EDGAR 10-K Filing

Company CIK: 1849089
Filing Year: 2025
Filename: 1849089_10-K_2025_0001849089-25-000005.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS
OVERVIEW
Lafayette Square USA, Inc. is an externally managed, non-diversified, closed-end investment company that has elected to
be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the
“1940 Act”) and to be treated as a registered investment company under Subchapter M of the Internal Revenue Code of
1986, as amended for the tax year ended December 31, 2024.
We focus on lending to middle market businesses located in or employing working class (“Working Class” 1 ) American
communities while offering such businesses significant managerial assistance to strengthen their workforce, with the goal
of enhancing those businesses' returns while creating and preserving jobs and stimulating economic growth across the
United States. We believe that our regional focus and disciplined approach to underwriting, portfolio construction and risk
management enable us to achieve favorable risk-adjusted returns while reducing the risk of loss of shareholder capital,
serving the public welfare and positively affecting communities across the United States. We are leveraging our
proprietary technology to identify, underwrite and monitor investment opportunities. We believe our organization can
reach a large target addressable market as many of our private credit investment competitors focus on sponsored middle
market loans in a few concentrated geographic areas allowing us to provide a geographically diverse, differentiated
approach to investing.
Our investment objective is to generate favorable risk-adjusted returns, including current income and to a lesser extent,
capital appreciation, principally from investments in “non-sponsored” middle market businesses 2 . We aim to build a
geographically diverse portfolio by investing at least 5% of our assets in businesses that are primarily headquartered and/
or have a significant operating presence in each of ten identified regions across the United States (the “Target Regions”).
We invest primarily in first and second lien loans and, to a lesser extent, in subordinated and mezzanine loans and equity
and equity-like securities, including common stock, preferred stock, and warrants. We may also invest in other
community development and public welfare instruments identified as qualifying for CRA credit (defined below) under the
Office of Comptroller of Currency (“OCC”) and/or Federal Reserve guidance.
We utilize a data-driven approach and automation to identify potential investment opportunities that meet our investment
objectives. We have developed a proprietary technology platform to identify business in our Target Regions and
underwrite investments in non-sponsored businesses. This platform provides place-based socioeconomic data by
overlaying census information on company data from other third-party sources to offer insights into perspective
investments and allows us to identify attractive investment opportunities and monitor existing investments by providing a
better understanding of the businesses we underwrite.
In addition to our targeted investing, we offer significant managerial assistance to our portfolio companies, both in the
traditional form as offered by our peer firms and in enhanced forms which we believe strengthens the work experience
and well-being of our portfolio companies’ employees. While the former efforts may consist of certain organizational and
financial guidance delivered by Lafayette Square employees, the latter efforts are conducted through our affiliated
“Worker Solutions®” platform. Worker Solutions is a wholly-owned portfolio company of the Company and coordinates
with the human resources and personnel departments of our portfolio companies to identify and recommend appropriate
services (“Qualifying Human Capital Investments”) provided by third-party service providers (“Third-Party Solution
Providers”) that we believe would enhance employee well-being. These services include traditional employee benefits,
such as health insurance and retirement, and supplemental employee benefits, such as services focusing on the alleviation
of financial insecurity and economic mobility issues. Based on our analysis, we believe this program has the potential to
positively affect employee well-being and enhance the risk-adjusted financial returns of the portfolio companies
(including by increasing employee retention, morale and productivity).
OUR PORTFOLIO
We currently invest in businesses that are primarily domiciled, headquartered and/or have a significant operating presence
in eight of the ten Target Regions, with a goal to invest at least 5% of our assets in each Target Region over time. We are
highly focused on constructing a diverse investment portfolio with broad diversification by company, industry sectors, and
position size. While we seek to achieve these targets, the composition of our investment portfolio may vary from time to
time due to various factors, such as market conditions and the availability of attractive investment opportunities.
As of December 31, 2024, our investment portfolio had the following characteristics:
• 34 companies with an aggregate fair value of approximately $ 557.1 million in debt and equity investments
• $1 6.4 million average position size
• 100% of our debt investments have financial covenants
• 11.4 % weighted average portfolio yield
• 3.4 years weighted average remaining term
• $22.2 million weighted average annual amount of earnings before interest, taxes, depreciation and amortization,
or EBITDA per portfolio company
• 2.4x interest coverage ratio through our first lien loans
• 3x net leverage on our debt investments
First Lien
Senior Secured Debt
96.9%
Equity
Co-Investment
2.2%
Unsecured/
Subordinate Debt
0.9%
Portfolio Composition by Investment Type
AS OF DECEMBER 31, 2024
96.9%
First Lien
First Lien
Senior Secured Debt
97.0%
Equity
Co-Investment
2.4%
Unsecured/
Subordinate Debt
0.6%
Portfolio Composition by Investment Type
AS OF DECEMBER 31, 2023
97.0%
First Lien
AS OF DECEMBER 31, 2024
•
Commercial Services & Supplies
$66.9M
12.1 %
•
Professional Services
$58.1M
10.4 %
•
Specialized Consumer Services
$40.3M
7.2 %
•
Road & Rail
$39.9M
7.2 %
•
Interactive Media & Services
$34.3M
6.2 %
•
IT Services
$33.8M
6.1 %
•
Media
$32.7M
5.9 %
•
Diversified Financial Services
$28.5M
5.1 %
•
Transportation Infrastructure
$26.5M
4.8 %
•
Water Utilities
$23.5M
4.2 %
Portfolio Diversification by Industry (Top 10)
AS OF DECEMBER 31, 2023
•
Construction & Engineering
$58.4M
21.2 %
•
Commercial Services & Supplies
$45.8M
16.8 %
•
Professional Services
$34.3M
12.5 %
•
Leisure Facilities
$33.8M
12.4 %
•
Media
$28.6M
10.5 %
•
Specialized Consumer Services
$15.6M
5.7 %
•
Health Care Services
$13.8M
5.0 %
•
Environmental & Facilities Services
$9.9M
3.6 %
•
Restaurants
$8.7M
3.2 %
•
Health Care Equipment & Services
$8.4M
3.1 %
Portfolio Diversification by Industry (Top 10)
3 Jobs employing Working Class People.
4 “Working Class Areas” refers to low- and moderate- income (“LMI”) areas, Empowerment Zones, as defined in the Empowerment
Zones and Enterprise Communities Act of 1993, as amended (“Empowerment Zones”), Opportunity Zones, as defined in the U.S. Tax
Cut and Jobs Act of 2017 (“Opportunity Zones”), and/or areas targeted by a government entity for redevelopment or to revitalize or
stabilize designated disaster areas. LMI is defined under applicable CRA regulation as an individual income that is less than 80% of the
area median income (“AMI”) or a median family income that is less than 80% in a census tract as reported by the Federal Financial
Institutions Examination Council at https://www.ffiec.gov/Medianincome.htm [ffiec.gov] (or such other industry recognized source as
may be determined by the Adviser) and (ii) a census tract, if it is identified as low-to-moderate income by the Federal Financial
Institutions Examination Council at https://geomap.ffiec.gov/ffiecgeomap/ (or such other industry recognized source as may be
determined by the Adviser). AMI is defined as the median family income for the metropolitan statistical area or metropolitan division,
if applicable, or if the person or census tract is located outside of a metropolitan statistical area, the statewide non-metropolitan median
family income.
5 “Substantial Employment” means more than 50% of the portfolio company’s workforce, measured by W-2 forms or 1099 forms filed
by workers with the Internal Revenue Service.
6 Step down savings amounts for each portfolio company may differ based upon loan size, step down rate, number of solutions adopted
and/or policies implemented, and do not account for any costs associated with services adopted and/or policies implemented.
2030 GOALS
We have established a series of important goals with respect to the portfolio companies in which we invest, which we
refer to as our “2030 Goals”. These include (1) increasing employment opportunities by assisting our portfolio companies
in creating and/or retaining 100,000 Working Class Jobs 3 and 150,000 jobs overall; (2) providing significant managerial
assistance to small and middle-market companies by incentivizing at least 50% of our borrowers to adopt Qualifying
Human Capital Investments recommended by our affiliated managerial assistance platform Worker Solutions® and (3)
encouraging economic growth in Working Class Areas 4 by investing at least 50% of our assets in companies that are
either located in Working Class Areas or are Substantial Employers 5 of Working Class People.
The 2030 Goals are informed by several regulatory frameworks, including the Small Business Investment Act of 1958
(the “Investment Act”), the Community Reinvestment Act of 1977 (the “CRA”), the Small Business Investment Incentive
Act of 1980 (the “Incentive Act”) and the 1940 Act. See Item 1. Business-How Our Investment Strategy Aligns with Our
Goals-- How We Align our Strategy with Regulatory Intentions for more information. To further these goals, we
collaborate with government institutions such as the Small Business Administration (the “SBA”) with funding provided to
our subsidiary SBIC funds through our equity investments, a syndicated credit facility and financings obtained through the
capital markets. See Item 1. Business -Our Collaboration with Government Provides a Structural Advantage Adding to
Financing from a Significant Institutional Investor Base and Syndicated Corporate Credit Facility for more information.
In addition, we have entered into a Senior Secured Revolving Credit Agreement (the “ING Credit Facility”) with ING
Capital, LLC (“ING”), as Administrative Agent and Sustainability Structuring Agent for which our annual interest rate is
adjustable based on measurement of our performance against our 2030 Goals. In recognition of our progress made
towards these goals, and in an effort to incentivize our future efforts, ING provided us with an initial 5 basis points
(“bps”) reduction on our interest rate on the closing date, affording us an applicable margin of 270 bps rather than 275
bps. If we fail to meet the key performance indicators enumerated in the ING Credit Facility, we will forfeit the 5 bps
reduction. However, if we continue to achieve these goals, we may earn additional rate discounts or “step downs” of up to
another 5 bps. For the year ended, December 31, 2024, the interest expense savings under this pricing model was $22,995.
Further in line with pursuing the 2030 Goals, we also reward our portfolio companies with interest rate step downs when
they adopt Qualifying Human Capital Investments that we believe will enhance employee well-being and improve
retention. As of December 31, 2024, we have rewarded a combined total of $265,934 to portfolio companies through
interest rate step down savings for their adoption of Qualifying Human Capital Investments. See the below table for a
more detailed breakdown of these step down savings 6 we have given to portfolio companies.
7 Reflects information reported by portfolio companies as of their respective transaction closing date and additional
information, as of December 31, 2024, reported by 11 of 34 portfolio companies that have participated in quarterly KPI
reporting. These metrics reflect information reported by portfolio companies regarding their cumulative total number of
unique employees, counting from the closing date of the Company’s investment in such portfolio company. These metrics
include information reported by current portfolio companies as well as portfolio companies that have been exited by the
Company.
8 Information reported for the period ending on December 31, 2024 reflects a change in methodology accounting for some
of the increase shown. Information reported for this period reflects information reported by all portfolio companies
regarding their cumulative total number of unique employees, counting from the closing date of the Company’s
investment in such portfolio company (including investments that have been exited). In previous periods, only the current
number of employees reported by the current companies in the portfolio as of such reporting date was reported.
Portfolio Company
Initial Adoption Date
Total Solutions and HR
Policy Changes Adopted
Cumulative Stepdown Savings
(as of December 31, 2024)
Portfolio Company #1
Q3 2021
$39,588
Portfolio Company #2
Q1 2022
$34,268
Portfolio Company #3
Q3 2023
$42,620
Portfolio Company #4
Q1 2023
$116,296
Portfolio Company #5
Q4 2023
$22,869
Portfolio Company #6
Q1 2024
$2,699
Portfolio Company #7
Q1 2024
$5,510
Portfolio Company #8
Q4 2024
$-
Portfolio Company #9
Q3 2024
$2,051
Portfolio Company #10
Q4 2024
$-
Portfolio Company #11
Q4 2024
$33
Total
$265,934
The table below sets forth out progress towards reaching the 2030 Goals as of December 31, 2024:
• 51.1% of our portfolio (and 51.6% of the transactions on which we acted as lead agent) were invested in
borrowers which were either located in Working Class Areas or were Substantial Employers of Working Class
People, with 9,611 Working Class People employed out of a total of 21,143 employees 7 .
• 44% of the transactions on which we acted as lead agent since the inception of the Company (and 31% of all
Portfolio Companies) had adopted Qualifying Human Capital Investments (for a total of seven Third-Party
Solution Providers and nine Human Relations policy changes deployed).
Company 2030 Goal
December 31, 2024 8
December 31, 2023
Help businesses create / retain 150,000
jobs (with 100,000 being Working
Class Jobs)
21,143 total employees
9,611 Working Class People employed
15,494 total employees
6,497 Working Class People employed
50% borrowers adopting services or
HR policy changes recommended by
Worker Solutions®
44% of the transactions (lead agent)
31% of our overall Portfolio
Companies
41.7% of the transactions (lead agent)
26.3% of our overall Portfolio
Companies
50% borrowers either located in
Working Class Areas or are
Substantial Employers of Working
Class People
51.6% of the transactions (lead agent)
51.1% of our overall Portfolio
Companies
57.0% of the transactions (lead agent)
50.1% of our overall Portfolio
Companies
Market Opportunity
We operate within a large addressable market of middle market businesses, yet our competitors tend to invest in a limited
number of locales at ever-increasing deal sizes. We believe this trend contributes to capital scarcity among many middle
9 Lafayette Square analysis of U.S. Securities and Exchange Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) database of BDC portfolio companies as of Q3 2024 and Dun and Bradstreet middle market
companies (174,413 companies) as of February, 2025. The Federal Financial Institutions Examination Council's (FFIEC)
defines middle to upper income as median family incomes making greater than 80% of the area median income. A total of
6,834 portfolio company investments were identified by their headquartered addresses. Of these, this analysis includes
5,590 (82%) portfolio companies where we had enough data to determine if an address was located in a Low-Moderate-
Income tract.
10 Turnover rates are calculated by dividing the total terminations, voluntary and involuntary, for the period by the average
number of employees who worked during or received pay for the same period. National turnover includes private
employee data from the U.S. Bureau of Labor Statistics - Job Openings and Labor Turnover Survey for calendar year
2024. Data was extracted as of February 18, 2025 .
11 Two-thirds of consumers, or 65%, reported living paycheck to paycheck according to a December survey of 2,986 U.S.
consumers according to a report conducted by PYMNTS and Lending Club in February 2025 titled, “The New Reality
Check: The Paycheck-To-Paycheck Report”.
12 National private sector retirement benefits participation data is sourced from the U.S. Bureau of Labor Statistics -
March 2024 National Compensation Survey. “Lower wage workers” refers to those earning less than 25% of average
wages.
13 The National Center for the Middle Market defines U.S. middle market companies as those between $10 million and $1
billion in annual revenue, which we believe has significant overlap with our definition of U.S. middle market companies.
14 Mid-year 2024 Middle Market Indicator Report - The National Center for the Middle Market.
15 Data from Bank Policy Institute. 33% of middle-market lending that is represented by non-banks is based on data
between 2010 and 2015.
market businesses in many U.S. regions, and consequently, we focus our origination efforts on direct outreach to the
founders and management teams of middle market companies, rather than partnering with private equity firms to finance
sponsor-led buy-outs. In the process, we believe we have distinguished ourselves from the competition by offering
tangible advice and solutions to our borrowers which we believe will strengthen their work forces and ultimately, their
financial performance.
We believe that investment capital does not adequately flow to Working Class Areas and lower middle market companies.
O ut of nearly 175,000 middle market companies with revenue between $10 million and $1 billion annually, BDCs have
only invested in 6,800 (3.9%) of such companies. 82% of BDC portfolio companies were headquartered in high-income
areas and 45% of the companies BDCs invested in were held by more than one BDC, suggesting that Working-Class
Areas are overlooked by traditional capital markets investors. 9 Additionally, U.S. private sector companies experience
average annual employee turnover of 44.3% , 10 an estimated 65% of U.S. workers live paycheck to paycheck, 11 and 75%
of lower wage workers do not participate in retirement benefits 12
The Middle Market is a Large Addressable Market
According to a study conducted by the National Center for the Middle Market in June 2024, the U.S. middle market
represents approximately one-third of private-sector GDP and employs approximately 48 million people. 13 During the
financial crisis (2007-2010), these businesses outperformed other types of companies and added 2.2 million jobs across
major industry sectors and geographies. 14 Yet, we believe traditional lenders to the middle market, in particular regional
banks, have either exited or de-emphasized their service and product offerings in the middle market. We believe these
traditional lenders have instead focused on lending and providing other services to large corporate clients and have
reduced their lending to commercial and industrial firms in the middle market, with non-banks representing 33% of
middle-market lending according to a report by the Bank Policy Institute (September 14, 2022) 15 . We believe this shift has
resulted in fewer key players in this part of the lending sector and has reduced the availability of debt capital to the
companies we target.
These trends do not look likely to reverse given regulatory changes that have added increased capital requirements on US
banks. Specifically, the Basel III Accord, the adoption of the Dodd-Frank Wall Street Reform and the Consumer
Protection Act (the “Dodd-Frank Act”), and regulations implemented by the U.S. Federal Reserve, the OCC, and the
Federal Deposit Insurance Corporation (“FDIC”), have significantly increased capital and liquidity requirements for
banks, decreasing their capacity and appetite to hold non-investment grade loans on their balance sheets. Additionally, the
banking industry has seen an increasing cost of capital as a result of rising interest rates and the March 2023 turmoil
among several regional banks. However, the Company may not be able to capitalize successfully on the current
regulatory climate, as future regulatory or structural changes may adversely affect what we perceive to be an
advantageous regulatory climate.
Private Credit Has Focused on Sponsor-Backed Companies
Private credit is forecast to reach $2.64 trillion by 2029 from a current level of $1.7 trillion, according to Preqin’s new
global report on private debt (December 2024). Private debt funds is one of the primary strategies for alternative
investment funds and represents approximately 12% of the global alternatives market based on a Sortis Capital Report
(March 2024).
Yet, despite this impressive growth, new-money leveraged-loan issuance has become increasingly dominated by sponsor-
backed borrowers. We believe this concentration of investment capital among companies owned by private equity
sponsors presents an opportunity for lenders like ourselves that focus on non-sponsor lending. Bloomberg data show 81%
of new leveraged-loan issuance since the start of 2021 supported private equity-backed companies, while LCD Pitch book
data suggest private credit now funds 90% of buyout value (up from 61% in 2019), as banks have either drawn back from
this market or exercised increased caution in investing in the buyout market. An influx of investment in private equity
funds has resulted in record uncalled capital or “dry powder” awaiting deployment. While a recent slowdown in the
private equity-driven buyout market may create additional risks for lenders supporting such transactions, we believe
private credit firms will continue to support buyout transactions.
We believe that participants in the credit markets assume that a strategy of lending to companies not owned by private
equity funds is inherently more risky than financing private equity-led buyouts. However, we think this assumption should
be reconsidered. Industry data indicates that sponsor-backed leveraged loans have historically exhibited higher average
leverage multiples and a greater prevalence of covenant-lite structures compared to non-sponsored lending transactions. In
contrast, non-sponsored loans tend to feature more conservative capital structures, stronger underwriting, and direct
lender-borrower relationships, often reflecting a different risk-return profile. Critically, the alignment of interests between
lenders and business owners, who often have substantial personal capital invested in their companies, can be significant in
non-sponsored deals. Furthermore, lower leverage and robust covenants can provide non-sponsor lenders with downside
protection, while direct engagement between borrowers and lenders allows for proactive monitoring and the potential for
early intervention if a portfolio company starts to underperform.
Although private equity sponsors may offer operational expertise, their financial support is not assured, as capital
injections following an initial closing are subject to broader fund objectives and constraints. In contrast, non-sponsored
borrowers are typically owner-operators focused on long-term stability and sustainable growth. We believe non-sponsored
direct lending offers a compelling segment within the private credit market, providing the potential for attractive risk-
adjusted returns and diversification benefits that are independent of private equity deal cycles.
Non-Sponsored Companies Have Disparate Financing Needs
The financing needs of middle market borrowers vary considerably based on company and industry-specific
circumstances. We believe that the number of lenders available to deliver financial solutions tailored to the needs of this
market, particularly to non-sponsored borrowers, is limited. We believe that the combination of Lafayette Square’s broad
investment mandate, extensive experience in lending to non-sponsored borrowers positions our investment team
favorably as a lending partner to such middle market borrowers.
One area we view as attractive to middle market borrowers is our provision of impactful services for portfolio company
employees. We believe limited investment in people reduces competitiveness, operational excellence, and employee
retention. Service offerings through our affiliated Worker Solutions® platform can uplift portfolio companies by
improving employee well-being, productivity and workforce retention. We believe a company with improved employee
well-being, productivity and workforce retention is more financially resilient and can generate more favorable risk-
adjusted financial returns of its investors.
Decreasing Competition in Lending to Certain Borrowers in Certain Locations
We see a large addressable market for our loans. We believe that many other financial institutions traditionally lent into
this market have elected to focus on a relatively small number of locales and primarily to larger borrowers. As a result,
we see decreasing competition and a significant opportunity to finance middle market businesses with annual revenues of
between $10 million and $1 billion and annual EBITDA of between $10 million and $100 million.
The BDC industry investment landscape is highly concentrated. The following map illustrates where BDCs, which are
required to file public reports with the SEC filings (i.e., reporting required under the Securities and Exchange Act of 1934,
or the “Exchange Act”) are investing in portfolio companies in relation to Working Class Areas across the country. This
map and the accompanying charts, demonstrate that BDCs other than the Company invest disproportionately in businesses
in the coastal regions of the United States, with the top five states representing almost 50% of investment activity for such
BDCs. The concentration of capital in these states gives rise to significant competition between other BDCs and fosters
overlapping exposure across their portfolios. As noted above, BDCs have also traditionally lent into buyouts of middle
market companies by proven private equity sponsors, resulting in a significant overlap in such investments across BDCs.
Location of BDC Portfolio Companies
Source: Lafayette Square analysis of data from BDCs with public SEC filings, sourced from the SEC’s Electronic Data Gathering, Analysis,
and Retrieval ("EDGAR") database. As of September 30, 2024.
BDC Portfolio Companies - Top 5 States
BDC Portfolio Investments (Top 5 States)
BDC Portfolio Investments in High Income
Places (Among Top 5 States)
AS OF SEPTEMBER 30, 2024
California (790)
Texas (561)
Illinois (370)
New York (511)
Florida (324)
U.S. Average (112)
2.0%
10.0%
6.6%
5.8%
9.1%
14.1%
AS OF SEPTEMBER 30, 2024
New York (466)
Illinois (331)
Texas (433)
California (658)
Florida (245)
U.S. Average (92)
77.1%
89.5%
77.2%
75.6%
83.3%
91.2%
Investment Summary (Top 5 States)
AS OF SEPTEMBER 30, 2024
Number of Companies
2,556
Percentage of Portfolio Companies
45.7 %
Number of BDCs
Source :
BDC Portfolio Investment (Top 5 States): The BDC landscape comprises records from 154 BDCs, analyzing their September 30, 2024 Form 10-Q/10-
K filings using the SEC’s EDGAR database for BDC portfolio companies as of September 30, 2024. A total of 6,834 portfolio company investments
were identified by their headquartered addresses. Of these, this analysis includes 5,590 (82%) portfolio companies where we had enough data to
determine if an address was located in a Low-Moderate-Income tract.
BDC Portfolio Investments in High Income Places (Among top 5 states): This chart extends the analysis of the top five states with BDC investment,
highlighting that most investments are concentrated in high-income areas. According to the Federal Financial Institutions Examination Council (FFIEC),
middle to upper income (higher-income) areas are defined as those where median family incomes exceed 80% of the area median income. The analysis,
based on portfolio company headquarters, includes 5,590 (82%) companies with sufficient data to determine if they are located in a Low-Moderate-
Income tract.
Number of BDC Portfolio Companies: All States and Territories
State
Portfolio
Companies,
Portfolio
Companies,
2024 vs 2023
Portfolio
Companies in
Working Class
Tracts, 2024
Portfolio
Companies in
Working Class
Tracts, 2024 vs
Portfolio
Companies in
Higher Income
Tracts, 2024
Portfolio
Companies in
Higher Income
Tracts, 2024 vs
California
790 (14.1%)
p 58
132 (16.7%)
p 7
658 (83.3%)
p 51
Texas
561 (10.0%)
p 67
128 (22.8%)
p 12
433 (77.2%)
p 55
New York
511 (9.1%)
p 59
45 (8.8%)
p 5
466 (91.2%)
p 54
Illinois
370 (6.6%)
p 59
39 (10.5%)
p 7
331 (89.5%)
p 52
Florida
324 (5.8%)
p 56
79 (24.4%)
p 14
245 (75.6%)
p 41
Massachusetts
270 (4.8%)
p 29
22 (8.1%)
q 1
248 (91.9%)
p 30
Georgia
228 (4.1%)
p 36
42 (18.4%)
p 5
186 (81.6%)
p 31
Ohio
188 (3.4%)
p 39
36 (19.1%)
p 3
152 (80.9%)
p 36
Pennsylvania
172 (3.1%)
p 23
15 (8.7%)
p 1
157 (91.3%)
p 22
New Jersey
176 (3.1%)
p 21
23 (13.1%)
p 4
153 (86.9%)
p 17
North Carolina
167 (3.0%)
p 20
34 (20.4%)
p 3
133 (79.6%)
p 17
Virginia
144 (2.6%)
p 24
35 (24.3%)
p 7
109 (75.7%)
p 17
Colorado
125 (2.2%)
p 26
26 (20.8%)
p 4
99 (79.2%)
p 22
Arizona
121 (2.2%)
p 18
40 (33.1%)
p 7
81 (66.9%)
p 11
Michigan
111 (2.0%)
p 25
19 (17.1%)
q 1
92 (82.9%)
p 26
Tennessee
105 (1.9%)
p 11
15 (14.3%)
p 2
90 (85.7%)
p 9
Minnesota
106 (1.9%)
p 27
17 (16.0%)
-
89 (84.0%)
p 27
Connecticut
97 (1.7%)
p 7
19 (19.6%)
p 1
78 (80.4%)
p 6
Washington
89 (1.6%)
p 8
22 (24.7)
p 3
67 (75.3%)
p 5
Utah
84 (1.5%)
p 12
18 (21.4%)
p 3
66 (78.6%)
p 9
Missouri
76 (1.4%)
p 12
17 (22.4%)
p 4
59 (77.6%)
p 8
Maryland
75 (1.3%)
p 10
16 (21.3%)
p 3
59 (78.7%)
p 7
South Carolina
54 (1.0%)
p 13
14 (25.9%)
p 4
40 (74.1%)
p 9
Indiana
51 (0.9%)
p 10
15 (29.4%)
p 3
36 (70.6%)
p 7
Wisconsin
53 (0.9%)
p 8
10 (18.9%)
p 2
43 (81.1%)
p 6
Alabama
44 (0.8%)
p 2
5 (11.4%)
p 1
39 (88.6%)
p 1
Oklahoma
42 (0.8%)
p 5
14 (33.3%)
p 4
28 (66.7%)
p 1
Oregon
37 (0.7%)
-
7 (18.9%)
p 3
30 (81.1%)
q 3
Kentucky
40 (0.7%)
p 6
8 (20.0%)
p 2
32 (80.0%)
p 4
Kansas
38 (0.7%)
p 5
6 (15.8%)
p 2
32 (84.2%)
p 3
Delaware
35 (0.6%)
p 4
22 (62.9%)
p 4
13 (37.1%)
-
District of Columbia
36 (0.6%)
p 8
0 (0.0%)
-
36 (100.0%)
p 8
Louisiana
31 (0.6%)
p 2
8 (25.8%)
p 1
23 (74.2%)
p 1
Arkansas
28 (0.5%)
p 4
5 (17.9%)
-
23 (82.1%)
p 4
New Hampshire
28 (0.5%)
p 4
6 (21.4%)
p 3
22 (78.6%)
p 1
Nevada
29 (0.5%)
p 9
12 (41.4%)
p 4
17 (58.6%)
p 5
Nebraska
23 (0.4%)
p 7
4 (17.4%)
p 2
19 (82.6%)
p 5
Mississippi
21 (0.4%)
p 7
4 (19.0%)
p 2
17 (81.0%)
p 5
Iowa
20 (0.4%)
p 5
5 (25.0%)
p 1
15 (75.0%)
p 4
Rhode Island
14 (0.3%)
p 3
3 (21.4%)
-
11 (78.6%)
p 3
New Mexico
10 (0.2%)
-
7 (70.0%)
-
3 (30.0%)
-
Maine
10 (0.2%)
p 1
4 (40.0%)
-
6 (60.0%)
p 1
Wyoming
9 (0.2%)
p 1
2 (22.2%)
-
7 (77.8%)
p 1
Idaho
9 (0.2%)
-
3 (33.3%)
-
6 (66.7%)
-
South Dakota
6 (0.1%)
-
2 (33.3%)
q 1
4 (66.7%)
p 1
Alaska
8 (0.1%)
p 2
1 (12.5%)
-
7 (87.5%)
p 2
West Virginia
5 (0.1%)
q 1
0 (0.0%)
q 1
5 (100.0%)
-
Vermont
7 (0.1%)
-
2 (28.6%)
-
5 (71.4%)
-
Montana
7 (0.1%)
p 3
1 (14.3%)
-
6 (85.7%)
p 3
Hawaii
5 (0.1%)
p 1
3 (60.0%)
-
2 (40.0%)
p 1
U.S. Total
1012 (18.1%)
4578 (81.9%)
U.S. Average
112 (2.0%)
20 (23.8%)
92 (77.1%)
Source: The BDC landscape comprises records from 154 BDCs, analyzing their September 30, 2024 Form 10-Q/10-K filings using the U.S. Securities
and Exchange Commission's EDGAR database for BDC portfolio companies as of September 30, 2024. A total of 6,834 portfolio company investments
16 Lafayette Square analysis of EDGAR database of BDC portfolio companies as of Q3 2024. Fair value for BDCs has
been considered to calculate assets, as of February 2025.
17 Deloitte Report, December 2024 - Unlocking a potential US$3.8 trillion opportunity for private equity firms
18 2022 Deloitte Report - Learnings from Private Equity - What transactions from the last five years tell us
19 March 2024 study released by Statista Research Department - Value of private equity (PE) capital raised worldwide
from 2019 to 2023.
were identified by their headquartered addresses. Of these, this analysis includes 5,590 (82%) portfolio companies where we had enough data to
determine if an address was located in a Low-Moderate-Income tract.
Concentration Risk in Private Capital
We believe the concentration of private credit investments, and of investments by BDCs in particular, creates correlation
risk. The top ten BDCs by assets under management, or “AUM” manage 50% of all BDC invested assets ($158 billion out
of $318 billion as of June 2024 ) and invest in 70% of the same transactions 16 . Additionally, the top ten publicly traded
BDCs control 66% of the respective public market share ($85 billion out of $130 billion) and invest in 76% of the same
deals. This concentration can result in limited competition for direct lending outside of the geographic areas favored by
most BDCs, which we believe creates opportunity for the Company to generate proprietary deal flow, allowing us the
opportunity to obtain more favorable loan pricing and generate a favorable risk-return dynamic in our lending activity.
In parallel with the geographic concentration and deal overlap, we believe many private equity firms (and the private
credit institutions that support them) are investing in increasingly larger companies. The largest private equity firms (with
more than $5 billion in AUM) have taken an increasingly greater percentage of total private equity industry fundraising,
rising from 33% of all capital raised in 2020 to 53% in the first half of 2024. 17 . In addition, 40% of private equity deals are
larger than $500 million in deal size. 18 This trend is expected to continue as the private equity industry has more than
doubled since 2013 to a total of $1.1 trillion of funds raised in 2023. 19 We believe that many private equity affiliated
private credit funds have emphasized their service and product offerings in support of private-equity backed companies,
providing an opportunity for alternative funding sources like us to lend to non-sponsored middle-market companies.
Our Competitive Advantages
We believe the following competitive strengths position us well for continued growth:
We Target Borrowers in Locations that Other BDCs are Not Focused On
As discussed above, we believe that the BDC industry and regional banks that historically provided credit to middle
market businesses in Working Class Areas have more re-focused in recent years on only a relatively small number of
locations and primarily on larger borrowers. As a result, we believe there is a significant opportunity for the Company to
identify attractive middle market businesses that have meaningful capital needs that are not being served by other
financing institutions.
Our Delivery of Managerial Assistance to Portfolio Companies Differentiates us from Other Lenders
Like other BDCs, we offer traditional forms of managerial assistance to our portfolio companies, including participating
in board and management meetings, consulting with and advising officers of portfolio companies, and providing other
organizational and financial guidance. However, we also deploy human capital and benefits consulting services through
Worker Solutions®. This platform offers what we consider to be an enhanced version of managerial assistance to portfolio
companies by providing meaningful guidance and counsel concerning management, operations and policies, primarily
with respect to employee benefits and human capital management. In particular, we have marshalled our resources and
expertise to support our portfolio companies in their efforts to improve worker well-being and labor force retention,
including for those employees whose annual wages would qualify under the federal definition of low-to-moderate income.
We believe this differentiated expertise and focus on human capital has proven beneficial in the origination of investment
opportunities, particularly in the non-sponsored segment of the market.
Our Worker Solutions® platform works with portfolio companies to optimize traditional employee benefits, such as
health insurance and retirement, and supplementary employee benefits, such as services that focus on education, training
and the alleviation of financial insecurity. The Worker Solutions® platform coordinates directly with the human
resources and personnel departments of our portfolio companies to (i) analyze their workforce, wages, and benefits, (ii)
identify human capital challenges and benefits gaps, and (iii) recommend appropriate third-party solution providers or
policy changes to workplace benefits that enhance employee well-being and improve retention. Where possible, we aim to
disaggregate and analyze health insurance and retirement benefits participation among employee populations and
recommend options to improve employee participation in those programs.
We believe delivery of this type of enhanced managerial assistance has the potential to (i) positively affect employee well-
being, (ii) enhance the risk-adjusted financial returns of our portfolio companies (through increased employee retention,
morale, and productivity) and (iii) reduce our funding costs.
We are Using Proprietary Data Analytics to Strengthen Our Origination, Underwriting and Monitoring Processes
Lafayette Square Analytics comprises a dedicated team of technology professionals who build proprietary software and
systems that work in conjunction with third-party tools to empower Lafayette Square investment professionals with data
that informs risk decisions and builds relationships with clients. We believe this sophisticated team and our proprietary
technology enable us to efficiently and effectively identify and underwrite businesses in overlooked places.
One of the main products designed by Lafayette Square Analytics is Potomac X Lafayette Square™, a data platform with
a place-based analytics tool that supports Lafayette Square’s investments by providing place-based socioeconomic data
that offers insights into investments, before and after they are made. Powered by a growing data lakehouse, Potomac X
Lafayette Square™ overlays census information from third-party sources on company data. In combination with the
capabilities and relationships of our investment and origination team (including senior managers at target businesses), we
can identify attractive investment opportunities and better understand the businesses we underwrite, both from an
operational and a labor market perspective.
Through a data-driven approach and increasing use of automation in identifying potential investment opportunities with
categories such as “non-sponsored”, “industry”, “working-class location” and “SBIC eligible”, we can tailor our
origination process to meet our investment goals and objectives. Once deals are in the pipeline, we digitize and organize
our deal management process workflow with dashboards. Digitization enables us to capture key criteria for assessing
potential investments, such as whether the headquarters is based in a low- to moderate-income census tract, and predicts
whether the investment would be eligible for SBIC credit. Our deal management process can automatically transmit
investment data from the origination and underwriting stages to our loan servicing system as well as facilitate the
warehousing of data. This automated process has allowed us to build dashboards to manage and track our portfolio risk
and monitor our investments with granular detail.
We Have an Experienced Team of Investment Professionals
Our Investment Committee members are seasoned professionals and have extensive investment, finance and risk
management experience as well as in managing small and medium-sized businesses through various credit cycles. With a
collective average of almost 20 years of experience, the members of the Investment Committee provide valuable diligence
insights to the investment team, which itself is an experienced group of underwriters and originators. We believe the
combined experience of the Investment Committee provide us a wealth of strategic, financial, and operational knowledge
regarding investments in middle market companies as well as the tools necessary to manage risks and achieve favorable
risk-adjusted returns.
Our Collaboration with Government Provides a Structural Advantage
We believe our access to government financing provides a structural advantage over most BDCs which lack access to 10-
year fixed rate funding priced at a spread to US Treasuries from the SBA. In our view, government funding in the form of
SBA debentures currently provides the lowest cost and longest duration solution for our shareholders.
Our Significant Institutional Investor Base and Syndicated Corporate Credit Facility Demonstrates Institutional
Cooperation.
Our shareholder base is approximately 95 % institutional, with three equity commitments from public pension funds
totaling over $100 million each. In addition, on June 18, 2024, the Company tapped into the capital markets by entering
into the ING Credit Facility. The ING Credit Facility has since been syndicated, with EverBank, First Citizens Bank,
Bank United and Customer Bank joining the syndicate as additional lenders, and aggregate commitments under the ING
Credit Facility totaled $225 million as of December 31, 2024. This combination of a significant institutional investor base
and a syndicated credit facility demonstrates the willingness of large institutions to collaborate with the Company.
Our Investment Adviser
The Company is externally managed by LS BDC Adviser, LLC (the “Adviser”) pursuant to an investment advisory and
management agreement between the Company and the Adviser, dated April 26, 2021 and renewed by the Board most
recently in June 2024 (the “Investment Advisory Agreement”). The Adviser was organized in February 2021 as a
Delaware limited liability company, is registered as an investment adviser under the Advisers Act and is a wholly owned
subsidiary of Lafayette Square Holding Company, LLC (together with its controlled subsidiaries, including the Adviser
and LS Administration, LLC, “Lafayette Square”). The Adviser oversees the management of the Company’s activities
and is responsible for making investment decisions with respect to the Company’s portfolio.
The Adviser is obligated to allocate investment opportunities among the Company and any of its other clients fairly and
equitably over time in accordance with the Adviser’s allocation policy. However, we can offer no assurance that such
opportunities will be allocated to us fairly or equitably in the short-term or over time. See “Item 13. Certain Relationships
and Related Transactions, and Director Independence” below. We have received exemptive relief from the SEC that
permits us to co-invest with certain of our affiliates, subject to the conditions of such exemptive order. We believe that
such co-investment relief affords us additional investment opportunities in a wide range of companies.
We currently do not have any employees and our investment activities are managed by the Adviser. The Adviser is
responsible for sourcing potential investments, conducting research and due diligence on prospective investments and
equity sponsors, analyzing investment opportunities, structuring our investments, and monitoring our investments on an
ongoing basis. Under the Investment Advisory Agreement, we pay the Adviser a base management fee and an incentive
fee for its services. See “ Item 1. Business - Investment Advisory Agreement ” for a discussion of the base management fee
and incentive fee payable by the Company to the Adviser and the risk factor entitled “ Our management and incentive fee
structure may create incentives for the Adviser that are not fully aligned with the interests of our stockholders and may
induce the Adviser to make speculative investments .”
The investment decisions of the Company are managed by the Adviser's Investment Committee, which currently includes
Damien Dwin, Phil Daniele, and Nicole Pereira, although such membership may change at any time without notice to
shareholders. Mr. Dwin and Mr. Daniele are currently considered “Key Persons” under the Company's constituent
documents.
Damien Dwin
Damien Dwin is the Founder and Chief Executive Officer of Lafayette Square, a private credit firm lending capital to
growing middle market companies in Working Class Areas.
Previously, Mr. Dwin served as Co-Founder and Co-CEO of Brightwood Capital Advisors from its founding in 2010 to
October 2020.
Mr. Dwin began his career as a trader with Goldman Sachs, New York and London, where he earned the Michael P.
Mortara Award for Innovation. After leaving Goldman Sachs, Mr. Dwin was the the Co-Founder and Head of the North
American Special Opportunities business at Credit Suisse, a position he held until 2010. Mr. Dwin also served on the Vice
President Selection Committee and led the Fixed Income Division Credit Training Program.
Mr. Dwin serves on the non-profit boards of Lincoln Center for the Performing Arts, Children’s Hospital of Philadelphia,
Studio Museum in Harlem, National Trust for Historic Preservation, Boys’ Club of New York, and Vera Institute of
Justice. He is a Council Member of the Smithsonian National Museum of African American History and Culture. He
received a B.S./B.A. from Georgetown University.
Phil Daniele
Phil Daniele is the Chief Risk Officer at Lafayette Square. With over 37 years of experience, Mr. Daniele was the former
Chief Risk Officer at Brightwood Capital and served on Brightwood’s Executive and Valuation Committees. Prior to
Brightwood, he was the Chief Credit Officer for the Americas at Credit Suisse. He was responsible for approving all
credit extensions in the Americas portfolio including corporates, financial institutions, hedge funds and private clients.
Previously, Mr. Daniele served as Head of Corporate Credit Americas, which included the Credit Suisse Leveraged
Finance business. He began his career at CIT Factoring in 1984.
Mr. Daniele is a Board Member of Flames Neighborhood Youth Association (“Flames”) and has been actively involved
with that nonprofit since 1979. Flames is a Brooklyn based organization primarily dedicated to the improvement of the
lives of African American youth and the betterment of interracial relationships in the communities that the organization
serves. Additionally, he is a Board Member of Soul of the Peruvian Andes, a nonprofit whose mission is providing
healthcare and education support to the impoverished villages of the Andes Mountains in Peru.
Originally from Brooklyn, New York, Mr. Daniele holds a B.B.A., Accounting, and an M.B.A., Finance, from Pace
University.
Our Administrator
LS Administration, LLC (the “Administrator”), which is also a wholly owned subsidiary of Lafayette Square, has entered
into an administration agreement (the “Administration Agreement”) with the Company and a staffing agreement (the
“Staffing Agreement”) with the Adviser. As the Company has no employees, the Administrator makes experienced
investment professionals available to the Adviser and provides access to the senior investment personnel of Lafayette
Square and its affiliates as well as the services of a full complement of investment professionals of Lafayette Square. The
Administrator also commits the members of the Adviser’s Investment Committee to serve in that capacity. The Adviser
capitalizes on the significant deal origination, credit underwriting, due diligence, investment structuring, execution,
portfolio management, and monitoring experience of Lafayette Square’s professionals.
For this work, the Company pays no compensation directly to any interested director or executive officer of the Company,
but it does reimburse the Administrator for the Company’s allocable portion of certain expenses incurred by the
Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable
portion of the cost of its Chief Financial Officer and Chief Compliance Officer and their respective staffs and its allocable
portion of the cost of providing managerial assistance upon request to portfolio companies. Additionally, the
Administrator performs certain required administrative services, which include coordinating or providing assistance in
accounting, legal, compliance, operations, investor relations, technology, and loan agency services (including any third
party service providers related to the foregoing), as well as maintaining the financial records that the Company is required
to maintain and preparing reports for the Company’s shareholders and reports filed with the SEC. The Administrator will
be reimbursed at cost for certain expenses that it or the Adviser incur on our behalf. The Administrator reserves the right
to waive all or part of any reimbursements due from the Company at its sole discretion. See “Item 1. Business-
Administration Agreements” below for a discussion of the expenses (subject to the review and approval of our
independent directors) for which we expect to reimburse to the Administrator.
Lafayette Square Investments
Lafayette Square seeks to generate premium asset spreads and source low-cost, long duration funding by aligning its goals
with public policy and seeking cooperation with government. As part of this strategy, Lafayette Square currently manages
fund vehicles regulated under provisions of the 1940 Act as well as private vehicles which are exempt from registration as
an investment company under the 1940 Act.
Vehicles Regulated Under the 1940 Act
As described in more detail in this Annual Report, Lafayette Square Investments currently operates the Company as its
only investment vehicle regulated under the 1940 Act. With committed capital from both institutional and individual
shareholders, the Company makes loans to eligible borrowers using equity drawn from the Company's shareholders and
financing from (i) government partnerships such as the SBA, through the Company’s wholly owned SBIC and SSBIC
subsidiaries and (ii) the capital markets, such as the ING Credit Facility.
Private Vehicles in Partnership with Government Entities
As reflected by its name, which references the park outside the White House located in the heart of downtown
Washington D.C., Lafayette Square values the support of government entities like the SBA to pursue its investment
strategy. In particular, the Company has worked extensively with the SBA to license two of its wholly owned subsidiaries
as a small business investment company (“SBIC”) and a specialized small business company (“SSBIC”). These entities
help to fulfill the SBA’s mission as well as the Company’s investment objectives and Lafayette Square's ultimate goals.
(1) Lafayette Square SBIC, LP
The Company’s wholly owned subsidiary, Lafayette Square SBIC, LP ( “ LS SBIC LP ” ), received its SBIC license from
the SBA on February 1, 2024. Under SBA regulations, SBICs make investments in eligible small businesses, which may
include loans and equity investments. SBICs are required to comply with investment restrictions, including strict
limitations on the size of the companies in which they invest and limitations on taking controlling interests. Like other
SBICs, LS SBIC LP makes qualifying loans financed via the SBA's debenture program, which provides up to $175
million of SBA-guaranteed debentures to licensees, subject to the SBA’s approval. These debentures have maturities of
ten years and have fixed interest rates tied to the U.S. 10 Year Treasury rate.
(2) Lafayette Square SSBIC, LP
The Company’s wholly owned subsidiary Lafayette Square SSBIC, LP ( “ LS SSBIC LP ” and together with LS SBIC the
“ LS SBICs ” ), received its SSBIC license from the SBA on September 12, 2024 making it one of only a few existing
Specialized Small Business Investment Companies. Like an SBIC, an SSBIC makes loans to and/or invests in eligible
small businesses, but with a focus on small business entrepreneurs whose participation in the free enterprise system has
historically been hampered because of social or economic disadvantage. LS SSBIC LP may be able to issue additional
SBA-guaranteed debentures in an amount up to $175.0 million, subject to the SBA’s approval.
Private Vehicles in Partnership with Private Entities
(1) Lafayette Square Private Fund, LLC
Lafayette Square Private Fund, LLC (the “Private Fund”) was formed on September 28, 2022 to serve as a fund-of-one for
a European institutional investor and to invest primarily alongside the Company in the same portfolio companies. The
institutional investor, which retains discretion over any investments made by the Private Fund, agreed to provide up to
$100 million in committed capital to the Private Fund. As of the date of this Annual Report, the Private Fund has invested
a meaningful portion of its committed capital in some of the same portfolio companies in which the Company has
invested.
Lafayette Square Services
Lafayette Square delivers enhanced managerial assistance in partnership with Worker Solutions®, a wholly owned
portfolio company of the Company, which also leverages Potomac X Lafayette Square™ and coordinates directly with the
human resources and personnel departments of our portfolio companies to (i) analyze their workforce, wages, and
benefits, (ii) identify human capital challenges and benefits gaps, and (iii) recommend appropriate Third-Party Solution
Providers and/or human resource policy changes to existing workplace benefits (such recommendations defined as
“Qualifying Human Capital Investments”) that we believe would enhance employee well-being and improve retention.
Where possible, we use Potomac X Lafayette Square™ to disaggregate and analyze health insurance and retirement
benefits participation and collect metrics regarding different aspects of the employee experience and human resources
infrastructure in order to recommend Qualifying Human Capital Investments to improve employee participation in those
programs as well as to monitor each portfolio company’s progress compared against a baseline.
Lafayette Square seeks to innovate constantly. It may change its Services approach in the future without notice to
shareholders; however, Lafayette Square currently supports our portfolio companies through its partnership with Worker
Solutions® which supports our portfolio companies’ talent and human capital in four main ways, via (i) Incentives; (ii)
Workforce & Benefits Data Analytics; (iii) Services; and (iv) Consultation.
1. Incentives:
a. Interest rate step down: We encourage each portfolio company’s adoption of new or expanded Qualifying
Human Capital Investments by offering a discount, or “step down” on the interest rate payable by such portfolio
company on the Company’s credit agreement with the portfolio company. Such discounts range from a minimum
of five basis points for the adoption of one Qualifying Human Capital Investment to a 25 basis point reduction
for the adoption of two or more Qualifying Human Capital Investments.
b. Third-Party Solution Provider Discounts : Our portfolio companies typically pay for the cost of engaging our
Third-Party Solution Providers. Such costs offset, in whole or in part, the aforementioned interest-rate step
downs. As part of Worker Solutions® agreements with Third-Party Solution Providers-which we refer to as
Impact Collaboration Agreements- Worker Solutions® aims to negotiate data delivery specifications and
reduced pricing from the Third-Party Solution Providers for our portfolio companies. When successful, these
provider discounts, negotiated on behalf of our portfolio companies, support adoption of Qualifying Human
Capital Investments to improve employee well-being and retention, which we believe is a common goal across
our portfolio companies. To date, Worker Solutions® has negotiated discounts with Third-Party Solution
Providers that range from 5% to 40% off selected service offerings.
c. Payroll Tax Savings: As part of providing enhanced managerial assistance, Worker Solutions® has identified
employee benefits that may provide an employer federal payroll tax deduction, such as tuition reimbursement,
student loan repayment, or retirement plan contributions. These types of benefits enable employers to deduct
such benefit contributions on their federal income tax return, up to certain annual contribution limits. Due to
recent federal legislation, an employer can now contribute up to $5,250 tax-free towards an employee’s student
loan obligation. In introducing such a student loan repayment program, Worker Solutions® can advise
companies on ways to communicate to their employees that employer contributions are not considered income
and therefore are tax-free contributions to the employee. As part of providing enhanced managerial assistance,
Worker Solutions® also educates portfolio companies about any applicable estimated tax savings that might
accrue by adopting eligible solutions with payroll tax implications, so they can collaborate with their tax and
accounting advisers to potentially benefit from such solutions.
2. Workforce & Benefits Data Analytics:
a. Baseline Workforce Assessment: Prior to closing on a loan with the Company or upon becoming a portfolio
company, Worker Solutions ® typically performs a “Know Your Workforce Assessment” that provides an
analysis of employee demographics and benefits usage. Given available data, Worker Solutions® disaggregates
this information by job type, geographic location or job site, and/or wage bands, and aims to supplement
company data with place-based analytics using public and private data sources, such as local and regional
demographic and socio-economic data and trends related to financial well-being, education and training, income
status, and health and wellness. Worker Solutions ® also seeks to collect information on additional ancillary
benefits available, the percentage of employees using bank direct deposit services, employer share of health
premiums, and employer retirement contributions. As part of our enhanced managerial assistance, we share this
analysis with the portfolio company to establish a baseline upon our initial investment and to consult with the
portfolio company about potential options to maximize their human capital return-on-investment.
b. Human Capital Trend Analytics: As part of our enhanced managerial assistance, if permitted by a portfolio
company, Worker Solutions ® uses Potomac X Lafayette Square™, to collect several dozen metrics regarding
different aspects of the employee experience and portfolio company’s human resources infrastructure, including
historical employee and benefits participation data. As of December 31, 2024, 11 out of 34 of our portfolio
companies provide such metrics, which we seek to update at least quarterly. Through Potomac X Lafayette
Square™, we analyze employee turnover, changes in headcount, and employee wages as they relate to the local
labor market and cost-of-living. This technology-enabled platform allows us to share this data with our portfolio
companies and monitor portfolio company progress compared against the baseline.
c. Employee Input Analytics: We believe that gathering data directly from employees about their experience and
workplace benefits assists us in identifying gaps in benefits or design issues with existing benefits and tracking
employee satisfaction. As part of our enhanced managerial assistance, Worker Solutions ® offers to support
portfolio companies in designing, administering, and analyzing employee surveys to collect employee input on
benefits offerings. Survey topics may include employee satisfaction, benefits satisfaction, demand for various
types of new and enhanced benefits, benefits design, employee financial health, and company culture.
3. Services:
a. Curation: To address issues of financial well-being, health and wellness and education and training for portfolio
company employees, Worker Solutions® has curated a suite of solutions, such as emergency savings, homebuyer
assistance, employer-based college savings plan (529) matching and student loan repayment, benefits navigation,
stress management, workforce development, and primary-care focused health plans for self-funded employers.
Worker Solutions ® has secured agreements with 21 Third-Party Solution Providers. As part of providing
enhanced managerial assistance, Worker Solutions® continues to manage this network to ensure that the
consortium includes services that appeal to a significant cross-section of our portfolio companies. Third-Party
Solution Providers offer services including:
• Financial Wellbeing
◦ Emergency Savings
◦ Zero-Interest Loans
◦ Credit Building
◦ Student Loan Reimbursement
◦ Retirement Savings
◦ Financial Education
• Education and Training
◦ Career Pathways
◦ Workforce Planning
◦ Talent Development and Upskilling
◦ Corporate Culture
◦ Talent Acquisition
• Health and Wellness
◦ Supplemental Health Care
◦ Mental Health Education
◦ Resource and Benefit Navigation
b. Recommendation: Based upon our initial assessment and consultation with a portfolio company, we typically
recommend solutions to support employee well-being and improve the human capital operations of such
portfolio company. Worker Solutions ® facilitates service provider introductions and product demonstrations for
the company to review and consider potential new employee benefits. There is no guarantee that the portfolio
company will elect to onboard or utilize the services we recommend. However, if a portfolio company selects a
Third-Party Solution Provider, it will typically receive two incentives in connection with such adoption: (i) an
interest rate step down to reduce loan interest costs; and (ii) a program discount on service provider fees
negotiated by Lafayette Square or its affiliates. We confirm the adoption by a portfolio company of third-party
services through the receipt of an executed contract between the portfolio company and the selected service
provider. This construct may also result in reduced funding costs for the Company from its own lenders.
c. Implementation : As part of our enhanced managerial assistance, Worker Solutions ® supports the portfolio
company with solution onboarding, implementation, and employee outreach strategies to maximize uptake and
impact. Additionally, Worker Solutions ® works with the portfolio company and Third-Party Solution Providers
to establish and monitor employee participation rates.
4. Consultation:
a. Additional Human Resources Capacity: Through our enhanced managerial assistance program, Worker
Solutions® offers to consult with our portfolio companies as they attempt to address human capital challenges
that are important to the company’s overall performance, such as best practices in employee engagement or
navigating the evolving benefits landscape. Depending on the issue, Worker Solutions® conducts research,
performs industry benchmarking, and/or identifies major policy issues or trends affecting the workplace. This
technical assistance also includes our other pillars of managerial assistance, particularly services and place-based
and employee data analytics.
b. Support for SECURE Act 2.0 Alignment & Implementation: We believe that SECURE Act 2.0 of 2022 holds
the opportunity to improve wealth building access and opportunities for Working Class People through enhanced
workplace benefits, particularly for small and medium-sized businesses. We believe that human resources leaders
at small and medium-sized businesses need assistance in navigating the provisions in this law while also
developing strategies to maximize results for their employees and the portfolio company. As a result, Worker
Solutions® has developed in-house expertise to support our portfolio companies transition to adopt the provision
of the law in an efficient manner. Worker Solutions® has secured related solutions such as employer-based
student loan repayment benefits, emergency savings, and lower-cost retirement plans that could increase
participation and assets for Working Class People, who have generally had lower participation rates in workplace
savings programs, including employer-sponsored retirement plans than middle and higher income employees.
c. Strategic Goal-Setting: For companies with meaningful Working Class employee populations, it can be
common to have a gap in benefits participation-employer-based healthcare and retirement plans-between
middle/upper-income employees and lower-income employees. As part of our enhanced managerial assistance,
we inquire about the intentions of the portfolio company to improve retirement program participation among
Working Class employees and then work with the portfolio company to set short, medium, and long-term goals
to increase retirement participation for such workers or a designated category of frontline workers. As part of
our enhanced managerial assistance, Worker Solutions® may also provide options for the human resources team
to review and consider. For example, Worker Solutions ® could recommend an employer non-elective
contribution or automatic or “opt-out” retirement strategy to drive participation for the under-enrolled segments
of the employee base. Finally, we would also utilize our employee data analytic capability to track and analyze
participation data and confirm such information with the portfolio company.
Potential for Funding Enhancement from Enhanced Managerial Assistance
We believe implementation and adoption of Worker Solutions® recommendations by our portfolio companies has the
ability to improve our overall return on investment and strengthen our risk-adjusted return by helping to (i) decrease our
overall funding costs, (ii) diversify our funding options and (iii) secure longer duration financing. For example, the ING
Credit Facility provides that, under certain circumstances, the interest rate payable on borrowings under the credit facility
may be reduced if such borrowings are used to finance portfolio companies that meet specified parameters (primarily
related to our 2030 Goals) set forth in the facility. While the ING Facility matures by its terms in 2029, we intend to
negotiate similar discounts on future financing arrangements based upon the amount of capital we deploy that meets
certain defined impact criteria, although we can offer no assurance that we will be able to secure such financing
arrangements or that such discounts will be meaningful.
Lafayette Square Analytics
Lafayette Square Analytics is comprised of a dedicated team of technology professionals who build proprietary software
and systems that work with third-party tools to empower Lafayette Square investment professionals with data to inform
risk decisions and build relationships with clients. One of the main products designed by Lafayette Square Analytics is
Potomac X Lafayette Square™, a data platform with a place-based analytics tool that supports Lafayette Square’s
investments by providing place-based socioeconomic data that offers insights into investments, both before and after they
are made.
Potomac X Lafayette Square™
Potomac X Lafayette Square™ is a data platform that informs risk decisions based on localized socioeconomic and
financial data. Built to help businesses understand their and their employees' challenges within their respective
communities, we leverage this platform in a few different ways:
• To provide insight about a community where a portfolio company and/or its employees are located, such as
demographic, economic and social data;
• To help identify ways to support such businesses and the communities in which they and/or their employees are
located, including through our Worker Solutions® platform (described in more detail in “ Lafayette Square
Services ” below);
• To analyze the socioeconomic challenges affecting middle market businesses and employees, including:
• Recruitment and retention of labor, particularly of frontline workers,
• Uneven uptake by workers of traditional workplace benefits, and
• Impact of inflation on employees, particularly Working Class People;
• As a risk mitigation tool, with a goal to strengthen our investment outcomes and returns, including by increasing
employee retention, morale and productivity.
Support of Worker Solutions®
We analyze our portfolio companies’ employee data to identify ways to improve worker well-being in consultation with
Worker Solutions®. Potomac X Lafayette Square™ plays a critical role in driving and tracking how Worker Solutions®
affect portfolio company employees. Lafayette Square believes impactful services will have a positive effect on portfolio
company employees and consequently will increase their productivity and decrease turnover, which should theoretically
improve the performance of the portfolio company and reduce its risk of default.
Our Investment Strategy
Our primary investment strategy is to create a portfolio of investments across a range of industries and communities to
mitigate risks and achieve our investment objective of generating favorable risk-adjusted returns while promoting public
welfare and community development in Working Class Areas. We believe that many BDCs focus primarily on lending to
businesses located in high income places and that demand for capital investment and enhanced managerial assistance is
particularly acute among middle market companies located in overlooked places. We believe inflationary pressures and an
increasing gap in employee benefits between Working Class and middle and high income employees exacerbates this
demand, enabling us to utilize our investment approach to identify and select favorable risk-adjusted investment return
opportunities.
We generate revenue primarily in the form of interest and fee income derived from debt investments we hold and capital
gains, if any, on our investments. We generally expect to hold our investments until they are refinanced by the portfolio
company borrowers. From time to time, we may invest in loans with other lenders, or “club loans,” and we may serve as
agent in connection with any such loans. Currently, approximately 16% of the portfolio consists of “club loans”, with
Lafayette Square being lead agent on 63% of those deals. We may also participate in loans in the broadly syndicated loan
market. Our debt investments in portfolio companies typically have principal amounts of up to $50 million, bear interest
at floating rates tied to a widely available risk-free indices such as the U.S. Prime Rate, or the Secured Overnight
Financing Rate (“SOFR”). These rates reset periodically and generally are not guaranteed by the U.S. federal government
or otherwise. The debt instruments in which we invest are typically not rated by any rating agency. If they were rated, we
believe they would be rated below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than
“BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s Ratings Services). Under the guidelines
established by these rating agencies, such ratings are an indication of such debt instruments having predominantly
speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Debt instruments that
are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.”
We primarily focus our origination efforts on “non-sponsored” businesses. We define non-sponsored businesses as
companies that are not substantially owned and managed by asset management firms that raise committed third-party
capital to take controlling stakes in portfolio companies. We believe such companies offer us an opportunity to establish
direct lending relationships without the involvement or backing of a traditional buyout fund sponsor. We believe this
focus will enable us over time to source investments through a less competitive lending process than if we focused on
“sponsored” businesses, which should put us in a better position to achieve favorable economic and structural terms for
our investments. We intend to complement this investment strategy with robust risk management practices and rigorous
ongoing portfolio monitoring. For a discussion of the risks inherent in our portfolio investments, please see the discussion
under “ Item 1A. Risk Factors .”
While we are generally industry agnostic with respect to our focus on investment sectors, we tend to primarily invest in
the business services, franchising, technology & telecommunications, transportation & logistics, and healthcare sectors.
In addition, we opportunistically seek exposures in the real estate industry (including with companies that manage real
estate and with real estate-related projects that advance our 2030 Goals). We intend to diversify our portfolio across
sectors that are resilient to market volatility, with limited commodity and direct consumer spending exposure.
We divide our investing approach into eight steps:
Step 1: We seek market rate returns from attractively priced assets, typically offering interest rates to our
borrowers of SOFR plus a meaningful spread. We believe this pricing represents a premium to similar risk in liquid
markets, including high yield and broadly syndicated loans.
Step 2: We typically prioritize companies with a strong, sustainable, free cash flow profile to support debt service
as evidenced by a multitude of factors including, but not limited to diversified revenue streams and revenue visibility,
pricing power, optimized cost structures, professionalized operations with experienced management teams, strong market
fundamentals and positioning, favorable regulatory environments, limited exposure to cyclical end markets, commoditized
inputs, and international supply chain shocks. We invest into capital structures appropriately leveraged on a cash flow
basis ensuring adequate interest and fixed charge coverage thresholds, as well as companies with experienced ownership
and considerable equity support.
Step 3: We prioritize companies located outside of high-income places, often situated in Working Class Areas,
because we believe there is less competition to lend to such companies and therefore an opportunity to identify quality
investments at preferential pricing. We also believe that by focusing investments on communities with a higher density of
Working Class People, we create an opportunity to negotiate lower cost funding from government sources and the capital
markets.
Step 4: We prioritize companies with EBITDA below $50 million because we believe there is less competition
to lend to such companies and therefore an opportunity to charge higher pricing than larger EBITDA opportunities.
Step 5: We prioritize companies who are large employers of Working Class People because we believe the need
for managerial assistance is higher in these companies. With this focus, we create opportunities for the Company to
negotiate lower cost funding from government sources and the capital markets.
Step 6: We offer enhanced managerial assistance to portfolio companies because we believe it can ultimately
strengthen our investments while also benefiting Working Class People, in line with the original intentions of a variety of
regulatory frameworks (including the Investment Act and the CRA).
Step 7: We reward portfolio companies with interest rate step downs based on achieving specific goals and
adopting Qualifying Human Capital Investments that we believe have de monstrated track records of improving worker
well-being .
Step 8: We seek low-cost, long duration funding premised on our portfolio construction which focuses on
Working Class Areas and enhanced managerial assistance for portfolio companies.
Differentiators for Our Investment Strategy
We seek to generate favorable risk-adjusted returns, including current income and capital appreciation, principally from
directly originated investments in middle market companies that are primarily domiciled, headquartered and/or have a
significant operating presence in the United States. We intend to create a broad portfolio of investments across industries
to mitigate risk and achieve our investment objectives. We believe our investment strategy contains several factors that
provide us with a strategic advantage, in particular amongst some of our competitors.
Direct Origination Model
We primarily intend to directly originate investment opportunities to non-sponsored businesses. We believe that this class
of borrower is underserved by other financial institutions, which often means that such lending opportunities are less
competitive than sponsored investments, allowing us to achieve better risk-adjusted returns and obtain comprehensive
downside protection. Many of these transaction terms help to identify deterioration in the portfolio company’s credit
quality at an early stage and enable us to take actions to minimize downside risks. We seek to ensure an alignment of
interests between the equity holders and our interests as a lender by partnering with portfolio company owners that have
meaningful management equity investments and appropriately sized incentive plans.
The Adviser’s investment professionals, including a seasoned team of originators spread across the Target Regions, have
a deep understanding of their regions from professional and educational experiences in those communities. This local
sourcing effort is supported by Lafayette Square's proprietary place-based analytics platform, Potomac X Lafayette
Square™, which provides our origination team with insights about the places and people we invest in and helps them
build trust with prospective middle market borrowers. Cumulatively, the investment and origination teams have deal
sourcing relationships with hundreds of business professionals, including investment bankers, commercial bankers, buy-
out funds, institutional investors, impact-driven funds, asset-based lenders, attorneys, accountants, and others. As a result,
we believe we will generate substantial deal flow from proprietary sources and selectively marketed transactions,
including many available through less competitive processes, leading to favorable pricing dynamics and repeat borrowers.
We do not typically participate in auctions or widely marketed transactions.
Established Businesses with Strong Free Cash Flow Profiles
We intend to focus on directly originating investment opportunities in established businesses which have strong free cash
flows. These businesses may operate in a variety of industries including, but not limited to, manufacturing, wholesale,
franchising, transportation, business and information services, technology and telecommunications, finance, construction
and related services, and healthcare. We primarily target borrowers with established operating histories that generate
annual revenues of between $10 million and $1 billion and annual EBITDA of between $10 million and $100 million. We
intend to invest in financially sound and well-positioned companies that we believe can service and repay our investment.
We expect that such businesses generally maintain market share under a variety of market conditions. These businesses
are often large employers of Working Class People, and we believe such businesses are often underserved by banks. We
do not intend to invest a meaningful portion of our portfolio in real-estate related loans, start-ups or companies with
speculative business plans. We will primarily focus our origination efforts on non-sponsored borrowers, utilizing our
strong relationships with financial intermediaries and the networks of our senior investment professionals to source
private investment opportunities, although we expect to also lend to certain private equity sponsor-backed borrowers.
Downside Protection Through Holistic Risk Management
We employ a disciplined approach to risk management, ensuring that we apply best practices consistently. We will
construct our portfolio carefully to mitigate credit-specific risk. We will invest the portfolio broadly across industries and
sub-industries and communities across the Target Regions. Our risk management practices are grounded in an established
investment process comprising systematic underwriting, rigorous due diligence (including select third-party reviews and
reports), and Investment Committee approval, all accompanied by a proprietary, dynamic post-investment monitoring
system for updating issuer data.
Structuring to Improve Exit Timing and Optionality
The investment team has experience structuring investments with various characteristics to preserve and enhance
opportunities for successful investment exits. The lack of an active secondary market for most of our portfolio
investments will make robust due diligence and planning of exit strategies paramount. With limited ability to liquidate
holdings through market sales, we expect to take a longer-term, “originate-to-hold” investment approach while building
realization features into our deal documents. “Realization features” are loan terms providing for mandatory repayments of
principal. These may include required amortization payments, mandatory cash flow “sweeps,” mandatory repayments
upon the occurrence of specified events (such as a receipt of insurance or asset sale proceeds outside the ordinary course
of business), and stated loan maturities. Other securities, such as structured equity investments or warrants, are often
accompanied by put rights, which mimic a stated maturity provision in a loan agreement.
How Our Investment Strategy Aligns with Regulatory Framework
As described above, the Company has set ambitious 2030 Goals to increase jobs and benefit participation across a diverse
swath of the United States, with a focus on Working Class Areas. The Company's investment strategy is designed to
complement these 2030 Goals by focusing its investing on areas of the United States where demand for capital is high, but
where lenders have historically focused less attention.
The 2030 Goals, along with our approach to risk management and generating favorable risk-adjusted returns, were
inspired by existing regulations dating to the 1950s, which were aimed at increasing prosperity in all communities. To that
end, as we make investments we intend to work with a mission-aligned network of service providers that deliver services
seeking to improve the well-being of Working Class Areas and Working Class People.
In the following pages, we describe (1) the original intention of the regulations inspiring our strategy, (2) how we align
our strategy and goals with such regulatory intentions, and (3) our current progress towards achieving these goals.
Original Intention of Regulations Inspiring Our Strategy
Our investment strategy is designed to reflect the intentions of three legislative acts authored during distinctly different
economic environments: the Investment Act, the CRA, and the Incentive Act (together with the Investment Act and the
20 Lafayette Square is not backed or guaranteed in any way or supported by the U.S. government, its agencies and
instrumentalizes. The discussion below reflects our investment philosophy and not any official mandates under the Acts.
CRA, the “Acts”) 20 While these legislative acts were authored during different economic environments, all of them reflect
a focus by the U.S. Congress (“Congress”) and the Presidential Administration they worked with at the time on how to
engage the private sector in financing job growth for all Americans, especially those in Working Class Areas.
Date Enacted
Unemployment
Rate at time of
enactment*
Federal Funds
Rate at time of
enactment**
US Treasury
10 Year Note at
time of
enactment**
S&P 500
Price to
Earnings at time
of enactment***
Total
Commercial
Banks (insured
by FDIC)****
Investment Act
August 1958
7.4
1.8
N/A
16.5x
13,115
CRA
October 1977
6.8
6.2
7.5
8.7x
14,397
Incentive Act
October 1980
7.5
12.6
11.7
8.9x
14,421
As of December 2024
4.1
4.3
4.6
27.9x
4,517
--
*Unemployment data is sourced from the Bureau of Labor Statistics' Current Employment Survey as of December 2024. The survey
determines unemployment rates based on surveys conducted on the 12th of each month. December's data is seasonally adjusted.
**Federal funds rate and US Treasury are data sourced from the Board of Governors of the Federal Reserve System as of December 31,
2024.
***S&P500 price to earnings data is sourced from www.macrotrends.net as of December 31, 2024.
****For the legislative acts, each figure corresponds to the number of banks as of the end of the indicated year. Bank data is sourced from the
Federal Deposit Insurance Corporation (FDIC) as of Q3 2024. This is the latest information available, as of December 31, 2024.
The Investment Act was enacted on August 21, 1958 to allow the SBA to provide inexpensive leverage to investment
firms running SBICs licensed by the SBA. Congress believed an “equity gap” had developed that harmed small
businesses, who did not fit into the typical groups financed by banks, on one end of the spectrum, and institutional
lenders, on the other end, and therefore could not get access to the capital they needed to grow and modernize. Rather
than finance such businesses itself, Congress adopted the Investment Act, which aimed to incentivize private capital to
support small businesses via SBICs, a public-private partnership model. Under SBA regulations, SBICs make loans to
eligible small businesses, as well as invest in the equity securities of such businesses and provide them with consulting
and advisory services.
The CRA was enacted on October 12, 1977 by Congress to encourage financial institutions to meet the credit needs of the
communities in which they do business, with a particular focus on increasing the availability of credit in LMI
communities. As part of this focus, Congress sought to direct more capital to small business, addressing concerns about
the deteriorating conditions of American cities - particularly LMI and minority neighborhoods - and the systemic
inequalities in the banking system that led financial institutions to consume deposits from Working Class Areas and
redirect such capital to wealthier communities. With those concerns in mind, Congress adopted the CRA with a goal to
require banks to keep capital within the same communities that supplied a meaningful portion of the banks' customer base.
The CRA requires federal banking agencies to assess a bank’s record of lending in LMI neighborhoods and to take such
record into account when granting banking licenses. Such agencies also count bank investments into SBICs when
performing such assessment.
The Incentive Act was enacted on October 21, 1980 to support the flow of capital to small, growing companies through a
new kind of investment vehicle called a Business Development Company (“BDC”). The BDC structure focuses on
lending to U.S.-based small and mid-sized businesses. By overlaying certain investor protections of the 1940 Act onto
this new vehicle, while streamlining some of the more onerous regulations applicable to mutual funds, the Incentive Act
permitted a broader type of investors to invest in BDCs, therefore allowing BDCs to raise larger pools of capital than
traditional private funds while being subject to less restrictive regulations than a traditional mutual fund. As part of
Congress' intention to assist small businesses by injecting the expertise of venture capital into their operations, the
Incentive Act requires that BDCs offer significant managerial assistance to portfolio companies, although there is no
requirement for such portfolio companies to accept such assistance.
How We Align our Strategy with Regulatory Intentions
21 To determine whether a borrower is “located” in a Working Class Area, the Company relies on the Borrower’s self-
reported principal place of business, headquarter location and/or whether they have significant operations in such
community.
22 Under present SBA regulations, eligible small businesses generally include businesses (together with their affiliates)
that have a tangible net worth not exceeding $24.0 million and have average annual net income after U.S. federal income
taxes not exceeding $8.0 million (average net income to be computed without benefit of any carryover loss) for the two
most recent fiscal years. In addition, an SBIC must devote 25% of its investment capital to “smaller enterprises” as
defined by the SBA. A smaller enterprise generally includes businesses (including their affiliates) that have a tangible net
worth not exceeding $6.0 million and have average annual net income after U.S. federal income taxes not exceeding $2.0
million (average net income to be computed without benefit of any net carryover loss) for the two most recent fiscal years.
SBA regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible small
business or smaller enterprises, which criteria depend on the industry in which the business (including its affiliates) is
engaged and are based on the number of employees and gross revenue.
While there are multiple benefits to operating a BDC structure, the structure naturally aligns with our strategic intentions
for a number of reasons, including:
• requirement to offer “significant managerial assistance” to portfolio companies, which we believe reduces certain
risk for such companies (including by increasing employee retention, morale and productivity);
• flexibility to partner with SBA and its SBIC program, which provides access to cheaper sources of financing; and
• mandatory quarterly filing requirement with SEC, which we believe provides investors with added transparency.
Legislative Objective
Company Alignment
Company 2030 Goals
Investment
Act
Increase employment
opportunities
Credit for small and medium sized
employers of American workers
Help businesses create / retain
150,000 jobs (with 100,000 being
Working Class Jobs)
CRA
Encourage economic
growth in underserved
communities
Borrowers located in Working-Class
Areas or Substantial Employers of
Working Class People 21
50% borrowers either located in
Working Class Areas or are
Substantial Employers of Working
Class People
Incentive
Act
Foster investment in small,
private U.S. companies and
offer significant managerial
assistance
Worker Solutions®
50% borrowers adopting Worker
Solutions® services or HR policy
changes recommended by Worker
Solutions®
Investment Act
SBICs are designed to stimulate the flow of capital to eligible small businesses 22 and are prohibited from investing in
companies outside of the United States. Due to this focus, we believed it would be in line with our investment strategy to
add SBICs as wholly owned subsidiaries of the Company. On February 1, 2023 and September 12, 2024, respectively, our
wholly owned subsidiaries, LS SBIC and LS SSBIC, received SBIC licenses from the SBA. As a result, Lafayette Square
has access to up to $350.0 million in long-term capital in the form of SBA-guaranteed debentures in accordance with the
SBA’s regulations applicable to SBIC funds under common control. See “ Item 1A. Risk Factors-SBIC LP and SSBIC LP
are licensed by the SBA and is subject to SBA regulations .” Each of LS SBIC and LS SSBIC are able to borrow funds
from the SBA against each of their respective regulatory capital (which approximates equity capital) and is subject to
customary regulatory requirements, including, but not limited to, an examination by the SBA.
We received exemptive relief on September 30, 2024 from the Securities and Exchange Commission (the “SEC”) to
permit us to exclude the debentures guaranteed by the SBA from the 150% asset coverage ratio we are required to
maintain under the 1940 Act. Pursuant to the 150% asset coverage ratio limitation, we are permitted to borrow two dollars
for every dollar we have in assets, less all liabilities and indebtedness not represented by debt securities we issue or loans
we obtain. Due to this exemptive relief, we have increased capacity to fund up to $350.0 million (the maximum amount
of SBA-guaranteed debentures SBICs under common control may currently have outstanding once certain conditions
have been met) of investments with funding from SBA-guaranteed debentures in addition to being able to fund
investments with borrowings up to the maximum amount of debt that the 150% asset coverage ratio limitation would
allow us to incur.
LS SBIC LP and LS SSBIC LP are able to borrow funds from the SBA against their regulatory capital (which
approximates equity capital in LS SBIC LP and LS SSBIC LP) that is paid in and is subject to customary regulatory
requirements, including, but not limited to, periodic examination by the SBA. As of December 31, 2024 and
December 31, 2023 , the Company funded LS SBIC LP and LS SSBIC LP with an aggregate total of $110.0 million and
$82.5 million , respectively, of regulatory capital, and have $ 192.5 million and $31.0 million , respectively, in SBA-
guaranteed debentures outstanding. SBA debentures are non-recourse to us, have a 10 -year maturity, and may be prepaid
at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as
pooling, at a market-driven spread over 10-year U.S. Treasury Notes. Current SBA regulations limit the amount that each
of LS SBIC LP and LS SSBIC LP may borrow to a maximum of $175.0 million , which is up to twice its potential
regulatory capital.
We believe the addition of the SBICs under our BDC structure allows us to specifically target and inject capital into
American businesses that are on the lower end of the middle-market. We believe that these businesses have historically
been underserved by traditional financial institutions and typically lack the capital resources to build a competitive
business and marketing infrastructure on their own. Furthermore, in today’s economic climate, we believe small
businesses have particular difficulty obtaining capital from traditional lending sources. We believe our overarching
investment strategy and the ability to target small businesses through the use of our SBICs will encourage economic
growth in this much-needed sector of our economy.
Community Reinvestment Act
The CRA requires the three U.S. federal bank supervisory agencies, the Federal Reserve Board (“FRB”), the Office of
Comptroller of Currency (“OCC”), and the FDIC, to encourage certain FDIC-insured financial institutions to help meet
the credit needs of their local communities, including Working Class Areas, consistent with the safe and sound operation
of such institutions. Each agency operates under substantially similar rules and regulatory guidance for evaluating and
rating an institution’s CRA performance. These rules vary according to an institution’s asset size and business strategy.
We refer to (i) investments in companies that are either located in Working Class Areas or are Substantial Employers of
Working Class People or (ii) community development and public welfare investments identified as qualifying for CRA
credit under the OCC and/or Federal Reserve guidance, as “LMI Targeted Investments.”
We believe depository institutions may be eligible to receive CRA credit for their indirect investments through the
Company under the existing so-called “investment test” and under the community development financing test to be
implemented under the New CRA Final Rule (defined and described in more detail in “Item 1.A Risk Factors - Insured
depository institution shareholders that are subject to regulatory examination for CRA compliance may fail to obtain
favorable regulatory consideration of their investment under the CRA.”). Specifically, we believe that each of the LMI
Targeted Investments made by the Company are the type of qualifying activities for which an insured depository
institution should be eligible to receive credit under the CRA if such investment were made by the depository institution
directly. Moreover, because we are committing that at least 51% of our investments will be LMI Targeted Investments,
we also believe that an insured depository institution should be eligible to receive CRA credit for its investment in the
Company.
In February 2023 and September 12, 2024, respectively, the SBA approved the Company’s application for SBIC and
SSBIC licenses, which are held by the Company’s subsidiaries, LS SBIC, LP and LS SSBIC, LP, respectively. Insured
depository institutions are generally eligible to receive credit under the CRA for lending to or investing in an SBIC. Given
the investment focus of the SBIC, loans to and investments in it may also be eligible for CRA credit. For these reasons,
depository institutions may also be eligible to receive CRA credit for investments by the LS SBICs in their assessment
area.
In order to substantiate its position that the Company has deployed at least 51% of its invested capital to LMI Targeted
Investments, the Company requires its prospective and actual portfolio companies to deliver supporting data throughout
the term of the loan. Such data may include the borrower’s employment of Working Class People, business locations, and/
or operations in Working Class Areas. This information is designed to be helpful in substantiating a position by an insured
depository institution investor that its investment in the Company should be eligible for CRA credit from the applicable
banking regulator.
However, we cannot offer any assurance that an insured depository institution’s banking regulator would consider an
indirect investment through the Company as CRA eligible. Currently, an investment in the Company is not deemed a
CRA eligible investment by any of the U.S. federal bank supervisory agencies, and the OCC declined to prospectively
confirm that an investment in the Company would qualify as a CRA activity when the Company sought clarity on the
question from the OCC (which was prior to the adoption of the New CRA Final Rule). Since we cannot offer assurance
that an investor in the Company which is subject to CRA requirements will receive CRA credit for its investment in the
Company, insured depository institution investors interested in applying for CRA credit must make their own assessment
as to the likelihood that their banking regulator will grant CRA credit. For more information, see “Item 1.A Risk Factors
- Insured depository institution shareholders that are subject to regulatory examination for CRA compliance may fail to
obtain favorable regulatory consideration of their investment under the CRA.”
Incentive Act
Currently, middle market companies confront numerous labor challenges, including:
• Recruiting and retention of labor, particularly frontline workers (i.e., workers in a non-supervisory capacity who
are required to interact in person with their customers and clients)
• Uneven uptake of traditional workplace benefits (e.g., healthcare) by Working Class employees vs non-Working
Class employees
• Impact of inflation on employees, in particular Working Class People
Our affiliate, Worker Solutions®, seeks to improve the retention, well-being, and productivity of employees by
connecting our portfolio companies with Third-Party Solution Providers and recommending HR policy changes. In doing
this, we aim to help our portfolio companies implement more effective benefits that can support workers and provide
services that are currently not available to them. The Worker Solutions® team intends to coordinate with the human
resources and personnel departments of our portfolio companies to identify appropriate services that would enhance
employee welfare, focusing on a variety of areas such as financial well-being, health and wellness, and education and
training. Where possible, Worker Solutions® aims to analyze existing benefit offerings for portfolio company employees
to improve employee uptake (in particular for Working Class employees) of those benefits (e.g., health care & retirement)
while also encouraging the implementation of new employee benefits more tailored for Working Class employees (e.g.,
matched liquid savings) to mitigate inflationary pressures and improve worker financial security.
We believe our Worker Solutions® platform has the potential to (i) positively affect employee well-being and (ii) enhance
the risk-adjusted financial returns of the portfolio companies (including by increasing employee retention, morale and
productivity). In addition, we view Worker Solutions® as a platform to support financial stability and resiliency for
Working Class employees, especially during periods of elevated inflation, which tend to create disproportionate financial
burdens on Working Class households relative to other income groups because such households spend more of their
income on necessities (such as rent, energy, and food) that have higher than average inflation rates. Through services like
zero percent interest loans for unplanned expenses, credit score support through rent payments, and financial coaching
services targeting increased savings and reduced debt, Worker Solutions® aims to offer ways for employees to reduce
monthly costs in areas such as education and health care. Despite the intentions stated above, we offer no assurance that
these services will have their intended impact or that they will be utilized by the employees of our portfolio companies.
Typically, we offer portfolio companies a small step down on financing costs from the Company if they adopt Qualifying
Human Capital Investments and/or adopt certain other designations (such as B-Corporation status) or human capital
advice, and in some cases, Worker Solutions® will negotiate discounts for them on the services provided by Third-Party
Solution Providers. Through these discounts, we seek to enhance our investment returns in a quantifiable manner, while
also positively affecting our portfolio companies in both quantifiable and qualitative ways by providing relatively low-
cost services and incentivizing a prioritization of employee well-being (as further described below).
Through Worker Solutions®, we seek to reduce risk in the operations of portfolio companies by improving portfolio
company capacity to attract and retain talent and providing increased access to benefits to employees, which we believe
will strengthen employee well-being and may lead to enhanced labor productivity. In addition, we believe Worker
Solutions® can enhance investment returns if we are able to negotiate discounts on our own financing arrangements based
upon the amount of capital we deploy to businesses that meet certain defined criteria, such as operating in or substantially
employing Working Class Areas. While our current facility features this discount arrangement, we can offer no assurance
that we will be able to secure any similar financing arrangements in the future. Also, while we believe the discounts we
have negotiated with our current credit facility may at least partially offset any step downs we offer our borrowers, such
an offset may not be material. However, while a portion of the cost of providing such services will likely be borne by the
Company and, ultimately, by the Company's shareholders, we believe that this investment in employee services will
improve the operating capabilities of our portfolio companies and, over time, improve our investment returns.
Tracking Progress Towards the 2030 Goals
To measure our progress towards these goals and understand the demographic data of employees in our portfolio
companies, we track the locations of our portfolio companies and the Working Class status of their employees. For these
purposes, we rely on feedback from our portfolio companies to obtain information about the status and well-being of their
employees. We cannot guarantee the accuracy of the information provided to us by our portfolio companies, and the
metrics used by different portfolio companies to calculate such information varies significantly. However, based on our
analysis, we believe that deployment of our capital and the adoption of Qualifying Human Capital Investments
recommended by our Worker Solutions® platform for our portfolio companies can improve the lives of their employees
as reflected through a variety of statistical measures.
As of December 31, 2024:
• 51.1% of our portfolio (and 51.6% of the transactions where we were lead agent) were invested in borrowers
who are either located in Working Class Areas or are Substantial Employers of Working Class People, with
9,611 Working Class People employed out of a total of 21,143 employees.
• In addition, with respect to engagement by our current portfolio companies with Qualifying Human Capital
Investments, as of December 31, 2024, 44% of the transactions where we were lead agent (32% of our overall
Portfolio Companies) had adopted Qualifying Human Capital Investments (for a total of seven Third-Party
Solution Providers and nine HR policy changes deployed).
• Regarding all companies that have been part of our portfolio since the inception of the Company, as of December
31, 2024, 44% of the transactions where we were lead agent (31% of all Portfolio Companies) had adopted
Qualifying Human Capital Investments (for a total of seven Third-Party Solution Providers and nine HR policy
changes deployed).
• Of the 21,143 workers employed through our portfolio companies, 2,547 workers have utilized the services of
the Third-Party Solution Providers and/or qualifying policy changes.
• Overall, a total of 4,651 workers have access to improved benefits through Qualifying Human Capital
Investments.
By comparison, as of December 31, 2023:
• 50.1% of our portfolio (and 57.0% of the transactions where we were lead agent) were invested in borrowers
who were either located in Working Class Areas or were Substantial Employers of Working Class People, with
6,497 Working Class People employed out of a total of 15,494 employees.
• In addition, with respect to engagement by our portfolio companies of Qualifying Human Capital Investments, as
of December 31, 2023, 41.7% of the transactions where we were lead agent (and 26.3% of our overall Portfolio
Companies) had adopted Third-Party Solution Providers (for a total of five Third-Party Solution Providers), with
447 workers served and a total of 3,295 workers with access to services.
Over time, we believe our portfolio companies' uptake of Qualifying Human Capital Investments, in combination with our
capital, will contribute to an improvement in below metrics, shown over the p ast two years:
23 Turnover rates are calculated by dividing the total terminations, voluntary and involuntary, for the period by the average
number of employees who worked during or received pay for the same period. National turnover includes private
employee data from the U.S. Bureau of Labor Statistics - Job Openings and Labor Turnover Survey for calendar year
2024. Data was extracted as of February 18, 2025.
24 Change Since Initial Investment Average is taken as the average of all portfolio companies' change in turnover, medical
care participation or retirement participation since the BDC's initial investment, otherwise known as deal close date, with
the portfolio company. A negative value indicates turnover has decreased since initial investment. Where data wasn't
available in the same quarter as the initial investment, the next available quarter's data was used. Based on 11 out of 34
portfolio companies' current human capital data made available to Lafayette Square.
25 Medical Care Benefits are plans that provide services or payments for services rendered in the hospital or by a qualified
medical care provider. Participation is calculated from the unrounded percentage of workers who participate in the plan.
19 employees from portfolio companies who did not provide medical care benefits data to the Company were not included
in this calculation. National private sector medical care and retirement benefits participation data are sourced from the
U.S. Bureau of Labor Statistics - March 2024 National Compensation Survey.
26 Retirement Benefit plans includes defined benefit pension plans and defined contribution retirement plans. Participation
is calculated from the unrounded percentage of workers who participate in the plan. National private sector medical care
and retirement benefits participation data are sourced from the U.S. Bureau of Labor Statistics - March 2024 National
Compensation Survey.
27 National median income 1-year data is from the U.S. Census Bureau - American Community Survey. This is the most
recent data available as of Oct 2024. Median family income is used to calculate individual LMI per CRA guidelines. The
metric is included at the national level to serve as a similar-but not exact-comparison.
28 Cumulative debt prevented through third-party solution provider HoneyBee, resulting from 146 total workers across
two portfolio companies and 1,551 workers total with access to the service. Savings relative to high-cost lending products
calculated by using the average payday loan APR (~400%), average loan amount of $212, and an assumed 5-month
repayment period (the average time it takes to repay payday loans). https://www.incharge.org/debt-relief/how-payday-
loans-work.
Portfolio Company Human Capital Data
December 31, 2024
December 31, 2023
Employee Turnover 23
Portfolio Company Average (Annually)
47.3%
58.8%
National Average (Annually)
44.3%
48.2%
Change Since Initial Investment Average 24
(5.4)%
1.2%
Participation in
Medical Care
Benefits 25
Portfolio Company Average (Quarterly)
46.0%
37.5%
National Average (Annually, As of March 2024)
45%
Change Since Initial Investment Average
2.5%
5.2%
Participation in
Retirement Benefits 26
Portfolio Company Average (Quarterly)
39.1%
29.2%
National Average (Annually, As of March 2024)
53%
Change Since Initial Investment Average
2.1%
4.2%
Median Employee
Income
LMI Employee Median Income (Annually)
$41,600
$37,440
Non-LMI Employee Median Income (Annually)
$98,772
$86,706
National Median Family Income (Annually, As of
2024) 27
$96,401
As of December 31, 2024, among our portfolio companies that have adopted Third-Party Solution Provider services, 137
total workers across three portfolio companies have cumulatively saved $53,565 in emergency savings, 146 workers
across two portfolio companies combined have prevented an estimated $106,568 in debt 28 through small-dollar, zero-
interest loans, 43 workers from one portfolio company are building their credit scores through monthly rent reporting, and
seven workers from one portfolio company have cumulatively participated in 42 one-on-one financial coaching sessions
to better their financial wellness. Additionally, three portfolio companies have each adopted nine recommended HR policy
changes to expand benefits access and participation for employees, serving 2,547 workers combined.
In addition to supporting human capital investments and outcomes at our portfolio companies, Worker Solutions® has
provided enhanced managerial assistance to companies and projects affiliated with our portfolio companies. This effort
includes providing credit building through rent reporting services to 1 residential property where 489 tenants have
enrolled in credit building services out of a total of 493 residents (99.2% uptake). Of the 489 residents who are
participating in the rent reporting program, 10 of these residents established a new credit file or became “credit visible” to
the consumer credit bureaus. These newly credit visible residents posted an average credit score of 683 at the end of the
recent reporting period. Since enrollment in the rent reporting program, these residents have posted an average credit
score improvement of 32 points, an average credit score of 640; overall, 41% of these residents improved their credit
score, with 6% of the overall resident group increasing their credit score above 660 - typically considered the subprime-
prime threshold.
As of December 31, 2024, a grand total of 2,547 individuals have been served through Worker Solutions® for Lafayette
Square portfolio companies and projects affiliated with portfolio companies.
The Company rewards portfolio companies with an interest rate step down when they adopt Qualifying Human Capital
Investments that we believe will enhance employee well-being and improve retention. As of December 31, 2024, we have
rewarded a combined total of $265,934 to portfolio companies through interest rate step down savings for their adoption
of Qualifying Human Capital Investments.
Competition
Our primary competitors include other private credit funds, BDCs, SBIC funds, and, to a lesser extent, regional banks,
mezzanine lenders, collateralized loan obligation vehicles, and, to the extent they provide an alternative form of financing,
private equity funds. Some of our competitors are substantially larger and have considerably greater financial and
marketing resources than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions that
the Investment Company Act imposes on us as a BDC. For more information concerning the competitive risks we face,
see “ Risk Factors-Risks Relating to Our Business and Structure - We operate in a highly competitive market for
investment opportunities, which could reduce returns and result in losses .”
We believe that the combination of our use of our proprietary data analytics platform, Potomac x Lafayette Square™ to
identify, underwrite and monitor investment opportunities, our offer and delivery of enhanced managerial assistance
through Worker Solutions® to portfolio companies, and our focus on non-sponsored deals allows us to compete
effectively in this market.
About Our Portfolio Companies
Our current portfolio consists of borrowers from a variety of sectors, with locations in eight of our ten Target Regions.
The map below illustrates (to the extent we have the information from portfolio companies) the location of portfolio
company headquarters and where portfolio company employees work in comparison to Working Class and non-Working
Class census tracts .
29 Based on information provided by each portfolio company to the Company.
Portfolio Company Headquarter and Employee Work Locations
«
Portco Headquarters
•
Rotolo Consultants, Inc.
•
Synergi, LLC
•
Dartpoints Operating Company, LLC
•
Medical Specialists of the Palm Beaches, Inc.
•
Ironhorse Purchaser, LLC
•
Break the Floor Productions, LLC
•
M&S Acquisition Corp
•
Best Friends Pet Care Holdings, Inc.
•
El Contra de Estudiantes
•
Café Zupas Franchising, LLC
•
GK9 Global Companies, LLC
•
Zero Waste Recycling, LLC
•
Direct Digital Holdings, LLC
•
C Speed LLC
•
Rock Gate Capital, LLC
•
Standard Real Estate Investments LP
•
XPect Solutions, LLC
•
Med Learning Group, LLC
n
LMI Census Tract
n
Non-LMI Census Tract
The tables that follows provides an overview of key metrics related to our current portfolio. These metrics are explained
in detail in the remainder of this document:
December 31, 2024
December 31, 2023
Total Assets (in millions)
$771
$386
Portfolio Companies
Weighted Average EBITDA (in millions)
$22.2
$22.4
Worker Solutions® Adoption (Lead Agent Only)
44%
42%
Weighted Average Yield
11.4%
12.8%
Distribution Rate
8.9%
8.2%
Distributions Declared (in millions) - Inception to Date
$37.7
$9.1
Incentive for Worker Solutions® - Inception to Date
$265,934
$42,302
The table that follows provides further details of our portfolio companies' business objectives, sectors, and headquarters as
organized by region and zip code:
#
Portfolio Company
Name
Portfolio Company Description
Sector
Headquarter
Zip Code 29
160 Driving
Academy (a/k/a
Rock Gate Capital,
LLC)
Headquartered in Chicago, Illinois, 160 Driving is one
of the largest vocational training schools for
commercial driving in the U.S, operating through 3
business segments: Commercial Driving School
Education & Training, Driver Scoring / Safety
Platform, and Experienced Driver Job Search
Network.
Road & Rail
3360 Frankford LLC
SHIFT and Voyage Investments, a Latino-owned real
estate firm with Kensington roots are repurposing
3360 Frankford as the new home of El Centro de
Estudiantes Big Picture Philadelphia School, a non-
traditional, alternative high school that provides
educational and occupational pathways for Philly’s
Opportunity Youth, aged 16-21, who have previously
disengaged from high school because traditional
models of education don’t work for them.
Education
Aetius Holdings,
LLC
Aetius Holdings, LLC is a holding company managed
by private equity firm Axum Capital Partners that
owns an entertainment and comfort-themed casual
dining brand with locations across the United States.
Hotels, Restaurants
& Leisure
Best Friends Pet
Care Holdings, Inc.
Best Friends Pet Care Holdings, Inc. provides an array
of services under one roof including boarding, doggy
day camp, and grooming. Some also include
veterinary clinics and training.
Specialized
Consumer Services
CentralBDC
Enterprises, LLC
CentralBDC Enterprises, LLC is a company that
provides dealership solutions for Sales and Service
BDCs, internet lead responses, and training to
maximize marketing dollars. They have been
operating since 2010 and currently partner with over
1200 dealerships in the US and Canada. The company
aims to streamline dealership operations and enhance
customer experience through the use of digital
technologies.
Software
C Speed LLC
C Speed engineers and delivers radar systems,
subsystems, and subsystem solutions for civilian and
military use globally. The team has over 30 years of
experience in the radar industry with specialization in
cutting-edge radar receiver, exciter, and signal
processors.
Industrials
Café Zupas
Franchising, LLC
Café Zupas Franchising, LLC owns and operates fast-
casual restaurants in Utah and Arizona. The company
offers soups, specialty salads, sandwiches, and
desserts. It also provides catering services. Café Zupas
Franchising, LLC was founded in 2006 and is based in
West Jordan, Utah.
Restaurants
Capital City LLC
Capital City is a B2C company that sells DC specialty
food condiment Mumbo Sauce.
Food & Staples
Retailing
Core Capital
Partners II-S LP
Core Capital Partners develops and offers a payment
gateway for merchants. It offers various transaction
solutions, including mobile payments, cashless
solutions, virtual and remote terminals, payment
processing, intelligent analysis, routing of promotions,
incentives, and customer relationship management
services.
Diversified
Financials
Dance Nation
Holdings, LLC
Dance Nation Holdings, LLC is a dance entertainment
company encompassing touring theatrical productions,
dance workshops, photo and video production,
corporate events and apparel.
Leisure Facilities
DartPoints
Operating Company,
LLC
DartPoints Operating Company, LLC is a provider of
co-location, cloud, cybersecurity, and enabler of
advanced solutions, including artificial intelligence,
machine learning, and high-performance computing.
IT Services
Direct Digital
Holdings, LLC
Direct Digital Holdings, LLC is an efficiency-focused
solutions provider in the digital marketing and
advertising sector, serving direct advertisers, agencies,
publishers, and marketers.
Media
GK9 Global
Companies, LLC
GK9 Global Companies, LLC is an independent
provider of canine screening services to the air cargo
industry under the TSA’s third-party canine program.
The company serves as an outsourced compliance
function for its customers who are liable for the safety
of the cargo they handle and/or ship.
Commercial
Services & Supplies
H.W. Lochner, Inc.
H.W. Lochner, Inc. offers a full suite of engineering
and design services for transportation-focused
infrastructure (including tollway authorities, cities and
counties, and general and commercial aviation
authorities) to high growth end markets across the
United States.
Construction &
Engineering
Ironhorse Purchaser,
LLC
Ironhorse Purchaser, LLC provides specialty asset
rental solutions for the containment of liquid & solid
waste along with complementary waste hauling and
“in-the-fence” coordination solutions.
Environmental and
Facilities Services
M&S Acquisition
Corporation
Marshall & Stevens Acquisition Corporation is a
leading provider of independent valuation and
advisory services to middle market companies,
providing multi-disciplinary solutions for independent
assessments of corporations, debt and equity
instruments, infrastructure, intangible assets,
machinery and real estate. The Company services a
broad spectrum of both publicly traded and privately
held clients, including large banks and financial
institutions, consumer product companies, commercial
real estate firms, healthcare services companies,
industrial and infrastructure companies, investment
funds, non-profit organizations, professional
associations and technology companie
Professional
Services
Med Learning
Group LLC
Med Learning Group, LLC operates online platform in
the field of continuing medical education. It develops
interactive, case-based, patient-centric live and online
continuing medical education (CME) activities for
healthcare professionals.
Consumer
Discretionary
Medical Specialists
of the Palm Beaches,
Inc.
Medical Specialists of the Palm Beaches, Inc. operates
as a primary care-focused, multi-specialty physician
group practice, serving South Florida. It offers
primary care, cardiology, neurology, hematology/
oncology, concierge medicine, and laboratory
services.
Health Care
Equipment &
Services
National Carbon
Technologies -
California, LLC
National Carbon Technologies - California, LLC
creates bioproducts that replace fossil fuels and reduce
emissions in large global industries.
Independent Power
& Renewable
Electricity Producer
Neighborhood
Grocery Catalyst
Fund LLC
The Neighborhood Grocery Catalyst Fund LLC team
takes pride in creating great omni-channel grocery-
anchored shopping experiences and improving
communities, one shopping center at a time.
Food Retail
Oakwell Holding
LLC
Oakwell provides sustainability engineers to health
systems that eliminate unnecessary operating
expenses. Additionally, Oakwell unearths real estate
and infrastructure optimization opportunities that save
money in the short and long term. Uniquely, Oakwell
provides financing for health systems that desire
financing to improve profitability, reduce carbon
footprints, and ultimately improve patient care.
Professional,
Scientific, and
Technical Services
Puris LLC
PURIS provides end-to-end water infrastructure
renewal solutions, specializing in environmentally
sustainable trenchless pipeline rehabilitation. It is
home to an industry-leading family of brands with
over 150 combined years in business.
Utility
Rotolo Consultants,
Inc.
Rotolo Consultants, Inc. is a southeast regional
landscaping service business headquartered in
Louisiana serving a multi-state commercial market.
The company started with corporate landscape
installation and later added property management and
hardscape aquatic businesses
Commercial
Services & Supplies
Salt Dental
Collective, LLC
Salt Dental Collective, LLC is a Dental Service
Organization focused on pediatric dentistry and
orthodontics, with dozens of locations across
Washington, Oregon, Idaho, and Arizona.
Health Care
Providers &
Services
Standard Real Estate
Investments, LP
Standard Real Estate Investments, LP is a minority-
owned and controlled real estate private equity firm
that manages capital on behalf of institutions and
specializes in real estate development investments.
Real Estate
Management &
Development
Synergi, LLC
Synergi, LLC is a specialty engineering &
construction services company that designs, fabricates,
and installs engineered modular staircases and
architectural features for landmark properties across
North America.
Construction &
Engineering
TCFIII Owl Buyer
LLC
Oscar W. Larson Company provides full-service
petroleum and fluid handling equipment contracting
services. The company offers mechanical, electrical,
and HVAC equipment contracting, excavation,
remodeling, and installation services, as well as tank
installation and removal, environmental remediation,
site development, demolition, fleet fueling, site design
and analysis, and architectural services. The company
serves automotive, airline, marine, petroleum,
restaurant, convenience stores, and service industries.
Construction &
Engineering
Trilon Group, LLC
Trilon Group, LLC is a platform of engineering
services companies that provide planning and design
services for mission critical infrastructure.
Construction &
Engineering
truCurrent LLC
truCurrent delivers a smart energy transition and
infrastructure roadmap that aligns asset deployments
to performance risks and operating mandates - thus
optimizing cost, calendar and carbon goals over the
coming decade by integrating on-site, off-site and
mobile energy solutions into one nationwide network
of virtual and physical power plants.
Industrials
Worker Solutions,
LLC
Worker Solutions is Lafayette Square’s managerial
assistance platform designed to connect portfolio
companies with enhanced benefits to improve
recruitment, retention, and productivity.
Professional
Services
LC Hospitality, LLC
LC Hospitality Group LLC is a well-established
company based in New Orleans, LA, specializing in
providing a range of hospitality services to clients in
the local area.
Consumer Services
Xpect Solutions, Inc.
XPECT Solutions, Inc. (Xpect), headquartered in
Bristow, VA, is a small, information technology (IT)
firm. Founded in 2004, Xpect has built a strong
reputation for providing quality resources for a wide
range of IT solutions. Xpect is an area leading systems
integrator of innovative IT professional services,
hardware, and software solutions to Federal, State and
Local Governments as well as Fortune 1000
customers.
IT Services
Zero Waste
Recycling, LLC
Zero Waste Recycling, LLC provides outsourced
waste management services to corporations in South
and North Carolina. Zero Waste specializes in
processing, collecting, and selling waste by-products
and provides end-to-end waste management services,
including integrated management, janitorial services,
warehousing & inventory management, mechanical
maintenance, on-site trucking, and scrap & plastic
hauling to companies.
Commercial
Services & Supplies
ZRG Partners, LLC
ZRG Partners, LLC provides senior level executive
search and human capital management services. It
offers senior level retained search, mid-management
and important contributor recruitment solutions, RPO
on Demand for bulk hiring and project hiring needs,
and licensing and usage of its products to improve
internal hiring.
Commercial and
Professional
Services
Investment Process
The Adviser is responsible for the origination, underwriting, structuring, and monitoring of our investments. The Adviser
intends to organize the investment process into nine stages:
(i) Origination;
(ii) Initial Screening;
(iii) Broad Screening and Preliminary Due Diligence;
(iv) Comprehensive Due Diligence & Structuring;
(v) Investment Committee Approval;
(vi) Closing;
(vii) Portfolio Monitoring;
(viii) Risk Management; and
(ix) Valuation (as described in more detail in “ Item 1. Business - Valuation Procedures" ).
The investment team and Investment Committee are responsible for stages i-vi, and the portfolio management team is
responsible for stages vii-ix, in each case as further described below. The format of the Investment Process, and its
application to any particular deal(s), may change in the future without notice to shareholders.
Origination
The Adviser's senior investment professionals have networks and long-term relationships with management teams,
industry experts, and financial intermediaries within the United States. We source investment opportunities from various
sources, including management teams, family offices, investment bankers, financial intermediaries, accounting firms, law
firms, and private equity sponsors.
Initial Screening
The Adviser screens potential investment opportunities on a consistent and thorough basis. Upon receiving a new
opportunity, the Adviser staffs the opportunity with a deal team typically consisting of a senior and junior underwriter
which produces a preview memorandum outlining the opportunity, company details, summary financials, investment
highlights, and a discussion of the key risks and mitigants for review by the investment team. At this stage, key initial
diligence items, if any, are flagged for follow up.
Broad Screening and Preliminary Due Diligence
If the opportunity passes Initial Screening on its merits, the preview memorandum, incorporating any feedback from the
Initial Screening phase-including answers to preliminary due diligence questions-is presented again to the broader
investment team as well as to our Adviser’s Chief Risk Officer (the “CRO”) and representatives from the portfolio
management and legal & compliance teams. Should the CRO and the wider investment team collectively determine that
an opportunity be pursued, the deal team will negotiate a preliminary term sheet with the borrower and seek to obtain
exclusivity. Next, the deal will proceed to an intensive due diligence process, tailored to the transaction’s specific risks.
Comprehensive Due Diligence & Structuring
The deal team, led by a senior underwriter, conducts due diligence of the opportunity and produces a full investment
analysis. This will typically include:
• discussion of the sources and uses and the transaction rationale;
• a qualitative and quantitative assessment of the company;
• an analysis on the defensibility of its business model;
• a review and assessment of whether the company’s performance and operating metrics qualify it as an LMI
Targeted Investment;
• analysis of competitive and industry dynamics;
• a comprehensive financial review of management and third-party financial information including, in most cases,
a quality of earnings report;
• a meeting(s) with management and owners;
• sensitivity testing of company projections for key input factors;
• a valuation analysis with transaction comparables, publicly traded comparables, and discounted cash flow
analysis;
• calls with key customers and independent expert advisors;
• review of loan documentation, accompanied by outside counsel and;
• legal and compliance diligence, including reference and background checks.
We seek to maximize risk-adjusted return, aiming to structure investments to include features such as:
• cash coupon and closing fees from providing current income and current return of capital;
• contractual amortization;
• comprehensive collateral packages, typically including a first lien on all assets and the company’s stock;
• other situational rights and remedies; and
• conditions precedent for closing the transaction.
Investment Committee Approval
After Comprehensive Due Diligence and Structuring is complete, the deal team presents an investment memorandum to
the Investment Committee. The Investment Committee assesses the merits of the proposed transaction based on the
materials presented and applies their significant investment experience to determine whether to proceed with a potential
investment.
Closing
Once approved, the deal team works towards closing and funding the investment. If there are any material changes to the
investment that occur following Investment Committee approval, the deal team must notify the Investment Committee and
seek its consent to proceed. Key data are captured and logged as part of each closing process and, once closed, the deal
team produces a closing memorandum.
Portfolio Monitoring and Risk Management
Ongoing monitoring and risk management of each asset is conducted by our Adviser's portfolio management team under
the supervision of the Chief Risk Officer. The portfolio management team is distinct and separate from the Adviser's
investment team, and has primary responsibilities to:
• formally monitor portfolio companies post-investment on an ongoing basis;
• perform quarterly valuations of all assets in partnership with third-party valuation agent(s);
• maintain and update internal and external asset ratings;
• oversee BDC-level monitoring;
• lead amendment, “work out,” or restructurings processes.
The portfolio management team monitors the financial trends of each portfolio company to determine if it is meeting its
respective business plan and to assess the appropriate course of action with respect to our investment in each portfolio
company. The portfolio management team 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:
• periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic
sponsor, to discuss financial position, requirements and variants from approved budgets and internal projections;
• assessment of performance relative to business plan and key operating metrics and compliance with financial
covenants;
• assessment of performance relative to industry benchmarks or portfolio comparables, if any;
• attendance at and participation in board meetings and lender calls; and
• review of monthly, quarterly and annual financial statements and financial projections of portfolio companies.
Mandatory reports from portfolio companies typically include: (1) a quarterly financial reporting package, including
financial statements and compliance certificates, and (2) annual audited financial statements presented in accordance with
generally accepted accounting principles. The Adviser uses this data, alongside an ongoing review and analysis to identify
risk factors.
As part of the monitoring process, our Adviser employs an internal investment rating system to categorize our
investments. In addition to various risk management and monitoring tools, our Adviser rates the credit risk of all
investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the
underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the
time of origination or acquisition), although it may also take into account the performance of the portfolio company’s
business, the collateral coverage of the investment and other relevant factors. These internal risk ratings do not
constitute ratings of investments by a nationally recognized statistical rating organization. The rating system is as
follows:
Investment Rating Scale
1. Involves the least amount of risk to our initial cost basis. The borrower is performing above
expectations, and the trends and risk factors for this investment since the time of origination or acquisition are
generally favorable which may include the performance of the portfolio company or a potential exit.
2. Involves an acceptable level of risk that is similar to the risk at the time of origination or acquisition.
The borrower is generally performing as expected and the risk factors are neutral to favorable. All investments or
acquired investments in new portfolio companies are initially assessed a rating of 2.
3. Involves a borrower performing below expectations and indicates that the loan’s risk has increased since
origination or acquisition. The borrower could be out of compliance with debt covenants; however loan
payments are generally not past due.
4. Involves a borrower performing materially below expectations and indicates that the loan’s risk has
increased materially since origination or acquisition. In addition to the borrower being generally out of
compliance with debt covenants, loan payments may be past due (but generally not more than 120 days past due)
5. Involves a borrower performing substantially below expectations and indicates that the loan’s risk has
increased substantially since origination or acquisition. Most or all of the debt covenants are out of compliance
and payments are substantially delinquent. Loans rated 5 are not anticipated to be repaid in full and we will
reduce the fair market value of the loan to the amount we anticipate will be recovered.
The Adviser monitors and, when appropriate, changes the Internal Risk Rating assigned to each investment in our
portfolio. In connection with our valuation process, the Adviser reviews these Internal Risk Ratings on at least a quarterly
basis. This process is overseen and maintained by the portfolio management team. We make no guarantee as to the rating
accuracy or performance of investments contained in our portfolio.
Private Offering
Our initial private offering of shares of common stock, $0.001 par value per share ("Common Stock") was conducted in
reliance on Regulation D under the Securities Act (“Regulation D”). Any investors in our initial private offering were
required to be “accredited investors” as defined in Regulation D of the Securities Act. The criteria required of Regulation
D under the Securities Act may not apply to investors in subsequent offerings.
We entered into subscription agreements with investors in this private offering. Each investor made a capital commitment
to purchase shares of Common Stock pursuant to a subscription agreement (a “Subscription Agreement”). Investors are
required to make capital contributions to purchase shares of Common Stock each time we deliver a drawdown notice,
which notice is delivered at least eight business days prior to the required funding date, in an aggregate amount not to
exceed their respective Capital Commitments. All purchases will generally be made pro rata in accordance with the
investors’ Capital Commitments, at a per-share price as determined by the Company’s board of directors (the “Board”),
including any committee thereof, which price will be determined prior to the issuance of such shares of Common Stock
and in accordance with the limitations under Section 23 of the 1940 Act. The Board may set the per-share price above the
net asset value per Share based on a variety of factors, including the total amount of our organizational and other
expenses. Prior to a Liquidity Event (defined below in the section entitled “Term”), no investor who participated in the
private offering will be permitted to sell, assign, transfer or otherwise dispose of its shares of Common Stock or Capital
Commitment unless we provide our prior written consent and the transfer is otherwise made in accordance with applicable
law.
Closings
On December 22, 2021, we completed our initial closing of capital commitments for shares of our Common Stock issued
in the Private Offering (the "Initial Closing"), and we have held additional closings subsequent to the Initial Closing. As
of March 14, 2025 , we have received signed Subscription Agreements totaling approximatel y $475.3 million - however,
due to investor concentration limits agreed to with certain investors, we have only accepted approximately $ 409.8 million
to date. We expect to continue to hold additional closings subsequent to the Initial Closing.
Catch-up Purchases
We will permit, subject to our sole discretion, additional closings from time to time thereafter, and we reserve the right to
conduct additional offerings of securities in the future in addition to the initial private offering. In the event that we enter
into a Subscription Agreement with one or more investors after the initial drawdown from its non-affiliated investors (the
"Initial Drawdown"), each such investor will be required to make purchases of shares of Common Stock (each, a “Catch-
up Purchase”) on one or more dates to be determined by us. The aggregate purchase price of the Catch-up Purchases will
be equal to an amount necessary to ensure that, upon payment of the aggregate purchase price, such investor will have
contributed the same percentage of its Capital Commitment to us as all investors whose subscriptions were accepted at
previous closings. Catch-up Purchases will be made at a per-share price as determined by our Board (including any
committee thereof), which price will be determined prior to the issuance of such shares of Common Stock and in
accordance with the limitations under Section 23 of the 1940 Act. In order to more fairly allocate organizational expenses
among all of our stockholders, investors subscribing after the Initial Drawdown will be required to pay a price per share
above net asset value reflecting a variety of factors, including the total amount of our organizational and other expenses.
Default
In addition to all legal remedies available to us, failure twice by an investor to purchase additional shares of Common
Stock when requested will (following a cure period of ten business days) result in that investor being subject to certain
default provisions set forth in the Subscription Agreement. Defaulting investors may also forfeit their right to participate
in purchasing additional shares on any future drawdown date or otherwise participate in any future investments in shares
of our Common Stock.
Under certain subscription line credit facilities into which we may enter, we may pledge our right to make capital calls of
stockholders as collateral to a lender, which will be able to call for capital contributions upon the occurrence of an event
of default under such credit facility. To the extent such an event of default does occur, stockholders could be required to
fund any shortfall up to the amount of their remaining Capital Commitments, without regard to the underlying value of
their investment.
Term
The Company’s term is perpetual. Subject to market conditions and Board approval, we will target a Liquidity Event
within seven years following the completion of our initial offering stage.
If we have not consummated a Liquidity Event, as defined below, by the tenth anniversary following the completion of
our offering stage, as such period may be extended by up to one additional year pursuant to the Adviser’s
recommendation and the approval of the Board, the Board (subject to market conditions and any necessary approvals of
our stockholders and applicable requirements of the 1940 Act) will use commercially reasonable efforts to wind down,
sell and/or liquidate and dissolve the Company in an orderly manner (the “Wind-Down Period”).
We define a “Liquidity Event” as any of: (1) a quotation or listing of our Common Stock on a national securities
exchange, including an initial public offering (an “Exchange Listing”) or (2) a Sale Transaction. A “Sale Transaction”
means (a) the sale of all or substantially all of our capital stock or assets to, or another liquidity event with, another entity
or (b) a transaction or series of transactions, including by way of merger, consolidation, recapitalization, reorganization, or
sale of stock in each case for consideration of either cash and/or publicly listed securities of the acquirer. Potential
acquirers could include entities that are not BDCs that are advised by the Adviser or its affiliates.
At any time during the Wind-Down Period, the Board may seek stockholder approval to enter into a transaction (an
“Accelerated Liquidity Event”) in which we would sell all or substantially all of our assets to, or another liquidity event
with, an entity for consideration of cash and/or publicly listed securities of the acquirer. Potential acquirers could include
entities that are not BDCs that are advised by the Adviser or its affiliates. For the avoidance of doubt, an Accelerated
Liquidity Event does not include an initial public offering or listing on a national securities exchange of the Common
Stock.
Prior to the occurrence of a Liquidity Event, our Common Stock may not be sold without the written consent of the
Company.
Investment Advisory Agreement
Under the Investment Advisory Agreement, the Adviser manages the day-to-day operations of, and provides investment
advisory services to, the Company. The Board most recently approved the renewal of the Investment Advisory Agreement
in June 2024. The Adviser is a registered investment adviser with the SEC. The Adviser receives fees for providing
services, consisting of two components, a base management fee and an incentive fee. In addition, we will reimburse the
Adviser for certain expenses it incurs on our behalf beginning in the period of our Initial Drawdown.
For more information regarding potential conflicts of interest between us and our Adviser, see the risk factors entitled
“ There are significant potential conflicts of interest that could affect our investment returns ”, as well as “ Item 13. Certain
Relationships and Related Transactions, and Director Independence .”
Base Management Fee
The base management fee is payable quarterly in arrears beginning in the period of its Initial Drawdown at an annual rate
of (i) prior to a Liquidity Event, 0.75%, and (ii) following a Liquidity Event, 1.00%, in each case of the average value of
our gross assets (gross assets equal the total assets of the Company as set forth on the Company’s balance sheet) at the end
of the two most recently completed calendar quarters. For services rendered under the Investment Advisory Agreement,
the base management fee will be payable quarterly in arrears. No management fee will be charged on committed but
undrawn capital commitments. Base management fees for any partial month or quarter will be appropriately pro-rated.
The Adviser and its affiliates, at their own expense and out of their own assets, may make payments to, or enter into
arrangements with, financial intermediaries or other persons in consideration of services, arrangements, significant
investments in shares of our Common Stock or other activities that the Adviser and its affiliates believe may benefit our
business, facilitate investment in our Common Stock or otherwise benefit our stockholders. Payments of the type
described above are sometimes referred to as profit-sharing payments.
Incentive Fee
We will also pay the Adviser an incentive fee consisting of two parts: (1) an incentive fee, determined and paid quarterly,
based on pre-incentive fee net investment income of the Company (the “ Income-Based Fee ”) and (2) an incentive fee,
determined and paid in arrears, based on net capital gains as of the end of each calendar year or upon the termination of
the Investment Advisory Agreement (the “ Capital Gains Fee ”), which are described in more detail below.
(1) Incentive Fee on Pre-Incentive Fee Net Investment Income
The portion based on our income is based on Pre-Incentive Fee Net Investment Income Returns. “ Pre-Incentive
Fee Net Investment Income Return s ” means, as the context requires, either the dollar value of, or percentage rate of return
on the value of our net assets at the end of the immediately preceding quarter from, interest income, dividend income and
any other income (including any other fees (other than fees for providing managerial assistance), such as commitment,
origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued
during the calendar quarter, minus our operating expenses accrued for the quarter (including the management fee,
expenses payable under the Administration Agreement ), and any interest expense or fees on any credit facilities or
outstanding debt and distributions paid on any issued and outstanding preferred shares, but excluding the incentive fee).
Pre-Incentive Fee Net Investment Income Returns include, 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. See the
risk factor entitled “ There are significant potential conflicts of interest that could affect our investment returns - Our
management and incentive fee structure may create incentives for the Adviser that are not fully aligned with the interests
of our stockholders and may induce the Adviser to make speculative investments .”
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 immediately preceding quarter, is compared to a “ hurdle rate ” of return of 1.25% per quarter (5.0%
annualized).
Prior to a Liquidity Event, 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%;
• 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 1.47% (5.88% annualized). We refer to this portion of our Pre-Incentive Fee Net Investment
Income Returns (which exceeds the hurdle rate but is less than 1.47%) as the “catch-up.” The “catch-up” is
meant to provide the Adviser with approximately 15% of our Pre-Incentive Fee Net Investment Income Returns
as if a hurdle rate did not apply if this net investment income exceeds 1.47% in any calendar quarter; and
• 15% of the dollar amount of our Pre-Incentive Fee Net Investment Income Returns, if any, that exceed a rate of
return of 1.47% (5.88% annualized). This reflects that once the hurdle rate is reached and the catch-up is
achieved, 15% of all Pre-Incentive Fee Net Investment Income Returns thereafter are allocated to the Adviser.
Pre-Incentive Fee Net Investment Income Returns Prior to a Liquidity Event
(expressed as a percentage of the value of net assets)
Percentage of Pre-Incentive Fee Net Investment Income
Allocated to Quarterly Incentive Fee
Following a Liquidity Event, we will 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%;
• 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 1.47% (5.88% annualized). The “catch-up” is meant to provide the Adviser with approximately
17.5% of our Pre-Incentive Fee Net Investment Income Returns as if a hurdle rate did not apply if this net
investment income exceeds 1.47% in any calendar quarter; and
• 17.5% of the dollar amount of our Pre-Incentive Fee Net Investment Income Returns, if any, that exceed a rate of
return of 1.52% (6.06% annualized). This reflects that once the hurdle rate is reached and the catch-up is
achieved, 17.5% of all Pre-Incentive Fee Net Investment Income Returns thereafter are allocated to the Adviser.
Pre-Incentive Fee Net Investment Income Returns Following a Liquidity Event
(expressed as a percentage of the value of net assets)
Percentage of Pre-Incentive Fee Net Investment Income
Allocated to Quarterly Incentive Fee
These calculations are prorated for any period of less than three months and adjusted for any share issuances or
repurchases during the relevant quarter. 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. If a Liquidity Event occurs on a date other than the first day of a
calendar quarter, the incentive fee will be calculated for such calendar quarter at a weighted rate calculated based on the
fee rates applicable before and after the Liquidity Event based on the number of days in such calendar quarter before and
after the Liquidity Event.
(2) Incentive Fee on Capital Gains
The second component of the incentive fee, the capital gains incentive fee, is payable at the end of each calendar
year (or at the time of a Liquidity Event) in arrears. Such capital gains incentive fee will be equal to 15% of (1) realized
capital gains less (2) realized capital loss, less unrealized capital losses on a cumulative basis from inception through the
day before the Liquidity Event, less the aggregate amount of any previously paid capital gains incentive fees in the year of
calculation.
Prior to a Liquidity Event, the amount payable equals:
• 15% of cumulative realized capital gains less all realized capital losses and unrealized capital depreciation on a
cumulative basis from inception through the end of such calendar year (or upon a Liquidity Event), less the
aggregate amount of any previously paid incentive fee on capital gains in the year of calculation, as calculated in
accordance with U.S. GAAP.
Following a Liquidity Event, the amount payable equals:
• 17.5% 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 U.S. GAAP.
If a Liquidity Event occurs on a date other than the first day of a fiscal year, a capital gains incentive fee will be
calculated as of the day before the Liquidity Event, with such capital gains incentive fee paid to the Adviser
following the end of the fiscal year in which the Liquidity Event occurred. Solely for purposes of calculating the
capital gains incentive fee after a Liquidity Event, the Company will be deemed to have previously paid capital
gains incentive fees prior to a Liquidity Event equal to the product obtained by multiplying (a) the actual
aggregate amount of previously paid capital gains incentive fees for all periods prior to a Liquidity Event by (b)
the percentage obtained by dividing (x) 17.5% by (y) 15%.
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 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 Investment Advisers Act of 1940, as
amended (the “Advisers Act”), including Section 205 thereof. For the purpose of computing the incentive fee on capital
gains, the calculation methodology will look through derivative financial instruments or swaps as if we owned the
reference assets directly.
Our Board will monitor the mix and performance of our investments over time to satisfy itself that the Adviser is
acting in our interests and that our fee structure appropriately incentivizes the Adviser to do so.
The fees that are payable under the Investment Advisory Agreement for any partial period are appropriately
prorated.
Examples of Quarterly Incentive Fee Calculation
Income-Based Fee (*):
Example 1
Investment income ( including interest, dividends, fees, etc. )
=1.25%
Hurdle rate (1)
= 1.25%
Base management fee (2)
= 0.25%
Other expenses ( legal, accounting, custodian, transfer agent, etc. ) (3)
= 0.25%
Pre-incentive fee net investment income:
(investment income - (base management fee + other expenses)) = 0.75%
Pre-incentive net investment income does not exceed the hurdle rate. Therefore, there is no incentive fee.
Example 2
Investment income ( including interest, dividends, fees, etc. )
= 1.90%
Hurdle rate (1)
=1.25%
Base management fee (2)
= 0.25%
Other expenses ( legal, accounting, custodian, transfer agent, etc. ) (3)
= 0.25%
Pre-incentive fee net investment income:
( investment income - ( base management fee + other expenses ))
= 1.40%
Incentive fee:
= 15% × pre - incentive fee net investment income, subject to the “catch - up” (4)
= 100% × (1.40% − 1.25%)
= 0.15%
Example 3
Investment income ( including interest, dividends, fees, etc. )
= 2.50%
Hurdle rate (1)
= 1.25%
Base management fee (2)
= 0.25%
Other expenses ( legal, accounting, custodian, transfer agent, etc. ) (3)
= 0.25%
Pre-incentive fee net investment income:
= ( investment income - ( base management fee + other expenses ))
= 2.00%
Incentive fee: = 15% × pre - incentive fee net investment income, subject to the “catch - up” (4)
= 100% × “catch - up” + (15% × ( pre - incentive fee net investment income - 0.22%))
Catch - up
= 100% × 0.22% = 0.22%
Incentive fee
= (100% × 0.22%) + (15% × (2.00%- 1.47%))
= 0.22% + (15% × 0.53%)
= 0.22% + 0.08%
= 0.30%
(*) The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net
assets.
(1) Represents a 5.00% annualized hurdle rate.
(2) Represents a 1.00% annualized base management fee.
(3) Excludes organizational and offering expenses.
(4) The “catch-up” provision is intended to provide our Adviser with an incentive fee of 15% on all of our pre-
incentive fee net investment income as if a hurdle rate did not apply when our net investment income exceeds
1.47% in any calendar quarter.
Capital Gains Fee
Example 1
• Year 1:
◦ $20 million investment made in Company A (“Investment A”), and $30 million investment made in
Company B (“Investment B”)
• Year 2:
◦ Investment A sold for $50 million, and the fair market value (“FMV”) of Investment B is determined to
be $32 million
• Year 3:
◦ FMV of Investment B determined to be $25 million
• Year 4:
◦ Investment B sold for $31 million
The capital gains portion of the incentive fee, if any, would be:
• Year 1:
◦ None
• Year 2:
◦ $4.5 million capital gains incentive fee, calculated as follows:
◦ $30 million realized capital gains on the sale of Investment A multiplied by 15%
• Year 3:
◦ None, calculated as follows:
◦ ($0.75) million cumulative fee (15% multiplied by $25 million ($30 million Cumulative Capital Gains
less $5 million cumulative capital depreciation)) less $4.5 million (previous capital gains fee paid in
Year 2)
• Year 4:
◦ $0.15 capital gains incentive fee, calculated as follows:
◦ $0.15 million cumulative fee ($31 million Cumulative Capital Gains multiplied by 15%) less $4.5
million (previous capital gains fee paid in Year 2)
Example 2
• Year 1:
◦ $20 million investment made in Company A (“Investment A”), $30 million investment made in
Company B (“Investment B”), and $25 million investment made in Company C (“Investment C”)
• Year 2:
◦ Investment A sold for $50 million, FMV of Investment B determined to be $25 million, and FMV of
Investment C determined to be $25 million
• Year 3:
◦ FMV of Investment B determined to be $27 million, and Investment C sold for $30 million
• Year 4:
◦ FMV of Investment B determined to be $35 million
• Year 5:
◦ Investment B sold for $20 million
The capital gains portion of the incentive fee, if any, would be:
• Year 1:
◦ None
• Year 2:
◦ $3.75 million capital gains incentive fee, calculated as follows:
◦ 15% multiplied by $25 million ($30 million realized capital gains on sale of Investment A less $5
million unrealized capital depreciation on Investment B)
• Year 3:
◦ $1.05 capital gains incentive fee, calculated as follows:
◦ $4.8 million cumulative fee (15% multiplied by $32 million ($35 million cumulative realized capital
gains less $3 million unrealized capital depreciation)) less $3.75 million (previous capital gains fee paid
in Year 2)
• Year 4:
◦ $0.45 capital gains incentive fee, calculated as follows:
◦ $5.25 million cumulative fee (15% multiplied by $35 million cumulative realized capital gains) less
$4.8 million (previous cumulative capital gains fees paid in Year 2 and Year 3)
• Year 5:
◦ None, calculated as follows:
◦ ($1.5) million cumulative fee (15% multiplied by $25 million ($35 million cumulative realized capital
gains less $10 million realized capital losses)) less $5.25 million (previous Cumulative Capital Gains
fee paid in Year 2, 3 and Year 4)
Administration Agreements
Pursuant to the Administration Agreement, the Administrator furnishes the Company with office space, office services,
and equipment. Under the Administration Agreement, our Administrator performs or oversees the performance of our
required administrative services, which include providing assistance in accounting, legal, compliance, operations,
technology, internal audit, and investor relations, and being responsible for the financial records that we are required to
maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, our Administrator assists
us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the
printing and dissemination of reports to our stockholders, our internal control assessment under the Sarbanes-Oxley Act,
and generally overseeing the payment of our expenses and the performance of administrative and professional services
rendered to us by others.
Payments under the Administration Agreement are equal to an amount that reimburses our Administrator for its costs and
expenses, including for our allocable portion of expenses incurred by the Administrator in performing its obligations
under the Administration Agreement (including our allocable portion of the compensation paid to our Chief Compliance
Officer and Chief Financial Officer and their respective staffs and of the cost of providing managerial assistance upon
request to portfolio companies) . The Administration Agreement may be terminated by either party without penalty upon
60 days’ written notice to the other party. Additionally, we ultimately bear the costs of any sub-administration agreements
that our Administrator may enter into. Our Administrator reserves the right to waive all or part of any reimbursements due
from us at its sole discretion.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of the reckless disregard of its duties and obligations, our Administrator and its officers,
managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it 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 our Administrator’s services under the
Administration Agreement or otherwise as administrator for us.
Additionally, pursuant to a sub-administration agreement with SS&C Technologies, Inc. (“SS&C Administration
Agreement”), SS&C performs certain of the Company’s required administrative services, which include providing
assistance in accounting, legal, compliance, operations, investor relations and technology, being responsible for the
financial records that the Company is required to maintain and preparing reports to the Company’s Shareholders and
reports filed with the SEC. SS&C will also be reimbursed for certain expenses it incurs on our behalf.
We expect our Administrator and Adviser to enter into one or more staffing agreements with affiliates of Lafayette Square
pursuant to which such Lafayette Square affiliates would agree to provide our Administrator and Adviser with access to
certain legal, operations, financial, compliance, accounting, internal audit (in their role of performing our Sarbanes-Oxley
Act internal control assessment), clerical and administrative personnel.
Valuation Procedures
We will conduct the valuation of our assets, pursuant to which our net asset value will be determined, at all times
consistent with GAAP and the 1940 Act. We value our investments in accordance with the terms of Topic 820 of the
Financial Accounting Standards Board’s Accounting Standards Codification, as amended (the “ASC”), Fair Value
Measurement and Disclosures (“ASC 820”).
ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.” Fair value is a market-based measurement, not an
entity-specific measurement. For some assets and liabilities, observable market transactions or market information might
be available. For other assets and liabilities, observable market transactions and market information might not be
available. However, the objective of a fair value measurement in both cases is the same - to estimate the price when an
orderly transaction to sell the asset or transfer the liability would take place between market participants at the
measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a
market participant that holds the asset or owes the liability).
ASC 820 establishes a hierarchical disclosure framework which ranks the observability of inputs used in measuring
financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of
financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for
which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market
price observability and a lesser degree of judgment applied in determining fair value.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices available in active markets for identical financial
instruments as of the measurement date. The types of financial instruments in this category include unrestricted
securities, including equities and derivatives, listed in active markets. We will not adjust the quoted price for these
instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.
Level 2 - inputs to the valuation methodology are quoted prices in markets that are not active or for which all
significant inputs are either directly or indirectly observable as of the measurement date. The types of financial
instruments in this category include less liquid and restricted securities listed in active markets, securities traded in
markets that are not active, government and agency securities, and certain over-the-counter derivatives where the fair
value is based on observable inputs.
Level 3 - inputs to the valuation methodology are unobservable and significant to the overall fair value
measurement, and include situations where there is little, if any, market activity for the investment. The inputs into
the determination of fair value require significant management judgment or estimation. The types of financial
instruments in this category include investments in privately held entities, non-investment grade residual interests in
securitizations, CLOs, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument
is based on the lowest level of input that is significant to the fair value measurement. Assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the
financial instrument.
Pursuant to the framework set forth above, we will value securities traded in active markets on the measurement date by
multiplying the exchange closing price of such traded securities/instruments by the quantity of shares or amount of the
instrument held. We may also obtain quotes with respect to certain of our investments from pricing services, brokers or
dealers’ quotes, or counterparty marks in order to value liquid assets that are not traded in active markets. Pricing services
aggregate, evaluate and report pricing from a variety of sources including observed trades of identical or similar securities,
broker or dealer quotes, model-based valuations and internal fundamental analysis and research. When doing so, we will
determine whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If
determined adequate, we will use the quote obtained.
Securities that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a
valuation or methodology that, in the judgment of the Adviser, does not represent fair value, will each be valued as of the
measurement date using all techniques appropriate under the circumstances and for which sufficient data are available.
These valuation techniques may vary by investment, but typically include comparable public market valuations,
comparable precedent transaction valuations, and discounted cash flow analyses. A multi-step quarterly valuation process
used to determine the applicable value will be as follows:
• Each portfolio company or investment is initially valued by the portfolio management professionals of the
Adviser responsible for credit monitoring in consultation with the independent valuation firm(s);
• Preliminary valuation conclusions are documented and reviewed by members of our Adviser’s senior
management;
• The Adviser’s valuation committee with respect to us (the “Valuation Committee”) reviews each valuation
recommendation to confirm they have been calculated in accordance with our valuation policy and compares
such valuations to the independent valuation firms’ valuation ranges to ensure the Adviser’s valuations are
reasonable;
• The Adviser’s Valuation Committee then determines fair value marks for each of our portfolio investments; and
• Our 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.
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.
Regulation as a Business Development Company
General
We have elected to be regulated as a BDC under the 1940 Act. A BDC is a specialized investment vehicle that elects to be
regulated under the 1940 Act as an investment company but is generally subject to less onerous requirements than other
registered investment companies under a regime designed to encourage lending to U.S.-based small and mid-sized
businesses. Unlike many similar types of investment vehicles that are restricted to being private entities, the stock of a
BDC is permitted to trade in the public equity markets (although at least initially, we do not currently intend to list shares
of our Common Stock to allow for such trading). BDCs are also eligible to elect to be treated as a RIC under Subchapter
M of the Code. A RIC typically does not incur significant entity-level income taxes, because it is generally entitled to
deduct distributions made to its stockholders. The Company has elected to be treated, and intends to qualify annually
thereafter, as a RIC under Subchapter M of the Code. See “ Item 1. Business - Certain U.S. Federal Income Tax
Considerations .”
Potential Advantages of a BDC Compared to Other Institutional Investment Vehicles
We believe the advantages of the BDC structure derive primarily from two characteristics:
First, as a BDC, we have elected to be treated as a RIC under the Code. A RIC typically does not incur significant entity-
level income taxes, because it is entitled to deduct distributions made to its stockholders in computing its income subject
to entity-level taxation. As a result, a BDC that has elected to be a RIC does not incur any U.S. federal income tax so long
as the BDC continuously maintains its registration in accordance with the 1940 Act, at least 90% of the BDC’s gross
income each taxable year consists of certain types of qualifying investment income, the BDC satisfies certain asset
diversification requirements at the close of each quarter of its taxable year, and the BDC distributes substantially all of its
taxable income to its stockholders on a current basis. The rules applicable to our qualification as a RIC for tax purposes
are complex and involve significant practical and technical considerations. If we fail to qualify as a RIC for U.S. federal
income tax purposes or are unable to maintain our qualification for any reason, then we would become subject to regular
corporate income tax, which would have a material adverse effect on the amount of after-tax income available for
distribution to our stockholders. See “ Item 1. Business - Certain U.S. Federal Income Tax Considerations .”
Distributions by a BDC generally are treated as dividends for U.S. tax purposes, and generally are subject to U.S. income
or withholding tax unless the stockholder receiving the dividend qualifies for an exemption from U.S. tax, or the
distribution is subject to one of the special look-through rules. Distributions paid out of net capital gains can qualify for a
reduced rate of taxation in the hands of an individual U.S. stockholder and an exemption from U.S. tax in the hands of a
non-U.S. stockholder. Additionally, a U.S. pension fund that owns shares in a BDC generally is not required to take
account of indebtedness incurred at the level of the BDC in determining whether dividends received from a BDC
constitute “unrelated debt-financed income.” Finally, a non-U.S. investor in a BDC generally does not need to take
account of activities conducted by the BDC in determining whether such non-U.S. investor is engaged in the conduct of a
trade or business in the United States. See “ Item 1. Business - Certain U.S. Federal Income Tax Considerations .”
Second, a BDC is permitted to become a publicly traded company. This provides a BDC with access to an additional
source of capital and offers investors the potential to monetize their investment through the sale of shares in an active
public stock market. Many BDCs trade on either the New York Stock Exchange or the Nasdaq Stock Market. However,
we do not intend to list shares of our Common Stock, at least initially, on any national securities exchange and no public
market for our shares may ever develop.
The timing and pricing of a Liquidity Event, if any, and subsequent trading price of shares of our Common Stock will
depend on market conditions and our investment performance. Prior to any Liquidity Event, shares of our Common Stock
will be subject to certain transfer restrictions. Following a Liquidity Event, our investors may be restricted from selling or
disposing of their shares of Common Stock by applicable securities laws, contractually by a lock-up agreement with the
underwriters of the Liquidity Event and contractually through restrictions contained in the subscription agreement in
respect of shares of our Common Stock.
The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including
any investment advisers or investment sub-advisers), principal underwriters and affiliates of those affiliates or
underwriters and requires that a majority of the directors of a BDC be persons other than “interested persons,” as that term
is defined in the 1940 Act. In addition, the 1940 Act provides that a BDC may not change the nature of its business so as
to cease to be, or to withdraw its election as, a BDC unless approved by a majority of its outstanding voting securities as
defined by the 1940 Act.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act,
which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least
70% of the BDC’s total assets. The principal categories of qualifying assets relevant to our business are 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, 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 either of the following:
(i) does not have any class of securities listed on a national securities exchange or has any class
of securities listed on a national securities exchange subject to a $250 million market capitalization
maximum; or
(ii) is controlled by a BDC or a group of companies including a BDC, the BDC actually
exercises a controlling influence over the management or policies of the eligible portfolio company,
and, as a result, the BDC has an affiliated person who is a director of the eligible portfolio company.
(2) Securities of any eligible portfolio company which we control.
(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.
We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash
equivalents. We intend to primarily make investments in securities described in paragraphs 1 through 3 of Section 55(a) of
the 1940 Act. From time to time, including at or near the end of each fiscal quarter, we may consider using various
temporary investment strategies for our business, including taking proactive steps by utilizing cash equivalents as
temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More
specifically, from time-to-time we may draw down our credit facilities, as deemed appropriate, and repay such borrowings
subsequent to quarter end. We may also purchase U.S. Treasury bills or other high-quality, short-term debt securities at or
near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end.
Managerial Assistance to Portfolio Companies
In addition, 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 in (1), (2) or (3) 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 offer to make available to the issuer of the securities significant managerial assistance.
However, when a BDC purchases securities in conjunction with one or more other persons acting together, one of the
other persons in the group may make available such managerial assistance. Making available managerial assistance
means, among other things, any arrangement whereby the BDC, through its directors, 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. We may receive fees for these services and will reimburse our
Administrator for its allocated costs in providing such assistance, subject to review and approval by our board.
Temporary Investments
Pending investment in other types of “qualifying assets,” as described above, our investments may 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 we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets.
Senior Securities
As a BDC, we will be permitted, under specified conditions, to issue multiple classes of indebtedness and one class of
stock senior to shares of our Common Stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% or
150%, subject to receipt of certain approvals and compliance with certain disclosure requirements, immediately after each
such issuance. Section 61(a) of the 1940 Act reduces the asset coverage requirements applicable to BDCs from 200% to
150% so long as the BDC meets certain disclosure requirements and obtains certain approvals. In April 2021, our Board
and initial stockholder approved the reduced asset coverage ratio. The reduced asset coverage requirements permits us to
double the maximum amount of leverage that we are permitted to incur by reducing the asset coverage requirements
applicable to us from 200% to 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 as compared to $100 from borrowing
and issuing senior securities for every $100 of net assets under 200% asset coverage. In addition, while any senior
securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders 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 may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes
without regard to asset coverage. Regulations governing our operations as a BDC will affect our ability to raise, and the
method of raising, additional capital, which may expose us to risks.
Code of Ethics
We and our Adviser have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures
for personal investments and restricts certain personal securities transactions. Personnel subject to the joint code of ethics
may 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 of ethics’ requirements. Our code of ethics is available
on our website at www.lafayettesquarebdc.com.
Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to our Adviser. A summary of the Proxy Voting Policies and
Procedures of our Adviser are set forth below. These policies and procedures will be reviewed periodically by our Adviser
and, subsequent to our election to be regulated as a BDC, our non-interested directors, and, accordingly, are subject to
change. For purposes of these Proxy Voting Policies and Procedures described below, “we” “our” and “us” refers to our
Adviser.
An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its
clients. As part of this duty, we recognize that we must vote our securities in a timely manner free of conflicts of interest
and in our best interests and the best interests of our stockholders.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section
206 of, and Rule 206(4)-6 under, the Advisers Act.
We will vote proxies relating to our portfolio securities in what we believe to be the best interest of our stockholders. To
ensure that our vote is not the product of a conflict of interest, we will require that: (1) anyone involved in the decision
making process disclose to our chief compliance officer any potential conflict that he or she is aware of and any contact
that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision
making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to
reduce any attempted influence from interested parties.
A copy of our policies and procedures with respect to the voting of proxies relating to our portfolio securities is available
without charge, upon request. Stockholders may obtain information regarding how we voted proxies by making a written
request for proxy voting information to: Lafayette Square USA, Inc. c/o Lafayette Square, PO Box 25250, PMB 13941,
Miami, Florida 33102, Attn: Chief Compliance Officer.
Privacy Principles
The Adviser has established policies with respect to nonpublic personal information provided to it with respect to
individuals who are investors in the Company, which policies also apply to the Administrator. We have adopted the
privacy policies of the Adviser as applicable to us.
We and the Adviser each recognizes the importance of maintaining the privacy of any nonpublic personal information it
receives with respect to each investor. In the course of providing management services to us, the Adviser collects
nonpublic personal information about investors from the Subscription Agreements and the certificates and exhibits thereto
that each investor submits. We and the Adviser may also collect nonpublic personal information about each investor from
conversations and correspondence between each investor and us or the Adviser, both prior to and during the course of
each investor’s investment in the Company.
We and the Adviser each treat all of the nonpublic personal information it receives with respect to each investor as
confidential. We and the Adviser restrict access to such information to those employees, affiliates and agents who need to
know the information in order for us and the Adviser to determine whether each investor meets the regulatory
requirements for an investment in the Company and, in the case of the Adviser, to provide ongoing management services
to us. The Adviser maintains physical, electronic, and procedural safeguards to comply with U.S. federal standards to
guard each investor’s nonpublic personal information.
The Adviser does not disclose any nonpublic personal information about any investor to any third parties, other than the
Adviser’s agents, representatives and/or affiliates, or as permitted or required by law. Among other things, the law permits
the Adviser to disclose such information for purposes of making investments on our behalf, complying with anti-money
laundering laws, preparing tax returns and reports for each investor and determining whether each investor meets the
regulatory requirements for investing in us.
Other
We will be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without
the prior approval of our independent directors and, in some cases, prior approval by the SEC.
We will be periodically examined by the SEC for compliance with the 1940 Act.
We will be required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against
larceny and embezzlement. Furthermore, as a BDC, we will be prohibited from protecting any director or officer against
any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such person’s office.
We and our Adviser will each be required to adopt and implement written policies and procedures reasonably designed to
prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the
effectiveness of their implementation, and designate a chief compliance officer to be responsible for administering the
policies and procedures.
Regulation as a Small Business Investment Company 
On February 1, 2023, our wholly-owned subsidiary, LS SBIC LP, received an SBIC license from the SBA which was
deemed effective as of January 27, 2023 and on September 12, 2024, our wholly-owned subsidiary, LS SSBIC LP
received an SSBIC license from the SBA. These SBIC licenses allow the LS SBICs to obtain leverage by issuing SBA-
guaranteed debentures, subject to the satisfaction of certain customary procedures. SBA-guaranteed debentures are non-
recourse, interest only debentures with interest payable semi- annually and have a ten-year maturity. The principal amount
of SBA-guaranteed debentures is not required to be paid prior to maturity, but may be prepaid at any time without penalty.
The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over U.S.
Treasury Notes with 10-year maturities.
SBICs are designed to stimulate the flow of capital to eligible small businesses. Under SBA regulations, SBICs may make
loans to eligible small businesses and invest in the equity securities of small businesses. Under present SBA regulations,
eligible small businesses generally include businesses (together with their affiliates) that have a tangible net worth not
exceeding $24.0 million and have average annual net income after U.S federal income taxes not exceeding $8.0 million
(average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In
addition, an SBIC must invest at least 25.0% of its investment capital in “smaller enterprises” as defined by the SBA. A
smaller enterprise is a business (including its affiliates) that has a tangible net worth not exceeding $6.0 million and has
average annual net income after U.S. federal income taxes not exceeding $2.0 million (average net income to be computed
without benefit of any net carryover loss) for the two most recent fiscal years. SBA regulations also provide alternative
industry size standard criteria to determine eligibility for designation as an eligible small business or a smaller enterprise,
which criteria depend on the primary industry in which the business is engaged and is based on the number of employees
or gross revenue of the business and its affiliates. Once an SBIC has invested in a company, it may continue to make
follow-on investments in the company, regardless of the size of the business at the time of the follow-on investment, up
and until the time a business offers its securities in a public market through an initial public offering, if any. According to
SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses
and provide them with consulting and advisory services. The SBA generally prohibits an SBIC from providing funds to
small businesses for certain purposes, such as relending, real estate or investing in companies outside of the United States,
and from providing funds to businesses engaged in certain prohibited industries and to certain “passive” (i.e., non-
operating) companies. In addition, without prior SBA approval, an SBIC may not invest an amount equal to more than
approximately 30% of the SBIC’s regulatory capital in any one company and its affiliates. The SBA also limits fees,
prepayment terms and other economic arrangements that are typically charged in lending arrangements.
The LS SBICs  are subject to regulation and oversight by the SBA, including requirements with respect to maintaining
certain minimum financial ratios and other covenants. Receipt of an SBIC license does not assure that the LS SBICs will
receive SBA-guaranteed debenture funding, which is dependent upon the LS SBICs continuing to be in compliance with
SBA regulations and policies. The SBA, as a creditor, will have a superior claim to the LS SBIC LP’s assets over our
stockholders and debt holders in the event we liquidate either LS SBIC or the SBA exercises its remedies under the SBA-
guaranteed debentures issued by either LS SBIC upon an event of default.
We received exemptive relief from the SEC to permit the LS SBICs to exclude the senior securities of each LS SBIC from
the definition of senior securities in the asset coverage requirement under the 1940 Act. Pursuant to the 150% asset
coverage ratio limitation, we are permitted to borrow two dollars for every dollar we have in assets less all liabilities and
indebtedness not represented by debt securities we issued or loans we obtain. With this exemptive relief, we now have
increased capacity to fund up to $175 million (the maximum amount of SBA-guaranteed debentures an SBIC may
currently have outstanding once certain conditions have been met) of investments with SBA-guaranteed debentures in
addition to being able to fund investments with borrowings up to the maximum amount of debt that the 150% asset
coverage ratio limitation would allow us to incur.
See “ Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations - Financial
Condition, Liquidity and Capital Resources ” for more details on the capital available to the LS SBICs.
JOBS Act
We currently are and expect to remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups
Act (the “JOBS Act”), until the earliest of:
• the last day of our fiscal year in which the fifth anniversary of a Liquidity Event occurs;
• the end of the fiscal year in which our total annual gross revenues first exceed $1.235 billion;
• the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-
convertible debt; and
• the last day of a fiscal year in which we (1) have an aggregate worldwide market value of shares of our
Common Stock held by non-affiliates of $700 million or more, computed at the end of the last business day
of the second fiscal quarter in such fiscal year and (2) have been an Exchange Act reporting company for at
least one year (and filed at least one annual report under the Exchange Act).
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time
as those standards apply to private companies. We have made an irrevocable election not to take advantage of this
exemption from new or revised accounting standards. We therefore are subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act imposes a variety of regulatory requirements on companies with a class of securities registered
under the Exchange Act and their insiders. Many of these requirements affect us. For example:
• pursuant to Rule 13a-14 under the Exchange Act our principal executive officer and principal financial
officer must certify the accuracy of the financial statements contained in our periodic reports;
• pursuant to Item 307 under Regulation S-K under the Securities Act our periodic reports must disclose our
conclusions about the effectiveness of our disclosure controls and procedures;
• pursuant to Rule 13a-15 under the Exchange Act, our management must prepare an annual report regarding
its assessment of our internal control over financial reporting, which must be audited by our independent
registered public accounting firm once the Company can no longer avail itself of the exemption under the
JOBS Act; and
• pursuant to Item 308 of Regulation S-K under the Securities Act and Rule 13a-15 under the Exchange Act,
our periodic reports must disclose whether there were significant changes in our internal controls over
financial reporting or in other factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.
The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with
the Sarbanes-Oxley Act and the regulations promulgated under such act. We will continue to monitor our compliance with
all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we comply
with that act in the future.
Commodity Exchange Act
The U.S. Commodity Futures Trading Commission (the “CFTC”) and the SEC have issued final rules establishing that
certain swap transactions are subject to CFTC regulation. Engaging in such swap transactions may cause the Adviser,
acting on the Company’s behalf, to fall within the definition of “commodity pool” under the Commodity Exchange
Act (“CEA”), and related regulations promulgated by the CFTC. Prior to the Effective Date, the Adviser intends to claim
an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in
connection with its management of the Company and, therefore, is not subject to CFTC registration or regulation under
the CEA as a commodity pool operator with respect to its management of the Company.
Reporting Obligations
We are required to file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC. This information will be available from us at www.lafayettesquarebdc.com and on the SEC’s website
at www.sec.gov.
Certain U.S. Federal Income Tax Considerations
The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and
to an investment in shares of our Common Stock upon our qualification as a RIC commencing with our taxable year
ending December 31, 2024 (or as soon thereafter as is reasonably practicable).
This summary does not purport to be a complete description of the income tax considerations applicable to such an
investment. For example, we have not described certain considerations that may be relevant to certain types of holders
subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum
tax (the “AMT”), tax-exempt organizations, insurance companies, dealers in securities, traders in securities that elect to
mark-to-market their securities holdings, pension plans and trusts, persons that have a functional currency (as defined in
Section 985 of the Code) other than the U.S. dollar and financial institutions. This summary assumes that investors hold
shares of our Common Stock as capital assets (within the meaning of Section 1221 of the Code). The discussion is based
upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of the filing of
this Registration Statement and all of which are subject to change, possibly retroactively, which could affect the
continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service
(the “IRS”), regarding any offering of our securities. This summary does not discuss any aspects of U.S. estate or gift tax
or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result
if we invested in tax-exempt securities or certain other investment assets. For purposes of this discussion, references to
“dividends” are to dividends within the meaning of the U.S. federal income tax laws and associated regulations and may
include amounts subject to treatment as a return of capital under section 19(a) of the 1940 Act.
A “U.S. stockholder” is a beneficial owner of shares of our Common Stock that is for U.S. federal income tax purposes:
• a citizen or individual resident of the United States;
• a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized
in or under the laws of the United States or any state thereof or the District of Columbia;
• an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
• a trust if either a U.S. court can exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all of its substantial decisions or the trust was in existence on August 20,
1996, was treated as a U.S. person prior to that date, and has made a valid election to be treated as a U.S. person.
A “non-U.S. stockholder” is a beneficial owner of shares of our Common Stock that is not a U.S. stockholder.
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of
Common Stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and
the activities of the partnership. A prospective investor that is a partner in a partnership that will hold shares of Common
Stock should consult its tax advisors with respect to the purchase, ownership and disposition of shares of Common Stock.
Tax matters are very complicated and the tax consequences to an investor of an investment in shares of our Common
Stock will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax
advisors regarding the specific consequences of such an investment, including tax reporting requirements, the
applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty, and
the effect of any possible changes in the tax laws.
Election to Be Taxed as a RIC
The Company has elected to be treated, and intends to qualify annually thereafter, as a RIC under Subchapter M of the
Code. However, no assurance can be provided that we will qualify as a RIC for any taxable year. As a RIC, we generally
will not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely
distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-
income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders,
for each taxable year, dividends of an amount at least equal to 90% of our “investment company taxable income,” which
is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term
capital losses and determined without regard to any deduction for dividends paid (the “Annual Distribution
Requirement”). Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4%
nondeductible federal excise tax imposed on RICs, we must distribute to our stockholders in respect of each calendar year
dividends of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain
deferrals and elections) for the calendar year, (2) 98.2% of the excess (if any) of our realized capital gains over our
realized capital losses, or capital gain net income (adjusted for certain ordinary losses), generally for the one-year period
ending on October 31 of the calendar year and (3) the sum of any net ordinary income plus capital gains net income for
preceding years that were not distributed during such years and on which we paid no federal income tax (the “Excise Tax
Avoidance Requirement”).
We may be subject to regular federal and state corporate income tax on any net built-in gains with respect to certain of our
assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been
realized with respect to such assets if we had been liquidated) when recognized, over the next five taxable years.
Taxation as a RIC
If we:
• maintain qualification as a RIC; and
• satisfy the Annual Distribution Requirement;
then we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net
capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we distribute to stockholders.
As a qualified RIC, we will be subject to U.S. federal income tax at regular corporate rates on any net income or net
capital gain not distributed as dividends to our stockholders.
In order to maintain qualification as a RIC for U.S. federal income tax purposes, we must, among other things:
• qualify to be regulated as a BDC under the 1940 Act at all times during each taxable year;
• derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to
our business of investing in such stock or securities, and net income derived from interests in “qualified publicly
traded partnerships” (partnerships that are traded on an established securities market or tradable on a secondary
market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC
income) (the “90% Income Test”); and
• diversify our holdings so that at the end of each quarter of the taxable year:
• at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of
other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the
value of our assets or more than 10% of the outstanding voting securities of the issuer; and
• no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or
securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under
applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the
securities of one or more qualified publicly traded partnerships.
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to
state, local or foreign income, franchise or other tax liabilities.
In addition, as a RIC we are subject to ordinary income and capital gain distribution requirements under U.S. federal
excise tax rules for each calendar year, or the Excise Tax Avoidance Requirement. If we do not meet the required
distributions we will be subject to a 4% nondeductible federal excise tax on the undistributed amount. The failure to meet
the Excise Tax Avoidance Requirement will not cause us to lose our RIC status. Although we currently intend to make
sufficient distributions each taxable year to satisfy the Excise Tax Avoidance Requirement, under certain circumstances,
we may choose to retain taxable income or capital gains in excess of current year distributions into the next tax year in an
amount less than what would trigger payments of federal income tax under Subchapter M of the Code. We may then be
required to pay a 4% excise tax on such income or capital gains.
A RIC is limited in its ability to deduct expenses in excess of its investment company taxable income. If our deductible
expenses in a given taxable year exceed our investment company taxable income, we may incur a net operating loss for
that taxable year. However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and
such net operating losses do not pass through to its stockholders. In addition, deductible expenses can be used only to
offset investment company taxable income (which includes net short term capital gains), not net capital gain. A RIC may
not use any net capital losses (that is, the excess of realized capital losses over realized capital gains) to offset its
investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital
gains, indefinitely. Due to these limits on deductibility of expenses and net capital losses, we may for tax purposes have
aggregate taxable income for several taxable years that we are required to distribute and that is taxable to our stockholders
even if such taxable income is greater than the net income we actually earn during those taxable years.
Any underwriting fees paid by us are not deductible. We may be required to recognize taxable income in circumstances in
which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as
having OID (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with
warrants), we must include in income each year a portion of the OID that accrues over the life of the obligation, regardless
of whether cash representing such income is received by us in the same taxable year. Because any OID accrued will be
included in our investment company taxable income for the taxable year of accrual, we may be required to make a
distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have
received any corresponding cash amount. Furthermore, a portfolio company in which we hold equity or debt instruments
may face financial difficulty that requires us to work out, modify, or otherwise restructure such equity or debt instruments.
Any such restructuring could, depending upon the terms of the restructuring, cause us to incur unusable or nondeductible
losses or recognize future non-cash taxable income.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may,
among other things, (1) treat dividends that would otherwise constitute qualified dividend income as non-qualified
dividend income, (2) treat dividends that would otherwise be eligible for the corporate dividends received deduction as
ineligible for such treatment, (3) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (4)
convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income, (5) convert an
ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (6) cause us to recognize
income or gain without a corresponding receipt of cash, (7) adversely affect the time as to when a purchase or sale of
stock or securities is deemed to occur, (8) adversely alter the characterization of certain complex financial transactions and
(9) produce income that will not be qualifying income for purposes of the 90% Income Test. We intend to monitor our
transactions and may make certain tax elections to mitigate the effect of these provisions and prevent our ability to be
subject to tax as a RIC.
Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants
generally will be treated as capital gain or loss. Such gain or loss generally will be long term or short term, depending on
how long we held a particular warrant.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy
distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders
while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See
“ Item 1. Business - Regulation as a Business Development Company - Senior Securities .” Moreover, our ability to
dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2)
other requirements relating to our qualification as a RIC, including certain diversification tests in order to qualify as a RIC
for U.S. federal income tax purposes (the “Diversification Tests”). If we dispose of assets in order to meet the Annual
Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from
an investment standpoint, are not advantageous.
Some of the income and fees that we may recognize, such as fees for providing managerial assistance, certain fees earned
with respect to our investments, income recognized in a work-out or restructuring of a portfolio investment, or income
recognized from an equity investment in an operating partnership, may be considered non-qualifying for purposes of the
90% Income Test. In order to manage the risk that such income and fees might disqualify us as a RIC for a failure to
satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more
entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay U.S.
corporate income tax on their earnings, which ultimately will reduce our return on such income and fees.
A portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise
restructure its investment in the portfolio company. Any such transaction could, depending upon the specific terms of the
transaction, result in unusable capital losses and future non-cash income. Any such transaction could also result in our
receiving assets that give rise to income that is not qualifying income for purposes of the 90% Income Test.
There may be uncertainty as to the appropriate treatment of certain of our investments for U.S. federal income tax
purposes. In particular, we may invest a portion of our net assets in below investment grade instruments. U.S. federal
income tax rules with respect to such instruments are not entirely clear about issues such as if an instrument is treated as
debt or equity, whether and to what extent we should recognize interest, OID 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, in order to seek to ensure that we
distribute sufficient income to qualify, and maintain our qualification as, a RIC and to ensure that we do not become
subject to U.S. federal income or excise tax.
Income received by us from sources outside the United States may be subject to withholding and other taxes imposed by
such countries, thereby reducing income available to us. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. We generally intend to conduct our investment activities to minimize the impact of
foreign taxation, but there is no guarantee that we will be successful in this regard.
We may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies
(“PFICs”). In general, a foreign company is classified as a PFIC if at least 50% of its assets constitute investment-type
assets or 75% or more of its gross income is investment-type income. In general under the PFIC rules, an “excess
distribution” received with respect to PFIC stock is treated as having been realized ratably over the period during which
we held the PFIC stock. We will be subject to tax on the portion, if any, of the excess distribution that is allocated to our
holding period in prior taxable years (and an interest factor will be added to the tax, as if the tax had actually been payable
in such prior taxable years) even though we distribute the corresponding income to stockholders. Excess distributions
include any gain from the sale of PFIC stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
We may be eligible to elect alternative tax treatment with respect to PFIC stock. Under such an election, we generally
would be required to include in our gross income its share of the earnings of a PFIC on a current basis, regardless of
whether any distributions are received from the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. Alternatively, we may be able to elect to mark to market our PFIC
stock, resulting in any unrealized gains at year end being treated as though they were realized and reported as ordinary
income. Any mark-to-market losses and any loss from an actual disposition of the PFIC’s shares would be deductible as
ordinary losses to the extent of any net mark-to-market gains included in income in prior years with respect to stock in the
same PFIC.
Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or
loss and the timing of the recognition of income with respect to PFIC stock, as well as subject us to tax on certain income
from PFIC stock, the amount that must be distributed to stockholders, and which will be taxed to stockholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in
PFIC stock.
Under the Code, gains or losses attributable to fluctuations in foreign currency exchange rates that occur between the time
we accrue interest income or other receivables or accrues expenses or other liabilities denominated in a foreign currency
and the time we actually collect such receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of some investments, including debt securities and certain forward contracts
denominated in a foreign currency, gains or losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as “section 988” gains and losses, may increase or decrease the amount of our
investment company taxable income to be distributed to stockholders as ordinary income. For example, fluctuations in
exchange rates may increase the amount of income that we must distribute in order to qualify for treatment as a RIC and
to prevent application of an excise tax on undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed other investment company taxable income
during a taxable year, we would not be able to make ordinary distributions, or distributions made before the losses were
realized would be re-characterized as a return of capital to stockholders for U.S. federal income tax purposes, rather than
as ordinary dividend income, and would reduce each stockholder’s basis in Shares.
Failure to Maintain Qualification as a RIC
If we were unable to continue to qualify for treatment as a RIC and were unable to cure the failure, for example, by
disposing of certain investments before quarter/year end or in the 30 days after quarter/year end, or raising additional
capital to prevent the loss of RIC status, we would be subject to tax on all of our taxable income at regular corporate rates.
The Code provides some relief from RIC disqualification due to failures to comply with the 90% Income Test and the
Diversification Tests, although there may be additional taxes due in such cases. We cannot assure you that we would
qualify for any such relief should we fail the 90% Income Test or the Diversification Tests.
In taxable years (such as 2021) in which we were taxable as a corporation or if failure to continue to qualify for treatment
as a RIC occurs, all of our taxable income would be subject to tax at regular corporate rates and we would not be able to
deduct our dividend distributions to stockholders. Additionally we would no longer be required to distribute our income
and gains. Distributions, including distributions of net long-term capital gain, would generally be taxable to our
stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to
certain limitations under the Code, certain corporate stockholders would be eligible to claim a dividends received
deduction with respect to such dividends and non-corporate stockholders would generally be able to treat such dividends
as “qualified dividend income,” which is subject to reduced rates of U.S. federal income tax. Distributions in excess of our
current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s
tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC, we may be
subject to regular corporate tax on any net built-in gains with respect to certain of our assets (i.e., the excess of the
aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such
assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five
taxable years.
Taxation of U.S. Stockholders (Applicable to Taxable Years in which we are a RIC)
Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our
“investment company taxable income” (which is, generally, our net ordinary income plus net short-term capital gains in
excess of net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current
or accumulated earnings and profits, whether paid in cash or reinvested in additional shares of Common Stock. To the
extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends
from U.S. corporations and certain qualified foreign corporations and if certain holding period requirements are met, such
distributions generally will be treated as qualified dividend income and generally eligible for a maximum U.S. federal tax
rate of either 15% or 20%, depending on whether the individual stockholder’s income exceeds certain threshold amounts,
and if other applicable requirements are met, such distributions generally will be eligible for the corporate dividends
received deduction to the extent such dividends have been paid by a U.S. corporation. In this regard, it is anticipated that
distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the
preferential maximum U.S. federal tax rate applicable to non-corporate stockholders as well as will not be eligible for the
corporate dividends received deduction.
Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net
short-term capital losses) properly reported by us as “capital gain dividends” will be taxable to a U.S. stockholder as long-
term capital gains (currently generally at a maximum rate of either 15% or 20%, depending on whether the individual
stockholder’s income exceeds certain threshold amounts) in the case of individuals, trusts or estates, regardless of the U.S.
stockholder’s holding period for his, her or its shares of Common Stock and regardless of whether paid in cash or
reinvested in additional shares of Common Stock. Distributions in excess of our earnings and profits first will reduce a
U.S. stockholder’s adjusted tax basis in such stockholder’s shares of Common Stock and, after the adjusted basis is
reduced to zero, will constitute capital gains to such U.S. stockholder. Stockholders receiving dividends or distributions in
the form of additional shares of Common Stock purchased in the market should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money that the stockholders receiving cash
dividends or distributions will receive, and should have a cost basis in the shares received equal to such amount.
Stockholders receiving dividends in newly issued shares of Common Stock will be treated as receiving a distribution
equal to the value of the shares received, and should have a cost basis of such amount.
Although we currently intend to distribute any net capital gains at least annually, we may in the future decide to retain
some or all of our net capital gains but designate the retained amount as a “deemed distribution.” In that case, among other
consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include their share of the
deemed distribution in income as if it had been distributed to the U.S. stockholder, and the U.S. stockholder will be
entitled to claim a credit equal to their allocable share of the tax paid on the deemed distribution by us. The amount of the
deemed distribution net of such tax will be added to the U.S. stockholder’s tax basis for their shares of Common Stock.
Since we expect to pay tax on any retained net capital gains at our regular corporate tax rate, and since that rate is in
excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual
stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the
retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder’s other U.S.
federal income tax obligations or may be refunded to the extent it exceeds a stockholder’s liability for U.S. federal income
tax. A stockholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax
return would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the
taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders
prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment
company taxable income as a “deemed distribution.”
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any tax year and (2) the
amount of capital gain dividends paid for that tax year, we may, under certain circumstances, elect to treat a dividend that
is paid during the following tax year as if it had been paid during the tax year in question. If we make such an election, the
U.S. stockholder will still be treated as receiving the dividend in the tax year in which the distribution is made. However,
any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record
on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it
had been received by our U.S. stockholders on December 31 of the calendar year in which the dividend was declared.
If an investor purchases shares of Common Stock shortly before the record date of a distribution, the price of the shares
will include the value of the distribution and the investor will be subject to tax on the distribution even though it
represents a return of their investment.
A stockholder generally will recognize taxable gain or loss if the stockholder sells or otherwise disposes of their shares of
Common Stock. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if
the stockholder has held their shares of Common Stock for more than one year. Otherwise, it would be classified as short-
term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of Common Stock held
for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends
received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any
loss recognized upon a disposition of shares of Common Stock may be disallowed if other shares of Common Stock are
purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. In
such a case, the basis of shares of Common Stock acquired will be increased to reflect the disallowed loss.
In general, individual U.S. stockholders are subject to a maximum U.S. federal income tax rate of either 15% or 20%
(depending on whether the individual U.S. stockholder’s income exceeds certain threshold amounts) on their net capital
gain, i.e., the excess of realized net long-term capital gain over realized net short-term capital loss for a taxable year,
including a long-term capital gain derived from an investment in shares of our Common Stock. Such rate is lower than the
maximum federal income tax rate on ordinary taxable income currently payable by individuals. Corporate U.S.
stockholders currently are subject to U.S. federal income tax on net capital gain at the maximum 21% rate also applied to
ordinary income. Non-corporate stockholders incurring net capital losses for a tax year (i.e., net capital losses in excess of
net capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each tax year; any net
capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent
tax years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses for a tax year,
but may carry back such losses for three tax years or carry forward such losses for five tax years.
The Code and the related U.S. Treasury Regulations require us (or the applicable intermediary) to annually report the
adjusted cost basis information of covered securities, which generally include shares of a RIC, to the IRS and to
taxpayers. Stockholders should contact their financial intermediaries with respect to reporting of cost basis and available
elections for their accounts.
We will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice
detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder’s taxable income for
such year as ordinary income and as long-term capital gain. In addition, the U.S. federal tax status of each calendar year’s
distributions generally will be reported to the IRS. Distributions may also be subject to additional state, local and foreign
taxes depending on a U.S. stockholder’s particular situation. Dividends distributed by us generally will not be eligible for
the dividends-received deduction or the lower tax rates applicable to certain qualified dividends.
Until and unless we are treated as a “publicly offered regulated investment company” (within the meaning of Section 67
of the Code) as a result of either (1) shares of Common Stock and our preferred stock collectively being held by at least
500 persons at all times during a taxable year or (2) shares of Common Stock being treated as regularly traded on an
established securities market for any taxable year, for purposes of computing the taxable income of U.S. stockholders that
are individuals, trusts or estates, (1) our earnings will be computed without taking into account such U.S. stockholders’
allocable shares of the management and incentive fees paid to our investment adviser and certain of our other expenses,
(2) each such U.S. stockholder will be treated as having received or accrued a dividend from us in the amount of such
U.S. stockholder’s allocable share of these fees and expenses for such taxable year, (3) each such U.S. stockholder will be
treated as having paid or incurred such U.S. stockholder’s allocable share of these fees and expenses for the calendar year
and (4) each such U.S. stockholder’s allocable share of these fees and expenses will be treated as miscellaneous itemized
deductions by such U.S. stockholder. For taxable years beginning before 2026, miscellaneous itemized deductions
generally are not deductible by a U.S. stockholder that is an individual, trust or estate. For taxable years beginning in 2026
or later, miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is an individual, trust or
estate only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized deductions exceeds 2% of
such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, are not deductible for purposes of the
AMT and are subject to the overall limitation on itemized deductions under Section 68 of the Code.
Backup withholding, currently at a rate of 24%, may be applicable to all taxable distributions to any non-corporate U.S.
stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder
is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has failed to
properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s
taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is
allowed as a credit against the U.S. stockholder’s U.S. federal income tax liability and may entitle such stockholder to a
refund, provided that proper information is timely provided to the IRS.
If a U.S. stockholder recognizes a loss with respect to shares of Common Stock of $2 million or more for an individual
stockholder or $10 million or more for a corporate stockholder, the stockholder must file with the IRS a disclosure
statement on Form 8886. Direct stockholders of portfolio securities are in many cases exempted from this reporting
requirement, but under current guidance, stockholders of a RIC are not exempted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. U.S.
stockholders should consult their tax advisors to determine the applicability of these regulations in light of their specific
circumstances.
An additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital
gain distributions received from us and net gains from redemptions or other taxable dispositions of our shares) of U.S.
individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an
individual) or “adjusted gross income” (in the case of an estate or trust) exceed certain threshold amounts.
A U.S. Stockholder that is a tax-exempt organization for U.S. federal income tax purposes and therefore generally exempt
from U.S. federal income taxation may nevertheless be subject to taxation to the extent that it is considered to derive
unrelated business taxable income ("UBTI"). The direct conduct by a tax-exempt U.S. stockholder of the activities that we
propose to conduct could give rise to UBTI. However, a BDC is a corporation for U.S. federal income tax purposes and its
business activities generally will not be attributed to its stockholders for purposes of determining their treatment under
current law. Therefore, a tax-exempt U.S. stockholder should not be subject to U.S. taxation solely as a result of the
holder’s ownership of the Shares and receipt of dividends that we pay. Moreover, under current law, if we incur
indebtedness, such indebtedness will not be attributed to portfolio investors in our stock. Therefore, a tax-exempt U.S.
stockholder should not be treated as earning income from “debt-financed property” and dividends we pay should not be
treated as “unrelated debt-financed income” solely as a result of indebtedness that we incur. Proposals periodically are
made to change the treatment of “blocker” investment vehicles interposed between tax-exempt investors and non-
qualifying investments. In the event that any such proposals were to be adopted and applied to BDCs, the treatment of
dividends payable to tax-exempt investors could be adversely affected.
Taxation of Non-U.S. Stockholders
Whether an investment in the shares of Common Stock is appropriate for a non-U.S. stockholder will depend upon that
person’s particular circumstances. An investment in the shares of Common Stock by a non-U.S. stockholder may have
adverse tax consequences. Non-U.S. stockholders should consult their tax advisors before investing in shares of our
Common Stock.
Subject to the discussion below, distributions of our “investment company taxable income” to non-U.S. stockholders
(including interest income, net short-term capital gain or foreign-source dividend and interest income, which generally
would be free of withholding if paid to non-U.S. stockholders directly) will be subject to withholding of U.S. federal tax
at a 30% rate (or lower rate provided by an applicable treaty, assuming the non-U.S. stockholder provides the required
documentation evidencing its eligibility for such lower rate) to the extent of our current and accumulated earnings and
profits unless the distributions are effectively connected with a U.S. trade or business of the non-U.S. stockholder, in
which case the distributions will generally be subject to U.S. federal income tax at the rates applicable to U.S. persons. In
that case, we will not be required to withhold U.S. federal tax if the non-U.S. stockholder complies with applicable
certification and disclosure requirements. Special certification requirements apply to a non-U.S. stockholder that is a
foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisors.
Certain properly reported dividends received by a non-U.S. stockholder generally are exempt from U.S. federal
withholding tax when they (1) are paid in respect of our “qualified net interest income” (generally, our U.S. source
interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in
which we are at least a 10% stockholder, reduced by expenses that are allocable to such income), or (2) are paid in
connection with our “qualified short-term capital gains” (generally, the excess of our net short-term capital gain over our
long-term capital loss for a tax year) as well as if certain other requirements are satisfied. Nevertheless, it should be noted
that in the case of shares of our stock held through an intermediary, the intermediary may have withheld U.S. federal
income tax even if we reported the payment as an interest-related dividend or short-term capital gain dividend. Moreover,
depending on the circumstances, we may report all, some or none of our potentially eligible dividends as derived from
such qualified net interest income or as qualified short-term capital gains, or treat such dividends, in whole or in part, as
ineligible for this exemption from withholding.
Actual or deemed distributions of our net capital gains to a non-U.S. stockholder, and gains realized by a non-U.S.
stockholder upon the sale of shares of our Common Stock, will not be subject to federal withholding tax and generally
will not be subject to U.S. federal income tax unless the distributions or gains, as the case may be, are effectively
connected with a U.S. trade or business of the non-U.S. stockholder and, if an income tax treaty applies, are attributable to
a permanent establishment maintained by the non-U.S. stockholder in the United States or, in the case of an individual
non-U.S. stockholder, the stockholder is present in the United States for 183 days or more during the year of the sale or
capital gain dividend and certain other conditions are met.
If we distribute our net capital gains in the form of deemed rather than actual distributions (which we may do in the
future), a non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholder’s
allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the
non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if
the non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S.
federal income tax return. For a corporate non-U.S. stockholder, distributions (both actual and deemed), and gains realized
upon the sale of shares of our Common Stock that are effectively connected with a U.S. trade or business may, under
certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by
an applicable treaty).
A non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of U.S.
federal income tax, may be subject to information reporting and backup withholding of U.S. federal income tax on
dividends unless the non-U.S. stockholder provides us or the dividend paying agent with a U.S. nonresident withholding
tax certification (e.g., an IRS Form W-8BEN, IRS Form W-8BEN-E, or an acceptable substitute form) or otherwise meets
documentary evidence requirements for establishing that it is a non-U.S. stockholder or otherwise establishes an
exemption from backup withholding.
Withholding of U.S. tax (at a 30% rate) is required by the Foreign Account Tax Compliance Act, provisions of the Code
with respect to payments of dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with
extensive new reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-
owned foreign investment accounts. Stockholders may be requested to provide additional information to enable the
applicable withholding agent to determine whether withholding is required.
An investment in shares by a non-U.S. person may also be subject to U.S. federal estate tax. Non-U.S. persons should
consult their own tax advisors with respect to the U.S. federal income tax, U.S. federal estate tax, withholding tax, and
state, local and foreign tax consequences of acquiring, owning or disposing of shares of our Common Stock.
Other Taxes
Stockholders may be subject to state, local and non-U.S. taxes applicable to their investment in shares. Stockholders are
advised to consult their tax advisors with respect to the particular tax consequences to them of an investment in our shares.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Investing in shares of our Common Stock involves a number of significant risks. Before you invest in shares of our
Common Stock, you should be aware of various risks, including those described below. The risks set out below are not the
only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may
also impair our operations and performance. If any of the following events occur, our business, financial condition, results
of operations and cash flows could be materially and adversely affected. In such case, our net asset value could decline,
and you may lose all or part of your investment. The risk factors described below are the principal risk factors associated
with an investment in us as well as those factors generally associated with an investment company with investment
objectives, investment policies, capital structure or trading markets similar to ours.
SUMMARY OF RISK FACTORS
The following is a summary of the principal risk factors associated with an investment in us:
We are subject to risks and conflicts relating to our business and structure which may make it more difficult for you
to sell your shares of the Company or cause you to lose all or part of your investment:
• Operating as a BDC imposes numerous constraints and costs on us, reducing our operating flexibility. In addition, if
we fail to maintain our status as a BDC (including if we do not invest a sufficient amount in qualifying assets), we
might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions.
• The Company’s focus on economic growth and job creation may result in the Company underperforming compared to
broadly focused ESG funds or the market as a whole.
• Our financial condition and results of operation depend on our ability to manage future growth effectively. We depend
upon our Adviser and Administrator (each as defined below) for our success and upon their access to the investment
professionals and partners of Lafayette Square and its affiliates.
• Each of the Adviser and the Administrator can resign on 60 days’ notice, and we may not be able to find a suitable
replacement within that time, which could adversely affect our financial condition, business, and results of operations.
• There are significant potential conflicts of interest that could affect our investment returns, including conflicts related
to obligations that the Adviser or its affiliates have to, and fees paid by, other investment accounts.
• Our management and incentive fee structure may create incentives for the Adviser that are not fully aligned with the
interests of our stockholders and may induce the Adviser to make speculative investments.
• We will be subject to corporate-level income tax if we are unable to maintain qualification as a RIC under the Code.
• We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash
representing such income.
• If we are not treated as a “publicly offered regulated investment company,” as defined in the Code, U.S. stockholders
that are individuals, trusts or estates will be taxed as though they received a distribution of some of our expenses.
• We intend to finance a portion of our investments with borrowed money, which will magnify the potential for gain or
loss on amounts invested and may increase the risk of investing in us.
• We will be subject to risks associated with any credit facility, and a ny inability to renew or replace a credit facility
could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders.
• Our Shareholders may fail to fund their Capital Commitments when due.
• Our Board may change our investment objective and operating policies without prior notice or stockholder approval.
• We do not currently have comprehensive documentation of our internal controls and have not yet tested our internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act, and failure to develop such controls in accordance
with Section 404 could have a material adverse effect on our business and the value of our Common Stock.
• We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn,
negatively affect the value of our Common Stock and our ability to pay distributions.
• The LS SBICs are subject to SBA regulations and risks associated with SBA-guaranteed debentures.
• We are subject to risks associated with artificial intelligence and machine learning technology.
We are subject to risks relating to our investments, which could cause you to lose all or part of your investment:
• We may invest in distressed or highly leveraged companies, which could be risky and may enter into bankruptcy
proceedings, causing you to lose all or part of your investment.
• Subordinated liens on collateral securing debt investments that we make in our portfolio companies may be subject to
control by senior creditors with first priority liens.
• Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio
investments, reducing our net asset value through increased net unrealized depreciation.
• We have not yet identified all of the portfolio company investments we will acquire, and there is no certainty how long
it will take to identify such investments or if we will be able to find a sufficient number of such businesses .
• Our portfolio may initially be concentrated in a limited number of portfolio companies and industries, which will
subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt
instruments or if there is a downturn in a particular industry.
• Because we generally do not hold controlling equity interests in our portfolio companies, we cannot control such
companies or prevent decisions by their management that could decrease the value of our investments.
• The liability of each of the Adviser and the Administrator is limited, and we have agreed to indemnify each against
certain liabilities, which may lead them to act in a riskier manner than each would when acting for its own account.
• We may be subject to risks under hedging transactions.
• There can be no guarantee of our ability to coordinate with the human resources and personnel departments of our
portfolio companies through our Worker Solutions® services platform.
There are risks relating to your investment in our Common Stock:
• There is no public market for shares of our Common Stock , no ability for shareholders to redeem, and restrictions on
the ability of holders of our Common Stock to transfer.
• Our stockholders may experience dilution in their ownership percentage, including if they do not opt-in to our
dividend reinvestment plan.
• Our stockholders may receive shares of our Common Stock as distributions, which could result in adverse tax
consequences to them.
• We may, in the future, issue preferred stock, which could adversely affect the value of shares of Common Stock.
General risk factors
• The impact of economic recessions or downturns may impair our portfolio companies and lead to defaults by our
portfolio companies, which could harm our operating results.
• Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and
results of operations.
• We are subject to risks associated with the current interest rate environment, and to the extent we use debt to finance
our investments, changes in interest rates will affect our cost of capital and net investment income.
• Terrorist attacks, acts of war, natural disasters, outbreaks, or pandemics may impact our portfolio companies and our
Adviser and harm our business, operating results, and financial condition.
• A shareholder may be subject to filing requirements and the short-swing profits rules under the Exchange Act as a
result of an investment in us.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a
material adverse effect on our business, financial condition and/or operating results. For a more detailed discussion of the
risks that you should consider prior to investing in our securities, see the section below entitled “Risk Factors.”
Risks Relating to Our Business and Structure
Operating as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In
addition, if we fail to maintain our status as a BDC (including if we do not invest a sufficient portion of our assets in
qualifying assets), we might be regulated as a closed-end investment company, which would subject us to additional
regulatory restrictions.
The 1940 Act imposes numerous constraints on the operations of BDCs that do not apply to other investment vehicles
managed by our Adviser and its affiliates. BDCs are required, for example, to invest at least 70% of their total assets
primarily in "qualifying assets", such as securities of U.S. private or thinly traded public companies, cash, cash equivalents,
U.S. government securities, and other high-quality debt instruments that mature in one year or less from the date of
investment. These constraints and our Adviser’s limited operating history under these constraints may hinder our ability to
take advantage of attractive investment opportunities and to achieve our investment objective. Furthermore, any failure to
comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action
against us and/or expose us to claims of private litigants.
We may be precluded from investing in what our Adviser believes are 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
will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo
attractive investment opportunities. Similarly, these rules could prevent us from making follow-on investments in existing
portfolio companies (which could result in the dilution of our position).
If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company that is required to
register under the 1940 Act, which would subject us to additional regulatory restrictions and significantly decrease our
operating flexibility. In addition, any such failure could cause an event of default under any outstanding indebtedness we
might have, which could have a material adverse effect on our business, financial condition or results of operations.
The Company’s focus on economic growth and job creation may result in the Company underperforming compared to
broadly focused ESG funds or the market as a whole.
The Company intends to make investments that stimulate economic growth and create jobs in the United States; however,
there is no guarantee that the Company's investments will have the intended results. This focus limits the types and number
of investment opportunities available to the Company and, as a result, the Company may underperform compared to other
funds that do not have this focus. The Company may base its determination to invest in certain portfolio companies on such
companies’ alignment with Lafayette Square’s mission and values and, in doing so, the Company may forgo other
investment opportunities that would have generated greater returns for the Company. Unlike socially responsible
investment funds that invest broadly in companies with favorable environmental, social and corporate governance (“ESG”)
characteristics, the Company is focused on benefiting society through economic growth and job creation. Accordingly, this
focus may result in the Company investing in securities or industry sectors that underperform the market as a whole or
underperform other funds that screen broadly for positive ESG characteristics.
Insured depository institution shareholders that are subject to regulatory examination for CRA compliance may fail to
obtain favorable regulatory consideration of their investment under the CRA.
The CRA requires the three U.S. federal bank supervisory agencies (the FRB, the OCC, and the FDIC) to encourage certain
FDIC-insured financial institutions to help meet the credit needs of their local communities, including LMI neighborhoods,
consistent with the safe and sound operation of such institutions. Each agency operates under substantially similar rules and
regulatory guidance for evaluating and rating an institution’s CRA performance. These rules vary according to an
institution’s asset size and business strategy.
In October 2023, the three federal banking agencies issued a new unified set of CRA regulations (the “New CRA Final
Rule”) that, among other changes, implemented a tiered framework with separate evaluations for retail lending, retail
services and products, community development financing, and community development services for banks with over $2
billion in total assets. Published in February 2024, the New CRA Final Rule requires banks to comply with most
provisions beginning on January 1, 2026, with certain other requirements becoming applicable on January 1, 2027. Until
these regulations become applicable, the current state of CRA regulations is unsettled, and may continue to be so even after
the new regulations are applicable. This is especially so in light of current, ongoing litigation, which has resulted in an
injunction of the New CRA Final Rule, as well as the change in the U.S. presidential administration. As such, this changing
state of laws, regulations or the interpretation of laws and regulations related to the CRA may result in a failure of insured
depository institution shareholders that are subject to regulatory examination for CRA compliance to obtain favorable
regulatory consideration of their investment under the CRA.
Investment in the Company is not currently deemed a CRA eligible investment by any of the U.S. federal bank supervisory
agencies, and the OCC declined to prospectively confirm that an investment in the Company would qualify as a CRA
activity when the Company sought clarity on the question from the OCC (which was prior to the adoption of the New CRA
Final Rule). Investments are not typically designated as CRA-qualifying by any governmental agency at the time of
issuance. The final determinations that investments are CRA-qualifying are made by the federal and, where applicable,
state bank supervisory agencies during their periodic examinations of financial institutions. We plan to require our
borrowers, both during the underwriting process and on an ongoing basis throughout the term of the loan, to deliver data to
allow an insured depository institution to apply for credit for the investment under the CRA with the appropriate banking
regulator. This data is expected to include statistics regarding the borrowers’ composition and growth as well as their
impact on the communities where they operate, and who and from where such borrowers hire, as well as other information
that could be used to validate CRA eligibility such as the borrowers’ employment of LMI workers and the borrowers’
locations and/or operations in Working-Class Areas. This information is designed to be helpful in substantiating the CRA
eligibility of the investment. We can offer no assurance, however, that an investor in the Company subject to CRA
requirements will receive CRA credit for such investment, and insured depository institution investors interested in
applying for CRA credit must make their own assessment as to the likelihood that their banking regulator will grant CRA
credit. Whether investments in the Company will qualify in whole or in part for CRA credit will depend on the composition
of the Company’s investment portfolio over time and other factors, including changing regulatory criteria for granting CRA
credit for particular categories of investments.
Our financial condition and results of operation depend on our ability to manage future growth effectively.
Our ability to achieve our investment objective depends on our ability to grow, which depends, in turn, on the Adviser’s
ability to identify, invest in and monitor companies that meet our investment criteria. Accomplishing this result on a cost-
effective basis will depend on the Adviser’s structuring of the investment process, its ability to provide competent,
attentive, and efficient services to us, and our access to financing on acceptable terms. The management team of the
Adviser has substantial responsibilities under our Investment Advisory Agreement. We can offer no assurance that any
current or future employees of the Adviser will contribute effectively to the work of, or remain associated with, the
Adviser. We caution you that the principals of our Adviser or Administrator will also be called upon to provide managerial
assistance to our portfolio companies and those of other investment vehicles which are managed by the Adviser. Such
demands on their time may distract them or slow our rate of investment. Any failure to manage our future growth
effectively could have a material adverse effect on our business, financial condition, and results of operations.
We depend upon our Adviser and Administrator for our success and upon their access to the investment professionals
and partners of Lafayette Square and its affiliates.
We do not have any internal management capacity or employees. We depend on the diligence, skill, and network of
business contacts of the senior investment professionals of our Adviser and Administrator to achieve our investment
objective. We expect that the Adviser will evaluate, negotiate, structure, close, and monitor our investments in accordance
with the terms of the Investment Advisory Agreement. We can offer no assurance, however, that the senior investment
professionals of the Adviser will continue to provide investment advice to us. The loss of any member of the Adviser’s
Investment Committee or of other senior investment professionals of the Adviser and its affiliates would limit our ability to
achieve our investment objective and operate as we anticipate. In addition, we can offer no assurance that the resources,
relationships, and expertise of Lafayette Square will be available for every transaction or generally during the term of the
Company. This could have a material adverse effect on our financial condition, results of operations, and cash flows.
We depend on the diligence, skill, and network of business contacts of the professionals available to our Administrator to
carry out the administrative functions necessary for us to operate, including the ability to select and engage sub-
administrators and third-party service providers. We can offer no assurance, however, that the professionals of the
Administrator will continue to provide administrative services to us. In addition, we can offer no assurance that the
resources, relationships, and expertise of Lafayette Square will be available to the Administrator throughout the term of the
Company. This could have a material adverse effect on our financial condition, results of operations, and cash flows.
We depend on the Adviser’s key personnel in seeking to achieve our investment objectives.
The Company does not have any internal management capacity or employees. Through staffing agreements, the Adviser
depends on the investment professionals of affiliates of Lafayette Square and such investment professionals’ diligence,
skill, and network of business contacts. Our success will depend to a significant extent on the continued service and
coordination of senior management professionals of our Adviser pursuant to the staffing agreements. The diversion of time
by, or departure of, any of these individuals could have a material adverse effect on our ability to achieve our investment
objectives.
The Adviser's personnel primarily work from home.
The Adviser's personnel primarily work from home as a result of a technology-first business model, among other things. To
the extent that such personnel, as a result of working remotely, rely more heavily on technology systems for their business-
related communications and information sharing, the Adviser could be more vulnerable to cybersecurity incidents and
cyberattacks and could have more difficulty resuming normal operations in the event it is the target of such incident or
attack.
The Adviser's dependence on technology.
Our operations are highly dependent on technology which is comprised of proprietary software and systems that work with
third-party tools to strengthen origination, underwriting, and monitoring processes. There is a risk that software or other
technology malfunctions or programming inaccuracies may impair the performance of these systems. System impairment
may negatively impact one or more of such processes, which could impact performance, potentially materially.
The Adviser may frequently be required to make investment analyses and decisions on an expedited basis in order to
take advantage of investment opportunities, and our Adviser may not have knowledge of all circumstances that could
impact an investment by the Company.
Investment analyses and decisions by the Adviser may frequently 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, we can offer no assurance that the Adviser will have knowledge of all
circumstances that may adversely affect a portfolio investment, and the Adviser may make portfolio investments which it
would not have made if more extensive due diligence had been undertaken. In addition, the Adviser may rely upon
independent consultants and advisors in connection with its evaluation of proposed investments, and we can offer no
assurance as to the accuracy or completeness of the information provided by such independent consultants and advisors or
to the Adviser’s right of recourse against them in the event errors or omissions do occur.
Each of the Adviser and the Administrator can resign on 60 days’ notice, and we may not be able to find a suitable
replacement within that time, resulting in a disruption in our operations that could adversely affect our financial
condition, business, and results of operations.
The Adviser has the right to resign under the Investment Advisory Agreement at any time upon not less than 60 days’
written notice, and the Administrator has the right to resign under the Administration Agreement at any time upon not less
than 60 days’ written notice, in each case whether we have found a replacement or not. An affiliate of the Adviser is the
borrower under a credit facility and pledged its ownership interests in the Adviser as collateral for that facility. In the event
of a default under such credit facility, the foreclosure of these ownership interests would cause a change of control of the
Adviser, which would effect an automatic termination of the Investment Advisory Agreement. If the Adviser or
Administrator resigns or the Investment Advisory Agreement is terminated, we may not be able to find a new investment
adviser or administrator or hire internal management with similar expertise and ability to provide the same or equivalent
services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to
experience a disruption, our business, financial condition, results of operations and cash flows as well as our ability to pay
distributions are likely to be adversely affected, and the value of our shares may decline. In addition, the coordination of
our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement
with a single institution or group of executives having the expertise possessed by the Adviser or Administrator and their
respective affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of
such management and their lack of familiarity with our investment objective may result in additional costs and time delays
that may adversely affect our business, financial condition, results of operations and cash flows.
There are significant potential conflicts of interest that could affect our investment returns, including conflicts related
to obligations that the Adviser’s Investment Committee, the Adviser or its affiliates have to other investment accounts
and conflicts related to fees and expenses of such other investment accounts.
As a result of our arrangements with the Adviser and its affiliates and the Adviser’s Investment Committee, there may be
times when the Adviser or such persons have interests that differ from those of our stockholders, giving rise to a conflict of
interest. Lafayette Square and/or the Adviser are expected to provide investment advisory services for other Affiliated
Investment Accounts with a wide variety of investment objectives that in some instances may overlap or conflict with the
investment objectives of the Company and present conflicts of interest. In addition, Lafayette Square may also, from time
to time, create new or successor Affiliated Investment Accounts that may compete with the Company and present similar
conflicts of interest. See “ Item 13. Certain Relationships and Related Transactions, and Director Independence .” In
serving in these multiple capacities, Lafayette Square, including the Adviser, the Investment Committee, and the
investment team, may have obligations to Other Clients, or investors in Affiliated Investment Accounts, the fulfillment of
which may not be in the best interests of us or our stockholders. Our investment objective may overlap with the investment
objectives of certain Affiliated Investment Accounts. As a result, the members of the Investment Committee may face
conflicts in the allocation of investment opportunities among us and other investment funds, programs, accounts, and
businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees, greater expense reimbursements or overhead allocations, or permit the Adviser and its
affiliates to receive higher origination and other transaction fees, all of which may contribute to this conflict of interest and
create an incentive for the Adviser to favor such other accounts. For example, the 1940 Act restricts the Adviser from
receiving more than a 1% fee in connection with loans that we acquire or “originate,” a limitation that does not exist for
certain other accounts.
Lafayette Square expects to invest on its own behalf and on behalf of its Affiliated Investment Accounts in a wide variety
of investment opportunities. Lafayette Square and, to the extent consistent with applicable law and/or exemptive relief and
the Adviser’s allocation policies and procedures, its Affiliated Investment Accounts will be permitted to invest in
investment opportunities without making such opportunities available to the Company beforehand. Subject to the
requirements of an applicable exemptive relief, Lafayette Square may offer investments that fall into the investment
objectives of an Affiliated Investment Account to such account or make such investment on its own behalf, even though
such investment also falls within the investment objectives of the Company. The Company may invest in opportunities that
Lafayette Square and/or one or more Affiliated Investment Accounts have declined, and vice versa. These developments
may reduce the number of investment opportunities available to the Company and may create conflicts of interest in
allocating investment opportunities among the Adviser, the Company, and the Affiliated Investment Accounts. Lafayette
Square and its affiliates will allocate opportunities among one or more of the Company, other affiliated funds and such
Affiliated Investment Accounts in accordance with the terms of its allocation policies and procedures. Shareholders should
note that the conflicts inherent in making such allocation decisions may not always be resolved to the advantage of the
Company. We can offer no assurance that the Company will have an opportunity to participate in certain opportunities that
fall within the Company’s investment objectives. To the extent the Company does not obtain a co-investment exemptive
order, or if the granting of such order is delayed, the Company may only be able to participate in certain negotiated
investment opportunities on a rotational basis.
It is possible that Lafayette Square or an Affiliated Investment Account will invest in a company that is or becomes a
competitor of a portfolio company of the Company. Such investment could create a conflict between the Company, on the
one hand, and Lafayette Square or the Affiliated Investment Account, on the other hand. In such a situation, Lafayette
Square may also have a conflict in the allocation of its own resources to the portfolio company. In addition, certain
Affiliated Investment Accounts will be focused primarily on investing in other funds, which may have strategies that
overlap and/or directly conflict and compete with the Company.
The Adviser’s investment professionals are engaged in other investment activities on behalf of Other Clients.
Certain investment professionals who are involved in our activities remain responsible for the investment activities of other
Affiliated Investment Accounts managed by the Adviser and its affiliates, and they will devote time to the management of
such investments and other newly created Affiliated Investment Accounts (whether in the form of funds, separate accounts
or other vehicles), as well as their own investments. In addition, in connection with the management of investments for
other Affiliated Investment Accounts, members of Lafayette Square and its affiliates may serve on the boards of directors
of or advise companies that may compete with our portfolio investments. Moreover, these Affiliated Investment Accounts
managed by Lafayette Square and its affiliates may pursue investment opportunities that may also be suitable for us.
The Adviser’s Investment Committee, the Adviser or its affiliates may possess material non-public information, limiting
our investment discretion.
Principals of the Adviser and its affiliates and members of the Adviser’s Investment Committee may serve as directors of,
or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf. In
the event that material nonpublic information is obtained with respect to such companies, or we become subject to trading
restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we could
be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may
have an adverse effect on us.
Our management and incentive fee structure may create incentives for the Adviser and Administrator that are not fully
aligned with the interests of our stockholders and may induce the Adviser to make speculative investments.
In the course of our investing activities, we pay management and incentive fees to the Adviser. The base management fee is
based on our average gross assets, and the incentive fee is computed and paid on income, both of which include leverage.
As a result, our shareholders will invest on a “gross” basis and receive distributions on a “net” basis after expenses,
resulting in a lower rate of return than one might achieve through direct investments. Because these fees are based on our
average gross assets, the Adviser benefits when we incur debt or use leverage. Under certain circumstances, the use of
leverage may increase the likelihood of default on our debt, which would disfavor us or our stockholders.
Additionally, the incentive fee payable by us to the Adviser may create an incentive for the Adviser to cause us to realize
capital gains or losses that may not be in the best interests of us or our stockholders. Under the incentive fee structure, the
Adviser benefits when we recognize capital gains and, because the Adviser determines when an investment is sold, the
Adviser controls the timing of the recognition of such capital gains. Our Board is charged with protecting our stockholders’
interests by monitoring how the Adviser addresses these and other conflicts of interest associated with its management
services and compensation.
The part of the management and incentive fees payable to Adviser that relates to our net investment income is computed
and paid on income that may include interest income that has been accrued but not yet received in cash, such as a market
discount, debt instruments with PIK interest, preferred stock with PIK dividends, zero-coupon securities, and other deferred
interest instruments and may create an incentive for the Adviser to make investments on our behalf that are riskier or more
speculative than would be the case in the absence of such compensation arrangement. This fee structure may be considered
to give rise to a conflict of interest for the Adviser to the extent that it may encourage the Adviser to favor debt financings
that provide for deferred interest, rather than current cash payments of interest. Under these investments, we will accrue the
interest over the life of the investment, but we will not receive the cash income from the investment until the end of the
term. Our net investment income used to calculate the income portion of our investment fee, however, includes accrued
interest. The Adviser may have an incentive to invest in deferred interest securities in circumstances where it would not
have done so but for the opportunity to continue to earn the fees even when the issuers of the deferred interest securities
would not be able to make actual cash payments to us on such securities. This risk could be increased because the Adviser
is not obligated to reimburse us for any fees received even if we subsequently incur losses or never receive in cash the
deferred income that was previously accrued.
In addition, we pay to the Administrator our allocable portion of certain expenses incurred by the Administrator in
performing its obligations under the Administration Agreement, such as our allocable portion of the cost of our chief
financial officer and chief compliance officer. These arrangements create conflicts of interest that our Board must monitor.
Our ability to enter into transactions with our affiliates will be restricted.
We will be prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the
prior approval of a majority of our independent directors and, in some cases, the SEC. Any person that owns, directly or
indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act. As such we
will generally be prohibited from buying or selling any securities from or to such affiliate on a principal basis, absent the
prior approval of our Board and, in some cases, the SEC. The 1940 Act also prohibits certain “joint” transactions with
certain of our affiliates, which in certain circumstances could include investments in the same portfolio company (whether
at the same or different times to the extent the transaction involves a joint investment), without prior approval of our Board
and, in some 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 directors or their affiliates.
The SEC has interpreted the BDC regulations governing transactions with affiliates to prohibit certain joint transactions
involving entities that share a common investment adviser. As a result of these restrictions, we may be prohibited from
buying or selling any security from or to any portfolio company that is controlled by a fund managed by the Adviser or
their respective affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that
would otherwise be available to us.
We may, however, invest alongside our Adviser’s and/or its affiliates’ Other Clients in certain circumstances where doing
so is consistent with applicable law and SEC staff interpretations, guidance, and exemptive relief orders. However,
although the Adviser seeks to allocate investment opportunities fairly in the long-run, we can offer no assurance that
investment opportunities will be allocated to us fairly or equitably in the short-term or over time. We have applied for and
received exemptive relief to co-invest with affiliates of our Adviser in privately negotiated transactions.
In situations when co-investment with affiliates’ Other Clients is not permitted under the 1940 Act and related rules,
existing or future staff guidance, or the terms and conditions of exemptive relief granted to us by the SEC (as discussed
above), our Adviser will need to decide which client or clients will proceed with the investment. Generally, we will not be
entitled to make a co-investment in these circumstances and, to the extent that another client elects to proceed with the
investment, we will not be permitted to participate. Moreover, except in certain circumstances, we will not invest in any
issuer in which an affiliate’s other client holds a controlling interest.
Shares of our Common Stock are illiquid investments for which there is not a secondary market.
We do not know at this time what circumstances will exist in the future, and therefore we do not know what factors our
Board will consider in contemplating an Exchange Listing or other Liquidity Event in the future. As a result, even if we do
complete a Liquidity Event to establish a secondary market for shares of our Common Stock, you may not receive a return
of all of your invested capital. If we do not successfully complete a Liquidity Event, liquidity for your shares of Common
Stock may be limited to participation in any repurchase offers that our Board may determine to conduct, which we do not
currently intend to conduct. In addition, in any repurchase offer, if the amount requested to be repurchased in any
repurchase offer exceeds the repurchase offer amount, repurchases of shares of Common Stock would generally be made
on a pro-rata basis (based on the number of shares of Common Stock put to us for repurchases), not on a first-come, first-
served basis.
Even if we undertake a Liquidity Event, we cannot assure you a public trading market will develop or, if one develops, that
such trading market can be sustained. Shares of companies offered in an initial public offering or a Liquidity Event often
trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. In addition,
following a Liquidity Event, shareholders may be restricted from selling or disposing of their shares of Common Stock by
applicable securities laws, contractually by a lock-up agreement with the underwriters of a Liquidity Event and
contractually through restrictions contained in the subscription agreement in respect of shares of our Common Stock. Also,
shares of closed-end investment companies and BDCs frequently trade at a discount from their net asset value. This
characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per Share
may decline. We cannot predict whether shares of our Common Stock, if listed on a national securities exchange, will trade
at, above, or below net asset value.
We operate in a highly competitive market for investment opportunities, which could reduce returns and result in
losses.
The business of identifying and structuring investments of the types contemplated by the Company is competitive and
involves a high degree of uncertainty. The Company will be competing for investments with other investment funds, as
well as more traditional lending institutions and private credit-focused competitors. Over the past several years, an
increasing number of funds have been formed, with investment objectives similar to, or overlapping with, those of the
Company (and many such existing funds have grown substantially in size). In addition, other firms and institutions are
seeking to capitalize on the perceived opportunities with vehicles, funds, and other products that are expected to compete
with the Company for investments. Other shareholders may make competing offers for investment opportunities that we
identify. Even after an agreement in principle has been reached with the board of directors or owners of an acquisition
target, consummating the transaction is subject to a myriad of uncertainties, only some of which are foreseeable or within
the control of the Adviser. Some of our 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 the Company, and thus these
competitors may have advantages over the Company. In addition, issuers may prefer to take advantage of favorable high-
yield markets and issue subordinated debt in those markets, which could result in fewer credit investment opportunities for
the Company. In addition to competition from other shareholders, the availability of investment opportunities generally
will be subject to market conditions as well as, in many cases, the prevailing regulatory or political climate. There may also
be insufficient or inconsistent demand from middle market businesses for capital investment and managerial assistance. We
can offer no assurance that the Company will be successful in obtaining suitable investments, or that if we make such
investments, the objectives of the Company will be achieved.
We will be subject to corporate-level income tax if we are unable to maintain qualification as a RIC.
In order to maintain RIC tax treatment under the Code, we must meet certain source-of-income, asset diversification, and
distribution requirements. The distribution requirement for a RIC is satisfied if we distribute to our stockholders
distributions for U.S. federal income tax purposes of an amount generally at least equal to 90% of our investment company
taxable income, which is generally our net ordinary income plus the excess of our net short-term capital gains in excess of
our net long-term capital losses, determined without regard to any deduction for distributions paid, to our stockholders on
an annual basis. We are subject, to the extent we use debt financing, to certain asset coverage ratio requirements under the
1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from
making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to be
subject to tax as a RIC, in which case we will be subject to corporate-level income tax. To maintain status as a RIC, we
must also meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet
these requirements may result in our having to dispose of certain investments quickly in order to continue to qualify as a
RIC. Because most of our investments are in private or thinly traded public companies, any such dispositions could be
made at disadvantageous prices and may result in substantial losses. If we fail to qualify as a RIC for any reason and
become subject to corporate-level income tax, the resulting corporate taxes could substantially reduce our net assets, the
amount of income available for distributions to stockholders, the amount of our distributions, and the amount of funds
available for new investments. Such a failure would have a material adverse effect on our stockholders and us. See “ Item 1.
Material U.S. Federal Income Tax Considerations - Taxation as a RIC .”
We will need to raise additional capital to grow because we must distribute most of our income.
We will need additional capital to fund new investments and grow our portfolio of investments. We intend to access the
capital markets periodically to issue debt or equity securities (although we do not intend to issue preferred stock within one
year of the Effective Date) or borrow from financial institutions in order to obtain such additional capital. Unfavorable
economic conditions could increase our funding costs, limit our access to the capital markets, or result in a decision by
lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition,
we will be required to distribute each taxable year an amount at least equal to 90% of the sum of our net ordinary income
and net short-term capital gains in excess of net long-term capital losses, or investment company taxable income,
determined without regard to any deduction for distributions paid as distributions for U.S. federal income tax purposes, to
our stockholders to maintain our ability to be subject to tax as a RIC. As a result, these earnings are not available to fund
new investments. An inability to access the capital markets successfully could limit our ability to grow our business and
execute our business strategy fully and could decrease our earnings if any. This would have an adverse effect on the value
of our securities. If we are not able to raise capital and are at or near our targeted leverage ratios, we may receive smaller
allocations, if any, on new investment opportunities under the Adviser’s allocation policies and procedures.
We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash
representing such income.
For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as
the accretion of OID. This may arise if we receive warrants in connection with the making of a loan and in other
circumstances, or through contracted PIK interest, which represents contractual interest added to the loan balance and due
at the end of the loan term. Such OID, which could be significant relative to our overall investment activities, or increases
in loan balances as a result of contracted PIK arrangements, is included in our income before we receive any corresponding
cash payments. We also may be required to include in income certain other amounts that we do not receive in cash.
That 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 has been accrued but not yet received in cash, such as a market discount, debt instruments with
PIK interest, preferred stock with PIK dividends and zero-coupon securities. If a portfolio company defaults on a loan that
is structured to provide 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.
The higher interest rates of PIK loans 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. PIK loans may
have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the
deferred payments and the value of any associated collateral. Market prices of zero-coupon or PIK securities are affected to
a greater extent by interest rate changes and may be more volatile than securities that pay interest periodically and in cash.
PIKs are usually less volatile than zero-coupon bonds, but more volatile than cash pay securities. Because original issue
discount income is accrued without any cash being received by us, required cash distributions may have to be paid from
offering proceeds or the sale of our assets without investors being given any notice of this fact. The deferral of PIK interest
increases the loan-to-value ratio, which is a measure of the riskiness of a loan. Even if the accounting conditions for income
accrual are met, the borrower could still default when our actual payment is due at the maturity of the loan.
Since in certain cases we may recognize income before or without receiving cash representing such income, we may have
difficulty meeting the requirement in a given taxable year to distribute to our stockholders distributions for U.S. federal
income tax purposes an amount at least equal to 90% of our investment company taxable income, determined without
regard to any deduction for distributions paid, to our stockholders to qualify and maintain our ability to be subject to tax as
a RIC. In such a case, we may have to sell some of our investments at times we would not consider advantageous, raise
additional debt or equity capital, or reduce new investment originations to meet these distribution requirements. If we are
not able to obtain such cash from other sources, we may fail to qualify as a RIC and thus be subject to corporate-level
income tax. See “ Item 1. Material U.S. Federal Income Tax Considerations - Taxation as a RIC.”
If we are not treated as a “publicly offered regulated investment company,” as defined in the Code, U.S. stockholders
that are individuals, trusts or estates will be taxed as though they received a distribution of some of our expenses.
We do not expect to be treated initially as a “publicly offered regulated investment company.” Until and unless we are
treated as a “publicly offered regulated investment company” as a result of either (1) shares of our Common Stock and our
preferred stock collectively being held by at least 500 persons at all times during a taxable year, (2) shares of our Common
Stock being continuously offered pursuant to a public offering (within the meaning of Section 4 of the Securities Act) or
(3) shares of our Common Stock being treated as regularly traded on an established securities market, each U.S.
stockholder that is an individual, trust or estate will be treated as having received a dividend for U.S. federal income tax
purposes from us in the amount of such U.S. stockholder’s allocable share of the management and incentive fees paid to
our investment adviser and certain of our other expenses for the calendar year, and these fees and expenses will be treated
as miscellaneous itemized deductions of such U.S. stockholder. For taxable years beginning before 2026, miscellaneous
itemized deductions generally are not deductible by a U.S. stockholder that is an individual, trust, or estate. For taxable
years beginning in 2026 or later, miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is
an individual, trust or estate only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized
deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, are not
deductible for purposes of the alternative minimum tax and are subject to the overall limitation on itemized deductions
under Section 68 of the Code. See “ Item 1. Material U.S. Federal Income Tax Considerations - Taxation as a RIC.”
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.
As a BDC, our need to raise additional capital (because we must distribute most of our income) exposes us to risks,
including the typical risks associated with leverage.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we
refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of
the 1940 Act, we are currently permitted to issue “senior securities,” including borrowing money from banks or other
financial institutions, only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150%
(equivalent to $2 of debt outstanding for each $1 of equity) of total assets less all liabilities and indebtedness not
represented by senior securities, after each issuance of senior securities. If we fail to comply with certain disclosure
requirements, our asset coverage ratio under the 1940 Act would be 200%, which would decrease the amount of leverage
we are able to incur. If the value of our assets declines, we may be unable to satisfy the applicable asset coverage ratio. If
that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a
portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service
our indebtedness would not be available for distributions to holders of shares of our Common Stock. If we issue senior
securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss.
In the absence of an event of default, no person or entity from which we borrow money has a veto right or voting power
over our ability to set policy, make investment decisions, or adopt investment strategies. If we issue preferred stock, which
is another form of leverage, the preferred stock would rank “senior” to Common Stock in our capital structure, preferred
stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges
more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of
delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our
Common Stock or otherwise be in the best interest of our common stockholders. Holders of our Common Stock will
directly or indirectly bear all of the costs associated with offering and servicing any preferred stock that we issue. In
addition, any interests of preferred stockholders may not necessarily align with the interests of holders of our Common
Stock, and the rights of holders of shares of preferred stock to receive distributions would be senior to those of holders of
shares of Common Stock. We do not, however, anticipate issuing preferred stock in the next 12 months.
We are not generally able to issue and sell our Common Stock at a price below net asset value per share. We may,
however, sell our Common Stock, or warrants, options or rights to acquire our Common Stock, at a price below the then-
current net asset value per share of our Common Stock if our Board determines that such sale is in the best interests of us
and our stockholders, and if our stockholders 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 Stock or
senior securities convertible into, or exchangeable for, our Common Stock, then the percentage ownership of our
stockholders at that time will decrease, and holders of our Common Stock might experience dilution.
We intend to finance a portion of our investments with borrowed money, which will magnify the potential for gain or
loss on amounts invested and may increase the risk of investing in us.
The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally
considered a speculative investment technique and increases the risks associated with investing in our securities. The
amount of leverage that we employ will be subject to the restrictions of the 1940 Act and the supervision of our Board. At
the time of any proposed borrowing, the amount of leverage we employ will also depend on our Adviser’s assessment of
the market and other factors. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
For example, due to the interplay of the 1940 Act restrictions on principal and joint transactions and the U.S. risk retention
rules adopted pursuant to Section 941 of the Dodd-Frank Act, as a BDC, we are limited in our ability to enter into any
securitization transactions. We cannot assure you that the SEC or any other regulatory authority will modify such
regulations or provide administrative guidance that would give us greater flexibility to enter into securitizations. We may
issue senior debt securities to banks, insurance companies, and other lenders. Lenders of these senior securities will have
fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such
lenders to seek recovery against our assets in the event of a default. We may pledge up to 100% of our assets, may grant a
security interest in all of our assets, and may pledge the right to make capital calls of stockholders under the terms of any
debt instruments we may enter into with lenders. Under the terms of any credit facility or debt instrument we enter into, we
are likely to be required to comply with certain financial and operational covenants. Failure to comply with such covenants
could result in a default under the applicable credit facility or debt instrument if we are unable to obtain a waiver from the
applicable lender or holder, and such lender or holder could accelerate repayment under such indebtedness and negatively
affect our business, financial condition, results of operations and cash flows. In addition, under the terms of any credit
facility or other debt instrument we enter into, we are likely to be required by its terms to use the net proceeds of any
investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such
net proceeds to any other uses. If the value of our assets decreases, leveraging would cause our net asset value to decline
more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our equity stake
in a leveraged investment. Similarly, any decrease in our net investment income will cause our net income to decline more
sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make
distributions on our Common Stock or any outstanding preferred stock. Our ability to service our debt depends largely on
our financial performance and is subject to prevailing economic conditions and competitive pressures. Our common
stockholders bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses
and any increase in the base management fee payable to the Adviser.
We will be subject to risks associated with any credit facility.
We anticipate that we or a direct subsidiary of ours may enter into one or more credit facilities, including subscription-
based and asset-based revolving credit facilities. Under any credit facility, we will be subject to a variety of risks, including
those set forth below.
Our interests in any subsidiary that enters into a credit facility would be subordinated, and we may not receive cash on
our equity interests from any such subsidiary.
We would consolidate the financial statements of any such subsidiary in our consolidated financial statements and treat the
indebtedness of any such subsidiary as our leverage. Our interests in any wholly-owned direct or indirect subsidiary of ours
would be subordinated in priority of payment to every other obligation of any such subsidiary and would be subject to
certain payment restrictions set forth in the credit facility. We would receive cash distributions on our equity interests in
any such subsidiary only if such a subsidiary had made all required cash interest payments to the lenders, and no default
exists under the credit facility. We cannot assure you that distributions on the assets held by any such subsidiary would be
sufficient to make any distributions to us or that such distributions would meet our expectations.
We would receive cash from any such subsidiary only to the extent that we would receive distributions on our equity
interests in such subsidiary. Any such subsidiary would be able to make distributions on its equity interests only to the
extent permitted by the payment priority provisions of the credit facility. We expect that the credit facility would generally
provide that payments on such interests may not be made on any payment date unless all amounts owing to the lenders and
other secured parties are paid in full. In addition, if such a subsidiary would not meet the borrowing base test set forth in
the credit facility documents, a default would occur. In the event of a default under the credit facility, cash would be
diverted from us to pay the lender and other secured parties until they are paid in full. In the event that we fail to receive
cash from such subsidiary, we would be unable to make distributions to our stockholders in amounts sufficient to maintain
our status as a RIC, or at all. We also could be forced to sell investments in portfolio companies at less than their fair value
in order to continue making such distributions.
Our equity interests in any such subsidiary would rank behind all of the secured and unsecured creditors, known or
unknown, of such subsidiary, including the lenders in the credit facility. Consequently, to the extent that the value of such
subsidiary’s portfolio of loan investments would have been reduced as a result of conditions in the credit markets, defaulted
loans, capital gains, and losses on the underlying assets, prepayment, or changes in interest rates, the return on our
investment in such subsidiary could be reduced. Accordingly, our investment in such subsidiary may be subject to up to a
complete loss.
Our ability to sell investments held by any subsidiary that enters into a credit facility would be limited.
We expect that a credit facility would place significant restrictions on our ability, as servicer, to sell investments. As a
result, there may be times or circumstances during which we would be unable to sell investments or take other actions that
might be in our best interests.
Any inability to renew, extend, or replace a credit facility could adversely impact our liquidity and ability to find new
investments or maintain distributions to our stockholders.
There can be no assurance that we would be able to renew, extend, or replace any credit facility upon its maturity on terms
that are favorable to us, if at all. Our ability to renew, extend, or replace the credit facility would be constrained by then-
current economic conditions affecting the credit markets. In the event that we were not able to renew, extend or replace the
credit facility at the time of its maturity, this could have a material adverse effect on our liquidity and ability to fund new
investments, our ability to make distributions to our stockholders, and our ability to qualify as a RIC.
Our Shareholders may fail to fund their Capital Commitments when due.
We call only a limited amount of Capital Commitments from shareholders in the Private Offering of shares of our Common
Stock upon each drawdown notice. The timing of drawdowns may be difficult to predict, requiring each shareholder to
maintain sufficient liquidity until its Capital Commitments to purchase shares of Common Stock are fully funded. We may
not call a shareholder’s entire Capital Commitment prior to the end of our Investment Period.
Although the Adviser will seek to manage our cash balances so that they are appropriate for our investments and other
obligations, the Adviser’s ability to manage cash balances may be affected by changes in the timing of investment closings,
our access to leverage, defaults by our shareholders, late payments of drawdown purchases and other factors.
In addition, we can offer no assurance that all shareholders will satisfy their respective Capital Commitments. To the extent
that one or more shareholders does not satisfy its or their Capital Commitments when due or at all, there could be a
material adverse effect on our business, financial condition and results of operations, including an inability to fund our
investment obligations, make appropriate distributions to our stockholders or to satisfy applicable regulatory requirements
under the 1940 Act. If a shareholder fails to satisfy any part of its Capital Commitment when due, other stockholders who
have an outstanding Capital Commitment may be required to fund such Capital Commitment sooner than they otherwise
would have absent such default. We cannot assure you that we will recover the full amount of the Capital Commitment of
any defaulting shareholder.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be
precluded from investing according to our current business strategy.
As a BDC, 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. See “ Item 1. Regulation as a Business Development
Company - Qualifying Assets .”
In the future, we believe that most of our investments will constitute qualifying assets. However, we may be precluded
from investing in what we believe are 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 we do find a buyer, 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.
Failure to qualify as a BDC would decrease our operating flexibility.
If we do not maintain our status as a BDC, we would be subject to regulation as a registered closed-end investment
company under the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more
regulatory restrictions under the 1940 Act, which would significantly decrease our operating flexibility.
There may be uncertainty as to the value of our portfolio investments.
The majority of our portfolio investments take the form of securities for which no market quotations are readily available.
The fair value of securities and other investments that are not publicly traded may not be readily determinable, and we
value these securities at fair value as determined by our Adviser's Valuation Committee, including to reflect significant
events affecting the value of our securities. Most, if not all, of our investments (other than cash and cash equivalents) are
classified as Level 3 under ASC 820. This means that our portfolio valuations are based on unobservable inputs and our
own assumptions about how market participants would price the asset or liability in question. Inputs into the determination
of the fair value of our portfolio investments 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
may 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.
In connection with the determination of the fair value of our investments, investment professionals from the Adviser may
provide our Board with portfolio company valuations based upon the most recent portfolio company financial statements
available and projected financial results of each portfolio company. The participation of the Adviser’s investment
professionals in our valuation process could result in a conflict of interest as the Adviser’s base management fee is based,
in part, on our average adjusted gross assets, and our incentive fees will be based, in part, on unrealized losses.
The valuation for each portfolio investment for which a market quote is not readily available will be reviewed by an
independent valuation firm on a quarterly basis. Investments that have been completed within the past three months will be
fair valued approximating cost unless there has been a material event. The types of factors that the Adviser may take into
account in determining the fair value of our 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, our determinations of fair value may differ
materially from the values that would have been used if a ready market for these securities existed. Our net asset value
could be adversely affected if our determinations regarding the fair value of our investments were materially higher than
the values that we ultimately realize upon the disposal of such securities.
The Adviser adjusts quarterly (or as otherwise may be required by the 1940 Act in connection with the issuance of our
shares) the valuation of our portfolio to reflect its determination of the fair value of each investment in our portfolio. Any
changes in fair value are recorded in the aggregate in our consolidated statement of operations as a net change in unrealized
appreciation or depreciation.
Our Board may change our investment objective and operating policies without prior notice or stockholder approval.
Our Board has the authority, except as otherwise provided in the 1940 Act, to modify or waive our investment objective
and certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent
stockholder approval, we may not change the nature of our business so as to cease to be or withdraw our election as a BDC.
We cannot predict the effect any changes to our current investment objective, operating policies, and strategies would have
on our business, operating results, and the value of our Common Stock. Nevertheless, any such changes could adversely
affect our business and impair our ability to make distributions.
Provisions of the DGCL and of our Charter and Bylaws could deter takeover attempts and have an adverse effect on the
price of shares of Common Stock.
The DGCL contains provisions that may discourage, delay, or make more difficult a change in control of us or the removal
of our directors. Our Charter and Bylaws contain provisions that limit liability and provide for indemnification of our
directors and officers. These provisions and others which we may adopt also may have the effect of deterring hostile
takeovers or delaying changes in control or management. We are subject to Section 203 of the DGCL, the application of
which is subject to any applicable requirements of the 1940 Act. This section generally prohibits us from engaging in
mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, either
individually or together with their affiliates, unless our directors or stockholders approve the business combination in the
prescribed manner. Our Board will adopt a resolution exempting from Section 203 of the DGCL any business combination
between us and any other person, subject to prior approval of such business combination by our Board, including approval
by a majority of our directors who are not “interested persons.” If our Board does not adopt or adopts but later repeals such
resolution exempting business combinations, or if our Board does not approve a business combination, Section 203 of the
DGCL may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such
an offer.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of
our Charter that classify our Board in three classes serving staggered three-year terms, and provisions of our Charter
authorizing our Board to classify or reclassify shares of our preferred stock in one or more classes or series, to cause the
issuance of additional shares of our stock, and to amend our Charter, without stockholder approval, to increase or decrease
the number of shares of stock that we have authority to issue. These provisions, as well as other provisions we have
adopted in our Charter and Bylaws, may delay, defer or prevent a transaction or a change in control in circumstances that
could give our stockholders the opportunity to realize a premium of the net asset value of shares of our Common Stock.
We do not currently have comprehensive documentation of our internal controls and have not yet tested our internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act, and failure by us to develop effective internal
controls over financial reporting in accordance with Section 404 could have a material adverse effect on our business
and the value of our Common Stock.
We have not previously been required to maintain proper and effective internal control over financial reporting, including
the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act. We will not be
required to comply with all of the requirements under Section 404 until we have been subject to the reporting requirements
of the Exchange Act for a specified period of time. Accordingly, our internal controls over financial reporting may not
currently meet all of the standards contemplated by Section 404 that we will eventually be required to meet. We are in the
process of addressing our internal controls over financial reporting and will establish formal procedures, policies,
processes, and practices related to financial reporting and to the identification of key financial reporting risks, assessment
of their potential impact, and linkage of those risks to specific areas and activities within our organization.
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control
over financial reporting until the year following our first annual report required to be filed with the SEC. Because we do
not currently have comprehensive documentation of our internal control and have not yet tested our internal control in
accordance with Section 404 of the Sarbanes-Oxley Act, we cannot conclude, as required by Section 404, that we do not
have a material weakness in our internal control or a combination of significant deficiencies that could result in the
conclusion that we have a material weakness in our internal control. As a public entity, we will be required to complete our
initial assessment in a timely manner. If we are not able to implement the applicable requirements of Section 404 of the
Sarbanes-Oxley Act in a timely manner or with adequate compliance, our operations, financial reporting, or financial
results could be adversely affected. Matters impacting our internal controls may cause us to be unable to report our
financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by
the SEC, and result in a breach of the covenants under the agreements governing any of our financing arrangements. There
could also be a negative reaction in the financial markets due to a loss of shareholder confidence in us and the reliability of
our consolidated financial statements. Confidence in the reliability of our consolidated financial statements could also
suffer if our independent registered public accounting firm or we were to report a material weakness in our internal controls
over financial reporting. This could materially adversely affect us.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations,
including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal
controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved
controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, and
we could fail to meet our financial reporting obligations.
We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn,
negatively affect the value of our Common Stock and our ability to pay distributions.
The operations of the Company, the Adviser, the Administrator, and any third-party service provider to any of the
foregoing are susceptible to risks from cybersecurity attacks and incidents due to reliance on the secure processing, storage,
and transmission of confidential and other information in the relevant computer systems and networks. In particular,
cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level and will likely
continue to increase in frequency in the future. These attacks could involve gaining unauthorized access to information
systems for purposes of misappropriating assets, stealing confidential information, corrupting data, or causing operational
disruption and result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information,
increased cybersecurity protection, and insurance costs, litigation, and damage to our business relationships, any of which
could have a material adverse effect on our business, financial condition and results of operations. We, the Adviser and the
Administrator, must each continuously monitor and innovate our cybersecurity to protect our technology and data from
corruption or unauthorized access. In addition, due to the use of third-party vendors, agents, exchanges, clearinghouses,
and other financial institutions and service providers, we, the Adviser, and the Administrator could be adversely impacted
if any of us are subject to a successful cyber-attack or another breach of our information. Although we, the Adviser and the
Administrator, have developed protocols, processes, internal controls, and other protective measures to help mitigate
cybersecurity risks and cyber intrusions, these measures, as well as our increased awareness of the nature and extent of the
risk of a cyber incident, may be ineffective and do not guarantee that a cyber incident will not occur or that our financial
results, operations or confidential information will not be negatively impacted by such an incident. If any of the foregoing
events occur, the confidential and other information of the Company, the Adviser, and the Administrator could be
compromised. Such events could also cause interruptions or malfunctions in the operations of the Company, the Adviser or
the Administrator, and in particular, the Adviser’s investment activities on our behalf and the provision of administrative
services to us by the Administrator. The increased use of mobile and cloud technologies can heighten these and other
operational risks.
We, the Adviser and the Administrator currently or in the future are expected to routinely transmit and receive personal,
confidential, and proprietary information by email and other electronic means. We, the Adviser and the Administrator, have
discussed and worked with clients, vendors, service providers, counterparties, and other third parties to develop secure
transmission capabilities and protect against cyber-attacks. However, we, the Adviser, and the Administrator may not be
able to ensure secure capabilities with all of our clients, vendors, service providers, counterparties, and other third parties to
protect the confidentiality of the information.
In addition, the systems and technology resources used by us, our Adviser, our Administrator, and our and their respective
affiliates could be strained by extended periods of remote working by our Adviser, our Administrator, and their affiliate’s
employees and such extended remote working could introduce operational risks, including heightened cybersecurity risk.
Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social
engineering attempts.
Risks relating to compliance with the AIFMD.
The European Union Directive on Alternative Investment Fund Managers (the “AIFMD” or the “Directive”) regulates and
imposes regulatory obligations in respect of the marketing in the European Economic Area (the “EEA”) by alternative
investment fund managers (each an “AIFM”) (whether established in the EEA or elsewhere) of alternative investment
funds (each an “AIF”) (whether established in the EEA or elsewhere). For these purposes, the Adviser is a non-EEA
AIFM, and we are a non-EEA AIF. Each European jurisdiction that has implemented the Directive has implemented a new
and, in most cases, a more restrictive private placement regime in connection with the implementation of the Directive.
The AIFMD could have an adverse effect on the Adviser and us by, among other things, increasing the regulatory burden
and costs of doing business in EEA member states. Except in limited circumstances, a non-EEA AIFM marketing its AIF
to prospective EEA investors will be required to satisfy extensive disclosure obligations, including periodic disclosures to
EEA regulators. The AIFMD could also limit the Adviser’s operating flexibility and our investment opportunities.
There is little guidance and limited market practice that has developed in respect to the AIFMD. Many of the provisions of
the AIFMD require the adoption of delegated acts and regulatory technical standards, as well as the establishment of
guidelines. Some, but not all, EEA member states have published the relevant acts, standards, and guidelines. Where these
acts, standards, and guidelines have been implemented, their practical application is still uncertain. As such, it is difficult to
predict the precise impact of the AIFMD on the Adviser and us. Any regulatory changes arising from the transposition of
the AIFMD into national law that impair the ability of the Adviser to manage us or our investments, or limit the Adviser’s
ability to market the Common Stock in the future, may materially adversely affect our ability to carry out our investment
approach and achieve our investment objectives.
The Adviser is not subject to the requirements of the Directive to have additional funds of its own and/or professional
indemnity insurance to cover potential liability risks arising from the professional negligence of the Adviser.
We cannot guarantee our ability to maintain existing SBIC licenses.
We cannot guarantee our ability of any of our subsidiaries (in existence now or which may be formed in the future) to
maintain SBIC licenses from the SBA nor can we anticipate changes in regulatory policies with respect to SBICs.
We will be subject to risks associated with any SBA-guaranteed debentures.
We issue, as permitted under SBA regulations and through our wholly-owned subsidiaries, the LS SBICs, SBA-guaranteed
debentures to generate cash for funding new investments. To issue SBA-guaranteed debentures, we request commitments
for debt capital from the SBA. The LS SBICs may be exposed to any losses on its portfolio of loans; however, such
debentures are non-recourse to us. Receipt of an SBIC license does not assure that the LS SBICs will receive SBA-
guaranteed debenture funding, which is dependent upon the LS SBICs continuing to be in compliance with SBA regulations
and policies.
The LS SBICs are licensed by the SBA and are subject to SBA regulations.
Each of LS SBIC LP and LS SSBIC LP, our wholly-owned subsidiaries, received a license to operate as a SBIC under the
Investment Act and is subject to regulation and oversight regulated by the SBA. The SBA places certain limitations on the
financing terms of investments by SBICs in portfolio companies and regulates the types of financings and prohibits
investing in certain industries. Compliance with SBIC requirements may cause the LS SBICs to make investments at lower
rates in order to qualify investments under the SBA regulations.
Further, SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its
compliance with the relevant regulations. If either of LS SBIC LP or LS SSBIC LP fails to comply with applicable
regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare any
outstanding debentures immediately due and payable, and/or limit it from making new investments. In addition, the SBA
could revoke or suspend either of LS SBIC LP or LS SSBIC LP’s license for willful or repeated violation of, or willful or
repeated failure to observe, any provision of the Investment Act or any rule or regulation promulgated thereunder. These
actions by the SBA would, in turn, negatively affect us because the LS SBICs are our wholly-owned subsidiaries.
SBA-guaranteed debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without
penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over 10-
year U.S. Treasury Notes. Leverage through SBA-guaranteed debentures is subject to required capitalization thresholds.
Current SBA regulations limit the amount that any single SBIC may borrow to a maximum of $175.0 million, which is up
to twice its regulatory capital, and a maximum of $350.0 million as part of a group of SBICs under common control;
however, there is no guarantee that we will receive such amounts.
The SBA also limits an SBIC’s ability to invest idle funds to the following types of securities:
• direct obligations of, or obligations guaranteed as to principal and interest by, the U.S. government, which mature
within 15 months from the date of the investment;
• repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities
underlying the repurchase obligations must be direct obligations of or guaranteed by the federal government);
• mutual funds, securities or other instruments that exclusively consist of, or represent pooled assets of, investments
described in the first and second bulleted paragraphs above;
• certificates of deposit with a maturity of one year or less, issued by a federally insured institution;
• a deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less;
• a checking account in a federally insured institution; or
• a reasonable petty cash fund.
Our ability to adhere to or meet our goals, including our 2030 Goals, and our ability to create and preserve jobs and
stimulate the economy may be limited.
When setting our goals we sought guidance from outside regulatory frameworks, including the Investment Act, CRA, and
Incentive Act. We can offer no assurances that we will be able to adhere to or meet our goals, including our 2030 Goals,
and nor can we guarantee that such goals will have their intended consequences. While we will strive to (1) increase
employment opportunities, (2) provide significant managerial assistance to small and middle-market companies and (3)
encourage economic growth in Working Class Areas, we can offer no assurances that our goals and actions in pursuits of
these goals will have their intended effects.
We are subject to risks associated with artificial intelligence and machine learning technology.
Artificial intelligence, including machine learning and similar tools and technologies that collect, aggregate, analyze or
generate data or other materials, or collectively, AI, and its current and potential future applications including in the private
investment and financial industries, as well as the legal and regulatory frameworks within which AI operates, continue to
rapidly evolve.
Recent technological advances in AI pose risks to the Company, the Investment Advisor, and our portfolio companies. The
Company and our portfolio companies could also be exposed to the risks of AI if third-party service providers or any
counterparties, whether or not known to the Company, also use AI in their business activities. We and our portfolio
companies may not be in a position to control the use of AI technology in third-party products or services.
Use of AI could include the input of confidential information in contravention of applicable policies, contractual or other
obligations or restrictions, resulting in such confidential information becoming partly accessible by other third-party AI
applications and users. While the Investment Advisor does not currently use AI to make investment recommendations, the
use of AI could also exacerbate or create new and unpredictable risks to our business, the Investment Advisor’s business,
and
the business of our portfolio companies, including by potentially significantly disrupting the markets in which we and our
portfolio companies operate or subjecting us, our portfolio companies and the Investment Advisor to increased competition
and regulation, which could materially and adversely affect business, financial condition or results of operations of us, our
portfolio companies and the Investment Advisor. In addition, the use of AI by bad actors could heighten the sophistication
and effectiveness of cyber and security attacks experienced by our portfolio companies and the Investment Adviser.
Independent of its context of use, AI technology is 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 technology utilizes to
operate. Certain data in such models will inevitably contain a degree of inaccuracy and error and could otherwise be
inadequate or flawed, which would be likely to degrade the effectiveness of AI technology. To the extent that we or our
portfolio companies are exposed to the risks of AI use, any such inaccuracies or errors could have adverse impacts on the
Company or our investments.
AI technology and its 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.
Risks Relating to Our Investments
Economic recessions or downturns could impair our portfolio companies, and defaults by our portfolio companies will
harm our operating results.
Many of our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay our
loans during these periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is
likely to decrease during these periods. Adverse economic conditions may decrease the value of collateral securing some of
our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our
portfolio and a decrease in revenues, net income, and assets. Unfavorable economic conditions also could increase our
funding costs, limit our access to the capital markets, or result in a decision by lenders not to extend credit to us. These
events could prevent us from increasing our investments and harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by other lenders or us could lead to
defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under
other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we
hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a
defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken
by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that
we could become subject to a lender’s liability claim, including as a result of actions taken if we render managerial
assistance to the borrower.
Limitations of investment due diligence expose us to investment risk.
Our due diligence may not reveal all of a portfolio company’s liabilities and may not reveal other weaknesses in its
business. We can offer no assurance that our due diligence processes will uncover all relevant facts that would be material
to an investment decision. Before making an investment in, or a loan to, a company, our Adviser will assess the strength
and skills of the company’s management and other factors that it believes are material to the performance of the
investment.
In making the assessment and otherwise conducting customary due diligence, our Adviser will rely on the resources
available to it and, in some cases, an investigation by third parties. This process is particularly important and highly
subjective with respect to newly organized entities because there may be little or no information publicly available about
the entities.
We may make investments in or loans to companies that are not subject to public company reporting requirements,
including requirements regarding the preparation of consolidated financial statements, and our portfolio companies may
utilize divergent reporting standards that may make it difficult for the Adviser to accurately assess the prior performance of
a portfolio company. We will, therefore, depend upon the compliance by investment companies with their contractual
reporting obligations. As a result, the evaluation of potential investments and our ability to perform due diligence on and
effectively monitor investments may be impeded, and we may not realize the returns which we expect on any particular
investment. In the event of fraud by any company in which we invest or with respect to which we make a loan, we may
suffer a partial or total loss of the amounts invested in that company.
We may invest in distressed or highly leveraged companies, which could cause you to lose all or part of your
investment.
We may make investments in restructurings that involve, or otherwise invest in, the debt securities of portfolio companies
that are experiencing or are expected to experience severe financial difficulties. These severe financial difficulties may
never be overcome and may cause such portfolio companies to become subject to bankruptcy proceedings. As such, these
investments could subject us to certain additional potential liabilities that may exceed the value of our original investment.
Under certain circumstances, payments to us may be reclaimed if any such payment or distribution is later determined to
have been a fraudulent conveyance, a preferential payment, or a similar transaction under the applicable bankruptcy and
insolvency laws. In addition, under certain circumstances, a lender that 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 damages
suffered by parties as a result of such actions.
We may also invest in highly leveraged companies. Investments in leveraged companies involves a number of significant
risks. Leveraged companies in which we invest may have limited financial resources and may be unable to meet their
obligations under their debt securities that we hold. Such developments may be accompanied by a deterioration in the value
of any collateral and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection
with our investment. Smaller leveraged companies also may have less predictable operating results and may require
substantial additional capital to support their operations, finance their expansion, or maintain their competitive position.
Our debt investments may be risky, and we could lose all or part of our investments.
The debt instruments in which we invest are typically not initially rated by any rating agency, but we believe that if such
investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service,
lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s Ratings Services), which under the
guidelines established by these entities is an indication of having predominantly speculative characteristics with respect to
the issuer’s capacity to pay interest and repay principal. Bonds that are rated below investment grade are sometimes
referred to as “high yield bonds” or “junk bonds.” Therefore, our investments may result in an above-average amount of
risk and volatility or loss of principal.
Defaults by our portfolio companies will harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by other lenders or us could lead to
defaults and, potentially, termination of its debt financing and foreclosure on its secured assets, which could trigger cross-
defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or
equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate
new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.
We may hold the debt securities of leveraged companies that may, due to the significant volatility of such companies,
enter into bankruptcy proceedings.
Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of
significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary
proceedings and are beyond the control of the creditors. A bankruptcy filing by an issuer may adversely and permanently
affect the issuer. If the proceeding is converted to a liquidation, the value of the issuer may not equal the liquidation value
that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict,
and a creditor’s return on investment can be adversely affected by delays until the plan of reorganization or liquidation
ultimately becomes effective. The administrative costs of a bankruptcy proceeding are frequently high and would be paid
out of the debtor’s estate prior to any return to creditors. Because the standards for the classification of claims under
bankruptcy law are vague, our influence with respect to the class of securities or other obligations we own may be lost by
increases in the number and amount of claims in the same class or by different classification and treatment. 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 claims that have priority by law (for example, claims for taxes) may be substantial.
Depending on the facts and circumstances of our investments and the extent of our involvement in the management of a
portfolio company, upon the bankruptcy of a portfolio company, a bankruptcy court may recharacterize our debt
investments as equity interests and subordinate all or a portion of our claim to that of other creditors. This could occur even
though we may have structured our investment as senior debt.
Our investments in private and middle market portfolio companies are risky, and you could lose all or part of your
investment.
Investments in private and middle market companies involve a number of significant risks. Generally, little public
information exists about these companies, and we rely on the ability of the Adviser’s investment professionals to obtain
adequate information to evaluate the potential returns from investing in these companies. If the Adviser is unable to
uncover all material information about these companies, it may not make a fully informed investment decision, and we may
lose money on our investments. Middle market companies generally have less predictable operating results and may
require substantial additional capital to support their operations, finance expansion, or maintain their competitive position.
Middle market companies may have limited financial resources, may have difficulty accessing the capital markets to meet
future capital needs, and may be unable to meet their obligations under their debt securities that we hold, which may be
accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any
guarantees we may have obtained in connection with our investment. In addition, such companies typically have shorter
operating histories, narrower product lines, and smaller market shares than larger businesses, which tend to render them
more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally,
middle market companies are more likely to depend on the management talents and efforts of a small group of persons.
Therefore, the death, disability, resignation, or termination of one or more of these persons could have a material adverse
impact on our portfolio company and, in turn, on us. Middle market companies also may be parties to litigation and may be
engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence. In addition, our
executive officers, directors, and the Adviser may, in the ordinary course of business, be named as defendants in litigation
arising from our investments in the portfolio companies.
Subordinated liens on collateral securing debt investments that we make in our portfolio companies may be subject to
control by senior creditors with first priority liens. If there is a default, the value of such collateral may not be sufficient
to repay in full both the first priority creditors and us.
Certain debt investments that we make in portfolio companies will be secured on a second priority basis by the same
collateral securing the senior debt of such companies. The first priority liens on the collateral will secure the portfolio
company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to
be incurred by the portfolio company under the agreements governing the debt. The holders of obligations secured by the
first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any
realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of
liquidation will depend on market and economic conditions, the availability of buyers, and other factors. We can offer no
assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the debt
obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on
the collateral. If such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the
second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an
unsecured claim against the portfolio company’s remaining assets, if any. Similarly, investments in “last out” pieces of
tranched first-lien loans will be similar to second lien loans in that such investments will be junior in priority to the “first-
out” piece of the same tranched loan with respect to payment of principal, interest, and other amounts.
We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit
from any interest in collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the
portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to
be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens
will generally control the liquidation of and be entitled to receive proceeds from any realization of such collateral to repay
their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market
and economic conditions, the availability of buyers, and other factors. We can offer no assurance that the proceeds, if any,
from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all
secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our
unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio
company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies
with senior debt outstanding, or first-out pieces of tranched first-lien debt, may also be limited pursuant to the terms of one
or more inter-creditor agreements that we enter into with the holders of senior debt. Under such an inter-creditor
agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following
actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the
first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to
control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the
collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such
actions, even if our rights are adversely affected.
The lack of liquidity in our investments may adversely affect our business.
Our investments will be illiquid in most cases, and we can offer no assurance that we will be able to realize on such
investments in a timely manner. A substantial portion of our investments in leveraged companies are and will be subject to
legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The
illiquidity of these investments may make it difficult for us to sell such investments if the need arises. In addition, if we are
required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we
have previously recorded our investments. We may also face other restrictions on our ability to liquidate an investment in a
portfolio company to the extent that we, the Adviser, or any of its affiliates have material nonpublic information regarding
such portfolio company.
In addition, we generally expect to invest in securities, instruments, and assets that are not and are not expected to become
publicly traded. We will generally not be able to sell securities publicly unless the sale is registered under applicable
securities laws or unless an exemption from such registration requirements is available.
Investments may be illiquid and long-term. Illiquidity may result from the absence of an established or liquid market for
investments as well as legal and contractual restrictions on their resale by us. It is generally expected that we will hold
assets to maturity, and the amount of “discretionary sales” of investments generally will be limited. Our investment in
illiquid investments may restrict its ability to dispose of investments in a timely fashion and for a fair price. Furthermore,
we likely will be limited in our ability to sell investments because Lafayette Square and its affiliates may have material,
non-public information regarding the issuers of such loans or investments or as a result of other Lafayette Square policies.
This limited ability to sell investments could materially adversely affect our investment results. As a result, our exposure to
losses, including a potential loss of principal, as a result of which you could potentially lose all or a portion of your
investment in the Company, may be increased due to the illiquidity of our investments generally.
In certain cases, we may also be prohibited by contract from selling our investments for a period of time or otherwise be
restricted from disposing of our investments. Furthermore, certain types of investments expected to be made may require a
substantial length of time to realize a return or fully liquidate. We may exit some investments through distributions in kind
to the stockholders, after which such exit you will still bear the risks associated with holding the securities and must make
your own disposition decisions.
Given the nature of the investments contemplated by the Company, there is a material risk that we will be unable to realize
our investment objectives by sale or other disposition at attractive prices or will otherwise be unable to complete any exit
strategy. In particular, this risk could arise from changes in the financial condition or prospects of the portfolio company in
which the investment is made, changes in national or international economic conditions, changes in debt and equity capital
markets, and changes in laws, regulations, fiscal policies or political conditions of countries in which investments are
made.
In connection with the disposition of an investment in a portfolio company, we may be required to make representations
about the business and financial affairs of the portfolio company or may be responsible for the contents of disclosure
documents under applicable securities laws. We may also be required to indemnify the purchasers of such investment or
underwriters to the extent that any such representations or disclosure documents turn out to be incorrect, inaccurate, or
misleading. These arrangements may result in contingent liabilities, for which we may establish reserves or escrows.
However, we can offer no assurance that we will adequately reserve for our contingent liabilities and that such liabilities
will not have an adverse effect on us. Such contingent liabilities might ultimately have to be funded by proceeds, including
the return of capital, from our other investments.
Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio
investments, reducing our net asset value through increased net unrealized depreciation.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as
determined by our Adviser. As part of the valuation process, our Adviser may take into account the following types of
factors, if relevant, in determining the fair value of our investments:
• a comparison of the portfolio company’s securities to publicly traded securities;
• the enterprise value of the 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
• changes in the interest rate environment and the credit markets generally that may affect the price at which similar
investments may be made in the future and other relevant factors.
When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, we use the pricing
indicated by the external event to corroborate our valuation. We record decreases in the market values or fair values of our
investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in
significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio may reduce our net
asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur
substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material
adverse effect on our business, financial condition, results of operations, and cash flows.
Our prospective portfolio companies may be unable to repay or refinance outstanding principal on their loans at or
prior to maturity, and rising interest rates may make it more difficult for portfolio companies to make periodic payments
on their loans.
The portfolio companies in which we expect to invest may be unable to repay or refinance outstanding principal on their
loans at or prior to maturity. This risk and the risk of default is increased to the extent that the loan documents do not
require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. In addition, if general
interest rates rise, there is a risk that our portfolio companies will be unable to pay escalating interest amounts, which could
result in a default under their loan documents with us. Rising interest rates could also cause portfolio companies to shift
cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and
operations and could, over time, lead to increased defaults. Any failure of one or more portfolio companies to repay or
refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments
following an increase in contractual interest rates could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Our prospective portfolio companies may prepay loans, which may reduce our yields if capital returned to us cannot be
invested in transactions with equal or greater expected yields.
The loans in our investment portfolio may be prepaid at any time, generally with little advance notice. Whether a loan is
prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable
financing market conditions that allow such a company the ability to replace existing financing with less expensive capital.
As market conditions change, we do not know when, and if, prepayment may be possible for each portfolio company. In
some cases, the prepayment of a loan may reduce our achievable yield if the capital returned to us cannot be invested in
transactions with equal or greater expected yields, which could have a material adverse effect on our business, financial
condition, and results of operations.
Our investments in portfolio companies may expose us to environmental risks.
We may invest in portfolio entities that are subject to changing and increasingly stringent environmental and health and
safety laws, regulations, and permit requirements and environmental costs that could place increasing financial burdens on
such portfolio entities. Required expenditures for environmental compliance may adversely impact investment returns on
portfolio entities. The imposition of new environmental and other laws, regulations, and initiatives could adversely affect
the business operations and financial stability of portfolio entities.
There can be no guarantee that all costs and risks regarding compliance with environmental laws and regulations can be
identified. New and more stringent environmental and health and safety laws, regulations and permit requirements, or
stricter interpretations of current laws or regulations could impose substantial additional costs on portfolio investment or
potential investments. President Biden has publicly endorsed greater environmental regulation which may impose
significant compliance costs and complicate existing operations. In addition, state governments located in specific regions
in which we invest may impose more stringent environmental regulations than other state governments. Compliance with
such current or future environmental requirements does not ensure that the operations of the portfolio investments will not
cause injury to the environment or to people under all circumstances or that the portfolio investments will not be required
to incur additional unforeseen environmental expenditures. Moreover, failure to comply with any such requirements could
have a material adverse effect on an investment, and we can offer no assurance that the portfolio investments will at all
times comply with all applicable environmental laws, regulations and permit requirements.
We have not yet identified all of the portfolio company investments we will acquire, and there is no certainty how long it
will take to identify such investments or whether we will be able to find a sufficient number of such businesses to
meaningfully populate our portfolio.
We have not yet identified all of the potential investments for our portfolio that we will acquire with the proceeds of any
sales of our securities or repayments of investments currently in our portfolio. Privately negotiated investments in illiquid
securities or private middle market companies require substantial due diligence and structuring (particularly to identify and
underwrite non-sponsored businesses) , and we cannot assure you that we will achieve our anticipated investment pace or
be able to find a sufficient number of such businesses to meaningfully populate our portfolio . The Adviser selects all of our
investments, and our stockholders will have no input with respect to such investment decisions. These factors increase the
uncertainty, and thus the risk of investing in our securities. Until such appropriate investment opportunities can be found,
we may also invest the net proceeds in cash, cash equivalents, U.S. government securities, and high-quality debt
investments that mature in one year or less from the date of investment. We expect these temporary investments to earn
yields substantially lower than the income that we expect to receive in respect of our targeted investment types. As a result,
any distributions we make during this period may be substantially smaller than the distributions that we expect to pay when
our portfolio is fully invested.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with
respect to the proportion of our assets that may be invested in securities of a single issuer.
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 our asset diversification requirements 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.
Our portfolio may initially be concentrated in a limited number of portfolio companies and industries, which will
subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt
instruments or if there is a downturn in a particular industry.
During the period of time in which we are deploying our initial capital, our portfolio may be concentrated in a limited
number of portfolio companies and industries. As a result, the aggregate returns we realize may be significantly and
adversely affected if a small number of investments perform poorly or if we need to write down the value of any one
investment. Additionally, while we are not targeting any specific industries, our investments may be concentrated in
relatively few industries. For example, although we may classify the industries of our portfolio companies by end-market
(such as health market or business services) and not by the products or services (such as software) directed to those end-
markets, some of our portfolio companies may principally provide software products or services, which exposes us to
downturns in that sector. As a result, a downturn in any particular industry in which we are invested could also
significantly impact the aggregate returns we realize.
Our portfolio may initially lack geographic diversification across Target Regions.
While our goal is to invest at least 5% of our assets in each of our Target Regions over time, we anticipate that it could take
time to invest substantially all of the capital we expect to raise in a geographically diverse manner due to general market
conditions, the time necessary to identify, evaluate, structure, negotiate and close suitable in-vestments in private middle
market companies, and the potential for allocations to other affiliated investment vehicles which focus their investments on
a specific region. As a result, at any point in time, we may invest a disproportionate amount in certain regions, and there
can be no assurance that we will achieve geographic diversification across all ten regions.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as
“follow-on” investments, in seeking to:
• increase or maintain in whole or in part our position as a creditor or equity ownership percentage in a portfolio
company;
• exercise warrants, options, or convertible securities that were acquired in the original or subsequent financing; or
• preserve or enhance the value of our investment.
We have the discretion to make follow-on investments, subject to the availability of capital resources, and certain
limitations on co-investment with affiliates under the 1940 Act. Failure on our part 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 portfolio company. 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 level of risk because we prefer other opportunities, or because of regulatory or other considerations. Our
ability to make follow-on investments may also be limited by the Adviser’s allocation policies and procedures.
Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to control
our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the
value of our investments.
To the extent that we do not hold controlling equity interests in portfolio companies, we will have a limited ability to
protect our position in such portfolio companies. We may also co-invest with third parties through partnerships, joint
ventures, or other entities. Such investments may involve risks in connection with such third-party involvement, including
the possibility that a third-party co-investor may have economic or business interests or goals that are inconsistent with
ours or may be in a position to take (or block) action in a manner contrary to our investment objective. In those
circumstances where such third parties involve a management group, such third parties may receive compensation
arrangements relating to such investments, including incentive compensation arrangements.
We can offer no assurance that portfolio company management will be able to operate their companies in accordance
with our expectations.
The day-to-day operations of each portfolio company in which we invest will be the responsibility of that portfolio
company’s management team. Although we will be responsible for monitoring the performance of each investment and
generally intend to invest in portfolio companies operated by strong management, we can offer no assurance that the
existing management team, or any successor, will be able to operate any such portfolio company in accordance with our
expectations. We can offer no assurance that a portfolio company will be successful in retaining key members of its
management team, the loss of whom could have a material adverse effect on us. Although we generally intend to invest in
companies with strong management teams and defensible market positions, we can offer no assurance that the existing
management of such companies will continue to operate a company successfully.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies, and
such portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
We may invest a portion of our capital in second lien and subordinated loans issued by our portfolio companies. Our
portfolio companies may have, or be permitted to incur, other debt that ranks equally with, or senior to, the debt securities
in which we invest. Such subordinated investments are subject to a greater risk of default than senior obligations as a result
of adverse changes in the financial condition of the obligor or in general economic conditions. If we make a subordinated
investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity
ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt
obligations. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or
principal on or before the dates on which we are entitled to receive payments in respect of the securities in which we invest.
These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying our investments
in the event of and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation,
dissolution, reorganization, or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in
that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect
of our investment. After repaying senior creditors, the portfolio company may not have any remaining assets to use for
repaying its obligation to us where we are the junior creditor. In the case of debt ranking equally with debt securities in
which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such
debt in the event of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of the relevant portfolio
company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same
collateral securing the senior secured debt of such companies. The first priority liens on the collateral will secure the
portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be
permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations
secured by first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds
from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the
event of liquidation will depend on market and economic conditions, the availability of buyers, and other factors. Similarly,
investments in “last out” pieces of tranched first-lien loans will be similar to second lien loans in that such investments will
be junior in priority to the “first-out” piece of the same tranched first-lien loan with respect to payment of principal,
interest, and other amounts. We can offer no assurance that the proceeds, if any, from sales of all of the collateral would be
sufficient to satisfy the loan obligations secured by the second priority liens or the “last out” pieces of the tranched first-lien
loans after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not
sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens or the “last out”
pieces of unitranche loans, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an
unsecured claim against the portfolio company’s remaining assets, if any.
We may make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in
collateral of such companies. Liens on a portfolio company’s collateral, if any, will secure the portfolio company’s
obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the
portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally
control the liquidation of and be entitled to receive proceeds from any realization of such collateral to repay their
obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and
economic conditions, the availability of buyers, and other factors. We can offer no assurance that the proceeds, if any, from
sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all loans
secured by collateral. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our
unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio
company’s remaining assets, if any.
The rights we may have with respect to the collateral securing any junior priority loans, including any “last out” pieces of
tranched first-lien loans, we make to our portfolio companies may also be limited pursuant to the terms of one or more
intercreditor agreements that we enter into (or the absence of an intercreditor agreement) with the holders of senior debt.
Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are
outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders
of the obligations secured by the first priority liens:
• the ability to cause the commencement of enforcement proceedings against the collateral;
• the ability to control the conduct of such proceedings;
• the approval of amendments to collateral documents;
• releases of liens on the collateral; and
• waivers of past defaults under collateral documents.
• we may not have the ability to control or direct such actions, even if our rights as junior lenders are adversely
affected.
The liability of each of the Adviser and the Administrator is limited, and we have agreed to indemnify each against
certain liabilities, which may lead them to act in a riskier manner on our behalf than each would when acting for its
own account.
Under the Investment Advisory Agreement, the Adviser does not assume any responsibility to us other than to render the
services called for under that agreement, and it is not responsible for any action of our Board in following or declining to
follow the Adviser’s advice or recommendations. Under the terms of the Investment Advisory Agreement, the Adviser, its
officers, members, personnel, and any person controlling or controlled by the Adviser are not liable to us, any subsidiary of
ours, our directors, our stockholders, or any subsidiary’s stockholders or partners for acts or omissions performed in
accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting gross
negligence, willful misconduct, bad faith or reckless disregard of the Adviser’s duties under the Investment Advisory
Agreement. In addition, we have agreed to indemnify the Adviser and each of its officers, directors, members, managers,
and employees from and against any claims or liabilities, including reasonable legal fees and other expenses, reasonably
incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf
pursuant to authority granted by the Investment Advisory Agreement, except where attributable to gross negligence, willful
misconduct, bad faith or reckless disregard of such person’s duties under the Investment Advisory Agreement. Under the
Administration Agreement, the Administrator and certain specified parties providing administrative services pursuant to
that agreement are not liable to our stockholders for or us, and we have agreed to indemnify them for any claims or losses
arising out of the good faith performance of their duties or obligations under the Administration Agreement, except those
liabilities resulting primarily attributable to gross negligence, willful misconduct, bad faith or reckless disregard of the
Administrator’s duties under the Administration Agreement. These protections may lead the Adviser or the Administrator
to act in a riskier manner when acting on our behalf than it would when acting for its own account.
We may be subject to risks under hedging transactions.
We may engage in hedging transactions to the limited extent such transactions are permitted under the 1940 Act and
applicable commodities laws. Engaging in hedging transactions would entail additional risks to our stockholders. We
could, for example, use instruments such as interest rate swaps, caps, collars, and floors. In each such case, we generally
would seek to hedge against fluctuations of the relative values of our portfolio positions from changes in market interest
rates. Hedging against a decline in the values of our portfolio positions would not eliminate the possibility of fluctuations
in the values of such positions or prevent losses if the values of the positions declined. However, such hedging could
establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such
portfolio positions. Such hedging transactions could also limit the opportunity for gain if the values of the underlying
portfolio positions increased. Moreover, it might not be possible to hedge against an interest rate fluctuation that was so
generally anticipated that we would not be able to enter into a hedging transaction at an acceptable price. The use of a
hedging transaction could involve counterparty credit risk.
The success of any hedging transactions we may enter into will depend on our ability to correctly predict movements in
interest rates. Therefore, while we may enter into hedging transactions to seek to reduce interest rate risks, unanticipated
changes in interest rates could result in poorer overall investment performance than if we had not engaged in any such
hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging
strategy and price movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, we
might not seek to (or be able to) establish a perfect correlation between the hedging instruments and the portfolio holdings
being hedged. Any such imperfect correlation could prevent us from achieving the intended hedge and expose us to the risk
of loss. Our ability to engage in hedging transactions may also be adversely affected by rules adopted by the CFTC.
We may not realize gains from our equity investments.
When we invest in unitranche, second lien, and subordinated loans, we may acquire warrants or other equity securities of
portfolio companies as well. We may also invest in equity securities directly. To the extent we hold equity investments, we
will seek to dispose of them and realize gains upon our disposition of them. However, the equity interests we receive may
not appreciate in value and may decline in value. As a result, we may not be able to realize gains from our equity interests,
and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses
we experience.
We may be subject to risks to the extent we provide substantial managerial assistance to our portfolio companies.
To the extent we participate substantially in the conduct of the management of certain of our portfolio companies, such as
designating directors to serve on the boards of directors of certain portfolio companies, such designation of representatives
and other measures contemplated could expose our assets to claims by a portfolio company in which we invest, its security-
holders and its creditors, including claims that we are a controlling person and thus are liable for securities laws violations
of a portfolio company. 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 a designated director violates 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.
There can be no guarantee of our ability to coordinate with the human resources and personnel departments of our
portfolio companies through our affiliated Worker Solutions® services platform.
There can be no guarantee of our ability to coordinate with the human resources and personnel departments of our portfolio
companies through our affiliated Worker Solutions® services platform and nor can we guarantee our ability to properly or
effectively analyze health insurance and retirement benefits participation and recommend ways to improve employee
uptake. We can offer no assurances that services provided through our Worker Solutions® services platform will have their
intended effect or that they will be widely utilized by the employees of our portfolio companies.
Risks Relating to Our Common Stock
There is no public market for shares of our Common Stock, and we do not expect there to be a market for our shares.
There is no existing trading market for shares of our Common Stock, and no market for our shares may develop in the
future. If developed, any such market may not be sustained. In the absence of a trading market, holders of shares of our
Common Stock may be unable to liquidate an investment in our shares.
The shares of our Common Stock have not been registered under the Securities Act or any state securities laws and, unless
so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities laws.
There are restrictions on the ability of holders of our Common Stock to transfer shares in excess of the restrictions
typically associated with a private offering of securities under Regulation D and other exemptions from registration
under the Securities Act, and these restrictions could limit the liquidity of an investment in shares of our Common Stock
and the price at which holders may be able to sell the shares.
We are relying on an exemption from registration under the Securities Act and state securities laws in offering shares of our
Common Stock pursuant to the Subscription Agreements. As such, absent an effective Registration Statement covering our
Common Stock, such shares may be resold only in transactions that are exempt from the registration requirements of the
Securities Act and with our prior consent. Our Common Stock will have limited transferability, which could delay, defer or
prevent a transaction or a change of control of the Company that might involve a premium price for our securities or
otherwise be in the best interest of our stockholders.
During periods of capital markets disruption and economic uncertainty, there is a risk that you may not receive
distributions or that our distributions may not grow over time, and a portion of our distributions may be a return of
capital.
We intend to make periodic distributions to our stockholders out of assets legally available for distribution. We cannot
assure you 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. Our ability to pay distributions might be adversely affected by the impact of one or
more of the risk factors described in this Registration Statement, especially if there are reduced cash flows to us from our
portfolio companies, which could reduce cash available for distribution to our stockholders. Due to the asset coverage test
applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions. To the extent we
make distributions to stockholders that include a return of capital, such a portion of the distribution essentially constitutes a
return of the stockholder’s investment. Although such return of capital may not be taxable, such distributions may increase
a shareholder’s tax liability for capital gains upon the future sale of our Common Stock. A return of capital distribution
may cause a stockholder to recognize a capital gain from the sale of our Common Stock even if the stockholder sells its
shares for less than the original purchase price.
Investing in our Common Stock may involve an above-average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than
alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies
involve higher levels of risk, and therefore, an investment in our shares may not be suitable for someone with lower risk
tolerance. In addition, our Common Stock is intended for long-term shareholders who can accept the risks of investing
primarily in illiquid loans and other debt or debt-like instruments and should not be treated as a trading vehicle.
Our stockholders may experience dilution in their ownership percentage.
Our stockholders do not have preemptive rights to any shares of our Common Stock we issue in the future. To the extent
that we issue additional equity interests at or below net asset value, your percentage ownership interest in us may be
diluted. In addition, depending upon the terms and pricing of any future sales of Common Stock and the value of our
investments, you may also experience dilution in the book value and fair value of your shares.
Under the 1940 Act, we generally are prohibited from issuing or selling shares of our Common Stock at a price below net
asset value per share, which may be a disadvantage as compared with certain public companies. We may, however, sell
shares of our Common Stock, or warrants, options, or rights to acquire shares of our Common Stock, at a price below the
current net asset value of shares of our Common Stock if our Board determines that such sale is in our best interests and the
best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated
with us, 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 fair value of such securities (less any distributing
commission or discount). If we raise additional funds by issuing shares of our Common Stock or senior securities
convertible into, or exchangeable for, shares of our Common Stock, then the percentage ownership of our stockholders at
that time will decrease, and you will experience dilution.
Purchases of Common Stock pursuant to the Subscription Agreements will generally be made pro-rata in accordance with
the remaining capital commitments of all shareholders. However, we may request capital contributions on a non-pro rata
basis in accordance with the terms of the Subscription Agreement. To the extent a shareholder is required to purchase less
than its pro-rata share of a drawdown of subscriber capital commitments, such stockholders will experience dilution in their
percentage ownership of the Company.
In the event that we enter into a Subscription Agreement with one or more shareholders after the Initial Drawdown, each
such shareholder will be required to make Catch-up Purchases on one or more dates to be determined by us. Each Catch-up
Purchase will dilute the ownership percentage of all shareholders whose subscriptions were accepted at previous closings.
As a result, each subsequent closing after the Initial Closing will result in existing stockholders in the Company
experiencing dilution as a result of Catch-up Purchases.
Our stockholders will experience dilution in their ownership percentage if they do not opt-in to our dividend
reinvestment plan.
We have an “opt-out” DRIP pursuant to which all distributions declared will be payable in shares of our Common Stock
unless stockholders elect to receive their distributions in cash. As a result, our stockholders that do “opt-out” to our DRIP
will experience dilution in their ownership percentage of our Common Stock over time. See “ Item 9 - Market Price of and
Dividends on the Registrant’s Common Equity and Related Stockholder Matters-Distribution Policy” and “-Dividend
Reinvestment Plan ” for a description of our dividend policy and obligations.
Our stockholders may receive shares of our Common Stock as distributions, which could result in adverse tax
consequences to them.
In order to satisfy the annual distribution requirement applicable to RICs, we will have the ability to declare a large portion
of a dividend in shares of our Common Stock instead of in cash. Revenue Procedures issued by the IRS allow a publicly
offered regulated investment company (as defined above) to distribute its own stock as a dividend for the purpose of
fulfilling its distribution requirements if certain conditions are satisfied. As long as a portion of such dividend is paid in
cash (which portion may be as low as 10% of such dividend, for distributions declared by June 30, 2022, and 20% of such
dividends, for distributions declared on or after July 1, 2022) and certain requirements are met, the entire distribution will
be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax
on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same
manner as a cash dividend, even though most of the dividend was paid in shares of our Common Stock. We currently do
not intend to pay distributions in shares of our Common Stock.
We may, in the future, determine to issue preferred stock, which could adversely affect the value of shares of Common
Stock.
The issuance of preferred stock with dividend or conversion rights, liquidation preferences, or other economic terms
favorable to the holders of preferred stock could make an investment in shares of Common Stock less attractive. In
addition, the distributions on any preferred stock we issue must be cumulative. Payment of distributions and repayment of
the liquidation preference of preferred stock must take preference over any distributions or other payments to holders of
Common Stock, and holders of preferred stock are not subject to any of our expenses or losses and are not entitled to
participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that
converts into shares of Common Stock). In addition, under the 1940 Act, the preferred stock would constitute a “senior
security” for purposes of the 150% asset coverage test.
Shareholders will not have any redemption rights in respect of the Common Stock, and there is no meaningful liquidity
risk to manage.
To the extent required by laws implementing the Directive in any relevant EEA member state, the information in respect of
the Company required to be disclosed pursuant to Article 23(4) and (5) of the Directive will be made available to each
investor as follows:
a) Any new arrangements for managing our liquidity, without undue delay in a disclosure notice delivered to each
investor.
b) Our current risk profile and the risk management systems employed by the Adviser to manage those risks, in each
annual report.
c) Any changes to the maximum level of leverage which the Adviser may employ on our behalf as well as any right
of the reuse of collateral or any guarantee granted under the leveraging arrangement, without undue delay in a
disclosure notice delivered to each investor. Please note, we do not intend to employ collateral and asset reuse
arrangements.
d) The total amount of leverage employed by us, in each annual report.
General Risk Factors
Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and
exacerbates risks.
Social, political, economic and other conditions and events will occur that create uncertainty and have significant impacts
on issuers, industries, governments and other systems, including the financial markets, to which the Company and its
investments are exposed. In addition, global economies and financial markets are increasingly interconnected, and political,
economic and other conditions and events in one country, region, or financial market may adversely impact issuers in a
different country, region or financial market. Furthermore, the occurrence of, among other events, natural or man-made
disasters, severe weather or geological events, fires, floods, earthquakes, outbreaks of disease (such as COVID-19, avian
influenza or H1N1/09), epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts or the occurrence of climate
change, may also adversely impact our performance from time to time. Such events may result in, and have resulted in,
closing borders, securities exchange closures, health screenings, healthcare service delays, quarantines, cancellations,
supply chain disruptions, lower consumer demand, market volatility and general uncertainty. We may be negatively
impacted if the value of our portfolio company holdings were harmed by such political or economic conditions or events.
Moreover, such negative political and economic conditions may disrupt the processes necessary for our operations. This
may create widespread business continuity issues for us and our portfolio companies and heightened cybersecurity,
information security and operational risks as a result of, among other things, remote work arrangements.
Outbreaks such as the severe acute respiratory syndrome, avian influenza, H1N1/09, and, most recently, the coronavirus
(COVID-19), or other similarly infectious diseases may have material adverse impacts on the Company, the Adviser, their
respective affiliates and portfolio companies. Actual pandemics, or fear of pandemics, can trigger market disruptions or
economic turn-downs with the consequences described above. The Adviser cannot predict the likelihood of disease
outbreaks occurring in the future nor how such outbreaks may affect the Company’s 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 the Company’s 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 the Company’s value, the Company’s investments, or the Company’s ability to make new
investments. If a future pandemic occurs (including a recurrence of COVID-19) during a period when the Company
expects to be harvesting its investments, the Company may not achieve its investment objective or may not be able to
realize its investments within the Company’s term.
Ongoing international events have increased global political and economic uncertainty, which may have a material
impact on the Company’s portfolio and the value of your investment in the Company.
The ongoing invasion of Ukraine by Russia and related sanctions placed on certain Russian entities and individuals by the
United States and other countries, as well as the ongoing military conflict between Israel and Hamas, have increased global
political and economic uncertainty. Because Russia is a major exporter of oil and natural gas, the invasion and related
sanctions have reduced the supply, and increased the price, of energy, which has impacted inflation and may exacerbate
ongoing supply chain issues. There is also the risk of retaliatory actions by Russia against countries which have enacted
sanctions, including cyberattacks against financial and governmental institutions, which could result in business disruptions
and further economic turbulence. Although the Company has no direct exposure to Russia, Ukraine or the Middle East, the
broader consequences of these events may have a material adverse impact on the Company’s portfolio and the value of
your investment in the Company. Because this is an uncertain and evolving situation, its full impact is unknown at this
time.
Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and
results of operations.
There is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as
at the state and local levels. Recent events, including the 2024 U.S. presidential election, have created a climate of
heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-
reaching implications. The presidential administration’s changes to U.S. policy may impact, among other things, the U.S.
and global economy, international trade and relations, unemployment, immigration, taxes, healthcare, the U.S. regulatory
environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business,
they could adversely affect our business, financial condition, operating results and cash flows. Until we know what policy
changes are made and how those changes impact our business and the business of our competitors over the long term, we
will not know if, overall, we will benefit from them or be negatively affected by them.
Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies.
The United States is currently experiencing an inflationary environment, and certain of our portfolio companies are in
industries that may be impacted by inflation. If such portfolio companies are unable to pass any increases in their costs of
operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest
and principal on our loans, particularly if interest rates rise in response to inflation. 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 realized or unrealized losses and
therefore reduce our net assets resulting from operations.
The impact of economic recessions or downturns may impair our portfolio companies and lead to defaults by our
portfolio companies, which could harm our operating results.
Our portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay our loans
during these periods. During these periods our non-performing assets may increase and the value of our portfolio may
decrease if we are required to write down the values of our investments. Adverse economic conditions may also decrease
the value of collateral securing some of our loans. Economic slowdowns or recessions could lead to financial losses in our
portfolio investments and a decrease in revenues, net income and assets. A prolonged reduction in interest rates due to
economic downturns or recessions will reduce our gross investment income and could result in a decrease in our net
investment income if such decreases in SOFR are not offset by a corresponding increase in the spread over SOFR that we
earn on any portfolio investments, a decrease in in our operating expenses, including with respect to our income incentive
fee, or a decrease in the interest rate of our floating interest rate liabilities tied to SOFR. Unfavorable economic conditions
also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend
credit to us. These events could prevent us from increasing investments and harm our operating results.
We are subject to risks associated with the current interest rate environment, and to the extent we use debt to finance
our investments, changes in interest rates will affect our cost of capital and net investment income.
To the extent we borrow money or issue debt securities or preferred stock to make investments, our net investment income
will depend, in part, upon the difference between the rate at which we borrow funds or pay interest or distributions on such
debt securities or preferred stock and the rate at which we invest these funds. In addition, we anticipate that many of our
debt investments and borrowings will have floating interest rates that reset on a periodic basis, and many of our
investments will be subject to interest rate floors. As a result, a significant change in market interest rates could have a
material adverse effect on our net investment income. Rising interest rates on floating-rate loans we make to portfolio
companies could drive an increase in defaults or accelerated refinancings. Some portfolio companies may be unable to
refinance into fixed-rate loans or repay outstanding amounts, leading to a gradual decline in the credit quality of our
portfolio. In periods of rising interest rates, our cost of funds will increase because we expect that the interest rates on the
majority of amounts we borrow will be floating. This change could reduce our net investment income to the extent any debt
investments have fixed interest rates. We may use interest rate risk management techniques in an effort to limit our
exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent
permitted by the 1940 Act and applicable commodities laws. These activities may limit our ability to benefit from lower
interest rates with respect to hedged borrowings. Adverse developments resulting from changes in interest rates or hedging
transactions could have a material adverse effect on our business, financial condition, and results of operations.
You should also be aware that a rise in the general level of interest rates typically will lead to higher interest rates
applicable to our debt investments, which may increase the amount of incentive fees payable to our Adviser. Also, an
increase in interest rates available to shareholders could make an investment in shares of our Common Stock less attractive
if we are not able to increase our distribution rate, which could reduce the value of shares of our Common Stock.
A changing interest rate environment magnifies the Company’s susceptibility to interest rate risk and may adversely affect
the Company by diminishing yield and impacting performance. It is difficult to accurately predict the pace at which the
FRB will increase or decrease interest rates, or the timing, frequency or magnitude of any increases or decreases, and the
evaluation of macroeconomic and other conditions could cause a change in approach in the future. Any such changes could
be sudden and unpredictable. Certain economic conditions and market environments will expose fixed-income and debt
instruments to heightened volatility and reduced liquidity, which can negatively impact the Company’s performance or
otherwise adversely impact the Company.
We may be the target of litigation.
We may be the target of securities litigation in the future, particularly if the value of shares of our Common Stock
fluctuates significantly. We could also generally be subject to litigation, including derivative actions by our stockholders.
Any litigation could result in substantial costs and divert management’s attention and resources from our business and
cause a material adverse effect on our business, financial condition and results of operations.
We may experience fluctuations in our quarterly operating results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate
payable on the debt securities we acquire, the default rate on such securities, the number and size of investments we
originate or acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized
gains or losses, the degree to which we encounter competition in our markets and general economic conditions. In light of
these factors, results for any period should not be relied upon as being indicative of our performance in future periods.
New or modified laws or regulations governing our operations may adversely affect our business.
Our portfolio companies and we 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.
President Biden may support an enhanced regulatory agenda that imposes greater costs on all sectors and on financial
services companies in particular.
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 our 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 the Company 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 your investment. If we invest in commodity interests in the future, the Adviser
may determine not to use investment strategies that trigger additional regulation by 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 be
borne by our common stockholders.
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 by the Biden Administration 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.
Uncertainty resulting from the overall political climate could negatively impact our business, financial condition, and
results of operations.
The recent political climate has created uncertainty with respect to legal, tax, and regulatory regimes in which the Company
and its portfolio entities, as well as the Adviser, the Administrator, Lafayette Square, and their affiliates operate. President
Biden and the Democratic Party have endorsed substantial tax increases for corporations and individuals and advocated for
significant new regulation of the financial services industry. Any significant changes in economic or tax policy and/or
government programs, as well as any future such changes, could have a material adverse impact on the Company and on its
investments.
We will incur significant costs as a result of being registered under the Exchange Act.
We will incur legal, accounting, and other expenses, including costs associated with the periodic reporting requirements
applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate
governance requirements, including requirements under the Sarbanes-Oxley Act and other rules implemented by the SEC.
Efforts to comply with the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with the
Sarbanes-Oxley Act would adversely affect us and the value of shares of our Common Stock.
We are required to comply with certain requirements of the Sarbanes-Oxley Act and the related rules and regulations
promulgated by the SEC, but will not have to comply with certain requirements until we have been registered under the
Exchange Act for a specified period of time or cease to be an “emerging growth company.” Because shares of our
Common Stock are registered under the Exchange Act, we are subject to the Sarbanes-Oxley Act and the related rules and
regulations promulgated by the SEC, and 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 result, we expect to incur significant additional expenses that may negatively impact our
financial performance and our ability to make distributions. This process will also result in a diversion of management’s
time and attention. We do not know when our evaluation, testing and remediation actions will be completed or its impact
on our operations. In addition, we may be unable to ensure that the process is effective or that our internal control over
financial reporting is or will be effective. In the event that we are unable to come into and maintain compliance with the
Sarbanes-Oxley Act and related rules, we and the value of our securities would be adversely affected.
Terrorist attacks, acts of war, natural disasters, outbreaks, or pandemics, such as the Coronavirus pandemic, may
impact our portfolio companies and our Adviser and harm our business, operating results, and financial condition.
Terrorist acts, acts of war, natural disasters, disease outbreaks, pandemics, or other similar events may disrupt our
operations, as well as the operations of our portfolio companies and our Adviser. Such acts have created, and continue to
create, economic and political uncertainties and have contributed to recent global economic instability. For example, the
conflict between Russia and Ukraine and resulting market volatility, could adversely affect our business, financial
condition or results of operations. In response to the conflict between Russia and Ukraine, the U.S. and other countries
have imposed sanctions or other restrictive actions against Russia. Any of the above factors, including sanctions, export
controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline. In addition, many countries have experienced outbreaks of infectious illnesses in recent decades,
including swine flu, avian influenza, SARS, and COVID-19. In addition, future terrorist activities, military or security
operations, natural disasters, disease outbreaks, pandemics, or other similar events could weaken the domestic/global
economies and create additional uncertainties, which may negatively impact our portfolio companies and, in turn, could
have a material adverse impact on our business, operating results and financial condition.
A shareholder may be subject to filing requirements under the Exchange Act as a result of an investment in us.
Because our Common Stock is registered under the Exchange Act, ownership information for any person who beneficially
owns 5% or more of our Common Stock must be disclosed in a Schedule 13G or other filings with the SEC. Beneficial
ownership for these purposes is determined in accordance with the rules of the SEC and includes having voting or
investment power over the securities. Although we will provide in our quarterly consolidated financial statements the
amount of outstanding stock and the amount of the shareholder’s stock, the responsibility for determining the filing
obligation and preparing the filing remains with the shareholder. In addition, owners of 10% or more of our Common Stock
are subject to reporting obligations under Section 16(a) of the Exchange Act.
A shareholder may be subject to the short-swing profits rules under the Exchange Act as a result of an investment in
us.
Persons with the right to appoint a director or who hold 10% or more of a class of our shares may be subject to Section
16(b) of the Exchange Act, which recaptures for the benefit of the issuer profits from the purchase and sale of registered
stock within a six-month period.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our headquarters are located at 175 SW 7th Street, Unit 2307, Miami, Florida 33130 and are provided by our
Administrator. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be
conducted. We do not own any real estate or other physical properties materially important to our operations.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
Neither we nor our Adviser or Administrator is currently subject to any material legal proceedings, nor, to our knowledge,
is any material legal proceeding that would affect our business threatened against us, or against our Adviser or
Administrator.
From time to time, we, our Adviser or Administrator 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.
While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings
will have a material effect upon our financial condition or results of operations. Our businesses are also subject to extensive
regulation, which may result in regulatory proceedings against us.
PART II

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Until the completion of a Liquidity Event, if any, our outstanding shares of Common Stock will be offered and sold in
private offerings exempt from registration under the Securities Act under Section 4(a)(2) and Regulation D. There is no
public market for shares of our Common Stock currently, nor can we give any assurance that one will develop.
Because shares of Common Stock are being acquired by investors in one or more transactions “not involving a public
offering,” they are “restricted securities” and may be required to be held indefinitely. Shares of our Common Stock may
not be sold, transferred, assigned, pledged or otherwise disposed of unless (1) our consent is granted, and (2) the shares of
Common Stock are registered under applicable securities laws or specifically exempted from registration (in which case the
stockholder may, at our option, be required to provide us with a legal opinion, in form and substance satisfactory to us, that
registration is not required). Accordingly, an investor must be willing to bear the economic risk of investment in the shares
of Common Stock until we are liquidated. No sale, transfer, assignment, pledge or other disposition, whether voluntary or
involuntary, of shares of Common Stock may be made except by registration of the transfer on our books. Each transferee
will be required to execute an instrument agreeing to be bound by these restrictions and the other restrictions imposed on
the shares of Common Stock and to execute such other instruments or certifications as are reasonably required by us.
Holders
As of March 14, 2025 , we had 133 stockholders of record.
Distribution Policy
To the extent that we have income available, we intend to make quarterly distributions to our stockholders. We elected to
be taxed as a RIC under Subchapter M of the Code for our taxable year ending December 31, 2023 . To maintain our RIC
tax status, we intend to distribute at least 90% of our investment company taxable income (as defined by the Code, which
generally includes net ordinary income and net short-term taxable gains) to our stockholders in respect of each taxable year
and to distribute net capital gains (that is, net long-term capital gains in excess of net short-term capital losses), if any, at
least annually out of the assets legally available for such distributions as well as satisfy other applicable requirements under
the Code. See “ Item 1. Business - “Certain U.S. Federal Income Tax Considerations .”
We may be subject to a nondeductible 4% U.S. federal excise tax if we do not distribute (or are treated as distributing) in
each calendar year an amount at least equal to the sum of:
• 98% of our net ordinary income, excluding certain ordinary gains and losses, recognized during a calendar year;
• 98.2% of our capital gain net income, adjusted for certain ordinary gains and losses, recognized for the twelve-
month period ending on October 31 of such calendar year; and
• 100% of any income or gains recognized, but not distributed, in preceding years.
We can be expected to incur in the future, such excise tax on a portion of our income and gains. While we intend to
distribute income and capital gains to minimize exposure to the 4% excise tax, we may not be able to, or may not choose
to, distribute amounts sufficient to avoid the imposition of the tax entirely. In that event, we will be liable for the tax only
on the amount by which we do not meet the foregoing distribution requirement. See “ITEM 1A. RISK FACTORS - Risks
Related to U.S. Federal Income Tax - We will be subject to U.S federal income tax at corporate rates if we are unable to
qualify and maintain our tax treatment as a RIC under Subchapter M of the Code or if we make investments through
taxable subsidiaries.”
We cannot assure you that we will achieve results that will permit us to pay any cash distributions and we will be
prohibited from making distributions if doing so would cause us to fail to maintain the asset coverage ratios stipulated by
the 1940 Act.
Dividend Reinvestment Plan
We have adopted an “opt out” dividend reinvestment plan (“DRIP”) pursuant to which we will reinvest all Distributions
declared by our Board on behalf of investors who do not elect to receive their Distributions in cash as described below. As
a result, if our Board declares a Distribution, then stockholders who have not elected to “opt out” of the DRIP will have
their Distributions automatically reinvested in additional Shares, as described below. The timing and amount of any future
Distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Board.
No action will be required on the part of a stockholder to have its Distributions reinvested in Shares. A registered
stockholder will be able to elect to receive an entire Distribution in cash by notifying SS&C Global Investor & Distribution
Solutions, Inc., the DRIP administrator (the “Plan Administrator”), in writing, so that notice is received by the Plan
Administrator no later than 10 days prior to the record date for a Distribution. Those stockholders whose shares are held by
a broker or other financial intermediary may be able to receive Distributions in cash by notifying their broker or other
financial intermediary of their election. Administrator will set up an account for shares acquired through the DRIP for each
stockholder who has not elected to receive Distributions in cash.
Prior to a Liquidity Event, we will use newly issued shares of Common Stock to implement the DRIP, with such shares to
be issued at a per-share price as determined by our Board (including any committee thereof), which price will be
determined prior to the issuance of shares of Common Stock and in accordance with the limitations under Section 23 of the
1940 Act. The number of shares of Common Stock to be issued to a stockholder is determined by dividing the total dollar
amount of the distribution payable to such stockholder by the price per share of Common Stock. The number of shares to
be outstanding after giving effect to the payment of a distribution cannot be established until the value per share at which
additional shares of Common Stock will be issued has been determined, and the elections of our stockholders have been
tabulated.
There will be no brokerage or other charges to stockholders who participate in the plan. The DRIP administrator’s fees
under the plan will be paid by us. Following a Liquidity Event, if a participant elects to sell part or all of his, her or its
shares of Common Stock held by the plan administrator and have the proceeds remitted to the participant, such request
must first be submitted to the participant’s broker, who will coordinate with the plan administrator and is authorized to
deduct a per-share brokerage commission from the sale proceeds.
Stockholders who elect to receive distributions in the form of shares of Common Stock are generally subject to the same
U.S. federal, state, and local tax consequences as are stockholders who receive their distributions in cash. However, since a
participating stockholder’s cash distributions would be reinvested in Shares, such stockholder will not receive cash with
which to pay applicable taxes on reinvested distributions. A stockholder’s basis for determining gain or loss upon the sale
of shares of Common Stock received in a distribution from us will generally be equal to the cash that would have been
received if the stockholder had received the distribution in cash. Any shares of Common Stock received in a distribution
will have a new holding period for tax purposes commencing on the day following the day on which such shares are
credited to the U.S. holder’s account.
We may terminate or suspend the DRIP upon notice by filing on a current report on Form 8-K, posting upon the
Company’s website, or upon notice in writing mailed to each participant at least 30 days prior to any record date for the
payment of any distribution by us.
The following table summarizes the distributions declared on shares of the Company’s common stock and shares
distributed pursuant to the DRIP to stockholders who had not opted out of the DRIP:
Date Declared
Record Date
Payment Date
Amount
Amount Per
Share
DRIP Shares
Issued
March 26, 2024
March 22, 2024
May 06, 2024
$6,475
$0.30
140,902
June 28, 2024
June 25, 2024
August 06, 2024
$6,738
$0.30
147,220
September 24, 2024
September 24, 2024
November 04, 2024
$7,460
$0.33
164,271
December 26, 2024
December 26, 2024
January 06, 2025
$7,853
$0.33
182,412
Unregistered Sales of Equity Securities
All sales of unregistered securities during the year ended December 31, 2024 were reported in our current reports on Form
8-K filed with the SEC.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(dollar amounts in thousands, except per share data, unless otherwise indicated)
The following discussion and other parts of this report contain forward-looking information that involves risks and
uncertainties. References to “we,” “us,” “our,” and the “Company,” means Lafayette Square USA, Inc., unless otherwise
specified. 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 consolidated financial
statements and notes thereto appearing elsewhere in this report. Please see “Cautionary Statement Regarding Forward-
Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and
analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to
factors discussed under “Cautionary Statements Regarding Forward-Looking Statements” appearing elsewhere in this
report.
Business Overview
We are an externally managed, closed-end, non-diversified management investment company that has elected to be
regulated as a business development company under the 1940 Act. In addition, for U.S. federal income tax purposes, we
have elected to be treated as a RIC under Subchapter M of the Code. As a business development company and a RIC, we
are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code.
We are externally managed by the Adviser and supervised by our board of directors of which a majority of the members
are independent of us, the Adviser and its affiliates.
Our investment objective is to generate favorable risk-adjusted returns, including current income and to a lesser extent,
capital appreciation, principally from investments in “non-sponsored” middle market businesses. We aim to build a
geographically diverse portfolio by investing at least 5% of our assets in businesses that are primarily headquartered and/or
have a significant operating presence in Target Regions. We expect to invest primarily in first and second lien loans and, to
a lesser extent, in subordinated and mezzanine loans and equity and equity-like securities, including common stock,
preferred stock, and warrants. We may also invest in other community development and public welfare investments
identified as qualifying for CRA credit under the OCC and/or Federal Reserve guidance.
Key Components of Operations
Investments
Our level of investment activity may vary substantially from period to period depending on many factors, including the
amount of debt available to middle market companies, the general economic environment and the competitive environment
for the type of investments we make.
Revenues
We generate revenue primarily in the form of interest and fee income on debt investments we hold and capital gains, if any,
on our investments. We generally expect our debt investments to have a stated term of five to eight years and typically to
bear interest at a floating rate usually determined on the basis of a benchmark such as the SOFR. Interest on these debt
investments are generally payable quarterly. In some instances, we may receive payments on our debt investments based on
scheduled amortization of the outstanding balances. In addition, we may receive repayments of some of our debt
investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate
significantly from period to period. Our portfolio activity reflects the proceeds of sales of securities. We may also generate
revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing
managerial assistance and consulting fees.
Expenses
We expect our primary annual operating expenses to include advisory fees and the reimbursement of expenses under our
Investment Advisory Agreement and our Administration Agreement, respectively. We also bear other expenses, which
include:
• our initial organization costs and operating costs incurred prior to the filing of our election to be regulated as a
BDC (in connection with our formation and the initial closing of the private offering of shares of our Common
Stock);
• the costs associated with our private offering and any subsequent offerings of our securities;
• calculating individual asset values and our net asset value (including the cost and expenses of third-party valuation
services);
• out-of-pocket expenses, including travel expenses, incurred by the Adviser, or members of its investment team, or
payable to third parties, performing due diligence on prospective portfolio companies, dead deal or broken deal
expenses and, if necessary, enforcing our rights;
• certain costs and expenses relating to distributions paid by us;
• administration fees payable under the Administration Agreement and related expenses;
• debt service and other costs of borrowings or other financing arrangements;
• the allocated costs incurred in connection with providing services to employees of portfolio companies (of the
type described in Item I. “Business-Investment Strategy” ) and/or managerial assistance (including any services
offered to portfolio companies) to those portfolio companies that request it (whether such costs are incurred by the
Adviser or Administrator or through payments to third party service providers);
• amounts payable to third parties relating to, or associated with, making or holding investments;
• transfer agent and custodial fees;
• costs of hedging;
• commissions and other compensation payable to brokers or dealers;
• federal and state registration fees;
• any stock exchange listing fees and fees payable to rating agencies;
• the cost of effecting any sales and repurchases of our Common Stock and other securities;
• U.S. federal, state and local taxes;
• independent director fees and expenses;
• costs of preparing consolidated financial statements and maintaining books and records, costs of preparing tax
returns, costs of compliance with Sarbanes-Oxley Act, and attestation and costs of filing reports or other
documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, including
registration and listing fees, and the compensation of professionals responsible for the preparation or review of the
foregoing;
• the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing
costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible
for the preparation of the foregoing and related matters;
• the costs of specialty and custom software expense for monitoring risk, compliance and overall investments;
• our fidelity bond;
• any necessary insurance premiums;
• extraordinary expenses (such as litigation or indemnification payments or amounts payable pursuant to any
agreement to provide indemnification entered into by the Company);
• direct fees and expenses associated with independent audits, agency, consulting and legal costs; costs of winding
up;
and other expenses incurred by either the Administrator or us in connection with administering our business, including
payments under the Administration Agreement based upon our allocable portion of the compensation paid to our Chief
Financial Officer and Chief Compliance Officer and their respective staffs. We also include the cost of providing
managerial assistance upon request to portfolio companies , and reimbursements of third-party expenses incurred by the
Administrator in carrying out its administrative services, including providing assistance in accounting, legal, compliance,
operations, technology, internal audit, investor relations, and loan agency services (including any internal and third party
service providers and/or software solutions related to the foregoing), and being responsible for the financial records that
we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, our
Administrator assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax
returns and the printing and dissemination of reports to our stockholders, our internal control assessment under the
Sarbanes-Oxley Act, and generally overseeing the payment of our expenses and the performance of administrative and
professional services rendered to us by others. We expect our general and administrative expenses to be relatively stable or
to decline as a percentage of total assets during periods of asset growth and to increase proportionally when our asset value
declines.
Leverage
The amount of leverage we use in any period depends on a number of factors, including cash on-hand available for
investing, the cost of financing and general economic and market conditions. Prior to the Small Business Credit
Availability Act being signed into law, a BDC generally was not permitted to incur indebtedness unless immediately after
such borrowing it has an asset coverage for total borrowings of at least 200%. The Small Business Credit Availability Act,
signed into law on March 23, 2018, contains a provision that grants a BDC the option, subject to certain conditions and
disclosure obligations, to reduce the asset coverage requirement to 150%. In April 2021, our Board and initial stockholder
approved the reduced asset coverage ratio.
On September 30, 2024, we received an exemptive relief from the SEC to permit us to exclude the debt of the LS SBICs
that are guaranteed by the SBA from the 150% asset coverage ratio we are required to maintain under the 1940 Act. With
this exemptive relief, we will have increased capacity to fund up to $175.0 million (the maximum amount of SBA-
guaranteed debentures an SBIC may currently have outstanding once certain conditions have been met) of investments in
each LS SBIC with SBA-guaranteed debentures in addition to being able to fund investments with borrowings up to the
maximum amount of debt that the 150% asset coverage ratio limitation would allow us to incur.
Portfolio and Investment Activity
The following table summarizes our portfolio and investment activity during the years ended December 31, 2024 ,
December 31, 2023 and December 31, 2022 (information presented herein is at amortized cost unless otherwise indicated):
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Total Investments, beginning of period
$ 271,523
$ 84,545
$ -
New investments purchased
347,622
190,068
97,547
Net accretion of discount on investments
1,374
Net realized gains (losses) on investments
-
(111)
Investments sold or repaid
(63,754)
(3,496)
(12,993)
Total Investments, end of period
$ 556,863
$ 271,523
$ 84,545
Portfolio companies, at beginning of period
-
Number of new portfolio companies
Number of exited portfolio companies
(1)
-
-
Portfolio companies, at end of period
As of December 31, 2024 and December 31, 2023 , the Company’s investments consisted of the following:
December 31, 2024
Amortized Cost
Fair Value
First lien senior secured loans
$ 540,064
97.0 %
$ 540,195
96.9 %
Equity
11,909
2.1 %
12,028
2.2 %
Subordinated debt
1,738
0.3 %
1,712
0.3 %
Preferred equity
1,652
0.3 %
1,652
0.3 %
Convertible note
1,500
0.3 %
1,500
0.3 %
Warrants
-
- %
-
- %
Total
$ 556,863
100.0 %
$ 557,087
100.0 %
December 31, 2023
Amortized Cost
Fair Value
First lien senior secured loans
$ 263,118
96.9 %
$ 265,287
97.0 %
Equity
4,881
1.8 %
4,901
1.8 %
Subordinated debt
1,872
0.7 %
1,753
0.6 %
Preferred equity
1,652
0.6 %
1,652
0.6 %
Warrants
-
- %
-
- %
Total
$ 271,523
100.0 %
$ 273,593
100.0 %
The tables below describe investments by industry composition based on fair value as of December 31, 2024 and
December 31, 2023 :
December 31, 2024
Amortized Cost
Fair Value
Commercial Services & Supplies
$ 66,606
12.0 %
$ 66,901
12.1 %
Professional Services
57,752
10.4 %
58,135
10.4 %
Specialized Consumer Services
39,897
7.2 %
40,288
7.2 %
Road & Rail
41,613
7.5 %
39,900
7.2 %
Interactive Media & Services
34,011
6.1 %
34,293
6.2 %
IT Services
33,807
6.1 %
33,820
6.1 %
Media
34,140
6.1 %
32,725
5.9 %
Diversified Financial Services
28,388
5.1 %
28,492
5.1 %
Transportation Infrastructure
26,252
4.7 %
26,530
4.8 %
Water Utilities
23,112
4.2 %
23,454
4.2 %
Health Care Equipment & Services
19,702
3.5 %
19,949
3.6 %
Application Software
18,288
3.3 %
18,400
3.3 %
Health Care Providers & Services
17,595
3.2 %
17,768
3.2 %
Construction & Engineering
17,427
3.1 %
17,428
3.1 %
Pharmaceuticals
16,278
2.9 %
16,426
2.9 %
Aerospace & Defense
16,069
2.9 %
16,108
2.9 %
Electric Utilities
12,286
2.2 %
12,500
2.2 %
Restaurants
11,714
2.1 %
11,783
2.1 %
Hotels, Restaurants & Leisure
10,688
1.9 %
10,877
2.0 %
Gas Utilities
10,737
1.9 %
10,787
1.9 %
Independent Power & Renewable
8,388
1.5 %
8,388
1.5 %
Real Estate Management & Development
9,184
1.6 %
9,182
1.6 %
Diversified Consumer Services
2,459
0.4 %
2,459
0.4 %
Food & Staples Retailing
0.1 %
0.1 %
Total
$ 556,863
100.0 %
$ 557,087
100.0 %
December 31, 2023
Amortized Cost
Fair Value
Construction & Engineering
$ 57,458
21.3 %
$ 58,360
21.2 %
Commercial Services & Supplies
45,747
16.8 %
45,828
16.8 %
Professional Services
34,254
12.6 %
34,254
12.5 %
Leisure Facilities
33,439
12.3 %
33,789
12.4 %
Media
28,467
10.5 %
28,594
10.5 %
Specialized Consumer Services
15,566
5.7 %
15,625
5.7 %
Health Care Services
13,773
5.1 %
13,773
5.0 %
Environmental & Facilities Services
9,795
3.6 %
9,922
3.6 %
Restaurants
8,683
3.2 %
8,722
3.2 %
Health Care Equipment & Services
8,175
3.0 %
8,391
3.1 %
Health Care Providers & Services
7,840
2.9 %
7,940
2.9 %
IT Services
3,380
1.2 %
3,425
1.3 %
Real Estate Management & Development
2,952
1.1 %
2,970
1.1 %
Hotels, Restaurants & Leisure
1,994
0.7 %
2,000
0.7 %
Total
$ 271,523
100.0 %
$ 273,593
100.0 %
The weighted average yields at amortized cost and fair value of our portfolio as of December 31, 2024 and December 31,
2023 were as follows:
December 31, 2024
December 31, 2023
Amortized Cost
Fair Value
Amortized Cost
Fair Value
First lien senior secured debt (2)
11.3%
11.3%
12.8%
12.8%
Subordinated debt
14.0%
14.2%
14.0%
15.0%
Bonds
12.3%
12.3%
14.0%
15.0%
Convertible note
10.0%
10.0%
-%
-%
Weighted Average Yield (1)
11.4%
11.4%
13.1%
12.8%
(1) The weighted average yield of our portfolio does not represent the total return to our stockholders.
(2) Computed based on (a) the annual actual interest rate or yield earned plus amortization of fees and discounts on the
performing debt and other income producing investments as of the reporting date, divided by (b) the total investments
(including investments on non-accrual and non-income producing investments) at amortized cost or fair value. This
calculation excludes exit fees that are receivable upon repayment of certain loan investments. As of December 31, 2024
and December 31, 2023 , there were no exit fees.
December 31, 2024
December 31, 2023
Number of portfolio companies
Percentage of performing debt bearing a floating rate (1)
95.5%
99.3%
Percentage of performing debt bearing a fixed rate (1)(2)
4.5%
0.7%
Weighted average spread over SOFR or LIBOR of all accruing floating
rate investments
6.7%
7.0%
Weighted average EBITDA (in millions) (3)
$22.2
$22.8
Weighted average leverage (net debt/EBITDA) (4)
3.7x
3.0x
Weighted average interest coverage (4)
2.4x
2.8x
(1) Measured as a percentage of total portfolio investments at fair value. Excludes all equity based investments and
debt investments, if any, placed on non-accrual.
(2) Includes all equity based investments and income producing preferred stock investments, if applicable.
(3) Figures are based on portfolio company financial statements available to the Company at period end.
(4) To calculate net debt, we include debt that ranks both senior and equally with to the tranche of debt owned by us
but exclude debt that is legally and contractually subordinated in ranking to the debt owned by us. Weighted average
net debt to EBITDA is weighted based on the fair value of our debt investments, excluding investments where net debt
to EBITDA may not be the appropriate measure of credit risk. Weighted average interest coverage is weighted based
on the fair value of our performing debt investments, excluding investments where interest coverage may not be the
appropriate measure of credit risk.
Ongoing monitoring and risk management of each asset is conducted by the Adviser's Portfolio Monitoring team under the
supervision of our Chief Risk Officer. The Portfolio Monitoring team is separate and distinct from the Adviser’s
investment team, and has as its primary responsibilities to:
• formally monitor portfolio companies post-investment on an ongoing basis;
• perform quarterly valuations of all assets in partnership with third-party valuation agent(s);
• maintain and update internal and external asset ratings;
• oversee BDC-level monitoring; and
• lead amendment, “work out,” and restructurings processes.
Portfolio Monitoring monitors the financial trends of each portfolio company to determine if it is meeting its respective
business plan and to assess the appropriate course of action with respect to investments in each portfolio company.
Portfolio Monitoring has several methods of evaluating and monitoring the performance and fair value of our investments,
which may include the following:
• periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic
sponsor, to discuss financial position, requirements and variants from approved budgets and internal projections;
• assessment of performance relative to business plan and key operating metrics and compliance with financial
covenants;
• assessment of performance relative to industry benchmarks or portfolio comparables, if any;
• attendance at and participation in board meetings and lender calls; and
• review of monthly, quarterly and annual audited financial statements and financial projections of portfolio
companies.
As part of the monitoring process, our Adviser employs an investment rating system to categorize our investments. In
addition to various risk management and monitoring tools, our Adviser rates the credit risk of all investments on a scale of
1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio
investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or
acquisition), although it may also take into account the performance of the portfolio company’s business, the collateral
coverage of the investment and other relevant factors. The rating system is as follows:
Investment Rating
Description
Involves the least amount of risk to our initial cost basis. The borrower is performing above
expectations, and the trends and risk factors for this investment since the time of origination
or acquisition are generally favorable which may include the performance of the portfolio
company or a potential exit.
Involves an acceptable level of risk that is similar to the risk at the time of origination or
acquisition. The borrower is generally performing as expected and the risk factors are neutral
to favorable. All investments or acquired investments in new portfolio companies are initially
assessed a rating of 2.
Involves a borrower performing below expectations and indicates that the loan’s risk has
increased since origination or acquisition. The borrower could be out of compliance with debt
covenants; however loan payments are generally not past due.
Involves a borrower performing materially below expectations and indicates that the loan’s
risk has increased materially since origination or acquisition. In addition to the borrower
being generally out of compliance with debt covenants, loan payments may be past due (but
generally not more than 120 days past due)
Involves a borrower performing substantially below expectations and indicates that the loan’s
risk has increased substantially since origination or acquisition. Most or all of the debt
covenants are out of compliance and payments are substantially delinquent. Loans rated 5 are
not anticipated to be repaid in full and we will reduce the fair market value of the loan to the
amount we anticipate will be recovered.
The following table shows the distribution of the Company’s investments on the 1 to 5 internal risk rating scale as of
December 31, 2024 and December 31, 2023 :
December 31, 2024
December 31, 2023
Investment Rating
Investments at
Fair Value
Percentage of
Total Investments
Investments at
Fair Value
Percentage of
Total Investments
$ -
- %
$ -
- %
483,968
86.9 %
273,593
100.0 %
73,119
13.1 %
-
-
-
-
-
-
-
-
-
-
Total
$ 557,087
100.0 %
$ 273,593
100.0 %
Results of Operations
The following table represents the operating results for the years ended December 31, 2024 , December 31, 2023 and
December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Total investment income
$ 56,234
$ 20,751
$ 3,496
Net expenses
26,647
12,038
3,659
Net investment income (loss)
29,587
8,713
(163)
Net realized gains (losses) on investments
-
(111)
Net change in unrealized gains (losses)
(1,846)
2,272
(202)
Net increase (decrease) in net assets
resulting from operations
$ 27,839
$ 10,985
$ (476)
Investment Income
The composition of the Company’s investment income was as follows:
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Investment income
Interest income
$ 51,417
$ 18,567
$ 3,362
Fee income
1,135
Interest from cash and cash equivalents
3,682
2,114
-
Total investment income
$ 56,234
$ 20,751
$ 3,496
The increase in total investment income from $20,751 for the year ended December 31, 2023 to $56,234 for the year ended
December 31, 2024 was primarily driven by our deployment of capital and invested balance of investments.
Expenses
The following table summarizes the Company’s expenses for the years ended December 31, 2024 , December 31, 2023 and
December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest and financing expenses
$ 10,255
$ 2,049
$ 750
Incentive fee
5,272
1,615
Management fee
4,136
1,640
-
Administrative services fee
2,048
1,485
General and administrative expenses
1,831
1,441
Professional fees
1,082
Legal fees
1,042
Income tax expense
-
-
Directors' fees
Placement fees
1,131
Organizational costs
Offering expenses
-
Total expenses
26,647
11,586
4,111
Expense support reimbursement
-
(452)
Total expenses, net of expense support
reimbursement
$ 26,647
$ 12,038
$ 3,659
Total expenses before expense support increased to $ 26.6 million for the year ended December 31, 2024 from $ 11.6
million for the year ended December 31, 2023 .
Interest and financing expenses increased to $ 10,255 for the year ended December 31, 2024 compared to $ 2,049 for the
year ended December 31, 2023 primarily due to an increase in the average principal amount of borrowings on our
Subscription Facility, draw down in SBA-guaranteed debentures, ING Credit Facility and Repurchase Obligations.
The increase in management fees for the year ended December 31, 2024 when compared to the year ended December 31,
2023 was driven by our deployment of capital and an increase in average gross assets.
Incentive fees increased to $ 5,272 for the year ended December 31, 2024 when compared to $ 1,615 for the year ended
December 31, 2023 due to the increase in Net Investment Income. Refer to Note 6 Investment Advisory Agreement of the
Form 10-K for a discussion of how the incentive fee is calculated.
The increase in administrative services fee to $ 2,048 for the year ended December 31, 2024 when compared to $ 1,485 for
the year ended December 31, 2023 was due to the Company's allocable portion of overhead compensation, rent, office
services and equipment, under the Company's Administration Agreement.
General and administrative expenses, legal fees, professional fees and placement fees increased to $ 4,171 during the year
ended December 31, 2024 when compared to $ 3,994 for the year ended December 31, 2023 in connection with
independent audit services, external legal services, third-party valuation services for our portfolio, insurance premiums,
accounting, financial preparation and reporting services, and fees paid to the placement agent for the additional
commitment closes and capital draws.
The decrease in organizational costs to $ 46 for the year ended December 31, 2024 when compared to $ 332 for the year
ended December 31, 2023 was primarily related to the formation of the Company and/or the Company's subsidiaries. Refer
to Note 1 of the Form 10-K on details regarding organizational costs.
Offering expenses decreased for the year ended December 31, 2024 when compared to the year ended December 31, 2023
in connection with the offering of shares of the Company's common stock, including out-of-pocket expenses of the Adviser
and its agents and affiliates. Refer to Note 1 of the Form 10-K on details regarding offering costs.
Financial Condition, Liquidity and Capital Resources
We intend to generate cash primarily from the net proceeds of any private offering of our Common Stock and from cash
flows from interest and fees earned from our investments and principal repayments and proceeds from sales of our
investments. We expect our primary use of cash will be investments in portfolio companies, payments of our expenses and
cash distributions to our stockholders.
Contractual Obligations
We have entered into the Investment Advisory Agreement with our Adviser. Our Adviser agreed to serve as our investment
adviser in accordance with the terms of our Investment Advisory Agreement. Payments under our Investment Advisory
Agreement in each reporting period consist of the base management fee equal to a percentage of the value of our gross
assets as well as an incentive fee based on our performance.
Under the Investment Advisory Agreement, the Adviser manages the day-to-day operations of, and provides investment
advisory services to, the Company. The Board approved the renewal of the Investment Advisory Agreement on June 4,
2024. The Adviser is a registered investment adviser with the SEC. The Adviser receives fees for providing services,
consisting of two components, a base management fee and an incentive fee.
We define a “Liquidity Event” as any of: (1) a quotation or listing of our common stock on a national securities exchange,
including an initial public offering or (2) a Sale Transaction. A “Sale Transaction” means (a) the sale of all or substantially
all of our capital stock or assets to, or another liquidity event with, another entity or (b) a transaction or series of
transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock in each case for
consideration of either cash and/or publicly listed securities of the acquirer. Potential acquirers could include entities that
are not BDCs that are advised by the Adviser or its affiliates.
Base Management Fee
The base management fee (“Management Fee”) is payable quarterly in arrears beginning in the period during its initial
capital drawdown from its non-affiliated investors (the “Initial Drawdown”) at an annual rate of (i) prior to a Liquidity
Event, 0.75%, and (ii) following a Liquidity Event, 1.0%, in each case of the average value of our gross assets (gross assets
equal the total assets of the Company as set forth on the Company’s balance sheet) at the end of the two most recently
completed calendar quarters. No Management Fee is charged on committed but undrawn capital commitments.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company incurred Management
Fees of $ 4,136 , $ 1,640 and $ 277 , respectively. As of December 31, 2024 and December 31, 2023 , there was $ 1,375 and
$ 605 Management Fee payable to the Adviser, respectively.
Incentive Fee
The Company also pays the Adviser an incentive fee consisting of two parts: (i) an incentive fee based on pre-incentive fee
net investment income (the “Income-Based Fee”), and (ii) the capital gains component of the incentive fee (the “Capital
Gains Fee”). For more information regarding the Income-Based Fee and the Capital Gains Fee, see Note 6 - Related Party
Agreements and Transactions.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company incurred Income-
Based Fee of $ 5,272 , $ 1,615 and $ - , respectively. As of December 31, 2024 and December 31, 2023 , $ 1,578 and $ 565 ,
respectively, remained payable.
Administration Agreement
We have entered into an Administration Agreement with the Administrator pursuant to which the Administrator furnishes
us with administrative services necessary to conduct our day-to-day operations. The Administrator is reimbursed for
administrative expenses it incurs on our behalf in performing its obligations. Such costs are reasonably allocated to us on
the basis of assets, revenues, time records or other reasonable methods. We do not reimburse our Administrator for any
services for which it receives a separate fee.
If any of our contractual obligations discussed above were terminated, our costs may increase under any new agreements
that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the
services we receive under our Investment Advisory Agreement and Administration Agreement.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , our expenses were paid by a related
party of the Adviser and will be reimbursed by us. As of December 31, 2024 and December 31, 2023 , the total amount
owed to the affiliates of the Adviser is included in the Due to Affiliate line item in the Consolidated Statements of Assets
and Liabilities.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company incurred $ 2,048 ,
$ 1,485 and $ 708 , respectively, in fees under the Administrative Agreement. These fees are included in administrative
service fees in the accompanying Consolidated Statements of Operations. As of December 31, 2024 and December 31,
2023 , $ 0 and $ 885 , respectively, were unpaid and included in administrative services fee payable in the accompanying
Consolidated Statements of Assets and Liabilities. No administrative services fee was charged to the Company prior to the
Company’s commencement of operations.
Expense Support and Conditional Reimbursement Agreement
On December 30, 2021, we entered into an expense support and conditional reimbursement agreement (the “Expense
Support Agreement”) with the Adviser. The Adviser may elect to pay certain of our expenses on our behalf (each, an
“Expense Payment”), so long as no portion of the payment will be used to pay any interest expense or shareholder
servicing and/or distribution fees. Any 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 quarter 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 quarter
(the amount of such excess being hereinafter referred to as “Excess Operating Funds”), we will 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 quarter have been reimbursed. Any payments required to be made by
us will 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).
Our obligation to make a Reimbursement Payment shall automatically become a liability of ours on the last business day of
the applicable calendar quarter, except to the extent the Adviser has waived its right to receive such payment for the
applicable quarter.
The following table presents a summary of Expense Payments and the related Reimbursement Payments since our
inception:
For the Period Ended
Expense Payments
by Adviser
Reimbursement
Payments to Adviser
Unreimbursed
Expense Payable
June 30, 2022
$ 227
$ -
$ 227
September 30, 2022
-
June 30, 2023
-
(329)
September 30, 2023
-
(123)
-
Total
$ 452
$ (452)
$ -
As of December 31, 2024 and December 31, 2023 , the Company has no Unreimbursed Expense Payable .
Capital Resources and Borrowings
As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock
senior to shares of our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150%, subject to
receipt of certain approvals and compliance with certain disclosure requirements, immediately after each such issuance.
Section 61(a) of the 1940 Act reduces the asset coverage requirements applicable to BDCs from 200% to 150% so long as
the BDC meets certain disclosure requirements and obtains certain approvals. In April 2021, our Board and initial
stockholder approved the reduced asset coverage ratio. The reduced asset coverage requirements permit us to increase the
maximum amount of leverage that we are permitted to incur by reducing the asset coverage requirements applicable to us
from 200% to 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 as compared to $100 from borrowing and issuing senior
securities for every $100 of net assets under a 200% asset coverage requirement. In addition, while any senior securities
remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such
securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. As of
December 31, 2024 and December 31, 2023 , the Company’s asset coverage ratio based on the aggregate amount
outstanding of senior securities was 269.2% and 645.7% .
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Company's total debt for the For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 9,328
$ 1,526
$ 494
Non-usage fee (1)
Amortization of financing costs
Weighted average stated interest rate
6.40 %
7.08 %
5.08 %
Weighted average outstanding balance
$ 145,828
$ 21,548
$ 19,091
(1) Non-usage fee is applicable to the undrawn portion of the credit facilities.
Credit Facilities
ING Credit Facility
On June 18, 2024, Lafayette Square USA, Inc. (the “Company”) entered into a Senior Secured Revolving Credit
Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the “ING Credit Facility”) with
ING Capital, LLC, as Administrative Agent, Lead Arranger, Bookrunner and Sustainability Structuring Agent.
On September 20, 2024, the Company entered into Amendment No. 1 to the Senior Secured Revolving Credit Agreement
(the “First Amendment”), which amends the ING Credit Facility. The parties to the First Amendment include the
Company, EverBank, N.A. as Lender, First-Citizens Bank & Trust Company as Lender, Subsidiary Guarantors party
thereto and ING Capital LLC, as Administrative Agent. The First Amendment provides for, among other things, an upsize
in the total commitments from lenders under the credit facility from $75,000,000 to $150,000,000 .
On December 12, 2024, the Company entered into that certain Lender Joinder Agreement (the “First Lender Joinder
Agreement”), pursuant to which, through the accordion feature in the ING Credit Facility, the aggregate commitments
under the ING Credit Facility increased from $150 million to $175 million. The parties to the First Lender Joinder
Agreement include the Company, BankUnited, N.A., as additional lender, the Subsidiary Guarantors party thereto and the
Administrative Agent.
On December 20, 2024, the Company entered into that certain Lender Joinder Agreement (the “Second Lender Joinder
Agreement”), pursuant to which, through the accordion feature in the ING Credit Facility, the aggregate commitments
under the ING Credit Facility increased from $175 million to $225 million. The parties to the Second Lender Joinder
Agreement include the Company, Customers Bank, as additional lender, the Subsidiary Guarantors party thereto and the
Administrative Agent.
The ING Credit Facility is guaranteed by certain subsidiaries of the Company in existence as of the closing date of the ING
Credit Facility, and will be guaranteed by certain subsidiaries of the Company that are formed or acquired by the Company
in the future (collectively, the “Guarantors”). Proceeds of the ING Credit Facility may be used for general corporate
purposes, including the funding of portfolio investments.
The ING Credit Facility currently allows the Company to borrow up to $225 million , subject to certain restrictions,
including availability under a borrowing base, which is based upon unused capital commitments made by investors in the
Company and the value of eligible portfolio investments. The amount of permissible borrowings under the ING Credit
Facility may be increased through an uncommitted accordion feature through which existing and new lenders may, at their
option, agree to provide additional financing up to an aggregate of $250 million . The ING Credit Facility is secured by a
perfected first-priority interest in the unused commitments of the Company’s investors and substantially all of the eligible
portfolio investments held by the Company and each Guarantor, subject to certain exceptions.
The availability period with respect to the revolving credit facility under the ING Credit Facility will terminate on June 19,
2028 (“Commitment Termination Date”) and the ING Credit Facility will mature on June 18, 2029 (“Maturity Date”).
During the period from the Commitment Termination Date to the Maturity Date, the Company will be obligated to make
mandatory prepayments under the ING Credit Facility out of the proceeds of certain asset sales and other recovery events.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the ING
Credit Facility in U.S. dollars will bear interest at either (i) term SOFR plus margin of 2.70% per annum, or (ii) the
alternate base rate plus margin of 1.70% per annum. In each case, the annual interest rate will be adjustable based on a
pricing structure that directly references our 2030 Goals, with ING acting as the sole Sustainability Structuring Agent. The
Company may elect either the term SOFR or alternate base rate at the time of drawdown, and loans denominated in U.S.
dollars may be converted from one rate to another at any time at the Company’s option, subject to certain conditions.
Amounts drawn under the ING Credit Facility in other permitted currencies will bear interest at the relevant rate specified
therein plus an applicable margin (including any applicable credit spread adjustment).
The ING Credit Facility includes customary affirmative and negative covenants, including certain limitations on the
incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit
facilities of this nature.
As of December 31, 2024 and December 31, 2023 , the Company had $ 208.2 million and $ 0.0 million, respectively, in
outstanding borrowings from the ING Facility.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
ING Facility for the year ended December 31, 2024 and December 31, 2023 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 3,601
$ -
$ -
Non-usage fee (1)
-
-
Amortization of financing costs
-
-
Weighted average stated interest rate
7.79 %
- %
- %
Weighted average outstanding balance
$ 46,226
$ -
$ -
(1) Non-usage fee is applicable to the undrawn portion of the credit facilities.
Subscription Facility
On February 2, 2022, the Company entered into a subscription-based credit agreement with Sumitomo Mitsui Banking
Corporation, which was amended on June 28, 2022, December 21, 2022, and February 1, 2024 (and as may be further
amended, modified or supplemented, the “Subscription Facility”). The Subscription Facility allowed the Company to
borrow up to $38.4 million , subject to certain restrictions, including availability under a borrowing base that was based
upon unused capital commitments made by investors in the Company. The amount of permissible borrowings under the
Subscription Facility could be increased to up to $1 billion with the consent of the lenders. The Subscription Facility
matured on May 2, 2024 and bore interest at an annual rate of: (i) with respect to reference rate loans, a reference rate for
the period plus a margin equal to 2.50% (the “Applicable Margin”) and (ii) with respect to alternative rate loans, the
greatest of (a) the administrative agent's prime rate, (b) Term SOFR with a one-month term plus the Applicable Margin and
(c) the federal funds rate plus 0.50% . Subject to certain exceptions, the Subscription Facility was secured by a first lien
security interest in the Company’s unfunded investor equity capital commitments. The Subscription Facility included
customary covenants, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance
covenants, as well as usual and customary events of default for credit facilities of this nature. On May 2, 2024, the
Subscription Facility and all obligations thereunder were terminated.
As of December 31, 2024 and December 31, 2023 , the Company had $ 0.0 million and $ 27.5 million, respectively, in
outstanding borrowings from the Subscription Facility.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Subscription Facility for the year ended December 31, 2024 and December 31, 2023 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 492
$ 584
$ 494
Non-usage fee (1)
Amortization of financing costs
Weighted average stated interest rate
7.83 %
7.19 %
5.08 %
Weighted average outstanding balance
$ 6,286
$ 8,121
$ 19,091
(1) Non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the Subscription
Facility.
SBA Debentures
LS SBIC LP and LS SSBIC LP are able to borrow funds from the SBA against their regulatory capital (which
approximates equity capital in LS SBIC LP and LS SSBIC LP) that is paid in and is subject to customary regulatory
requirements, including, but not limited to, periodic examination by the SBA. As of December 31, 2024 and December 31,
2023 , the Company funded LS SBIC LP and LS SSBIC LP with an aggregate total of $110.0 million and $82.5 million ,
respectively, of regulatory capital, and have $ 192.5 million and $31.0 million , respectively, in SBA-guaranteed debentures
outstanding. SBA debentures are non-recourse to us, have a 10 -year maturity, and may be prepaid at any time without
penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven
spread over 10-year U.S. Treasury Notes. Current SBA regulations limit the amount that each of LS SBIC LP and LS
SSBIC LP may borrow to a maximum of $175.0 million , which is up to twice its potential regulatory capital.
The SBA-guaranteed debentures incurred an upfront commitment fee of 1.00% on the total commitment amount and a
2.435% issuance discount on drawdowns, which are amortized over the life of the SBA-guaranteed debentures. In addition,
an annual fee is charged on the SBA-guaranteed debentures which are amortized over the period.
The following table summarizes the Company’s SBA-guaranteed debentures as of December 31, 2024 :
Issuance Date
Maturity Date
Debenture Amount
Interest Rate
SBA Annual Charge
September 15, 2023
March 1, 2034
$ 31,000
5.04 %
0.047 %
March 15, 2024
September 1, 2034
$ 5,960
4.38 %
0.047 %
June 14, 2024
September 1, 2034
$ 45,540
4.38 %
0.129 %
September 16, 2024
March 1, 2035
$ 82,505
5.09 %
0.129 %
December 12, 2024
March 1, 2035
$ 27,500
4.92 %
0.347 %
The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed
debentures for the year ended December 31, 2024 and December 31, 2023 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 4,610
$ 566
$ -
Non-usage fee
-
-
-
Amortization of financing costs
-
Weighted average stated interest rate
5.34 %
6.23 %
- %
Weighted average outstanding balance (1)
$ 86,388
$ 9,088
$ -
(1) The Company's initial borrowing under the SBA Debentures program occurred on September 15, 2023 .
Repurchase Obligations
In order to finance certain investment transactions, the Company may, from time to time, enter into repurchase agreements
with Macquarie US Trading LLC (“Macquarie”), whereby the Company sells to Macquarie an investment that it holds and
concurrently enters into an agreement to repurchase the same investment (any such obligation, a “Repurchase Obligation”)
at an agreed-upon price at a future date, not to exceed 90 -days from the date it was sold.
The Company entered into two repurchase agreements on May 1, 2024 which were collateralized by the Company’s term
loans to each of Salt Dental Collective (the “Salt Repurchase Obligation”) and Med Learning Group, LLC (the “MLG
Repurchase Obligation” and together with the Salt Repurchase Obligation, the “May 2024 Repurchase Obligations”).
Interest under each of the May 2024 Repurchase Obligations was calculated as (a) the product of the funded amount of the
loan and (b) the product of (i) the number of days the loan is outstanding (subject to number of minimum days per the
agreement) and (ii) daily fee rate. The Company maintained effective control over the security because it is entitled and
obligated to repurchase the security before its maturity. Therefore, the repurchase agreement was treated as a secured
borrowing and not a sale. On July 30, 2024 the Company repurchased its obligation under the MLG Repurchase
Obligation.
As of December 31, 2024 and December 31, 2023 , there was no outstanding loan and interest payable balance to
Macquarie.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Repurchase Obligation for the year ended December 31, 2024 and December 31, 2023 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 625
$ 376
$ -
Non-usage fee
-
-
-
Amortization of financing costs
-
-
-
Weighted average stated interest rate
9.01 %
8.68 %
- %
Weighted average outstanding balance (1)
$ 6,928
$ 4,339
$ -
(1) The Company's initial borrowing occurred on March 15, 2023.
The facilities of the Company consist of the following:
December 31, 2024
December 31, 2023
Aggregate
Principal
Amount
Available
Principal
Amount
Outstanding
Unused
Portion
Aggregate
Principal
Amount
Available
Principal
Amount
Outstanding
Unused
Portion
Secured borrowings
$ 225,000
$ 208,232
$ 16,768
$ 38,400
$ 27,500
$ 10,900
SBA-Guaranteed
Debentures
192,505
192,505
-
36,960
31,000
5,960
Repurchase Obligation
-
-
-
-
-
-
Total
$ 417,505
$ 400,737
$ 16,768
$ 75,360
$ 58,500
$ 16,860
Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet
the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve,
to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of
December 31, 2024 and December 31, 2023 , we were not party to any off-balance sheet arrangements.
Recent Developments
On January 9, 2025, the Company invested in a senior secured first lien revolver in Xpect Solutions LLC, with additional
funds of $0.8 million, bearing an interest rate of 3M Term SOFR + 5.75%, maturing on October 7, 2029.
On January 9, 2025, the Company invested in a new senior secured first lien term loan in TEC Services LLC with a term
loan funded commitment of $10.0 million, bearing an interest rate of 6M Term SOFR + CSA + 5.75%, maturing on
December 31, 2029. In addition, the Company had a total commitment of $2.0 million in a senior secured first lien revolver
of which $0.4 million was funded, bearing an interest rate of 3M Term SOFR + CSA + 5.75%, maturing on December 31,
2029. In addition, the Company had an unfunded commitment of $3.0 million in a senior secured first lien delayed draw
term loan maturing on December 31, 2029.
On January 13, 2025, January 28, 2025, February 25, 2025, and March 12, 2025 the Company invested in a senior secured
first lien revolver in ZRG Partners LLC, with additional funding of $1.3 million, bearing an interest rate of P + 5.00%,
maturing on June 14, 2029. In addition, on January 31, 2025, the Company invested in a senior secured first lien delayed
draw term loan, with additional funding of $0.9 million, bearing an interest rate of 6M Term SOFR + 6.00%, maturing on
June 14, 2029.
On January 14, 2025, the Company invested in a senior secured first lien delayed draw term loan in Capital City LLC, with
additional funding of $0.7 million, bearing an interest rate of 3M Term SOFR + 8.00%, maturing on September 20, 2029.
On January 15, 2025 January 23, 2025, February 28, 2025 and March 4, 2025, the Company invested in a senior secured
first lien revolver in Trilon Group LLC, with additional funding of $0.5 million, bearing an interest rate of 3M Term SOFR
+ CSA + 5.50%, maturing on May 25, 2029. In addition, on January 31, 2025 and February 28, 2025, the Company
invested in a senior secured first lien delayed draw term loan, with additional funding of $1.3 million, bearing an interest
rate of 3M Term SOFR + CSA + 5.50%, maturing on May 25, 2029.
On January 31, 2025, the Company invested in a new senior secured first lien term loan in JOHNSON COMM LLC, with a
term loan funded commitment of $20.0 million, bearing an interest rate of 3M Term SOFR + 7.00%, maturing on January
31, 2030.
On January 31, 2025, the Company invested in a new senior secured first lien term loan in H.W. Lochner Inc, with a term
loan funded commitment of $3.7 million, bearing an interest rate of 3M Term SOFR + CSA + 6.25%, maturing on July 2,
2027.
On January 31, 2025, the Company entered into a new senior secured first lien revolver and a senior secured first lien
delayed draw term loan in Rotolo Consultants Inc, with total unfunded commitments of $22.6 million maturing on January
31, 2031.
On February 12, 2025, the Company sold its investment in GK9 Global Companies, LLC for total proceeds of $22.4
million.
On February 13, 2025, the Company invested in a senior secured first lien revolver in Synergi LLC, with additional
funding of $0.4 million, bearing an interest rate of 3M Term SOFR + CSA + 7.50%, maturing on December 17, 2027.
On February 28, 2025, the Company invested in a new senior secured first lien term loan in Liberty Lenwich Holdings
LLC with a term loan funded commitment of $15.0 million, bearing an interest rate of 1M Term SOFR + CSA + 5.75%,
maturing on February 28, 2030. In addition, the Company invested in an equity holding with additional funding of $3.0
million. In addition, the Company had a total unfunded commitment of $6.0 million in a senior secured first lien delayed
draw term loan and a senior secured first lien revolver maturing on February 28, 2030.
On February 28, 2025, the Company invested in a new preferred equity holding in Arrowhead Capital Group, LLC, with a
funded commitment of $15.0 million bearing a fixed interest rate of 10.0%.
On March 6, 2025, the Company invested in a senior secured first lien term loan in M&S Acquisition Corporation of $1.4
million, bearing an interest rate of 3M Term SOFR + CSA + 6.50%, maturing on December 19, 2028.
On March 12, 2025, the Company invested in a new senior secured first lien term loan in Port Jersey Logistics with a term
loan funded commitment of $32 million, bearing an interest rate of 3M Term SOFR + 5.13% , maturing on March 12,
2030. In addition, the Company had a total commitment of $6.0 million in a senior secured first lien revolver of which $1.7
million was funded, bearing an interest rate of 3M Term SOFR + 5.13%, maturing on March 12, 2030.
On January 8, 2025, the Company repaid principal and interest on its outstanding balance on the ING Credit Facility in the
amount of $60.0 million. Subsequent to this repayment and through to the date of this report, the Company borrowed an
additional total of $53.8 million. As of the date of this Report, the outstanding principal balance on the ING Credit Facility
is $202.0 million.
On March 12, 2025, the Company received approval from the SBA for an additional commitment of $10.0 million,
increasing the total commitment to $175.0 million.
On March 13, 2025, the Company partially sold its investment in Trilon Group, LLC for total proceeds of $8.9 million.
I n addition, as of this Report date, we had an investment backlog and pipeline of approximately $247.6 million and $461.6
million, respectively. Investment backlog includes transactions approved by the Adviser’s investment committee and/or for
which a formal mandate, letter of intent or a term sheet have been issued, and therefore we believe have a strong likelihood
of closing. Investment pipeline includes transactions where initial due diligence has begun and/or analysis is in process, but
no formal mandate, letter of intent or term sheets have been issued. The consummation of any of the investments in this
backlog and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our due
diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment
and the negotiation, execution, and delivery of satisfactory transaction documentation. In addition, we may sell all or a
portion of these investments and certain of these investments may result in the repayment of existing investments. We
cannot assure you that we will make any of these investments or that we will sell all or any portion of these investments.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could materially differ from those estimates. We have identified the following items as critical
accounting policies.
Fair Value Measurements
We value investments for which market quotations are readily available at their market quotations. However, a readily
available market value is not expected for many of the investments in our portfolio, and we value these portfolio
investments at fair value as determined in good faith by the Advisor and our valuation policy and process .
The valuation process is a multi-step endeavor, which includes the following:
• the quarterly valuation process commences with each portfolio company or investment being initially evaluated by
the investment professionals of the Advisor responsible for the monitoring of the portfolio investment;
• the Advisor’s Valuation Committee reviews the valuations provided by the independent third-party valuation firm
(other than immaterial investments, which are internally valued quarterly unless otherwise deemed appropriate by
the Valuation Committee, and subsequently corroborated by an independent valuation firm on an annual basis)
and develops a valuation recommendation;
• the Adviser's Valuation Committee reviews each valuation recommendation to confirm they have been calculated
in accordance with our valuation policy and compares such valuations to the independent valuation firms'
valuation ranges to ensure the Adviser's valuations are reasonable;
• the Adviser's Valuation Committee then determines fair value marks for each of our portfolio investments; and
• the Board and Audit Committee periodically reviews the valuation process and provides oversight in accordance
with the requirements of Rule 2a-5 under the 1940 Act.
The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value
Measurement (ASC 820), as amended, which establishes a framework for measuring fair value in accordance with U.S.
GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be
received for an investment in a current sale, which assumes an orderly transaction between market participants on the
measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market
(which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance
with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of
activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in
determination of fair value.
The three-tier hierarchy of inputs is summarized below.
• Level 1 - Quoted prices are available in active markets/exchanges for identical investments as of the reporting
date.
• Level 2 - Pricing inputs are observable inputs including, but not limited to, prices quoted for similar assets or
liabilities in active markets/exchanges or prices quoted for identical or similar assets or liabilities in markets that
are not active, and fair value is determined through the use of models or other valuation methodologies.
• Level 3 - Pricing inputs are unobservable for the investment and include activities where there is little, if any,
market activity for the investment. The inputs into determination of fair value require significant management
judgment and estimation.
Investments
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the
net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification
method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged
off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented
in the Consolidated Statements of Operations in Part I, Item 1 of this Form 10-K reflects the net change in the fair value of
investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are
realized.
Revenue Recognition
Investment and Related Investment Income
The Company records interest income, including amortization of premium and accretion of discount on the accrual basis to
the extent that such amounts are expected to be collected. The Company records amortized or accreted discounts or
premiums as interest income using the effective interest method or straight-line interest method, as applicable, and adjusted
only for material amendments or prepayments. Dividend income, which represents dividends from equity investments and
distributions from subsidiaries, if any, is recognized on an accrual basis to the extent that the Company expect to collect
such amount. PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the
principal balance of the loan, rather than being paid to us in cash, and is recorded as interest income. Thus, the actual
collection of PIK interest may be deferred until the time of debt principal repayment. Origination fees received are
recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan,
any unamortized origination fees are recorded as investment income. The Company receives certain fees from portfolio
companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees, covenant
waiver fees and loan amendment fees, and are recorded as investment income when earned.
Non-accrual loans
A loan can be left on accrual status during the period the Company is pursuing repayment of the loan. Management reviews
all loans that become 90 days or more past due on principal and interest, or when there is reasonable doubt that principal or
interest will be collected, for possible placement on non-accrual status. When a loan is placed on non-accrual status, unpaid
interest credited to income is reversed. Additionally, any original issue discount and market discount are no longer accreted
to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans
are recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored
to accrual status when past due principal and interest is paid, and, in management’s judgment, payments are likely to
remain current.
Income Taxes
The Company has elected to be treated as a RIC under Subchapter M of the Code and intends to maintain such election in
future taxable years. However, there is no guarantee that the Company will qualify to make such an election for any future
taxable year. In order to qualify and be subject to tax as a RIC, among other things, the Company is required to meet
certain source of income and asset diversification requirements and timely distribute dividends for U.S. federal income tax
purposes to its stockholders of an amount at least equal to 90% of its investment company taxable income, as defined by
the Code and determined without regard to any deduction for dividends paid, for each tax year. As a RIC, the Company
would intend to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S.
federal income taxes with respect to all income distributed to its stockholders.
The Company is subject to a nondeductible 4% U.S. federal excise tax on its undistributed income, unless it timely
distributes (or is deemed to have timely distributed) an amount equal to the sum of (1) 98% of ordinary income for each
calendar year, (2) 98.2% of the amount by which capital gains exceeds capital losses (adjusted for certain ordinary losses)
for a one-year period ending on October 31 of the calendar year, and (3) any income and gains recognized, but not
distributed, from the previous years. While the Company intends to distribute any income and capital gains to avoid
imposition of this 4% U.S. federal excise tax, it may not be successful in avoiding entirely the imposition of this tax. In that
case, the Company will be liable for the tax only on the amount by which it does not meet the distribution requirement.
The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC Topic 740”). ASC
Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in
consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing
the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the
applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax expense or tax benefit in the current year. It is the Company’s policy to recognize accrued interest and
penalties related to uncertain tax benefits in income tax expense. There were no material unrecognized net tax benefits or
unrecognized net tax liabilities related to uncertain income tax positions as of and through December 31, 2024 .

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, most significantly changes in interest rates. Interest rate sensitivity refers to the
change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of
our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at
which we invest and the rate at which we borrow. As a result, we can offer no assurance that a significant change in market
interest rates will not have a material adverse effect on our net investment income.
In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with
changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency
markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market.
These risks will vary depending upon the currency or currencies involved.
The following table estimates the potential changes in net cash flow generated from interest income, should interest rates
increase or decrease by 100, 200 or 300 basis points. These hypothetical interest income calculations are based on a model
of the settled debt investments in our portfolio, held as of December 31, 2024 , and are only adjusted for assumed changes
in the underlying base interest rates and the impact of that change on interest income. As of December 31, 2024 ,
approximately 95.5% of investments at fair value (excluding investments on non-accrual, unfunded debt investments and
non-bearing equity investments) represent floating-rate investments with a LIBOR or SOFR floor (including investments
bearing a prime interest rate contracts) and approximately 4.5% of investments at fair value represent non floating-rate
investments. Additionally, our subscription-based credit facility is also subject to a floating interest rate and currently paid
on a floating SOFR rates. Interest expense is calculated based on outstanding secured borrowings as of December 31, 2024
and based on the terms of our Subscription Facility. Interest expense on our Subscription Facility is calculated using the
stated interest rate as of December 31, 2024 , adjusted for the hypothetical changes in rates, as shown below. We continue
to finance a portion of our investments with borrowings and the interest rates paid on our borrowings may impact
significantly our net interest income.
We regularly measure exposure to interest rate risk. We assess interest rate risk and manage interest rate exposure on an
ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review,
we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2024 , the following table shows the
annual impact on net investment income of base rate changes in interest rates for our settled debt investments (considering
interest rate floors for variable rate instruments), and outstanding secured borrowings assuming no changes in our
investment and borrowing structure:
December 31, 2024
Basis point increase (decrease)
Interest Income
Interest
Expense
Net Interest
Income
Up 300 basis points
$ 16,261
$ (9,547)
$ 6,714
Up 200 basis points
$ 10,813
$ (6,365)
$ 4,448
Up 100 basis points
$ 5,364
$ (3,182)
$ 2,182
Down 100 basis points
$ (5,364)
$ 3,182
$ (2,182)
Down 200 basis points
$ (10,729)
$ 6,365
$ (4,364)
Down 300 basis points
$ (16,093)
$ 9,547
$ (6,546)
We may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments such as
futures, options, swaps and forward contracts and credit hedging contracts, such as credit default swaps, in each case,
subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest
rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of
investmen t with fixed interest rates.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 )
Financial Statements:
Consolidated Statements of Assets and Liabilities as of December 31, 2024 and December 31, 2023
Consolidated Statements of Operations for the years ended December 31, 2024 , December 31, 2023 and
December 31, 2022
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2024 , December 31,
2023 and December 31, 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024 , December 31, 2023 and
December 31, 2022
Consolidated Schedules of Investments as of December 31, 2024 and December 31, 2023
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Lafayette Square USA, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of assets and liabilities of Lafayette Square USA, Inc. (the
Company), including the consolidated schedules of investments, as of December 31, 2024 and 2023 , the related
consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended
December 31, 2024 , and 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
at December 31, 2024 and 2023 , 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, 2024 , in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s 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 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 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 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 financial statements. Our procedures included confirmation of
investments owned as of December 31, 2024 and 2023 , by correspondence with the custodian, brokers, the underlying
portfolio companies and others. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the auditor of the Company since 2021.
New York, New York
March 14, 2025
Lafayette Square USA, Inc.
Consolidated Statements of Assets and Liabilities
(dollar amounts in thousands, except per share data or otherwise noted)
December 31, 2024
December 31, 2023
Assets
Investments, at fair value:
Non-controlled/non-affiliated investments at fair value (amortized cost of $ 522,945 and
$ 244,442 as of December 31, 2024 and December 31, 2023 , respectively)
$ 522,935
$ 246,342
Non-controlled/affiliated investments at fair value (amortized cost of $ 29,349 and
$ 27,081 as of December 31, 2024 and December 31, 2023 , respectively)
29,583
27,251
Controlled/affiliated investments at fair value (amortized cost of $ 4,569 and $ - as of
December 31, 2024 and December 31, 2023 , respectively)
4,569
-
Cash and cash equivalents
202,452
109,771
Deferred financing costs
8,575
1,094
Interest receivable
1,848
Other assets
Due from affiliate
-
Total assets
$ 770,551
$ 385,826
Liabilities
Secured borrowings (see Note 5)
$ 208,232
$ 27,500
SBA-guaranteed debentures (see Note 5)
192,505
31,000
Distributions payable
7,853
3,937
Interest and financing payable
3,044
Deferred revenue payable
2,517
-
Incentive fee payable (see Note 6)
1,578
Management fee payable (see Note 6)
1,375
Accounts payable and accrued expenses
1,277
Due to affiliate
Administrative services fee payable (see Note 6)
-
Income tax payable
-
Total liabilities
418,145
66,587
Commitments and Contingencies (See Note 7)
Net assets
Preferred stock, par value $0.001 per share ( 50,000,000 shares authorized, 0 shares
issued and outstanding as of December 31, 2024 and December 31, 2023 )
-
-
Common stock, par value $0.001 per share ( 450,000,000 shares authorized, 23,797,438
and 21,502,768 shares issued and outstanding as of December 31, 2024 and
December 31, 2023 , respectively)
Paid-in capital in excess of par
351,181
317,677
Distributable earnings (losses)
1,201
1,540
Total net assets
352,406
319,239
Total liabilities and net assets
$ 770,551
$ 385,826
Net asset value per common share
$ 14.81
$ 14.85
The accompanying notes are an integral part of these consolidated financial statements.
Lafayette Square USA, Inc.
Consolidated Statements of Operations
(dollar amounts in thousands, except per share data or otherwise noted)
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Investment Income:
Interest income from non-controlled/non-affiliated
investments:
Cash
$ 48,297
$ 15,440
$ 2,816
Fee income
1,073
Interest income from non-controlled/affiliated investments:
Cash
3,120
3,127
Fee income
-
Interest from cash and cash equivalents
3,682
2,114
-
Total investment income
56,234
20,751
3,496
Expenses:
Interest and financing expenses (see Note 5)
$ 10,255
$ 2,049
$ 750
Incentive fee (see Note 6)
5,272
1,615
-
Management fee (see Note 6)
4,136
1,640
Administrative services fee (see Note 6)
2,048
1,485
General and administrative expenses
1,831
1,441
Professional fees
1,082
Legal fees
1,042
Income tax expense
-
-
Directors' fees
Placement fees
1,131
Organizational costs (See Note 2)
Offering expenses
-
Total expenses
26,647
11,586
4,111
Expense support reimbursement (see Note 6)
-
(452)
Total expenses, including expenses support
reimbursement
26,647
12,038
3,659
Net investment income (loss)
29,587
8,713
(163)
Net realized and unrealized gains (losses) on investment
transactions:
Net realized gains (losses) on investments:
Net realized gains (losses) on investments in non-
controlled/non-affiliated investments
-
(111)
Total net realized gains (losses) on investments
-
(111)
Net change in unrealized gains (losses) on investments:
Net change in unrealized gains (losses) on investments in
non-controlled/non-affiliated investments
(1,910)
2,102
(202)
Net change in unrealized gains (losses) on investments in
non-controlled/affiliated investments
-
Total net change in unrealized gains (losses) on investments
(1,846)
2,272
(202)
Lafayette Square USA, Inc.
Consolidated Statements of Operations (continued)
(dollar amounts in thousands, except per share data or otherwise noted)
Net increase (decrease) in net assets resulting from
operations
$ 27,839
$ 10,985
$ (476)
Weighted average common shares outstanding
22,531,521
10,910,180
1,481,583
Net investment income (loss) per common share (basic and
diluted)
$ 1.31
$ 0.80
$ (0.11)
Earnings (loss) per common share (basic and diluted)
$ 1.24
$ 1.01
$ (0.32)
The accompanying notes are an integral part of these consolidated financial statements.
Lafayette Square USA, Inc.
Consolidated Statements of Changes in Net Assets
(dollar amounts in thousands, except per share data or otherwise noted)
Common Stock
Shares
Par Amount*
Paid in
Capital
Excess of Par
Distributable
Earnings
(Losses)
Total net
assets
Balance, December 31, 2021
$ -
$ 11
$ (515)
$ (504)
Capital transactions:
Issuance of common stock
4,915,854
72,757
-
72,762
Net increase in net assets from capital
transactions
4,915,854
72,757
-
72,762
Net increase (decrease) in net assets
resulting from operations:
Net investment income (loss)
-
-
-
(163)
(163)
Net realized gain (loss)
-
-
-
(111)
(111)
Net change in unrealized gain (losses)
-
-
-
(202)
(202)
Total increase (decrease) in net assets
resulting from operations
-
-
-
(476)
(476)
Tax reclassification of stockholders’ equity
in accordance with US GAAP
-
-
(158)
-
Total increase (decrease) for the year
ended December 31, 2022
4,915,854
72,599
(318)
72,286
Balance, December 31, 2022
4,916,554
$ 5
$ 72,610
$ (833)
$ 71,782
Lafayette Square USA, Inc.
Consolidated Statements of Changes in Net Assets (continued)
(dollar amounts in thousands, except per share data or otherwise noted)
Common Stock
Shares
Par
Amount*
Paid in
Capital
Excess of Par
Distributable
Earnings
(Losses)
Total net
assets
Balance, December 31, 2022
4,916,554
$ 5
$ 72,610
$ (833)
$ 71,782
Capital transactions:
Issuance of common stock
16,472,283
243,906
-
243,923
Reinvestment of stockholder distributions
113,931
-
1,688
-
1,688
Net increase in net assets from capital transactions
16,586,214
245,594
-
245,611
Net increase (decrease) in net assets resulting from
operations:
Net investment income (loss)
-
-
-
8,713
8,713
Net change in unrealized gain (losses)
-
-
-
2,272
2,272
Total increase (decrease) in net assets resulting from
operations
-
-
-
10,985
10,985
Distributions to stockholders from:
Distributable earnings
-
-
-
(9,139)
(9,139)
Total distributions to stockholders
-
-
-
(9,139)
(9,139)
Tax reclassification of stockholders’ equity in accordance
with US GAAP
-
-
(527)
-
Total increase (decrease) for the year ended December
31, 2023
16,586,214
245,067
2,373
247,457
Balance, December 31, 2023
21,502,768
$ 22
$ 317,677
$ 1,540
$ 319,239
Common Stock
Shares
Par
Amount
Paid in
Capital
Excess of Par
Distributable
Earnings
(Losses)
Total net
assets
Balance at December 31, 2023
21,502,768
$ 22
$ 317,677
$ 1,540
$ 319,239
Capital transactions:
Issuance of common stock
1,760,704
26,222
-
26,224
Reinvestment of stockholder distributions
533,966
-
7,630
-
7,630
Net increase in net assets from capital transactions
2,294,670
33,852
-
33,854
Net increase (decrease) in net assets resulting from
operations:
Net investment income (loss)
-
-
-
29,587
29,587
Net realized gain (loss)
-
-
-
Net change in unrealized gain (losses)
-
-
-
(1,846)
(1,846)
Total increase (decrease) in net assets resulting from
operations
-
-
-
27,839
27,839
Distributions to stockholders from:
Distributable earnings
-
-
-
(28,526)
(28,526)
Total distributions to stockholders
-
-
-
(28,526)
(28,526)
Tax reclassification of stockholders’ equity in accordance
with US GAAP
-
-
(348)
-
Total increase (decrease) for the year ended December
31, 2024
2,294,670
33,504
(339)
33,167
Balance, December 31, 2024
23,797,438
$ 24
$ 351,181
$ 1,201
$ 352,406
The accompanying notes are an integral part of these consolidated financial statements.
Lafayette Square USA, Inc.
Consolidated Statements of Cash Flows
(dollar amounts in thousands, except per share data or otherwise noted)
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Cash flows from operating activities
Net increase (decrease) in net assets resulting from
operations
$ 27,839
$ 10,985
$ (476)
Adjustments to reconcile net increase (decrease) in net
assets resulting from operations to net cash provided by
(used in) operating activities:
Net realized (gain) loss on investments
(98)
-
Net change in unrealized (gain) loss on investments
1,846
(2,272)
Purchases of investments
(347,622)
(190,068)
(97,547)
Net accretion of discount on investments
(1,374)
(406)
(102)
Proceeds from sales and repayments of investments
63,754
3,496
12,993
Amortization of deferred financing costs
Changes in operating assets and liabilities:
Interest receivable
(887)
(871)
(90)
Due from affiliate
(260)
-
Deferred offering costs
-
Other assets
(407)
-
Deferred revenue payable
2,517
-
Accounts payable and accrued expenses
(628)
Management fee payable
Incentive fee payable
1,013
-
Administrative services fee payable
(885)
Interest and financing payable
2,349
Income tax payable
-
Due to affiliate
(375)
Net cash provided by (used in) operating activities
(250,484)
(177,096)
(83,112)
Cash flows from financing activities
Proceeds from issuance of shares of common stock
26,224
243,923
72,762
Distributions paid
(16,980)
(3,514)
-
Proceeds from secured borrowings
383,432
113,948
51,500
Repayments of secured borrowings
(202,700)
(117,948)
(20,000)
Proceeds from reverse repurchase agreement
20,355
-
Repayments of reverse repurchase agreement
(20,355)
-
Proceeds from SBA-guaranteed debentures
161,505
31,000
-
Deferred financing costs paid
(8,316)
(1,229)
(471)
Net cash provided by (used in) financing activities
343,165
266,180
103,791
Net increase (decrease) in cash and cash equivalents
92,681
89,084
20,679
Cash and cash equivalents at beginning of period
109,771
20,687
Cash and cash equivalents at end of period
$ 202,452
$ 109,771
$ 20,687
Lafayette Square USA, Inc.
Consolidated Statements of Cash Flows (continued)
(dollar amounts in thousands, except per share data or otherwise noted)
Supplemental information:
Cash paid for interest
$ 6,858
$ 784
$ 182
Shares issued from dividend reinvestment plan
$ 7,630
$ 1,688
$ -
Accrual for deferred financing costs
$ 8,575
$ 1,094
$ 306
The accompanying notes are an integral part of these consolidated financial statements.
Lafayette Square USA, Inc.
Consolidated Schedule of Investments
December 31, 2024
Company (1)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
Non-controlled/non-affiliated investments
Aerospace & Defense
C Speed LLC
(6)(7)(8)(12)
First lien senior secured loan
S+
6.00%
10.33%
10/1/2024
10/1/2029
$ 1,000
$ 952
$ 991
0.3 %
C Speed LLC
(6)(7)(12)
First lien senior secured loan
S+
6.00%
10.33%
10/1/2024
10/1/2029
15,262
15,117
15,117
4.3 %
16,069
16,108
4.6 %
Application Software
CentralBDC Enterprises, LLC
(6)(7)(8)(12)
First lien senior secured loan
S+
5.00%
9.33%
6/25/2024
6/11/2029
1,642
1,628
1,642
0.5 %
CentralBDC Enterprises, LLC
(6)(7)(12)
First lien senior secured loan
S+
5.00%
9.33%
6/25/2024
6/11/2029
16,758
16,660
16,758
4.8 %
18,288
18,400
5.3 %
Commercial Services & Supplies
Rotolo Consultants, Inc.
(6)(7)
First lien senior secured loan
S+
6.95%
11.73%
12/20/2022
1/15/2029
$ 20,282
$ 20,195
$ 20,282
5.8 %
Zero Waste Recycling LLC
(6)(7)(8)
First lien senior secured loan
S+
6.45%
11.23%
6/29/2022
5/15/2026
4,597
4,664
4,597
1.3 %
Zero Waste Recycling LLC
(6)(7)
First lien senior secured loan
S+
6.45%
11.04%
6/29/2022
5/15/2026
13,186
13,119
13,186
3.7 %
ZWR Holdings, Inc.
Subordinated debt
14.00% (Inc.
10.00% PIK)
14.00%
8/16/2021
2/16/2027
1,738
1,738
1,712
0.5 %
ZWR Holdings, Inc.
Warrants
8/16/2021
24,953
-
-
- %
39,716
39,777
11.3 %
Construction & Engineering
Synergi, LLC
(6)(7)
First lien senior secured loan
S+
7.50%
12.09%
12/19/2022
12/17/2027
17,561
17,449
17,451
5.0 %
Synergi, LLC
(6)(7)(8)
First lien senior secured loan
S+
7.50%
-%
12/19/2022
12/17/2027
-
(22)
(23)
- %
17,427
17,428
5.0 %
Diversified Financial Services
Core Capital Partners II-S LP
(6)(7)(8)
First lien senior secured loan
S+
7.50%
11.83%
10/11/2024
10/11/2027
0.2 %
Core Capital Partners II-S LP
(6)(7)
First lien senior secured loan
S+
7.50%
11.83%
10/11/2024
10/11/2027
28,000
27,733
27,733
7.9 %
28,388
28,492
8.1 %
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2024
Company (1)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
Electric Utilities
truCurrent LLC
(6)(7)(8)
First lien senior secured loan
S+
7.25%
-%
2/12/2024
2/12/2029
-
(103)
-
- %
truCurrent LLC
(6)(7)
First lien senior secured loan
S+
7.25%
11.58%
2/12/2024
2/12/2029
12,500
12,389
12,500
3.5 %
12,286
12,500
3.5 %
Food & Staples Retailing
Capital City LLC
(6)(7)(8)(15)
First lien senior secured loan
S+
8.00%
-%
9/20/2024
9/20/2029
-
(24)
-
- %
Capital City LLC
(6)(7)(15)
First lien senior secured loan
S+
8.00%
12.33%
9/20/2024
9/20/2029
0.1 %
0.1 %
Gas Utilities
TCFIII Owl Buyer LLC
(6)(7)
First lien senior secured loan
S+
5.50%
9.96%
1/31/2023
4/17/2026
10,787
10,737
10,787
3.1 %
10,737
10,787
3.1
Health Care Equipment & Services
MSPB MSO, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.75%
10.08%
11/10/2023
11/10/2028
9,863
9,758
9,863
2.8 %
MSPB MSO, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.75%
10.08%
11/10/2023
11/10/2028
1,695
1,629
1,695
0.5 %
MSPB MSO, LLC
(6)(7)
First lien senior secured loan
S+
5.75%
10.08%
11/10/2023
11/10/2028
8,391
8,315
8,391
2.4 %
19,702
19,949
5.7 %
Health Care Providers & Services
Salt Dental Collective LLC
(6)(7)
First lien senior secured loan
S+
6.75%
11.21%
3/20/2023
2/15/2028
17,768
17,595
17,768
5.0 %
17,595
17,768
5.0 %
Hotels, Restaurants & Leisure
Aetius Holdings, LLC
(6)(7)
First lien senior secured loan
S+
7.00%
11.59%
1/25/2023
3/31/2025
1,034
1,027
1,034
0.3 %
LC Hospitality, LLC
(6)(7)(12)
First lien senior secured loan
S+
5.50%
9.83%
7/25/2024
7/25/2031
9,843
9,661
9,843
2.8 %
10,688
10,877
3.1 %
Independent Power & Renewable
National Carbon
Technologies - California, LLC
(8)
First lien senior secured loan
12.25%
12.25%
5/31/2024
5/31/2029
8,400
8,388
8,388
2.4 %
8,388
8,388
2.4 %
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2024
Company (1)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
Interactive Media & Services
Dance Nation Holdings LLC
(6)(7)
First lien senior secured loan
S+
6.95%
11.54%
8/24/2023
8/24/2028
31,815
31,565
31,815
9.0 %
Dance Nation Holdings LLC
(6)(7)(8)
First lien senior secured loan
S+
6.95%
11.54%
8/24/2023
8/24/2028
0.2 %
Dance Nation Topco LLC
Preferred Equity
8/24/2023
1,652,200
1,652
1,652
0.5 %
34,011
34,293
9.7 %
IT Services
Dartpoints Operating Company, LLC
(6)(7)(9)
(12)
First lien senior secured loan
S+
8.93%
13.62%
5/1/2023
5/14/2026
3,425
3,399
3,425
1.0 %
Xpect Solutions, LLC
(6)(7)(8)(12)
First lien senior secured loan
S+
5.75%
10.08%
10/7/2024
10/7/2029
7,500
7,452
7,427
2.1 %
Xpect Solutions, LLC
(6)(7)(8)(12)
First lien senior secured loan
S+
5.75%
10.08%
10/7/2024
10/7/2029
0.2 %
Xpect Solutions, LLC
(6)(7)(12)
First lien senior secured loan
S+
5.75%
10.08%
10/7/2024
10/7/2029
22,444
22,225
22,225
6.3 %
33,807
33,820
9.6 %
Media
Direct Digital Holdings, LLC
(6)(7)
First lien senior secured loan
S+
8.45%
13.11%
6/29/2022
12/3/2026
7,596
7,576
7,264
2.1 %
Direct Digital Holdings, LLC
(6)(7)
First lien senior secured loan
S+
8.45%
12.93%
6/29/2022
12/3/2026
26,625
26,564
25,461
7.2 %
34,140
32,725
9.3 %
Pharmaceuticals
Med Learning Group, LLC
(6)(7)
First lien senior secured loan
S+
6.25%
10.58%
3/26/2024
12/30/2027
15,570
15,439
15,570
4.4 %
Med Learning Group, LLC
(6)(7)(8)
First lien senior secured loan
S+
6.25%
10.58%
3/26/2024
12/30/2027
0.2 %
16,278
16,426
4.6 %
Professional Services
M&S Acquisition Corporation
(6)(7)(12)
First lien senior secured loan
S+
6.50%
11.09%
12/19/2023
12/19/2028
42,215
41,862
42,216
12.0 %
Oakwell Holding LLC
(15)
Convertible Note
10.00%
10.00%
12/23/2024
12/31/2028
1,500
1,500
1,500
0.4 %
ZRG Partners LLC
(6)(7)(8)
First lien senior secured loan
S+
6.00%
10.46%
10/21/2024
6/14/2029
2,600
2,568
2,580
0.7 %
ZRG Partners LLC
(6)(7)(8)
First lien senior secured loan
P+
5.00%
12.50%
10/21/2024
6/14/2029
- %
ZRG Partners LLC
(6)(7)
First lien senior secured loan
S+
6.00%
10.66%
10/21/2024
6/14/2029
11,402
11,322
11,322
3.2 %
57,402
57,785
16.3 %
Real Estate Management & Development
Standard Real Estate Investments LP
(6)(7)
First lien senior secured loan
S+
8.70%
13.29%
10/6/2023
10/6/2026
2,000
1,987
1,985
0.6 %
Standard Real Estate Investments LP
(6)(7)
First lien senior secured loan
S+
8.70%
13.29%
10/6/2023
10/6/2026
3,000
2,978
2,978
0.8 %
4,965
4,963
1.4 %
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2024
Company (1)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
Restaurants
Café Zupas, L.C
(6)(7)(8)
(12)
First lien senior secured loan
S+
7.00%
12.00%
11/20/2023
12/31/2027
3,121
3,095
3,112
0.9 %
Café Zupas, L.C
(6)(7)(8)(12)
First lien senior secured loan
S+
7.00%
12.02%
11/20/2023
12/31/2027
0.1 %
Café Zupas, L.C
(6)(7)(12)
First lien senior secured loan
S+
7.00%
12.02%
11/20/2023
12/31/2027
8,359
8,289
8,338
2.4 %
11,714
11,783
3.4 %
Road & Rail
160 Driving Academy (a/k/a Rock Gate Capital, LLC)
(6)(7)(12)
First lien senior secured loan
S+
6.75%
11.08%
5/31/2024
5/30/2029
42,000
41,613
39,900
11.3 %
160 Driving Academy (a/k/a Rock Gate Capital, LLC)
(12)
Warrants
5/31/2024
166,108
-
-
- %
41,613
39,900
11.3 %
Specialized Consumer Services
Best Friends Pet Care Holdings Inc.
(6)(7)(8)
(12)
First lien senior secured loan
S+
6.45%
11.04%
12/21/2023
6/21/2028
24,632
24,396
24,632
7.0 %
Best Friends Pet Care Holdings Inc.
(6)(7)(12)
First lien senior secured loan
S+
6.45%
11.04%
12/21/2023
6/21/2028
15,656
15,501
15,656
4.4 %
39,897
40,288
11.4 %
Transportation Infrastructure
H.W. Lochner, Inc.
(6)(7)
First lien senior secured loan
S+
6.25%
10.99%
3/29/2023
7/2/2027
13,006
12,740
13,006
3.7 %
Trilon Group, LLC
(6)(7)
First lien senior secured loan
S+
5.50%
10.31%
3/24/2023
5/25/2029
12,157
12,152
12,157
3.4 %
Trilon Group, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.50%
10.19%
3/24/2023
5/25/2029
1,253
1,253
1,253
0.4 %
Trilon Group, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.50%
10.25%
3/24/2023
5/25/2029
- %
26,252
26,530
7.5 %
Water Utilities
Ironhorse Purchaser, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.25%
-%
12/21/2023
9/30/2027
-
(94)
-
- %
Ironhorse Purchaser, LLC
(6)(7)
First lien senior secured loan
S+
5.25%
9.61%
12/21/2023
9/30/2027
10,021
9,868
10,021
2.8 %
Puris LLC
(6)(7)(12)
First lien senior secured loan
S+
5.75%
10.07%
6/28/2024
6/28/2029
13,433
13,338
13,433
3.9 %
23,112
23,454
6.7 %
Total non-controlled/non-affiliated investments
522,945
522,935
148.4 %
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2024
Company (1)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
Non-controlled/affiliated investments (10)
Commercial Services & Supplies
GK9 Global Companies, LLC
(6)(7)(12)
First lien senior secured loan
S+
7.50%
12.09%
10/07/2022
10/07/2027
18,734
18,630
18,734
5.3 %
GK9 Global Companies, LLC
(6)(7)(8)(12)
First lien senior secured loan
S+
7.50%
12.09%
10/07/2022
10/07/2027
3,390
3,379
3,390
1.0 %
IVM GK9 Holdings LLC
Equity
10/07/2022
14,969
4,881
5,000
1.4 %
26,890
27,124
7.7 %
Diversified Consumer Services
3360 Frankford LLC
(2)(17)
Equity
9/23/2024
2,458,671
2,459
2,459
0.7 %
2,459
2,459
0.7 %
Total non-controlled/affiliated investments
29,349
29,583
8.4 %
Controlled/affiliated investments (10)
Professional Services
Worker Solutions LLC
(16)
Equity
12/30/2024
350,000
0.1 %
0.1 %
Real Estate Management & Development
Neighborhood Grocery Catalyst Fund LLC
(2)(8)(14)
Equity
3/28/2024
4,218,750
4,219
4,219
1.2 %
4,219
4,219
1.2 %
Total controlled/affiliated investments
4,569
4,569
1.3 %
Total Portfolio Investments
$ 556,863
$ 557,087
158.1 %
(1)
Unless otherwise indicated, all investments are considered Level 3 investments. The fair value of the investment was determined using significant unobservable inputs. See Note 4 "Fair Value Measurement of
Investments."
(2)
Represents an investment that is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, as amended (the 1940 Act”). As of December 31, 2024, non-qualifying assets represent
0.9% of the Company’s total assets. As a BDC, the Company generally has to invest at least 70% of its total assets in qualifying assets.
(3)
All investments are denominated in U.S. dollars unless otherwise noted. The prior year table has been modified to conform to the current year.
(4)
The total funded par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments.
(5)
Percentage is based on net assets of $ 352,406 as of December 31, 2024 .
(6)
Loan includes interest rate floor feature, which generally ranges from 1.00% to 4.00% .
(7)
Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to the Secured Overnight Financing Rate ("SOFR" or "S") or an alternate base rate (commonly based on the
Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, the Company has indicated the reference rate used and provided the spread and the interest rate in effect as of
December 31, 2024 . As of December 31, 2024 , the reference rates for our variable rate loans were the 90-day SOFR at 4.31% and 30-day SOFR at 4.33% .
(8)
Position or portion thereof is an unfunded loan or equity commitment, and no interest is being earned on the unfunded portion, although the investment may earn unused commitment fees. Negative cost and fair
value, if any, results from unamortized fees, which are capitalized to the cost of the investment. The unfunded commitment may be subject to a commitment termination date that may expire prior to the maturity
date stated. See below for more information on the Company’s unfunded commitments as of December 31, 2024:
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2024
Investments
Unused Fee Rate
Commitment Type
Commitment
Expiration Date
Unfunded
Commitment
Fair Value
First Lien Debt
Zero Waste Recycling LLC
0.50%
Delayed Draw Term Loan
5/15/2026
$ 380
$ -
Ironhorse Purchaser, LLC
1.00%
Delayed Draw Term Loan
9/30/2027
6,377
-
Synergi, LLC
0.50%
Revolver
12/17/2027
3,750
(23)
Café Zupas, L.C
0.50%
Delayed Draw Term Loan
12/31/2027
(1)
Café Zupas, L.C
0.50%
Revolver
12/31/2027
(1)
Med Learning Group LLC
1.00%
Delayed Draw Term Loan
12/30/2027
3,425
-
Dance Nation Holdings LLC
0.50%
Revolver
8/24/2028
3,304
-
MSPB MSO, LLC
0.38%
Delayed Draw Term Loan
11/10/2028
17,630
-
MSPB MSO, LLC
0.38%
Revolver
11/10/2028
6,781
-
truCurrent LLC
0.50%
Delayed Draw Term Loan
2/12/2029
25,000
-
Trilon Group, LLC
1.00%
Delayed Draw Term Loan
5/25/2029
1,347
-
Trilon Group, LLC
0.50%
Revolver
5/25/2029
-
National Carbon Technologies - California, LLC
2.50%
Bonds
5/31/2029
11,600
-
CentralBDC Enterprises, LLC
0.50%
Revolver
6/11/2029
1,516
-
Capital City LLC
-%
Delayed Draw Term Loan
9/20/2029
2,500
-
Xpect Solutions, LLC
0.50%
Revolver
10/07/2029
2,500
-
Xpect Solutions, LLC
0.50%
Delayed Draw Term Loan
10/07/2029
1,250
-
C Speed LLC
0.50%
Revolver
10/01/2029
4,000
-
Core Capital Partners II-S LP
-%
Revolver
10/11/2027
11,234
-
ZRG Partners LLC
1.00%
Delayed Draw Term Loan
6/14/2029
3,435
-
ZRG Partners LLC
0.50%
Revolver
6/14/2029
2,357
-
Neighborhood Grocery Catalyst Fund LLC
-%
Equity
-
8,281
-
Worker Solutions LLC
-%
Equity
-
3,150
-
$ 121,064
$ (25)
(9)
The Company categorized its unitranche loan as First Lien Senior Secured Loan. The First Lien Senior Secured Loan is comprised of two components: a first out tranche (“First Out”) and last out tranche (“Last
Out”). The Company syndicates the First Out tranche and retains the Last Out tranche. The First Out and Last Out tranches have the same maturity date. Interest disclosed reflects the contractual rate of First
Lien Senior Secured Loan. The First Out tranche has priority over the Last Out tranche with respect to payments of principal, interest and any amounts due thereunder. The Company may be entitled to receive
additional interest as a result of the Agreement Among Lenders (“AAL”) entered into with the First Out lender. In exchange for the higher interest rate, the Last Out tranche is at a greater risk of loss.
(10)
Under the 1940 Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over
the management or policies of the portfolio company. Under the 1940 Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio
company’s outstanding voting securities. As of December 31, 2024, the Company’s non-controlled/affiliated investments and controlled/affiliated investments were as follows:
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2024
Non-controlled/affiliated investments
Fair Value as of
December 31, 2023
Gross
Additions
Gross
Reductions
Change in Unrealized
Gains (Losses)
Fair Value as of
December 31, 2024
Investment
Income
GK9 Global Companies, LLC
$ 22,350
$ 36
$ (227)
$ (35)
$ 22,124
$ 3,098
IVM GK9 Holdings LLC
4,901
-
-
5,000
3360 Frankford LLC
-
2,459
-
-
2,459
-
Non-controlled/affiliated investments
$ 27,251
$ 2,495
$ (227)
$ 64
$ 29,583
$ 3,182
Controlled/affiliated investments
Fair Value as of
December 31, 2023
Gross
Additions
Gross
Reductions
Change in Unrealized
Gains (Losses)
Fair Value as of
December 31, 2024
Investment
Income
Neighborhood Grocery Catalyst Fund LLC
$ -
$ 4,219
$ -
$ -
$ 4,219
$ -
Worker Solutions LLC
-
-
-
-
Controlled/affiliated investments
$ -
$ 4,569
$ -
$ -
$ 4,569
$ -
(11)
Securities exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and may be deemed to be “restricted securities”. Except as noted by this footnote, all of the instruments
on this table are subject to restrictions on resale.
(12)
Investments, or portion thereof, held by the SBIC subsidiary (as defined in Note 1).
(13)
Industries are classified by The Global Industry Classification Standard ("GICS").
(14)
The Company owns 31.25% of the equity interests in Neighborhood Grocery Catalyst Fund LLC.
(15)
Investments, or portion thereof, held by the SSBIC subsidiary (as defined in Note 1).
(16)
The Company owns 100.00% of the equity interests in Worker Solutions, LLC.
(17)
The Company owns a 66.40% % of the equity interests in 3360 Frankford LLC.
The accompanying notes are an integral part of these consolidated financial statements.
Lafayette Square USA, Inc.
Consolidated Schedule of Investments
December 31, 2023
Company (1)(2)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
Non-controlled/non-affiliated investments
Commercial Services & Supplies
Rotolo Consultants, Inc.
(6)(7)
First lien senior secured loan
S+
7.45%
13.10%
12/20/2022
12/18/2026
$ 3,174
$ 3,133
$ 3,166
1.0 %
Zero Waste Recycling LLC
(6)(7)(8)
First lien senior secured loan
S+
6.45%
12.10%
6/29/2022
5/15/2026
3,878
3,887
3,859
1.2 %
Zero Waste Recycling LLC
(6)(7)
First lien senior secured loan
S+
6.45%
12.10%
6/29/2022
5/15/2026
9,835
9,774
9,799
3.1 %
ZWR Holdings, Inc.
Subordinated debt
14.00% (Inc.
10.00% PIK)
14.00%
8/16/2021
2/16/2027
1,872
1,872
1,753
0.5 %
ZWR Holdings, Inc.
Warrants
8/16/2021
24,953
-
-
- %
18,666
18,577
5.8 %
Construction & Engineering
H.W. Lochner, Inc.
(6)(7)
First lien senior secured loan
S+
6.75%
12.27%
3/29/2023
7/02/2027
13,138
12,780
13,138
4.1 %
H.W. Lochner, Inc.
(6)(7)(8)
First lien senior secured loan
S+
6.25%
11.76%
3/29/2023
7/02/2027
1,447
1,331
1,447
0.5 %
Synergi, LLC
(6)(7)
First lien senior secured loan
S+
7.50%
13.11%
12/19/2022
12/17/2027
22,286
22,110
22,286
7.0 %
Synergi, LLC
(6)(7)(8)
First lien senior secured loan
S+
7.50%
-%
12/19/2022
12/17/2027
-
(30)
-
- %
TCFIII Owl Buyer LLC
(6)(7)
First lien senior secured loan
S+
5.50%
10.97%
1/31/2023
4/17/2026
10,897
10,813
10,870
3.4 %
Trilon Group, LLC
(6)(7)
First lien senior secured loan
S+
6.25%
11.78%
3/24/2023
5/25/2029
6,066
5,972
6,066
1.9 %
Trilon Group, LLC
(6)(7)(8)
First lien senior secured loan
S+
6.25%
11.80%
3/24/2023
5/25/2029
4,498
4,435
4,498
1.4 %
Trilon Group, LLC
(6)(7)(8)
First lien senior secured loan
S+
6.25%
11.75%
3/24/2023
5/25/2029
- %
57,458
58,360
18.3 %
Environmental & Facilities Services
Ironhorse Purchaser, LLC
(6)(7)(8)
First lien senior secured loan
S+
6.50%
-%
12/21/2023
9/30/2027
-
(127)
-
- %
Ironhorse Purchaser, LLC
(6)(7)
First lien senior secured loan
S+
6.50%
12.14%
12/21/2023
9/30/2027
10,123
9,922
9,922
3.1 %
9,795
9,922
3.1 %
Health Care Equipment & Services
MSPB MSO, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.75%
-%
11/10/2023
11/10/2028
-
(134)
-
- %
MSPB MSO, LLC
(6)(7)(8)
First lien senior secured loan
S+
5.75%
-%
11/10/2023
11/10/2028
-
(82)
-
- %
MSPB MSO, LLC
(6)(7)
First lien senior secured loan
S+
5.75%
11.14%
11/10/2023
11/10/2028
8,476
8,391
8,391
2.6 %
8,175
8,391
2.6 %
Health Care Providers & Services
Salt Dental Collective LLC
(6)(7)
First lien senior secured loan
S+
7.50%
12.96%
4/4/2023
2/15/2028
7,940
7,840
7,940
2.5 %
7,840
7,940
2.5 %
Health Care Services
Critical Nurse Staffing, LLC
(6)(7)(12)
First lien senior secured loan
S+
6.50%
12.04%
12/5/2023
11/1/2026
13,908
13,773
13,773
4.3 %
13,773
13,773
4.3 %
Hotels, Restaurants & Leisure
Aetius Holdings, LLC
(6)(7)
First lien senior secured loan
S+
7.00%
12.61%
1/25/2023
4/25/2024
2,000
1,994
2,000
0.6 %
1,994
2,000
0.6 %
IT Services
Dartpoints Operating Company, LLC
(6)(7)(9)(12)
First lien senior secured loan
S+
9.38%
14.87%
5/1/2023
5/14/2026
3,425
3,380
3,425
1.1 %
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2023
Company (1)(2)(3)(11)(13)
Footnotes
Investment Type
Reference
Rate and
Spread
Interest
Rate
Acquisition
Date
Maturity
Date
Par
Amount/
Shares (4)
Amortized
Cost
Fair
Value
Percentage
of Net
Assets (5)
3,380
3,425
1.1 %
Leisure Facilities
Dance Nation Holdings LLC
(6)(7)
First lien senior secured loan
S+
6.50%
12.11%
8/24/2023
8/24/2028
32,137
31,825
32,137
10.1 %
Dance Nation Holdings LLC
(6)(7)(8)
First lien senior secured loan
S+
6.50%
-%
8/24/2023
8/24/2028
-
(38)
-
- %
Dance Nation Topco LLC
Preferred Equity
8/24/2023
1,652,200
1,652
1,652
0.5 %
33,439
33,789
10.6 %
Media
Direct Digital Holdings, LLC
(6)(7)
First lien senior secured loan
S+
7.95%
13.49%
6/29/2022
12/3/2026
7,694
7,662
7,694
2.4 %
Direct Digital Holdings, LLC
(6)(7)
First lien senior secured loan
S+
7.95%
13.49%
6/29/2022
12/3/2026
20,900
20,805
20,900
6.5 %
28,467
28,594
8.9 %
Professional Services
M&S Acquisition Corporation
(6)(7)(12)
First lien senior secured loan
S+
6.50%
12.11%
12/19/2023
12/19/2028
34,600
34,254
34,254
10.7 %
34,254
34,254
10.7 %
Real Estate Management & Development
Standard Real Estate Investments LP
(6)(7)(8)
First lien senior secured loan
S+
8.75%
-%
10/6/2023
10/6/2026
-
(18)
-
- %
Standard Real Estate Investments LP
(6)(7)
First lien senior secured loan
S+
8.75%
14.36%
10/6/2023
10/6/2026
3,000
2,970
2,970
0.9 %
2,952
2,970
0.9 %
Restaurants
Café Zupas, L.C
(6)(7)(8)(12)
First lien senior secured loan
S+
7.00%
12.35%
11/20/2023
12/31/2027
0.1 %
Café Zupas, L.C
(6)(7)(8)(12)
First lien senior secured loan
S+
7.00%
-%
11/20/2023
12/31/2027
-
(6)
-
- %
Café Zupas, L.C
(6)(7)(12)
First lien senior secured loan
S+
7.00%
12.35%
11/20/2023
12/31/2027
8,359
8,276
8,276
2.6 %
8,683
8,722
2.7 %
Specialized Consumer Services
Best Friends Pet Care Holdings Inc.
(6)(7)(8)(12)
First lien senior secured loan
S+
6.50%
-%
12/21/2023
6/21/2028
-
(59)
-
- %
Best Friends Pet Care Holdings Inc.
(6)(7)(12)
First lien senior secured loan
S+
6.45%
12.06%
12/21/2023
6/21/2028
15,814
15,625
15,625
4.9 %
15,566
15,625
4.9 %
Total non-controlled/non-affiliated investments
244,442
246,342
77.0 %
Non-controlled/affiliated investments (10)
Commercial Services & Supplies
GK9 Global Companies, LLC
(6)(7)(12)
First lien senior secured loan
S+
9.25%
14.86%
10/07/2022
10/07/2027
18,925
18,794
18,925
5.9 %
GK9 Global Companies, LLC
(6)(7)(8)(12)
First lien senior secured loan
S+
9.25%
14.86%
10/07/2022
10/07/2027
3,425
3,406
3,425
1.1 %
IVM GK9 Holdings LLC
(12)
Equity
10/07/2022
14,969
4,881
4,901
1.5 %
27,081
27,251
8.5 %
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2023
Total non-controlled/affiliated investments
27,081
27,251
8.5 %
Total Portfolio Investments
$ 271,523
$ 273,593
85.5 %
(1)
Unless otherwise indicated, all investments are considered Level 3 investments. The fair value of the investment was determined using significant unobservable inputs. See Note 4 "Fair Value Measurement of
Investments."
(2)
All investments were qualifying assets as defined under Section 55(a) of the 1940 Act.
(3)
All investments are denominated in U.S. dollars unless otherwise noted. The prior year table has been modified to conform to the current year.
(4)
The total funded par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments.
(5)
Percentage is based on net assets of $ 319,239 as of December 31, 2023 .
(6)
Loan includes interest rate floor feature, which generally ranges from 1.00% to 2.50% .
(7)
Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to the SOFR or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which
generally resets quarterly. For each such loan, the Company has indicated the reference rate used and provided the spread and the interest rate in effect as of December 31, 2023 . As of December 31, 2023 , the reference
rates for our variable rate loans were the 90-day SOFR at 5.36% and 30-day SOFR at 5.34% .
(8)
Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion, although the investment may earn unused commitment fees. Negative cost and fair value, if any,
results from unamortized fees, which are capitalized to the cost of the investment. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated.
See below for more information on the Company’s unfunded commitments as of December 31, 2023:
Investments
Unused Fee Rate
Commitment Type
Commitment
Expiration Date
Unfunded
Commitment
Fair Value
First Lien Debt
Zero Waste Recycling LLC
0.50%
Delayed Draw Term Loan
5/15/2026
$ 1,141
$ (4)
Standard Real Estate Investments LP
-%
Delayed Draw Term Loan
10/06/2026
2,000
-
H.W. Lochner, Inc.
0.50%
Revolver
7/02/2027
1,553
-
Ironhorse Purchaser, LLC
1.00%
Delayed Draw Term Loan
9/30/2027
6,377
-
GK9 Global Companies, LLC
0.50%
Delayed Draw Term Loan
10/07/2027
1,940
-
Synergi, LLC
0.50%
Revolver
12/17/2027
3,750
-
Café Zupas, L.C
0.50%
Delayed Draw Term Loan
12/30/2027
2,898
-
Café Zupas, L.C
0.50%
Revolver
12/30/2027
-
Best Friends Pet Care Holdings Inc.
0.50%
Delayed Draw Term Loan
6/21/2028
11,186
-
Dance Nation Holdings LLC
0.50%
Revolver
8/24/2028
4,131
-
MSPB MSO, LLC
0.38%
Delayed Draw Term Loan
11/10/2028
27,548
-
MSPB MSO, LLC
0.38%
Revolver
11/10/2028
8,476
-
Trilon Group, LLC
1.00%
Delayed Draw Term Loan
5/25/2029
2,075
-
Trilon Group, LLC
0.50%
Revolver
5/25/2029
-
$ 73,977
$ (4)
Lafayette Square USA, Inc.
Consolidated Schedule of Investments (continued)
December 31, 2023
(9)
The Company categorized its unitranche loan as First Lien Senior Secured Loan. The First Lien Senior Secured Loan is comprised of two components: a First Out and Last Out tranche. The Company syndicates the
First Out tranche and retains the Last Out tranche. The First Out and Last Out tranches have the same maturity date. Interest disclosed reflects the contractual rate of First Lien Senior Secured Loan. The First Out
tranche has priority over the Last Out tranche with respect to payments of principal, interest and any amounts due thereunder. The Company may be entitled to receive additional interest as a result of the AAL entered
into with the First Out lender. In exchange for the higher interest rate, the Last Out tranche is at a greater risk of loss.
(10)
Under the 1940 Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the
management or policies of the portfolio company. As of December 31, 2023, the Company does not “control” any of these portfolio companies. Under the 1940 Act, the Company would be deemed an “affiliated
person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2023, the Company’s non-controlled/affiliated investments were as
follows:
Non-controlled/affiliated investments
Fair Value as of
December 31,2022
Gross
Additions
Gross
Reductions
Change in Unrealized
Gains (Losses)
Fair Value as of
December 31, 2023
Investment
Income
GK9 Global Companies, LLC
$ 16,076
$ 6,413
$ (289)
$ 150
$ 22,350
$ 3,127
IVM GK9 Holdings LLC
4,631
-
4,901
-
Non-controlled/affiliated investments
$ 20,707
$ 6,663
$ (289)
$ 170
$ 27,251
$ 3,127
(11)
Securities exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and may be deemed to be “restricted securities”. Except as noted
by this footnote, all of the instruments on this table are subject to restrictions on resale.
(12)
Investments, or portion thereof, held by the SBIC subsidiary (as defined in Note 1).
(13)
Industries are classified by The Global Industry Classification Standard ("GICS").
The accompanying notes are an integral part of these consolidated financial statements.
Lafayette Square USA, Inc.
Notes to Consolidated Financial Statements
December 31, 2024
(dollar amounts in thousands, except per share data or otherwise noted)
Not e 1. Organization
Lafayette Square USA, Inc. (the “Company,” which term refers to either Lafayette Square USA, Inc. or Lafayette Square
USA, Inc. together with its consolidated subsidiaries, as the context may require) is an externally managed, non-diversified,
closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the
1940 Act. On May 16, 2022, Lafayette Square Empire BDC, Inc. filed with the Secretary of State of the State of Delaware
a Certificate of Amendment to its Certificate of Incorporation to change its corporate name from “Lafayette Square Empire
BDC, Inc.” to “Lafayette Square USA, Inc.,” effective May 16, 2022. In addition, for U.S. federal income tax purposes, the
Company adopted an initial tax year end of December 31, 2021, and was taxed as a corporation for the tax years ending
December 31, 2021 and December 31, 2022. The Company has elected to be treated, and intends to qualify annually
thereafter, as a RIC under Subchapter M of the Code. However, there is no guarantee that the Company will qualify to
make such an election for any future taxable year.
The Company is externally managed by Adviser pursuant to the Investment Advisory Agreement. The Adviser is a
subsidiary of Lafayette Square Holding Company, LLC (together with its controlled subsidiaries, including the Adviser and
LS Administration, LLC, “Lafayette Square”).
The Company invests in businesses that are primarily domiciled, headquartered and/or have a significant operating
presence in each of the ten regions below (each, a “Target Region”), with a goal to invest at least 5% of its assets in each
Target Region over time. However, the Company anticipates that it could take time to invest substantially all of the capital
it expects to raise in a geographically diverse manner due to general market conditions, the time necessary to identify,
evaluate, structure, negotiate and close suitable investments in private middle market companies, and the potential for
allocations to other affiliated investment vehicles which focus their investments on a specific region. As a result, at any
point in time, the Company may have a disproportionate amount of investments in certain Target Regions, and there can be
no assurance that the Company will achieve geographic diversification across all ten Target Regions.
• Cascade Region: Alaska, Idaho, Oregon and Washington
• Empire Region: New York, New Jersey, Connecticut and Pennsylvania
• Far West Region: California, Hawaii and Nevada
• Four Corners Region: Arizona, Colorado, New Mexico and Utah
• Great Lakes Region: Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin
• Gulf Coast Region: Arkansas, Louisiana, Oklahoma and Texas
• Mid-Atlantic Region: Delaware, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Virginia and West
Virginia and the District of Columbia
• Northeast Region: Maine, Massachusetts, New Hampshire, Rhode Island and Vermont
• Plains Region: Iowa, Kansas, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming
• Southeast Region: Alabama, Georgia, Florida, Mississippi and the territory of Puerto Rico
The Company’s investment objective is to generate favorable risk-adjusted returns, including current income and capital
appreciation, from directly originated investments in middle market companies.
The Company invests primarily in first and second lien loans and, to a lesser extent, in subordinated and mezzanine loans
and equity and equity-like securities, including common stock, preferred stock and warrants. The Company defines middle
market companies as those with annual revenues between $10 million and $1 billion , and annual earnings before interest,
taxes, depreciation, and amortization (“EBITDA”) of between $10 million and $100 million , although the Company may
invest in larger or smaller companies. The Company also may purchase interests in loans, corporate bonds or other
instruments through secondary market transactions.
The Company previously formed wholly-owned subsidiaries, LS BDC Holdings, LLC, LS BDC Holdings (DN), LLC, LS
BDC Holdings (160), LLC and LS SBIC Holdings (160), LLC, each of which were Delaware limited liability companies,
to hold certain equity or equity-like investments in portfolio companies to which the Company has also made loans. In
addition, LS BDC Holdings (NGCF), LLC, a wholly-owned subsidiary of the Company, was formed to co-own and co-
manage NGCF Manager LLC (the "NGCF Manager") with the affiliate of a third-party investor. The NGCF Manager
manages Neighborhood Grocery Catalyst Fund LLC (“NGCF”), a private real estate investment vehicle, whose investment
strategy focuses on necessity-based, ecommerce-resistant, and well-located neighborhood shopping centers anchored by
omni-channel grocers serving the essential needs of diverse communities.
I n December of 2024, in an effort to simplify its internal structure, the Company consolidated its equity investments in LS
BDC Holdings, LLC. On December 18, 2024, LS BDC Holdings (NGCF), LLC transferred its interest in NGCF Manager
to LS BDC Holdings, LLC and on December 30, 2024, dissolved. On December 31, 2024, LS BDC Holdings (160), LLC
and LS BDC Holdings (DN), LLC merged into LS BDC Holdings, LLC.
A dditionally, the Company formed two wholly-owned subsidiaries, LS SBIC LP and LS SSBIC LP, each licensed by the
U.S. Small Business Administration (the “SBA”), to invest in eligible “small businesses” as defined by the SBA. LS SBIC
LP received its SBIC license on February 1, 2023 (made effective as of January 27, 2023) and LS SSBIC LP received its
SSBIC license on September 12, 2024. SBA regulations currently permit SBIC LP to borrow up to $175.0 million in SBA-
guaranteed debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations), and SSBIC
license to borrow an additional $175.0 million of SBA-guaranteed debentures with at least $87.5 million in regulatory
capital, subject to the SBA’s approval. As a result, the Company has access to up to $350.0 million in SBA-guaranteed
debentures amongst its family of SBIC funds under common control. The Company consolidates its wholly-owned
subsidiaries in these consolidated financial statements from the date of each subsidiary’s formation. All significant
intercompany transactions and balances have been eliminated in such consolidation.
Note 2. Significant Accounting Policies
Basis of Presentation
The following is a summary of significant accounting policies consistently followed by the Company in the preparation of
its consolidated financial statements. The Company is an investment company and accordingly applies specific accounting
and financial reporting requirements under Accounting Standards Codification, as issued by the Financial Accounting
Standards Board (“ASC”) Topic 946-Financial Services-Investment Companies (“Topic 946”). The accompanying
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States (“GAAP”) and pursuant to Articles 6, 10 and 12 of Regulation S-X. Certain reclassifications have been made
to certain prior period balances to conform with current presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company deposits its cash in a financial institution and, at times, such deposits may exceed the Federal Deposit
Insurance Corporation insurance limits. As of December 31, 2024 and December 31, 2023 , the Company held $ 202,452
and $ 109,771 in cash and cash equivalents, respectively, of which no cash or cash equivalents were restricted. Of the total
cash and cash equivalents balance, $ 202,452 and $ 109,771 were held in an interest bearing accounts with U.S. Bank
National Association as of December 31, 2024 and December 31, 2023 , respectively. For the years ended December 31,
2024 , December 31, 2023 and December 31, 2022 , the Company earned $ 3,682 , $ 2,114 and $ - , respectively, in interest
on cash and cash equivalents balances, and the balance is included under Interest from cash and cash equivalents in the
Consolidated Statements of Operations.
Organization and Offering Costs
Organization costs consist of costs incurred to establish the Company and enable it to do business legally. Organization
costs are expensed as incurred. Offering costs consist of costs incurred in connection with the offering of the common
stock of the Company.
The Company’s initial organizational costs incurred were expensed and initial offering costs are amortized over one year.
The Company may incur organization and offering expenses of up to $1 million in connection with the formation of the
Company and the offering of shares of its common stock, including the out-of-pocket expenses of the Adviser and its
agents and affiliates. The Company reimburses the Adviser for the organization and offering costs it incurs on the
Company’s behalf. If actual organization and offering costs incurred exceed $1 million , the Adviser or its affiliates will
bear the excess costs. As of December 31, 2024 , the Company incurred $ 804 (since inception) of organization and offering
costs.
Deferred Financing Costs
Deferred financing costs, incurred in connection with any credit facility and SBA-guaranteed debentures (see Note 5) are
deferred and amortized over the life of the respective credit facility and SBA-guaranteed debentures.
Indemnifications
In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or
warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its
history and experience, management feels that the likelihood of such an event is remote.
Revenue Recognition
Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by
the difference between the net proceeds from the disposition and the amortized cost basis of investment using specific
identification method without regard to unrealized gains or losses previously recognized. The Company reports current
period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized
appreciation (depreciation) on investments in the Consolidated Statements of Operations.
Investment Income
Interest income, including amortization of premium and accretion of discount, is recorded on the accrual basis to the extent
that such amounts are collected. The Company records amortized or accreted discounts or premiums as interest income
using the effective interest method or straight-line interest method, as applicable, and adjusted only for material
amendments or prepayments. Dividend income, which represents dividends from equity investments and distributions from
subsidiaries, if any, is recognized on an accrual basis to the extent that the Company collects such amount.
Original Issue Discount
Discounts to par on portfolio securities are accreted into income over the tenor of the instrument. Any remaining discount
is accreted into income upon prepayment or redemption of the instrument. The Company then amortizes such amounts
using the effective interest method as interest income over the expected life of the investment.
PIK Interest
The Company may, from time to time, hold loans in its portfolio that contain a payment-in-kind (“PIK”) interest provision.
PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the principal
balance of the loan, rather than being paid to the Company in cash, and is recorded as interest income. Thus, the actual
collection of PIK interest in cash may be deferred until the time of debt principal repayment.
PIK interest, which is a non-cash source of income at the time of recognition, is included in the Company’s taxable income.
This affects the amount the Company would be required to distribute to its stockholders to maintain its tax treatment as a
RIC for federal income tax purposes, even though the Company has not yet collected the cash.
Fee Income
Origination fees received are recorded as deferred income and recognized as investment income over the term of the loan.
Upon prepayment of a loan, any unamortized origination fees are recorded as investment income. The Company receives
certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties,
structuring fees, covenant waiver fees and loan amendment fees, which are recorded as investment income when earned.
Non-accrual loans
A loan can be left on accrual status during the period the Company is pursuing repayment of the loan. Management reviews
all loans that become 90 days or more past due on principal and interest, or when there is reasonable doubt that principal or
interest will be collected, for possible placement on non-accrual status. When a loan is placed on non-accrual status, unpaid
interest credited to income is reversed. Additionally, any original issue discount and market discount are no longer accreted
to interest income as of the date such loan is placed on non-accrual status. Interest payments received on non-accrual loans
are recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-
accrual loans are restored to accrual status when past due principal and interest is paid, and, in management’s judgment,
future payments are likely to remain current.
Investment Classification
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, the
Company is deemed to be an “Affiliated Person” of a portfolio company if it owns more than 5% of a portfolio company's
outstanding voting securities. The Company refers to such investments in Affiliated Persons as “Affiliated Investments.”
Under the 1940 Act, the Company is deemed to be an Affiliated Person and to “control” a portfolio company if it owns
more than 25% of its outstanding voting securities and/or has the power to exercise control over the management or
policies of such portfolio company. Such investments in portfolio companies that the Company “controls” are referred to as
“Control Investments.” Investments which are neither Control Investments or Affiliated Investments are referred to as
“Non-Controlled/Non-Affiliated Investments.”
Fair Value of Financial Instruments
The Company applies fair value to all of its financial instruments in accordance with ASC Topic 820-Fair Value
Measurement (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value
and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its
financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value
hierarchy.
The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of
factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active
exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models
or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial
instruments classified as Level 3.
Investments for which market quotations are not readily available are valued at fair value as determined in good faith
pursuant to Rule 2a-5 under the 1940 Act and ASC Topic 820. As a general principle, the fair value of a security or other
asset is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Pursuant to Rule 2a-5, the Board has designated the Adviser as the valuation
designee (“Valuation Designee”) for the Company to perform the fair value determination relating to all Company
investments, subject to the oversight of the Board. The Adviser may carry out its designated responsibilities as Valuation
Designee through various teams and committees. The Valuation Designee’s Board-approved policies and procedures
govern the Valuation Designee’s selection and application of methodologies for determining and calculating the fair value
of Company investments. The Valuation Designee may value Company portfolio securities for which market quotations
are not readily available and other Company assets utilizing inputs from pricing sources, quotation reporting systems,
valuation agents and other third-party sources.
The Adviser has established a valuation committee (the “Valuation Committee”) to carry out the day-to-day fair valuation
responsibilities and has adopted policies and procedures to govern activities of the Valuation Committee and the
performance of functions required to determine the fair value of the Company’s investments in good faith. These functions
include periodically assessing and managing material risks associated with fair value determinations, selecting, applying,
reviewing, and testing fair value methodologies, monitoring for circumstances that may necessitate the use of fair value,
and overseeing and evaluating pricing services used.
Distributions
Distributions to common stockholders are recorded on the record date. Subject to the discretion of and as determined by the
Board, the Company will authorize and declare ordinary cash distributions approved by the Board on a quarterly basis. The
amount to be paid out as a dividend or distribution is determined by the Board each quarter and is generally based upon the
earnings estimated by management. Net realized capital gains, if any, are distributed to shareholders at least annually,
although the Company can retain such capital gains for investment in its discretion.
The Company has adopted a dividend reinvestment plan (the “DRIP”) that provides for reinvestment of any distributions
the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the
Board authorizes and the Company declares a cash distribution, then stockholders who have not “opted out” of the DRIP
will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than
receiving the cash distribution. Shares issued under the DRIP will be issued at a price per share equal to the most recent net
asset value (“NAV”) per share as determined by the Board (subject to adjustment to the extent required by Section 23 of
the 1940 Act).
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standard updates (“ASU”) issued by the Financial
Accounting Standards Board (“FASB”). ASUs not listed below were assessed and either determined to be not applicable or
expected to have minimal impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280),” which requires specific
disclosures related to the title and position of the chief operating decision maker (“CODM”) and an explanation of how the
CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to
allocate resources. ASU 2023-07 is effective for the fiscal years beginning after December 15, 2023, and interim periods
beginning with the first quarter ended March 31, 2025. Early adoption is permitted and retrospective adoption is required
for all prior periods presented. The Company has adopted ASU 2023-07 effective December 31, 2024 and concluded that
the application of this guidance did not have any material impact on its consolidated financial statements.
Segment Reporting
In accordance with ASC Topic 280 - “Segment Reporting (ASC 280),” the Company has determined that it has a single
operating and reporting segment. As a result, the Company’s segment accounting policies are the same as described herein
and the Company does not have any intra-segment sales and transfers of assets.
The Company operates through a single operating and reporting segment with an investment objective to generate both
current income, and to a lesser extent, capital appreciation through debt and equity investments. The CODM is comprised
of the Company’s chief executive officer and chief financial officer and assesses the performance and makes operating
decisions of the Company on a consolidated basis primarily based on the Company’s net increase in net assets resulting
from operations (“net income”). In addition to numerous other factors and metrics, the CODM utilizes net income as a key
metric in determining the amount of dividends to be distributed to the Company’s stockholders. As the Company’s
operations comprise of a single reporting segment, the segment assets are reflected on the accompanying consolidated
balance sheet as “total assets” and the significant segment expenses are listed on the accompanying consolidated statement
of operations.
Note 3. Investments
The following tables show the composition of the Company’s investment portfolio, at amortized cost and fair value (with
corresponding percentage of total portfolio investments) as of December 31, 2024 and December 31, 2023 .
December 31, 2024
Amortized Cost
Fair Value
First lien senior secured loans
$ 540,064
97.0 %
$ 540,195
96.9 %
Equity
11,909
2.1 %
12,028
2.2 %
Subordinated debt
1,738
0.3 %
1,712
0.3 %
Preferred equity
1,652
0.3 %
1,652
0.3 %
Convertible Note
1,500
0.3 %
1,500
0.3 %
Warrants
-
- %
-
- %
Total
$ 556,863
100.0 %
$ 557,087
100.0 %
December 31, 2023
Amortized Cost
Fair Value
First lien senior secured loans
$ 263,118
96.9 %
$ 265,287
97.0 %
Equity
4,881
1.8 %
4,901
1.8 %
Subordinated debt
1,872
0.7 %
1,753
0.6 %
Preferred equity
1,652
0.6 %
1,652
0.6 %
Warrants
-
- %
-
- %
Total
$ 271,523
100.0 %
$ 273,593
100.0 %
The following tables show the composition of the Company’s investment portfolio by geographic region, at amortized cost
and fair value (with corresponding percentage of total portfolio investments) as of December 31, 2024 and December 31,
2023 . The geographic composition is determined by the location of the corporate headquarters of the portfolio company,
which may not be indicative of the primary source of the portfolio company’s business:
December 31, 2024
Amortized Cost
Fair Value
Mid-Atlantic
$ 127,815
22.9 %
$ 128,238
23.1 %
Gulf Coast
90,857
16.3 %
90,079
16.2 %
Empire
88,743
15.9 %
89,350
16.0 %
Far West
80,838
14.5 %
81,472
14.6 %
Great Lakes
77,697
14.0 %
76,300
13.7 %
Southeast
46,592
8.4 %
47,073
8.4 %
Four Corners
25,226
4.5 %
25,307
4.5 %
Cascade
17,595
3.2 %
17,768
3.2 %
Northeast
1,500
0.3 %
1,500
0.3 %
Total
$ 556,863
100.0 %
$ 557,087
100.0 %
December 31, 2023
Amortized Cost
Fair Value
Far West
$ 70,645
26.0 %
$ 71,013
26.0 %
Gulf Coast
44,775
16.5 %
45,107
16.5 %
Mid-Atlantic
39,607
14.6 %
39,697
14.5 %
Southeast
35,256
13.0 %
35,642
13.0 %
Four Corners
32,910
12.1 %
33,114
12.1 %
Great Lakes
24,924
9.2 %
25,455
9.3 %
Empire
15,566
5.7 %
15,625
5.7 %
Cascade
7,840
2.9 %
7,940
2.9 %
Total
$ 271,523
100.0 %
$ 273,593
100.0 %
The following t able s show the composition of the Company’s investment portfolio by industry, at amortized cost and fair
value (with corresponding percentage of total portfolio investments) as of December 31, 2024 and December 31, 2023 .
December 31, 2024
Amortized Cost
Fair Value
Commercial Services & Supplies
$ 66,606
12.0 %
$ 66,901
12.1 %
Professional Services
57,752
10.4 %
58,135
10.4 %
Specialized Consumer Services
39,897
7.2 %
40,288
7.2 %
Road & Rail
41,613
7.5 %
39,900
7.2 %
Interactive Media & Services
34,011
6.1 %
34,293
6.2 %
IT Services
33,807
6.1 %
33,820
6.1 %
Media
34,140
6.1 %
32,725
5.9 %
Diversified Financial Services
28,388
5.1 %
28,492
5.1 %
Transportation Infrastructure
26,252
4.7 %
26,530
4.8 %
Water Utilities
23,112
4.2 %
23,454
4.2 %
Health Care Equipment & Services
19,702
3.5 %
19,949
3.6 %
Application Software
18,288
3.3 %
18,400
3.3 %
Health Care Providers & Services
17,595
3.2 %
17,768
3.2 %
Construction & Engineering
17,427
3.1 %
17,428
3.1 %
Pharmaceuticals
16,278
2.9 %
16,426
2.9 %
Aerospace & Defense
16,069
2.9 %
16,108
2.9 %
Electric Utilities
12,286
2.2 %
12,500
2.2 %
Restaurants
11,714
2.1 %
11,783
2.1 %
Hotels, Restaurants & Leisure
10,688
1.9 %
10,877
2.0 %
Gas Utilities
10,737
1.9 %
10,787
1.9 %
Independent Power & Renewable
8,388
1.5 %
8,388
1.5 %
Real Estate Management & Development
9,184
1.6 %
9,182
1.6 %
Diversified Consumer Services
2,459
0.4 %
2,459
0.4 %
Food & Staples Retailing
0.1 %
0.1 %
Total
$ 556,863
100.0 %
$ 557,087
100.0 %
December 31, 2023
Amortized Cost
Fair Value
Construction & Engineering
$ 57,458
21.3 %
$ 58,360
21.2 %
Commercial Services & Supplies
45,747
16.8 %
45,828
16.8 %
Professional Services
34,254
12.6 %
34,254
12.5 %
Leisure Facilities
33,439
12.3 %
33,789
12.4 %
Media
28,467
10.5 %
28,594
10.5 %
Specialized Consumer Services
15,566
5.7 %
15,625
5.7 %
Health Care Services
13,773
5.1 %
13,773
5.0 %
Environmental & Facilities Services
9,795
3.6 %
9,922
3.6 %
Restaurants
8,683
3.2 %
8,722
3.2 %
Health Care Equipment & Services
8,175
3.0 %
8,391
3.1 %
Health Care Providers & Services
7,840
2.9 %
7,940
2.9 %
IT Services
3,380
1.2 %
3,425
1.3 %
Real Estate Management & Development
2,952
1.1 %
2,970
1.1 %
Hotels, Restaurants & Leisure
1,994
0.7 %
2,000
0.7 %
Total
$ 271,523
100.0 %
$ 273,593
100.0 %
Note 4. Fair Value Measurement of Investments
ASC Topic 820 defines fair value as the amount that would be received in the sale of an asset or paid in the transfer of a
liability in an orderly transaction between market participants at the measurement date. Where available, the Company uses
quoted market prices based on the last sales price on the measurement date.
In accordance with ASC Topic 820, the Company discloses the fair value of its investments in a hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based
upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). To the
extent that fair value is based on inputs that are less observable, the determination of fair value requires a significant
amount of management judgment.
The three-tier hierarchy of inputs is summarized below.
Level 1 - Quoted prices are available in active markets/exchanges for identical investments as of the reporting date.
Level 2 - Pricing inputs are observable inputs including, but not limited to, prices quoted for similar assets or liabilities
in active markets/exchanges or prices quoted for identical or similar assets or liabilities in markets that are not active,
and fair value is determined through the use of models or other valuation methodologies.
Level 3 - Pricing inputs are unobservable for the investment and include activities where there is little, if any, market
activity for the investment. The inputs into determination of fair value require significant management judgment and
estimation.
The inputs used by management in estimating the fair value of Level 3 investments may include valuations and other
reporting provided by representatives of the portfolio companies, original transaction prices, recent transactions for
identical or similar instruments, and comparisons to fair values of comparable investments, and may include adjustments to
reflect illiquidity or non-transferability. The Adviser has policies with respect to its investments, which may assist the
Adviser in assessing the quality of information provided by, or on behalf of, each portfolio investment and in determining
whether such information continues to be provided by a reliable source or whether further investigation is necessary. Any
such investigation, as applicable, may or may not require the Adviser to forego its normal reliance on the value supplied
by, or on behalf of, such portfolio investment and to independently determine the fair value of the Company’s interest in
such portfolio investments, consistent with the Adviser’s valuation procedures.
The Company has engaged an independent third-party valuation provider, which performs valuation procedures to arrive at
estimated valuation ranges of the illiquid investments on a quarterly basis (other than immaterial investments, which are
internally valued quarterly unless otherwise deemed appropriate by the Valuation Committee, and subsequently
corroborated by an independent valuation firm on an annual basis). Investments that have been completed within the past
three months are fair valued approximating cost unless there has been a material event since the completion date. If there
has been a material event or material information that was not known as of the close of the transaction, the independent
third-party valuation provider provides an independent valuation range. The types of valuation methodologies employed by
the third-party valuation provider include discounted cash flow, recent financing and enterprise value valuation
methodologies. Pursuant to the Rule 2a-5 under the 1940 Act , the Board has chosen to designate the Adviser as the
Valuation Designee to perform fair value determinations relating to the value of the assets for which market quotations are
not readily available, subject to the Board's oversight.
The Company’s investments and borrowings are subject to market risk. Market risk is the potential for changes in the value
due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the
investments and borrowings are traded.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing
in these securities. The availability of valuation techniques and observable inputs can vary from security to security and is
affected by a wide variety of factors including the type of security, whether the security is new and not yet established in
the marketplace, and other characteristics particular to the transaction. Inputs may include price information, volatility
statistics, specific and broad credit data, liquidity statistics and other factors.
The use of these valuation models requires significant estimation and judgment by the Adviser. While the Company
believes its valuation methods are appropriate, other market participants may value identical assets differently than the
Company at the measurement date. The methods used by the Company may produce a fair value calculation that may not
be indicative of net realizable value or reflective of future fair values. The Company may also have risk associated with its
concentration of investments in certain geographic regions and industries.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that
may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.
Accordingly, the degree of judgment exercised by the Adviser in determining fair value is greatest for securities
categorized in Level 3.
The determination of what constitutes “observable” requires significant judgment by the Adviser. The Adviser considers
observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not
proprietary. Such observable data may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy where the fair value measurement falls (in its entirety) is based on the lowest
level input that is significant to the fair value measurement. The categorization of an investment within the hierarchy is
based upon the pricing transparency of the investment, and observability of prices and inputs may be reduced for many
investments. This condition could cause the investment to be reclassified to a lower level within the fair value hierarchy.
The consolidated financial statements include portfolio investments at fair value of $ 557,087 and $ 273,593 as of
December 31, 2024 and December 31, 2023 , respectively. The fair value of the Company's portfolio investments was
determined in good faith by the Company’s Board. Because of the inherent uncertainty of valuation, the determined values
may differ significantly from the values that would have been used had a liquid market existed for the investments as of
December 31, 2024 and December 31, 2023 .
The following tables present fair value measurements of investments, by major class according to the fair value hierarchy
as of December 31, 2024 and December 31, 2023 .
December 31, 2024
Fair Value Measurements
Level 1
Level 2
Level 3
Total
First lien senior secured loans
$ -
$ -
$ 540,195
$ 540,195
Equity
-
-
12,028
12,028
Subordinated debt
-
-
1,712
1,712
Preferred equity
-
-
1,652
1,652
Convertible note
-
-
1,500
1,500
Warrants
-
-
-
-
Total Investments
$ -
$ -
$ 557,087
$ 557,087
December 31, 2023
Fair Value Measurements
Level 1
Level 2
Level 3
Total
First lien senior secured loans
$ -
$ -
$ 265,287
$ 265,287
Equity
-
-
4,901
4,901
Subordinated debt
-
-
1,753
1,753
Preferred equity
-
-
1,652
1,652
Warrants
-
-
-
-
Total Investments
$ -
$ -
$ 273,593
$ 273,593
The carrying value of the Credit Facility and SBA-guaranteed debentures approximates fair value as of December 31, 2024
and December 31, 2023 , and would be categorized as Level 3 of the fair value hierarchy if determined as of the reporting
date .
The following tables provide a reconciliation of the beginning and ending balances for investments that use Level 3 inputs
for the years ended December 31, 2024 and December 31, 2023 .
For the year ended
December 31, 2024
Investments
First Lien
Senior
Secured
Loans
Subordinated
Debt
Equity
Preferred
Equity
Convertible
Note
Warrants
Total
Investments
Balance as of December 31, 2023
$ 265,287
$ 1,753
$ 4,901
$ 1,652
$ -
$ -
$ 273,593
Purchases of investments and other
adjustments to cost
338,916
7,028
-
1,500
-
347,622
Proceeds from sales and repayments of
investments
(63,442)
(312)
-
-
-
-
(63,754)
Net realized gain (loss)
-
-
-
-
-
Net accretion of discount on
investments
1,374
-
-
-
-
1,374
Net change in unrealized gain (loss) on
investments
(2,038)
-
-
-
(1,846)
Balance as of December 31, 2024
$ 540,195
$ 1,712
$ 12,028
$ 1,652
$ 1,500
$ -
$ 557,087
For the year ended
December 31, 2023
Investments
First Lien Senior
Secured Loans
Subordinated
Debt
Equity
Preferred
Equity
Warrants
Total
Investments
Balance as of December 31, 2022
$ 78,156
$ 1,556
$ 4,631
$ -
$ -
$ 84,343
Purchases of investments and other
adjustments to cost
187,988
1,652
-
190,068
Proceeds from sales and repayments
of investments
(3,496)
-
-
-
-
(3,496)
Net realized gain (loss)
-
-
-
-
-
-
Net accretion of discount on
investments
-
-
-
-
Net change in unrealized gain (loss)
on investments
2,233
-
-
2,272
Balance as of December 31, 2023
$ 265,287
$ 1,753
$ 4,901
$ 1,652
$ -
$ 273,593
For the year ended December 31, 2024 , the net change in unrealized gain (loss) on investments attributable to Level 3
investments still held on December 31, 2024 was $ (1,846) as shown on the Consolidated Statements of Operations . For the
year ended December 31, 2023 , the net change in unrealized gain (loss) on investments attributable to Level 3 investments
still held on December 31, 2023 was $ 2,272 as shown on the Consolidated Statements of Operations .
Purchases of investments and other adjustments to costs include purchases of new investments at cost, accretion/
amortization of income from discount/premium on debt securities and PIK.
Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the
beginning of the period which the reclassifications occur. There were no transfers between Levels 1, 2 and 3 during the
years ended December 31, 2024 and December 31, 2023 .
Significant Unobservable Inputs
ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the
valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. The table below is not intended to be
all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the
Company.
The tables below summarize the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value
hierarchy as of December 31, 2024 and December 31, 2023 .
Range
Fair Value, as of
December 31, 2024
Valuation
Technique
Unobservable
Input
Weighted
Average Mean
Minimum
Maximum
Assets:
First lien senior secured loans
$ 404,750
Discounted Cash
Flow
Discount Rate
11.2%
8.4%
18.9%
First lien senior secured loans
39,900
Comparable
Multiples
EV/EBITDA
6.3x
5.5x
7.0x
First lien senior secured loans
95,545
Amortized Cost
Cost
N/A
N/A
N/A
Equity
5,000
Comparable
Multiples
EV/EBITDA
6.3x
6.0x
6.5x
Equity
7,028
Amortized Cost
Cost
N/A
N/A
N/A
Subordinated debt
1,712
Discounted Cash
Flow
Discount Rate
14.8%
14.0%
15.5%
Preferred equity
1,652
Comparable
Multiples
EV/EBITDA
8.5x
8.3x
8.8x
Convertible note
1,500
Amortized Cost
Cost
N/A
N/A
N/A
Warrants
-
Comparable
Multiples
EV/EBITDA
7.0x
5.5x
8.0x
Total Level 3 Assets
$ 557,087
Range
Fair Value, as of
December 31, 2023
Valuation
Technique
Unobservable
Input
Weighted
Average Mean
Minimum
Maximum
Assets:
First lien senior secured loans
$ 169,630
Discounted Cash
Flow
Discount Rate
11.5%
9.9%
14.1%
First lien senior secured loans
95,657
Amortized Cost
Cost
N/A
N/A
N/A
Equity
4,901
Comparable
Multiples
EV/EBITDA
6.8x
6.5x
7.0x
Subordinated debt
1,753
Discounted Cash
Flow
Discount Rate
16.3%
15.8%
16.8%
Preferred equity
1,652
Comparable
Multiples
EV/EBITDA
6.3x
6.0x
6.5x
Warrants
-
Comparable
Multiples
EV/EBITDA
8.5x
8.3x
8.8x
Total Level 3 Assets
$ 273,593
The significant unobservable input used in the income approach of fair value measurement of the Company’s investments
is the discount rate used to discount the estimated future cash flows received from the underlying investment, which
include both future principal and interest payments. Increases (decreases) in the discount rate would result in a decrease
(increase) in the fair value estimate of the investment. Included in the consideration and selection of discount rates are the
following factors: risk of default, rating of the investment and comparable investments, and call provisions.
The significant unobservable inputs used in the market approach of fair value measurement of the Company’s investments
are the market multiples of EBITDA or revenue of the comparable guideline public companies. The Company selects a
population of public companies for each investment with similar operations and attributes of the portfolio company. Using
these guideline public company data, a range of multiples of enterprise value to EBITDA or revenue is calculated. The
Company selects percentages from the range of multiples for purposes of determining the portfolio company’s estimated
enterprise value based on such multiple and generally the latest twelve months EBITDA or revenue of the portfolio
company (or other meaningful measure). Increases (decreases) in the multiple will result in an increase (decrease) in
enterprise value, resulting in an increase (decrease) in the fair value estimate of the investment.
Note 5. Debt
As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock
senior to shares of our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150%, subject to
receipt of certain approvals and compliance with certain disclosure requirements, immediately after each such issuance.
Section 61(a) of the 1940 Act reduces the asset coverage requirements applicable to BDCs from 200% to 150% so long as
the BDC meets certain disclosure requirements and obtains certain approvals. In April 2021, our Board and initial
stockholder approved the reduced asset coverage ratio. The reduced asset coverage requirements permit us to increase the
maximum amount of leverage that we are permitted to incur by reducing the asset coverage requirements applicable to us
from 200% to 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 as compared to $100 from borrowing and issuing senior
securities for every $100 of net assets under a 200% asset coverage requirement. In addition, while any senior securities
remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such
securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. As of
December 31, 2024 and December 31, 2023 , the Company’s asset coverage ratio based on the aggregate amount
outstanding of senior securities was 269.2% and 645.7% .
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Company's total debt for the years ended December 31, 2024 , December 31, 2023 , and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 9,328
$ 1,526
$ 494
Non-usage fee (1)
Amortization of financing costs
Weighted average stated interest rate
6.40 %
7.08 %
5.08 %
Weighted average outstanding balance
$ 145,828
$ 21,548
$ 19,091
(1) Non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the Subscription
Facility.
Credit Facilities
ING Credit Facility
On June 18, 2024, Lafayette Square USA, Inc. (the “Company”) entered into a Senior Secured Revolving Credit
Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the “ING Credit Facility”) with
ING Capital, LLC, as Administrative Agent, Lead Arranger, Bookrunner and Sustainability Structuring Agent.
On September 20, 2024, the Company entered into Amendment No. 1 to the Senior Secured Revolving Credit Agreement
(the “First Amendment”), which amends the ING Credit Facility. The parties to the First Amendment include the
Company, the lenders party thereto, Subsidiary Guarantors party thereto and ING Capital LLC, as Administrative Agent.
The First Amendment provides for, among other things, an upsize in the total commitments from lenders under the credit
facility from $75,000,000 to $150,000,000 .
On December 12, 2024, the Company entered into that certain Lender Joinder Agreement (the “First Lender Joinder
Agreement”), pursuant to which, through the accordion feature in the ING Credit Facility, the aggregate commitments
under the ING Credit Facility increased from $150 million to $175 million . The parties to the First Lender Joinder
Agreement include the Company, BankUnited, N.A., as additional lender, the Subsidiary Guarantors party thereto and the
Administrative Agent.
On December 20, 2024, the Company entered into that certain Lender Joinder Agreement (the “Second Lender Joinder
Agreement”), pursuant to which, through the accordion feature in the ING Credit Facility, the aggregate commitments
under the ING Credit Facility increased from $175 million to $225 million . The parties to the Second Lender Joinder
Agreement include the Company, Customers Bank, as additional lender, the Subsidiary Guarantors party thereto and the
Administrative Agent.
The ING Credit Facility is guaranteed by certain subsidiaries of the Company in existence as of the closing date of the ING
Credit Facility, and will be guaranteed by certain subsidiaries of the Company that are formed or acquired by the Company
in the future (collectively, the “Guarantors”). Proceeds of the ING Credit Facility may be used for general corporate
purposes, including the funding of portfolio investments.
The ING Credit Facility allows the Company to borrow up to $225 million , subject to certain restrictions, including
availability under a borrowing base, which is based upon unused capital commitments made by investors in the Company
and the value of eligible portfolio investments. The amount of permissible borrowings under the ING Credit Facility may
be increased through an uncommitted accordion feature through which existing and new lenders may, at their option, agree
to provide additional financing up to an aggregate of $250 million . The ING Credit Facility is secured by a perfected first-
priority interest in the unused commitments of the Company’s investors and substantially all of the eligible portfolio
investments held by the Company and each Guarantor, subject to certain exceptions.
The availability period with respect to the revolving credit facility under the ING Credit Facility will terminate on June 19,
2028 (“Commitment Termination Date”) and the ING Credit Facility will mature on June 18, 2029 (“Maturity Date”).
During the period from the Commitment Termination Date to the Maturity Date, the Company will be obligated to make
mandatory prepayments under the ING Credit Facility out of the proceeds of certain asset sales and other recovery events.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the ING
Credit Facility in U.S. dollars will bear interest at either (i) term SOFR plus margin of 2.70% per annum, or (ii) the
alternate base rate plus margin of 1.70% per annum. In each case, the annual interest rate will be adjustable based on a
sustainability linked loan pricing structure that directly references our 2030 Goals, with ING acting as the sole
Sustainability Structuring Agent. The Company may elect either the term SOFR or alternate base rate at the time of
drawdown, and loans denominated in U.S. dollars may be converted from one rate to another at any time at the Company’s
option, subject to certain conditions. Amounts drawn under the ING Credit Facility in other permitted currencies will bear
interest at the relevant rate specified therein plus an applicable margin (including any applicable credit spread adjustment).
The ING Credit Facility includes customary affirmative and negative covenants, including certain limitations on the
incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit
facilities of this nature.
As of December 31, 2024 and December 31, 2023 , the Company had $ 208.2 million and $ 0.0 million, respectively, in
outstanding borrowings from the ING Facility.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
ING Facility for the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 3,601
$ -
$ -
Non-usage fee (1)
-
-
Amortization of financing costs
-
-
Weighted average stated interest rate
7.79 %
- %
- %
Weighted average outstanding balance
$ 46,226
$ -
$ -
(1) Non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the ING Credit
Facility.
Subscription Facility
On February 2, 2022, the Company entered into a subscription-based credit agreement with Sumitomo Mitsui Banking
Corporation, which was amended on June 28, 2022, December 21, 2022, and February 1, 2024 (and as may be further
amended, modified or supplemented, the “Subscription Facility”). The Subscription Facility allowed the Company to
borrow up to $38.4 million , subject to certain restrictions, including availability under a borrowing base that was based
upon unused capital commitments made by investors in the Company. The amount of permissible borrowings under the
Subscription Facility could be increased to up to $1 billion with the consent of the lenders. The Subscription Facility
matured on May 2, 2024 and bore interest at an annual rate of: (i) with respect to reference rate loans, a reference rate for
the period plus a margin equal to 2.50% (the "Applicable Margin") and (ii) with respect to alternative rate loans, the
greatest of (a) the administrative agent's prime rate, (b) Term SOFR with a one-month term plus the Applicable Margin and
(c) the federal funds rate plus 0.50% . Subject to certain exceptions, the Subscription Facility is secured by a first lien
security interest in the Company’s unfunded investor equity capital commitments. The Subscription Facility included
customary covenants, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance
covenants, as well as usual and customary events of default for credit facilities of this nature. On May 2, 2024, the
Subscription Facility and all obligations thereunder were terminated.
As of December 31, 2024 and December 31, 2023 , the Company had $ 0.0 million and $ 27.5 million, respectively, in
outstanding borrowings from the Subscription Facility.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Subscription Facility for the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 492
$ 584
$ 494
Non-usage fee (1)
Amortization of financing costs
Weighted average stated interest rate
7.83 %
7.19 %
5.08 %
Weighted average outstanding balance
$ 6,286
$ 8,121
$ 19,091
(1) Non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the Subscription
Facility.
S BA Debentures
LS SBIC LP and LS SSBIC LP are able to borrow funds from the SBA against their regulatory capital (which
approximates equity capital in LS SBIC LP and LS SSBIC LP) that is paid in and is subject to customary regulatory
requirements, including, but not limited to, periodic examination by the SBA. As of December 31, 2024 and December 31,
2023 , the Company funded LS SBIC LP and LS SSBIC LP with an aggregate total of $110.0 million and $82.5 million ,
respectively, of regulatory capital, and have $ 192.5 million and $31.0 million , respectively, in SBA-guaranteed debentures
outstanding. SBA debentures are non-recourse to us, have a 10 -year maturity, and may be prepaid at any time without
penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven
spread over 10-year U.S. Treasury Notes. Current SBA regulations limit the amount that each of LS SBIC LP and LS
SSBIC LP may borrow to a maximum of $175.0 million , which is up to twice its potential regulatory capital.
The SBA-guaranteed debentures incurred an upfront commitment fee of 1.00% on the total commitment amount and a
2.435% issuance discount on drawdowns, which are amortized over the life of the SBA-guaranteed debentures. In addition,
an annual fee is charged on the SBA-guaranteed debentures which are amortized over the period.
The following table summarizes the Company’s SBA-guaranteed debentures as of December 31, 2024 :
Issuance Date
Maturity Date
Debenture Amount
Interest Rate
SBA Annual Charge
September 15, 2023
March 1, 2034
$ 31,000
5.04 %
0.047 %
March 15, 2024
September 1, 2034
$ 5,960
4.38 %
0.047 %
June 14, 2024
September 1, 2034
$ 45,540
4.38 %
0.129 %
September 16, 2024
March 1, 2035
$ 82,505
5.09 %
0.129 %
December 12, 2024
March 1, 2035
$ 27,500
4.92 %
0.347 %
The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed
debentures for the years ended December 31, 2024 , December 31, 2023 , and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 4,610
$ 566
$ -
Non-usage fee
-
-
-
Amortization of financing costs
-
Weighted average stated interest rate
5.34 %
6.23 %
- %
Weighted average outstanding balance (1)
$ 86,388
$ 9,088
$ -
(1) The Company's initial borrowing under the SBA Debentures program occurred on September 15, 2023 .
Repurchase Obligations
In order to finance certain investment transactions, the Company may, from time to time, enter into repurchase agreements
with Macquarie US Trading LLC (“Macquarie”), whereby the Company sells to Macquarie an investment that it holds and
concurrently enters into an agreement to repurchase the same investment (any such obligation, a “Repurchase Obligation”)
at an agreed-upon price at a future date, not to exceed 90 -days from the date it was sold.
The Company entered into two repurchase agreements on May 1, 2024 which were collateralized by the Company’s term
loans to each of Salt Dental Collective (the "Salt Repurchase Obligation") and Med Learning Group, LLC (the “MLG
Repurchase Obligation” and together with the Salt Repurchase Obligation, the “May 2024 Repurchase Obligations”).
Interest under each of the May 2024 Repurchase Obligations was calculated as (a) the product of the funded amount of the
loan and (b) the product of (i) the number of days the loan is outstanding (subject to number of minimum days per the
agreement) and (ii) daily fee rate. The Company maintained effective control over the security because it is entitled and
obligated to repurchase the security before its maturity. Therefore, the repurchase agreement was treated as a secured
borrowing and not a sale. On July 30, 2024 the Company repurchased its obligation under the MLG Repurchase
Obligation.
As of December 31, 2024 and December 31, 2023 , there was no outstanding loan and interest payable balance to
Macquarie.
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the
Repurchase Obligation for the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Interest expense
$ 625
$ 376
$ -
Non-usage fee
-
-
-
Amortization of financing costs
-
-
-
Weighted average stated interest rate
9.01 %
8.68 %
- %
Weighted average outstanding balance (1)
$ 6,928
$ 4,339
$ -
(1) The Company's initial borrowing occurred on March 15, 2023.
The facilities of the Company consist of the following:
December 31, 2024
December 31, 2023
Aggregate
Principal
Amount
Available
Principal
Amount
Outstanding
Unused
Portion
Aggregate
Principal
Amount
Available
Principal
Amount
Outstanding
Unused
Portion
Secured borrowings
$ 225,000
$ 208,232
$ 16,768
$ 38,400
$ 27,500
$ 10,900
SBA-Guaranteed
Debentures
192,505
192,505
-
36,960
31,000
5,960
Total
$ 417,505
$ 400,737
$ 16,768
$ 75,360
$ 58,500
$ 16,860
Note 6. Related Party Agreements and Transactions
Investment Advisory Agreement
Under the Investment Advisory Agreement, the Adviser manages the day-to-day operations of, and provides investment
advisory services to the Company. The Board approved the Investment Advisory Agreement on April 26 2021 and most
recently approved its renewal on June 4, 2024. The Adviser is a registered investment adviser with the SEC. The Adviser
receives fees for providing services, consisting of two components, a base management fee and an incentive fee.
Base Management Fee:
The base management fee (“Management Fee”) is payable quarterly in arrears beginning in the period during the Initial
Drawdown at an annual rate of (i) prior to a Liquidity Event, 0.75% , and (ii) following a Liquidity Event, 1.0% , in each
case of the average value of our gross assets (gross assets equal the total assets of the Company as set forth on the
Company’s Consolidated Statements of Assets and Liabilities) at the end of the two most recently completed calendar
quarters. No Management Fee is charged on committed but undrawn capital commitments.
We define a “Liquidity Event” as the earliest to occur of: (1) a quotation or listing of our common stock on a national
securities exchange, including an initial public offering or (2) a Sale Transaction. A “Sale Transaction” means (a) the sale
of all or substantially all of our capital stock or assets to, or another liquidity event with, another entity or (b) a transaction
or series of transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock in
each case for consideration of either cash and/or publicly listed securities of the acquirer. Potential acquirers could include
entities that are not BDCs that are advised by the Adviser or its affiliates.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company incurred Management
Fee expense of $ 4,136 , $ 1,640 and $ 277 , respectively. As of December 31, 2024 and December 31, 2023 , $ 1,375 and
$ 605 , respectively, remained payable as shown on the Consolidated Statements of Assets and Liabilities.
Incentive Fee:
The Company also pays the Adviser an incentive fee consisting of two parts: (i) an incentive fee based on pre-incentive fee
net investment income (the “Income-Based Fee”), and (ii) the capital gains component of the incentive fee (the “Capital
Gains Fee”) of which is described in more detail below.
The Income-Based Fee, is based on Pre-Incentive Fee Net Investment Income Returns and is determined and payable in
arrears as of the end of each calendar year. “Pre-Incentive Fee Net Investment Income Returns” means, as the context
requires, either the dollar value of, or percentage rate of return on the value of our net assets at the end of the immediately
preceding quarter from, interest income, dividend income and any other income (including any other fees (other than fees
for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other
fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses accrued
for the quarter (including the Management Fee, expenses payable under the Administration Agreement), and any interest
expense or fees on any credit facilities or outstanding debt and distributions paid on any issued and outstanding preferred
shares, but excluding the incentive fee.
Pre-Incentive Fee Net Investment Income Returns include, in the case of investments with a deferred interest feature (such
as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that
we have not yet received in cash. Pre-Incentive Net Investment Income Returns do not include any realized capital gains,
realized capital losses or unrealized capital appreciation or depreciation. 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 immediately preceding quarter, is compared to a
“hurdle rate” of return of 1.25% per quarter ( 5.0% annualized).
Prior to a Liquidity Event, we pay the Adviser the Income-Based Fee 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% ;
• 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 1.47% ( 5.88% annualized). We refer to this portion of our Pre-Incentive Fee Net Investment Income
Returns (which exceeds the hurdle rate but is less than 1.47% ) as the “catch-up.” The “catch-up” is meant to
provide the Adviser with approximately 15% of our Pre-Incentive Fee Net Investment Income Returns as if a
hurdle rate did not apply if this net investment income exceeds 1.47% in any calendar quarter; and
• 15% of the dollar amount of our Pre-Incentive Fee Net Investment Income Returns, if any, that exceed a rate of
return of 1.47% ( 5.88% annualized). This reflects that once the hurdle rate is reached and the catch-up is achieved,
15% of all Pre-Incentive Fee Net Investment Income Returns thereafter are allocated to the Adviser.
Following a Liquidity Event, we will pay the Adviser the Income-Based Fee 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% ;
• 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 1.47% ( 5.88% annualized). The “catch-up” is meant to provide the Adviser with approximately 17.5%
of our Pre-Incentive Fee Net Investment Income Returns as if a hurdle rate did not apply if this net investment
income exceeds 1.47% in any calendar quarter; and
• 17.5% of the dollar amount of our Pre-Incentive Fee Net Investment Income Returns, if any, that exceed a rate of
return of 1.52% ( 6.06% annualized). This reflects that once the hurdle rate is reached and the catch-up is achieved,
17.5% of all Pre-Incentive Fee Net Investment Income Returns thereafter are allocated to the Adviser.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company incurred Income-
Based Fee of $ 5,272 , $ 1,615 and $ - , respectively. As of December 31, 2024 and December 31, 2023 , $ 1,578 and $ 565 ,
respectively, remained payable as shown on the Consolidated Statements of Assets and Liabilities.
The second part of the incentive fee, the Capital Gains Fee, is determined and payable in arrears as of the end of each
calendar year (or at the time of a Liquidity Event). The Capital Gains Fee is equal to 15% of (1) realized capital gains less
(2) realized capital losses, less unrealized capital losses on a cumulative basis from inception through the day before the
Liquidity Event, less the aggregate amount of any previously paid Capital Gains Fee.
Prior to a Liquidity Event, the Capital Gains Fee equals:
• 15% of cumulative realized capital gains less all realized capital losses and unrealized capital depreciation on a
cumulative basis from inception through the end of such calendar year (or upon a Liquidity Event), less the
aggregate amount of any previously paid Capital Gains Fee as calculated in accordance with GAAP.
Following a Liquidity Event, the amount payable equals:
• 17.5% 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 Capital Gains Fee as calculated in accordance with GAAP.
If a Liquidity Event occurs on a date other than the first day of a fiscal year, the Capital Gains Fee will be calculated as of
the day before the Liquidity Event, with such Capital Gains Fee paid to the Adviser annually following the end of the fiscal
year in which the Liquidity Event occurred. Solely for purposes of calculating the Capital Gains Fee after a Liquidity
Event, the Company will be deemed to have previously paid a Capital Gains Fee prior to a Liquidity Event equal to the
product obtained by multiplying (a) the actual aggregate amount of previously paid Capital Gains Fee for all periods prior
to a Liquidity Event by (b) the percentage obtained by dividing (x) 17.5% by (y) 15% .
Each year, the Capital Gains Fee is calculated net of the aggregate amount of any previously paid Capital Gains Fee for all
prior periods. We will accrue, but will not pay, a Capital Gains Fee with respect to unrealized appreciation because a
Capital Gains 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 Fee payable pursuant to the Investment Advisory Agreement exceed the amount permitted by
the Investment Advisers Act of 1940, as amended (the “Advisers Act”), including Section 205 thereof.
For the purpose of computing the Capital Gains Fee, the calculation methodology looks through derivative financial
instruments or swaps as if we owned the reference assets directly.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , there were no Capital Gains Fees
incurred.
Administration Agreement
Pursuant to the administration agreement between the Company and LS Administration, LLC (the “Administration
Agreement”), LS Administration, LLC (the “Administrator”) furnishes the Company with office space, office services, and
equipment. Under the Administration Agreement, our Administrator performs or oversees the performance of our required
administrative services, which include providing assistance in accounting, legal, compliance, operations, technology,
internal audit, and investor relations, and loan agency services (including any third party service providers related to the
foregoing) and being responsible for the financial records that we are required to maintain and preparing reports to our
stockholders and reports filed with the SEC. In addition, our Administrator assists us in determining and publishing our net
asset value, overseeing the preparation and filing of our tax returns and the printing and disseminating reports to our
stockholders, assessing our internal controls under the Sarbanes-Oxley Act, and generally overseeing the payment of our
expenses and the performance of administrative and professional services rendered to us by others.
Payments under the Administration Agreement are equal to an amount that reimburses our Administrator for its costs and
expenses. Such payments include the Company's allocable portion of (i) the expenses incurred by our Administrator in
performing its obligations under the Administration Agreement, (ii) the compensation paid to our Chief Compliance
Officer and Chief Financial Officer and their respective staffs, and (iii) the cost of providing managerial assistance upon
request to portfolio companies . The Administration Agreement may be terminated by either party without penalty upon 60
days ’ written notice to the other party. Additionally, we ultimately bear the costs of any sub-administration agreements that
our Administrator may enter into. Our Administrator reserves the right to waive all or part of any reimbursements due from
us at its sole discretion.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of the reckless disregard of its duties and obligations, our Administrator and its officers,
managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it 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 our Administrator’s services under the
Administration Agreement or otherwise as administrator for us.
For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company incurred $ 2,048 ,
$ 1,485 and $ 708 , respectively, in fees under the Administrative Agreement. These fees are included in administrative
service fees in the accompanying Consolidated Statements of Operations. As of December 31, 2024 and December 31,
2023 , $ 0 and $ 885 , respectively, were unpaid and included in administrative services fee payable in the accompanying
Consolidated Statements of Assets and Liabilities. No administrative services fee was charged to the Company prior to the
Company’s commencement of operations.
Additionally, pursuant to a sub-administration agreement with SS&C Technologies, Inc. (“SS&C”), SS&C performs
certain of the Company’s required administrative services, which include providing assistance in accounting, legal,
compliance, operations, investor relations and technology, being responsible for the financial records that the Company is
required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC. SS&C is also
reimbursed for certain expenses it incurs on our behalf.
Our Administrator and Adviser have entered into staffing agreements with affiliates of Lafayette Square pursuant to which
such Lafayette Square affiliates agree to provide our Administrator and Adviser with access to certain legal, operations,
financial, compliance, accounting, internal audit (in their role of performing our Sarbanes-Oxley Act internal control
assessment), clerical and administrative personnel.
Affiliated transactions
The Adviser’s investment allocation policy seeks to ensure allocation of investment opportunities on a fair and equitable
basis over time between the Company and other funds or investment vehicles managed by the Adviser or its affiliates. It is
expected that the Company may have overlapping investment strategies with such affiliated funds and/or investment
vehicles, but there are prohibitions under the 1940 Act from participating in certain transactions with such affiliates without
prior approval of the directors who are not interested persons, and in some cases, the prior approval of the SEC. As a result,
the Company, the Adviser and certain of their affiliates applied for, and have been granted, exemptive relief by the SEC for
the Company to co-invest with other funds or investment vehicles managed by the Adviser or certain of its affiliates, in a
manner consistent with the requirements of the Company’s organizational documents and investment strategy as well as
applicable laws and regulations and the Adviser’s fiduciary duties. As a result of such exemptive relief, there could be
significant overlap in the Company’s investment portfolio and the investment portfolios of such other affiliated entities that
avail themselves of such exemptive relief and that have an investment objective similar to the Company. In addition, any
transaction fees (including break-up or commitment fees, but excluding transaction fees contemplated by Section 17(e) or
57(k) of the 1940 Act, as applicable, which are expected to be retained by the Adviser, to the extent permitted by applicable
law) received in connection with a co-investment transaction among the Company and its affiliated entities will be
distributed to the participating entities (including the Company) on a pro rata basis based on the amounts they invested or
committed, as the case may be, in such transaction.
Due to/from Affiliate
The Administrator pays for certain unaffiliated third-party expenses incurred by the Company. These expenses are not
marked-up and represent the same amount the Company would have paid had the Company paid the expenses directly.
After the commencement of operations these expenses are reimbursed on an ongoing basis. As of December 31, 2024 and
December 31, 2023 , $ 221 and $ 123 , respectively, were included in the Due to Affiliate line item in the Consolidated
Statements of Assets and Liabilities for reimbursable expenses paid by the Administrator on behalf of the Company. As of
December 31, 2024 and December 31, 2023 , $ 260 and $ - , respectively, were included in the Due from Affiliate line item
in the Consolidated Statements of Assets and Liabilities for reimbursable expenses due from the Administrator on behalf of
the Company.
Expense Support and Conditional Reimbursement Agreement
On December 30, 2021, the Company entered into an expense support and conditional reimbursement agreement (the
“Expense Support Agreement”) with the Adviser. The Adviser may elect to pay certain Company expenses on the
Company’s behalf (each, an “Expense Payment”), provided that no portion of the payment will be used to pay any interest
expense or shareholder servicing and/or distribution fees of the Company. Any Expense Payment that the Adviser has
committed to pay must be paid by the Adviser to the Company in any combination of cash or other immediately available
funds no later than 45 days after such commitment was made in writing, and/or offset against amounts due from the
Company to the Adviser or its affiliates.
Following any calendar quarter in which Available Operating Funds (as defined below) exceed the cumulative distributions
accrued to the Company’s shareholders based on distributions declared with respect to record dates occurring in such
calendar quarter (the amount of such excess being hereinafter referred to as “Excess Operating Funds”), the Company will
pay such Excess Operating Funds, or a portion thereof, to the Adviser until such time as all Expense Payments made by the
Adviser to the Company within three years prior to the last business day of such calendar quarter have been reimbursed.
Any payments required to be made by the Company are referred to herein as a “Reimbursement Payment”. “Available
Operating Funds” means the sum of (i) the Company’s net investment company taxable income (including net short-term
capital gains reduced by net long-term capital losses), (ii) the Company’s 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 the Company
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).
The Company’s obligation to make a Reimbursement Payment will automatically become a liability of the Company on the
last business day of the applicable calendar quarter, except to the extent the Adviser has waived its right to receive such
payment for the applicable quarter.
The following table presents a summary of Expense Payments and the related Reimbursement Payments since the
Company's inception:
For the Period Ended
Expense Payments
by Adviser
Reimbursement
Payments to Adviser
Unreimbursed
Expense Payable
June 30, 2022
$ 227
$ -
$ 227
September 30, 2022
-
June 30, 2023
-
(329)
September 30, 2023
-
(123)
-
Total
$ 452
$ (452)
$ -
As of December 31, 2024 and December 31, 2023 , the Company has no Unreimbursed Expense Payable .
Note 7. Commitments and Contingencies
As of December 31, 2024 , the Company was not subject to any legal proceedings, although the Company may, from time
to time, be involved in litigation arising out of operations in the normal course of business or otherwise.
The Company has and may in the future become obligated to fund commitments such as revolving credit facilities, bridge
financing commitments or delayed draw commitments. As of December 31, 2024 and December 31, 2023 the fair value of
unfunded commitments held by the Company was $ (25) and $ (4) , respectively, as shown on the Consolidated Schedule of
Investments. The Company had the following unfunded commitments to fund investments as of the indicated dates:
Par Value as of
Par Value as of
December 31, 2024
December 31, 2023
Unfunded debt securities
$ 109,633
$ 73,977
Unfunded equity securities
11,431
-
Total unfunded commitments
$ 121,064
$ 73,977
Note 8. Directors Fees
Our independent directors receive an annual fee of $100 (prorated for any partial year). In addition, the chair of the Audit
Committee receives an additional annual fee of $20 (prorated for any partial year). We are also authorized to pay the
reasonable out-of-pocket expenses for each independent director incurred in connection with the fulfillment of his or her
duties as independent directors (provided that such compensation will only be paid if the committee meeting is not held on
the same day as any regular meeting of the Board).
For the years ended December 31, 2024 and December 31, 2023 , independent directors fees will be paid in the form of our
common stock issued at a price per share equal to the greater of NAV or the market price, if any, at the time of payment.
On April 29, 2024, the Company issued 21,333 shares of common stock to our directors as compensation for their services
for the fiscal year ended December 31, 2023.
No compensation is paid to directors who are ‘‘interested persons’’ of the Company (as such term is defined in the 1940
Act). For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , the Company accrued $ 348
$ 320 and $ 176 for directors’ fees expense, respectively.
Note 9. Share Data and Distributions
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31,
2024 , December 31, 2023 and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Earnings (loss) per common share (basic and
diluted):
Net increase (decrease) in net assets resulting from
operations
$ 27,839
$ 10,985
$ (476)
Weighted average common shares outstanding
22,531,521
10,910,180
1,481,583
Earnings (loss) per common share (basic and
diluted):
$ 1.24
$ 1.01
$ (0.32)
Capital Activity
The Company is authorized to issue 50,000,000 shares of preferred stock at a par value of $0.001 per share and
450,000,000 shares of common stock at a par value of $0.001 per share. The Company has entered into subscription
agreements in which investors have made capital commitments to purchase shares of the Company's common stock (the
“Subscription Agreements”) with several investors, providing for the private placement of the Company’s common stock.
Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase the Company’s
common stock at a price per share equal to the most recent NAV per share as determined by the Board (subject to the
adjustment to the extent required by Section 23 of the 1940 Act) up to the amount of their respective capital subscriptions
on an as-needed basis as determined by the Company with a minimum of ten business days prior notice.
As of December 31, 2024 and December 31, 2023 , the Company had closed capital commitments totaling $ 409.8 million
and $ 377.0 million, respectively, for the private placement of the Company's common stock, of which $ 66.7 million and
$ 60.3 million, respectively, were uncalled.
Share Issuance Date
Shares Issued
Amount
Average Offering
Price per Share
April 29, 2024
733,093
$ 10,996
$ 15.00
September 25, 2024
1,027,611
15,228
14.82
Total
1,760,704
$ 26,224
$ 15.00
Share Issuance Date
Shares Issued
Amount
Average Offering
Price per Share
January 26, 2023
2,510,396
$ 37,129
$ 14.79
March 28, 2023
1,188,592
17,746
14.93
June 27, 2023
4,392,543
65,097
14.82
December 13, 2023
8,380,752
123,951
14.79
Total
16,472,283
$ 243,923
$ 14.81
Share Issuance Date
Shares Issued
Amount
Average Offering
Price per Share
June 24, 2022
1,747,083
$ 26,206
$ 15.00
September 13, 2022
1,790,045
26,206
14.64
December 21, 2022
1,378,726
20,350
14.76
Total
4,915,854
72,762
$ 14.80
Distributions
Distributions to common stockholders are recorded on the ex-dividend date. The Company elected to be taxed as a RIC
under the Code for its taxable year ending December 31, 2023 , and anticipates continuing to make such election in future
taxable years. As a RIC, the Company is required to distribute dividends each tax year as a RIC to its stockholders of an
amount generally at least equal to 90% of its investment company taxable income, determined without regard to any
deduction for dividends paid, in order to be eligible for tax benefits allowed to a RIC under Subchapter M of the Code. The
Company anticipates paying out as a distribution all or substantially all of those amounts. The amount to be paid out as a
dividend is determined by the Board and is based on management’s estimate of the Company’s annual taxable income. Net
realized capital gains, if any, may be distributed to stockholders or retained for reinvestment.
The Company has adopted the DRIP that provides for the automatic reinvestment of all cash distributions declared by the
Board of Directors, unless a stockholder elects to “opt out” of the DRIP. As a result, if the Board of Directors declares a
cash distribution, then the stockholders who have not “opted out” of the DRIP will have their cash distributions
automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. The Company
reserves the right to use primarily newly issued shares to implement the DRIP, whether the shares are trading at a price per
share at or above NAV. NAV is determined as of the latest available quarter end before such distribution. However, the
Company reserves the right to purchase shares in the open market in connection with the implementation of the DRIP. In
the event the price per share is trading at a discount to NAV, the Company intends to purchase shares in the open market
rather than issue new shares.
For the year ended December 31, 2024 t he following table summarizes the distributions declared on shares of the
Company’s common stock and shares distributed pursuant to the DRIP to stockholders who had not opted out of the DRIP:
Date Declared
Record Date
Payment Date
Amount
Amount Per
Share
DRIP Shares
Issued
March 26, 2024
March 22, 2024
May 6, 2024
$6,475
$0.30
140,902
June 28, 2024
June 25, 2024
August 6, 2024
$6,738
$0.30
147,220
September 24, 2024
September 24, 2024
November 04, 2024
$7,460
$0.33
164,271
December 26, 2024
December 26, 2024
January 06, 2025
$7,853
$0.33
182,412
For the year ended December 31, 2023 t he following table summarizes the distributions declared on shares of the
Company’s common stock and shares distributed pursuant to the DRIP to stockholders who had not opted out of the DRIP:
Date Declared
Record Date
Payment Date
Amount
Amount Per
Share
DRIP Shares
Issued
April 21, 2023
April 21, 2023
May 15, 2023
$1,292
$0.15
30,168
June 23, 2023
June 23, 2023
August 14, 2023
$1,297
$0.15
29,859
September 29, 2023
September 29, 2023
November 13, 2023
$2,614
$0.20
53,904
December 13, 2023
December 12, 2023
January 04, 2024
$3,936
$0.30
81,573
N ote 10. Tax Matter s
The Company is subject to the U.S. federal income tax rules and filing requirements. The Company has elected to be
treated, and intends to qualify annually thereafter, as a RIC under Subchapter M of the Code. As a result, the Company
generally does not expect to be subject to U.S. federal income taxes on its RIC operations. However, there is no guarantee
that the Company will qualify to make such an election for any taxable year.
The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740, Income
Taxes, as of December 31, 2024 and December 31, 2023 .
In the normal course of business, the Company is subject to examination by federal and certain state and local tax
regulators. The Company adopted a tax year-end of Decem ber 31. It is the Company’s policy to recognize accrued interest
and penalties, if any, related to unrecognized tax benefits as a component of provision for income taxes.
The Company's taxable income for each period is an estimate and will not be finally determined until the Company files its
tax return for each year. Therefore, the final taxable income earned in each period and carried forward for distribution in
the following period may be different than this estimate.
As of December 31, 2024 , the Company had a $12 short-term limited capital loss carryforward from its prior C-corporation
tax year end that it can use to offset future capital gains for 5.0 years . Such loss carryforward expires on December 31,
2027. During the calender year, the fund utilized $99 of capital loss carryforwards to offset net realized gains.
In order to present certain components of the Company’s capital accounts on a tax-basis, certain reclassifications have been
recorded to the Company’s accounts. These reclassifications have no impact on the net asset value of the Company and
result primarily from non-deductible taxes paid. For the years ended December 31, 2024 , December 31, 2023 and
December 31, 2022 , the Company reclassified balances as follows.
December 31, 2024
December 31, 2023
December 31, 2022
Distributable earnings
$ 348
$ 527
$ (158)
Paid-in capital in excess of par
$ (348)
$ (527)
$ 158
For U.S. federal income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital,
long term capital gains or a combination thereof. The tax character of distributions paid for the years ended December 31,
2024 , December 31, 2023 and December 31, 2022 , were as follows:
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Ordinary Income
$ 28,526
$ 9,139
$ -
Long-term Capital Gain
$ -
$ -
$ -
Return of Capital
$ -
$ -
$ -
As of December 31, 2024 , December 31, 2023 , and December 31, 2022, the tax cost and estimated gross unrealized
appreciation/(depreciation) from investments for federal income tax purposes are as follows.
December 31, 2024
December 31, 2023
December 31, 2022
Tax cost
$ 556,863
$ 271,522
$ 84,545
Gross unrealized appreciation
$ 3,473
$ 2,217
$ 177
Gross unrealized depreciation
(3,249)
(147)
(379)
Net unrealized investment appreciation /
(depreciation) on investments
$ 224
$ 2,070
$ (202)
For the years ended December 31, 2024 and December 31, 2023 the components of distributable earnings on a tax basis
detailed below differ from the amounts reflected in the Company’s Statements of Assets and Liabilities by temporary and
other book/tax differences, primarily relating to the tax treatment of organizational costs, as follows:
For the year ended
December 31, 2024
For the year ended
December 31, 2023
Undistributed ordinary income
$ 1,405
$ 26
Capital loss carry forwards
(12)
(111)
Other accumulated losses
(416)
(445)
Net unrealized appreciation/(depreciation) from investments
2,070
Accumulated earnings/(deficit) on a tax basis
$ 1,201
$ 1,540
The Company has a wholly-owned corporate subsidiary that is consolidated for financial statement purposes. This entity
("taxable subsidiary"); LS BDC Holdings, LLC, has elected to be taxed as a regular c-corporation for federal income tax
purposes. This taxable subsidiary recognizes deferred tax assets and liabilities for the estimated future tax effects
attributable to temporary differences between the tax basis of certain assets and liabilities and the reported amounts
included in the accompanying consolidated balance sheet using the applicable statutory tax rates in effect for the year in
which any such temporary differences are expected to reverse.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and
liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities for the
years ended December 31, 2024 , December 31, 2023 and December 31, 2022 are as follows:
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Deferred tax assets:
Net operating loss carryforward
$ 117
$ -
$ 101
Capital loss carryforward
-
-
Excess business interest expense carryforward
Net unrealized loss on investments
-
-
Other
-
-
Organizational costs
-
-
Valuation allowance
(330)
-
(211)
Total deferred tax assets
-
-
Deferred tax liabilities:
Net unrealized gain on investments
(125)
Total deferred tax liabilities
(125)
-
-
Net deferred tax assets and liabilities
$ -
$ -
$ -
The Company’s income tax provision consists of the following for the years ended December 31, 2024 , December 31,
2023 and December 31, 2022 :
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Current tax (expense)/benefit:
Federal
$ (302)
$ -
$ -
State and Local
(69)
-
-
Total current tax (expense)/benefit
(371)
-
-
Deferred tax (expense)/benefit:
Federal
-
State and Local
-
Valuation allowance
(330)
-
(211)
Total deferred tax (expense)/benefit
$ -
$ -
$ -
Total income tax (expense)/benefit
$ (371)
$ -
$ -
Total income tax (expense) benefit for the Company differs from the amount computed by applying the federal statutory
income tax rate of 21% to net increase (decrease) in net assets from operations for the period January 1, 2024 through
December 31, 2024 , as follows:
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Income tax (expense)/benefit at federal statutory
tax rate
$ 5,846
$ -
$ 100
Income attributable to the RIC and not subject to
corporate tax
(5,797)
-
-
State and local income tax benefit (net of federal
detriment)
-
Prior year net operating loss carryforward
-
Prior year provision to return adjustments
(148)
Organizational costs
-
-
Permanent differences
(88)
-
(40)
Valuation allowance
(330)
-
(211)
Total income tax (expense)/benefits
$ (371)
$ -
$ -
At December 31, 2024 , the taxable subsidiaries did not have any capital loss carryforwards.
Net operating loss carryforwards are available to offset future taxable income. These net operating loss carryforwards can
be carried forward indefinitely and may offset up to 80% of taxable income in any given year. Any unused portion will
continue to be carried forward. At December 31, 2024 , the taxable subsidiary had estimated net operating loss carryforward
of $460 .
At December 31, 2024 , the Company determined a partial valuation allowance of the Company's gross deferred tax asset
was required. The Company’s assessment considered, among other matters, the nature, frequency and severity of current
and cumulative losses, the duration of statutory carryforward periods and the associated risk that operating loss and capital
loss carryforwards are limited or are likely to expire unused, and unrealized gains and losses on investments. Through the
consideration of these factors, the Company has determined that it is more likely than not that the Company’s net deferred
tax asset would not be realized in full. As a result, the Company recorded a partial valuation allowance with respect to its
gross deferred tax asset for the year ended December 31, 2024 . From time to time, the Company may modify its estimates
or assumptions regarding its deferred tax liability and/or asset balances and any applicable valuation allowance as new
information becomes available. Modifications to the Company’s estimates or assumptions regarding its deferred tax
liability and/or asset balances and any applicable valuation allowance, changes in generally accepted accounting principles
or related guidance or interpretations thereof, limitations imposed on or expirations of the Company’s net operating losses
and capital loss carryovers (if any) and changes in applicable tax law could result in increases or decreases in the
Company’s NAV per share, which could be material.
Note 11. Financial Highlights
Below is the schedule of financial highlights of the Company for the years ended December 31, 2024 , December 31, 2023
and December 31, 2022 :
Per Common Share Data: (1)
For the year ended
December 31, 2024
For the year ended
December 31, 2023
For the year ended
December 31, 2022
Net asset value, beginning of period
$ 14.85
$ 14.60
$ (720.91)
Net investment income (loss)
1.31
0.80
(0.11)
Net realized and unrealized gain (loss)
(0.07)
0.21
(0.21)
Net increase (decrease) in net assets resulting
from operations
1.24
1.01
(0.32)
Initial issuance of Common Stock
-
-
-
Effect of offering price of subscriptions (2)
(0.02)
0.04
735.83
Distributions declared
(1.26)
(0.80)
-
Net asset value, end of period
$ 14.81
$ 14.85
$ 14.60
Total return based on NAV (3)
8.45 %
7.32 %
(102.03) %
Common shares outstanding, end of period
23,797,438
21,502,768
4,916,554
Weighted average shares outstanding
22,531,521
10,910,180
1,481,583
Net assets, end of period
$ 352,406
$ 319,239
$ 71,782
Ratio/Supplemental data (4) :
Ratio of net investment income (loss) to average net
assets
8.82 %
4.81 %
(0.55) %
Ratio of expenses to average net assets
7.95 %
6.65 %
12.39 %
Ratio of expenses (before management fees,
incentive fees and interest and financing expenses)
to average net assets
2.08 %
3.72 %
8.92 %
Weighted average debt outstanding
$ 145,828
$ 21,548
$ 19,091
Total debt outstanding
$ 400,737
$ 58,500
$ 31,500
Asset coverage ratio (5)
269.2 %
645.7 %
327.9 %
Portfolio turnover
16 %
- %
37 %
(1) The per share data were derived by using the weighted average shares from the date of the first issuance of shares,
through December 31, 2024 , December 31, 2023 and December 31, 2022 .
(2) Increase (decrease) was due to the offering price of subscriptions during the period (See note 9).
(3) Total return was based upon the change in net asset value per share between the opening and ending net assets per
share and the issuance of common stock in the period. Total return is not annualized.
(4) Annualized, except for organizational expenses, which are non-recurring.
(5) On September 30, 2024, the Company received exemptive relief from the SEC allowing the Company to modify the
asset coverage requirement to exclude the SBA-guaranteed debentures from this calculation. The inclusion of
unfunded commitments in the calculation of the asset coverage ratio would not cause us to be below the required
amount of regulatory coverage.
Note 12. Subsequen t Ev ent
The Company's management evaluated subsequent events through the date of issuance of the consolidated financial
statements. Other than the subsequent events disclosed below, there have been no subsequent events that occurred during
such period that would require disclosure in, or would be required to be recognized in, the consolidated financial
statements.
As of the date of this Report , the Company repaid principal and interest on its outstanding balance on the ING Credit
Facility in the amount of $60.0 million . The Company borrowed an additional amount of $53.8 million . As of the date of
this Report, the outstanding principal balance on the ING Credit Facility is $202.0 million .
On March 12, 2025, the Company received approval from the SBA for an additional commitment of $10.0 million ,
increasing the total commitment to $175.0 million .

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are not and have not been any disagreements between us and our accountant on any matter of accounting principles,
practices, or consolidated financial statement disclosure.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2024 , our management, including our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness and design and operation of our disclosure controls and procedures. Based on that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures were effective at a reasonable assurance level in timely alerting management, including the Chief Executive
Officer and Chief Financial Officer, of material information about us required to be included in periodic SEC filings.
However, in evaluation of the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our
internal control system is a process designed to provide reasonable assurance to our management and board of directors
regarding the preparation and fair presentation of published consolidated financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect transactions recorded necessary to permit the preparation of
consolidated financial statements in accordance with U.S. generally accepted accounting principles. Our policies and
procedures also provide reasonable assurance that receipts and expenditures are being made only in accordance with
authorizations of management and our directors, and provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial
statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to consolidated financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024 . In making
this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control - Integrated Framework issued in 2013. Based on the assessment, management believes that, as of
December 31, 2024 , our internal control over financial reporting is effective based on those criteria.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, that occurred during our most recently completed fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On March 19, 2024, the Company updated its Code of Business Conduct and Ethics to reflect various updates in its
compliance procedures.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 with respect to executive officers is incorporated by reference to the information
presented in the section captioned “Executive Officers” in our definitive proxy statement for the 2025 Annual Meeting of
Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days of the Company's fiscal year-
end (the “Proxy Statement”).
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the information presented in the sections captioned
“Board of Directors - Committees of the Board of Directors” and “Executive Compensation” in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference to the information presented in the sections captioned
“Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation - Equity
Compensation Plan Information” in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
The information required by Item 13 is incorporated by reference to the information presented in the sections captioned
“Certain Relationships and Related Party Transactions” and “Board of Directors” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the information presented in the section captioned
“Audit Function” in the Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended
December 31, 2024 (and are numbered in accordance with Item 601 of Regulation S-K).
(a)(1) and (2) Consolidated Financial Statements and Schedules
No.
Description
3.1
Certificate of Incorporation of the Registrant (1)
3.2
Amendment to Certificate of Incorporation (2)
3.3
Form of Bylaws (1)
3.4
Amendment to Bylaws (3)
4.1
Description of the Registrant's Securities (filed as Exhibit 4.1 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2021 filed on March 25, 2022 and incorporated herein by reference).
10.1
Form of Investment Advisory Agreement (1)
10.2
Form of Administration Agreement (1)
10.3
Form of Custody Agreement (1)
10.4
Form of Indemnification Agreement (1)
10.5
Dividend Reinvestment Plan (1)
10.6
Form of Subscription Agreement (1)
10.7
Insider Trading Policy*
10.7
Revolving Credit Agreement, dated as of February 2, 2022, by and among Lafayette Square USA, Inc., as
Borrower, Sumitomo Mitsui Banking Corporation ("SMBC"), as Administrative Agent and the letter of credit
issuer, and the other lenders named therein (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K, filed on February 3, 2022 and incorporated herein by reference).
10.8
First Amendment to Revolving Credit Agreement, dated as of June 28, 2022, among the Registrant, the other
Borrowers and SMBC (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2022 filed on August 10, 2022 and incorporated herein by reference).
10.9
Second Amendment to Revolving Credit Agreement and Waiver, dated as of December 21, 2022, among the
Registrant, the other Borrowers and SMBC (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 2022 filed on March 21, 2023 and incorporated herein by reference).
10.10
Third Amendment to Revolving Credit Agreement dated as of February 1, 2024, among the Registrant, the
banks and financial institutions listed on the signature pages thereto, and SMBC (filed as Exhibit 10.01 to the
Registrant's Current Registrant's Current Report on Form 8-K filed on February 9, 2024 and incorporated
herein).
14.1
Code of Business Conduct and Ethics*
21.1
Subsidiaries of the Registrant.*
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
(1) Previously filed as part of the Registrant's Registration Statement on Form 10 (File No. 000-56289) filed on May 28,
2021 and incorporated herein by reference.
(2) Previously filed as part of Registrant's Current Report on Form 8-K filed on May 19, 2022 and incorporated herein by
reference.
(3) Previously filed as part of Registrant's Current Report on Form 8-K filed on June 8, 2023 and incorporated herein by
reference.
*Filed herewith.
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Lafayette Square USA, Inc.
Date: March 14, 2025
By: /s/ Damien Dwin
Name: Damien Dwin
Title: President and Chief Executive Officer
Date: March 14, 2025
By: /s/ Seren Tahiroglu
Name: Seren Tahiroglu
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on March 14, 2025 .
Name
Title
/s/ Damien Dwin
President, Chief Executive Officer and Chairman of the
Damien Dwin
Board of Directors
/s/ Seren Tahiroglu
Seren Tahiroglu
Chief Financial Officer
/s/ Jacqueline L. Bradley
Jacqueline L. Bradley
Director
/s/ Levee Brooks
Levee Brooks
Director
/s/ Sashi Brown
Sashi Brown
Director

---

ITEM 9A. CONTROLS AND PROCEDURES

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
On March 19, 2024, the Company updated its Code of Business Conduct and Ethics to reflect various updates in its
compliance procedures.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 with respect to executive officers is incorporated by reference to the information
presented in the section captioned “Executive Officers” in our definitive proxy statement for the 2025 Annual Meeting of
Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days of the Company's fiscal year-
end (the “Proxy Statement”).

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the information presented in the sections captioned
“Board of Directors - Committees of the Board of Directors” and “Executive Compensation” in the Proxy Statement.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference to the information presented in the sections captioned
“Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation - Equity
Compensation Plan Information” in the Proxy Statement.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
The information required by Item 13 is incorporated by reference to the information presented in the sections captioned
“Certain Relationships and Related Party Transactions” and “Board of Directors” in the Proxy Statement.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the information presented in the section captioned
“Audit Function” in the Proxy Statement.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended
December 31, 2024 (and are numbered in accordance with Item 601 of Regulation S-K).
(a)(1) and (2) Consolidated Financial Statements and Schedules
No.
Description
3.1
Certificate of Incorporation of the Registrant (1)
3.2
Amendment to Certificate of Incorporation (2)
3.3
Form of Bylaws (1)
3.4
Amendment to Bylaws (3)
4.1
Description of the Registrant's Securities (filed as Exhibit 4.1 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2021 filed on March 25, 2022 and incorporated herein by reference).
10.1
Form of Investment Advisory Agreement (1)
10.2
Form of Administration Agreement (1)
10.3
Form of Custody Agreement (1)
10.4
Form of Indemnification Agreement (1)
10.5
Dividend Reinvestment Plan (1)
10.6
Form of Subscription Agreement (1)
10.7
Insider Trading Policy*
10.7
Revolving Credit Agreement, dated as of February 2, 2022, by and among Lafayette Square USA, Inc., as
Borrower, Sumitomo Mitsui Banking Corporation ("SMBC"), as Administrative Agent and the letter of credit
issuer, and the other lenders named therein (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K, filed on February 3, 2022 and incorporated herein by reference).
10.8
First Amendment to Revolving Credit Agreement, dated as of June 28, 2022, among the Registrant, the other
Borrowers and SMBC (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2022 filed on August 10, 2022 and incorporated herein by reference).
10.9
Second Amendment to Revolving Credit Agreement and Waiver, dated as of December 21, 2022, among the
Registrant, the other Borrowers and SMBC (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 2022 filed on March 21, 2023 and incorporated herein by reference).
10.10
Third Amendment to Revolving Credit Agreement dated as of February 1, 2024, among the Registrant, the
banks and financial institutions listed on the signature pages thereto, and SMBC (filed as Exhibit 10.01 to the
Registrant's Current Registrant's Current Report on Form 8-K filed on February 9, 2024 and incorporated
herein).
14.1
Code of Business Conduct and Ethics*
21.1
Subsidiaries of the Registrant.*
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
(1) Previously filed as part of the Registrant's Registration Statement on Form 10 (File No. 000-56289) filed on May 28,
2021 and incorporated herein by reference.
(2) Previously filed as part of Registrant's Current Report on Form 8-K filed on May 19, 2022 and incorporated herein by
reference.
(3) Previously filed as part of Registrant's Current Report on Form 8-K filed on June 8, 2023 and incorporated herein by
reference.
*Filed herewith.