Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.24.3
Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
The fair value of a financial instrument is 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.
The fair value hierarchy under ASC 820 prioritizes the inputs to valuation methodology used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:
•Level 1: Inputs to the valuation methodology that reflect unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.
•Level 2: Inputs to the valuation methodology other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date.
•Level 3: Inputs to the valuation methodology are unobservable and significant to overall fair value measurement.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. 
In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of the inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value.
Investments whose values are based on the listed closing price quoted on the securities’ principal exchange are classified within Level 1 and include active listed equities. The Adviser does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, structured products, and certain bank loans, less liquid listed equities, and high yield bonds. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

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, the Adviser uses one or more valuation techniques (e.g., the market approach and the income approach) of which sufficient and reliable data is available. Within Level 3, the use of the market approach generally consists of using comparable market data, while the use of the income approach generally consists of the net present value of estimated future cash flows, which may be adjusted as appropriate for liquidity, credit, market and/or other risk factors.

Investments in senior loans primarily include first and second lien term loans, delayed draws and revolving credit. The Adviser analyzes enterprise value based on the weighted average of discounted cash flows, public comparables and merger and acquisition comparables. This analysis is done to ensure, among other things, that the investments have adequate collateral and asset coverage. Once the investment is determined to have adequate asset coverage, the Adviser monitors yields for senior loan investments made from the time of purchase to the month end average yields for similar investments and risk profiles. The Company uses market data, including newly funded transactions, and secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield. The change in yield is utilized by the Adviser to discount the anticipated cash flows of the debt investment in order to arrive at a fair value. Further, the Adviser adjusts for material changes in the underlying fundamentals of the issuer, including changes in leverage, as necessary. If the investment does not have adequate coverage, a tranched valuation approach is considered.

Derivative Instruments: Derivative instruments can be exchange-traded or privately negotiated over the-counter (“OTC”) and include forward currency contracts and swap contracts. Forwards currency contracts and swap contracts are valued by the Adviser using observable inputs, such as market-based quotations received from the counterparty, dealers or brokers, whenever available and considered reliable. In instances where models are used, the value of an OTC derivative depends upon the contractual terms of, and specific risks inherent in the contract, as well as the availability and reliability of observable inputs. Such inputs include market prices for reference securities, yield curves, volatility assumptions and correlations of such inputs. Certain OTC derivatives can generally be corroborated by market data and are therefore classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded.

Further inputs considered by the Adviser in estimating the value of investments may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt capital markets (by the investment or other comparable investments), whether the loan contains call protection and changes in financial ratios or cash flows. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Adviser in the absence of market information. The fair value measurement of Level 3 investments does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Adviser due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s Consolidated Results of Operations.
Rule 2a-5 under the 1940 Act establishes requirements for determining fair value in good faith for purposes of the 1940 Act. The rule permits boards, subject to board oversight and certain other conditions, to designate certain parties to perform the fair value determinations. In accordance with this rule, the Company’s Board of Trustees has designated our Adviser as the valuation designee primarily responsible for the valuation of the Company’s investments, subject to the oversight of the Board of Trustees.
The following table presents the fair value hierarchy of investments and cash equivalents:

September 30, 2024
Level 1 Level 2 Level 3 Total
 First lien debt $ —  $ 1,121,294  $ 11,308,563  $ 12,429,857 
 Second lien debt —  3,891  34,361  38,252 
 Other secured debt —  —  57,803  57,803 
 Unsecured debt —  13,229  31,832  45,061 
 Structured finance investments —  60,960  —  60,960 
 Equity investments —  —  50,275  50,275 
 Total investments —  1,199,374  11,482,834  12,682,208 
Investments measured at NAV(1)
—  —  —  284,454 
 Total $ —  $ 1,199,374  $ 11,482,834  $ 12,966,662 
 Cash equivalents $ 185,854  $ —  $ —  $ 185,854 

December 31, 2023
Level 1 Level 2 Level 3 Total
First lien debt $ —  $ 1,046,460  $ 7,956,235  $ 9,002,695 
Second lien debt —  47,646  19,441  67,087 
Unsecured debt —  13,165  15,936  29,101 
Structured finance investments —  29,868  —  29,868 
Equity investments —  —  36,656  36,656 
Total investments —  1,137,139  8,028,268  9,165,407 
Investments measured at NAV(1)
—  —  —  124,003 
Total $ —  $ 1,137,139  $ 8,028,268  $ 9,289,410 
Cash equivalents $ 131,546  $ —  $ —  $ 131,546 
(1) Includes investment in ULTRA III (refer to Note 11). Certain investments that are measured at fair value using the NAV practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.
The following table presents change in the fair value of investments for which Level 3 inputs were used to determine fair value:
Three Months Ended September 30, 2024
First Lien
Debt		 Second Lien Debt Other Secured Debt Unsecured Debt Equity Investments Total Investments
Fair value, beginning of period $ 9,543,295  $ 19,071  $ 64,304  $ 30,568  $ 47,935  $ 9,705,173 
Purchases of investments(1)
2,118,632  24,750  —  1,140  2,082  2,146,604 
Proceeds from principal repayments and sales of investments (423,012) (6,676) (6,319) —  —  (436,007)
Accretion of discount/amortization of premium 15,723  35  213  6  —  15,977 
Net realized gain (loss) 696  222  —  —  —  918 
Net change in unrealized appreciation (depreciation) 72,829  (3,041) (395) 118  258  69,769 
Transfers into Level 3(2)
—  —  —  —  —  — 
Transfers out of Level 3(2)
(19,600) —  —  —  —  (19,600)
Fair value, end of period $ 11,308,563  $ 34,361  $ 57,803  $ 31,832  $ 50,275  $ 11,482,834 
Net change in unrealized appreciation (depreciation) related to financial instruments still held as of September 30, 2024
 $ 78,992  $ (3,041) $ (395) $ 118  $ 258  $ 75,932 
Nine Months Ended September 30, 2024
First Lien
Debt		 Second Lien Debt Other Secured Debt Unsecured Debt Equity Investments Total Investments
Fair value, beginning of period $ 7,956,235  $ 19,441  $ —  $ 15,936  $ 36,656  $ 8,028,268 
Purchases of investments(1)
4,604,971  24,750  63,700  15,731  12,637  4,721,789 
Proceeds from principal repayments and sales of investments (1,390,222) (6,676) (6,319) —  (385) (1,403,602)
Accretion of discount/amortization of premium 53,794  113  341  12  —  54,260 
Net realized gain (loss) (7,791) 222  —  —  60  (7,509)
Net change in unrealized appreciation (depreciation) 117,912  (3,489) 81  153  1,307  115,964 
Transfers into Level 3(2)
—  —  —  —  —  — 
Transfers out of Level 3(2)
(26,336) —  —  —  —  (26,336)
Fair value, end of period $ 11,308,563  $ 34,361  $ 57,803  $ 31,832  $ 50,275  $ 11,482,834 
Net change in unrealized appreciation (depreciation) related to financial instruments still held as of September 30, 2024
 $ 126,239  $ (3,489) $ 81  $ 153  $ 1,363  $ 124,347 
(1)Purchases include PIK interest and dividends, if applicable.
(2)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the three and nine months ended September 30, 2024, transfers into or out of Level 3 were primarily due to decreased or increased price transparency, respectively.

Three Months Ended September 30, 2023
First Lien
Debt		 Second Lien Debt Unsecured Debt Equity Investments Total Investments
Fair value, beginning of period $ 6,104,163  $ 20,039  $ 1,975  $ 4,729  $ 6,130,906 
Purchases of investments(1)
778,508  —  329  8,533  787,370 
Proceeds from principal repayments and sales of investments (96,696) —  —  (197) (96,893)
Accretion of discount/amortization of premium 8,596  37  1  —  8,634 
Net realized gain (loss) 21  —  —  29  50 
Net change in unrealized appreciation (depreciation) 20,516  306  37  (385) 20,474 
Transfers into Level 3(2)
2,272  —  —  —  2,272 
Transfers out of Level 3(2)
(136,235) —  —  —  (136,235)
Fair value, end of period $ 6,681,145  $ 20,382  $ 2,342  $ 12,709  $ 6,716,578 
Net change in unrealized appreciation (depreciation) related to financial instruments still held as of September 30, 2023
 $ 18,897  $ 306  $ 37  $ (385) $ 18,855 

Nine Months Ended September 30, 2023
First Lien
Debt		 Second Lien Debt Unsecured Debt Equity Investments Total Investments
Fair value, beginning of period $ 4,882,393  $ 8,794  $ 1,606  $ 2,306  $ 4,895,099 
Purchases of investments(1)
2,071,394  1,879  772  11,446  2,085,491 
Proceeds from principal repayments and sales of investments (266,254) —  —  (374) (266,628)
Accretion of discount/amortization of premium 24,198  95  (9) —  24,284 
Net realized gain (loss) 981  —  —  (373) 608 
Net change in unrealized appreciation (depreciation) 107,110  151  (27) (296) 106,938 
Transfers into Level 3(2)
2,272  9,463  —  —  11,735 
Transfers out of Level 3(2)
(140,949) —  —  —  (140,949)
Fair value, end of period $ 6,681,145  $ 20,382  $ 2,342  $ 12,709  $ 6,716,578 
Net change in unrealized appreciation (depreciation) related to financial instruments still held as of September 30, 2023
 $ 98,971  $ 151  $ (30) $ (296) $ 98,796 
(1)Purchases include PIK interest, if applicable.
(2)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the three and nine months ended September 30, 2023, transfers into or out of Level 3 were primarily due to decreased or increased price transparency, respectively.
The following table presents quantitative information about the significant unobservable inputs of the Company’s Level 3 financial instruments. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the Company’s determination of fair value.
September 30, 2024
Range
Fair Value(1)
Valuation
Technique		 Unobservable
Input		 Low High
Weighted
Average(2)
Investments in first lien debt $ 7,363,390  Yield analysis Discount rate 7.88  % 32.39  % 11.10  %
41,494  Recovery analysis Recovery rate 33.44  % 79.08  % 73.06  %
1,182  Enterprise Value EBITDA Multiple
2.9x
2.9x
2.9x
Investments in second lien debt 1,932  Yield analysis Discount rate 12.59  % 12.59  % 12.59  %
4,500  Recovery analysis Recovery rate 50.00  % 50.00  % 50.00  %
Investments in unsecured debt 31,833  Yield analysis Discount rate 12.97  % 16.68  % 14.61  %
Investments in preferred equity 36,197  Yield analysis Discount rate 10.72  % 15.00  % 14.36  %
Investments in common equity 13,038  Discounted cash flow Discount rate 9.00  % 15.00  % 11.45  %
Exit multiple
10.00x
10.00x
10.00x
Terminal Growth Rate 2.50  % 2.50  % 2.50  %
Cap Rate 8.00  % 8.00  % 8.00  %


December 31, 2023
Range
Fair Value(1)
Valuation
Technique		 Unobservable
Input		 Low High
Weighted
Average(2)
Investments in first lien debt $ 6,422,647  Yield analysis Discount rate 8.09  % 35.64  % 12.03  %
21,039  Recovery analysis Recovery rate 73.21  % 73.21  % 73.21  %
Investments in second lien debt 19,441  Yield analysis Discount rate 12.96  % 17.24  % 15.39  %
Investments in unsecured debt 1,295  Yield analysis Discount rate 16.00  % 16.00  % 16.00  %
Investments in preferred equity 1,510  Yield analysis Discount rate 14.50  % 16.31  % 14.94  %
Investments in common equity 2,532  Discounted cash flow Discount rate 9.00  % 15.00  % 9.47  %
Exit multiple
10.00x
10.00x
10.00x
Terminal Growth Rate 3.00  % 3.00  % 3.00  %
(1)As of September 30, 2024, included within the fair value of Level 3 assets of $11,482,834 is an amount of $3,989,268 for which the Adviser did not develop the unobservable inputs (examples include third-party pricing and transaction prices). As of December 31, 2023, included within the fair value of Level 3 assets of $8,028,268 is an amount of $1,559,804 for which the Adviser did not develop the unobservable inputs (examples include third-party pricing and transaction prices).
(2)Weighted averages are calculated based on fair value of investments.
The significant unobservable input used in the yield analysis is the discount rate based on comparable market yields. The significant unobservable inputs used in the income approach are the discount rate used to discount the estimated future cash flows expected to be received from the underlying investment. Significant increases in discount rates would result in a significantly lower fair value measurement. The significant unobservable input used in the recovery analysis is the recovery rate. The recovery rate represents the extent to which proceeds can be recovered and an increase or decrease in the recovery rate would result in an increase or decrease, respectively, in the fair value. The significant unobservable input used in the enterprise value technique is the EBITDA multiple. Increases or decreases in market multiples would result in an increase or decrease, respectively, in the fair value.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.
Financial Instruments Not Carried at Fair Value

The following table presents fair value measurements of the Company’s debt obligations as of September 30, 2024 and December 31, 2023, had they been accounted for at fair value:
Debt
September 30, 2024 December 31, 2023
Carrying
Value		 Fair Value Carrying
Value		 Fair Value
HLEND A Funding Facility $ 608,781  $ 608,781  $ 615,838  $ 615,838 
HLEND B Funding Facility 763,388  763,388  513,747  513,747 
HLEND C Funding Facility 487,500  487,500  487,500  487,500 
HLEND D Funding Facility 275,000  275,000  195,000  195,000 
HLEND E Funding Facility —  —  —  — 
Revolving Credit Facility 675,773  675,773  1,025,294  1,025,294 
November 2025 Notes(1)
169,255  174,213  168,749  170,580 
November 2027 Notes(1)
154,838  165,364  154,366  155,934 
March 2026 Notes(1)
277,137  283,873  274,716  275,727 
March 2028 Notes(1)
125,205  132,105  123,588  123,672 
September 2027 Notes(1)
76,275  80,259  75,545  76,389 
September 2028 Notes(1)
255,529  273,927  252,814  255,315 
January 2029 Notes(1)
548,498  569,641  —  — 
September 2029 Notes(1)
404,602  407,336  —  — 
2023 CLO Secured Notes(2)
319,949  319,949  319,743  319,743 
2024 CLO Secured Notes(2)
374,921  374,921  —  — 
Total $ 5,516,651  $ 5,592,030  $ 4,206,900  $ 4,214,739 
(1)The carrying value of the Company's November 2025 Notes, November 2027 Notes, March 2026 Notes, March 2028 Notes, September 2027 Notes, September 2028 Notes, January 2029 Notes and September 2029 Notes are presented net of unamortized debt issuance costs and original issue discount of $(0.7) million, $(1.1) million, $(1.2) million, $(0.8) million, $(0.6) million,$(2.1) million, $(10.9) million and $(9.1) million respectively, as of September 30, 2024 and includes the increase (decrease) in the notes carrying value of $(0.0) million, $0.9 million, $2.4 million, $2.0 million, $1.9 million, $7.6 million, $9.4 million and $13.7 million, respectively, as a result of the qualifying fair value hedge relationship as described in Note 6. The carrying value of the Company's November 2025 Notes, November 2027 Notes, March 2026 Notes, March 2028 Notes, September 2027 Notes and September 2028 Notes are presented net of unamortized debt issuance costs of $(1.2) million, $(1.4) million, $(1.8) million, $(0.9) million, $(0.7) million and $(2.5) million, respectively, as of December 31, 2023 and includes the increase (decrease) in the notes carrying value of $(0.0) million, $0.7 million, $0.6 million, $0.5 million, $1.3 million and $5.3 million, respectively, as a result of the qualifying fair value hedge relationship as described in Note 6.
(2)The carrying value of the Company’s 2023 CLO Secured Notes and 2024 CLO Secured Notes are presented net of unamortized debt issuance costs and original issue discount, as applicable, of $(3.1) million and $(25.1) million, respectively, as of September 30, 2024. The carrying value of the Company’s 2023 CLO Secured Notes are presented net of unamortized debt issuance costs of $(3.3) million as of December 31, 2023.

The following table presents the fair value hierarchy of the Company’s debt obligations as of September 30, 2024 and December 31, 2023:
September 30, 2024 December 31, 2023
Level 1 $ —  $ — 
Level 2 976,977  — 
Level 3 4,615,053  4,214,739 
Total $ 5,592,030  $ 4,214,739 

As of September 30, 2024 and December 31, 2023, the carrying amounts of the Company’s assets and liabilities, other than investments at fair value and debt, approximate fair value due to their short maturities. Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, if applicable, or market quotes, if available.