness of pricing sources and methodologies, the Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing services or brokers, and any differences are reviewed in accordance with the valuation procedures. The Adviser does not adjust the prices unless it has a reason to believe market quotations are not reflective of the fair value of an investment.
Where prices or inputs are not available or, in the judgment of the Adviser, not reliable, valuation approaches based on the facts and circumstances of the particular investment will be utilized. Securities that are not publicly traded or for which market prices are not readily available, as will be the case for a substantial portion of our investments, are valued at fair value as determined in good faith by the Adviser as our valuation designee under Rule 2a-5 under the 1940 Act, pursuant to our valuation policy, and under the oversight of the Board, based on, among other things, the input of one or more independent valuation firms retained by us to review our investments. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments’ complexity.
With respect to the quarterly valuation of investments, we undertake a multi-step valuation process each quarter in connection with determining the fair value of our investments for which reliable market quotations are not readily available as of the last calendar day of each quarter, which includes, among other procedures, the following:
•The valuation process begins with each investment being preliminarily valued by the Adviser’s valuation team in consultation with the Adviser’s investment professionals responsible for each portfolio investment;
•In addition, independent valuation firms retained by the Company prepare quarter-end valuations of each such investment that was (i) originated or purchased prior to the first calendar day of the quarter and (ii) is not a de minimis investment, as determined
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by the Adviser. The independent valuation firms provide a final range of values on such investments to the Adviser. The independent valuation firms also provide analyses to support their valuation methodology and calculations;
•The Adviser’s valuation committee with respect to the Company (the “Valuation Committee”) reviews the valuation recommendations prepared by the Adviser’s valuation team and, as appropriate, the independent valuation firms’ valuation ranges;
•The Valuation Committee then determines fair value marks for each of the Company’s portfolio investments; and
•The Board and Audit Committee periodically review the valuation process and provide oversight in accordance with the requirements of Rule 2a-5 under the 1940 Act.
When we determine our NAV as of the last day of a month that is not also the last day of a calendar quarter, the Adviser’s valuation team will prepare preliminary fair value estimates for each investment consistent with the methodologies set forth in the valuation policy. If an individual asset for which reliable market quotations are not readily available is known by the Adviser’s valuation team to have experienced a significant observable event since the most recent quarter end, an independent valuation firm may from time-to-time be asked by the Adviser’s valuation team to provide an independent fair value range for such asset. The independent valuation firm will provide a final range of values for each such investment to the Valuation Committee, along with analyses to support its valuation methodology and calculations.
As part of the valuation process, we take into account relevant factors in determining the fair value of our investments for which reliable market quotations are not readily available, many of which are loans, including and in combination, as relevant: (i) the estimated enterprise value of a portfolio company, generally based on an analysis of discounted cash flows, publicly traded comparable companies and comparable transactions, (ii) the nature and realizable value of any collateral, (iii) the portfolio company’s ability to make payments based on its earnings and cash flow, (iv) the markets in which the portfolio company does business, and (v) overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity or debt sale occurs, the Adviser considers whether the pricing indicated by the external event corroborates its valuation.
We have and will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of our portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, and the Adviser and we may reasonably rely on that assistance. However, the Adviser is responsible for the ultimate valuation of the portfolio investments at fair value as determined in good faith pursuant to our valuation policy, the Board’s oversight and a consistently applied valuation process.
Our most recently determined NAV per share for each class of shares will be available on our website: www.hlend.com. We report our NAV per share as of the last day of each month on our website within 20 business days of the last day of each month.
Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to the Adviser. The Proxy Voting Policies and Procedures of the Adviser are set forth below. The guidelines will be reviewed periodically by the Adviser, and, accordingly, are subject to change.
As an investment adviser registered under the Advisers Act, the Adviser has a duty to monitor corporate events and to vote proxies, as well as a duty to cast votes in the best interest of clients and not subrogate client interests to its own interests. Rule 206(4)-6 under the Advisers Act places specific requirements on registered investment advisers with proxy voting authority.
Proxy Policies
The Adviser’s policies and procedures are reasonably designed to ensure that the Adviser votes proxies in our best interest and addresses how it will resolve any conflict of interest that may arise when voting proxies and, in so doing, to maximize the value of the investments made by us, taking into consideration our investment horizons and other relevant factors. It will review on a case-by-case basis each proposal submitted for a shareholder vote to determine its impact on the portfolio securities held by its clients. Although the Adviser will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so.
Decisions on how to vote a proxy generally are made by the Adviser. The Investment Committee and the members of the Investment Team covering the applicable security often have the most intimate knowledge of both a company’s operations and the potential impact of a proxy vote’s outcome. Decisions are based on a number of factors which may vary depending on a proxy’s subject matter, but are guided by the general policies described in the proxy policy. In addition, the Adviser may determine not to vote a proxy
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after consideration of the vote’s expected benefit to clients and the cost of voting the proxy. To ensure that its vote is not the product of a conflict of interest, the Adviser requires the members of the Investment Committee to disclose any personal conflicts of interest they may have with respect to overseeing our investment in a particular company.
Proxy Voting Records
You may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making a written request for proxy voting information to: Chief Compliance Officer, HPS Advisors, LLC 40 West 57th Street, 33rd Floor New York, NY 10019.
Reporting Obligations and Available Information
Shareholders may obtain copies of our filings with the SEC, free of charge from the website maintained by the SEC at www.sec.gov.
Material U.S. Federal Income Tax Consideration
The following discussion is a general summary of certain U.S. federal income tax considerations applicable to us and the purchase, ownership and disposition of our shares. This discussion does not purport to be complete or to deal with all aspects of U.S. federal income taxation that may be relevant to shareholders in light of their particular circumstances. Unless otherwise noted, this discussion applies only to U.S. shareholders that hold our shares as capital assets. A U.S. shareholder is an individual who is a citizen or resident of the United States, a U.S. corporation, a trust if it (a) is subject to the primary supervision of a court in the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has made a valid election to be treated as a U.S. person, or any estate the income of which is subject to U.S. federal income tax regardless of its source. If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds our Common Shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, or differing interpretations (possibly with retroactive effect). This discussion does not represent a detailed description of the U.S. federal income tax consequences relevant to special classes of taxpayers including, without limitation, financial institutions, insurance companies, investors in pass-through entities, U.S. shareholders whose “functional currency” is not the U.S. dollar, tax-exempt organizations, dealers in securities or currencies, traders in securities or commodities that elect mark to market treatment, or persons that will hold our shares as a position in a “straddle,” “hedge” or as part of a “constructive sale” for U.S. federal income tax purposes. In addition, this discussion does not address the application of the Medicare tax on net investment income or the U.S. federal alternative minimum tax, or any tax consequences attributable to persons being required to accelerate the recognition of any item of gross income with respect to our shares as a result of such income being recognized on an applicable financial statement. Prospective investors, including a partner in a partnership that will hold Common Shares, should consult their tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership, or disposition of our shares, as well as the tax consequences arising under the laws of any state, foreign country or other taxing jurisdiction.
Taxation as a Regulated Investment Company
We have elected to be treated, and intend to qualify each taxable year, as a RIC under Subchapter M of the Code.
To qualify for the favorable tax treatment accorded to RICs under Subchapter M of the Code, we must, among other things: (1) have an election in effect to be treated as a BDC under the 1940 Act at all times during each taxable year; (2) have filed with its return for the taxable year an election to be a RIC or have made such election for a previous taxable year; (3) derive in each taxable year at least 90% of its gross income from (a) dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock or securities or foreign currencies, or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; and (b) net income derived from an interest in certain publicly-traded partnerships that are treated as partnerships for U.S. federal income tax purposes and that derive less than 90% of their gross income from the items described in (a) above (each, a “Qualified Publicly-Traded Partnership”); and (4) diversify its holdings so that, at the end of each quarter of each taxable year of the Company (a) at least 50% of the value of our total assets is represented by cash and cash items (including receivables), U.S. government securities and securities of other RICs, and other securities for purposes of this calculation limited, in respect of any one issuer to an amount not greater in value than 5% of the value of our total assets, and to not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of our total assets is invested in the securities (other than U.S. government securities or securities of other RICs) of (I) any one issuer, (II) any two or
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more issuers which we control and which are determined to be engaged in the same or similar trades or businesses or related trades or businesses or (III) any one or more Qualified Publicly-Traded Partnerships (described in 3(b) above).
As a RIC, we generally will not be subject to U.S. federal income tax on its investment company taxable income (as that term is defined in the Code, but determined without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that we distribute in each taxable year to our shareholders, provided that we distribute at least 90% of the sum of our investment company taxable income (determined without regard to the deduction for dividends paid) and our net tax-exempt income (if any) for such taxable year. Generally, we intend to distribute to our shareholders, at least annually, substantially all of our investment company taxable income and net capital gains, if any.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax. To prevent imposition of the excise tax, we must distribute during each calendar year an amount at least equal to the sum of (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of our capital losses (adjusted for certain ordinary losses) for the one-year period ending October 31 of the calendar year and (iii) any ordinary income and capital gains for previous years that were not distributed during those years. For these purposes, we will be deemed to have distributed any income or gains on which it paid U.S. federal income tax.
A distribution will be treated as paid on December 31 of any calendar year if it is declared by us in October, November or December with a record date in such a month and paid by us during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
While we generally intend to qualify as a RIC for each taxable year, it is possible that we may not satisfy the diversification requirements described above, and thus may not qualify as a RIC. If we failed to qualify as a RIC or failed to satisfy the 90% distribution requirement in any taxable year, we would be subject to U.S. federal income tax at regular corporate rates on our taxable income, even if such income were distributed to our shareholders, and all distributions out of earnings and profits (including distributions of net capital gain) would be taxed to shareholders as ordinary dividend income. Such distributions generally would be eligible (i) to be treated as “qualified dividend income” in the case of individual and other non-corporate shareholders and (ii) for the dividends received deduction in the case of corporate shareholders. In addition, we could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges) before requalifying for taxation as a RIC.
Item 1A. Risk Factors.
Investing in our Common Shares involves a number of significant risks. The following information is a discussion of the material risk factors associated with an investment in our Common Shares specifically, as well as those factors generally associated with an investment in a company with investment objectives, investment policies, capital structure or trading markets similar to ours. In addition to the other information contained in this annual report, you should consider carefully the following information before making an investment in our Common Shares. The risks below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such cases, the NAV of our Common Shares could decline, and you may lose all or part of your investment.
An investment in our securities involves risks. The following is a summary of the principal risks that you should carefully consider before investing in our securities.
A. Risks Relating to Our Business and Structure
We Have Limited Operating History.
We are a non-diversified, closed-end management investment company that has elected to be regulated as a BDC with limited operating history. As a result, prospective investors have a limited track record or history on which to base their investment decision. There can be no assurance that the results achieved by similar strategies managed by HPS or its affiliates will be achieved for us. Past performance should not be relied upon as an indication of future results. Moreover, 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 objective and that the value of an investor’s investment could decline substantially or that the investor will suffer a complete loss of its investment in us.
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Prior to the commencement of our operations, the Adviser and the members of the Investment Team had no prior experience managing a BDC, and the investment philosophy and techniques used by the Adviser to manage a BDC may differ from the investment philosophy and techniques previously employed by the Adviser, its affiliates, and the members of the Investment Team in identifying and managing past investments. In addition, the 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles. For example, under the 1940 Act, BDCs are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. The Adviser’s and the members of the Investment Team’s limited experience in managing a portfolio of assets under such constraints may hinder their respective ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objective.
We May Not be Able to Meet our Investment Objective.
The Adviser cannot provide assurances that it will be able to identify, choose, make or realize investments of the type targeted for us. There is also no guarantee that the Adviser will be able to source attractive investments for us within a reasonable period of time. There can be no assurance that we will be able to generate returns for our investors or that returns will be commensurate with the risks of our investments. We may not be able to achieve our investment objective and investors may lose some or all of their invested capital. Our failure to obtain indebtedness on favorable terms or in the desired amount will adversely affect the returns realized by us and impair our ability to achieve our investment objective.
We are Dependent on the Investment Team.
Our success depends in substantial part on the skill and expertise of the Investment Team. Although the Adviser believes our success is not dependent upon any particular individual, there can be no assurance that the members of the Investment Team will continue to be affiliated with the Adviser and/or HPS throughout our life or will continue to be available to manage us. The unavailability of members of the Investment Team to manage our investment program could have a material adverse effect on us.
An Investment in Us is Illiquid and There are Restrictions on Withdrawal.
An investment in us is suitable only for certain sophisticated investors that have no need for immediate liquidity in respect of their investment and who can accept the risks associated with investing in illiquid investments.
Our Common Shares are illiquid investments for which there is not and will likely not be a secondary market. Liquidity for our Common Shares will be limited to participation in our share repurchase program, which we have no obligation to maintain. When we make quarterly repurchase offers pursuant to the share repurchase program, we will offer to repurchase our Common Shares at a price that is estimated to be equal to our net asset value per share on the last day of such quarter, which may be lower than the price that you paid for our Common Shares. As a result, to the extent you paid a price that includes the related sales load and to the extent you have the ability to sell your Common Shares pursuant to our share repurchase program, the price at which you may sell Common Shares may be lower than the amount you paid in connection with the purchase of Common Shares in the Offering.
To the extent a meaningful portion of our Common Shares are held by or through a relatively small number of shareholders, including affiliates of us, institutional investors, feeder funds or other shareholders, including shareholders who collectively, and directly or indirectly, hold a meaningful portion of our Common Shares on the basis of allocations based on model portfolios, we are subject to the risk that these shareholders may seek to sell their Common Shares pursuant to our share repurchase program in large amounts rapidly or unexpectedly and/or that such shareholders may act in a coordinated or systemic manner and/or on a sustained basis, which may result in the total amount of shares tendered in a given quarter or across multiple quarters exceeding, at times significantly, our quarterly repurchase offer amount. Shareholders have and may continue to seek, and certain financial intermediaries have and may continue to recommend to their clients that they seek, to repurchase some or all of our Common Shares that they hold. Economic or other external events may also result in a significant volume of repurchase requests in a given period or on a sustained basis across periods. Most of our assets consist of instruments that cannot generally be readily liquidated without impacting our ability to realize full value upon their disposition. Therefore, we may not always have sufficient liquid resources to make repurchase offers. If we determine to sell assets to satisfy repurchase requests, we may not be able to realize the return on such assets that we may have been able to achieve had we sold at a more favorable time or held such assets to their maturity, and our results of operations and financial condition could be materially adversely affected.
Significant repurchase requests, whether for a single period or for a sustained period, by shareholders could adversely affect our ability to conduct our investment program, strain our capacity to source investment opportunities and/or deploy capital promptly on attractive terms and/or increase operational complexity and/or expenses. In addition, shareholders seeking liquidity may experience delays in fully liquidating their investments and will remain subject to NAV fluctuations during such periods. Additionally, the presence of large
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shareholders or platform concentrations may increase the likelihood of oversubscription in future repurchase offers, further constraining liquidity available to other shareholders.
Shareholders Have No Right to Control Our Operations.
We are managed exclusively by the Adviser. Shareholders will not make decisions with respect to the management, disposition or other realization of any investment, our day-to-day operations, or any other decisions regarding our business and affairs, except for limited circumstances. Specifically, shareholders will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding investments by us or receive any financial information issued directly by the portfolio companies that is available to the Adviser. Shareholders should expect to rely solely on the ability of the Adviser with respect to our operations.
Our Assets are Subject to Recourse.
Our assets, including any investments made by and any capital held by us are available to satisfy all of our liabilities and other obligations, as applicable. If we become subject to a liability, parties seeking to have the liability satisfied may have recourse to our assets generally and may not be limited to any particular asset, such as the investment giving rise to the liability.
We Borrow Money, Which Magnifies the Potential for Gain or Loss on Amounts and May Increase the Risk of Investing With Us.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. We currently borrow under the Credit Facilities (as defined below), have completed term debt securitizations, and have issued or assumed other senior securities, including the Unsecured Notes (as defined below), and in the future may borrow from, or issue additional senior securities to, banks, insurance companies, funds, institutional investors and other lenders and investors. Lenders and holders of such senior securities have fixed dollar claims on our consolidated assets that are superior to the claims of our common shareholders or any preferred shareholders. If the value of our consolidated assets increases, then leveraging would cause the net asset value per share of our Common Shares to increase more sharply than it would have had we not incurred leverage.
Conversely, if the value of our consolidated assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not incurred leverage. Similarly, any increase in our consolidated income in excess of consolidated interest payable on the borrowed funds would cause our net income to increase more than it would had we not incurred leverage, while any decrease in our consolidated income would cause net income to decline more sharply than it would have had we not incurred leverage. Such a decline could negatively affect our ability to make distribution payments on our Common Shares. There can be no assurance that a leveraging strategy will be successful.
As of December 31, 2025, we had approximately $5,507.7 million of outstanding borrowings under our Credit Facilities (as defined below), $4,804.0 million in aggregate principal amount outstanding of unsecured notes comprised of $155 million in aggregate principal amount of our Series A Senior Notes, Tranche B (the “November 2027 Notes”), $124 million in aggregate principal amount of our Series A Senior Notes, Tranche B (the “March 2028 Notes”), $75 million in aggregate principal amount of our Series 2023-B Senior Notes, Tranche A (the “September 2027 Notes”), $250 million in aggregate principal amount of our Series 2023-B Senior Notes, Tranche B (the “September 2028 Notes”), $550 million in aggregate principal amount of our 6.75% notes due in 2029 (the “January 2029 Notes”), $400 million in aggregate principal amount of our 6.25% notes due in 2029 (the “September 2029 Notes”), $750 million aggregate principal amount of 5.45% notes due in 2028 (the “January 2028 Notes”), $500 million aggregate principal amount of 5.95% notes due in 2032 (the “April 2032 Notes”), $400 million aggregate principal amount of 5.30% notes due in 2027 (the “June 2027 Notes”), $500 million aggregate principal amount of 5.85% notes due in 2030 (the “June 2030 Notes”), $600 million aggregate principal amount of 4.90% notes due in 2028 (the “September 2028-1 Notes”), and $500 million aggregate principal amount of 5.45% notes due in 2030 (the “November 2030 Notes”, together with the November 2027 Notes, the March 2028 Notes, the September 2027 Notes, the September 2028 Notes, the January 2029 Notes, the September 2029 Notes, the January 2028 Notes, the April 2032 Notes, the June 2027 Notes, the June 2030 Notes, and the September 2028-1 Notes, the “Unsecured Notes”), $578 million in aggregate principal amount outstanding of the 2023 CLO Refinancing Secured Notes (as defined below), $400 million in aggregate principal amount of the 2024 CLO Secured Notes (as defined below), $850 million in aggregate principal amount of the 2025 CLO Secured Debt (as defined below) and $850 million in aggregate principal amount of the 2025-4 CLO Secured Notes (as defined below). We use interest rate swaps to mitigate interest rate risk associated with our Unsecured Notes. Under the interest rate swap agreements, we receive a fixed interest rate and pay a floating interest rate. The weighted average stated interest rate on our principal amount of outstanding indebtedness as of December 31, 2025 was 5.96% (including deferred financing costs, deferred issuance costs, original issue discounts and unused fees). We intend to continue borrowing under the Credit Facilities in the future and we may increase the size of the Credit Facilities or issue additional debt securities or other evidences of indebtedness (although there can be no assurance that we will be successful in doing so). For more information on our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition,
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Liquidity and Capital Resources.” Our ability to service our debt depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. The amount of leverage that we employ at any particular time will depend on our Adviser’s and our Board’s assessments of market and other factors at the time of any proposed borrowing. We are currently allowed to borrow amounts such that our asset coverage, as calculated pursuant to the 1940 Act, equals at least 150% after such borrowing (i.e., we are able to borrow up to two dollars for every dollar we have in assets less all liabilities and indebtedness not represented by senior securities issued by us).
The Credit Facilities, the Unsecured Notes and debt securitization issuances impose financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC. A failure to renew the Credit Facilities or to add new or replacement debt facilities or to issue additional debt securities or other evidences of indebtedness could have a material adverse effect on our business, financial condition and results of operations.
The following table illustrates the effect on return to a holder of our Common Shares of the leverage created by our use of borrowing at the weighted average stated interest rate of 5.96% (including deferred financing costs, deferred issuance costs, original issue discounts and unused fees) as of December 31, 2025, together with (a) our total value of net assets as of December 31, 2025; (b) approximately $12,989.7 million in aggregate principal amount of indebtedness outstanding as of December 31, 2025 and (c) hypothetical annual returns on our portfolio of minus 10% to plus 10%.
Assumed Return on Portfolio (Net of Expenses)(1) | |||||||||||||||||||||||||||||
| -10% | -5% | 0% | 5% | 10% | |||||||||||||||||||||||||
Corresponding Return to Common Shareholders(2) | (27.37) | % | (16.80) | % | (6.22) | % | 4.35 | % | 14.93 | % | |||||||||||||||||||
(1) The assumed portfolio return is required by SEC regulations and is not a prediction of, and does not represent, our projected or actual performance. Actual returns may be greater or less than those appearing in the table. Pursuant to SEC regulations, this table is calculated as of December 31, 2025. As a result, it has not been updated to take into account any changes in assets or leverage since December 31, 2025.
(2) In order to compute the “Corresponding Return to Common Shareholders,” the “Assumed Return on Portfolio” is multiplied by the total value of our assets at December 31, 2025 to obtain an assumed return to us. From this amount, the interest expense (calculated by multiplying the weighted average stated interest rate of 5.96% by the approximately $12,989.7 million of principal debt outstanding) is subtracted to determine the return available to shareholders. The return available to shareholders is then divided by the total value of our net assets as of December 31, 2025 to determine the “Corresponding Return to Common Shareholders.”
Based on our outstanding indebtedness of $12,989.7 million as of December 31, 2025 and the effective weighted average annual interest rate of 5.96% as of that date (including deferred financing costs, deferred issuance costs, original issue discounts and unused fees), our investment portfolio would have been required to experience an annual return of at least 3.05% to cover annual interest payments on the outstanding debt.
There Can be No Assurance We Will be Able to Obtain Leverage.
We have sought and will continue to seek to regularly employ a significant amount of direct or indirect leverage in a variety of forms through borrowings, derivatives and other financial instruments as part of our investment program. However, there can be no assurance that we will be able to obtain indebtedness at all or to the desired degree or that indebtedness will be accessible by us at any time or in connection with any particular investment. If indebtedness is available to us, there can be no assurance that such indebtedness will be available in the desired amount or on terms favorable to us and/or terms comparable to terms obtained by competitors. The terms of any indebtedness are expected to vary based on the counterparty, timing, size, market interest rates, other fees and costs, duration, advance rates, eligible investments, and the ability to borrow in currencies other than the U.S. dollar. Moreover, market conditions or other factors may cause or permit the amount of leverage employed by us to fluctuate over our life. Furthermore, we may seek to obtain indebtedness on an investment-by-investment basis, and leverage may not be available or may be available on less desirable terms in connection with particular investments. The instruments and borrowing utilized by us to leverage our investments may be collateralized by our other assets.
We have incurred and expect in the future that we will continue to incur indebtedness collateralized by our assets. As a BDC, with certain limited exceptions, we will only be permitted to borrow amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% (equivalent to $2 of debt outstanding for each $1 of equity) after such borrowing. If we are unable to obtain and maintain the desired amount of borrowings on favorable terms, the Adviser may seek to realize our investments earlier than originally expected.
We are Subject to Risks Relating to the Availability of Asset-Based Leverage.
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We have utilized and expect to continue to utilize asset-based leverage in acquiring investments on a deal-by-deal basis. However, there can be no assurance that we will be able to obtain indebtedness with respect to any particular investment. If indebtedness is available in connection with a particular investment, there can be no assurance that such indebtedness will be on terms favorable to us and/or terms comparable to terms obtained by competitors, including with respect to costs, duration, size, advance rates and interest rates. Moreover, market conditions or other factors may cause or permit the amount of leverage employed by us to fluctuate over our life. For example, if leverage is obtained later in our life, we may immediately deploy such leverage in order to achieve the desired borrowing ratio, which may involve making distributions of borrowed funds. If we are unable to, or not expected to be able to, obtain indebtedness in connection with a particular investment, we may determine not to make the investment or may invest a different proportion of our available capital in such investment. This may affect our ability to make investments, could adversely affect our returns and may impair our ability to achieve our investment objective. In addition, the lender may impose certain diversification or other requirements in connection with asset-based leverage, and these restrictions are expected to impact our ability to participate in certain investments or the amount of our participation in certain investments.
We are Subject to Risks Relating to Use of Leverage.
We have sought and will continue to seek to employ direct or indirect leverage in a variety of forms, including through borrowings, derivatives, and other financial instruments as part of our investment program, which leverage has been and is expected to be secured by our assets. The greater our total leverage relative to our assets, the greater the risk of loss and possibility of gain due to changes in the values of our investments. The extent to which we use leverage may have other significant consequences to shareholders, including, the following: (i) greater fluctuations in our net assets; (ii) use of cash flow (including capital contributions) for debt service and related costs and expenses, rather than for additional investments, distributions, or other purposes; (iii) to the extent that our cash proceeds are required to meet principal payments, our shareholders may be allocated income (and therefore incur tax liability) in excess of cash available for distribution; (iv) in certain circumstances we may be required to harvest investments prematurely or in unfavorable market conditions to service our debt obligations, and in such circumstances the recovery we receive from such harvests may be significantly diminished as compared to our expected return on such investments; (v) limitation on our flexibility to make distributions to shareholders or result in the sale of assets that are pledged to secure the indebtedness; (vi) increased interest expense if interest rate levels were to increase significantly; (vii) during the term of any borrowing, our returns may be materially reduced by increased costs attributable to regulatory changes; and (viii) banks and dealers that provide financing to us may apply discretionary margin, haircut, financing and collateral valuation policies. Changes by banks and dealers in any of the foregoing may result in large margin calls, loss of financing and forced liquidations of positions at disadvantageous prices. There can also be no assurance that we will have sufficient cash flow or be able to liquidate sufficient assets to meet our debt service obligations. As a result, our exposure to losses, including a potential loss of principal, as a result of which shareholders could potentially lose all or a portion of their investments in us, may be increased due to the use of leverage and the illiquidity of the investments generally. Similar risks and consequences apply with respect to indebtedness related to a particular asset or portfolio of assets.
To the extent that we enter into multiple financing arrangements, such arrangements may contain cross-default provisions that could magnify the effect of a default. If a cross-default provision were exercised, this could result in a substantial loss for us.
As a BDC, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred shares that we may issue in the future, of at least 150%. As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities. In addition, while any senior securities remain outstanding, we are required to make provisions to prohibit any distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. If this ratio were to fall below 150%, we could not incur additional debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so. This could have a material adverse effect on our operations and investment activities. Moreover, our ability to make distributions to you may be significantly restricted or we may not be able to make any such distributions whatsoever. The amount of leverage that we employ is subject to oversight by our Board, a majority of whom are Independent Trustees with no material interests in such transactions.
Although borrowings by us have the potential to enhance overall returns that exceed our cost of funds, they will further diminish returns (or increase losses on capital) to the extent overall returns are less than our cost of funds. In addition, borrowings by us may be secured by our shareholders’ investments as well as by our assets and the documentation relating to such borrowing may provide that during the continuance of a default under such borrowing, the interests of the investors may be subordinated to such borrowing.
We are Subject to Risks Relating to Seller Financing.
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We may utilize seller financing (i.e., make investments that are financed, in whole or in part, by us borrowing from the sellers of said investments or their affiliates) and other one-off financing solutions on a case-by-case basis. Providers of seller financing may be motivated to sell a particular asset, and may be willing to provide a prospective purchaser of such asset with more favorable pricing and/or greater amounts of leverage than would otherwise be the case if such purchaser sought financing from unrelated, third-party providers of leverage. To the extent that we are able to obtain seller financing in connection with a particular investment, we may seek to employ more leverage than would otherwise be the case in the absence of such seller financing. While our use of seller financing could increase the potential return to shareholders to the extent that there are gains associated with such investment, such use of seller financing will increase risks associated with the use of leverage generally, including the risks associated with such investment and the exposure of such investment to adverse economic factors such as deteriorations in overall conditions in the economy or in the condition of the particular issuer.
We are Subject to Risks Relating to Obtaining a Rating from One or More Credit Rating Agencies.
We have applied and may continue to apply to one or more credit rating agencies to rate us and/or our assets in order to provide us access to different sources of indebtedness or capital as well as to help meet our risk/return objectives, our overall target indebtedness ratio or other considerations as determined by the Adviser. In connection with such rating or ratings, the credit rating agency or credit rating agencies may review and analyze our counterparties, the Adviser, Administrator, our investments and expected investments, our legal structure, our historical and current shareholders and our performance data. There can be no assurance that we will apply for any additional rating or ratings, that a credit rating agency will provide a rating or that such a rating will be beneficial to us. In addition, when making investment decisions for us (including establishing our investment portfolio), the Adviser may consider the implications of the investment portfolio on a credit rating agency or credit rating agencies’ rating or ratings of us and tailor our investment portfolio taking into account such considerations. There is a risk that a rating agency could incorrectly rate, or downgrade ratings which could have a material effect on us, including our assets and our ability to acquire indebtedness.
The Adviser May be Required to Expedite Investment Decisions.
Investment analyses and decisions by the Adviser may be required to be undertaken on an expedited basis to take advantage of investment opportunities. In such cases, the information available to the Adviser at the time of making an investment decision may be limited. Therefore, no assurance can be given that the Adviser will have knowledge of all circumstances that may adversely affect an investment. In addition, the Adviser may rely upon independent consultants and other sources in connection with its evaluation of proposed investments, and no assurance can be given as to the accuracy or completeness of the information provided by such independent consultants or other sources or to our right of recourse against them in the event errors or omissions do occur.
We are Subject to Risks Relating to Insurance.
HPS and/or the Adviser have purchased and are maintaining an omnibus insurance policy which include coverage in respect of us and one or more other clients of the Adviser and its affiliates, including certain of their respective indemnified persons (which omnibus insurance policy or policies may provide coverage to the Adviser and such indemnified persons for events unrelated to us). The pro rata portion of the premiums for such shared insurance policies generally will be borne by us, and such shared insurance policies are expected to have overall caps on coverage. To the extent an insurable event results in claims in excess of such a cap, we may not receive as much in insurance proceeds as we would have received if separate insurance policies had been purchased for each insured party. Similarly, insurable events may occur sequentially in time while subject to a single overall cap. To the extent insurance proceeds for one such event are applied towards a cap and we experience an insurable loss after such event, our receipts from such insurance policy may also be diminished. Insurance policies covering us may provide insurance coverage to indemnified persons for conduct that would not be covered by indemnification. In addition, we may need to initiate litigation in order to collect from an insurance provider, which may be lengthy and expensive for us and which ultimately may not result in a financial award.
While HPS and the Adviser expect to allocate insurance expenses in a manner they determine to be fair and equitable, taking into account any factors they deem relevant to the allocation of such expenses, because of the uncertainty of whether claims will arise in the future and the timing and the amount that may be involved in any such claim, the determination of how to allocate such expenses may require HPS and the Adviser to take into consideration facts and circumstances that are subjective in nature. It is unlikely that HPS or the Adviser will be able to accurately allocate the expenses of any such insurance policies based on the actual claims related to a particular client, including us.
We are Subject to Risks Relating to Indemnification.
We are required to indemnify the Adviser, the members of our Board and each other person indemnified under our Declaration of Trust and our Bylaws (as amended or restated from time to time, the “Bylaws”) for liabilities incurred in connection with our Declaration
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of Trust, our Bylaws, the Investment Advisory Agreement and our activities, except in certain circumstances. Subject to the limits on indemnification under Section 17(h) of the 1940 Act, our Declaration of Trust provides that we shall not indemnify such persons to the extent liability and losses are the result of, negligence or misconduct in the case of an Interested Trustee, officer, employee, controlling person or agent of us, or gross negligence or willful misconduct in the case of an Independent Trustee. Subject to the limits on indemnification under Section 17(i) of the 1940 Act, the Investment Advisory Agreement provides that the Adviser shall not be protected against any liability to us or our shareholders by reason of willful misfeasance, bad faith, misconduct, negligence or gross negligence on the Adviser’s part in the performance of its duties or by reason of the reckless disregard of its duties and obligations, or by reason of the Adviser’s violation of the fiduciary duty owed by the Adviser to us and our shareholders. We also indemnify certain service providers, including the Administrator and our auditors, as well as consultants and sourcing, operating and joint venture partners. Such liabilities may be material and may have an adverse effect on the returns to the shareholders. Our indemnification obligation would be payable from our assets. The application of the indemnification and exculpation standards may result in shareholders bearing a broader indemnification obligation in certain cases than they would in the absence of such standards. As a result of these considerations, even though such provisions will not act as a waiver on the part of any investor of any of its rights which are not permitted to be waived under applicable law, we may bear significant financial losses even where such losses were caused by the negligence or other conduct of such indemnified persons.
We are Subject to Risks Relating to Certain Proceedings and Investigations.
The Adviser and its affiliates and/or we may be subject to claims (or threats of claims), and governmental investigations, examinations, requests for information, audits, inquiries, subpoenas and other regulatory or civil proceedings. The outcome of any investigation, action or proceeding may materially adversely affect our value, including by virtue of reputational damage to the Adviser and may be impossible to anticipate. Any such investigation, action or proceeding may continue without resolution for long periods of time and may consume substantial amounts of the Adviser’s time and attention, and that time and the devotion of these resources to any investigation, action or proceeding may, at times, be disproportionate to the amounts at stake in such investigation, action or proceeding. The unfavorable resolution of such items could result in criminal or civil liability, fines, settlements, charges, penalties or other monetary or non-monetary remedies or sanctions that could negatively impact the Adviser, its affiliates and/or us. In addition, such actions and proceedings may involve claims of strict liability or similar risks against us in certain jurisdictions or in connection with certain types of activities. In some cases, the expense of such investigations, actions or proceedings and paying any amounts pursuant to settlements or judgments would be borne by us.
We are Not Registered as an Investment Company Under the 1940 Act.
While we are not registered as an investment company under the 1940 Act, we are subject to regulation as a BDC under the 1940 Act and are required to adhere to the provisions of the 1940 Act applicable to BDCs. Our Common Shares have not been recommended by any U.S. federal or state, or any non-U.S., securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of our disclosures. Any representation to the contrary is a criminal offense.
We are Subject to Risks Relating to Portfolio Valuation.
The Adviser, subject at all times to the oversight of the Board, determines the valuation of our investments. It is expected that the Adviser will have a limited ability to obtain accurate market quotations for purposes of valuing most of our investments, which may require the Adviser to estimate, in accordance with valuation policies established by the Board, the value of our debt and other investments on a valuation date. Further, because of the overall size and concentrations in particular markets, the maturities of positions that may be held by us from time to time and other factors, the liquidation values of our investments may differ significantly from the interim valuations of these investments derived from the valuation methods described herein. If the Adviser’s valuation should prove to be incorrect, the stated value of our investments could be adversely affected. Absent bad faith or manifest error, valuation determinations of the Adviser will be conclusive and binding on the shareholders.
Valuation of the types of assets in which we invest are inherently subjective. In addition, the Adviser may have an interest in determining higher valuations in order to be able to present better performance to prospective investors. In certain cases, we may hold an investment in an issuer experiencing distress or going through bankruptcy. In such a situation, the Adviser may continue to place a favorable valuation on such investment due to the Adviser’s determination that the investment is sufficiently secured despite the distressed state or bankruptcy of the issuer. However, no assurances can be given that this assumption is justified or that such valuations will be accurate in the long term. In addition, an investment in a portfolio company may not be permanently written-off or permanently written down despite its distressed state or covenant breach until such portfolio company experiences a material corporate event (e.g., bankruptcy or partial sale) which establishes an objective basis for such revised valuation. In these circumstances, the Adviser has an interest in delaying any such write-offs or write-downs to maintain a higher management fee base and thus, management fees paid to the Adviser.
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In addition, the Adviser relies on third-party valuation agents to verify the value of certain investments. An investment may not have a readily ascertainable market value and accordingly, could potentially make it difficult to determine a fair value of an investment and may yield an inaccurate valuation. Further, because of the Adviser’s knowledge of the investment, the valuation agent may defer to the Adviser’s valuation even where such valuation may not be accurate or the determination thereof involved a conflict of interest. An inaccurate valuation of one or more investments could have a substantial impact on us.
We are Subject to Risks Relating to Rights Against Third Parties, Including Third-Party Service Providers.
We are reliant on the performance of third-party service providers, including the Adviser, the Administrator, auditors, legal advisors, lenders, bankers, brokers, consultants, sourcing, operating and joint venture partners and other service providers (collectively, “Service Providers”). Further information regarding the duties and roles of certain of these Service Providers is provided in this annual report and our other publicly available reports. We may bear the risk of any errors or omissions by such Service Providers. In addition, misconduct by such Service Providers may result in reputational damage, litigation, business disruption and/or financial losses to us. Each shareholder’s contractual relationship in respect of its investment in our Common Shares is with us only and shareholders are not in contractual privity with the Service Providers. Therefore, generally, no shareholder will have any contractual claim against any Service Provider with respect to such Service Provider’s default or breach. Accordingly, shareholders must generally rely upon the Adviser and/or Administrator to enforce our rights against Service Providers. In certain circumstances, which are generally not expected to prevail, shareholders may have limited rights to enforce our rights on a derivative basis or may have rights against Service Providers if they can establish that such Service Providers owe duties to the shareholders. In addition, shareholders will have no right to participate in our day-to-day operations and decisions regarding the selection of Service Providers. Rather, the Adviser and/or Administrator will select our Service Providers and determine the retention and compensation of such providers without the review by or consent of our shareholders. Our shareholders must therefore rely on the ability of the Adviser and/or Administrator to select and compensate Service Providers and to make investments and manage and dispose of investments.
The Adviser and Administrator will have an incentive to contract certain services to third parties due to a number of factors, including because the fees, costs and expenses of such service providers will be borne by us as our expenses and will reduce the Adviser’s and/or Administrator’s internal overhead and compensation and benefits costs for employees who might otherwise perform such services. Moreover, the involvement of service providers may present a number of risks due to, among other factors, the Adviser’s and/or Administrator’s reduced control over the functions that are contracted. There can be no assurances that the Adviser and/or Administrator, through conducting oversight of the service providers, will be able to identify, prevent or mitigate the risks of engaging service providers. We may suffer adverse consequences from actions, errors or failures to act by such third parties, and will have obligations, including indemnity obligations, toward and limited recourse against them as discussed above.
In certain circumstances, service providers may sub-delegate particular duties to additional third-party service providers, and there is no guarantee that the Adviser and/or Administrator will have consent rights to such sub-delegation in all cases. Such sub-delegation of services by service providers exacerbates the risks described above as none of us, the Adviser or the Administrator would be in contractual privity with sub-delegates. Further, our investors, the Adviser, the Administrator and we will have to rely on the service providers for appropriate selection and oversight of such sub-delegates.
Contracting certain services may not occur uniformly for us and other clients of the Adviser and/or its affiliates, and the expenses that may be borne by such vehicles and accounts vary. Accordingly, certain costs may be incurred by (or allocated to) us through the use of third-party service providers that are not incurred by (or allocated to) certain other clients of the Adviser and/or its affiliates for similar services.
We are Subject to Risks Relating to Lack of Diversification.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond the asset diversification requirements applicable to us as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies. Although we are classified as a non-diversified investment company within the meaning of the 1940 Act, we maintain the flexibility to operate as a diversified investment company. To the extent that we operate as a non-diversified investment company, we may be subject to greater risk.
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We do not have fixed guidelines for diversification by industry or type of security, and investments may be concentrated in only a few industries or types of securities. Further, if the expected amount of leverage is not obtained or deployed, we may be more concentrated in an investment than originally anticipated. As a result, our investments may be concentrated and the poor performance of a single investment may have pronounced negative consequences to us and the aggregate returns realized by our shareholders. Additionally, a downturn in any particular industry in which we are invested could significantly affect our aggregate returns. Further, any industry in which we are meaningfully concentrated at any given time could be subject to significant risks that could adversely impact our aggregate returns. For example, as of December 31, 2025, our investments in software represented 18.8% of our portfolio at fair value. Our investments in software are subject to substantial risks, including, but not limited to, intense competition, changing technology, shifting user needs, frequent introductions of new products and services, competitors in different industries ranging from large established companies to emerging startups, decreasing average selling prices of products and services resulting from rapid technological changes, cybersecurity risks and cyber incidents and various legal and regulatory risks. In addition, as of December 31, 2025, our investments in health care providers & services represented 12.5% of our portfolio at fair value. The U.S. healthcare industry is heavily regulated and our investments in healthcare providers and services are subject to a variety of risks, including, but not limited to, additional or changing government regulations that could increase compliance and other costs of doing business, which may impact the business of such portfolio companies.
We are Subject to Risks Relating to Consultation with Sourcing and Operating Partners.
In certain circumstances, sourcing and operating partners may be aware of and consulted in advance in relation to certain investments made by us. While sourcing and operating partners will be subject to confidentiality obligations, they are not restricted from engaging in any activities or businesses that may be similar to the business of us or competitive with us. In particular, sourcing and operating partners may use information available to them as sourcing and operating partners of HPS or its affiliates in a manner that conflicts with the interests of us. Except in limited circumstances, the sourcing and operating partners are generally not obligated to account to HPS or its affiliates for any profits or income earned or derived from their activities or businesses or inform HPS or its affiliates of any business opportunity that may be appropriate for us.
We are Subject to Risks Relating to the Timing of Realization of Investments.
The Adviser, in its discretion, may seek to realize our investments earlier than originally expected, which may be accomplished through one or more transactions, including, to the extent permitted by applicable law, transactions with another investment fund or account sponsored or managed by the Adviser, HPS or their affiliates (collectively “Other HPS Investors”), which will be for a price equal to the fair value of such investment. The value of such investment, subject to approval by our Board, will be determined by the Adviser and verified by one or more third-party valuation agents. The Adviser may seek such realizations in order to support our target risk/return profile with respect to our unrealized investments, taking into account such factors as our expense ratio relative to such assets and the availability of, or repayment obligations with respect to, any credit facilities.
We May be Required to Disclose Information Regarding Shareholders.
We, the Adviser or our or their respective affiliates, Service Providers, or agents may from time to time be required or may, in their discretion, determine that it is advisable to disclose certain information about us and our shareholders, including investments held directly or indirectly by us and the names and level of beneficial ownership of certain of the shareholders, to regulatory or taxing authorities of certain jurisdictions, which have or assert jurisdiction over the disclosing party or in which we directly or indirectly invest. Disclosure of confidential information under such circumstances will not be regarded as a breach of any duty of confidentiality and, in certain circumstances, we, the Adviser or any of our or their affiliates, Service Providers or agents, may be prohibited from disclosing to any shareholder that any such disclosure has been made.
We are Subject to Operational Risks.
We are subject to operational risk, including the possibility that errors may be made by the Adviser or its affiliates and Service Providers in certain transactions, calculations or valuations on behalf of, or otherwise relating to, us. Shareholders may not be notified of the occurrence of an error or the resolution of any error. Generally, the Adviser, its affiliates and Service Providers will not be held accountable for such errors, and we may bear losses resulting from such errors.
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We are Subject to Risks Relating to Exposure to Material Non-Public Information.
HPS conducts a broad range of private and public debt investment businesses generally without internal information barriers in the ordinary course. As a result, from time to time, HPS (in its capacity as investment manager of investment vehicles, funds or accounts or in connection with investment activities on its own behalf) receives material non-public information with respect to issuers of publicly-traded securities or other securities in connection with, among other examples, acquisitions, refinancings, restructurings of such issuers which HPS reviews or participates in, oftentimes unrelated to its affiliate’s management of us. In such circumstances, we may be prohibited, by law, contract or by virtue of HPS’s policies and procedures, from (i) selling all or a portion of a position in such issuer, thereby potentially incurring trading losses as a result, (ii) establishing an initial position or taking any greater position in such issuer, and (iii) pursuing other investment opportunities related to such issuer.
We are Subject to Risks Relating to Technology Systems.
We depend on the Adviser and HPS to develop and implement appropriate systems for our activities. We may rely on computer programs to evaluate certain securities and other investments, to monitor our portfolios, to trade, clear and settle securities transactions and to generate asset, risk management and other reports that are utilized in the oversight of our activities. In addition, certain of our and the Adviser’s operations interface with or depend on systems operated by third parties, including loan servicers, custodians and administrators, and the Adviser and HPS may not always be in a position to verify the risks or reliability of such third-party systems, including the use of artificial intelligence capabilities. For example, we and the Adviser generally expect to provide statements, reports, notices, updates, requests and any other communications in electronic form, such as e-mail or posting on a web-based reporting site or other internet service, in lieu of or in addition to sending such communications as hard copies via fax or mail. These programs or systems may be subject to certain defects, failures or interruptions, including, but not limited to, those caused by ‘hacking’ or other security breaches, computer ‘worms,’ viruses and power failures. Such failures could cause settlement of trades to fail, lead to inaccurate accounting, recording or processing of trades and cause inaccurate reports, which may affect our ability to monitor our investment portfolio and its risks. Any such defect or failure could cause us to suffer financial loss, disruption of our business, liability to clients or third parties, regulatory intervention or reputational damage.
We are Subject to Risks Relating to Cybersecurity.
We, the Adviser and their and our Service Providers are subject to risks associated with a breach in cybersecurity. Cybersecurity is a generic term used to describe the technology, processes and practices designed to protect networks, systems, computers, programs and data from both intentional cyber-attacks and hacking by other computer users as well as unintentional damage or interruption that, in either case, can result in damage and disruption to hardware and software systems, loss or corruption of data and/or misappropriation of confidential information. For example, information and technology systems are vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons and security breaches, usage errors by their respective professionals, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Such damage or interruptions to information technology systems may cause losses to a shareholder by interfering with the processing of investor transactions, affecting our ability to calculate net asset value or impeding or sabotaging the investment process. We may also incur substantial costs as the result of a cybersecurity breach, including those associated with forensic analysis of the origin and scope of the breach, increased and upgraded cybersecurity, identity theft, unauthorized use of proprietary information, litigation, adverse investor reaction, the dissemination of confidential and proprietary information and reputational damage. Any such breach could expose us and the Adviser to civil liability as well as regulatory inquiry and/or action (and the Adviser may be indemnified by us in connection with any such liability, inquiry or action). In addition, any such breach could cause substantial withdrawals from us. Shareholders could also be exposed to losses resulting from unauthorized use of their personal information.
Moreover, the increased use of mobile and cloud technologies could heighten these and other operational risks as certain aspects of the security of such technologies may be complex and unpredictable. Reliance on mobile or cloud technology or any failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations, the operations of a portfolio company or the operations of our or their service providers and result in misappropriation, corruption or loss of personal, confidential or proprietary information or the inability to conduct ordinary business operations. In addition, there is a risk that encryption and other protective measures may be circumvented, particularly to the extent that new computing technologies increase the speed and computing power available. Extended periods of remote working, whether by us, our portfolio companies, or our service providers, could strain technology resources, introduce operational risks and otherwise heighten the risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts. Accordingly, the risks described above are heightened under the current conditions.
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While the Adviser and HPS have implemented various measures to manage risks associated with cybersecurity breaches, including establishing a business continuity plan and systems designed to prevent cyber-attacks, there are inherent limitations in such plans and systems, including the possibility that certain risks (including any ongoing breaches) have not been identified. Similar types of cybersecurity risks also are present for portfolio companies in which we invest, which could affect their business and financial performance, resulting in material adverse consequences for such issuers, and causing our investments in such portfolio companies to lose value.
In addition, cybersecurity has become a top priority for global lawmakers and regulators around the world, and some jurisdictions have proposed or enacted laws requiring companies to notify regulators and individuals of data security breaches involving certain types of personal data. Compliance with such laws and regulations may result in cost increases due to system changes and the development of new administrative processes. If we or the Adviser or certain of their affiliates, fail to comply with the relevant and increasing laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage.
Further, the potential utilization of artificial intelligence, machine learning technology, data analytics or similar technology (collectively, “AI Tools”) as described further below, may expose investors to enhanced cybersecurity and data privacy risks, including risks that cannot yet be predicted given the rapid development of such technologies and uncertain legal and regulatory climate. Similar types of cybersecurity risks also are present for portfolio companies in which we invest, which could affect their business and financial performance, resulting in material adverse consequences for such issuers, and causing our investments in such portfolio companies to lose value.
We are Subject to Risks Associated with Use of Artificial Intelligence and Machine Learning Technology.
From time to time, the Adviser and/or its affiliates, we, our Board, and our and their service providers may utilize AI Tools in connection with their business activities, including management and review of us and our investment portfolio. There are significant risks involved in utilizing AI Tools and no assurance can be provided that the usage of such AI Tools will enhance our portfolio or assist us or our investments in being more efficient or profitable. For example, certain AI Tools may utilize historical market or sector data in their analytics. To the extent that such historical data are not indicative of the current or future conditions in the applicable market or sector, or the AI Tools fail to filter biases in the underlying data or collection methods, the usage of AI Tools may lead the Adviser and/or its affiliates, and their service providers, to make determinations on behalf of us, including potential investment decisions, that have an adverse effect on our investments. Similarly, AI Tools are generally highly reliant on the collection and analysis of large amounts of data, and it is not possible or practicable to incorporate all relevant data into the model that AI Tools utilize to operate. Certain data in such models will inevitably contain a degree of inaccuracy and error – potentially materially so – and could otherwise be inadequate or flawed, which would be likely to degrade the effectiveness of AI Tools. While AI Tools may improve the efficiency of data analytics and reduce investment costs, there is no assurance that returns from investments utilizing AI Tools will be higher than they would be if investment decisions were made solely using human analytics or that the expenses related to AI Tools directly or indirectly borne by us will outweigh such reduced investment costs or outweigh such risks. AI Tools may also be subject to data herding and interconnectedness (i.e., multiple market participants utilizing the same data), which may adversely impact the markets in which we invest, and in turn, our investments. In addition, we, the Adviser, its affiliates and the Board (as applicable) will not be in a position to control the manner in which service providers utilize AI Tools. The foregoing risks with respect to AI Tools may similarly apply with respect to our portfolio companies. We, the Adviser, its affiliates and the Board (as applicable) will not be in a position to control the manner in which the portfolio companies or their third-party service providers utilize AI Tools. Further, AI Tools and their applications, including in the private investment and financial sectors, continue to develop rapidly, and it is impossible to predict the future risks that may arise from such developments. AI Tools will likely also be competitive with certain business activities or increase the obsolescence of certain organizations' products or services, particularly as AI Tools improve. This could also have an adverse impact on us and our portfolio companies, as well as HPS, the Adviser and their affiliates.
In addition, the use of AI Tools may enhance cybersecurity risks and operational and technological risks. The technologies underlying AI Tools and their use cases are rapidly developing, and remain subject to existing laws, including privacy, consumer protection and federal equal opportunity laws. As a result, it is not possible to predict all of the legal, operational or technological risks related to the use of AI Tools. Moreover, AI Tools are the subject of evolving review by various regulatory agencies, including the SEC and the U.S. Federal Trade Commission, and changes in the regulation of the use of AI Tools may adversely affect the ability of the Adviser, its affiliates, and their respective service providers to use AI Tools to manage us and our investments.
We are Subject to Risks Associated with Technological Innovation.
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As technological innovation continues to advance rapidly, it could adversely impact one or more of our investments. Moreover, given the pace of innovation in recent years, the impact of such innovation on a particular investment may not have been foreseeable at the time we made the investment. Furthermore, in making investment decisions, we could factor in views about the direction or degree of innovation that prove inaccurate and lead to losses.
We are Subject to Risks Associated with Sourcing, Operating or Joint Venture Partners.
HPS has historically, and expects in the future to, work with sourcing, operating and/or joint venture partners, including with respect to particular types of investments or particular sectors or regions. These arrangements may be structured as joint ventures or contractual service provider relationships. Where such a partner is engaged, the Adviser may not have the opportunity to diligence the individual investments in which we participate and, instead, will be relying on its contractual relationship with, and ongoing diligence of, the sourcing or joint venture partner whose interests may differ from ours. In certain circumstances, the Adviser may commit to invest in a pre-agreed amount of investments negotiated by the sourcing partner and/or joint venture partner and/or the Adviser may commit to invest in one or more transactions for which the sourcing partner and/or joint venture partner led the due diligence and negotiation processes and the Adviser may not be given an opportunity (or given only a limited opportunity) to perform due diligence and participate in negotiation of transactional terms. Shareholders should be aware that sourcing, operating and joint venture partners are not expected to owe any fiduciary duties to us or our shareholders.
We may pay retainers, closing, monitoring, performance or other fees to sourcing, operating and joint venture partners. Such retainer fees may be netted against a closing fee, if applicable, in connection with the related investment. However, if no such investment is consummated, we will bear any retainer amounts as an expense. In addition, to the extent the compensation of a sourcing, operating or joint venture partner is based on the performance of the relevant investments, the sourcing, operating or joint venture partner may have an incentive to seek riskier investments than it would have under a different compensation structure. In this regard, a sourcing, operating or joint venture partner may receive incentive compensation at the expense of us. The expenses of sourcing, operating and joint venture partners may be substantial. In certain circumstances, we or a portfolio company in which we invest may pay fees to sourcing, operating and/or joint venture partners in consideration for services, including where the Adviser may have otherwise provided those services without charge. In other circumstances, sourcing, operating and/or joint venture partners may receive certain third-party fees (such as upfront fees, commitment fees, origination fees, amendment fees, ticking fees and break-up fees as well as prepayment premiums) in respect of an investment, and no such fees will offset or otherwise reduce the management fee payable by the shareholders. In certain cases, the Adviser or its affiliates may have an ownership interest in one or more sourcing partners, in order to incentivize such sourcing partners to direct the deal flow to the Adviser and/or its affiliates or otherwise, and therefore may indirectly benefit from the compensation received from us by such sourcing partners. Our share of such fees will not offset or otherwise reduce the management fees payable by our investors. In all circumstances, fees received by the Adviser will be consistent with applicable laws. The existence of any such fees may result in us paying fees twice, once to the Adviser in the form of management fees and once to the sourcing, operating or joint venture partners to service or manage the same assets.
Sourcing, operating and/or joint venture partners may invest in us. Joint venture investments involve various risks, including the risk that we will not be able to implement investment decisions or exit strategies because of limitations on our control under applicable agreements with joint venture partners, the risk that a joint venture partner may become bankrupt or may at any time have economic or business interests or goals that are inconsistent with ours, the risk that a joint venture partner may be in a position to take action contrary to our objectives, the risk of liability based upon the actions of a joint venture partner and the risk of disputes or litigation with such partner and the inability to enforce fully all rights (or the incurrence of additional risk in connection with enforcement of rights) one partner may have against the other, including in connection with foreclosure on partner loans, because of risks arising under applicable law, and tax and regulatory risks related to the joint venture’s structure, which may adversely affect our pre-tax returns. In addition, we may, in certain cases, be liable for actions of our joint venture partners. The joint ventures in which we participate may sometimes be allocated investment opportunities that might have otherwise gone entirely to us, which may reduce our return on equity. Additionally, our joint venture investments may be held on an unconsolidated basis and at times may be highly leveraged. Such leverage would not count toward the investment limits imposed on us by the 1940 Act.
Investors should be aware that sourcing, operating and joint venture partners are not expected to owe any fiduciary duties to us or our investors.
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We are Subject to Risks Relating to Electronic Delivery of Certain Documents.
Our shareholders will be deemed to consent to electronic delivery or posting to the Administrator’s website or other service of: (i) certain closing documents such as our Declaration of Trust, our Bylaws and our Subscription Agreements; (ii) any notices or communications required or contemplated to be delivered to our shareholders by us, the Adviser, or any of their respective affiliates, pursuant to applicable law or regulation; (iii) certain tax-related information and documents; and (iv) drawdown notices and other notices, requests, demands, consents or other communications and any financial statements, reports, schedules, certificates or opinions required to be provided to the shareholders under any agreements. There are certain costs and possible risks associated with electronic delivery. Moreover, the Adviser cannot provide any assurance that these communication methods are secure and will not be responsible for any computer viruses, problems or malfunctions resulting from the use of such communication methods. See “—Technology Systems” and “Cybersecurity” above.
We are Subject to Risks Relating to Handling of Mail.
Mail addressed to us and received at our registered office will be forwarded unopened to the forwarding address supplied by us to be processed. Neither we, the Adviser nor any of our or their trustees, officers, advisors or Service Providers will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
We are Subject to General Credit Risks.
We may be exposed to losses resulting from default and foreclosure of any such loans or interests in loans in which we have invested. Therefore, the value of underlying collateral, the creditworthiness of borrowers and the priority of liens are each of great importance in determining the value of our investments. In the event of foreclosure, we or an affiliate of ours may assume direct ownership of any assets collateralizing such foreclosed loans. The liquidation proceeds upon the sale of such assets may not satisfy the entire outstanding balance of principal and interest on such foreclosed loans, resulting in a loss to us. Any costs or delays involved in the effectuation of loan foreclosures or liquidation of the assets collateralizing such foreclosed loans will further reduce proceeds associated therewith and, consequently, increase possible losses to us. In addition, no assurances can be made that borrowers or third parties will not assert claims in connection with foreclosure proceedings or otherwise, or that such claims will not interfere with the enforcement of our rights.
The Prices of Our Investments Can be Volatile.
The prices of our investments can be volatile. In addition, price movements may also be influenced by, among other things, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and national and international political and economic events and policies. In addition, governments from time to time intervene in certain markets. Such intervention often is intended directly to influence prices and may cause or contribute to rapid fluctuations in asset prices, which may adversely affect our returns.
We are Subject to Risks Relating to Syndication and/or Transfer of Investments.
We, directly or through the use of one or more subsidiary investment vehicles, may originate and/or purchase certain debt assets, including ancillary equity assets (“Assets”). We may also purchase certain Assets (including, participation interests or other indirect economic interests) that have been originated by other affiliated or unaffiliated parties and/or trading on the secondary market. We may, in certain circumstances, originate or purchase such Assets with the intent of syndicating and/or otherwise transferring a significant portion thereof. In such instances, we will bear the risk of any decline in value prior to such syndication and/or other transfer. In addition, we will also bear the risk of any inability to syndicate or otherwise transfer such Assets or such amount thereof as originally intended, which could result in us owning a greater interest therein than anticipated.
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We May Need to Raise Additional Capital.
We may need additional capital to fund new investments and grow our portfolio of investments once we have fully invested the net proceeds of the Offering. Unfavorable economic conditions could increase our funding costs or limit our access to the capital. A reduction in the availability of new capital could limit our ability to grow. In addition, we are required to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to investors to maintain our qualification as a RIC. As a result, these earnings will not be available to fund new investments. An inability on our part to access the capital successfully could limit our ability to grow our business and execute our business strategy fully and could decrease our earnings, if any, which would have an adverse effect on the value of our securities.
We are Subject to Counterparty Risks.
To the extent that contracts for investment will be entered into between us and a market counterparty as principal (and not as agent), we are exposed to the risk that the market counterparty may, in an insolvency or similar event, be unable to meet its contractual obligations to us. We may have a limited number of potential counterparties for certain of our investments, which may significantly impair our ability to reduce our exposure to counterparty risk. In addition, difficulty reaching an agreement with any single counterparty could limit or eliminate our ability to execute such investments altogether. Because certain purchases, sales, hedging, financing arrangements and other instruments in which we will engage are not traded on an exchange but are instead traded between counterparties based on contractual relationships, we are subject to the risk that a counterparty will not perform its obligations under the related contracts. Although we intend to pursue available remedies under any such contracts, there can be no assurance that a counterparty will not default and that we will not sustain a loss on a transaction as a result.
We are Dependent on Key Personnel.
We depend on the continued services of our Investment Team and other key management personnel. If we were to lose any of these officers or other management personnel, such a loss could result in operating inefficiencies and lost business opportunities, which could have a negative effect on our operating performance. Further, we do not intend to separately maintain key person life insurance on any of these individuals.
Investors May be Required to Return Distributions to Satisfy Our Unpaid Debts.
Under Delaware law, our Shareholders could, under certain circumstances, be required to return distributions made by us to satisfy our unpaid debts that were in existence at the time the distributions were made.
Our Board May Make Certain Changes in Our Investment Objective, Operating Policies or Strategies Without Prior Notice or Investor Approval.
Our Board has the authority to modify or waive certain of our operating policies and strategies without prior notice (except as required by the 1940 Act) and without investor approval. However, absent investor approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. Under Delaware law, we also cannot be dissolved without prior investor approval. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and value of our shares. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.
Our Board May Make Certain Changes to Our Declaration of Trust Without Prior Investor Approval.
Our Board may, without shareholder vote, subject to certain exceptions, amend or otherwise supplement the Declaration of Trust by making an amendment, a Declaration of Trust supplemental thereto or an amended and restated Declaration of Trust, including without limitation to classify our Board, to impose advance notice bylaw provisions for Trustee nominations or for shareholder proposals, to require super- majority approval of transactions with significant shareholders or other provisions that may be characterized as anti-takeover in nature.
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We are Subject to Risks Relating to Allocation of Investment Opportunities and Related Conflicts.
We are generally prohibited under the 1940 Act from participating in certain transactions with our affiliates without prior approval of the Independent Trustees and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our affiliate for purposes of the 1940 Act, and we generally are prohibited from buying or selling any security from or to such affiliate, absent the prior approval of the Independent Trustees. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same issuers (whether at the same or different times), without prior approval, in certain cases, of our Independent Trustees and, in certain other cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or Trustees or their affiliates. These prohibitions will affect the manner in which investment opportunities are allocated between us and other funds and accounts managed by HPS or its affiliates. Most importantly, we generally are prohibited from co-investing with Other HPS Investors or affiliates of the Adviser in loans and financings originated by HPS and/or its affiliates except for pursuant to the co-investment exemptive relief granted by the SEC which delineates the requirements the Adviser must comply with for us to invest with Other HPS Investors.
Any such co-investments are subject to certain conditions, including that the Adviser and its affiliates managing other funds and accounts participating in co-investment transactions will seek to allocate such transactions for all of the participating investment accounts, including us, on a fair and equitable basis, in accordance with their respective allocation policies, and the other applicable conditions of the co-investment exemptive relief. Under the terms of the relief, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our Independent Trustees must reach certain conclusions in connection with certain co-investment transactions (e.g., in the case of follow-on investments in an existing issuer in which affiliates, but not us, have an existing investment, and non-pro rata follow-on investments in, and dispositions of, securities of an existing issuer), including that: (i) the terms of the proposed transaction are reasonable and fair to us and our shareholders and do not involve overreaching in respect of us or our shareholders on the part of any person concerned; and (ii) the transaction is consistent with the interests of our shareholders and is consistent with our then-current investment objectives and strategies.
As a result of the relief, there could be significant overlap in our investment portfolio and the investment portfolios of Other HPS Investors, including, in some cases, proprietary accounts of HPS or its affiliates. Because investments are allocated across multiple Other HPS Investors, we will at times receive a lower allocation to an investment than desired; likewise, we may also be limited in the degree to which we are able to participate in selling opportunities that we may otherwise wish to pursue due to allocations, including non-pro rata allocations, to Other HPS Investors.
If the Adviser identifies a co-investment opportunity and we are unable to rely on the co-investment relief or other no-action positions of the SEC staff for that particular co-investment opportunity, the Adviser will be required to determine which of its and its affiliates’ accounts should make the investment at the potential exclusion of other accounts. In such circumstances, the Adviser will adhere to firm-wide investment allocation policies in order to determine the account to which to allocate investment opportunities. Accordingly, it is possible that we may not be given the opportunity to participate in investments made by other accounts.
We are Subject to Risks Relating to Distributions.
We intend to pay monthly distributions to shareholders out of assets legally available for distribution. We cannot guarantee that it will make distributions, and if we do we may fund such distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings or return of capital, and although we generally expect to fund distributions from cash flow from operations, we have not established limits on the amounts we may pay from such sources. We cannot guarantee that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. If we are unable to satisfy the asset coverage test applicable to us as a BDC, or if we violate certain debt financing agreements, our ability to pay distributions to shareholders could be limited. All distributions will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of RIC status, compliance with applicable BDC regulations, compliance with debt financing agreements and such other factors as our Board may deem relevant from time to time. The distributions we pay to investors in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes.
Investors who periodically receive the payment of a distribution from a RIC consisting of a return of capital for U.S. federal income tax purposes may be under the impression that they are receiving a distribution of a RIC’s net ordinary income or capital gains when they are not. Accordingly, investors should read carefully any written disclosure accompanying a distribution from us and the information about the specific tax characteristics of our distributions provided to investors after the end of each calendar year, and should not assume that the source of any distribution is our net ordinary income or capital gains. To the extent that our distributions contain a
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return of capital, such distributions should not be considered the dividend yield or total return of an investment in our Common Shares. The amount treated as a tax-free return of capital will reduce a shareholder’s adjusted tax basis in our Common Shares, thereby increasing our shareholder’s potential taxable gain or reducing the potential taxable loss on the sale of our Common Shares.
Our Board Has the Discretion to Not Repurchase Common Shares and to Suspend the Share Repurchase Program.
Our Board has adopted a share repurchase program, which the Board may amend or suspend at any time in its discretion. You may not be able to sell your shares at all in the event our Board amends or suspends the share repurchase program, absent a liquidity event, and we currently do not intend to undertake a liquidity event, and we are not obligated by our Declaration of Trust or otherwise to effect a liquidity event at any time. We will notify you of such developments in our quarterly reports or other filings. If less than the full amount of Common Shares requested to be repurchased in any given repurchase offer are repurchased, funds will be allocated pro rata based on the total number of Common Shares being repurchased without regard to class. The share repurchase program has many limitations and should not be relied upon as a method to sell shares promptly or at a desired price.
The Timing of Repurchase May be Disadvantageous.
In the event a shareholder chooses to participate in our share repurchase program, the shareholder will be required to provide us with notice of intent to participate prior to knowing what the NAV per share of the class of shares being repurchased will be on the repurchase date. Although a shareholder will have the ability to withdraw a repurchase request prior to the repurchase date, to the extent a shareholder seeks to sell shares to us as part of our periodic share repurchase program, the shareholder will be required to do so without knowledge of what the repurchase price of our shares will be on the repurchase date.
Investing in Large Private U.S. Borrowers May Limit Our Ability to Achieve High Growth Rates During Times of Economic Expansion.
Investing in originated assets made to large private U.S. borrowers may result in our underperforming other segments of the market, particularly during times of economic expansion, because large private U.S. borrowers may be less responsive to competitive challenges and opportunities in the financial markets. As a result, our value may not rise at the same rate, if at all, as other funds that invest in smaller market capitalization companies that are more capable of responding to economic and industrial changes.
We Face Risks Associated With the Deployment of Capital.
In light of the nature of our Offering as well as ongoing and periodic private offerings in relation to our investment strategy and the need to be able to deploy potentially large amounts of capital quickly to capitalize on potential investment opportunities, if we have difficulty identifying investments on attractive terms, there could be a delay between the time we receive net proceeds from the sale of Common Shares in the Offering or any private offering and the time we invest the net proceeds. Our proportion of privately-negotiated investments may be lower than expected. We may also from time to time hold cash pending deployment into investments or have less than our targeted leverage, which cash or shortfall in target leverage may at times be significant, particularly at times when we are receiving high amounts of offering proceeds and/or times when there are few attractive investment opportunities. Such cash may be held in an account for the benefit of our shareholders that may be invested in money market accounts or other similar temporary investments.
In the event we are unable to find suitable investments such cash may be maintained for longer periods which would be dilutive to overall investment returns. This could cause a substantial delay in the time it takes for your investment to realize its full potential return and could adversely affect our ability to pay regular distributions of cash flow from operations to shareholders. Significant and rapid inflows of capital from large investors (including institutional accounts, feeder funds and model portfolio programs) could exacerbate such capital deployment and other risks. It is not anticipated that the temporary investment of such cash into money market accounts or other similar temporary investments pending deployment into investments will generate significant interest, and investors should understand that such low interest payments on the temporarily invested cash may adversely affect overall returns. In the event we fail to timely invest the net proceeds of sales of Common Shares or do not deploy sufficient capital to meet our targeted leverage, our results of operations and financial condition may be adversely affected.
Transactions Denominated in Foreign Currencies Subject Us to Foreign Currency Risks.
We hold assets and have made borrowings denominated in foreign currencies including British Pounds Sterling, Euros, Canadian Dollars and Australian Dollars, and may acquire assets or make borrowings denominated in other foreign currencies, which exposes us to foreign currency risk. As a result, a change in foreign currency exchange rates may have an adverse impact on the valuation of our assets
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or liabilities, as well as our income and cash flows. As a result of foreign currency fluctuations, the value of our liabilities and expenses may increase or the value of our assets and income may decrease due to factors outside of our control, which can have a negative effect on our net asset value and cash available for distribution. Any such changes in foreign currency exchange rates may impact the measurement of such assets or liabilities for purposes of maintaining RIC tax treatment or the requirements under the 1940 Act. We may seek to hedge against currency exchange rate fluctuations by borrowing in foreign currencies or by using financial instruments such as futures, options, swaps and forward contracts, subject to the requirements of the 1940 Act, but there is no guarantee such efforts will be successful and such hedging strategies create additional costs.
Our Investments in Foreign Companies or Investments Denominated in Foreign Currencies May Involve Significant Risks in Addition to the Risks Inherent in U.S. and U.S. Dollar Denominated Investments.
Our investment strategy contemplates potential investments in foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.
The Capital Markets May Experience Periods of Disruption and Instability. Such Market Conditions May Materially and Adversely Affect Debt and Equity Capital Markets, Which May Have a Negative Impact on Our Business and Operations.
From time to time, capital markets may experience periods of disruption and instability. Such disruptions may result in, amongst other things, write-offs, the re-pricing of credit risk, the failure of financial institutions or worsening general economic conditions, any of which could materially and adversely impact the broader financial and credit markets and reduce the availability of debt and equity capital for the market as a whole and financial services firms in particular. There can be no assurance these market conditions will not occur or worsen in the future, including as a result of the Russia-Ukraine war and conflicts in Iran and other parts of the Middle East, health epidemics and pandemics, rising interest rates or renewed inflationary pressure.
Equity capital may be difficult to raise during such periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional Common Shares at a price less than net asset value without first obtaining approval for such issuance from our shareholders and our Independent Trustees.
Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. Such conditions could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost, including as a result of the current interest rate environment, and on less favorable terms and conditions than what we have historically experienced. If we are unable to raise or refinance debt, then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.
Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity).
Significant changes in the capital markets may adversely affect the pace of our investment activity and economic activity generally. The illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital, and any required sale of all or a portion of our investments as a result, could have a material adverse effect on our business, financial condition or results of operations.
We are Exposed to Risks Associated With Changes in Interest Rates, Including the Current Elevated Interest Rate Environment.
General interest rate fluctuations may have a substantial negative impact on our investments and our investment returns and, accordingly, may have a material adverse effect on our investment objective and our net investment income.
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Because we borrow money and may issue debt securities or preferred shares to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities or preferred shares and the rate at which we invest these funds. If interest rates rise, our interest income will increase as the majority of our portfolio bears interest at variable rates while our cost of funds will also increase, to a lesser extent, with the net impact being an increase to our net investment income, see “Item 7A. Qualitative and Quantitative Disclosures About Market Risk.” Conversely, if interest rates decrease, we may earn less interest income from investments and our cost of funds will also decrease, potentially resulting in lower net investment income. We may take on fixed rate liabilities, such as the Unsecured Notes, which will remain at the elevated interest rate even if interest rates decrease. Thus, the decrease in our investment income would not be offset by decreased borrowing costs, potentially affecting our future distributions to shareholders. From time to time, we may also enter into certain hedging transactions to mitigate our exposure to changes in interest rates and to more closely align the interest rates of our liabilities with our investment portfolio. In the past, we have entered into certain hedging transactions, such as interest rate swap agreements, to mitigate our exposure to adverse fluctuations in interest rates, and we may do so again in the future. However, we cannot assure you that such transactions will be successful in mitigating our exposure to interest rate risk. There can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
Rising interest rates may also increase the cost of debt for our underlying portfolio companies, which could adversely impact their financial performance and ability to meet ongoing obligations to us. Also, an increase in interest rates available to investors could make an investment in our Common Shares less attractive if we are not able to pay distributions at a level that provides a similar return, which could reduce the value of our Common Shares.
We are Subject to Risks Relating to Volatility in the Banking Sector.
If the banking institutions used by us fail or are impacted by such volatility, such events could have a material adverse effect on us and our Shareholders (including loss of capital held at such banking institutions and/or an inability to meet our obligations to other counterparties). A large percentage of our assets may be held by a limited number of banking institutions (or even a single banking institution). If a banking institution at which we maintain deposit accounts or securities accounts fails, any cash or other assets in such accounts may be temporarily inaccessible or permanently lost by us. Generally, we would be an unsecured creditor with respect to cash balances in excess of $250,000 held at a single banking institution insured by the FDIC, and therefore we may not ultimately recover any such excess amounts. In addition, FDIC deposit insurance does not extend to certain other assets held by a banking institution (e.g., bond investments, U.S. Treasury bills or notes).
If a banking institution that provides all or a part of a credit facility, other borrowings and/or other services to us fails, we could be unable to draw funds under such credit facilities and may not be able to obtain replacement credit facilities or other services from other lending institutions with similar terms. If our credit facilities and accounts are provided by the same banking institution, and such banking institution fails, we could face significant difficulties in funding any near-term obligations we have in respect of our investments or otherwise. Even if the banking institutions used by us remain solvent, continued volatility in the banking sector could cause or intensify an economic recession and make it more difficult for us to obtain or refinance our credit facilities and other indebtedness at all or on as favorable terms as could otherwise have been obtained.
Similarly, the banking institutions that the portfolio companies in which we may invest have depositor or lending arrangements may fail. This would have a material adverse effect on such portfolio companies, us and our Shareholders, including by preventing such portfolio companies from making principal and interest payments or other applicable payments owed with respect to our investments. Generally, neither the Adviser nor the Administrator have a meaningful role in selecting the banking institutions used by the portfolio companies in which we invest. Instead, the Adviser and the Administrator generally rely on the management team of the portfolio companies to select appropriate banking services.
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B. Risks Relating to Our Investments
Our investments may be risky and, subject to compliance with our 80% test, there is no limit on the amount of any such investments in which we may invest.
We are Subject to General Risks.
A fundamental risk associated with our investment strategy is that the companies in whose debt we invest will be unable to make regular payments (e.g., principal and interest payments) when due, or at all, or otherwise fail to perform. Portfolio companies could deteriorate as a result of, among other factors, an adverse development in their business, poor performance by their management teams, a change in the competitive environment, an economic downturn or legal, tax or regulatory changes. Portfolio companies that the Adviser expects to remain stable may in fact operate at a loss or have significant variations in operating results, may require substantial additional capital to support their operations or to maintain their competitive position, or may otherwise have a weak financial condition or be experiencing financial distress.
Our Portfolio Companies May be Highly Leveraged.
Our portfolio companies may be highly leveraged, and there may be no restriction on the amount of debt a portfolio company can incur. Substantial indebtedness may add additional risk with respect to a portfolio company, and could (i) limit its ability to borrow money for its working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes; (ii) require it to dedicate a substantial portion of its cash flow from operations to the repayment of its indebtedness, thereby reducing funds available to it for other purposes; (iii) make it more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and/or (iv) subject it to restrictive financial and operating covenants, which may preclude it from favorable business activities or the financing of future operations or other capital needs. In some cases, proceeds of debt incurred by a portfolio company could be paid as a dividend to shareholders rather than retained by the portfolio company for its working capital. Leveraged companies are often more sensitive to declines in revenues, increases in expenses, and adverse business, political, or financial developments or economic factors such as a significant rise in interest rates, a severe downturn in the economy or deterioration in the condition of such companies or their industries. A leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.
If a portfolio company is unable to generate sufficient cash flow to meet principal and interest payments to its lenders, it may be forced to take other actions to satisfy such obligations under its indebtedness. These alternative measures may include reducing or delaying capital expenditures, selling assets, seeking additional capital, or restructuring or refinancing indebtedness. Any of these actions could significantly reduce the value of our investment(s) in such portfolio company. If such strategies are not successful and do not permit the portfolio company to meet its scheduled debt service obligations, the portfolio company may also be forced into liquidation, dissolution or insolvency, and the value of our investment in such portfolio company could be significantly reduced or even eliminated. Where we receive payment in kind or “PIK” interest with respect to an investment, over time such investment’s principal balance will increase, making such investment more highly leveraged.
We are Subject to Risks Relating to Issuer/Borrower Fraud.
Of paramount concern in originating loans is the possibility of material misrepresentation or omission on the part of borrowers or guarantors. Such inaccuracy or incompleteness may adversely affect the valuation of the collateral underlying the loans or may adversely affect the ability of us or our affiliates to perfect or effectuate a lien on the collateral securing the loan. We or our affiliates will rely upon the accuracy and completeness of representations made by borrowers to the extent reasonable, but cannot guarantee such accuracy or completeness.
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We are Subject to Risks Due to Our Reliance on Portfolio Company Management.
The Adviser generally will seek to monitor the performance of investments in operating companies either through interaction with the board of the applicable company and/or by maintaining an ongoing dialogue with the company’s management and/or sponsor team. However, we generally will not be in a position to control any borrower by virtue of investing in its debt and the portfolio company’s management will be primarily responsible for the operations of the company on a day-to-day basis. Although it is our intent to invest in companies with strong management teams, there can be no assurance that the existing management team, or any new one, will be able to operate the company successfully. In addition, we are subject to the risk that a borrower in which we invest may make business decisions with which we disagree and the management of such borrower, as representatives of the common equity holders, may take risks or otherwise act in ways that do not serve the interests of the debt investors, including us. Furthermore, in exercising its investment discretion, the Adviser may in certain circumstances commit our funds to other entities that will be given a mandate to make certain investments consistent with our investment objective and that may earn a performance-based fee on those investments. Once such a commitment is made, such entities will have full control over the investment of such funds, and the Adviser will cease to have such control.
We are Subject to Risks Relating to Environmental Matters.
Ordinary operation or the occurrence of an accident with respect to the portfolio companies in which we invest could cause major environmental damage, which may result in significant financial distress to our investments and any portfolio company holding such assets, even if covered by insurance. Certain environmental laws and regulations may require that an owner or operator of an asset address prior environmental contamination, which could involve substantial cost and other liabilities. We (and our shareholders) may therefore be exposed to substantial risk of loss from environmental claims arising in respect of our investments. Furthermore, changes in environmental laws or regulations or the environmental condition of an investment may create liabilities that did not exist at the time of its acquisition and that could not have been foreseen. Even in cases where we are indemnified by the seller with respect to an investment against liabilities arising out of violations of environmental laws and regulations, there can be no assurance as to the financial viability of the seller to satisfy such indemnities or our ability to achieve enforcement of such indemnities. See also “—We are Subject to Risks from Provision of Managerial Assistance and Control Person Liability” below.
The Value of Certain Portfolio Investments May Not be Readily Determinable.
We expect that many of our portfolio investments will take the form of securities that are not publicly traded. The fair value of loans, securities and other investments that are not publicly traded may not be readily determinable, and will be valued at fair value as determined in good faith by the Adviser, including to reflect significant events affecting the value of our investments. Most, if not all, of our investments (other than cash and cash equivalents) will be classified as Level 3 assets under Topic 820 of the U.S. Financial Accounting Standards Board’s Accounting Standards Codification, as amended, Fair Value Measurements and Disclosures (“ASC Topic 820”). This means that our portfolio valuations will be based on unobservable inputs and our assumptions about how market participants would price the asset or liability in question. We expect that inputs into the determination of fair value of portfolio investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We expect to retain the services of one or more independent service providers to review the valuation of these loans and securities. The types of factors that may be taken into account in determining the fair value of investments generally include, as appropriate, comparison to publicly-traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our net asset value could be adversely affected if determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such loans and securities. In addition, the method of calculating the management fee and incentive fee may result in conflicts of interest between the Adviser, on the one hand, and investors on the other hand, with respect to the valuation of investments.
We May Elect Not to or May be Unable to Make Follow-On Investments in Portfolio Companies.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, in order to:
•increase or maintain in whole or in part our voting percentage;
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•exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or
•attempt to preserve or enhance the value of our investment.
We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments.
We have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements, or compliance with the requirements for maintenance of our RIC status.
We May Be Subject to Risks Due to Not Holding Controlling Equity Interests in Portfolio Companies.
We do not generally intend to take controlling equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company, we will be subject to the risk that such portfolio company may make business decisions with which we disagree, and the shareholders and management of such portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.
We are Subject to Risks Relating to Defaults by Portfolio Companies.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on the portfolio company’s assets representing collateral for its obligations. This could trigger cross defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.
We are Subject to Risks Relating to Third Party Litigation.
Our investment activities subject us to the normal risks of becoming involved in litigation initiated by third parties. This risk is somewhat greater where we exercise control or influence over a company’s direction. The expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments would generally be borne by us (to the extent not borne by the portfolio companies) and would reduce net assets. The Adviser and others are indemnified in connection with such litigation, subject to certain conditions.
Inflation May Adversely Affect the Business, Results of Operations and Financial Condition of Our Portfolio Companies.
Certain of our portfolio companies may be impacted by inflation. If such portfolio companies are unable to pass any increases in their costs along to their customers, it could adversely affect their results and their ability to pay interest and principal on our loans. In addition, any projected future decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future unrealized losses and therefore reduce our net assets resulting from operations.
We are Subject to Risks Related to Reliance on Projections.
We may rely upon projections developed by the Adviser concerning an investment’s future performance, outcome and cash flow. Projections are inherently subject to uncertainty and factors beyond the control of the Adviser. The inaccuracy of certain assumptions, the failure to satisfy certain requirements and the occurrence of other unforeseen events could impair the ability of an investment to realize projected values, outcomes and cash flow.
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Economic Conditions May Have Adverse Effects on Us and the Portfolio Companies.
We and the portfolio companies in which we invest may be adversely affected by deterioration in the financial markets and economic conditions throughout the world, some of which may magnify the risks described herein and have other adverse effects. Deteriorating market conditions could result in increasing volatility and illiquidity in the global credit, debt and equity markets generally. The duration and ultimate effect of adverse market conditions cannot be accurately forecast, nor is it known whether or the degree to which such conditions may remain stable or worsen. Deteriorating market conditions and uncertainty regarding economic markets generally could result in declines in the market values of potential investments or declines in the market values of investments after they are acquired by us. Such declines could lead to weakened investment opportunities for us, could prevent us from successfully meeting our investment objective or could require us to dispose of investments at a loss while such unfavorable market conditions prevail. In addition, our investment opportunities may be dependent in part upon the consummation of leveraged buyouts and other private equity sponsored transactions, recapitalizations, refinancings, acquisitions and structured transactions. If fewer of these transactions occur than the Adviser expects, there may be limited investment opportunities for us. Periods of prolonged market stability may also adversely affect the investment opportunities available to us.
We are Subject to Risks Relating to Reduced Investment Opportunities.
The Adviser believes that volatility and instability in the credit markets can create significant investment opportunities for us. When the credit markets stabilize, in particular, in our target upper middle market sector, there may be reduced investment opportunities for us and/or we may not be able acquire investments on favorable terms. Periods of prolonged market stability may also adversely affect the investment opportunity set available to us.
We are Subject to Risks Relating to Investments in Undervalued Assets.
We may invest in undervalued loans and other assets as part of our investment strategy. The identification of investment opportunities in undervalued loans and other assets is a difficult task, and there is no assurance that such opportunities will be successfully recognized or acquired. While investments in undervalued assets offer the opportunity for above-average capital appreciation, these investments involve a high degree of financial risk and can result in substantial or complete losses.
We may incur substantial losses related to assets purchased on the belief that they were undervalued by their sellers, if they were not in fact undervalued at the time of purchase. In addition, we may be required to hold such assets for a substantial period of time before realizing their anticipated value, and there is no assurance that the value of the assets would not decline further during such time. Moreover, during this period, a portion of our assets would be committed to those assets purchased, thus preventing us from investing in other opportunities. In addition, we may finance such purchases with borrowed funds and thus will have to pay interest on such borrowed amounts during the holding period.
We Operate in a Competitive Debt Environment.
The business of investing in debt investments is highly competitive and involves a high degree of uncertainty. Market competition for investment opportunities includes traditional lending institutions, including commercial and investment banks, as well as a growing number of non-traditional participants, such as private credit funds, hedge funds, private equity funds, mezzanine funds, and other private investors, as well as BDCs, and debt-focused competitors, such as issuers of CLOs and other structured loan funds. In addition, given our target investment size and investment type, the Adviser expects a large number of competitors for investment opportunities. Some of these competitors may have access to greater amounts of capital and to capital that may be committed for longer periods of time or may have different return thresholds than us, and thus these competitors may have advantages not shared by us. In addition, competitors may have incurred, or may in the future incur, leverage to finance their debt investments at levels or on terms more favorable than those available to us. Furthermore, competitors may offer loan terms that are more favorable to borrowers, such as less onerous borrower financial and other covenants, borrower rights to cure defaults, and other terms more favorable to borrowers than current or historical norms. Strong competition for investments could result in fewer investment opportunities for us, as certain of these competitors have established or are establishing investment vehicles that target the same or similar investments that we intend to purchase.
Over the past several years, many investment funds have been formed with investment objectives similar to ours, and many such existing funds have grown in size and have added larger successor funds to their platform. These and other investors may make competing offers for investment opportunities identified by the Adviser which may affect our ability to participate in attractive investment opportunities and/or cause us to incur additional risks when competing for investment opportunities. Moreover, identifying attractive investment opportunities is difficult and involves a high degree of uncertainty. The Adviser may identify an investment that presents an
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attractive investment opportunity but may not be able to complete such investment in a manner that meets our objectives. We may incur significant expenses in connection with the identification of investment opportunities and investigating other potential investments that are ultimately not consummated, including expenses related to due diligence, transportation and legal, accounting and other professional services as well as the fees of other third-party service providers.
We are Subject to Risks Relating to Illiquidity of Our Assets and Distributions In Kind.
We invest primarily in private illiquid debt, loans and other assets for which no (or only a limited) liquid market exists or that are subject to legal or other restrictions on transfer and are difficult to sell in a secondary market. In some cases, we may be prohibited from selling such investments for a period of time or otherwise be restricted from disposing of such investments. The market prices, if any, for such assets tend to be volatile, and may fluctuate due to a variety of factors that are inherently difficult to predict. Furthermore, the types of investments made may require a substantial length of time to liquidate due to the lack of an established market for such investments or other factors. As a result, there is a significant risk that we may be unable to realize our investment objective by sale or other disposition at attractive prices or will otherwise be unable to complete any exit strategy. Accordingly, the Adviser is unable to predict with confidence what, if any, exit strategies will ultimately be available for any given asset. Exit strategies which appear to be viable when an investment is initiated may be precluded by the time the investment is ready to be realized due to economic, legal or other reasons, and we may not be able to sell assets when we desire to do so or to realize what the Adviser perceives to be the fair value of our assets in the event of a sale. Further, although the Adviser may at the time of making investments expect a certain portion of such investments to be refinanced or repaid before maturity, depending on economic conditions, interest rates and other variables, borrowers may not finance or repay loans early. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. In addition, in times of extreme market disruption, there may be no market at all for one or more asset classes, potentially resulting in our inability to dispose of our assets for an indefinite period of time. Even if investments are successful, they are unlikely to produce a realized return to shareholders for a period of years. Furthermore, a portion of interest on investments is paid in kind rather than in cash to us.
We are Subject to Risks Relating to Priority of Repayment of Debt Investments.
The characterization of an investment as senior debt or senior secured debt does not mean that such debt will necessarily have repayment priority with respect to all other obligations of a portfolio company. Portfolio companies may have, and/or may be permitted to incur, other debt and liabilities that rank equally with or senior to the senior loans in which we invest. If other indebtedness is incurred that ranks in parity in right of payment or proceeds of collateral with respect to debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors in the event of a liquidation, reorganization, insolvency, dissolution or bankruptcy of such a portfolio company. Where we hold a first lien to secure senior indebtedness, the portfolio companies may be permitted to issue other senior loans with liens that rank junior to the first liens granted to us. The intercreditor rights of the holders of such other junior lien debt may, in any liquidation, reorganization, insolvency, dissolution or bankruptcy of such a portfolio company, affect the recovery that we would have been able to achieve in the absence of such other debt.
Even where the senior loans held by us are secured by a perfected lien over a substantial portion of the assets of a portfolio company and its subsidiaries, the portfolio company and its subsidiaries will often be able to incur a substantial amount of additional indebtedness, which may have an exclusive lien over particular assets. For example, debt and other liabilities incurred by non-guarantor subsidiaries of portfolio companies will be structurally senior to the debt held by us. Accordingly, any such debt and other liabilities of such subsidiaries would, in the event of liquidation, dissolution, insolvency, reorganization or bankruptcy of such subsidiary, be repaid in full before any distributions to an obligor of the loans held by us. Furthermore, these other assets over which other lenders have a lien may be substantially more liquid or valuable than the assets over which we have a lien. We invest in second-lien secured debt, which compounds the risks described in this paragraph.
We are Subject to Risks Relating to Certain Guarantees.
We may invest in debt that is guaranteed by a subsidiary of the issuer. In some circumstances, guarantees of secured debt issued by subsidiaries of a portfolio company and held by us may be subject to fraudulent conveyance or similar avoidance claims made by other creditors of such subsidiaries under applicable insolvency laws. As a result, such creditors may take priority over our claims under such guarantees. Under federal or state fraudulent transfer law, a court may void or otherwise decline to enforce such debt and we would no longer have any claim against such portfolio company or the applicable guarantor. In addition, the court might direct us to disgorge any amounts already received from the portfolio company or a guarantor. In some cases, significant subsidiaries of portfolio companies may not guarantee the obligations of the portfolio company; in other cases, a portfolio company may have the ability to release subsidiaries as guarantors of the portfolio company’s obligations. The repayment of such investments may depend on cash flow from subsidiaries of a portfolio company that are not themselves guarantors of the portfolio company’s obligations.
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We are Subject to Risks Relating to Secured Loans.
Most of the loans held by us are secured. These investments may be subject to the risk that our security interests in the underlying collateral are not properly or fully perfected. Compounding these risks, the collateral securing debt investments will often be subject to casualty or devaluation risks.
We are Subject to Risks Relating to Senior Secured Debt and Unitranche Debt.
When we invest in senior secured term debt and unitranche debt, we will generally take a security interest in the available assets of these portfolio companies, including equity interests in their subsidiaries. There is a risk that the collateral securing our investments may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our security interest could be subordinated to claims of other creditors. In addition, any deterioration in a portfolio company’s financial condition and prospects, including any inability on its part to raise additional capital, may result in the deterioration in the value of the related collateral. Consequently, the fact that debt is secured does not guarantee that we will receive principal and interest payments according to the investment terms or at all, or that we will be able to collect on the investment should we be forced to enforce our remedies.
From time to time, we may invest in unitranche loans with “first-out” and “last-out” payment streams (either set up at closing or arranged after closing) (each, a “Retranched Loan”). Each Retranched Loan is generally expected to be documented under a single credit agreement with a single set of security agreements. Retranched Loans effectively create senior and junior loans with so called ‘first out lenders’ (“First Out Lenders”) receiving payments in priority to ‘last out lenders’ (“Last Out Lenders”) under certain circumstances. Interest is typically allocated in a manner which provides the First Out Lenders with an effective lower interest rate than the Last Out Lenders as a result of the lower risk profile in connection with being ‘first out’. In such arrangements, principal is typically allocated pro rata as between the First Out Lenders and Last Out Lenders until the occurrence of a trigger event, following which First Out Lenders will rank senior in priority to Last Out Lenders in terms of both interest and principal. In such an event, if the Last Out Lenders are not receiving cash interest payments, they will typically receive payment in kind or “PIK” interest (i.e., an increase to the principal balance of their loans). As a result, if we acquire positions as Last Out Lenders, this would be more akin to that of second lien lenders and therefore we would not expect to recover any of our outstanding principal or interest until the First Out Lenders have been repaid in full. Further, any veto rights with respect to voting and/or enforcement as between the First Out Lenders and the Last Out Lenders may also be negotiated for each transaction. As a result, even where we acquire a majority stake in Retranched Loans, there can be no assurance that we, as a Last Out Lender, will be in a position to direct enforcement of the security granted in respect of the Retranched Loans or be able to prevent certain decisions being taken by the First Out Lenders that may be adverse to our interests. An agreement among lenders may also have restrictions on assignment, including requiring us (as a lender) to give a right of first refusal to other lenders in the same Retranched Loan. Consequently, we may not have the same liquidity in Retranched Loans as we would in a stand-alone credit facility.
We are Subject to Business and Credit Risks.
Investments made by us generally will involve a significant degree of financial and/or business risk. The securities in which we invest may pay fixed, variable or floating rates of interest, and may include zero-coupon obligations or interest that is paid-in-kind (which tend to increase business and credit risks if an investment becomes impaired because there would be little to no realized proceeds through cash interest payments prior to such impairment). These types of securities are subject to the risk of the issuer’s inability to make principal and interest payments on its obligations (i.e., credit risk) and are also subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
Business risks may be more significant in smaller portfolio companies or those that are embarking on a build-up or operating turnaround strategy. Such companies may have no or short operating histories, new technologies and products and their management teams may have limited experience working together, all of which enhance the difficulty of evaluating these investment opportunities. The management of such companies will need to implement and maintain successful finance personnel and other operational strategies and resources in order to become and remain successful. Other substantial operational risks to which such companies are subject include uncertain market acceptance of the company’s services, a potential regulatory risk for new or untried and/or untested business models (if applicable), products and services to the extent they relate to regulated activities in the relevant jurisdiction, high levels of competition among similarly situated companies, lower capitalizations and fewer financial resources and the potential for rapid organizational or strategic change. Such companies will have no or short operating histories on which to judge future performance and in many cases, if operating, will have negative cash flow.
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Our Investments May be Affected by Force Majeure Events.
The instruments in which we invest may be affected by force majeure events (i.e., events beyond the control of the party claiming that the event has occurred, including, without limitation, acts of God, fire, flood, earthquakes, outbreaks of an infectious disease, pandemic or any other serious public health concern, war, terrorism and labor strikes). Some force majeure events may adversely affect the ability of a portfolio company to perform its obligations until it is able to remedy the force majeure event. In addition, the cost to a portfolio company of repairing or replacing damaged assets resulting from such force majeure event could be considerable. Additionally, a major governmental intervention into industry, including the nationalization of an industry or the assertion of control over one or more companies or its assets, could result in a loss, including if our investment in such issuer is cancelled, unwound or acquired (which could be without what the Adviser considers to be adequate compensation). Certain force majeure events (such as war or an outbreak of an infectious disease) could have a broader negative impact on the world economy and international business activity generally, or in any of the countries in which we may invest specifically. To the extent we are exposed to investments in issuers that as a group are exposed to such force majeure events, our risks and potential losses are enhanced.
We are Subject to Risks Relating to Infectious Disease and Pandemics.
Certain illnesses spread rapidly and have the potential to significantly adversely affect the global economy. Outbreaks such as the severe acute respiratory syndrome, avian influenza, H1N1/09, and the coronavirus (COVID-19), or other similarly infectious diseases may have material adverse impacts on us, the Adviser, their respective affiliates and portfolio companies. Actual pandemics, or fear of pandemics, can trigger market disruptions or economic turndowns with the consequences described above. The Adviser cannot predict the likelihood of disease outbreaks occurring in the future nor how such outbreaks may affect our investments.
The outbreak of disease epidemics may result in the closure of the Adviser’s and/or a portfolio company’s offices or other businesses, including office buildings, retail stores and other commercial venues and could also result in (a) the lack of availability or price volatility of raw materials or component parts necessary to a portfolio company’s business which may adversely affect the ability of a portfolio company to perform its obligations, (b) disruption of regional or global trade markets and/or the availability of capital, (c) the availability of leverage, including an inability to obtain indebtedness at all or to our desired degree, and less favorable timing of repayment and other terms with respect to such leverage, (d) trade or travel restrictions which impact a portfolio company’s business and/or (e) a general economic decline and have an adverse impact on our value, our investments, or our ability to make new investments. If a future pandemic occurs during a period when we expect to be harvesting our investments, we may not achieve our investment objective or may not be able to realize our investments within our term.
We Invest in Loans with Limited Amortization Requirements.
We invest in loans that have limited mandatory amortization requirements. While such a loan may obligate a portfolio company to repay the loan out of asset sale proceeds or with annual excess cash flow, such requirements may be subject to substantial limitations and/or “baskets” that would allow a portfolio company to retain such proceeds or cash flow, thereby extending the expected weighted average life of the investment. In addition, a low level of amortization of any debt over the life of the investment may increase the risk that a portfolio company will not be able to repay or refinance the loans held by us when they come due at their final stated maturity.
We are Subject to Risks Relating to Potential Early Redemption of Some Investments.
The terms of loans in which we invest may be subject to early redemption features, refinancing options, prepayment options or similar provisions which, in each case, could result in the issuer repaying the principal of an obligation held by us earlier than expected, either with no or a nominal prepayment premium. This may happen when there is a decline in interest rates, or when the borrower’s improved credit or operating or financial performance allows the refinancing of certain classes of debt with lower cost debt or when general credit market conditions improve. Assuming an improvement in the credit market conditions, early repayments of the debt held by us could increase. There is no assurance that we will be able to reinvest proceeds received from prepayments in assets that satisfy our investment objective, and any delay in reinvesting such proceeds may materially affect our performance. Conversely, if the prepayment does not occur within the expected timeframe or if the debt does not otherwise become liquid, we may continue in operation for longer than expected or we may make distributions in kind.
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We are Subject to Risks Relating to Licensing Requirements.
Certain banking and regulatory bodies or agencies in or outside the United States may require us, the Adviser, its affiliates and/or certain of their respective employees to obtain licenses or authorizations to engage in many types of lending activities including the origination of loans. It may take a significant amount of time and expense to obtain such licenses or authorizations and we may be required to bear the cost of obtaining such licenses and authorizations. There can be no assurance that any such licenses or authorizations would be granted or, if granted, whether any such licenses or authorizations would impose restrictions on us. Such licenses or authorizations may require the disclosure of confidential information about us, our shareholders or their respective affiliates, including the identity, financial information and/or information regarding the shareholders and their officers and trustees. We may not be willing or able to comply with these requirements. Alternatively, the Adviser and/or its affiliates may be compelled to structure certain potential investments in a manner that would not require such licenses and authorizations, although such transactions may be inefficient or otherwise disadvantageous for us and/or any relevant portfolio company, including because of the risk that licensing authorities would not accept such structuring alternatives in lieu of obtaining a license or authorization. The inability of us, the Adviser, the Adviser’s affiliates and/or certain of their respective employees to obtain necessary licenses or authorizations, the structuring of an investment in an inefficient or otherwise disadvantageous manner, or changes in licensing regulations, could adversely affect our ability to implement our investment program and achieve our intended results. Further, the regulatory regimes related to certain assets may be complex, and therefore the Adviser and/or its affiliates may be required to incur significant expenses in order to comply.
We are Subject to Risks Relating to Minority Investments; Joint Ventures; Co-Investment or Sourcing Programs.
We may make minority equity investments in entities in which we do not control the business or affairs of such entities. In addition, we have and intend to continue to co-invest with other parties including through partnerships, joint ventures, sourcing and syndication programs. In certain of these cases, the Adviser may share management fees, incentive fees and/or other forms of compensation with such parties and we may pay, and are expected to pay, fees or other compensation to sourcing partners or other third parties to access deal opportunities, as described in “–We are Subject to Risks Associated with Sourcing, Operating or Joint Venture Partners” above. The Adviser expects that in some cases we will have control over, or significant influence on, the decision making of joint ventures or underlying investments. However, in other cases, in particular with respect to certain terms, amendments and waivers related to the underlying loans, the joint venture partner may have controlling or blocking rights (including because certain decisions require unanimous approval of the joint venture partners) or a tie vote among joint venture partners may be resolved by an appointed third party. In addition, we may enter into arrangements with one or more sourcing partners to identify investment opportunities for us, including with respect to particular types of investments or particular sectors or regions. In connection with such sourcing arrangements, in exchange for access to deal opportunities to evaluate, we expect to agree to certain contractual terms relating to the sourced investments, including a requirement that we will, under certain circumstances, vote our interests consistently with the votes cast by the sourcing partner (including, in some cases, relating to amendments and waivers in default scenarios). Accordingly, in such cases, we would not have the ability to make our own voting determinations and may be required to vote in a manner we would not otherwise have chosen to vote absent such agreement. It is expected that any such voting requirements would also be applicable to any future assignee of the loan or other debt instrument, which could negatively affect our ability to sell or otherwise transfer the investment.
Where a joint venture, sourcing or co-investing partner or third party has controlling or blocking rights or decision-making power with respect to a joint venture matter or an underlying investment, there can be no assurance that the matter will be resolved in the manner desired by us. In addition, these types of voting arrangements may slow the decision-making process and hinder our ability to act quickly.
Cooperation among joint venture partners, sourcing partners or co-investors on existing and future business decisions will be an important factor for the sound operation and financial success of any joint venture, sourcing or other business relationships in which we are involved. In particular, a joint venture or sourcing partner or co-investor may have economic or business interests or goals that are inconsistent with ours, and we may not be in a position to limit or otherwise protect the value of one or more of our investments. Disputes among joint venture partners or co-investors over obligations, expenses or other matters could have an adverse effect on the financial conditions or results of operations of the relevant businesses. Disputes with sourcing partners may limit our investment opportunities in the future. In addition, we may in certain circumstances be liable for actions of, or be obligated to indemnify, our joint venture or sourcing partners. In certain circumstances, the day-to-day operations of a joint venture may be delegated to the joint venture partner and its employees. In such circumstances, our Adviser may not have, or may not have timely, visibility to issues that are not raised by the joint venture partner to the governing body of the joint venture, which issues may adversely impact our investments.
In certain cases, conflicts of interest may arise between us and a joint venture, co-investment or sourcing partner, for example, because such partner has invested in a different level of the issuer’s capital structure, it has different investment goals or timelines, because its management team may have an incentive plan which incentivizes risk-taking, or because it has a different or more expansive commercial relationship with the underlying portfolio company or asset owner, or in the case of a joint venture partner, because the partner
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also acts as lender to the joint venture. There can be no assurance that the partner with divergent interests from us will cause the joint venture or other sourcing or co-investment programs to be managed in a manner that is favorable to us. Those conflicts of interest may become more acute where we have agreed to limit our voting rights with respect to investments sourced by such partner. In addition, it is anticipated that we could be invested in debt instruments issued by a joint venture entity while one or more Other HPS Investors will be invested in equity interests in such entity or vice versa, which presents certain potential conflicts of interest with respect to the capital structure of such entity.
We are Subject to Risks from Provision of Managerial Assistance and Control Person Liability.
We may obtain rights to participate in the governance of certain of our portfolio companies. In such instances, we typically will designate board members to serve on the boards of portfolio companies. The designation of representatives and other measures contemplated could expose our assets to claims by a portfolio company, its security holders and its creditors, including claims that we are a controlling person and thus are liable for securities laws violations and other liabilities of a portfolio company. The exercise of control over a company may impose additional risks of liability for environmental damage, product defects, failure to supervise management, violation of governmental regulations (including securities laws) or other types of liability in which the limited liability generally characteristic of business ownership may be ignored. If these liabilities were to arise, we might suffer a significant loss. These measures also could result in certain liabilities in the event of the bankruptcy or reorganization of a portfolio company, could result in claims against us if the designated board members violate their fiduciary or other duties to a portfolio company or fail to exercise appropriate levels of care under applicable corporate or securities laws, environmental laws or other legal principles, and could expose us to claims that we have interfered in management to the detriment of a portfolio company. While the Adviser intends to operate us in a way that will minimize the exposure to these risks, the possibility of successful claims cannot be precluded, nor can there be any assurance as to whether laws, rules, regulations and court decisions will be expanded or otherwise applied in a manner that is adverse to portfolio companies and us and our shareholders.
We are Subject to Social Media Risk.
The increasing use of social media platforms presents new risks and challenges that may impact our investments. In recent years, there has been a notable increase in the influencer industry and the use of social media platforms, including blogs, chat platforms, social media websites and apps and other forms of Internet-based communications which facilitate direct access to a broad audience of consumers and other interested persons. The rising popularity of such platforms and other consumer-oriented technologies has increased the speed and accessibility of information and mis-information dissemination. Many social media platforms immediately publish the content their subscribers and participants post often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to the interests of the Adviser, its affiliates, us or a portfolio company. The dissemination of negative or inaccurate information related to the Adviser, its affiliates, us or a portfolio company via social media could harm our and/or their business, reputation, financial condition, and results of operations, which could adversely affect our investments and, due to reputational considerations, may influence the Adviser’s and/or its affiliate’s decision as to whether to remain invested in such investments.
We are Subject to Risks of Investments in Certain Countries.
We make investments in a number of different countries, some of which may prove unstable. Depending on the country in which a portfolio company is located, such investments may involve a number of risks, including the risk of adverse political developments such as nationalization, confiscation without fair compensation or war, and the risk of regulations which might prevent the implementation of cost cutting or other operational improvements.
A portion of our assets have been and continue to be invested in loans denominated in currencies other than the U.S. dollar or the price of which is determined with references to such currencies. As a result, any fluctuation in exchange rates will affect the value of investments. We generally expect to employ hedging techniques designed to reduce the risk of adverse movements in currency exchange rates. Furthermore, we may incur costs in connection with conversions between various currencies.
Investments in corporations or assets in certain countries may require significant government approvals under corporate, securities, exchange control, foreign investment and other similar laws. In addition, such investments may give rise to taxes in local jurisdictions, for which a shareholder may not be entitled to any corresponding credit or tax benefit to a shareholder. Such investments may also give rise to tax filing obligations for shareholders in these jurisdictions, although the Adviser may structure such investments so as to prevent such obligations from being imposed on shareholders. Also, some governments from time to time may impose restrictions intended to prevent capital flight, which may, for example, involve punitive taxation (including high withholding taxes) on certain securities or asset transfers or the imposition of exchange controls making it difficult or impossible to exchange or repatriate the local currency. In addition, the laws of various countries governing business organizations, bankruptcy and insolvency may make legal action difficult and provide little, if any, legal protection for investors.
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The availability of information within developing countries and emerging market jurisdictions, including information concerning their economies and the securities of companies in such countries, and the amount of government supervision and regulation of private companies in developing countries, generally is more limited than is the case in more developed countries. The accounting, auditing and financial reporting standards and practices of certain countries may not be equivalent to those employed in more developed countries and may differ in fundamental respects. Accordingly, our ability to conduct due diligence in connection with their investments and to monitor the investments may be adversely affected by these factors. We may not be in a position to take legal or management control of our investments in certain countries. We may have limited legal recourse in the event of a dispute, and remedies might have to be pursued in the courts of the country in question where it may be difficult to obtain and enforce a judgment.
We are Subject to Risks Relating to Our Hedging Strategy and Policies.
We generally expect to employ hedging or other risk management techniques designed to reduce the risk of investment loss due to adverse interest rate or currency movements, credit market risk and certain other risks. There can be no assurance that any hedging transactions will be successful or comprehensive. For example, we may not be able to or may elect not to hedge interest payments in foreign currencies. Similarly, we may hedge certain credit markets generally in order to seek to provide overall risk reduction to us. The variable degree of correlation between price movements of hedging instruments and price movements in the position being hedged creates the possibility that losses on the hedge may be greater, or gains smaller, than losses or gains, as the case may be, in the value of the underlying position. While the transactions implementing such hedging strategies may reduce certain risks, such transactions themselves may entail certain other risks, such as the risk that counterparties to such transactions may default on their obligations and the risk that the prices and/or cash flows being hedged behave differently than expected. Thus, while we may benefit from the use of hedging mechanisms, unanticipated changes in interest rates, currency exchange rates, commodity prices, securities prices or credit market movements may result in a poorer overall performance for us than if we had not entered into such hedging transactions. Additionally, hedging transactions will add to the cost of an investment, may require ongoing cash payments to counterparties, may subject us to the risk that the counterparty defaults on its obligations, and may produce different economic or tax consequences to the shareholders than would apply if we had not entered into such hedging transactions. We may engage in short selling and use derivative instruments (including commodities hedging instruments) in implementing hedging transactions, including futures contracts, swaps, forward contracts, and options. Furthermore, upon the bankruptcy, insolvency or liquidation of any counterparty, we may be deemed to be a general unsecured creditor of such counterparty and could suffer a total loss with respect to any positions and/or transactions with such counterparty.
In response to market events, the SEC and other national regulators have imposed, and may continue to impose, restrictions on and reporting obligations with respect to short selling. Uncertainty surrounding the confidential nature of the required disclosures of our short sales could discourage short selling by us in circumstances where HPS believes that the public disclosure of such short sales may be adverse to our interests. In addition, limitations on the short selling of securities could interfere with our ability to execute certain aspects of our investment programs, including our ability to hedge certain exposures and execute transactions to implement our risk management guidelines, and any such limitations may adversely affect our performance.
We are Subject to Risks Relating to Derivatives.
Generally, derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index, and may relate to individual debt or equity instruments, interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. We may, directly or indirectly, use various derivative instruments including options contracts, futures contracts, swaps, forward contracts, options on futures contracts, indexed securities and swap agreements for hedging and risk management purposes. We also may use derivative instruments to approximate or achieve the economic equivalent of an otherwise permitted investment (as if we directly invested in the loans, claims or securities of the subject issuer) or if such instruments are related to an otherwise permitted investment. Our use of derivative instruments involves investment risks and transaction costs to which we would not be subject absent the use of these instruments and, accordingly, may result in losses that would not occur if such instruments had not been used. The use of derivative instruments may entail risks including, among others, leverage risk, volatility risk, duration mismatch risk, correlation risk and counterparty risk.
Our Ability to Enter into Transactions Involving Derivatives and Financial Commitment Transactions May Be Limited.
In August 2022, Rule 18f-4 under the 1940 Act, regarding the ability of a BDC (or a registered investment company) to use derivatives and other transactions that create future payment or delivery obligations (including reverse repurchase agreements and similar financing transactions), became effective. Under the newly adopted rule, BDCs that make significant use of derivatives are subject to a value-at-risk leverage limit, a derivatives risk management program, testing requirements, and requirements related to board reporting. These new requirements will apply unless the BDC qualifies as a “limited derivatives user,” as defined in the rule. Under the new rule, a
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BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Under the final rule, when we trade reverse repurchase agreements or similar financing transactions, including certain tender option bonds, we need to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness (e.g., bank borrowings, if applicable) when calculating our asset coverage ratio. We currently operate as a “limited derivatives user,” and these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts.
We may be Subject to Risks Associated with our Investments in the Software Industry.
The revenue, income (or losses) and valuations of software and other technology-related companies, including companies focused on the development of artificial intelligence, can and often do fluctuate suddenly and dramatically. This risk is heightened in an environment where market sentiment and investor enthusiasm for artificial intelligence-driven innovation may outpace actual business performance of certain software and other technology-related companies, potentially creating valuation bubbles that could burst with broader economic or market shifts.
In addition, because of rapid technological change, the average selling prices of software products have historically decreased over their productive lives. As a result, the average selling prices of software offered by our portfolio companies may decrease over time, which could adversely affect their operating results and, correspondingly, the value of any securities that we may hold. Additionally, companies operating in the software industry are subject to vigorous competition, changing technology, changing client and end-consumer needs, evolving industry standards and frequent introductions of new products and services. Our portfolio companies in the software industry could compete with companies that are larger and could be engaged in a greater range of businesses or have greater financial, technical, sales or other resources than our portfolio companies do. Our portfolio companies could lose market share if their competitors introduce or acquire new products that compete with their software and related services or add new features to existing products. Any deterioration in the results of our portfolio companies due to competition or otherwise could, in turn, materially adversely affect our business, financial condition and results of operations.
Changes in Interest Rates May Adversely Affect Our Investments.
Many loans, especially fixed rate loans, decline in value when long-term interest rates increase. Declines in market value may ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to shareholders. In addition, in a low interest rate environment, borrowers may be less likely to prepay their debts and loans may therefore remain outstanding for a longer period of time.
We are Subject to Risks Relating to Contingent Liabilities.
We are expected to incur contingent liabilities in connection with an investment from time to time. For example, in connection with the disposition of an investment, we may be required to make representations about the business and financial affairs of the underlying assets or business, or be responsible for the contents of disclosure documents. These arrangements may result in the incurrence of accrued expenses, liabilities or contingencies for which we may establish reserves or escrow accounts. We also expect to invest in a delayed draw or revolving credit facility. If the borrower subsequently draws down on the facility, we would be obligated to fund the amounts due. We may incur numerous other types of contingent liabilities. There can be no assurance that we will adequately reserve for our contingent liabilities and that such liabilities will not have an adverse effect on us.
We are Subject to Risks Relating to High Yield Debt.
We invest in “higher yielding” (and, therefore, generally higher risk) debt securities. In most cases, such debt will be rated below “investment grade” or will be unrated and face ongoing uncertainties and exposure to adverse business, financial or economic conditions and the issuer’s failure to make timely interest and principal payments. There are no restrictions on the credit quality of our loans. The market for high-yield securities has experienced periods of volatility and reduced liquidity. The market values of certain of these debt securities may reflect individual corporate developments. It is likely that a general economic recession or a major decline in the demand for products and services, in which the obligor operates, could have a materially adverse impact on the value of such securities. In addition, adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the value and liquidity of these debt securities.
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We are Subject to Risks Relating to Investments in Unsecured Debt.
We invest a portion of our investment portfolio in unsecured indebtedness, whereas all or a significant portion of the issuer’s senior indebtedness may be secured. In such situations, our ability to influence a portfolio company’s affairs, especially during periods of financial distress or following an insolvency, is likely to be substantially less than that of senior creditors.
We are Subject to Risks Relating to Subordinated Loans.
We may acquire and/or originate subordinated loans. If a borrower defaults on a subordinated loan or on debt senior to our loan, or in the event of the bankruptcy of a borrower, the loan held by us will be satisfied only after the senior loans are repaid in full. Under the terms of typical subordination agreements, senior creditors may be able to block the acceleration of the subordinated debt or the exercise by holders of subordinated debt of other rights they may have as creditors. Accordingly, we may not be able to take the steps necessary or sufficient to protect our investments in a timely manner or at all. In addition, subordinated loans may not always be protected by financial covenants or limitations upon additional indebtedness, may have limited liquidity and may not be rated by a credit rating agency. If a borrower declares bankruptcy, we may not have full or any recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy the loan. Further, the Adviser’s ability to amend the terms of our loans, assign its loans, accept prepayments, exercise its remedies (through “standstill periods”) and control decisions made in bankruptcy proceedings may be limited by intercreditor arrangements. In addition, the risks associated with subordinated loan securities include a greater possibility that adverse changes in the financial condition of the obligor or in general economic conditions (including a sustained period of rising interest rates or an economic downturn) may adversely affect the borrower’s ability to pay principal and interest on its loan. Many obligors on subordinated loan securities are highly leveraged, and specific developments affecting such obligors, including reduced cash flow from operations or the inability to refinance debt at maturity, may also adversely affect such obligors’ ability to meet debt service obligations. The level of risk associated with investments in subordinated loans increases if such investments are loans of distressed or below investment grade issuers. Default rates for subordinated loan securities have historically been higher than has been the case for investment grade securities.
We are Subject to Risks Relating to Non-Recourse Obligations.
We may invest in non-recourse obligations of issuers. Such obligations are payable solely from proceeds collected in respect of collateral pledged by an issuer to secure such obligations. None of the owners, officers, directors or incorporators of the issuers, board members, any of their respective affiliates or any other person or entity will be obligated to make payments on the obligations. Consequently, we, as holder of the obligations, must rely solely on distributions of proceeds of collateral debt obligations and other collateral pledged to secure obligations for payments due in respect of principal thereof and interest thereon. If distributions of such proceeds are insufficient to make payments on the obligations, no other assets will be available for such payments and following liquidation of all the collateral, the obligations of the issuers to make such payments will be extinguished.
We are Subject to Risks Relating to Publicly-Traded Securities.
Although not our investment focus, we may invest in publicly traded equity and debt securities. These investments are subject to certain risks, including the risk of loss from counterparty defaults, the risks arising from the volatility of the global fixed-income and equity markets, movements in the stock market and trends in the overall economy, increased obligations to disclose information regarding such companies, increased likelihood of shareholder litigation against such companies’ board members, which may include personnel of the Adviser or its affiliates, regulatory action by the SEC and increased costs associated with each of the aforementioned risks. When buying a publicly traded security or other publicly traded instruments, we may be unable to obtain financial covenants or other contractual rights that we might otherwise be able to obtain in making privately-negotiated investments. Moreover, we may not have the same access to information in connection with investments in publicly traded securities or other publicly traded instruments, either when investigating a potential investment or after making an investment, as compared to a privately-negotiated investment. Publicly traded securities that are rated by rating agencies are often reviewed and may be subject to downgrade, which generally results in a decline in the market value of such security. Furthermore, we may be limited in our ability to make investments and to sell existing investments in public securities or other publicly traded instruments because HPS or its affiliates may have material, non-public information regarding the issuers of those securities or as a result of other policies of HPS or its affiliates. Accordingly, there can be no assurance that we will make investments in public securities or other publicly traded instruments or, if we do, as to the amount we will invest. The inability to sell such securities or instruments in these circumstances could materially adversely affect the our investment results.
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We are Subject to Risks Associated with Originating Loans to Companies in Distressed Situations.
As part of our lending activities, we or our affiliates may originate loans to companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to us, they involve a substantial degree of risk. Issuers of lower-rated securities generally are more vulnerable to real or perceived economic changes, political changes or adverse industry developments. If an issuer’s financial condition deteriorates, accurate financial and business information may be limited or unavailable. In addition, lower-rated investments may be thinly traded and there may be no established secondary or public market. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. There is no assurance that we will correctly evaluate the value of the assets collateralizing our loans or the prospects for a successful reorganization or similar action.
We are Subject to Risks Associated with Investments that May Become Distressed.
We have made, and may continue to make, investments that become distressed due to factors outside the control of the Adviser. There is no assurance that there will be sufficient collateral to cover the value of the loans and/or other investments purchased by us or that there will be a successful reorganization or similar action of the company or investment which becomes distressed. In any reorganization or liquidation proceeding relating to a company in which we invest, we may lose our entire investment, may be required to accept cash or securities with a value less than our original investment and/or may be required to accept payment over an extended period of time. In addition, under applicable law, we may not be able to participate in future financings for restructured investments. Under such circumstances, the returns generated from our investments may not compensate the shareholders adequately for the risks assumed. For example, under certain circumstances, a lender who has inappropriately exercised control of the management and policies of a debtor may have its claims subordinated, or disallowed, or may be found liable for damage suffered by parties as a result of such actions. In addition, under circumstances involving a portfolio company’s insolvency, payments to us and distributions by us to our shareholders may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance or a preferential payment. Investments in restructurings involving non-U.S. portfolio companies may be subject to various laws enacted in the countries of their issuance for the protection of creditors. These considerations will differ depending on the country in which each portfolio company is located or domiciled.
Troubled company and other asset-based investments require active monitoring and may, at times, require participation in business strategy or reorganization proceedings by the Adviser and/or its affiliates. To the extent that the Adviser and/or its affiliates becomes involved in such proceedings, we may have participated more actively in the affairs of the company than that assumed generally by a passive investor. In addition, involvement by the Adviser and/or its affiliates in an issuer’s or portfolio company’s reorganization proceedings could result in the imposition of restrictions limiting our ability to liquidate our position in the issuer and/or portfolio company. Such investments would likely take more time to realize before generating any returns and may not generate income during the course of reorganization.
We are Subject to Risks Associated with Management of Distressed Investments.
HPS or its affiliates, principals or employees (the “Affiliated Group”) is actively engaged in advisory and management services for multiple collective investment vehicles and managed accounts (each, an “Affiliated Group Account” and together, the “Affiliated Group Accounts”). Certain of our investments may become distressed (a “Distressed Investment”), including as a result of an underlying portfolio company or issuer of an investment undergoing financial stress, restructuring or bankruptcy. In such an event, the Adviser or its affiliates may supplement the investment team generally responsible for the management of our portfolio with other investment professionals of the Adviser or its affiliates that are generally responsible for managing distressed and opportunistic investments on behalf of Affiliated Group Accounts (the “Distressed Investment Team”). The Distressed Investment Team may employ different investment or trading strategies with respect to the Distressed Investments than those that would otherwise have been employed by the investment team. In addition, the investment or trading strategies employed by the Distressed Investment Team with respect to the Distressed Investments may be influenced by investment decisions it makes, or strategies it employs, in managing similar investments for the benefit of the Affiliated Group Accounts. However, our investment or trading strategy may be different than the strategy it employs in managing distressed or opportunistic investments in the Affiliated Group Accounts and, accordingly, such investments may produce different investment results for us and the Affiliated Group Accounts. The Adviser will seek to manage us, and HPS and the Adviser will seek to manage the Affiliated Group Accounts in accordance with their respective investment objectives and guidelines; however, the Affiliated Group including the Distressed Investment Team, may give advice and take action with respect to any current or future Affiliated Group Accounts that may compete or conflict with the advice given to us, including with respect to the timing or nature of actions relating to certain investments.
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We are Subject to Risks Associated with Acquisitions of Portfolios of Loans.
We have invested in and may continue to invest in portfolios of loans. We are unlikely to be able to evaluate the credit or other risks associated with each of the underlying borrowers or negotiate the terms of underlying loans as part of our acquisition but instead must evaluate and negotiate with respect to the entire portfolio of loans or, in the case where we invest in contractual obligations to purchase portfolios of loans subsequently originated by a third party, with respect to the origination and credit selection processes of such third party rather than based on characteristics of a static portfolio of loans. As a result, one or more of the underlying loans in a portfolio may not include some of the characteristics, covenants and/or protections generally sought when we acquire or originate individual loans. Furthermore, while some amount of defaults are expected to occur in portfolios, defaults in or declines in the value of investments in excess of these expected amounts may have a negative impact on the value of the portfolio and may reduce the return that we receive in certain circumstances.
We are Subject to Risks Associated with Revolver, Delayed-Draw and Line of Credit Investments.
We have incurred and are expected to continue to, from time to time, incur contingent liabilities in connection with an investment. For example, we make investments that are structured as “revolvers,” “delayed-draws” or “lines of credit.” These types of investments generally have funding obligations that extend over a period of time, and if the portfolio company subsequently draws down on the revolver or delayed-draw facility or on the line of credit, we would be obligated to fund the amounts due. However, there can be no assurance that a borrower will ultimately draw down on any such loan, in which case we may never fund the investment (in full or in part), which may result in inefficient deployment of capital. There can be no assurance that we will adequately reserve for our contingent liabilities and that such liabilities will not have an adverse effect on us.
It is possible that a revolver, delayed-draw or line of credit investment would be bifurcated into separate investments, with certain investors (which may or may not include us) participating in the initial drawdowns and other investors (which may or may not include us) participating in the later drawdowns. In this situation, it is possible that investors that participate in the initial funding of an investment may receive certain economic benefits in connection with such initial funding, such as original issue discount, closing payments, or commitment fees and these benefits are expected to be allocated based on participation in the initial funding, regardless of participation in future funding obligations. Conversely, the investors participating only in the later funding obligations will have the benefit of the most recent portfolio company performance information in evaluating their investment whereas the investors that participated in the initial drawdowns (which may or may not include us) will be obligated in any event to fund such later funding obligations. In certain cases, we may participate in the initial funding of an investment, but may not participate in later-arising funding obligations (i.e., the revolver, delayed-draw or line of credit portions) related to such investment, including because of capacity limitations that an investment vehicle may have for making new revolver, delayed-draw investments or lines of credit or because HPS or any of its affiliates forms a new investment fund focused on investing in revolvers, delayed-draw investments and lines of credit. As a result, we may be allocated a smaller or larger portion of revolver, delayed-draw investments or lines of credit than other investors participating in the loan. Where we and any other participating investors have not participated in each funding of an investment on a pro rata basis, conflicts of interest may arise between us and the other investors as our interests and the interests of the other investors may not be completely aligned with respect to such investment. In addition, a revolver, delayed draw investment or line of credit may be senior to the rest of the loan or to the initial funding, and as a result, our interests may not be aligned with other participating investors. There can be no assurance that we will adequately reserve for our contingent liabilities and that such liabilities will not have an adverse effect on us.
We are Subject to Risks Associated with Subordinated Debt Tranches.
We have made, and may continue to make, investments in securities, including senior or subordinated and equity tranches, issued by the CLOs, including CLOs for which we act as the collateral manager. To the extent permitted by applicable law, we may also invest in securities issued by CLOs for which HPS or its subsidiary acts as the collateral manager. Investments in CLO securities are complex and are subject to a number of risks related to, among other things, changes in interest rates, the rate of defaults and recoveries in the collateral pool, prepayment rates, terms of loans purchased to replace loans in the collateral pool which have pre-paid, the exercise of remedies by more senior tranches and the possibility that no market will exist when we seek to sell our interests in CLO securities. If a CLO fails to satisfy one of the coverage tests provided in its indenture, all distributions on those CLO securities held by us will cease until that CLO brings itself back into compliance with such coverage tests. CLO securities represent leveraged investments in the underlying collateral held by the CLO issuer. The use of leverage creates risk for the holders because the leverage increases their exposure to losses with respect to the collateral. As a result, the occurrence of defaults with respect to only a small portion of the collateral could result in the substantial or complete loss of the investment in the CLO securities. Payments of principal of, and interest on, debt issued by CLOs, and dividends and other distributions on subordinated and equity tranches of a CLO, are subject to priority of payments. CLO equity is subordinated to the prior payment of all obligations under debt securities. Further, in the event of default under any debt securities issued by a CLO, and to the extent that any elimination, deferral or reduction in payments on debt securities occurs, such elimination will be borne first by CLO equity
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and then by the debt securities in reverse order of seniority. Thus, the greatest risk of loss relating to defaults on the collateral held by CLOs is borne by the CLO equity.
We are Subject to Risks Associated with Forming CLOs.
To finance investments, we have in the past and may in the future securitize certain of our secured loans or other investments, including through the formation of one or more CLOs, while retaining all or most of the subordinated notes issued in the securitization. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. It is possible that an interest in any such CLO held by us may be considered a “nonqualifying” portfolio investment for purposes of the 1940 Act.
If we create a CLO, we will depend in part on distributions from the CLO’s assets out of its earnings and cash flows to enable us to make distributions to shareholders. The ability of a CLO to make distributions will be subject to various limitations, including the terms and covenants of the debt it issues. Also, a CLO may take actions that delay distributions in order to preserve ratings and to keep the cost of present and future financings lower or the CLO may be obligated to retain cash or other assets to satisfy over-collateralization requirements commonly provided for holders of the CLO’s debt, which could impact our ability to receive distributions from the CLO. If we do not receive cash flow from any such CLO that is necessary to satisfy the annual distribution requirement for maintaining RIC status, and we are unable to obtain cash from other sources necessary to satisfy this requirement, we may not maintain our qualification as a RIC, which would have a material adverse effect on an investment in the shares. Losing our RIC status could subject us to corporate-level income tax.
In addition, a decline in the credit quality of loans in a CLO due to poor operating results of the relevant borrower, declines in the value of loan collateral or increases in defaults, among other things, may force a CLO to sell certain assets at a loss, reducing their earnings and, in turn, cash potentially available for distribution to us for distribution to shareholders. To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by us as owner of equity interests in the CLO.
The collateral manager for a CLO that we create may be us, the Adviser or an affiliate, and such collateral manager may be entitled to receive compensation for structuring and/or management services. To the extent the Adviser or an affiliate other than us serves as collateral manager and we are obligated to compensate the Adviser or the affiliate for such services, we, the Adviser or the affiliate will implement offsetting arrangements to assure that we, and indirectly, our shareholders, pay no additional fees to the Adviser or the affiliate in connection therewith. To the extent we serve as collateral manager, we will receive no fees for providing such collateral management services.
We are Subject to Risks Associated with Covenant-Lite Loans.
Although we generally expect the transaction documentation of some portion of our investments to include covenants and other structural protections, a portion of our investments has been, and may continue to be, composed of so-called “covenant-lite loans.” Generally, covenant-lite loans either do not have certain maintenance covenants that would require the issuer to maintain debt service or other financial ratios or do not contain common restrictions on the ability of the issuer to change significantly its operations or to enter into other significant transactions that could affect its ability to repay such loans. Ownership of covenant-lite loans may expose us to different risks, including with respect to liquidity, price volatility and ability to restructure loans, than is the case with loans that have financial maintenance covenants. As a result, our exposure to losses may be increased, which could result in an adverse impact on the issuer’s ability to comply with its obligations under the loan.
We are Subject to Risks Associated with Investing in Equity.
We may make certain equity investments. The value of these securities generally will vary with the performance of the issuer and movements in the equity markets. As a result, we may suffer losses if we invest in equity of issuers whose performance diverges from the Adviser’s expectations or if equity markets generally move in a single direction and we have not hedged against such a general move. Equity investments generally will not feature any structural or contractual protections or payments that we may seek in connection with our debt investments. In addition, investments in equity may give rise to additional taxes and/or risks and we may hold these investments through entities treated as corporations for U.S. federal income tax purposes or other taxable structures which may reduce the return from such investments.
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We are Subject to Risks Associated with Investing in Convertible Securities.
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted into or exchanged for a specified amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. A convertible security entitles its holder to receive interest that is generally paid or accrued on debt or a dividend that is paid or accrued on preferred stock, in each case, until the convertible security matures or is redeemed, converted or exchanged. Because of their embedded equity component, the value of convertible securities is sensitive to changes in equity volatility and price and a decrease in equity volatility and price could result in a loss for us. The debt characteristic of convertible securities also exposes us to changes in interest rates and credit spreads. The value of the convertible securities may fall when interest rates rise or credit spreads widen. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Generally, the amount of the premium decreases as the convertible security approaches maturity. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security held by us is called for redemption, we will be required to permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have an adverse effect on our ability to achieve our investment objective. Our exposure to these risks may be unhedged or only partially hedged.
We are Subject to Risks Associated with Investing in Structured Credit Instruments.
We have invested, and may continue to invest, in structured credit instruments. Structured securities are extremely complex and are subject to risks related to, among other things, changes in interest rates, the rate of defaults in the collateral pool, the exercise of redemption rights by more senior tranches and the possibility that a liquid market will not exist when we seek to sell our interest in a structured security.
We are Subject to Risks Associated with Assignments and Participations.
We may acquire investments directly, by way of assignment or indirectly by way of participation. The purchaser of an assignment of a loan obligation typically succeeds to all the rights and obligations of the selling institution and becomes a lender under the loan or credit agreement with respect to the loan obligation. In contrast, participations acquired in a portion of a loan obligation held by a selling institution typically result in a contractual relationship only with such selling institution, not with the obligor. Therefore, holders of indirect participation interests are subject to additional risks not applicable to a holder of a direct assignment interest in a loan. In purchasing a participation, we generally would have no right to enforce compliance by the obligor with the terms of the loan or credit agreement or other instrument evidencing such loan obligation, nor any rights of set-off against the obligor, and we may not directly benefit from the collateral supporting the loan obligation in which we have purchased the participation. As a result, we would assume the credit risk of both the obligor and the selling institution, which would remain the legal owner of record of the applicable loan. In the event of the insolvency of the selling institution, we may be treated as a general creditor of the selling institution in respect of the participation, may not benefit from any set-off exercised by the selling institution against the obligor and may be subject to any set-off exercised by the obligor against the selling institution. Assignments and participations are typically sold strictly without recourse to the selling institution, and the selling institution generally will make no representations or warranties about the underlying loan, the portfolio companies, the terms of the loans or any collateral securing the loans. Certain loans have restrictions on assignments and participations which may negatively impact our ability to exit from all or part of our investment in a loan. In addition, if a participation interest is purchased from a selling institution that does not itself retain any portion of the applicable loan, such selling institution may have limited interests in monitoring the terms of the loan agreement and the continuing creditworthiness of the borrower.
We are Subject to Risks Relating to Fraudulent Conveyances and Voidable Preferences by Issuers.
Under U.S. legal principles, in a lawsuit brought by an unpaid creditor or representative of creditors of an issuer of indebtedness (including a bankruptcy trustee), if a court were to find that the issuer did not receive fair consideration or reasonably equivalent value for incurring the indebtedness or for granting security, and that after giving effect to such indebtedness or such security, the issuer (a) was insolvent, (b) was engaged in a business for which the remaining assets of such issuer constituted unreasonably small capital or (c) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court could determine to invalidate and avoid, in whole or in part, the obligation underlying an investment of ours as a constructive fraudulent conveyance. The measure of insolvency for purposes of the foregoing will vary. Generally, an issuer would be considered insolvent at a particular time if the sum of its debts was then greater than all of its property at a fair valuation, or if the present fair saleable value of its assets was then less
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than the amount that would be required to pay its probable liabilities on its existing debts as they became absolute and matured. There can be no assurance as to what standard a court would apply to determine whether the issuer was “insolvent” after giving effect to the incurrence of the indebtedness in which we invested or that, regardless of the method of valuation, a court would not determine that the issuer was “insolvent” upon giving effect to such incurrence.
In addition, it is possible a court may invalidate, in whole or in part, the indebtedness underlying an investment of ours as a fraudulent conveyance, subordinate such indebtedness to existing or future creditors of the obligor or recover amounts previously paid by the obligor in satisfaction of such indebtedness. Moreover, in the event of the insolvency of an issuer of a portfolio company, payments made on its indebtedness could be subject to avoidance as a “preference” if made within a certain period of time (which may be as long as one year) before the portfolio company becomes a debtor in a bankruptcy case.
Even if we do not engage in conduct that would form the basis for a successful cause of action based upon fraudulent conveyance or preference law, there can be no assurance as to whether any lending institution or other party from which we may acquire such indebtedness, or any prior holder of such indebtedness, has not engaged in any such conduct (or any other conduct that would subject such indebtedness to disallowance or subordination under insolvency laws) and, if it did engage in such conduct, as to whether such creditor claims could be asserted in a U.S. court (or in the courts of any other country) against us so that our claim against the issuer would be disallowed or subordinated.
We are Subject to Risks Related to Bankruptcy.
One or more of the issuers of an investment held by us may become involved in bankruptcy or similar proceedings. There are a number of significant risks inherent in the bankruptcy process. First, many events in a bankruptcy are adversarial and beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, there can be no assurance that a court would not approve actions which may be contrary to our interests. Reorganizations can be contentious and adversarial. Participants may use the threat of, as well as actual, litigation as a negotiating technique. Second, the duration of a bankruptcy case can only be roughly estimated. The bankruptcy process can involve substantial legal, professional and administrative costs to the company and us, it is subject to unpredictable and lengthy delays, and during the process the company’s competitive position may erode, key management may depart and the company may not be able to invest adequately. In some cases, the company may not be able to reorganize and may be required to liquidate assets. Any of these factors may adversely affect the return on a creditor’s investment. Third, U.S. bankruptcy law permits the classification of “substantially similar” claims in determining the classification of claims in a reorganization for purpose of voting on a plan of reorganization. Because the standard for classification is vague, there exists a significant risk that our influence with respect to a class of securities can be lost by the inflation of the number and the amount of claims in, or other gerrymandering of, the class. Fourth, in the early stages of the bankruptcy process it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain administrative costs and claims that have priority by law over the claims of certain creditors (for example, claims for taxes) may be substantial. Fifth, a bankruptcy may result in creditors and equity holders losing their ranking and priority as such if they are considered to have taken over management and functional operating control of a debtor. Sixth, we may purchase creditor claims subsequent to the commencement of a bankruptcy case, and it is possible that such purchase may be disallowed by a court if it determines that the purchaser has taken unfair advantage of an unsophisticated seller, which may result in the rescission of the transaction (presumably at the original purchase price) or forfeiture by the purchaser.
Further, several judicial decisions in the United States have upheld the right of borrowers to sue lenders or bondholders on the basis of various evolving legal theories (collectively termed “lender liability”). Generally, lender liability is founded upon the premise that an institutional lender or bondholder has violated an implied or contractual duty of good faith and fair dealing owed to the borrower or issuer or has assumed a degree of control over the borrower or issuer resulting in the creation of a fiduciary duty owed to the borrower or issuer or its other creditors or shareholders. Because of the nature of certain of the investments, we could be subject to allegations of lender liability. Because of the potential of HPS or its affiliates to have investments in several positions in the same, different or overlapping levels of a portfolio company’s capital structure, we may be subject to claims from creditors of a portfolio company that the investments should be equitably subordinated to the payment of other obligations of the portfolio company by reason of the conduct of us or HPS and its affiliates. In addition, under certain circumstances, a U.S. bankruptcy court could also recharacterize claims held by us as equity interests, and thereby subject such claims to the lower priority afforded equity claims in certain restructuring scenarios.
We are Subject to Risks Related to Exit Financing.
We may invest in portfolio companies that are in the process of exiting, or that have recently exited, the bankruptcy process. Post-reorganization securities typically entail a higher degree of risk than investments in securities that have not undergone a reorganization or restructuring. Moreover, post-reorganization securities can be subject to heavy selling or downward pricing pressure after the completion
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of a bankruptcy reorganization or restructuring. If the Adviser’s evaluation of the anticipated outcome of an investment situation should prove incorrect, we could experience a loss.
We are Subject to Risks Related to Bankruptcy Involving Non-U.S. Companies.
Investment in the debt of financially distressed companies domiciled outside the United States involves additional risks. Bankruptcy law and process may differ substantially from that in the United States, resulting in greater uncertainty as to the rights of creditors, the enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. In certain developing countries, although bankruptcy laws have been enacted, the process for reorganization remains highly uncertain, while other developing countries may have no bankruptcy laws enacted, adding further uncertainty to the process for reorganization.
We are Subject to Risks Relating to Creditors’ Committee and/or Board Participation.
In connection with some of the investments, we may, but are not obligated to, seek representation on official and unofficial creditors’ committees and/or boards (or comparable governing bodies) of the portfolio companies. While such representation may enable the Adviser to enhance the value of the investments, it may also prevent us from disposing of the investments in a timely and profitable manner, because serving on a creditors’ committee increases the possibility that we will be deemed an “insider” or a “fiduciary” of the portfolio company. If the Adviser concludes that its obligations owed to the other parties as a committee or group member conflict with its duties owed to us, it may resign from that committee or group, and we may not realize the benefits, if any, of participation on the committee or group. If representation on a creditors’ committee or board causes us, the Adviser or its respective affiliates to be deemed affiliates or related parties of the portfolio company, the securities of such portfolio company held by us may become restricted securities, which are not freely tradable. Participation on a creditors’ committee and/or board representation may also subject us to additional liability to which we would not otherwise be subject as an ordinary course, third-party investor. We will indemnify the Adviser or any other person designated by the Adviser for claims arising from such board and/or committee representation, which could adversely affect the return on the investments. We will attempt to balance the advantages and disadvantages of such representation when deciding whether and how to exercise our rights with respect to such portfolio companies, but changes in circumstances could produce adverse consequences in particular situations.
We are Subject to Risks of Investments in Special Situations.
Our investments may involve investments in ‘event-driven’ special situations such as recapitalizations, spinoffs, corporate and financial restructurings, litigation or other liability impairments, turnarounds, management changes, consolidating industries and other catalyst-oriented situations. Investments in such securities are often difficult to analyze, have limited trading histories and have limited in-depth research coverage and, therefore, may present an increased risk of loss to us.
We are Subject to Risks Associated with Real Estate.
We may invest in mortgage-backed securities, individual mortgages and other real estate credit investments. Investments in mortgage-backed securities are subject to the risks applicable to the risks described above in “–We are Subject to Risks Associated with Subordinated Debt Tranches,” as well as the risks applicable to real estate investments generally. With respect to particular real estate credit investments, real estate debt instruments that are in default may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate and/or a substantial write-down of the principal of such debt instruments. Even if a restructuring were successful, a risk exists that upon maturity of such real estate debt instrument, replacement “takeout” financing will not be available. It is possible that the Adviser may find it necessary or desirable to foreclose on collateral securing one or more real estate debt instruments purchased by us. The foreclosure process can be lengthy, uncertain and expensive. Real estate risks typically include fluctuations in the real estate markets, slowdown in demand for the purchase or rental of properties, changes in the relative popularity of property types and locations, the oversupply of a certain type of property, changes in regional, national and international economic conditions, adverse local market conditions, the financial conditions of tenants, buyers and sellers of properties, changes in building, environmental, zoning and other laws and other governmental rules and fiscal policies, changes in real property tax rates or the assessed values of the investments, changes in interest rates and the availability or terms of debt financing, changes in operating costs, risks due to dependence on cash flow, environmental claims arising in respect of real estate acquired with undisclosed or unknown environmental problems or as to which inadequate reserves had been established, uninsured casualties, risks due to dependence on cash flow and risks and operating problems arising out of the presence of certain construction materials, unavailability of or increased cost of certain types of insurance coverage, such as terrorism insurance, fluctuations in energy prices, acts of God, natural disasters and uninsurable losses, acts of war (declared and undeclared), terrorist acts, strikes and other factors which are not within the control of the Adviser.
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We are Subject to Risks Associated with Investments in Portfolio Companies in Regulated Industries.
Certain industries are heavily regulated. We may make loans to borrowers operating in industries that are subject to greater amounts of regulation than other industries generally. These more highly regulated industries may include, among others, energy and power, gaming and healthcare. Investments in borrowers that are subject to a high level of governmental regulation pose additional risks relative to loans to other companies generally. Changes in applicable laws or regulations, or in the interpretations of these laws and regulations, could result in increased compliance costs or the need for additional capital expenditures. If a portfolio company fails to comply with these requirements, it could also be subject to civil or criminal liability and the imposition of fines. A portfolio company also could be materially and adversely affected as a result of statutory or regulatory changes or judicial or administrative interpretations of existing laws and regulations that impose more comprehensive or stringent requirements on such company. Governments have considerable discretion in implementing regulations that could impact a portfolio company’s business, and governments may be influenced by political considerations and may make decisions that adversely affect a portfolio company’s business. Additionally, certain portfolio companies may have a unionized workforce or employees who are covered by a collective bargaining agreement, which could subject any such portfolio company’s activities and labor relations matters to complex laws and regulations relating thereto. Moreover, a portfolio company’s operations and profitability could suffer if it experiences labor relations problems. A work stoppage at one or more of any such portfolio company’s facilities could have a material adverse effect on its business, results of operations and financial condition. Any such problems additionally may bring scrutiny and attention to us, which could adversely affect our ability to implement our investment objective.
We are Subject to Risks Associated with Investments in Original Issue Discount and Payment-In-Kind Instruments.
We have invested and expect to continue to invest in original issue discount or PIK instruments. To the extent that we invest in original issue discount or PIK instruments and the accretion of original issue discount or PIK interest income constitutes a portion of our income, we will be exposed to risks associated with the requirement to include such non-cash income in taxable and accounting income prior to receipt of cash, including the following:
•the higher interest rates on PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans;
•original issue discount and PIK instruments may have unreliable valuations because the accruals require judgments about collectability of the deferred payments and the value of any associated collateral;
•an election to defer PIK interest payments by adding them to the principal on such instruments increases our future investment income which increases our net assets and, as such, increases the Adviser’s future base management fees which, thus, increases the Adviser’s future income incentive fees at a compounding rate;
•market prices of PIK instruments and other zero-coupon instruments are affected to a greater extent by interest rate changes, and may be more volatile than instruments that pay interest periodically in cash. While PIK instruments are usually less volatile than zero-coupon debt instruments, PIK instruments are generally more volatile than cash pay securities;
•the deferral of PIK interest on an instrument increases the loan-to-value ratio, which is a measure of the riskiness of a loan, with respect to such instrument;
•even if the conditions for income accrual under accounting principles generally accepted in the United States (“GAAP”) are satisfied, a borrower could still default when actual payment is due upon the maturity of such loan;
•for accounting purposes, cash distributions to investors representing original issue discount income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of original issue discount income may come from the cash invested by investors, the 1940 Act does not require that investors be given notice of this fact;
•the required recognition of original issue discount or PIK interest for U.S. federal income tax purposes may have a negative impact on liquidity, as it represents a non-cash component of our investment company taxable income that may require cash distributions to shareholders in order to maintain our ability to maintain tax treatment as a RIC for U.S. federal income tax purposes; and
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•original issue discount may create a risk of non-refundable cash payments to the Adviser based on non-cash accruals that may never be realized.
In addition, the part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that accrues prior to being received in cash, such as original issue discount, market discount, and income arising from debt instruments with PIK interest or zero-coupon securities. If a portfolio company defaults on a loan that provides for such accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible, and the Adviser will have no obligation to refund any fees it received in respect of such accrued income.
We are Subject to Risks Arising from Entering into a TRS Agreement.
A total return swap (“TRS”) is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Because of the unique structure of a TRS, a TRS often offers lower financing costs than are offered through more traditional borrowing arrangements. For purposes of computing our incentive fee on income and the incentive fee on capital gains, the calculation methodology looks through derivative financial instruments or swaps as if we owned the reference assets directly.
A TRS is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the TRS and the loans underlying the TRS. In addition, we may incur certain costs in connection with the TRS that could in the aggregate be significant. A TRS is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty.
We are Subject to Risks Associated with Repurchase Agreements.
Subject to our investment objective and policies, we may invest in repurchase agreements as a buyer for investment purposes. Repurchase agreements typically involve the acquisition by us of debt securities from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that we will sell the securities back to the institution at a fixed time in the future for the purchase price plus premium (which often reflects the interests). We do not bear the risk of a decline in the value of the underlying security unless the seller defaults under its repurchase obligation. In the event of the bankruptcy or other default of a seller of a repurchase agreement, we could experience both delays in liquidating the underlying securities and losses, including (1) possible decline in the value of the underlying security during the period in which we seek to enforce our rights thereto; (2) possible lack of access to income on the underlying security during this period; and (3) expenses of enforcing our rights. In addition, as described above, the value of the collateral underlying the repurchase agreement will be at least equal to the repurchase price, including any accrued interest earned on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, we generally will seek to liquidate such collateral. However, the exercise of our right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, we could suffer a loss.
We are Subject to Risks Relating to Securities Lending Agreements.
We may from time to time make secured loans of our marginable securities to brokers, dealers and other financial institutions if our asset coverage, as defined in the 1940 Act, would at least equal 150% (equivalent to $2 of debt outstanding for each $1 of equity) immediately after each such loan. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. However, such loans will be made only to brokers and other financial institutions that are believed by the Adviser to be of high credit standing. Securities loans are made to broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral consisting of U.S. government securities, cash or cash equivalents (e.g., negotiable certificates of deposit, bankers’ acceptances or letters of credit) maintained on a daily mark-to-market basis in an amount at least equal at all times to the market value of the securities lent. If we enter into a securities lending arrangement, the Adviser, as part of its responsibilities under the Investment Advisory Agreement, will invest our cash collateral in accordance with our investment objective and strategies. We will pay the borrower of the securities a fee based on the amount of the cash collateral posted in connection with the securities lending program. The borrower will pay to us, as the lender, an amount equal to any dividends or interest received on the securities lent.
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We may invest the cash collateral received only in accordance with our investment objective, subject to our agreement with the borrower of the securities. In the case of cash collateral, we expect to pay a rebate to the borrower. The reinvestment of cash collateral will result in a form of effective leverage for us.
Although voting rights or rights to consent with respect to the loaned securities pass to the borrower, we, as the lender, will retain the right to call the loans and obtain the return of the securities loaned at any time on reasonable notice, and will do so in order that the securities may be voted by us if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. We may also call such loans in order to sell the securities involved. When engaged in securities lending, our performance will continue to reflect changes in the value of the securities loaned and will also reflect the receipt of interest through investment of cash collateral by us in permissible investments.
We are Subject to Risks Relating to Asset-Based Financing.
We have invested, and expect to continue investing, in asset-based loans with third-party investment funds (“Fund Issuers”) where such loans are directly or indirectly collateralized by the value or cash flows of one or more of a Fund Issuer’s assets, including the distributions the Fund Issuer expects to receive from its underlying investments in portfolio companies (“Underlying Portfolio Companies”). Any such financing may be secured by the value of the assets of the Fund Issuer, which may be determined by a third-party valuation firm or as reported by the Fund Issuer pursuant to its internal valuation policies or as otherwise agreed with such Fund Issuer. The assets of a Fund Issuer are subject to devaluation risk, as well as other risks, including credit, liquidity and interest rate changes. In many cases, the assets held by a Fund Issuer may be illiquid and, even following an exercise of remedies, they may be difficult to liquidate or sell, which could lead to a reduced recovery. Furthermore, certain assets constituting collateral may require consent of third parties to transfer or sell. Fund Issuer assets indirectly pledged to us as collateral may be even more challenging to sell and in certain circumstances may only be able to be sold together with other assets which may be less attractive to potential buyers. In many cases, loans may also be subject to a “standstill” or similar provision that provides the Fund Issuer the ability to call capital from its investors or use other cure remedies prior to allowing us to exercise remedies following an event of default, further delaying our ability to take action. In addition, certain asset-based loans may be structured without mandatory prepayments or scheduled amortization. In this case, as long as any Fund Issuer is in compliance with the terms of the applicable asset-based loan and its organizational documents, such Fund Issuer may be permitted to make distributions to its investors and/or other equity holders, and the amount distributed will no longer be available to service or repay such asset-based loan.
Further, we may invest in loans to Fund Issuers that are unsecured but linked to financial tests based upon the value or cash flows of one or more of such Fund Issuer’s assets (including Underlying Portfolio Companies) or the distributions realized by the Fund Issuer from such assets (including Underlying Portfolio Companies). Similar to the above, the assets held by such Fund Issuers may be largely illiquid and, if pledged as collateral, may require consents and other steps in order to be foreclosed upon and sold. In addition, the cash flows produced by the assets held by such Fund Issuer may be irregular and/or insufficient to repay any or all of the amounts outstanding under such asset-based loan.
If a Fund Issuer defaults under its asset-based loan, we will have to determine whether to accelerate the amounts due under the loan or enter into a workout negotiation or restructuring with the Fund Issuer. A workout negotiation or restructuring may entail a substantial reduction in the interest rate, a substantial write-down of principal, and/or a substantial change to the terms, conditions and covenants of such loans. If a loan is accelerated, we may have difficulties foreclosing and ultimately selling any pledged collateral, including an Underlying Portfolio Company. If any such collateral is sold, it is possible that the proceeds of such sale or disposition will not be equal to the amount of principal and interest owed to us. On the other hand, if we elect not to sell any of the assets of the Fund Issuer and instead decide to collect the cash flows from the Underlying Portfolio Companies or other assets of the Fund Issuer, the cash flows produced may be irregular and/or insufficient to repay any or all of the amounts outstanding under such asset-based loan. As a result, upon any non-performance or default under any such asset-based loans made by us, we may fail to recover some or all of our capital and/or expected returns, even if the loans are collateralized.
In addition, our asset-based loans may be subject to refinancing options, prepayment options or similar provisions that could result in the Fund Issuer repaying the principal on an obligation held by us earlier than expected. As a consequence, if we are not able to negotiate favorable prepayment premiums and/ or non-call periods, our ability to achieve our investment objective may be affected.
Fund Issuers may also be permitted to issue additional indebtedness that would increase the overall leverage and fixed charges to which such Fund Issuers are subject. Such additional indebtedness could have structural or contractual priority, either as to specific collateral (including Underlying Portfolio Companies) or generally, over the ranking of the investment by us. In the event of any default, restructuring or insolvency of any Underlying Portfolio Company or other assets pledged as collateral, we could be subordinated to, or be required to share on a ratable basis, with any recoveries in favor of the holders of such other or additional indebtedness.
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We are Subject to Risks Relating to Portfolio Company Reputation.
If a portfolio company fails to at least maintain the strength and value of such portfolio company’s historic brand, its value is likely to decrease. A portfolio company’s success often depends on the value and strength of its brand. In such cases, the name of such portfolio company is integral to its business as well as to the implementation of its strategies for expanding its business. Maintaining, promoting and positioning such brand can depend largely on the success of marketing efforts and its ability to provide consistent, high quality merchandises, services and / or customer experience. A portfolio company’s brand could be adversely affected if it fails to achieve these objectives or if its public image or reputation were to be tarnished by negative publicity. Any of these events could result in decreases in value of our investments in a portfolio company.
C. Risks Relating to Certain Regulatory Matters
We are Subject to Risks Relating to Regulations Governing Our Operation as a BDC.
We will not generally be able to issue and sell our Common Shares at a price below net asset value per share. We may, however, sell Common Shares, or warrants, options or rights to acquire our Common Shares, at a price below the then-current net asset value per share of our Common Shares if our Board determines that such sale is in our best interests, and if investors approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing Common Shares or senior securities convertible into, or exchangeable for, our Common Shares, then the percentage ownership of investors at that time will decrease, and investors may experience dilution.
We Must Invest a Sufficient Portion of Assets in Qualifying Assets.
We may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets.
We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe to be attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs. As a result of such violation, specific rules under the 1940 Act could prevent us, for example, from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be able to find a buyer for such investments and, even if a buyer is found, we may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we do not maintain our status as a BDC, we would be subject to regulation as a registered closed-end management investment company under the 1940 Act. As a registered closed-end management investment company, we would be subject to substantially more regulatory restrictions under the 1940 Act which would significantly decrease our operating flexibility.
As a Public Company, We Are Subject to Regulations Not Applicable to Private Companies, Such as Provisions of the Sarbanes-Oxley Act. Efforts to Comply With Such Regulations Will Involve Significant Expenditures, and Non-Compliance With Such Regulations May Adversely Affect Us.
As a public company, we are subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Following the transition period established by rules of the SEC, our management is required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a relatively new company, developing and maintaining an effective system of internal controls may require significant expenditures, which may negatively impact our financial performance and our ability to make distributions. This process also will result in a diversion of our management’s time and attention. We cannot be certain of when our evaluation, testing and remediation actions will be completed or the impact of the same on our operations. In addition, we may be unable to ensure that the process is effective or that our internal controls over financial reporting are or will be effective in a timely manner. In the event that we are unable to develop or maintain an effective system of internal controls and maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.
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Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until there is a public market for our shares, which is not expected to occur.
New or Modified Laws or Regulations Governing Our Operations May Adversely Affect Our Business.
We and our portfolio companies are subject to regulation by laws at the U.S. federal, state, and local levels. These laws and regulations, as well as their interpretation, may change from time to time, including as the result of interpretive guidance or other directives from the U.S. President and others in the executive branch, and new laws, regulations, and interpretations may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on our business. The effects of such laws and regulations on the financial services industry will depend, in large part, upon the extent to which regulators exercise the authority granted to them and the approaches taken in implementing regulations.
Future legislative and regulatory proposals directed at the financial services industry that are proposed or pending in the U.S. Congress may negatively impact the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on portfolio companies or us, intensify the regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. Laws that apply to us, either now or in the future, are often highly complex and may include licensing requirements. The licensing process can be lengthy and can be expected to subject us to increased regulatory oversight. Failure, even if unintentional, to comply fully with applicable laws may result in sanctions, fines, or limitations on the ability of us or the Adviser to do business in the relevant jurisdiction or to procure required licenses in other jurisdictions, all of which could have a material adverse effect on us. In addition, if we do not comply with applicable laws and regulations, we could lose any licenses that we then hold for the conduct of our business and may be subject to civil fines and criminal penalties.
Additionally, changes to the laws and regulations governing our operations, including those associated with RICs, may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities or result in the imposition of corporate-level taxes on us. Such changes could result in material differences to our strategies and plans and may shift our investment focus from the areas of expertise of the Adviser to other types of investments in which the Adviser may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on our results of operations and the value of an investor’s investment. If we invest in commodity interests in the future, the Adviser may determine not to use investment strategies that trigger additional regulation by the CFTC or may determine to operate subject to CFTC regulation, if applicable. If the Adviser or we were to operate subject to CFTC regulation, we may incur additional expenses and would be subject to additional regulation.
In addition, certain regulations applicable to debt securitizations implementing credit risk retention requirements that have taken effect in both the U.S. and in Europe may adversely affect or prevent us from entering into securitization transactions. These risk retention rules will increase our cost of funds under, or may prevent us from completing, future securitization transactions. In particular, the U.S. Risk Retention Rules require the sponsor (directly or through a majority-owned affiliate) of a debt securitization, such as CLOs, in the absence of an exemption, to retain an economic interest in the credit risk of the assets being securitized in the form of an eligible horizontal residual interest, an eligible vertical interest, or a combination thereof, in accordance with the requirements of the U.S. Risk Retention Rules. Given the more attractive financing costs associated with these types of debt securitizations as opposed to other types of financing available (such as traditional senior secured facilities), this increases our financing costs, which increases the financing costs ultimately borne by our shareholders.
Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.
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We Are Subject to Risks Related to Corporate Social Responsibility.
Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in investing in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions.
Our brand and reputation may be negatively impacted if we fail to act responsibly in a number of areas, such as considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could impact the value of our brand and our relationships with shareholders, which could adversely affect our business and results of operations.
Additionally, new regulatory initiatives related to ESG could adversely affect our business. The SEC has proposed rules that, in addition to other matters, would establish a framework for reporting of climate-related risks. For example, the SEC has announced that it may require disclosure of certain ESG-related matters. There is a risk that a significant reorientation in the market following the implementation of these and further measures could be adverse to our portfolio companies if they are perceived to be less valuable as a consequence of, for example, their carbon footprint or “greenwashing” (i.e., the holding out of a product as having green or sustainable characteristics where this is not, in fact, the case). We are, and our portfolio companies may be, or could in the future become subject to the risk that similar measures might be introduced in other jurisdictions in the future. At this time, there is uncertainty regarding the scope of such proposals or when they would become effective (if at all). Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we or our portfolio companies conduct our businesses and adversely affect our profitability. On the other hand, certain state governments have begun to challenge the use of ESG factors in investment decisions, potentially setting up conflicting standards for us to address.
Changes to the Dodd-Frank Act May Adversely Impact Us.
The enactment of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other financial regulations curtailed certain investment activities of U.S. banks. As a result, alternative providers of capital (such as us) were able to access certain investment opportunities on a larger scale. If the restrictions under the Dodd-Frank Act are curtailed or repealed, banks may be subject to fewer restrictions on their investment activities, thereby increasing competition with us for potential investment opportunities. As a result, any changes to the Dodd-Frank Act may adversely impact us.
CFIUS & National Security/Investment Clearance Considerations.
Certain transactions by us that involve the acquisition or sale of a business connected with or related to national security or critical infrastructure may be subject to review and approval by the U.S. Committee on Foreign Investment in the United States (“CFIUS”) and/or non-U.S. national security/investment clearance regulators depending on the beneficial ownership and control of interests in the entity purchasing such business, including with respect to CFIUS, where a co-investor or other partner is a “foreign person” under applicable regulations. Certain of our investors are expected to be “foreign persons,” and in the aggregate, may comprise a substantial portion of our subscriptions, which may increase the risks of an investment being subject to CFIUS’ jurisdiction and the likelihood of CFIUS imposing restrictions on an investment. CFIUS agency practice is evolving rapidly, and CFIUS exercises substantial discretion in deciding how to interpret, apply and enforce the implementation of regulations. As a result, there can be no guarantee that investments by us will not be reviewable by CFIUS and/or non-U.S. national security/investment clearance regulators or that CFIUS and/or non-U.S. national security/investment clearance regulators will not seek to evaluate our investment activities. In the event that CFIUS or another regulator reviews – or would be expected to review – one or more of our proposed or existing investments, there can be no assurances that the Adviser and/or its affiliates will be able to maintain, or proceed with, such transactions on terms acceptable to Adviser and/or its affiliates, or that such investment would be allocated to, or consummated by, us rather than to one or more clients of the Adviser and/or its affiliates. CFIUS or another regulator may seek to impose limitations on or prohibit all or a portion of the transaction. Such limitations or restrictions may prevent us from (i) maintaining or pursuing investments, (ii) disposing of investments, which could adversely affect our performance and/or (iii) disclosing all information regarding certain transactions to all of our investors.
Beginning on January 2, 2025, the U.S. Department of the Treasury’s Outbound Investment Security Program went into effect, which prohibits or requires notification of certain types of outbound investments by U.S. persons into certain entities located in or subject to the jurisdiction of China, Hong Kong, and Macau (as well as certain entities subject to Chinese ownership or control) that are engaged in the development of certain national security technologies and products (presently, certain semiconductors and microelectronics, quantum information technologies, and artificial intelligence technologies), as well as any other countries that are or may be designated under the program’s regulations. Together, these regulations may affect our business and operations. In the event that CFIUS, the U.S. Department of Treasury administering the Outbound Investment Security Program, or a non-U.S. national security/investment clearance regulator
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reviews one or more of our proposed or existing investments, there can be no assurances that we will be able to maintain, or proceed with, such transactions on terms acceptable to the Adviser and/or its affiliates. Such regulator may seek to impose limitations on or prohibit all or a portion of the transaction. Such limitations or restrictions may prevent us from (i) maintaining or pursuing investments in certain jurisdictions and/or (ii) disposing of investments already made in such jurisdictions, or may increase the cost and time associated with such activities, which could adversely affect the performance of our investment vehicles and in turn adversely affect our profitability.
We are Subject to Risks Relating to Pay-to-Play Laws, Regulations and Policies.
Many states, their subdivisions and associated pension plans have adopted so-called “pay-to-play” laws, rules, regulations or policies which prohibit, restrict or require disclosure of payments to, and/or certain contacts with, certain politicians or officials associated with public entities by individuals and entities seeking to do business with related entities, including seeking investments by public retirement funds in collective investment funds such as us. The SEC also has adopted rules that, among other things, prohibit an investment adviser from providing advisory services for compensation with respect to a government plan investor for two years after the adviser or certain of its executives or employees makes a contribution to certain elected officials or candidates for certain elected offices. If the Adviser, its affiliates or their respective employees or affiliates violate such pay-to-play laws, rules, regulations or policies, such non-compliance could have an adverse effect on us.
We are Subject to Risks Relating to Government Policies, Changes in Laws, and International Trade.
Governmental regulatory activity, especially that of the Board of Governors of the U.S. Federal Reserve System, may have a significant effect on interest rates and on the economy generally, which in turn may affect the price of the securities in which we plan to invest. High interest rates, the imposition of credit controls or other restraints on the financing of takeovers or other acquisitions could diminish the number of merger tender offers, exchange offers or other acquisitions, and as a consequence have a materially adverse effect on our activities. Moreover, changes in U.S. federal, state, and local tax laws, U.S. federal or state securities and bankruptcy laws or in accounting standards may make corporate acquisitions or restructurings less desirable or make risk arbitrage less profitable. Amendments to the U.S. Bankruptcy Code or other relevant laws could also alter an expected outcome or introduce greater uncertainty regarding the likely outcome of an investment situation.
In addition, governmental policies, including any changes (or uncertainty around future changes) to international trade agreements, tariffs and related regulations may adversely affect the business operations and performance of us and our portfolio companies. These governmental policies could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact our business. Prospective shareholders should realize that any significant changes in governmental policies (including tariffs and other policies involving international trade) could have a material adverse impact on us and our investments.
We are Subject to Risks Relating to General Data Protection Regulations.
In Europe, the General Data Protection Regulation (“GDPR”) was made effective on May 25, 2018, introducing substantial changes to current European privacy laws. It has superseded the existing Data Protection Directive, which is the key European legislation governing the use of personal data relating to living individuals. The GDPR provides enhanced rights to individuals with respect to the privacy of their personal data and applies not only to organizations with a presence in the European Union which use or hold data relating to living individuals, but also to those organizations that offer services to individual European Union investors. In addition, although regulatory behavior and penalties under the GDPR remain an area of considerable scrutiny, it does increase the sanctions for serious breaches to the greater of €20 million or 4% of worldwide revenue, the impact of which could be significant. Compliance with the GDPR may require additional measures, including updating policies and procedures and reviewing relevant IT systems, which may create additional costs and expenses for us and therefore our shareholders. We may have indemnification obligations in respect of, or be required to pay the expenses relating to, any litigation or action as a result of any purported breach of the GDPR. Shareholders other than individuals in the European Union may not be afforded the protections of the GDPR.
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We are Subject to Risks Arising from Potential Controlled Group Liability.
Under certain circumstances it would be possible for us, along with our affiliates, to obtain a controlling interest (i.e., 80% or more) in certain portfolio companies. This could occur, for example, in connection with a work out of the portfolio company’s debt obligations or a restructuring of the portfolio company’s capital structure. Based on recent federal court decisions, there is a risk that we (along with our affiliates) would be treated as engaged in a “trade or business” for purposes of ERISA’s controlled group rules. In such an event, we could be jointly and severally liable for a portfolio company’s liabilities with respect to the underfunding of any pension plans which such portfolio company sponsors or to which it contributes. If the portfolio company were not able to satisfy those liabilities, they could become the responsibility of us, causing us to incur potentially significant, unexpected liabilities for which reserves were not established.
We are Subject to Risks Arising from Compliance with the SEC’s Regulation Best Interest.
Broker-dealers must comply with Regulation Best Interest, which, among other requirements, enhances the existing standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when recommending to a retail customer any securities transaction or investment strategy involving securities to a retail customer. Regulation Best Interest imposes a duty of care for broker-dealers to evaluate reasonably available alternatives in the best interests of their clients. There are likely alternatives to us that are reasonably available to you, through your broker or otherwise, and those alternatives may be less costly or have a lower investment risk. Among other alternatives, listed BDCs may be reasonable alternatives to an investment in our Common Shares, and may feature characteristics like lower cost, less complexity, and lesser or different risks. Investments in listed securities also often involve nominal or zero commissions at the time of initial purchase. The impact of Regulation Best Interest on broker-dealers participating in the Offering cannot be determined at this time, but it may negatively impact whether broker-dealers and their associated persons recommend the Offering to retail customers. If Regulation Best Interest reduces our ability to raise capital in the Offering, it would harm our ability to create a diversified portfolio of investments and achieve our investment objective and would result in our fixed operating costs representing a larger percentage of our gross income.
D. Risks Related to the HPS/BlackRock Transaction
The HPS/BlackRock Transaction.
On July 1, 2025, BlackRock acquired 100% of the business and assets of HPS. There is no guarantee that HPS will be able to successfully transition, maintain and continue to build its business as part of BlackRock or that HPS and BlackRock will be able to successfully integrate their business operations. In particular, as with any change in ownership, HPS is subject to substantial risks, including with respect to the long-term retention of key employees, the successful consolidation of corporate, technological and administrative infrastructures and the retention of existing business and operational relationships. It is possible that employees involved in the operation of HPS may not continue on a long-term basis with BlackRock and the operations and business relationships of HPS may be disrupted. The integration of HPS into BlackRock will be a complex, costly and time-consuming process and if HPS experiences difficulties in this process, the anticipated benefits of the HPS/BlackRock Transaction may not be realized fully or at all, or it may take longer to realize than expected, which could have an adverse effect on HPS for an undetermined period. As part of the integration of HPS into BlackRock, HPS will implement various BlackRock policies and procedures, administrative systems and technical applications. Each of these changes may impact our operations. While the Adviser will seek to minimize any disruptions, delays or changes to the investor experience as part of the integration, there is no guarantee it will be able to do so. In addition, there can be no assurances that HPS and BlackRock will realize operating efficiencies, synergies and other benefits from the HPS/BlackRock Transaction, and a failure to obtain such synergies may adversely affect the operations of HPS. Some factors related to the integration of the businesses are outside of HPS’s control, and any of them could result in delays, increased costs, decreases in the amount of potential revenues or synergies and diversion of management’s time and energy, which could materially affect HPS’s financial position, results of operations, and cash flows. In the event that the HPS/BlackRock Transaction has an adverse impact on HPS, including for the foregoing reasons, our operations may be adversely affected.
BlackRock is one of the largest and most diverse financial institutions in the world. As a result, it currently has, and may in the future have, other business units that compete with HPS or seek investment opportunities that are appropriate for us, and it has policies and procedures that may limit or otherwise impact the operations of HPS and/or us. Further, certain issuers of potential investments for us may prefer to work with a smaller or independent sponsor, which may adversely affect HPS’s ability to attract new investment opportunities for us.
HPS believes that investors will benefit from the combination of BlackRock’s and HPS’s capabilities; however, there are certain potential conflicts of interest that will arise as a result of the ownership of HPS by BlackRock. For a discussion of certain risks and conflicts of interest relating to the investment advisory, management and other activities of BlackRock Financial Management, Inc. as well
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as certain other affiliated registered investment adviser subsidiaries of BlackRock, Inc., please refer to Part 2A of the Form ADV for BlackRock Financial Management, Inc., which shareholders are urged to read and which is available at http://www.adviserinfo.sec.gov/Firm/107105.
E. Federal Income Tax Risks
We are Subject to RIC Qualification Risks.
To obtain and maintain RIC tax treatment under Subchapter M of the Code, we must, among other things, meet annual distribution, income source and asset diversification requirements. If we do not qualify for or maintain RIC tax treatment for any reason and are 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 Experience Difficulty with Paying Required Distributions.
For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as zero-coupon securities, debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discount and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for tax purposes.
Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the annual distribution requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to qualify for and maintain RIC tax treatment under Subchapter M of the Code. 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 forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may not qualify for or maintain RIC tax treatment and thus may become subject to corporate-level 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.
Some Investments May be Subject to Corporate-Level Income Tax.
We may invest in certain debt and equity investments through taxable subsidiaries and the taxable income of these taxable subsidiaries will be subject to federal and state corporate income taxes. We may invest in certain foreign debt and equity investments which could be subject to foreign taxes (such as income tax, withholding and value added taxes).
Certain Portfolio Investments May Present Special Tax Issues.
We have and continue to expect to invest in debt securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Investments in these types of instruments may present special tax issues. U.S. federal income tax rules are not entirely clear about certain issues related to such investments such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues will be addressed by us, to the extent necessary, to distribute sufficient income to preserve our tax status as a RIC and minimize the extent to which we are subject to U.S. federal income or excise tax.
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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. The likelihood of any new legislation being enacted is uncertain. Any new laws, regulations or interpretations may take effect retroactively and could adversely affect the taxation of us and/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.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity
Assessment, Identification and Management of Material Risks from Cybersecurity
We have processes in place to assess, identify, and manage material risks from cybersecurity threats. We rely on the cybersecurity strategy and policies implemented by the Adviser and HPS, the providers of our technology services. The Adviser manages our day-to-day operations and has implemented, together with HPS, a firm-wide cybersecurity program that applies to us and our operations. References in this Item 1C to (i) any programs or processes of the Adviser shall be deemed to refer to any firm-wide programs and/or processes that have been implemented by HPS, and (ii) any actions of the Adviser shall be deemed to refer to actions of HPS and/or the Adviser, as the context may require.
The Adviser’s cybersecurity program prioritizes detection and analysis of and response to cybersecurity threats, management of security risks and resilience against cyber incidents, including those that may impact us. The Adviser’s cybersecurity program is aligned to the Center for Internet Security critical controls framework. The Adviser’s cybersecurity risk management processes applicable to us include technical security controls, policy enforcement mechanisms, monitoring systems, and other tools. Third-party providers are leveraged to assist in assessing, identifying and managing risks from cybersecurity threats applicable to us. The assessment of cybersecurity risks, including those which may be applicable to us, is integrated into the Adviser’s overall risk management program. The Adviser has implemented and continues to implement risk-based controls designed to prevent, detect, and respond to information security threats and we rely on such controls.
The Adviser’s cybersecurity program includes physical, administrative, and technical safeguards, as well as plans and procedures designed to help us prevent and respond to cybersecurity threats and incidents, including threats or incidents that may impact us. The Adviser’s cybersecurity risk management processes seek to monitor cybersecurity vulnerabilities and potential attack vectors, evaluate the potential operational and financial effects of any threat, and mitigate such threats. We rely on the Adviser to engage with third-party consultants and key vendors to assist it in assessing, enhancing, implementing, and monitoring its cybersecurity program and risk management processes and responding to incidents.
The Adviser’s cybersecurity risk management and awareness programs, which apply to us, include identification and testing of vulnerabilities, phishing simulations and cybersecurity awareness training. The Adviser undertakes internal security reviews of its information systems and related controls, including those applicable to us. The Adviser also completes external reviews of the cybersecurity program and practices applicable to us, which may include assessments of relevant data protection practices and targeted attack simulations.
The Adviser has developed an incident response plan that provides guidelines for responding to cybersecurity incidents. The incident response plan includes notification to the applicable members of cybersecurity leadership, including the Adviser’s Chief Information Security Officer (“CISO”), and, as appropriate, escalation to other relevant individuals. Incidents may also be reported to the audit committee or full board of directors of the Adviser, as well as to the Audit Committee, if appropriate.
Our management is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents impacting us, including through the receipt of notifications from service providers and reliance on communications with the Adviser’s CISO, as well as other risk management, legal, information technology, and/or compliance personnel of the Adviser.
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We depend on and engage various third parties, including suppliers, vendors, and service providers, to operate our business. We rely on the expertise of risk management, legal, information technology, and compliance personnel of the Adviser when identifying and overseeing risks from cybersecurity threats associated with our use of such entities.
Material Impact of Cybersecurity Risks
Management's Role in Cybersecurity Risk Oversight
Board Oversight of Cybersecurity Risks
Item 2. Properties.
We do not own any real estate or other physical properties materially important to our operation. Our corporate headquarters are located at 40 West 57th Street, 33rd Floor, New York, NY 10019 and are provided by the Administrator in accordance with the terms of our Administration Agreement. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.
Item 3. Legal Proceedings.
We are not currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of any such future legal or regulatory proceedings cannot be predicted with certainty, we do not expect that any such future proceedings will have a material effect upon our financial condition or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Share Issuances
The Offering consists of four classes of shares of our Common Shares, Class I shares, Class D shares, Class F shares and Class S shares. The share classes have different ongoing shareholder servicing and/or distribution fees. Other than the differences in ongoing shareholder servicing and/or distribution fees, each class of Common Shares has the same economics and voting rights. Our Common Shares are not listed for trading on a stock exchange or other securities market and there is no established public trading market for our Common Shares. As of March 10, 2026 there were 4,070 holders of record of our Class S common shares, 83 holders of record of our Class D common shares, 5,397 holders of record of our Class I common shares and 2 holders of record of our Class F common shares.
We expect to determine our NAV for each class of shares each month as of the last day of each calendar month. The NAV per share for each class of shares is determined by dividing the value of total assets attributable to the class minus liabilities attributable to the class by the total number of Common Shares outstanding of the class at the date as of which the determination is made.
The following table presents our monthly NAV per share for each of the four classes of shares during the year ended December 31, 2025:
| NAV Per Share | ||||||||||||||||||||||||||
| For the Months Ended | Class I | Class D | Class F | Class S | ||||||||||||||||||||||
| January 31, 2025 | $ | 25.60 | $ | 25.60 | $ | 25.60 | $ | 25.60 | ||||||||||||||||||
| February 28, 2025 | $ | 25.51 | $ | 25.51 | $ | 25.51 | $ | 25.51 | ||||||||||||||||||
| March 31, 2025 | $ | 25.47 | $ | 25.47 | $ | 25.47 | $ | 25.47 | ||||||||||||||||||
| April 30, 2025 | $ | 25.31 | $ | 25.31 | $ | 25.31 | $ | 25.31 | ||||||||||||||||||
| May 31, 2025 | $ | 25.26 | $ | 25.26 | $ | 25.26 | $ | 25.26 | ||||||||||||||||||
| June 30, 2025 | $ | 25.22 | $ | 25.22 | $ | 25.22 | $ | 25.22 | ||||||||||||||||||
| July 31, 2025 | $ | 25.24 | $ | 25.24 | $ | 25.24 | $ | 25.24 | ||||||||||||||||||
| August 31, 2025 | $ | 25.20 | $ | 25.20 | $ | 25.20 | $ | 25.20 | ||||||||||||||||||
| September 30, 2025 | $ | 25.27 | $ | 25.27 | $ | 25.27 | $ | 25.27 | ||||||||||||||||||
| October 31, 2025 | $ | 25.27 | $ | 25.27 | $ | 25.27 | $ | 25.27 | ||||||||||||||||||
| November 30, 2025 | $ | 25.27 | $ | 25.27 | $ | 25.27 | $ | 25.27 | ||||||||||||||||||
| December 31, 2025 | $ | 25.22 | $ | 25.22 | $ | 25.22 | $ | 25.22 | ||||||||||||||||||
Distributions
We have paid regular monthly distributions commencing with the first month after the escrow period concluded and we expect to continue paying distributions on a monthly basis. Any distributions we make will be at the discretion of our Board, considering factors such as our earnings, cash flow, capital needs and general financial condition and the requirements of Delaware law. As a result, our distribution rates and payment frequency may vary from time to time.
Our Board’s discretion as to the payment of distributions will be directed, in substantial part, by its determination to cause us to comply with the RIC requirements. To maintain our treatment as a RIC, we generally are required to make aggregate annual distributions to our shareholders of at least 90% of investment company taxable income.
The per share amount of distributions on Class I, Class D, Class F and Class S shares generally differ because of different class-specific shareholder servicing and/or distribution fees that are deducted from the gross distributions for each share class. Specifically, distributions on Class S shares will be lower than Class I shares, Class D shares and Class F shares, distributions on Class F shares will be lower than Class I shares and Class D shares, and distributions on Class D shares will be lower than Class I shares because we are required to pay higher ongoing shareholder servicing and/or distribution fees with respect to the Class S shares (compared to Class I shares, Class D shares and Class F shares), we are required to pay higher ongoing shareholder servicing and/or distribution fees with respect to the Class F shares (compared to Class I shares and Class D shares), and we are required to pay higher ongoing shareholder servicing fees with respect to Class D shares (compared to Class I shares).
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The following tables summarize our distributions declared and payable for the year ended December 31, 2025 (dollar amounts in thousands, except per share amounts), and the record date for each distribution was the last calendar date of the month in which such distribution was declared:
| Class I | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1600 | $ | 0.0550 | $ | — | $ | 0.2150 | $ | 24,733 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 27,355 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 28,558 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 29,299 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 31,373 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 33,040 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 33,412 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 35,458 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 36,845 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 38,549 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 41,642 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1600 | 0.0550 | — | 0.2150 | 43,241 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.9200 | $ | 0.6600 | $ | — | $ | 2.5800 | $ | 403,505 | ||||||||||||||||||||||||||||
| Class D | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1546 | $ | 0.0550 | $ | — | $ | 0.2096 | $ | 8,871 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1551 | 0.0550 | — | 0.2101 | 9,116 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,339 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 9,178 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,198 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 9,489 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,703 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,950 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 10,049 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,768 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 9,952 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1546 | 0.0550 | — | 0.2096 | 10,093 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.8565 | $ | 0.6600 | $ | — | $ | 2.5165 | $ | 114,706 | ||||||||||||||||||||||||||||
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| Class F | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1491 | $ | 0.0550 | $ | — | $ | 0.2041 | $ | 36,177 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1502 | 0.0550 | — | 0.2052 | 37,444 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1492 | 0.0550 | — | 0.2042 | 38,611 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1495 | 0.0550 | — | 0.2045 | 39,480 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 40,814 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1496 | 0.0550 | — | 0.2046 | 42,387 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 43,253 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 44,310 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1496 | 0.0550 | — | 0.2046 | 45,185 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 45,409 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1496 | 0.0550 | — | 0.2046 | 46,192 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1493 | 0.0550 | — | 0.2043 | 46,765 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.7933 | $ | 0.6600 | $ | — | $ | 2.4533 | $ | 506,027 | ||||||||||||||||||||||||||||
Class S | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share (1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1415 | $ | 0.0550 | $ | — | $ | 0.1965 | $ | 3,363 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1433 | 0.0550 | — | 0.1983 | 3,627 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1416 | 0.0550 | — | 0.1966 | 3,978 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1422 | 0.0550 | — | 0.1972 | 4,374 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1417 | 0.0550 | — | 0.1967 | 4,585 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1424 | 0.0550 | — | 0.1974 | 4,924 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1418 | 0.0550 | — | 0.1968 | 5,157 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1418 | 0.0550 | — | 0.1968 | 5,619 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1424 | 0.0550 | — | 0.1974 | 6,033 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1418 | 0.0550 | — | 0.1968 | 6,197 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1423 | 0.0550 | — | 0.1973 | 6,443 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1418 | 0.0550 | — | 0.1968 | 6,627 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.7046 | $ | 0.6600 | $ | — | $ | 2.3646 | $ | 60,927 | ||||||||||||||||||||||||||||
(1)Distributions per share are net of shareholder servicing and/or distribution fees.
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Distribution and Servicing Plan
The Board approved a distribution and servicing plan (the “Distribution and Servicing Plan”). The following table shows the shareholder servicing and/or distribution fees we pay the Managing Dealer with respect to the Class I, Class D, Class F and Class S on an annualized basis as a percentage of our NAV for such class.
| Shareholder Servicing and/or Distribution Fee as a % of NAV | |||||
| Class I shares | — | ||||
| Class D shares | 0.25 | % | |||
| Class F shares | 0.50 | % | |||
| Class S shares | 0.85 | % | |||
The shareholder servicing and/or distribution fees are paid monthly in arrears, calculated using the NAV of the applicable class as of the beginning of the first calendar day of the month and subject to FINRA and other limitations on underwriting compensation. The Managing Dealer agreed to waive shareholder servicing and/or distribution fees for Class D shares and Class F shares for the first nine months following the Escrow Break Date.
The Managing Dealer will reallow (pay) all or a portion of the shareholder servicing and/or distribution fees to participating brokers and servicing brokers for ongoing shareholder services performed by such brokers, and will waive shareholder servicing and/or distribution fees to the extent a broker is not eligible to receive it for failure to provide such services. Because the shareholder servicing and/or distribution fees with respect to Class D shares, Class F shares and Class S shares are calculated based on the aggregate NAV for all of the outstanding shares of each such class, it reduces the NAV with respect to all shares of each such class, including shares issued under our distribution reinvestment plan.
Eligibility to receive the shareholder servicing and/or distribution fee is conditioned on a broker providing the following ongoing services with respect to the Class D, Class F or Class S shares: assistance with recordkeeping, answering investor inquiries regarding us, including regarding distribution payments and reinvestments, helping investors understand their investments upon their request, and assistance with share repurchase requests. If the applicable broker is not eligible to receive the shareholder servicing and/or distribution fee due to failure to provide these services, the Managing Dealer will waive the shareholder servicing fee and/or distribution that broker would have otherwise been eligible to receive. The shareholder servicing and/or distribution fees are ongoing fees that are not paid at the time of purchase.
Distribution Reinvestment Plan
We have adopted a distribution reinvestment plan, pursuant to which we will reinvest all cash distributions declared by the Board on behalf of our shareholders who do not elect to receive their distributions in cash as provided below. As a result, if the Board authorizes, and we declare, a cash distribution or other distribution, then our shareholders who have not opted out of our distribution reinvestment plan will have their cash distributions automatically reinvested in additional shares as described below, rather than receiving the cash distribution or other distribution. Distributions on fractional shares will be credited to each participating shareholder’s account to three decimal places.
Share Repurchase Program
We have commenced a share repurchase program in which we intend to repurchase, in each quarter, up to 5% of our Common Shares outstanding (by number of shares) as of the close of the previous calendar quarter. Our Board may amend or suspend the share repurchase program if it deems such action to be in our best interest and the best interest of our shareholders. As a result, share repurchases may not be available each quarter. We intend to conduct such repurchase offers in accordance with the requirements of Rule 13e-4 promulgated under the Securities Exchange Act of 1934, as amended, and the 1940 Act. All shares purchased pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued shares.
Under our share repurchase program, to the extent we offer to repurchase shares in any particular quarter, we expect to repurchase shares pursuant to tender offers using a purchase price equal to the NAV per share as of the last calendar day of the applicable quarter, except that shares that have not been outstanding for at least one year will be repurchased at 98% of such NAV (an “Early Repurchase
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Deduction”). The one-year holding period is measured as of the subscription closing date immediately following the prospective repurchase date. The Early Repurchase Deduction may be waived, at our discretion, in the case of repurchase requests arising from the death, divorce or qualified disability of the holder. The Early Repurchase Deduction will be retained by us for the benefit of remaining shareholders.
During the year ended December 31, 2025, approximately 41,454,552 shares were repurchased.
The following table further summarize the share repurchases completed during the year ended December 31, 2025 (dollar amounts in thousands):
| Repurchase Request Deadline | Percentage of Outstanding Shares the Company Offered to Repurchase(1) | Repurchase Pricing Date | Amount Repurchased (all classes)(2) | Number of Shares Repurchased (all classes) | Percentage of Outstanding Shares Purchased(1) | |||||||||||||||||||||||||||
| March 4, 2025 | 5.00 | % | March 31, 2025 | $ | 210,490 | 8,264,218 | 2.42 | % | ||||||||||||||||||||||||
| May 30, 2025 | 5.00 | % | June 30, 2025 | $ | 186,609 | 7,399,263 | 1.96 | % | ||||||||||||||||||||||||
| August 29, 2025 | 5.00 | % | September 30, 2025 | $ | 176,480 | 6,983,778 | 1.65 | % | ||||||||||||||||||||||||
| December 2, 2025 | 5.00 | % | December 31, 2025 | $ | 474,322 | 18,807,293 | 4.06 | % | ||||||||||||||||||||||||
(1)Percentage is based on total shares as of the close of the previous calendar quarter. All repurchase requests were satisfied in full.
(2)Amounts not inclusive of Early Repurchase Deduction.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the financial statement and notes thereto in Part II, Item 8 of this Form 10-K “Consolidated Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of this Form 10-K “Risk Factors.” Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-K. Dollar amounts are in thousands, except per share data, percentages and as otherwise noted.
Overview and Investment Framework
We are an externally managed, non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. Formed as a Delaware statutory trust on December 23, 2020 that commenced operations on February 3, 2022, we are externally managed by the Adviser, which is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. Our Adviser is registered as an investment adviser with the SEC and a wholly-owned subsidiary of HPS. We have elected to be treated, and intend to qualify annually, as a RIC under the Code.
On July 1, 2025, BlackRock acquired the business and assets of HPS, with 100% of consideration paid in BlackRock equity. Grishma Parekh resigned from the Board effective upon the closing of the HPS/Blackrock Transaction to comply with the Section 15(f) safe harbor provisions of the 1940 Act. Ms. Parekh continues to serve as President of the Company and in her existing role at HPS and the Adviser. See “Risk Factors—Risks Related to the HPS/BlackRock Transaction” for further details.
In connection with the closing of the HPS/BlackRock Transaction, effective July 1, 2025, our second amended and restated investment advisory agreement (the “Prior Investment Advisory Agreement”) was automatically terminated. Prior thereto, our Board approved a new investment advisory agreement between us and the Adviser (the “Investment Advisory Agreement”), subject to shareholder approval. At a special meeting of shareholders on April 16, 2025, shareholders approved the Investment Advisory Agreement between us and the Adviser, which became effective upon the closing of the HPS/BlackRock Transaction.
Under each of our Prior Investment Advisory Agreement and our Investment Advisory Agreement, we have agreed to pay the Adviser an annual management fee as well as an incentive fee based on our investment performance. Also, under the Administration Agreement, we have agreed to reimburse the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including, but not limited to, our allocable portion of the costs of compensation (including salaries, bonuses and benefits) and related expenses of our chief compliance officer, chief financial officer and their respective staffs; provided, that such expenses shall exclude (1) rent or depreciation, utilities, capital equipment and other administrative items of the Administrator, and (2) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any “Controlling Person” (as defined in the Omnibus Guidelines) of the Administrator.
Our investment objective is to generate attractive risk-adjusted returns, predominately in the form of current income, with select investments exhibiting the ability to capture long-term capital appreciation. Our investment strategy focuses primarily on newly originated, privately negotiated senior credit investments in high-quality, established upper middle market companies and, in select situations, companies in special situations. We use the term upper middle market companies generally to mean companies with “EBITDA” of $75 million to $1 billion annually or $250 million to $5 billion in revenue annually at the time of investment. We have and may continue to invest in smaller or larger companies if an opportunity presents attractive investment characteristics and risk-adjusted returns. While our investment strategy primarily focuses on companies in the United States, we also intend to leverage HPS’s global presence to invest in companies in Europe, Australia and other locations outside the U.S., subject to compliance with BDC requirements to invest at least 70% of assets in “eligible portfolio companies.” We also include a smaller allocation to more liquid credit investments such as non-investment grade broadly syndicated loans, leveraged loans, secured and unsecured corporate bonds, and securitized credit. We intend to use these investments to maintain liquidity for our share repurchase program and to manage cash while seeking attractive returns before investing subscription proceeds into originated loans. We invest at least 80% of our total assets (net assets plus borrowings for investment purposes) in credit and credit-related instruments issued by corporate issuers (including loans, notes, bonds and other corporate debt securities). If we change our 80% test, we will provide shareholders with at least 60 days’ prior notice of such change. Although not expected to be a primary component of our investment strategy, in select situations, we may also make certain opportunistic investments in instruments other than secured debt with a view to enhancing returns, such as mezzanine debt, payment-in-kind notes, convertible debt and other unsecured debt instruments, structured debt that is not secured by financial or other assets, debtor-in-possession financings and equity in loan portfolios or portfolios of receivables (“Opportunistic Investments”), in each case taking into account availability of leverage for such investments and our target risk/return profile. In addition, we may also participate in programmatic investments through partnerships or joint ventures with one or more unaffiliated banks or other financial institutions, including structures where a partner assumes senior exposure to each investment, and we participate in the junior exposure.
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Subject to the limitations of the 1940 Act, we may invest in loans or other securities, the proceeds of which may refinance or otherwise repay debt or securities of companies whose debt is owned by other funds and accounts sponsored or managed by the Adviser or HPS. We expect to invest in co-investment transactions with other funds and accounts sponsored or managed by the Adviser, HPS or their affiliates.
To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of the Adviser, but we are subject to the limitations set forth in the 1940 Act, which currently allows us to borrow up to a 2:1 debt to equity ratio. We intend to use leverage in the form of borrowings, including loans from certain financial institutions and the issuance of debt securities. We may also use leverage in the form of the issuance of preferred shares, but do not currently intend to do so. In determining whether to borrow money, we analyze the maturity, covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook. Any such leverage, if incurred, would be expected to increase our total capital available for investment.
To finance investments, we have in the past and may in the future securitize certain of our secured loans or other investments, including through the formation of one or more CLOs, while retaining all or most of the subordinated notes issued in the securitization.
Key Components of Our Results of Operations
Investments
We focus primarily on senior secured loans and securities of private U.S. companies. Our level of investment activity (both the number of investments and the size of each investment) can and will vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to private companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
Revenues
We generate revenues in the form of interest and fee income on debt investments, capital gains, and dividend income from our equity investments in our portfolio companies. Our senior and subordinated debt investments are expected to bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly or quarterly. In some cases, some of our investments may provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued but unpaid PIK interest generally will become due at the maturity date. In addition, we may generate revenue from various fees in the ordinary course of business such as in the form of structuring, consent, waiver, amendment, syndication and other miscellaneous fees. Original issue discounts and market discounts or premiums will be capitalized, and we will accrete or amortize such amounts as interest income. We will record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.
Expenses
Except as specifically provided below, all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory services to us, and the base compensation, bonus and benefits, and the routine overhead expenses, of such personnel allocable to such services, will be provided and paid for by the Adviser. We bear all other costs and expenses of our operations, administration and transactions, including, but not limited to:
•investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Investment Advisory Agreement;
•our allocable portion of compensation (including salaries, bonuses, and benefits), overhead and other expenses incurred by the Administrator in performing its administrative obligations under the Administration Agreement, including but not limited to: (i) our chief compliance officer, chief financial officer and their respective staffs; (ii) investor relations, legal, operations and other non-investment professionals at the Administrator that performs duties for us; and (iii) any internal audit group personnel of HPS or any of its affiliates; provided, that such expenses shall exclude (1) rent or depreciation, utilities, capital equipment and other administrative items of the Administrator, and (2) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any “Controlling Person” (as defined in the Omnibus Guidelines) of the Administrator;
•all other expenses of the Company’s operations, administrations and transactions.
As our investment adviser prior to June 30, 2023, HPS agreed to advance all of our organization and offering expenses on our behalf through February 3, 2022, the date on which we broke escrow for our initial offering of Common Shares. On such date, the Company became obligated to reimburse HPS for such advanced expenses and HPS subsequently requested reimbursement of these
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expenses and was paid pursuant to the prior expense support agreement. After such date, we bear all such expenses, subject to the Expense Support Agreement. Pursuant to the Expense Support Agreement, the Adviser is obligated to advance all of our Other Operating Expenses to the effect that such expenses do not exceed 1.00% (on an annualized basis) of our NAV. We are obligated to reimburse the Adviser for such advanced expenses (including any additional expenses the Adviser elects to pay on our behalf), subject to certain conditions. See “—Expense Support and Conditional Reimbursement Agreement.” Any reimbursements will not exceed actual expenses incurred by the Adviser and its affiliates.
From time to time, the Adviser, the Administrator or their affiliates may pay third-party providers for goods or services. We will reimburse the Adviser, the Administrator or such affiliates thereof for any such amounts paid on our behalf. From time to time, the Adviser and/or the Administrator may defer or waive fees and/or rights to be reimbursed for expenses. All of the foregoing expenses are ultimately borne by our shareholders.
Expense Support and Conditional Reimbursement Agreement
We have entered into an Expense Support and Conditional Reimbursement Agreement with the Adviser. For additional information see “Note 3. Fees, Expenses, Agreements and Related Party Transactions” to the consolidated financial statements.
Portfolio and Investment Activity
Our investment activity is presented below (information presented herein is at amortized cost unless otherwise indicated):
| As of and for the year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Total investments, beginning of period | $ | 16,071,078 | $ | 9,203,801 | $ | 5,860,186 | |||||||||||
| New investments purchased | 11,832,837 | 9,199,117 | 4,001,591 | ||||||||||||||
| Payment-in-kind interest and dividends capitalized | 122,278 | 72,365 | 32,220 | ||||||||||||||
| Net accretion of discount on investments | 93,213 | 93,070 | 39,470 | ||||||||||||||
| Net realized gain (loss) on investments | (36,997) | (12,744) | (17,633) | ||||||||||||||
| Investments sold or repaid | (2,973,001) | (2,484,531) | (712,033) | ||||||||||||||
| Total investments, end of period | $ | 25,109,408 | $ | 16,071,078 | $ | 9,203,801 | |||||||||||
The following table presents certain selected information regarding our investment portfolio:
| December 31, 2025 | December 31, 2024 | December 31, 2023 | |||||||||||||||
Weighted average yield on debt and income producing investments, at amortized cost(1) | 9.5% | 10.4% | 12.2% | ||||||||||||||
Weighted average yield on debt and income producing investments, at fair value(1) | 9.4% | 10.4% | 12.1% | ||||||||||||||
Weighted average yield on total portfolio, at amortized cost(2) | 9.4% | 10.3% | 12.0% | ||||||||||||||
Weighted average yield on total portfolio, at fair value(2) | 9.3% | 10.3% | 11.9% | ||||||||||||||
| Number of portfolio companies | 380 | 315 | 239 | ||||||||||||||
Weighted average EBITDA (in millions)(3) | $ | 255 | $ | 215 | $ | 193 | |||||||||||
Weighted average loan-to-value (“LTV”)(4) | 39 | % | 40% | 39% | |||||||||||||
| Percentage of performing debt investments bearing a floating rate, at fair value | 99.4% | 99.3% | 98.6% | ||||||||||||||
| Percentage of performing debt investments bearing a fixed rate, at fair value | 0.6% | 0.7% | 1.4% | ||||||||||||||
(1)Computed as (a) the annual stated interest rate or yield plus the annual accretion of discounts and less any annual amortization of premiums, as applicable, on accruing (i) debt and (ii) other income producing securities, divided by (b) total accruing (i) debt and (ii) other income producing securities (at fair value or amortized cost, as applicable). Actual yields earned over the life of each investment could differ materially from the yields presented above.
(2)Computed as the annual stated interest rate or yield plus the annual accretion of discounts and less any annual amortization of premiums, as applicable, on all investments of the Company, divided by total investments of the Company (at fair value or amortized cost, as applicable). Actual yields earned over the life of each investment could differ materially from the yields presented above.
(3)Calculated with respect to all level 3 investments in our investment portfolio for which fair value is determined by the Adviser (in its capacity as the investment adviser of the Company, with assistance, at least quarterly, from a third-party valuation firm, and overseen by the Company’s Board), and excludes quoted assets, restructured debt and equity, investments on non-accrual status, investments in joint ventures, and investments with no reported EBITDA or where EBITDA, in the Adviser’s judgment made in its discretion, was not a material component of the original investment thesis, such as LTV-based loans and NAV-based loans. Weighted average EBITDA is weighted based on the fair value of the total applicable level 3 investments. Figures are derived from the most recent financial statements from portfolio companies.
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(4)Calculated with respect to all level 3 debt investments in our investment portfolio for which fair value is determined by the Adviser (in its capacity as the investment adviser of the Company, with assistance, at least quarterly, from a third-party valuation firm, and overseen by the Company’s Board), and excludes quoted assets, restructured debt and investments on non-accrual status. LTV is calculated as net debt through each respective investment tranche in which the Company holds an investment divided by enterprise value or value of underlying collateral of the portfolio company. Weighted average LTV is weighted based on the fair value of the total applicable level 3 debt investments. Figures are derived from the most recent financial statements from portfolio companies.
Our investments consisted of the following:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Amortized Cost | Fair Value | % of Total Investments at Fair Value | Amortized Cost | Fair Value | % of Total Investments at Fair Value | ||||||||||||||||||||||||||||||
| First lien debt | $ | 24,169,132 | $ | 24,395,495 | 96.29 | % | $ | 15,491,454 | $ | 15,529,180 | 96.27 | % | |||||||||||||||||||||||
| Second lien debt | 26,807 | 27,881 | 0.11 | 35,984 | 31,340 | 0.19 | |||||||||||||||||||||||||||||
| Other secured debt | 223,932 | 226,763 | 0.89 | 68,340 | 68,501 | 0.42 | |||||||||||||||||||||||||||||
| Unsecured debt | 60,746 | 60,145 | 0.24 | 45,923 | 46,022 | 0.29 | |||||||||||||||||||||||||||||
| Structured finance investments | 88,264 | 88,664 | 0.35 | 72,893 | 75,392 | 0.47 | |||||||||||||||||||||||||||||
| Investments in joint ventures | 402,400 | 416,244 | 1.64 | 297,747 | 320,350 | 1.99 | |||||||||||||||||||||||||||||
| Equity investments | 138,127 | 122,228 | 0.48 | 58,737 | 60,471 | 0.37 | |||||||||||||||||||||||||||||
| Total | $ | 25,109,408 | $ | 25,337,420 | 100.00 | % | $ | 16,071,078 | $ | 16,131,256 | 100.00 | % | |||||||||||||||||||||||
As of December 31, 2025 and 2024, we had certain investments in seven and eight portfolio companies on non-accrual status, respectively. The following table shows the fair value of our performing debt and other income producing securities, and non-accrual investments as of December 31, 2025 and 2024:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Fair Value | Percentage | Fair Value | Percentage | ||||||||||||||||||||
Performing debt and income producing investments(1) | $ | 24,651,069 | 99.26 | % | $ | 15,671,885 | 99.30 | % | |||||||||||||||
Non-accrual(2) | 184,539 | 0.74 | 110,346 | 0.70 | |||||||||||||||||||
| Total | $ | 24,835,608 | 100.00 | % | $ | 15,782,231 | 100.00 | % | |||||||||||||||
(1)Excludes investments in joint ventures.
(2)Investments on non-accrual represented 1.08% and 1.00% of amortized cost of total debt and income producing investments as of December 31, 2025 and 2024, respectively.
The table below describes investments by industry composition based on fair value as of December 31, 2025 as compared to December 31, 2024.
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Aerospace & Defense | 5.13 | % | 3.47 | % | ||||||||||
| Air Freight & Logistics | 0.34 | — | ||||||||||||
| Asset Based Lending and Fund Finance | 0.49 | 0.32 | ||||||||||||
| Automobile Components | 1.14 | 0.46 | ||||||||||||
| Beverages | 0.39 | 0.62 | ||||||||||||
| Biotechnology | — | 0.16 | ||||||||||||
| Broadline Retail | 0.10 | 0.16 | ||||||||||||
| Building Products | 1.06 | 1.19 | ||||||||||||
| Capital Markets | 1.35 | 0.32 | ||||||||||||
| Chemicals | 0.66 | 0.97 | ||||||||||||
| Commercial Services & Supplies | 4.86 | 4.61 | ||||||||||||
| Communications Equipment | 0.22 | 0.34 | ||||||||||||
| Construction & Engineering | 0.47 | — | ||||||||||||
| Consumer Finance | 0.10 | 0.14 | ||||||||||||
| Consumer Staples Distribution & Retail | 2.06 | 1.65 | ||||||||||||
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| Containers & Packaging | 0.79 | 0.71 | ||||||||||||
| Distributors | 0.06 | 0.18 | ||||||||||||
| Diversified Consumer Services | 3.03 | 4.29 | ||||||||||||
| Diversified Telecommunication Services | 0.07 | 0.11 | ||||||||||||
| Electric Utilities | 0.30 | — | ||||||||||||
| Electrical Equipment | 0.50 | 0.59 | ||||||||||||
| Electronic Equipment, Instruments & Components | 1.06 | 1.50 | ||||||||||||
| Energy Equipment & Services | 0.29 | 0.42 | ||||||||||||
| Entertainment | 2.31 | 3.49 | ||||||||||||
| Financial Services | 5.53 | 4.93 | ||||||||||||
| Food Products | 0.70 | 1.11 | ||||||||||||
| Gas Utilities | 0.16 | 0.25 | ||||||||||||
| Health Care Equipment & Supplies | 3.92 | 3.46 | ||||||||||||
| Health Care Providers & Services | 12.50 | 13.18 | ||||||||||||
| Health Care Technology | 0.44 | 0.45 | ||||||||||||
| Hotels, Restaurants & Leisure | 3.24 | 2.21 | ||||||||||||
| Household Durables | 0.27 | 0.46 | ||||||||||||
| Independent Power and Renewable Electricity Producers | 1.13 | 0.72 | ||||||||||||
| Insurance | 2.67 | 4.10 | ||||||||||||
| Interactive Media & Services | 0.59 | 0.30 | ||||||||||||
| Investments in Joint Ventures | 1.64 | 1.99 | ||||||||||||
| IT Services | 1.93 | 1.23 | ||||||||||||
| Life Sciences Tools & Services | 3.52 | 3.60 | ||||||||||||
| Machinery | 1.21 | 1.86 | ||||||||||||
| Media | 1.60 | 1.47 | ||||||||||||
| Metals & Mining | 0.84 | 1.25 | ||||||||||||
| Multi-Utilities | 0.02 | — | ||||||||||||
| Oil, Gas & Consumable Fuels | 0.01 | 0.04 | ||||||||||||
| Personal Care Products | 0.74 | 0.75 | ||||||||||||
| Pharmaceuticals | 2.46 | 2.28 | ||||||||||||
| Professional Services | 4.07 | 5.56 | ||||||||||||
| Real Estate Management & Development | 0.41 | 0.60 | ||||||||||||
| Semiconductors & Semiconductor Equipment | 0.05 | 0.08 | ||||||||||||
| Software | 18.83 | 17.34 | ||||||||||||
| Specialty Retail | 1.50 | 1.98 | ||||||||||||
| Structured Finance | 0.35 | 0.47 | ||||||||||||
| Textiles, Apparel & Luxury Goods | 0.22 | 0.34 | ||||||||||||
| Trading Companies & Distributors | 1.12 | 2.07 | ||||||||||||
| Transportation Infrastructure | 0.34 | 0.22 | ||||||||||||
| Wireless Telecommunication Services | 1.21 | — | ||||||||||||
| Total | 100.00 | % | 100.00 | % | ||||||||||
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The table below describes investments by geographic composition based on fair value:
| December 31, 2025 | December 31, 2024 | ||||||||||
| United States | 82.10 | % | 84.40 | % | |||||||
| United Kingdom | 7.11 | 6.02 | |||||||||
| Sweden | 2.28 | 2.44 | |||||||||
| Australia | 1.59 | 1.64 | |||||||||
| France | 1.21 | 0.83 | |||||||||
| Spain | 1.13 | 1.28 | |||||||||
| Germany | 1.06 | 0.72 | |||||||||
| Canada | 0.70 | 0.54 | |||||||||
| Austria | 0.67 | 0.56 | |||||||||
| Belgium | 0.65 | 0.09 | |||||||||
| Lithuania | 0.54 | — | |||||||||
| Czech Republic | 0.25 | — | |||||||||
| Taiwan | 0.20 | 0.29 | |||||||||
| Israel | 0.18 | — | |||||||||
| Italy | 0.17 | 0.79 | |||||||||
| Singapore | 0.14 | 0.20 | |||||||||
| Ireland | 0.01 | — | |||||||||
| Netherlands | 0.01 | — | |||||||||
| Norway | — | 0.13 | |||||||||
| Luxembourg | — | 0.07 | |||||||||
| Total | 100.00 | % | 100.00 | % | |||||||
Our Adviser monitors the financial trends of each portfolio company on an ongoing basis to determine if it is meeting its respective business plan and to assess the appropriate course of action for each company. Our Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include, but are not limited to, the following:
•assessment of success in adhering to the portfolio company’s business plan and compliance with covenants;
•periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments;
•comparisons to our other portfolio companies in the industry, if any;
•attendance at and participation in board meetings or presentations by portfolio companies; and
•review of monthly and quarterly financial statements and financial projections of portfolio companies.
ULTRA III, LLC
On June 1, 2023, the Company entered into a limited liability company agreement (the “LLC Agreement”) with the Capital One Member (“COM”) to establish a joint venture to make certain unitranche loans to U.S. middle-market companies. The joint venture is called ULTRA III, LLC (“ULTRA III”).
As of December 31, 2025, the Company and COM have committed to contribute up to $750.0 million and $107.1 million, respectively, of capital to ULTRA III. As of December 31, 2025, the Company had contributed (net of returns of capital) $414.5 million and COM had contributed (net of returns of capital) $59.2 million of capital and $325.2 million and $46.5 million of capital remained uncalled from the Company and COM, respectively. The Company and COM own 87.5% and 12.5%, respectively, of the membership interests of ULTRA III. All portfolio decisions and generally all other decisions in respect of ULTRA III must be approved by a credit committee of ULTRA III consisting of representatives of the Company and COM (generally with approval from a representative of each required). The Company and COM have equal voting rights with respect to the joint venture. The Company does not consolidate the ULTRA III joint venture.
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The following table is a summary of ULTRA III’s portfolio as of December 31, 2025, 2024 and 2023:
| December 31, 2025 | December 31, 2024 | December 31, 2023 | |||||||||||||||
| Total senior secured debt investments at fair value | $ | 1,514,360 | $ | 1,093,548 | $ | 361,715 | |||||||||||
| Number of portfolio companies | 8 | 7 | 2 | ||||||||||||||
Weighted average yield on debt investments, at amortized cost(1) | 9.3% | 10.3% | 12.0% | ||||||||||||||
Weighted average yield on debt investments, at fair value(1) | 9.2% | 10.1% | 12.0% | ||||||||||||||
| Percentage of performing debt investments bearing a floating rate, at fair value | 100% | 100% | 100% | ||||||||||||||
| Percentage of performing debt investments bearing a fixed rate, at fair value | —% | —% | —% | ||||||||||||||
Percentage of assets on non-accrual(2) | —% | —% | —% | ||||||||||||||
(1)Computed as the annual stated interest rate or yield plus the annual accretion of discounts and less any annual amortization of premiums, as applicable, on accruing debt securities, divided by total accruing debt securities (at fair value or amortized cost, as applicable). Actual yields earned over the life of each investment could differ materially from the yields presented above.
(2)As a percentage of fair value of investments of ULTRA III. ULTRA III had no assets on non-accrual as of December 31, 2025, 2024 and 2023.
Results of Operations
The following table represents our operating results:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Total investment income | $ | 2,154,095 | $ | 1,425,945 | $ | 893,380 | |||||||||||
| Total expenses | 1,029,389 | 657,357 | 416,671 | ||||||||||||||
| Net investment income before excise tax | 1,124,706 | 768,588 | 476,709 | ||||||||||||||
| Excise tax expense | 7,493 | 5,120 | 1,531 | ||||||||||||||
| Net investment income after excise tax | 1,117,213 | 763,468 | 475,178 | ||||||||||||||
| Net realized gain (loss) | (159,108) | 20,240 | (34,710) | ||||||||||||||
| Net change in unrealized appreciation (depreciation) | (19,551) | 55,216 | 214,133 | ||||||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 938,554 | $ | 838,924 | $ | 654,601 | |||||||||||
Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. As a result, comparisons may not be meaningful.
Investment Income
Investment income was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Interest income | $ | 1,973,738 | $ | 1,316,851 | $ | 854,132 | |||||||||||
| Payment-in-kind interest income | 124,913 | 71,589 | 35,821 | ||||||||||||||
| Dividend income | 52,856 | 31,861 | 489 | ||||||||||||||
| Other income | 2,588 | 5,644 | 2,938 | ||||||||||||||
| Total investment income | $ | 2,154,095 | $ | 1,425,945 | $ | 893,380 | |||||||||||
Total investment income increased to $2,154.1 million for the year ended December 31, 2025 from $1,425.9 million in the prior year primarily driven by our deployment of capital, the increased balance of our investments and by increased dividend income. Interest income increased as a result of an increase in our accruing debt investment’s funded par, which increased to $24,856.3 million as of December 31, 2025, from $15,756.7 million in the prior year. This was partially offset by a decline in benchmark interest rates during the year ended December 31, 2025, as compared to the prior year. The increase in dividend income is primarily from ULTRA III, which was
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$47.9 million for the year ended December 31, 2025, as compared to $27.8 million for the prior year. At December 31, 2025, the fair value of our performing debt and other income producing securities was $25,067.3 million and our weighted average yield on performing debt and income producing securities at fair value was 9.4%.
For the years ended December 31, 2025, 2024 and 2023, PIK income represented 6.1%, 5.3% and 4.1% of total investment income, respectively. We expect that PIK income will vary based on the elections of certain borrowers.
Total investment income increased to $1,425.9 million for the year ended December 31, 2024 from $893.4 million in the prior year primarily driven by our deployment of capital, the increased balance of our investments and by increased dividend income. Interest income increased as a result of an increase in our accruing debt investment’s funded par, which increased to $15,756.7 million as of December 31, 2024, from $9,248.2 million in the prior year. This was partially offset by a decline in SOFR rates during 2024 as compared to 2023. The increase in dividend income is primarily from ULTRA III, which was $27.8 million for the year ended December 31, 2024, as compared to zero for the prior year. At December 31, 2024, the fair value of our performing debt and other income producing securities was $15,992.2 million and our weighted average yield on performing debt and income producing securities at fair value was 10.4%.
Expenses
Expenses were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Interest expense | $ | 678,755 | $ | 398,722 | $ | 257,847 | |||||||||||
| Management fees | 137,563 | 90,242 | 52,852 | ||||||||||||||
| Income based incentive fee | 162,693 | 113,862 | 70,466 | ||||||||||||||
| Capital gains incentive fee | (12,950) | 9,432 | 3,518 | ||||||||||||||
| Shareholder servicing and/or distribution fees | |||||||||||||||||
| Class D | 2,886 | 2,386 | 1,403 | ||||||||||||||
| Class F | 26,150 | 19,735 | 13,137 | ||||||||||||||
| Class S | 5,548 | 2,012 | 23 | ||||||||||||||
| Professional fees | 6,478 | 4,016 | 4,945 | ||||||||||||||
| Board of Trustees’ fees | 608 | 598 | 600 | ||||||||||||||
| Administrative service expenses | 6,164 | 4,477 | 2,459 | ||||||||||||||
| Other general & administrative | 14,024 | 9,780 | 7,685 | ||||||||||||||
| Amortization of continuous offering costs | 1,470 | 2,095 | 1,736 | ||||||||||||||
| Excise tax expense | 7,493 | 5,120 | 1,531 | ||||||||||||||
| Total expenses (including excise tax expense) | $ | 1,036,882 | $ | 662,477 | $ | 418,202 | |||||||||||
Interest Expense
Total interest expense (including unused fees, amortization of deferred financing costs, debt issuance costs and original issue discounts, and the net interest on interest rate swaps accounted for as hedges) increased to $678.8 million for the year ended December 31, 2025 from $398.7 million in the prior year primarily driven by increased borrowings under the Credit Facilities, Unsecured Notes and debt securitization issuances. The average principal debt outstanding increased to $10,147.4 million for the year ended December 31, 2025 from $4,643.2 million in the prior year. This was partially offset by a decrease in our weighted average interest rate (including unused fees, amortization of deferred financing costs, debt issuance costs and original issue discounts, and the net interest on interest rate swaps accounted for as hedges) for the year ended December 31, 2025 to 6.69% from 8.59% in the prior year.
Total interest expense (including unused fees, amortization of deferred financing costs, debt issuance costs and original issue discounts, and the net interest on interest rate swaps accounted for as hedges) increased to $398.7 million for the year ended December 31, 2024 from $257.8 million in the prior year primarily driven by an increase in the weighted average interest rate on our borrowings relative to the prior year and an increase in borrowings under the Credit Facilities, Unsecured Notes and debt securitization issuances. Our weighted average interest rate (including unused fees, amortization of deferred financing costs, debt issuance costs and original issue discounts, and the net interest on interest rate swaps accounted for as hedges) increased to 8.59% for the year ended December 31, 2024 from 8.24% in the prior year. The average principal debt outstanding increased to $4,643.2 million for the year ended December 31, 2024 from $3,131.0 million in the prior year.
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Management Fees
Management fees increased to $137.6 million for the year ended December 31, 2025 from $90.2 million in the prior year primarily due to an increase in net assets. Management fees increased to $90.2 million for the year ended December 31, 2024 from $52.9 million in the prior year primarily due to an increase in net assets. Management fees are payable monthly in arrears at an annual rate of 1.25% of the value of our net assets as of the beginning of the first calendar day of the applicable month.
Income Based Incentive Fee
Income based incentive fees increased to $162.7 million for the year ended December 31, 2025 from $113.9 million in the prior year primarily due to our deployment of capital and an increase in Pre-Incentive Fee Net Investment Income Returns. Income based incentive fees increased to $113.9 million for the year ended December 31, 2024 from $70.5 million in the prior year primarily due to our deployment of capital and an increase in Pre-Incentive Fee Net Investment Income Returns.
Capital Gains Incentive Fees
U.S. GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains incentive fee plus the aggregate cumulative unrealized capital appreciation, net of any expense associated with cumulative unrealized capital depreciation or appreciation. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains incentive fee equal to 12.5% of such cumulative amount, less the aggregate amount of actual capital gains incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods.
Capital gains based incentive fees were $(12.9) million for the year ended December 31, 2025, as compared to $9.4 million in the prior year due to net realized and unrealized losses incurred in the current year, compared to net realized and unrealized gains earned in the prior year. Capital gains based incentive fees increased to $9.4 million for the year ended December 31, 2024 from $3.5 million in the prior year primarily due to higher net unrealized gains earned in the year ended December 31, 2024 relative to cumulative unrealized gains through December 31, 2023, none of which were payable under the Investment Advisory Agreement. The accrual for any capital gains incentive fee under U.S. GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less in the prior period. If such cumulative amount is negative, then there is no accrual.
Other Expenses
Organization costs and offering costs include expenses incurred in our initial formation and our continuous offering. Professional fees include legal, audit, tax, and other professional fees incurred related to the management of the Company. Administrative service expenses represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers, their respective staff and other non-investment professionals that perform duties for us. Other general and administrative expenses include valuation, insurance, filing, research, our sub-administrator, subscriptions and other costs.
Total other expenses increased to $28.7 million for the year ended December 31, 2025, from $21.0 million in the prior year primarily driven by an increase of professional fees, administrative service expenses and other general & administrative expenses due to servicing a growing portfolio.
Total other expenses increased to $21.0 million for the year ended December 31, 2024, from $17.4 million in the prior year primarily driven by an increase of administrative service expenses and other general & administrative expenses due to servicing a growing portfolio.
Under the terms of the Administration Agreement and Investment Advisory Agreement, we reimburse the Administrator and Adviser, respectively, for services performed for us. In addition, pursuant to the terms of these agreements, the Administrator and Adviser may delegate its obligations under these agreements to an affiliate or to a third party and we reimburse the Administrator and Adviser for any services performed for us by such affiliate or third party. For the year ended December 31, 2025, the Administrator charged $6.2 million, an increase from $4.5 million in the prior year, for certain costs and expenses allocable to the Company under the terms of the
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Administration Agreement. For the year ended December 31, 2024, the Administrator charged $4.5 million, an increase from $2.5 million in the prior year, for certain costs and expenses allocable to the Company under the terms of the Administration Agreement.
We entered into an Expense Support Agreement with the Adviser. For additional information see “Note 3. Fees, Expenses, Agreements and Related Party Transactions” to the consolidated financial statements.
Shareholder Servicing and/or Distribution Fees
Shareholder servicing and/or distributions fees increased to $34.6 million for the year ended December 31, 2025 from $24.1 million in the prior year primarily due to an increase in shares outstanding. Shareholder servicing and/or distributions fees increased to $24.1 million for the year ended December 31, 2024 from $14.6 million in the prior year primarily due to an increase in shares outstanding.
Income Taxes, Including Excise Taxes
We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify each taxable year for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, we must, among other things, distribute to our shareholders in each taxable year generally at least 90% of the sum of our investment company taxable income, as defined by the Code (without regard to the deduction for dividends paid), and net tax-exempt income (if any) for that taxable year. To maintain our tax treatment as a RIC, we, among other things, intend to make the requisite distributions to our shareholders, which generally relieve us from corporate-level U.S. federal income taxes.
Depending on the level of taxable income earned in a tax year, we may carry forward taxable income (including net capital gains, if any) in excess of current year distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year distributions from such income, we will accrue excise tax on estimated excess taxable income.
For the years ended December 31, 2025, 2024, and 2023, we incurred U.S. federal excise tax of $7.5 million, $5.1 million and $1.5 million, respectively.
Net Realized Gain (Loss)
Net realized gains and losses were comprised of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Non-controlled/non-affiliated investments | $ | (36,997) | $ | (12,744) | $ | (16,769) | |||||||||||
| Non-controlled/affiliated investments | — | — | (864) | ||||||||||||||
| Foreign currency forward contracts | (122,338) | 27,225 | (7,613) | ||||||||||||||
| Foreign currency transactions | 227 | 5,759 | (9,464) | ||||||||||||||
| Net realized gain (loss) | $ | (159,108) | $ | 20,240 | $ | (34,710) | |||||||||||
For the year ended December 31, 2025, we generated net realized gains (losses) on investments of $(37.0) million, primarily driven by realized losses of $(44.9) million on the restructuring of six private debt investments (realized losses on ERC Topco Holdings, LLC of $(13.3) million, Zips Car Wash, LLC of $(9.7) million, Artemis Bidco Limited of $(7.2) million, New Era Technology Inc. of $(6.3) million, Galaxy US Opco Inc. of $(4.9) million) and SDC US Smilepay SPV of $(3.5) million and net realized losses of $(18.2) million primarily from the sale of syndicated loans, and foreign currency net realized gains on investments of $26.1 million (included in realized losses on non-controlled/non-affiliated investments). We generated realized losses on foreign currency forwards contracts, primarily as a result of fluctuations in the EUR and GBP exchange rates, which was largely offset by unrealized gains on foreign currency as described below.
For the year ended December 31, 2024, we generated net realized gains (losses) on investments of $(12.7) million, which included net realized losses on investments of $(9.0) million primarily from the sales of syndicated loans and bonds and the restructuring of a private debt investment, and net foreign currency realized losses on investments of $(3.7) million primarily due to repayments on investments denominated in AUD and GBP. We generated realized gains of $27.2 million on foreign currency forwards contracts, primarily as a result of fluctuations in the AUD and EUR exchange rates. There were realized gains of $5.8 million on foreign currency
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transactions, as a result of repayments of foreign borrowings and conversions of foreign cash balances, primarily attributable to fluctuations in the AUD, GBP and CAD exchange rates.
For the year ended December 31, 2023, we generated realized gains (losses) of $(34.7) million driven primarily by realized losses on broadly syndicated loans and bonds of $(17.8) million as well as losses on foreign currency forward contracts and foreign currency transactions, primarily as a result of fluctuations in the GBP, EUR and AUD exchange rates.
Net Change in Unrealized Appreciation (Depreciation)
Net change in unrealized appreciation (depreciation) was comprised of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Non-controlled/non-affiliated investments | $ | 177,606 | $ | (49,917) | $ | 230,599 | |||||||||||
| Non-controlled/affiliated investments | (1,013) | 373 | 185 | ||||||||||||||
| Controlled/affiliated investments | (8,759) | 24,113 | (1,510) | ||||||||||||||
| Foreign currency forward contracts | (63,795) | 52,107 | (6,968) | ||||||||||||||
| Translation of assets and liabilities in foreign currencies | (123,590) | 28,540 | (8,173) | ||||||||||||||
| Net change in unrealized appreciation (depreciation) | $ | (19,551) | $ | 55,216 | $ | 214,133 | |||||||||||
For the year ended December 31, 2025, the change in unrealized appreciation (depreciation) on the investment portfolio was $(124.0) million (excluding the impact of foreign currency) due to certain credit specific write-downs in our private portfolio, which were offset by foreign currency unrealized gains of $291.8 million on investments (included in unrealized gains on investments) primarily as a result of fluctuations in the AUD, EUR and GBP exchange rates. The remaining $(187.4) million of the net unrealized appreciation (depreciation) represents the net unrealized losses as a result of foreign currency fluctuations impacting the value of our foreign currency forward contracts, foreign debt and cash balances.
For the year ended December 31, 2024, the change in unrealized appreciation (depreciation) on investment portfolio was $68.3 million (excluding the impact of foreign currency) due to spread tightening in both the public and private credit markets. The remaining $(13.0) million of the net unrealized appreciation (depreciation) of $55.2 million represents the net unrealized losses as a result of foreign currency fluctuations impacting the value of our investment portfolio, foreign currency forward contracts, foreign debt and cash balances.
For the year ended December 31, 2023, the fair value of our debt investments increased due to spread tightening in both the public and private credit markets. For the year ended December 31, 2023, we generated foreign currency unrealized gains of $32.4 million on investments (included in unrealized gains on non-controlled/non-affiliated investments) primarily as a result of fluctuations in the GBP and EUR exchange rates.
For the years ended December 31, 2025, 2024 and 2023, we generated net realized and unrealized gains (losses) on the investment portfolio (excluding the impact of foreign currency) of $(187.1) million, $59.3 million and $176.6 million, respectively.
Realized and Unrealized Gains/(Losses) on Foreign Currency
In the ordinary course of business, we may invest in securities denominated in foreign currencies. This exposes us to foreign exchange rate risk should the value of local currencies decline relative to the United States dollar. As a result, we aim to hedge substantially all of our foreign currency exposure by entering into foreign currency forward contracts and borrowing in foreign currency from our credit facilities, which reduces our exposure to foreign currency exchange rate fluctuations in the value of foreign currencies.
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| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Realized gain/(losses) on foreign currency: | |||||||||||||||||
| Investments | $ | 26,114 | $ | (3,731) | $ | 2,822 | |||||||||||
| Foreign currency forward contracts | (122,338) | 27,225 | (7,613) | ||||||||||||||
| Foreign currency transactions | 227 | 5,759 | (9,464) | ||||||||||||||
| Net realized gains/(losses) | $ | (95,997) | $ | 29,253 | $ | (14,255) | |||||||||||
| Unrealized gain/(losses) on foreign currency: | |||||||||||||||||
| Investments | 291,800 | (93,727) | 32,221 | ||||||||||||||
| Foreign currency forward contracts | (63,795) | 52,107 | (6,968) | ||||||||||||||
| Translation of assets and liabilities in foreign currencies | (123,590) | 28,540 | (8,173) | ||||||||||||||
| Net unrealized gains/(losses) | $ | 104,415 | $ | (13,080) | $ | 17,080 | |||||||||||
| Net realized and unrealized gains/(losses): | $ | 8,418 | $ | 16,173 | $ | 2,825 | |||||||||||
For the year ended December 31, 2025, the net realized and unrealized gains/(losses) on foreign currency fluctuations impacting the value of the investment portfolio, foreign currency forward contracts, and foreign debt and cash balances was $8.4 million. When we are hedging foreign currency exposure through forward contracts and the local currency base rate (i.e., funding cost) is lower or higher than our functional currency, there is positive or negative “carry” embedded in the forward contract. For the year ended December 31, 2025, the net gains on foreign currency were driven primarily by the positive carry from base rate differentials on forward contracts for local currencies versus the U.S. Dollar.
For the years ended December 31, 2024 and 2023, the net realized and unrealized gains/(losses) on foreign currency fluctuations impacting the value of the investment portfolio, foreign currency forward contracts, and foreign debt and cash balances was $16.2 million and $2.8 million, respectively.
Interest Rate Swaps
We use interest rate swaps to mitigate interest rate risk associated with our fixed rate liabilities. We have designated certain interest rate swaps to be in a hedge accounting relationship. See “Item 8. Consolidated Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2. Significant Accounting Policies” for additional disclosure regarding our accounting for derivative instruments designated in a hedge accounting relationship. See our schedule of investments for additional disclosure regarding these derivative instruments. See “Item 8. Consolidated Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 7. Borrowings” for additional disclosure regarding the carrying value of our debt.
Financial Condition, Liquidity and Capital Resources
We generate cash primarily from the net proceeds of our continuous offering of Common Shares, proceeds from net borrowings on our credit facilities, unsecured debt issuances, debt securitization issuances, income earned and repayments on principal on our debt investments. The primary uses of our cash and cash equivalents are for (i) originating and purchasing debt investments, (ii) funding the costs of our operations (including fees paid to our Adviser and expense reimbursements paid to our Administrator), (iii) debt service, repayment and other financing costs of our borrowings, (iv) funding repurchases under our share repurchase program and (v) cash distributions to our shareholders.
As of December 31, 2025 and 2024, we had several asset-based leverage facilities, a corporate-level revolving credit facility, unsecured note issuances and debt securitization issuances. From time to time, we may enter into additional credit facilities, increase the size of our existing credit facilities and/or issue debt securities, including additional unsecured notes and debt securitizations. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. As of December 31, 2025 and 2024, we had an aggregate amount of $12,989.7 million and $7,508.7 million, respectively, of principal debt outstanding and our asset coverage ratio was 195.7% and 216.3%, respectively. We seek to carefully consider our unfunded commitments for the purpose of planning our ongoing financial leverage.
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Cash and cash equivalents as of December 31, 2025, taken together with our $3,192.3 million of available capacity under our credit facilities (subject to borrowing base availability) and the continuous offering of our Common Shares is expected to be sufficient for our investing activities and to conduct our operations in the near term. This determination is based in part on our expectations for the timing of funding investment purchases and the timing and amount of future proceeds from sales of our Common Shares and the use of existing and future financing arrangements. As of December 31, 2025, we had significant amounts payable and commitments for existing and new investments, which we planned to fund using our available borrowing capacity under our credit facilities. Additionally, we held $1,723.3 million of syndicated loans and other liquid investments as of December 31, 2025, which could provide additional liquidity if necessary.
Although we have historically been able to obtain sufficient borrowing capacity, any disruption in the financial markets or any other negative economic development could restrict our access to financing in the future. We may not be able to find new financing for future investments or liquidity needs and, even if we are able to obtain such financing, such financing may not be on as favorable terms as we could have obtained in the past. These factors may limit our ability to make new investments and adversely impact our results of operations.
As of December 31, 2025, we had $590.7 million in cash and cash equivalents. During the year ended December 31, 2025, cash used in operating activities was $8,068.7 million, primarily as a result of funding portfolio investments of $11,759.5 million and partially offset by proceeds from sale of investments and principal repayments of $2,899.7 million and other operating uses of $791.2 million. Cash provided by financing activities was $8,430.4 million during the period, primarily as a result of new share issuances related to $4,477.6 million of subscriptions and net borrowings (repayments) of $5,356.4 million.
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Equity
The following table summarizes transactions in Common Shares during the year ended December 31, 2025:
| Shares | Amount | ||||||||||
| CLASS I | |||||||||||
| Subscriptions | 99,278,647 | $ | 2,517,265 | ||||||||
| Share transfers between classes | 3,372,115 | 85,773 | |||||||||
| Distributions reinvested | 4,359,115 | 110,474 | |||||||||
| Share repurchases | (20,722,563) | (524,217) | |||||||||
| Early repurchase deduction | — | 108 | |||||||||
| Net increase (decrease) | 86,287,314 | $ | 2,189,403 | ||||||||
| CLASS D | |||||||||||
| Subscriptions | 8,542,942 | $ | 216,547 | ||||||||
| Share transfers between classes | (1,933,866) | (49,394) | |||||||||
| Distributions reinvested | 2,071,822 | 52,521 | |||||||||
| Share repurchases | (6,666,070) | (168,523) | |||||||||
| Early repurchase deduction | — | 30 | |||||||||
| Net increase (decrease) | 2,014,828 | $ | 51,181 | ||||||||
| CLASS F | |||||||||||
| Subscriptions | 51,596,780 | $ | 1,307,285 | ||||||||
| Share transfers between classes | (1,557,627) | (39,357) | |||||||||
| Distributions reinvested | 9,154,698 | 231,968 | |||||||||
| Share repurchases | (12,155,669) | (306,960) | |||||||||
| Early repurchase deduction | — | 137 | |||||||||
| Net increase (decrease) | 47,038,182 | $ | 1,193,073 | ||||||||
| CLASS S | |||||||||||
| Subscriptions | 17,220,721 | $ | 436,547 | ||||||||
| Share transfers between classes | 119,378 | 2,978 | |||||||||
| Distributions reinvested | 967,763 | 24,511 | |||||||||
| Share repurchases | (1,910,250) | (48,201) | |||||||||
| Early repurchase deduction | — | 18 | |||||||||
| Net increase (decrease) | 16,397,612 | $ | 415,853 | ||||||||
| Total net increase (decrease) | 151,737,936 | $ | 3,849,510 | ||||||||
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The following table summarizes transactions in Common Shares of beneficial interest during the year ended December 31, 2024:
| Shares | Amount | ||||||||||
| CLASS I | |||||||||||
| Subscriptions | 55,226,525 | $ | 1,404,559 | ||||||||
| Share transfers between classes | 1,180,147 | 30,134 | |||||||||
| Distributions reinvested | 2,348,282 | 59,737 | |||||||||
| Share repurchases | (4,984,903) | (127,182) | |||||||||
| Early repurchase deduction | — | 8 | |||||||||
| Net increase (decrease) | 53,770,051 | $ | 1,367,256 | ||||||||
| CLASS D | |||||||||||
| Subscriptions | 14,495,667 | $ | 368,292 | ||||||||
| Share transfers between classes | 218,726 | 5,475 | |||||||||
| Distributions reinvested | 1,779,713 | 45,258 | |||||||||
| Share repurchases | (1,566,444) | (39,986) | |||||||||
| Early repurchase deduction | — | 3 | |||||||||
| Net increase (decrease) | 14,927,662 | $ | 379,042 | ||||||||
| CLASS F | |||||||||||
| Subscriptions | 49,560,391 | $ | 1,258,874 | ||||||||
| Share transfers between classes | (1,667,355) | (42,449) | |||||||||
| Distributions reinvested | 6,842,269 | 173,966 | |||||||||
| Share repurchases | (3,966,751) | (101,243) | |||||||||
| Early repurchase deduction | — | 14 | |||||||||
| Net increase (decrease) | 50,768,554 | $ | 1,289,162 | ||||||||
| CLASS S | |||||||||||
| Subscriptions | 14,523,921 | $ | 369,150 | ||||||||
| Share transfers between classes | 268,482 | 6,840 | |||||||||
| Distributions reinvested | 349,066 | 8,907 | |||||||||
| Share repurchases | (130,670) | (3,344) | |||||||||
| Early repurchase deduction | — | 1 | |||||||||
| Net increase (decrease) | 15,010,799 | $ | 381,554 | ||||||||
| Total net increase (decrease) | 134,477,066 | $ | 3,417,014 | ||||||||
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Distributions and Distribution Reinvestment
The following tables summarize our distributions declared and payable for the year ended December 31, 2025 (dollar amounts in thousands, except per share amounts), and the record date for each distribution was the last calendar date of the month in which such distribution was declared:
| Class I | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1600 | $ | 0.0550 | $ | — | $ | 0.2150 | $ | 24,733 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 27,355 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 28,558 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 29,299 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 31,373 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 33,040 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 33,412 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 35,458 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 36,845 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 38,549 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 41,642 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1600 | 0.0550 | — | 0.2150 | 43,241 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.9200 | $ | 0.6600 | $ | — | $ | 2.5800 | $ | 403,505 | ||||||||||||||||||||||||||||
| Class D | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1546 | $ | 0.0550 | $ | — | $ | 0.2096 | $ | 8,871 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1551 | 0.0550 | — | 0.2101 | 9,116 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,339 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 9,178 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,198 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 9,489 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,703 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,950 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 10,049 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,768 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1548 | 0.0550 | — | 0.2098 | 9,952 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1546 | 0.0550 | — | 0.2096 | 10,093 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.8565 | $ | 0.6600 | $ | — | $ | 2.5165 | $ | 114,706 | ||||||||||||||||||||||||||||
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| Class F | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1491 | $ | 0.0550 | $ | — | $ | 0.2041 | $ | 36,177 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1502 | 0.0550 | — | 0.2052 | 37,444 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1492 | 0.0550 | — | 0.2042 | 38,611 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1495 | 0.0550 | — | 0.2045 | 39,480 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 40,814 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1496 | 0.0550 | — | 0.2046 | 42,387 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 43,253 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 44,310 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1496 | 0.0550 | — | 0.2046 | 45,185 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1493 | 0.0550 | — | 0.2043 | 45,409 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1496 | 0.0550 | — | 0.2046 | 46,192 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1493 | 0.0550 | — | 0.2043 | 46,765 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.7933 | $ | 0.6600 | $ | — | $ | 2.4533 | $ | 506,027 | ||||||||||||||||||||||||||||
| Class S | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 29, 2025 | February 28, 2025 | $ | 0.1415 | $ | 0.0550 | $ | — | $ | 0.1965 | $ | 3,363 | |||||||||||||||||||||||||||
| February 26, 2025 | March 31, 2025 | 0.1433 | 0.0550 | — | 0.1983 | 3,627 | ||||||||||||||||||||||||||||||||
| March 27, 2025 | April 30, 2025 | 0.1416 | 0.0550 | — | 0.1966 | 3,978 | ||||||||||||||||||||||||||||||||
| April 25, 2025 | May 30, 2025 | 0.1422 | 0.0550 | — | 0.1972 | 4,374 | ||||||||||||||||||||||||||||||||
| May 27, 2025 | June 30, 2025 | 0.1417 | 0.0550 | — | 0.1967 | 4,585 | ||||||||||||||||||||||||||||||||
| June 24, 2025 | July 31, 2025 | 0.1424 | 0.0550 | — | 0.1974 | 4,924 | ||||||||||||||||||||||||||||||||
| July 23, 2025 | August 29, 2025 | 0.1418 | 0.0550 | — | 0.1968 | 5,157 | ||||||||||||||||||||||||||||||||
| August 26, 2025 | September 30, 2025 | 0.1418 | 0.0550 | — | 0.1968 | 5,619 | ||||||||||||||||||||||||||||||||
| September 24, 2025 | October 31, 2025 | 0.1424 | 0.0550 | — | 0.1974 | 6,033 | ||||||||||||||||||||||||||||||||
| October 27, 2025 | November 28, 2025 | 0.1418 | 0.0550 | — | 0.1968 | 6,197 | ||||||||||||||||||||||||||||||||
| November 26, 2025 | December 31, 2025 | 0.1423 | 0.0550 | — | 0.1973 | 6,443 | ||||||||||||||||||||||||||||||||
| December 24, 2025 | January 30, 2026 | 0.1418 | 0.0550 | — | 0.1968 | 6,627 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.7046 | $ | 0.6600 | $ | — | $ | 2.3646 | $ | 60,927 | ||||||||||||||||||||||||||||
(1) Distributions per share are net of shareholder servicing and/or distribution fees.
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The following tables summarize our distributions declared and payable for the year ended December 31, 2024 (dollar amounts in thousands, except per share amounts), and the record date for each distribution was the last calendar date of the month in which such distribution was declared:
| Class I | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 30, 2024 | February 29, 2024 | $ | 0.1600 | $ | 0.0550 | $ | — | $ | 0.2150 | $ | 11,811 | |||||||||||||||||||||||||||
| February 29, 2024 | March 29, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 13,391 | ||||||||||||||||||||||||||||||||
| March 26, 2024 | April 30, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 14,482 | ||||||||||||||||||||||||||||||||
| April 25, 2024 | May 31, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 15,054 | ||||||||||||||||||||||||||||||||
| May 31, 2024 | June 28, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 16,339 | ||||||||||||||||||||||||||||||||
| June 26, 2024 | July 31, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 17,490 | ||||||||||||||||||||||||||||||||
| July 26, 2024 | August 30, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 18,130 | ||||||||||||||||||||||||||||||||
| August 27, 2024 | September 30, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 18,993 | ||||||||||||||||||||||||||||||||
| September 26, 2024 | October 31, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 19,529 | ||||||||||||||||||||||||||||||||
| October 23, 2024 | November 29, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 20,329 | ||||||||||||||||||||||||||||||||
| November 27, 2024 | December 31, 2024 | 0.1600 | 0.0550 | — | 0.2150 | 21,878 | ||||||||||||||||||||||||||||||||
| December 23, 2024 | January 30, 2025 | 0.1600 | 0.0550 | — | 0.2150 | 23,307 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.9200 | $ | 0.6600 | $ | — | $ | 2.5800 | $ | 210,733 | ||||||||||||||||||||||||||||
| Class D | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 30, 2024 | February 29, 2024 | $ | 0.1547 | $ | 0.0550 | $ | — | $ | 0.2097 | $ | 6,514 | |||||||||||||||||||||||||||
| February 29, 2024 | March 29, 2024 | 0.1550 | 0.0550 | — | 0.2100 | 6,670 | ||||||||||||||||||||||||||||||||
| March 26, 2024 | April 30, 2024 | 0.1547 | 0.0550 | — | 0.2097 | 6,834 | ||||||||||||||||||||||||||||||||
| April 25, 2024 | May 31, 2024 | 0.1548 | 0.0550 | — | 0.2098 | 7,225 | ||||||||||||||||||||||||||||||||
| May 31, 2024 | June 28, 2024 | 0.1546 | 0.0550 | — | 0.2096 | 7,404 | ||||||||||||||||||||||||||||||||
| June 26, 2024 | July 31, 2024 | 0.1548 | 0.0550 | — | 0.2098 | 7,622 | ||||||||||||||||||||||||||||||||
| July 26, 2024 | August 30, 2024 | 0.1546 | 0.0550 | — | 0.2096 | 8,144 | ||||||||||||||||||||||||||||||||
| August 27, 2024 | September 30, 2024 | 0.1546 | 0.0550 | — | 0.2096 | 8,270 | ||||||||||||||||||||||||||||||||
| September 26, 2024 | October 31, 2024 | 0.1548 | 0.0550 | — | 0.2098 | 8,810 | ||||||||||||||||||||||||||||||||
| October 23, 2024 | November 29, 2024 | 0.1546 | 0.0550 | — | 0.2096 | 8,768 | ||||||||||||||||||||||||||||||||
| November 27, 2024 | December 31, 2024 | 0.1548 | 0.0550 | — | 0.2098 | 8,855 | ||||||||||||||||||||||||||||||||
| December 23, 2024 | January 30, 2025 | 0.1546 | 0.0550 | — | 0.2096 | 9,254 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.8566 | $ | 0.6600 | $ | — | $ | 2.5166 | $ | 94,370 | ||||||||||||||||||||||||||||
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| Class F | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 30, 2024 | February 29, 2024 | $ | 0.1494 | $ | 0.0550 | $ | — | $ | 0.2044 | $ | 26,889 | |||||||||||||||||||||||||||
| February 29, 2024 | March 29, 2024 | 0.1500 | 0.0550 | — | 0.2050 | 28,278 | ||||||||||||||||||||||||||||||||
| March 26, 2024 | April 30, 2024 | 0.1493 | 0.0550 | — | 0.2043 | 29,404 | ||||||||||||||||||||||||||||||||
| April 25, 2024 | May 31, 2024 | 0.1496 | 0.0550 | — | 0.2046 | 29,919 | ||||||||||||||||||||||||||||||||
| May 31, 2024 | June 28, 2024 | 0.1492 | 0.0550 | — | 0.2042 | 30,325 | ||||||||||||||||||||||||||||||||
| June 26, 2024 | July 31, 2024 | 0.1495 | 0.0550 | — | 0.2045 | 31,356 | ||||||||||||||||||||||||||||||||
| July 26, 2024 | August 30, 2024 | 0.1492 | 0.0550 | — | 0.2042 | 31,763 | ||||||||||||||||||||||||||||||||
| August 27, 2024 | September 30, 2024 | 0.1492 | 0.0550 | — | 0.2042 | 32,810 | ||||||||||||||||||||||||||||||||
| September 26, 2024 | October 31, 2024 | 0.1495 | 0.0550 | — | 0.2045 | 33,739 | ||||||||||||||||||||||||||||||||
| October 23, 2024 | November 29, 2024 | 0.1492 | 0.0550 | — | 0.2042 | 34,348 | ||||||||||||||||||||||||||||||||
| November 27, 2024 | December 31, 2024 | 0.1495 | 0.0550 | — | 0.2045 | 35,376 | ||||||||||||||||||||||||||||||||
| December 23, 2024 | January 30, 2025 | 0.1492 | 0.0550 | — | 0.2042 | 36,172 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.7928 | $ | 0.6600 | $ | — | $ | 2.4528 | $ | 380,379 | ||||||||||||||||||||||||||||
| Class S | ||||||||||||||||||||||||||||||||||||||
| Declaration Date | Payment Date | Base Distribution Per Share(1) | Variable Supplemental Distribution Per Share | Special Distribution Per Share | Total Distribution Per Share(1) | Distribution Amount | ||||||||||||||||||||||||||||||||
| January 30, 2024 | February 29, 2024 | $ | 0.1420 | $ | 0.0550 | $ | — | $ | 0.1970 | $ | 357 | |||||||||||||||||||||||||||
| February 29, 2024 | March 29, 2024 | 0.1431 | 0.0550 | — | 0.1981 | 743 | ||||||||||||||||||||||||||||||||
| March 26, 2024 | April 30, 2024 | 0.1418 | 0.0550 | — | 0.1968 | 954 | ||||||||||||||||||||||||||||||||
| April 25, 2024 | May 31, 2024 | 0.1423 | 0.0550 | — | 0.1973 | 1,204 | ||||||||||||||||||||||||||||||||
| May 31, 2024 | June 28, 2024 | 0.1417 | 0.0550 | — | 0.1967 | 1,550 | ||||||||||||||||||||||||||||||||
| June 26, 2024 | July 31, 2024 | 0.1422 | 0.0550 | — | 0.1972 | 1,767 | ||||||||||||||||||||||||||||||||
| July 26, 2024 | August 30, 2024 | 0.1416 | 0.0550 | — | 0.1966 | 1,954 | ||||||||||||||||||||||||||||||||
| August 27, 2024 | September 30, 2024 | 0.1417 | 0.0550 | — | 0.1967 | 2,126 | ||||||||||||||||||||||||||||||||
| September 26, 2024 | October 31, 2024 | 0.1422 | 0.0550 | — | 0.1972 | 2,467 | ||||||||||||||||||||||||||||||||
| October 23, 2024 | November 29, 2024 | 0.1416 | 0.0550 | — | 0.1966 | 2,692 | ||||||||||||||||||||||||||||||||
| November 27, 2024 | December 31, 2024 | 0.1422 | 0.0550 | — | 0.1972 | 2,930 | ||||||||||||||||||||||||||||||||
| December 23, 2024 | January 30, 2025 | 0.1416 | 0.0550 | — | 0.1966 | 3,144 | ||||||||||||||||||||||||||||||||
| Total | $ | 1.7040 | $ | 0.6600 | $ | — | $ | 2.3640 | $ | 21,888 | ||||||||||||||||||||||||||||
(1)Distributions per share are net of shareholder servicing and/or distribution fees.
With respect to distributions, we have adopted an “opt out” distribution reinvestment plan for shareholders. As a result, in the event of a declared cash distribution or other distribution, each shareholder, other than a shareholder that has “opted out” of the distribution reinvestment plan or who is located in a state that does not permit automatic enrollment in the distribution reinvestment plan, will have their distributions automatically reinvested in additional shares rather than receiving cash distributions. Shareholders who receive distributions in the form of shares will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
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Sources of distributions, other than net investment income and realized gains on a U.S. GAAP basis, include required adjustments to U.S. GAAP net investment income in the current period to determine taxable income available for distributions. The following table reflects the sources of cash distributions on a U.S. GAAP basis that we declared on our Common Shares during the year ended December 31, 2025:
| Class I | Class D | Class F | Class S | |||||||||||||||||||||||||||||||||||||||||||||||
| Source of Distribution | Per Share | Amount | Per Share | Amount | Per Share | Amount | Per Share | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Net investment income | $ | 2.5800 | $ | 403,505 | $ | 2.5165 | $ | 114,706 | $ | 2.4533 | $ | 506,027 | $ | 2.3646 | $ | 60,927 | ||||||||||||||||||||||||||||||||||
| Net realized gains | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2.5800 | $ | 403,505 | $ | 2.5165 | $ | 114,706 | $ | 2.4533 | $ | 506,027 | $ | 2.3646 | $ | 60,927 | ||||||||||||||||||||||||||||||||||
The following table reflects the sources of cash distributions on a U.S. GAAP basis that we declared on our Common Shares during the year ended December 31, 2024:
| Class I | Class D | Class F | Class S | |||||||||||||||||||||||||||||||||||||||||||||||
| Source of Distribution | Per Share | Amount | Per Share | Amount | Per Share | Amount | Per Share | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Net investment income | $ | 2.5800 | $ | 210,733 | $ | 2.5166 | $ | 94,370 | $ | 2.4528 | $ | 380,379 | $ | 2.3640 | $ | 21,888 | ||||||||||||||||||||||||||||||||||
| Net realized gains | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2.5800 | $ | 210,733 | $ | 2.5166 | $ | 94,370 | $ | 2.4528 | $ | 380,379 | $ | 2.3640 | $ | 21,888 | ||||||||||||||||||||||||||||||||||
For additional information on our distributions and dividend reinvestment plan, see “Note 9. Net Assets” to the consolidated financial statements.
Share Repurchase Program
At the discretion of the Board, we have commenced a share repurchase program in which we may repurchase, in each quarter, up to 5% of the NAV of our Common Shares outstanding (by number of shares) as of the close of the previous calendar quarter (the “Baseline Repurchase Amount”). The Board may amend or suspend the share repurchase program if it deems such action to be in the best interest of shareholders, such as when a repurchase offer would place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on us as a whole that would outweigh the benefit of the repurchase offer. As a result, share repurchases may not be available each quarter. We intend to conduct such repurchase offers in accordance with the requirements of Rule 13e-4 promulgated under the Exchange Act and the 1940 Act. All shares purchased pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued shares. In the event the Board determines, in any particular quarter, that we shall offer to repurchase less than the Baseline Repurchase Amount, or to amend the share repurchase program such that we will offer to repurchase less than the Baseline Repurchase Amount on a going forward basis, the Board will consider, on an at least quarterly basis, whether it is in the best interest of our shareholders to resume offering to repurchase at least the Baseline Repurchase Amount.
Under the share repurchase program, to the extent we offer to repurchase shares in any particular quarter, it is expected to repurchase shares pursuant to tender offers using a purchase price equal to the NAV per share as of the last calendar day of the applicable quarter, except that shares that have not been outstanding for at least one year will be repurchased at 98% of such NAV (an “Early Repurchase Deduction”). The one-year holding period is measured as of the subscription closing date immediately following the prospective repurchase date. The Early Repurchase Deduction may be waived, at our discretion, in the case of repurchase requests arising from the death, divorce or qualified disability of the holder. The Early Repurchase Deduction will be retained by us for the benefit of remaining shareholders.
The following table summarizes the share repurchases completed during the years ended December 31, 2025 and December 31, 2024:
| Repurchase Request Deadline | Percentage of Outstanding Shares the Company Offered to Repurchase(1) | Repurchase Pricing Date | Amount Repurchased (all classes)(2) | Number of Shares Repurchased (all classes) | Percentage of Outstanding Shares Repurchased(1) | |||||||||||||||||||||||||||
| March 4, 2025 | 5.00 | % | March 31, 2025 | $ | 210,490 | 8,264,218 | 2.42 | % | ||||||||||||||||||||||||
| May 30, 2025 | 5.00 | % | June 30, 2025 | $ | 186,609 | 7,399,263 | 1.96 | % | ||||||||||||||||||||||||
| August 29, 2025 | 5.00 | % | September 30, 2025 | $ | 176,480 | 6,983,778 | 1.65 | % | ||||||||||||||||||||||||
| December 2, 2025 | 5.00 | % | December 31, 2025 | $ | 474,322 | 18,807,293 | 4.06 | % | ||||||||||||||||||||||||
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| Repurchase Request Deadline | Percentage of Outstanding Shares the Company Offered to Repurchase(1) | Repurchase Pricing Date | Amount Repurchased (all classes)(2) | Number of Shares Repurchased (all classes) | Percentage of Outstanding Shares Repurchased(1) | |||||||||||||||||||||||||||
| March 1, 2024 | 5.00 | % | March 31, 2024 | $ | 59,526 | 2,347,231 | 1.13 | % | ||||||||||||||||||||||||
| May 30, 2024 | 5.00 | % | June 30, 2024 | $ | 56,260 | 2,204,546 | 0.89 | % | ||||||||||||||||||||||||
| August 29, 2024 | 5.00 | % | September 30, 2024 | $ | 45,164 | 1,766,987 | 0.64 | % | ||||||||||||||||||||||||
| December 2, 2024 | 5.00 | % | December 31, 2024 | $ | 110,805 | 4,330,004 | 1.40 | % | ||||||||||||||||||||||||
(1)Percentage is based on total shares as of the close of the previous calendar quarter. All repurchase requests were satisfied in full.
(2)Amounts not inclusive of Early Repurchase Deduction.
For additional information on our share repurchases see “Note 9. Net Assets” to the consolidated financial statements.
Borrowings
As of December 31, 2025 and December 31, 2024, we had an aggregate principal amount of $12,989.7 million and $7,508.7 million, respectively, of debt outstanding.
A summary of our contractual payment obligations under our credit facilities, unsecured notes and debt securitization issuances as of December 31, 2025, is as follows:
| December 31, 2025 | |||||||||||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||||||||||||
| HLEND A Funding Facility | $ | 758,407 | $ | — | $ | — | $ | 758,407 | $ | — | |||||||||||||||||||
| HLEND B Funding Facility | 833,783 | — | — | 833,783 | — | ||||||||||||||||||||||||
| HLEND C Funding Facility | 510,000 | — | — | — | 510,000 | ||||||||||||||||||||||||
| HLEND D Funding Facility | 757,110 | — | 757,110 | — | — | ||||||||||||||||||||||||
| HLEND E Funding Facility | 906,290 | — | — | 906,290 | — | ||||||||||||||||||||||||
| Revolving Credit Facility | 1,742,106 | — | — | 1,742,106 | — | ||||||||||||||||||||||||
| November 2027 Notes | 155,000 | — | 155,000 | — | — | ||||||||||||||||||||||||
| March 2028 Notes | 124,000 | — | 124,000 | — | — | ||||||||||||||||||||||||
| September 2027 Notes | 75,000 | — | 75,000 | — | — | ||||||||||||||||||||||||
| September 2028 Notes | 250,000 | — | 250,000 | — | — | ||||||||||||||||||||||||
| January 2029 Notes | 550,000 | — | — | 550,000 | — | ||||||||||||||||||||||||
| September 2029 Notes | 400,000 | — | — | 400,000 | — | ||||||||||||||||||||||||
| January 2028 Notes | 750,000 | — | 750,000 | — | — | ||||||||||||||||||||||||
| April 2032 Notes | 500,000 | — | — | — | 500,000 | ||||||||||||||||||||||||
| June 2027 Notes | 400,000 | — | 400,000 | — | — | ||||||||||||||||||||||||
| June 2030 Notes | 500,000 | — | — | 500,000 | — | ||||||||||||||||||||||||
| September 2028-1 Notes | 600,000 | — | 600,000 | — | — | ||||||||||||||||||||||||
| November 2030 Notes | 500,000 | — | — | 500,000 | — | ||||||||||||||||||||||||
| 2023 CLO Refinancing Secured Notes | 578,000 | — | — | — | 578,000 | ||||||||||||||||||||||||
| 2024 CLO Secured Notes | 400,000 | — | — | — | 400,000 | ||||||||||||||||||||||||
| 2025 CLO Secured Debt | 850,000 | — | — | — | 850,000 | ||||||||||||||||||||||||
| 2025-4 CLO Secured Notes | 850,000 | — | — | — | 850,000 | ||||||||||||||||||||||||
| Total | $ | 12,989,696 | $ | — | $ | 3,111,110 | $ | 6,190,586 | $ | 3,688,000 | |||||||||||||||||||
For additional information on our debt obligations see “Note 7. Borrowings” to the consolidated financial statements.
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Off-Balance Sheet Arrangements
Portfolio Company Commitments
Our investment portfolio contains and is expected to continue to contain debt investments which are in the form of lines of credit or delayed draw commitments, which require us to provide funding when requested by portfolio companies in accordance with underlying loan agreements. As of December 31, 2025 and 2024, we had unfunded delayed draw term loans and revolvers with an aggregate principal amount of $3,421.9 million and $2,128.7 million, respectively.
Other Commitments and Contingencies
As of December 31, 2025 and 2024, $325.2 million and $236.2 million, respectively, of capital committed remained uncalled from the Company in relation to capital commitments to ULTRA III. Such amount is subject to the approval of each joint venture member.
From time to time, we may become a party to certain legal proceedings incidental to the normal course of its business. As of December 31, 2025, management is not aware of any material pending or threatened litigation.
Related-Party Transactions
We entered into a number of business relationships with affiliated or related parties, including the following:
•the Investment Advisory Agreement;
•the Administration Agreement;
•the Expense Support Agreement; and
•the Managing Dealer Agreement
In addition to the aforementioned agreements, affiliates of the Adviser have received an exemptive order from the SEC that permits us, among other things, to co-invest with certain other persons, including certain affiliates of the Adviser and certain funds and accounts managed and controlled by the Adviser and its affiliates, subject to certain terms and conditions and in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. For additional information, see “Note 3. Fees, Expenses, Agreements and Related Party Transactions” to the consolidated financial statements.
Recent Developments
See “Item 8. Consolidated Financial Statements – Notes to Consolidated Financial Statements – Note 13. Subsequent Events” for a summary of recent developments.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.
For a description of our critical accounting policies, see “Note 2. Significant Accounting Policies” in our consolidated financial statements included in this report. We consider the most significant accounting policies to be those related to our Investments, Revenue Recognition, Distributions, and Income Taxes. We consider the most significant critical estimate to be the fair value measurement of investments. The critical accounting policies and estimates should be read in connection with our risk factors listed under “Risk Factors” in this annual report on Form 10-K.
Investments and Fair Value Measurements
Consistent with GAAP and the 1940 Act, we conduct a valuation of our investments, pursuant to which our NAV is determined. Our investments are valued on a quarterly basis, or more frequently if required under the 1940 Act. The determination of fair value involves subjective judgments and estimates. The majority of investments are not quoted or traded in an active market, and as such, their fair values are determined using valuation techniques, primarily discounted cash flows, and to a lesser extent, market multiples and recent comparable transactions. The most significant inputs in applying the discounted cash flow approach and the market multiples approach are
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the selected discount rates and multiples, respectively. The selection of these inputs is based on a combination of factors that are specific to the underlying portfolio companies such as financial performance and certain factors that are observable in the market, such as current interest rates and comparable public company trading multiples. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of these valuations, and any change in these valuations on the consolidated financial statements. For further details of our investments and fair value measurement accounting policy, see “Note 2. Significant Accounting Policies—Investments” and “Note 5. Fair Value Measurements”.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including valuation risk and interest rate risk.
Valuation Risk
We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by the Adviser as our valuation designee under Rule 2a-5 under the 1940 Act, based on, among other things, the input of independent third-party valuation firms retained by us, and in accordance with our valuation policy. There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.
Interest Rate Risk
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We intend to fund portions of our investments with borrowings, and at such time, our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure shareholders that a significant change in market interest rates will not have a material adverse effect on our net investment income.
As of December 31, 2025, 99.4% of our performing debt investments at fair value were at floating rates. Additionally, we entered into interest rate swaps with certain of our Unsecured Notes in order to align the interest rates of our liabilities with our investment portfolio. Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2025, the following table shows the annualized impact on net income of hypothetical base rate changes in interest rates (considering base rate floors and ceilings for floating rate instruments) and assuming no changes in our investment and borrowing structure:
| Interest Income | Interest Expense | Net Income | |||||||||||||||
| Up 300 basis points | $ | 740,949 | $ | (387,006) | $ | 353,943 | |||||||||||
| Up 200 basis points | $ | 493,940 | $ | (258,004) | $ | 235,936 | |||||||||||
| Up 100 basis points | $ | 246,931 | $ | (129,002) | $ | 117,929 | |||||||||||
| Down 100 basis points | $ | (245,701) | $ | 129,002 | $ | (116,699) | |||||||||||
| Down 200 basis points | $ | (489,188) | $ | 258,004 | $ | (231,184) | |||||||||||
| Down 300 basis points | $ | (696,622) | $ | 387,006 | $ | (309,616) | |||||||||||
We may in the future hedge against interest rate fluctuations by using hedging instruments such as additional interest rate swaps, futures, options and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of changes in interest rates with respect to our portfolio investments.
102
Item 8. Consolidated Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP, PCAOB Firm ID No. | |||||
103
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of HPS Corporate Lending Fund
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of HPS Corporate Lending Fund and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, of changes in net assets and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations, changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2025 and 2024 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Certain Level 3 Debt Investments Developed Using a Yield Analysis
As described in Note 5 to the consolidated financial statements, the Company had $23,198 million of level 3 investments measured at fair value as of December 31, 2025, with debt investments representing $23,076 million of this total. Investments classified within level 3 have unobservable inputs, as they trade infrequently, or not at all. When observable prices are not available for these investments, management uses one or more valuation techniques of which sufficient and reliable data is available. For $17,136 million of those level 3 debt investments, the fair values were determined by management using a yield analysis valuation technique. The significant unobservable input used by management in the yield analysis is the discount rate based on comparable market yields.
The principal considerations for our determination that performing procedures relating to the valuation of certain level 3 debt investments developed using a yield analysis is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the level 3 debt investments; (ii) a high degree of auditor judgment, subjectivity
104
and effort in performing procedures and evaluating audit evidence related to management’s yield analysis valuation technique and the discount rate based on comparable market yields; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, for certain level 3 debt investments developed using a yield analysis, testing the completeness and accuracy of underlying data used by management, as well as either (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of the yield analysis used by management; (iii) evaluating the reasonableness of the significant unobservable input related to the discount rate based on comparable market yields by considering the consistency with external market and industry data, or (iv) the use of professionals with specialized skill and knowledge to assist in evaluating the reasonableness of management’s estimate by developing an independent fair value estimate range using independently determined assumptions, and comparing the independent fair value estimate range to management’s estimate.
/s/PricewaterhouseCoopers LLP
March 20, 2026
We have served as the Company’s auditor since 2021.
105
HPS Corporate Lending Fund
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share amounts)
December 31, 2025 | December 31, 2024 | ||||||||||
| ASSETS | |||||||||||
| Investments at fair value | |||||||||||
Non-controlled/non-affiliated investments (amortized cost of $ | $ | $ | |||||||||
Non-controlled/affiliated investments (amortized cost of $ | |||||||||||
Controlled/affiliated investments (amortized cost of $ | |||||||||||
Total investments at fair value (amortized cost of $ | |||||||||||
| Cash | |||||||||||
| Cash equivalents | |||||||||||
| Interest receivable from non-controlled/non-affiliated investments | |||||||||||
| Interest receivable from non-controlled/affiliated investments | |||||||||||
| Dividend receivable from non-controlled/non-affiliated investments | |||||||||||
| Deferred financing costs | |||||||||||
| Deferred offering costs | |||||||||||
| Derivative assets, at fair value (Note 6) | |||||||||||
| Receivable for investments | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
Debt (net of unamortized debt issuance costs of $ | $ | $ | |||||||||
| Payable for investments purchased | |||||||||||
| Interest payable | |||||||||||
| Derivative liabilities, at fair value (Note 6) | |||||||||||
| Due to affiliates | |||||||||||
| Distribution payable (Note 9) | |||||||||||
| Payable for share repurchases (Note 9) | |||||||||||
| Management fees payable (Note 3) | |||||||||||
| Income based incentive fees payable (Note 3) | |||||||||||
| Capital gains incentive fees payable (Note 3) | |||||||||||
| Shareholder servicing and/or distribution fees payable | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 8) | |||||||||||
| NET ASSETS | |||||||||||
Common Shares, $ | |||||||||||
| Additional paid in capital | |||||||||||
| Distributable earnings (loss) | |||||||||||
| Total net assets | |||||||||||
| Total liabilities and net assets | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
106
HPS Corporate Lending Fund
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share amounts)
December 31, 2025 | December 31, 2024 | ||||||||||
| NET ASSET VALUE PER SHARE | |||||||||||
| Class I Shares: | |||||||||||
| Net assets | $ | $ | |||||||||
Common Shares outstanding ($ | |||||||||||
| Net asset value per share | $ | $ | |||||||||
| Class D Shares: | |||||||||||
| Net assets | $ | $ | |||||||||
Common Shares outstanding ($ | |||||||||||
| Net asset value per share | $ | $ | |||||||||
| Class F Shares: | |||||||||||
| Net assets | $ | $ | |||||||||
Common Shares outstanding ($ | |||||||||||
| Net asset value per share | $ | $ | |||||||||
| Class S Shares: | |||||||||||
| Net assets | $ | $ | |||||||||
Common Shares outstanding ($ | |||||||||||
| Net asset value per share | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
107
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Investment income: | |||||||||||||||||
| From non-controlled/non-affiliated investments: | |||||||||||||||||
| Interest income | $ | $ | $ | ||||||||||||||
| Payment-in-kind interest income | |||||||||||||||||
| Dividend income | |||||||||||||||||
| Other income | |||||||||||||||||
| From non-controlled/affiliated investments: | |||||||||||||||||
| Interest income | |||||||||||||||||
| Payment-in-kind interest income | |||||||||||||||||
| From controlled/affiliated investments: | |||||||||||||||||
| Dividend income | |||||||||||||||||
| Total investment income | |||||||||||||||||
| Expenses: | |||||||||||||||||
| Interest expense | |||||||||||||||||
| Management fees | |||||||||||||||||
| Income based incentive fee | |||||||||||||||||
| Capital gains incentive fee | ( | ||||||||||||||||
| Shareholder servicing and/or distribution fees | |||||||||||||||||
| Class D | |||||||||||||||||
| Class F | |||||||||||||||||
| Class S | |||||||||||||||||
| Professional fees | |||||||||||||||||
| Board of Trustees’ fees | |||||||||||||||||
| Administrative service expenses (Note 3) | |||||||||||||||||
| Other general & administrative | |||||||||||||||||
| Amortization of continuous offering costs | |||||||||||||||||
| Total expenses | |||||||||||||||||
| Net investment income before excise tax | |||||||||||||||||
| Excise tax expense | |||||||||||||||||
| Net investment income after excise tax | |||||||||||||||||
| Net realized and change in unrealized gain (loss): | |||||||||||||||||
| Realized gain (loss): | |||||||||||||||||
| Non-controlled/non-affiliated investments | ( | ( | ( | ||||||||||||||
| Non-controlled/affiliated investments | ( | ||||||||||||||||
| Foreign currency forward contracts | ( | ( | |||||||||||||||
| Foreign currency transactions | ( | ||||||||||||||||
| Net realized gain (loss) | ( | ( | |||||||||||||||
| Net change in unrealized appreciation (depreciation): | |||||||||||||||||
| Non-controlled/non-affiliated investments | ( | ||||||||||||||||
| Non-controlled/affiliated investments | ( | ||||||||||||||||
| Controlled/affiliated investments | ( | ( | |||||||||||||||
| Foreign currency forward contracts | ( | ( | |||||||||||||||
| Translation of assets and liabilities in foreign currencies | ( | ( | |||||||||||||||
| Net change in unrealized appreciation (depreciation) | ( | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
108
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net realized and change in unrealized gain (loss) | ( | ||||||||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
109
HPS Corporate Lending Fund
Consolidated Statements of Changes in Net Assets
(in thousands)
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Increase (decrease) in net assets from operations: | |||||||||||||||||
| Net investment income after excise tax | $ | $ | $ | ||||||||||||||
| Net realized gain (loss) | ( | ( | |||||||||||||||
| Net change in unrealized appreciation (depreciation) | ( | ||||||||||||||||
| Net increase (decrease) in net assets resulting from operations | |||||||||||||||||
| Distributions to common shareholders: | |||||||||||||||||
| Class I | ( | ( | ( | ||||||||||||||
| Class D | ( | ( | ( | ||||||||||||||
| Class F | ( | ( | ( | ||||||||||||||
| Class S | ( | ( | ( | ||||||||||||||
| Net decrease in net assets resulting from distributions | ( | ( | ( | ||||||||||||||
| Share transactions: | |||||||||||||||||
| Class I: | |||||||||||||||||
| Proceeds from shares sold | |||||||||||||||||
| Share transfers between classes | |||||||||||||||||
| Distributions reinvested | |||||||||||||||||
| Repurchased shares, net of early repurchase deduction | ( | ( | ( | ||||||||||||||
| Net increase (decrease) from share transactions | |||||||||||||||||
| Class D: | |||||||||||||||||
| Proceeds from shares sold | |||||||||||||||||
| Share transfers between classes | ( | ( | |||||||||||||||
| Distributions reinvested | |||||||||||||||||
| Repurchased shares, net of early repurchase deduction | ( | ( | ( | ||||||||||||||
| Net increase (decrease) from share transactions | |||||||||||||||||
| Class F: | |||||||||||||||||
| Proceeds from shares sold | |||||||||||||||||
| Share transfers between classes | ( | ( | ( | ||||||||||||||
| Distributions reinvested | |||||||||||||||||
| Repurchased shares, net of early repurchase deduction | ( | ( | ( | ||||||||||||||
| Net increase (decrease) from share transactions | |||||||||||||||||
| Class S: | |||||||||||||||||
| Proceeds from shares sold | |||||||||||||||||
| Share transfers between classes | |||||||||||||||||
| Distributions reinvested | |||||||||||||||||
| Repurchased shares, net of early repurchase deduction | ( | ( | |||||||||||||||
| Net increase (decrease) from share transactions | |||||||||||||||||
| Total increase (decrease) in net assets | |||||||||||||||||
| Net assets, beginning of period | |||||||||||||||||
| Net assets, end of period | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
110
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | $ | $ | ||||||||||||||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | |||||||||||||||||
| Net change in unrealized (appreciation) depreciation on investments | ( | ( | |||||||||||||||
| Net realized (gain) loss on investments | |||||||||||||||||
| Net change in unrealized (appreciation) depreciation on foreign currency forward contracts | ( | ||||||||||||||||
| Net change in unrealized (appreciation) depreciation on translation of assets and liabilities in foreign currencies | ( | ||||||||||||||||
| Net accretion of discount and amortization of premium, net | ( | ( | ( | ||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||
| Amortization of original issue discount and debt issuance costs | |||||||||||||||||
| Amortization of offering costs | |||||||||||||||||
| Payment-in-kind interest capitalized | ( | ( | ( | ||||||||||||||
| Payment-in-kind dividends capitalized | ( | ( | ( | ||||||||||||||
| Non-cash other income capitalized | ( | ( | |||||||||||||||
| Purchases of investments | ( | ( | ( | ||||||||||||||
| Proceeds from sale of investments and principal repayments | |||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Interest receivable from non-controlled/non-affiliated investments | ( | ( | ( | ||||||||||||||
| Interest receivable from non-controlled/affiliated investments | ( | ||||||||||||||||
| Dividend receivable from non-controlled/non-affiliated investments | ( | ||||||||||||||||
| Receivable for investments | ( | ( | |||||||||||||||
| Other assets | ( | ( | |||||||||||||||
| Payable for investments purchased | ( | ||||||||||||||||
| Interest payable | |||||||||||||||||
| Due to affiliates | |||||||||||||||||
| Management fees payable | |||||||||||||||||
| Income based incentive fees payable | |||||||||||||||||
| Capital gains incentive fees payable | ( | ||||||||||||||||
| Shareholder servicing and/or distribution fees payable | |||||||||||||||||
| Accrued expenses and other liabilities | |||||||||||||||||
| Net cash provided by (used in) operating activities | ( | ( | ( | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Borrowings on debt | |||||||||||||||||
| Repayments of debt | ( | ( | ( | ||||||||||||||
| Deferred financing costs paid | ( | ( | ( | ||||||||||||||
| Debt issuance costs paid | ( | ( | ( | ||||||||||||||
| Deferred offering costs paid | ( | ( | ( | ||||||||||||||
| Proceeds from issuance of Common Shares | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
111
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Common Shares repurchased, net of early repurchase deduction | ( | ( | ( | ||||||||||||||
| Distributions paid in cash | ( | ( | ( | ||||||||||||||
| Net cash provided by (used in) financing activities | |||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | |||||||||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||||||||
| Cash and cash equivalents, end of period | $ | $ | $ | ||||||||||||||
| Supplemental information and non-cash activities: | |||||||||||||||||
| Interest paid during the period | $ | $ | $ | ||||||||||||||
| Taxes paid during the period | $ | $ | $ | ||||||||||||||
| Distribution payable | $ | $ | $ | ||||||||||||||
| Share repurchases accrued but not paid | $ | $ | $ | ||||||||||||||
| Reinvestment of distributions during the period | $ | $ | $ | ||||||||||||||
| Non-cash purchases of investments | $ | $ | $ | ||||||||||||||
| Non-cash sales of investments | $ | ( | $ | ( | $ | ( | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
112
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| Non-Controlled/Non-Affiliated Investments | |||||||||||||||||||||||||||||||||||||||||||||||
| First Lien Debt | |||||||||||||||||||||||||||||||||||||||||||||||
| Aerospace and Defense | |||||||||||||||||||||||||||||||||||||||||||||||
| Arcfield Acquisition Corp (4)(8)(25) | SF + | % | 10/28/2031 | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Arcfield Acquisition Corp (4)(6)(8) | 10/28/2031 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Arcfield Acquisition Corp (4)(6)(8) | 10/28/2031 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Cadence - Southwick, Inc. (4)(10)(25) | SF + | % | 5/3/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Cadence - Southwick, Inc. (4)(10)(25) | SF + | % | 5/3/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Cadence - Southwick, Inc. (4)(6)(10)(24) | SF + | % | 5/3/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Carbon Topco, Inc. (4)(6)(9) | 5/1/2030 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Carbon Topco, Inc. (4)(9)(25) | SF + | % | 11/1/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Fastener Distribution Holdings, LLC (4)(9)(25) | SF + | % | 11/4/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Fastener Distribution Holdings, LLC (4)(6)(9)(25) | SF + | % | 11/4/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Frontgrade Technologies Holdings Inc. (4)(9)(25) | SF + | % | 1/9/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Frontgrade Technologies Holdings Inc. (4)(9)(25) | SF + | % | 1/9/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Frontgrade Technologies Holdings Inc. (4)(6)(9)(25) | SF + | % | 1/10/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Frontgrade Technologies Holdings Inc. (4)(9)(25) | SF + | % | 1/9/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Frontgrade Technologies Holdings Inc. (4)(9)(25) | SF + | % | 1/9/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Goat Holdco LLC (5)(7)(24) | SF + | % | 1/27/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| RH Buyer Inc (4)(10)(25) | SF + | % | 1/17/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| RH Buyer Inc (4)(6)(10)(25) | SF + | % | 1/17/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Tex-Tech Industries, Inc. (4)(9)(24) | SF + | % | 1/13/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Tex-Tech Industries, Inc. (4)(6)(9)(24) | SF + | % | 1/13/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Tex-Tech Industries, Inc. (4)(6)(9)(24) | SF + | % | 1/13/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Titan BW Borrower L.P. (4)(8)(25) | SF + | % | 7/24/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Titan BW Borrower L.P. (4)(6)(8) | 7/24/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Titan BW Borrower L.P. (4)(6)(8) | 7/24/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Valence Surface Technologies LLC (4)(10)(25) | SF + | % | 6/13/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Valence Surface Technologies LLC (4)(10)(25) | SF + | % | 6/13/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Valence Surface Technologies LLC (4)(6)(10)(25) | SF + | % | 6/13/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Valence Surface Technologies LLC (4)(6)(10) | 6/13/2031 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| West Star Aviation Acquisition, LLC (4)(6)(9)(24) | SF + | % | 5/20/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| West Star Aviation Acquisition, LLC (4)(6)(9)(24) | SF + | % | 5/20/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| West Star Aviation Acquisition, LLC (4)(9)(24) | SF + | % | 5/20/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| WP CPP Holdings, LLC (4)(6)(10) | 11/30/2029 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| WP CPP Holdings, LLC (4)(10)(25) | SF + | % | 11/30/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Air Freight & Logistics | |||||||||||||||||||||||||||||||||||||||||||||||
| Zeppelin US Buyer Inc. (4)(6)(9) | 8/2/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Zeppelin US Buyer Inc. (4)(6)(9) | 8/2/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Zeppelin US Buyer Inc. (4)(9)(25) | SF + | % | 8/2/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset Based Lending and Fund Finance | |||||||||||||||||||||||||||||||||||||||||||||||
| Montagu Lux Finco Sarl (4)(5)(6)(10)(29) | E + | % | 2/13/2032 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Automobile Components | |||||||||||||||||||||||||||||||||||||||||||||||
| ABC Group Holdings Inc (4)(5)(9)(28) | E + | % | 8/22/2031 | EUR | |||||||||||||||||||||||||||||||||||||||||||
113
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| ABC Group Holdings Inc (4)(5)(9)(23)(28) | E + | % | 8/22/2031 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| ABC Technologies Inc (4)(5)(9)(24) | SF + | % | 8/22/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| ABC Technologies Inc (4)(5)(9)(23)(24) | SF + | % | 8/22/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Belron Finance 2019 LLC (8)(25) | SF + | % | 10/16/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Clarios Global LP (7)(24) | SF + | % | 5/6/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Clarios Global LP (7)(24) | SF + | % | 1/28/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Tenneco Inc (8)(25) | SF + | % | 11/17/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Tenneco Inc (8)(25) | SF + | % | 11/17/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Beverages | |||||||||||||||||||||||||||||||||||||||||||||||
| Vital Bidco AB (4)(5)(10)(24) | SF + | % | 10/29/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Vital Bidco AB (4)(5)(6)(10) | 10/29/2030 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Broadline Retail | |||||||||||||||||||||||||||||||||||||||||||||||
| Auctane Inc (4)(9)(26) | SF + | % | 10/5/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Thrasio LLC (4)(10)(24) | SF + | % | 6/18/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Thrasio LLC (4)(10)(19)(23)(24) | SF + | 6/18/2029 | |||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Building Products | |||||||||||||||||||||||||||||||||||||||||||||||
| Enstall Group B.V. (4)(5)(8)(19)(29) | E + | 8/30/2028 | EUR | ||||||||||||||||||||||||||||||||||||||||||||
| Fire Flow Intermediate Corporation (4)(9)(25) | SF + | % | 7/10/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Hunter Douglas Inc (7)(25) | SF + | % | 1/17/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Nexus Intermediate III, LLC (4)(9)(26) | SF + | % | 12/6/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Saber Parent Holdings Corp (4)(7)(25) | SF + | % | 12/16/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Saber Parent Holdings Corp (4)(6)(7) | 12/16/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Saber Parent Holdings Corp (4)(6)(7) | 12/16/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| SWF Holdings I Corp (10)(24) | SF + | % | 12/19/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| SWF Holdings I Corp (10)(24) | SF + | % | 10/6/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| SWF Holdings I Corp (6)(10) | 12/19/2029 | ||||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital Markets | |||||||||||||||||||||||||||||||||||||||||||||||
| DRW Holdings LLC (7)(24) | SF + | % | 6/26/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Jump Financial LLC (7)(25) | SF + | % | 2/26/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Wharf Street Ratings Acquisition LLC (4)(9)(24) | SF + | % | 9/16/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Wharf Street Ratings Acquisition LLC (4)(6)(9) | 9/16/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Wharf Street Ratings Acquisition LLC (4)(6)(9) | 9/16/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Yes Energy LLC (4)(10)(24) | SF + | % | 4/21/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Yes Energy LLC (4)(10)(24) | SF + | % | 4/21/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Yes Energy LLC (4)(10)(24) | SF + | % | 4/21/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Yes Energy LLC (4)(6)(10) | 4/21/2028 | ||||||||||||||||||||||||||||||||||||||||||||||
| Yes Energy LLC (4)(10)(24) | SF + | % | 4/21/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Chemicals | |||||||||||||||||||||||||||||||||||||||||||||||
| Bakelite US Holdco Inc (7)(25) | SF + | % | 12/23/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Braya Renewable Fuels (Newfoundland) LP (4)(5)(15)(25) | SF + | % | 11/9/2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Braya Renewable Fuels (Newfoundland) LP (4)(5)(15)(25) | SF + | % | 11/9/2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Braya Renewable Fuels (Newfoundland) LP (4)(5)(15)(25) | SF + | % | 11/9/2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Braya Renewable Fuels (Newfoundland) LP (4)(5)(15)(25) | SF + | % | 11/9/2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Discovery Purchaser Corp (8)(25) | SF + | % | 10/4/2029 | ||||||||||||||||||||||||||||||||||||||||||||
114
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| Formerra LLC (4)(10)(24) | SF + | % | 11/1/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Formerra LLC (4)(6)(10) | 11/1/2028 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Formerra LLC (4)(10)(24) | SF + | % | 11/1/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Fortis 333 Inc (7)(25) | SF + | % | 3/27/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Lummus Technology Holdings V LLC (7)(24) | SF + | % | 12/31/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Services & Supplies | |||||||||||||||||||||||||||||||||||||||||||||||
| ABC Legal Holdings, LLC (4)(9)(25) | SF + | % | 8/13/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| ABC Legal Holdings, LLC (4)(6)(9) | 8/13/2032 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| ABC Legal Holdings, LLC (4)(6)(9) | 8/13/2032 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Allied Universal Holdco LLC (7)(24) | SF + | % | 8/20/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Apex Group Treasury LLC (5)(7)(25) | SF + | % | 2/27/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Argos Health Holdings, Inc. (4)(9)(25) | SF + | % | 12/3/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| AVSC Holding Corp. (4)(9)(24) | SF + | % | 12/5/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| AVSC Holding Corp. (4)(6)(9) | 12/5/2029 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Axiom Buyer, LLC (4)(10)(24) | SF + | % | 1/14/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Axiom Buyer, LLC (4)(6)(10) | 1/14/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Axiom Buyer, LLC (4)(6)(10)(24) | SF + | % | 1/14/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Certania Beteiligungen GmbH (4)(5)(6)(7) | 5/23/2029 | EUR | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Coretrust Purchasing Group LLC (4)(6)(9) | 10/1/2029 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Coretrust Purchasing Group LLC (4)(9)(24) | SF + | % | 10/1/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Coretrust Purchasing Group LLC (4)(6)(9) | 10/1/2029 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Eagle 2021 Lower Merger Sub, LLC (4)(9)(25) | SF + | % | 12/3/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Guardian US Holdco LLC (8)(25) | SF + | % | 1/31/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| ImageFIRST Holdings, LLC (7)(25) | SF + | % | 3/12/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Madison IAQ LLC (8)(25) | SF + | % | 6/21/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| NBG Acquisition Corp. (4)(9)(25) | SF + | % | 11/4/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| NBG Acquisition Corp. (4)(9)(25) | SF + | % | 11/6/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| NBG Acquisition Corp. (4)(6)(9)(25) | SF + | % | 11/4/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| NDT Global Holding Inc. (4)(5)(8)(24) | SF + | % | 6/4/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| NDT Global Holding Inc. (4)(5)(6)(8)(24) | SF + | % | 6/4/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| NDT Global Holding Inc. (4)(5)(6)(8) | 6/4/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| NTH Degree Purchaser Inc (4)(10)(25) | SF + | % | 9/10/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| NTH Degree Purchaser Inc (4)(6)(10) | 9/10/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| NTH Degree Purchaser Inc (4)(6)(10) | 9/10/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Retail Services WIS Corporation (4)(10)(25) | SF + | % | 8/29/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail Services WIS Corporation (4)(6)(10) | 8/29/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Sentinel Buyer Corp. (4)(6)(9) | 11/6/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Sentinel Buyer Corp. (4)(9)(24) | SF + | % | 11/6/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Team, Inc. (4)(10)(24) | SF + | % | 3/12/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Team, Inc. (4)(6)(10) | 3/12/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Victors Purchaser LLC (4)(8)(25) | SF + | % | 12/23/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Victors Purchaser LLC (4)(6)(8) | 12/23/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Victors Purchaser LLC (4)(6)(8)(24) | SF + | % | 12/23/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Wasserman Media Group, LLC (7)(24) | SF + | % | 6/23/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Communications Equipment | |||||||||||||||||||||||||||||||||||||||||||||||
| Ribbon Communications Operating Company, Inc (4)(5)(10)(24) | SF + | % | 6/21/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Ribbon Communications Operating Company, Inc (4)(5)(6)(10) | 6/21/2029 | ( | |||||||||||||||||||||||||||||||||||||||||||||
115
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction & Engineering | |||||||||||||||||||||||||||||||||||||||||||||||
| NRO Holdings III Corp. (4)(6)(9)(24) | SF + | % | 7/15/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| NRO Holdings III Corp. (4)(9)(25) | SF + | % | 7/15/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| NRO Holdings III Corp. (4)(6)(9)(25) | SF + | % | 7/15/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Pike Corporation (4)(9)(25) | SF + | % | 12/20/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Pike Corporation (4)(6)(9) | 12/20/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Pike Corporation (4)(6)(9) | 12/20/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Consumer Finance | |||||||||||||||||||||||||||||||||||||||||||||||
| PCP CW Aggregator Holdings II, L.P. (4)(5)(10)(25) | SF + | % | 2/9/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Consumer Staples Distribution & Retail | |||||||||||||||||||||||||||||||||||||||||||||||
| DIA Finance S.L.U. (4)(5)(9)(29) | E + | % | 12/27/2029 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Puma Buyer LLC (4)(8)(25) | SF + | % | 3/29/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Puma Buyer LLC (4)(8)(25) | SF + | % | 3/29/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Puma Buyer LLC (4)(6)(8) | 3/29/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| SW Ingredients Holdings, LLC (4)(6)(9)(24) | SF + | % | 5/2/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| SW Ingredients Holdings, LLC (4)(9)(24) | SF + | % | 5/2/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| SW Ingredients Holdings, LLC (4)(6)(9) | 5/2/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Vermont Aus Pty Ltd (4)(5)(9)(34) | B + | % | 3/23/2028 | AUD | |||||||||||||||||||||||||||||||||||||||||||
| Vermont Aus Pty Ltd (4)(5)(9)(34) | B + | % | 3/23/2028 | AUD | |||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Containers & Packaging | |||||||||||||||||||||||||||||||||||||||||||||||
| BP Purchaser, LLC (4)(9)(25) | SF + | % | 12/11/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Capripack Debtco PLC (4)(5)(10)(29) | E + | % | 1/3/2030 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Capripack Debtco PLC (4)(5)(10)(29) | E + | % | 1/3/2030 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Capripack Debtco PLC (4)(5)(10)(29) | E + | % | 1/3/2030 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Capripack Debtco PLC (4)(5)(10)(29) | E + | % | 1/3/2030 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Clydesdale Acquisition Holdings Inc (8)(24) | SF + | % | 4/13/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributors | |||||||||||||||||||||||||||||||||||||||||||||||
| Johnstone Supply LLC (7)(24) | SF + | % | 6/9/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Thermostat Purchaser III Inc (9)(25) | SF + | % | 8/31/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Diversified Consumer Services | |||||||||||||||||||||||||||||||||||||||||||||||
| Aesthetics Australia Group Pty Ltd (4)(5)(8)(35) | B + | % | 3/21/2028 | AUD | |||||||||||||||||||||||||||||||||||||||||||
| AI Learning (Singapore) PTE. LTD. (4)(5)(12)(39) | SORA + | % | 5/25/2027 | SGD | |||||||||||||||||||||||||||||||||||||||||||
| American Academy Holdings, LLC (4)(17)(24) | SF + | % | 6/30/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Club Car Wash Operating, LLC (4)(10)(25) | SF + | % | 6/16/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Club Car Wash Operating, LLC (4)(10)(25) | SF + | % | 6/16/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Club Car Wash Operating, LLC (4)(10)(25) | SF + | % | 6/16/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Club Car Wash Operating, LLC (4)(10)(25) | SF + | % | 6/16/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Club Car Wash Operating, LLC (4)(6)(10)(25) | SF + | % | 6/16/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Express Wash Concepts, LLC (4)(10)(24) | SF + | % | 4/30/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Express Wash Concepts, LLC (4)(10)(24) | SF + | % | 4/30/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Houghton Mifflin Harcourt Company (8)(24) | SF + | % | 4/9/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| IXM Holdings, Inc. (4)(11)(25) | SF + | % | 12/14/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| IXM Holdings, Inc. (4)(11)(25) | SF + | % | 12/14/2029 | ||||||||||||||||||||||||||||||||||||||||||||
116
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| IXM Holdings, Inc. (4)(6)(11)(24) | SF + | % | 12/14/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| IXM Holdings, Inc. (4)(11)(25) | SF + | % | 12/14/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| KUEHG Corp. (5)(8)(25) | SF + | % | 6/12/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Learning Care Group, Inc. (8)(25) | SF + | % | 8/11/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Mckissock Investment Holdings LLC (9)(25) | SF + | % | 3/12/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Mckissock Investment Holdings LLC (9)(25) | SF + | % | 3/12/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Mckissock Investment Holdings LLC (9)(25) | SF + | % | 3/12/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Spotless Brands, LLC (4)(10)(25) | SF + | % | 7/25/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Spotless Brands, LLC (4)(6)(10)(24) | SF + | % | 7/25/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Spotless Brands, LLC (4)(10)(25) | SF + | % | 7/25/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Spotless Brands, LLC (4)(10)(25) | SF + | % | 7/25/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Spotless Brands, LLC (4)(10)(25) | SF + | % | 7/25/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| TruGreen Limited Partnership (9)(24) | SF + | % | 11/2/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Diversified Telecommunication Services | |||||||||||||||||||||||||||||||||||||||||||||||
| Meriplex Communications, LTD (4)(9)(24) | SF + | % | 7/17/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Meriplex Communications, LTD (4)(9)(24) | SF + | % | 7/17/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Meriplex Communications, LTD (4)(9)(24) | SF + | % | 7/17/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Electric Utilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Cricket Valley Energy Center LLC (4)(18)(25) | SF + | % | 6/26/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Electrical Equipment | |||||||||||||||||||||||||||||||||||||||||||||||
| Arcline FM Holdings LLC (9)(25) | SF + | % | 6/23/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Truck-Lite Co, LLC (4)(6)(9) | 2/13/2031 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Truck-Lite Co, LLC (4)(6)(9)(24) | SF + | % | 2/13/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Truck-Lite Co, LLC (4)(6)(9) | 2/13/2032 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Truck-Lite Co, LLC (4)(9)(24) | SF + | % | 2/13/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Truck-Lite Co, LLC (4)(9)(24) | SF + | % | 2/13/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Truck-Lite Co, LLC (4)(6)(9)(25) | SF + | % | 2/13/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Electronic Equipment, Instruments & Components | |||||||||||||||||||||||||||||||||||||||||||||||
| Bright Light Buyer, Inc. (4)(10)(24) | SF + | % | 11/8/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| CC WDW Borrower, Inc. (4)(10)(25) | SF + | % | 1/27/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| CC WDW Borrower, Inc. (4)(6)(10)(25) | SF + | % | 1/27/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| CC WDW Borrower, Inc. (4)(10)(25) | SF + | % | 1/27/2028 | ||||||||||||||||||||||||||||||||||||||||||||
| Dwyer Instruments Inc (4)(9)(25) | SF + | % | 7/20/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Dwyer Instruments Inc (4)(9)(25) | SF + | % | 7/20/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Dwyer Instruments Inc (4)(6)(9)(25) | SF + | % | 7/20/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Hobbs & Associates LLC (7)(24) | SF + | % | 7/23/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Energy Equipment & Services | |||||||||||||||||||||||||||||||||||||||||||||||
| Camin Cargo Control Holdings, Inc. (4)(10)(24) | SF + | % | 12/7/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Camin Cargo Control Holdings, Inc. (4)(6)(10)(25) | SF + | % | 12/7/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Camin Cargo Control Holdings, Inc. (4)(6)(10)(24) | SF + | % | 12/7/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Entertainment | |||||||||||||||||||||||||||||||||||||||||||||||
| AMR GP Ltd (4)(5)(7) | % | 7/10/2034 | |||||||||||||||||||||||||||||||||||||||||||||
| Aventine Intermediate LLC (4)(9)(25) | SF + | % | 6/18/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Aventine Intermediate LLC (4)(9)(25) | SF + | % | 6/18/2029 | ||||||||||||||||||||||||||||||||||||||||||||
117
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| Endeavor Operating Co LLC (5)(7)(24) | SF + | % | 3/24/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Global Music Rights, LLC (4)(9)(25) | SF + | % | 12/20/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Global Music Rights, LLC (4)(6)(9) | 12/20/2031 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Renaissance Financiere (4)(5)(7)(30) | E + | % | 7/26/2028 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Financial Services | |||||||||||||||||||||||||||||||||||||||||||||||
| AI Circle Bidco Limited (4)(5)(10)(30) | E + | % | 2/8/2031 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| AI Circle Bidco Limited (4)(5)(10)(30) | E + | % | 2/8/2031 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| AI Circle Bidco Limited (4)(5)(6)(10)(30) | E + | % | 2/8/2031 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Ascensus Holdings, Inc. (8)(24) | SF + | % | 11/24/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Earps Bidco Limited (4)(5)(7)(31) | SN + | % | 3/28/2032 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| Earps Bidco Limited (4)(5)(6)(7)(31) | SN + | % | 3/28/2032 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| Earps Bidco Limited (4)(5)(7)(30) | E + | % | 3/28/2032 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Eisner Advisory Group LLC (8)(24) | SF + | % | 2/28/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(9)(25) | SF + | % | 3/12/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(9)(25) | SF + | % | 3/12/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(6)(9) | 3/12/2030 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(9)(25) | SF + | % | 3/12/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(9)(25) | SF + | % | 3/12/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(9)(25) | SF + | % | 3/12/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Empower Payments Investor, LLC (4)(6)(9) | 3/12/2031 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Focus Financial Partners, LLC (7)(24) | SF + | % | 9/15/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Harp Finco LTD (4)(5)(7)(31) | SN + | % | 3/27/2032 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| June Purchaser LLC (7)(25) | SF + | % | 11/28/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| June Purchaser LLC (6)(7) | 11/28/2031 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Madonna Bidco Ltd (4)(5)(7)(31) | SN + | % | 10/25/2031 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| Madonna Bidco Ltd (4)(5)(6)(7)(31) | SN + | % | 10/25/2031 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| MAI Capital Management Intermediate LLC (4)(9)(25) | SF + | % | 8/29/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| MAI Capital Management Intermediate LLC (4)(9)(25) | SF + | % | 8/29/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| MAI Capital Management Intermediate LLC (4)(6)(9)(25) | SF + | % | 8/29/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| MAI Capital Management Intermediate LLC (4)(9)(25) | SF + | % | 8/29/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| More Cowbell II, LLC (4)(6)(9) | 9/1/2029 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| More Cowbell II, LLC (4)(9)(27) | SF + | % | 9/1/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Neon Maple US Debt Mergersub Inc (5)(7)(24) | SF + | % | 11/17/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Oak Funding LLC (4)(6)(8) | 12/2/2032 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Oak Funding LLC (4)(8)(25) | SF + | % | 12/2/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Orthrus Ltd (4)(5)(7)(31) | SN + | % | 12/5/2031 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| Orthrus Ltd (4)(5)(7)(29) | E + | % | 12/5/2031 | EUR | |||||||||||||||||||||||||||||||||||||||||||
| Orthrus Ltd (4)(5)(10)(25) | SF + | % | 12/5/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Orthrus Ltd (4)(5)(6)(7) | 12/5/2031 | GBP | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Orthrus Ltd (4)(5)(10)(25) | SF + | % | 12/5/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| Osaic Holdings Inc (7)(25) | SF + | % | 7/30/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| PEX Holdings LLC (7)(25) | SF + | % | 11/26/2031 | ||||||||||||||||||||||||||||||||||||||||||||
| PF Finco PTY LTD (4)(5)(10)(35) | B + | % | 5/30/2030 | AUD | |||||||||||||||||||||||||||||||||||||||||||
| PF Finco PTY LTD (4)(5)(6)(10) | 5/30/2030 | AUD | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Priority Holdings, LLC (5)(8)(24) | SF + | % | 7/30/2032 | ||||||||||||||||||||||||||||||||||||||||||||
| Transnetwork LLC (4)(8)(25) | SF + | % | 12/30/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Travelex Issuerco 2 PLC (4)(5)(14)(31) | SN + | % | 9/22/2028 | GBP | |||||||||||||||||||||||||||||||||||||||||||
| Violin Finco Guernsey Limited (4)(5)(7)(31) | SN + | % | 6/24/2031 | GBP | |||||||||||||||||||||||||||||||||||||||||||
118
HPS Corporate Lending Fund
Consolidated Schedule of Investments
December 31, 2025
(in thousands)
Company(1) | Reference Rate and Spread(2) | Interest Rate(2) | Maturity Date | Par Amount/Units | Amortized Cost(3) | Fair Value | Percentage of Net Assets | ||||||||||||||||||||||||||||||||||||||||
| Violin Finco Guernsey Limited (4)(5)(6)(7) | 6/24/2031 | GBP | ( | ||||||||||||||||||||||||||||||||||||||||||||
| % | |||||||||||||||||||||||||||||||||||||||||||||||
| Food Products | |||||||||||||||||||||||||||||||||||||||||||||||
| Aspire Bakeries Holdings LLC (7)(24) | SF + | % | 12/23/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Specialty Ingredients, LLC (4)(9)(24) | SF + | % | 2/12/2029 | ||||||||||||||||||||||||||||||||||||||||||||
| Specialty Ingredients, LLC (4)(6)(9) | 2/12/2029 | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Sugar PPC Buyer LLC (4)(10)(26) | SF + | % | 10/2/2030 | ||||||||||||||||||||||||||||||||||||||||||||
| Sugar PPC Buyer LLC (4)(10)(26) | SF + | % | 10/2/2030 | ||||||||||||||||||||||||||||||||||||||||||||