The
information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject
to Completion, Preliminary Prospectus Dated August 23, 2024
PRELIMINARY PROSPECTUS
$750,000,000
Eagle
Point Income Company Inc.
Common
Stock
Preferred
Stock
Subscription
Rights
Debt Securities
3,764,580
Shares of Common Stock
Offered by Selling Stockholders
We
are an externally managed, diversified closed-end management investment company that has registered as an investment company under the
Investment Company Act of 1940, as amended, or the “1940 Act.” Our primary investment objective is to generate high current
income, with a secondary objective to generate capital appreciation. We seek to achieve our investment objectives by investing primarily
in junior debt tranches of collateralized loan obligations, or “CLOs,” that are collateralized by a portfolio consisting primarily
of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors.
We focus on CLO debt tranches rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s Investors Service, Inc.,
or “Moody’s,” S&P Global Ratings, or “S&P,” or Fitch Ratings, Inc., or “Fitch,”
and/or other applicable nationally recognized statistical rating organizations. We refer to such debt tranches in this prospectus as “BB-Rated
CLO Debt.” We may also invest in other junior debt tranches of CLOs, senior debt tranches of CLOs, loan accumulation facilities
(“LAF”) and other related securities and instruments, including synthetic investments, such as significant risk transfer securities
and credit risk transfer securities issued by banks or other financial institutions. In addition, we may invest up to 35% of our total
assets (at the time of investment) in CLO equity securities and related securities and instruments. We expect our investments in CLO equity
securities to primarily reflect minority ownership positions. CLO junior debt and equity securities are highly leveraged, and therefore
the CLO securities in which we intend to invest are subject to a higher degree of loss since the use of leverage magnifies losses. See
“Risk Factors — Risks Related to Our Investments — We may leverage our portfolio, which would magnify the potential
for gain or loss on amounts invested and will increase the risk of investing in us.” We may also invest in other securities
and instruments that our investment adviser believes are consistent with our investment objectives. The CLO securities in which we primarily
seek to invest are rated below investment grade or, in the case of CLO equity securities, are unrated and are considered speculative with
respect to timely payment of interest and repayment of principal. Below investment grade and unrated securities are also sometimes referred
to as “junk” securities.
Eagle
Point Income Management LLC, or “Eagle Point Income Management” or the “Adviser,” our investment adviser, manages
our investments subject to the supervision of our board of directors. An affiliate of the Adviser, Eagle Point Credit Management LLC,
or “Eagle Point Credit Management,” provides investment professionals and other resources to the Adviser as the Adviser may
determine to be reasonably necessary to conduct its operations. As of June 30, 2024, the Adviser, collectively with Eagle Point Credit
Management, had over $10.0 billion in total assets under management, including capital commitments that were undrawn as of such
date. Eagle Point Administration LLC, an affiliate of the Adviser, or the “Administrator,” serves as our administrator.
We
may offer, from time to time, in one or more offerings or series, together or separately, up to $750,000,000 of our common stock, preferred
stock, subscription rights or debt securities, which we refer to, collectively, as the “securities.” We may sell our securities
through underwriters or dealers, “at-the-market” to or through a market maker into an existing trading market or otherwise
directly to one or more purchasers or through agents or through a combination of methods of sale. The identities of such underwriters,
dealers, market makers or agents, as the case may be, will be described in one or more supplements to this prospectus. The securities
may be offered at prices and on terms to be described in one or more supplements to this prospectus. In the event we offer common stock,
the offering price per share of our common stock exclusive of any underwriting commissions or discounts will not be less than the net
asset value, or “NAV,” per share of our common stock at the time we make the offering except (1) in connection with a
rights offering to our existing stockholders, (2) with the consent of the majority of our common stockholders, (3) upon the
conversion of a convertible security in accordance with its terms or (4) under such circumstances as the Securities and Exchange
Commission, or the “SEC,” may permit.
In
addition, this prospectus relates to the offer and resale, from time to time, of up to 3,764,580 shares of our common stock by the selling
stockholders identified under “Control Persons, Principal Stockholders and Selling Stockholders.” Sales of our
common stock by the selling stockholders, which may occur at prices below the NAV per share of our common stock, may adversely affect
the market price of our common stock and may make it more difficult for us to raise capital. The selling stockholders acquired their shares
of our common stock in connection with our conversion to a corporation. Each offering by the selling stockholders of their shares of our
common stock through agents, underwriters or dealers will be accompanied by a prospectus supplement that will identify the selling stockholder
that is participating in such offering. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.
Our
common stock, Series A Term Preferred Stock due 2026, Series B Term Preferred Stock due 2028 and Series C Term Preferred
Stock due 2029 trade on the New York Stock Exchange under the symbols “EIC,” “EICA,” “EICB,” and “EICC,”
respectively. The last reported closing sales price for our common stock on August 22, 2024 was $15.22 per share. We determine the
NAV per share of our common stock on a quarterly basis. As of June 30, 2024, the NAV per share of our common stock was $15.24 (the
last date prior to the date of this prospectus as of which we determined our NAV). Management’s unaudited estimate of the range
of our NAV per share of our common stock as of July 31, 2024 was between $15.16 and $15.26.
Shares
of common stock of closed-end management investment companies that are listed on an exchange frequently trade at a discount to their NAV.
If our shares of common stock trade at a discount to our NAV, it will likely increase the risk of loss for purchasers of our securities.
Investing
in our securities involves a high degree of risk, including the risk of a substantial loss of investment. Before purchasing any securities,
you should read the discussion of the principal risks of investing in our securities, which are summarized in “Risk Factors”
beginning on page 14 of this prospectus.
This
prospectus contains important information you should know before investing in our securities. Please read this prospectus and retain it
for future reference. We file annual and semi-annual stockholder reports, proxy statements and other information with the Securities and
Exchange Commission, or the “SEC.” To obtain this information free of charge or make other inquiries pertaining to us, please
visit our website (www.eaglepointincome.com) or call (844) 810-6501 (toll-free). You may also obtain a copy of any information regarding
us filed with the SEC from the SEC’s website (www.sec.gov).
Neither
the SEC nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
This prospectus may not be used
to consummate sales of securities unless accompanied by a prospectus supplement.
The date of this prospectus
is , 2024
TABLE OF CONTENTS
******
You should
rely only on the information contained or incorporated by reference in this prospectus. We have not, and the selling stockholders have
not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the selling stockholders identified under “Control Persons, Principal Stockholders
and Selling Stockholders” are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition and results of operations may have changed since that date. We will notify securityholders
promptly of any material change to this prospectus during the period in which we are required to deliver the prospectus.
ABOUT THIS PROSPECTUS
This prospectus
is part of a registration statement that we have filed with the SEC using the “shelf” registration process. Under the shelf
registration process, we may offer from time to time up to $750,000,000 of our securities on the terms to be determined at the time of
the offering. We may sell our securities through underwriters or dealers, “at-the-market” to or through a market maker, into
an existing trading market or otherwise directly to one or more purchasers or through agents or through a combination of methods of sale.
The identities of such underwriters, dealers, market makers or agents, as the case may be, will be described in one or more supplements
to this prospectus. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. Each
time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about
the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus, and the
prospectus and prospectus supplement will together serve as the prospectus.
In addition, this
prospectus relates to the offer and resale, from time to time, of up to 3,764,580 shares of our common stock by the selling stockholders
identified under “Control Persons, Principal Stockholders and Selling Stockholders.” The selling stockholders
will deliver a prospectus supplement with this prospectus, if required, to update the information contained in this prospectus.
This prospectus
provides you with a general description of the securities that we and the selling stockholders may offer.
Please carefully
read this prospectus and any prospectus supplement, together with any exhibits, before you make an investment decision.
PROSPECTUS SUMMARY
The following
summary highlights some of the information contained in this prospectus. It is not complete and may not contain all the information that
is important to a decision to invest in our securities. You should read carefully the more detailed information set forth under “Risk
Factors” and the other information included in this prospectus and any applicable prospectus supplement. Except where the context
suggests otherwise, the terms:
| • | The “Company,” “we,” “us,” and “our” refer to Eagle
Point Income Company Inc., a Delaware corporation, or, for periods prior to our conversion to a corporation on October 16, 2018,
EP Income Company LLC, a Delaware limited liability company; |
| • | The “Adviser” refers to Eagle Point Income Management LLC, a Delaware limited liability
company; |
| • | The “Administrator” refers to Eagle Point Administration LLC, a Delaware limited liability
company; and |
| • | “Risk-adjusted returns” refers to the profile of expected asset returns across a range
of potential macroeconomic scenarios, and does not imply that a particular strategy or investment should be considered low-risk. |
Eagle Point Income Company Inc.
We are an externally
managed, diversified closed-end management investment company that has registered as an investment company under the 1940 Act. We have
elected to be treated, and intend to qualify annually, as a regulated investment company, or “RIC,” under Subchapter M of
the Internal Revenue Code of 1986, as amended, or the “Code,” beginning with our tax year ended December 31, 2018.
Our primary investment
objective is to generate high current income, with a secondary objective to generate capital appreciation. We seek to achieve our investment
objectives by investing primarily in junior debt tranches of CLOs that are collateralized by a portfolio consisting primarily of below
investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. We focus
on CLO debt tranches rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s, S&P or Fitch, and/or other
applicable nationally recognized statistical rating organizations. We refer to such debt tranches in this prospectus as “BB-Rated
CLO Debt.” We may also invest in other junior debt tranches of CLOs, LAFs, senior debt tranches of CLOs, and other related securities
and instruments, including synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued
by banks or other financial institutions. In addition, we may invest up to 35% of our total assets (at the time of investment) in CLO
equity securities. We expect our investments in CLO equity securities to primarily reflect minority ownership positions. CLO junior debt
and equity securities are highly leveraged, and therefore the CLO securities in which we intend to invest are subject to a higher degree
of loss since the use of leverage magnifies losses. See “Risk Factors — Risks Related to Our Investments — We
may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing
in us.” We may also invest in other securities and instruments that the Adviser believes are consistent with our investment
objectives such as securities issued by other securitization vehicles, such as collateralized bond obligations, or “CBOs.”
The amount that we will invest in other securities and instruments, which may include investments in debt and other securities issued
by CLOs collateralized by non-U.S. loans or securities of other collective investment vehicles, will vary from time to time and, as such,
may constitute a material part of our portfolio on any given date, all as based on the Adviser’s assessment of prevailing market
conditions. The CLO securities in which we primarily seek to invest are rated below investment grade or, in the case of CLO equity securities,
are unrated, and are considered speculative with respect to timely payment of interest and repayment of principal. Below investment grade
and unrated securities are also sometimes referred to as “junk” securities.
These investment
objectives and strategies are not fundamental policies of ours and may be changed by our board of directors without prior approval of
our stockholders. See “Business.”
We pursue a differentiated
strategy within the CLO debt market premised upon our Adviser’s strong emphasis on assessing the skill of CLO collateral managers
and analyzing the structure of a CLO.
We
seek to construct a portfolio of CLO securities that provides varied exposure across several key categories, including number and investment
style of CLO collateral managers and CLO vintage period.
We believe that
we are structured as an efficient vehicle for investors to gain exposure to the types of CLO securities and related investments historically
accessed by primarily institutional investors. We believe that our closed-end fund structure allows the Adviser to take a long-term view
from a portfolio management perspective without the uncertainty posed by redemptions in an open-end fund structure. As such, the Adviser
can focus principally on maximizing long-term risk-adjusted returns for the benefit of stockholders.
We believe that
the Investment Committee’s (as defined below) direct and often longstanding relationships with CLO collateral managers and its CLO
structural expertise and the relative scale of the Adviser and its affiliates in the CLO market are competitive advantages as we seek
to achieve our investment objectives.
Eagle Point Income Management
Eagle Point Income
Management, our investment adviser, manages our investments subject to the supervision of our board of directors pursuant to an investment
advisory agreement, or the “Investment Advisory Agreement.” An affiliate of the Adviser, Eagle Point Credit Management, provides
investment professionals and other resources under a personnel and resources agreement, or the “Personnel and Resources Agreement,”
to the Adviser as the Adviser may determine to be reasonably necessary to the conduct of its operations. An affiliate of the Adviser,
Eagle Point Administration, performs, or arranges for the performance of, our required administrative services. For a description of the
fees and expenses that we pay to the Adviser and the Administrator, see “The Adviser and the Administrator — Investment
Advisory Agreement — Management Fee” and “The Adviser and the Administrator — The Administrator
and the Administration Agreement.”
The Adviser was
established in September 2018 and is registered as an investment adviser with the SEC. As of June 30, 2024, the Adviser, collectively
with certain affiliates, had over $10.0 billion of total assets under management (including capital commitments that were undrawn
as of such date). Based on Eagle Point Credit Management’s CLO equity assets under management, the Adviser believes that, collectively
with Eagle Point Credit Management, it is among the largest CLO equity investors in the market. The Adviser is primarily owned by certain
of the Trident Funds (as defined below) through intermediary holding companies. Additionally, the Investment Committee, certain other
employees of Eagle Point Credit Management, and an affiliate of Enstar Group Limited, or “Enstar,” hold indirect ownership
interests in the Adviser. The Adviser is ultimately governed through intermediary holding companies by a board of managers, or the “Adviser’s
Board of Managers,” which includes Mr. Majewski and certain principals of Stone Point. See “The Adviser and the
Administrator.”
Eagle Point Credit
Management was established in 2012 by Thomas P. Majewski and Stone Point Capital LLC, or “Stone Point,” as investment manager
of the Trident Funds and related investment vehicles, which we refer to collectively as the “Trident Funds.” Stone Point,
an investment adviser registered with the SEC, is a specialized private equity firm focused on the financial services industry.
The “Investment
Committee” is led by Mr. Majewski, Managing Partner of the Adviser, and is also comprised of Daniel W. Ko, Senior Principal
and Portfolio Manager, and Daniel M. Spinner, Senior Principal and Portfolio Manager. The Investment Committee is primarily responsible
for our day-to-day investment management and the implementation of our investment strategy and process.
Each member of
the Investment Committee is a CLO industry specialist who has been directly involved in the CLO market for the majority of his career
and has built relationships with key market participants, including CLO collateral managers, investment banks and investors. Members of
the Investment Committee have been involved in the CLO market as:
| • | the head of the CLO business at various investment banks; |
| • | a lead CLO structurer and collateralized debt obligation (“CDO”) workout specialist at an investment bank; |
| • | a CLO equity and debt investor; |
| • | principal investors in CLO collateral management firms; and |
| • | a lender and mergers and acquisitions adviser to CLO collateral management firms. |
We believe that
the complementary, yet highly specialized, skill set of each member of the Investment Committee provides the Adviser with a competitive
advantage in its CLO-focused investment strategy. See “The Adviser and the Administrator — Investment Committee.”
In addition to
managing our investments, the Adviser and its affiliates and the members of the Investment Committee manage investment accounts for other
clients, including Eagle Point Credit Company Inc., or “Eagle Point Credit Company” or “ECC,” a publicly traded
closed-end management investment company that is registered under the 1940 Act and for which Eagle Point Credit Management serves as investment
adviser and Eagle Point Institutional Income Fund, or “Eagle Point Institutional Income” or “EPIIF,” a non-listed,
closed-end management investment company that is registered under the 1940 Act and for which Eagle Point Credit Management serves as investment
adviser, privately offered pooled investment vehicles and institutional separate accounts. Many of these accounts pursue an investment
strategy that substantially or partially overlaps with the strategy that we pursue. See “Risk Factors — Risks Related
to Our Business and Structure — There are significant actual and potential conflicts of interest which could impact our investment
returns.”
CLO Overview
The CLOs that
we primarily target are securitization vehicles that pool portfolios of primarily below investment grade U.S. senior secured loans. Such
pools of underlying assets are often referred to as a CLO’s “collateral.” While the vast majority of the portfolio of
most CLOs consists of senior secured loans, many CLOs enable the CLO collateral manager to invest up to 10% of the portfolio in assets
that are not first lien senior secured loans, including second lien loans, unsecured loans, senior secured bonds and senior unsecured
bonds.
CLOs are generally
required to hold a portfolio of assets that is highly diversified by underlying borrower and industry and that is subject to a variety
of asset concentration limitations. Most CLOs are non-static, revolving structures that generally allow for reinvestment over a specific
period of time (the “reinvestment period”), which is typically up to five years. The terms and covenants of a typical CLO
structure are, with certain exceptions, based primarily on the cash flow generated by, and the par value (as opposed to the market price
or fair value) of, the collateral. These covenants include collateral coverage tests, interest coverage tests and collateral quality tests.
A CLO funds the
purchase of a portfolio of primarily senior secured loans via the issuance of CLO equity and debt securities in the form of multiple,
primarily floating rate, debt tranches. The CLO debt tranches typically are rated “AAA” (or its equivalent) at the most senior
level down to “BB” or “B” (or its equivalent), which is below investment grade, at the junior level by Moody’s
Investors Service, Inc., or “Moody’s,” S&P Global Ratings, or “S&P,” and/or Fitch Ratings, Inc.,
or “Fitch.” The interest rate on the CLO debt tranches is the lowest at the AAA-level and generally increases at each level
down the rating scale. The CLO equity tranche is unrated and typically represents approximately 8% to 11% of a CLO’s capital structure.
Below investment grade and unrated securities are sometimes referred to as “junk” securities. The diagram below is for illustrative
purposes only and highlights a hypothetical structure intended to depict a typical CLO. A minority of CLOs also include a B-rated debt
tranche (in which we may invest), and the structure of CLOs in which we invest may otherwise vary from this example. The left column represents
the CLO’s assets, which support the liabilities and equity in the right column. The right column shows the various classes of debt
and equity issued by the hypothetical CLO in order of seniority as to rights in payments from the assets. The percentage ranges appearing
below the rating of each class represents the percent such class comprises of the overall “capital stack” (i.e., total
debt and equity issued by the CLO).
CLOs have two
priority-of-payment schedules (commonly called “waterfalls”), which are detailed in a CLO’s indenture and govern how
cash generated from a CLO’s underlying collateral is distributed to the CLO’s debt and equity investors. The interest waterfall
applies to interest payments received on a CLO’s underlying collateral. The principal waterfall applies to cash generated from principal
on the underlying collateral, primarily through loan repayments and the proceeds from loan sales. Through the interest waterfall, any
excess interest-related cash flow available after the required quarterly interest payments to CLO debt investors are made and certain
CLO expenses (such as administration and collateral management fees) are paid is then distributed to the CLO’s equity investors
each quarter, subject to compliance with certain tests.
A CLO’s
indenture typically requires that the maturity dates of a CLO’s assets, typically five to eight years from the date of issuance
of a senior secured loan, be shorter than the maturity date of the CLO’s liabilities, typically 12 to 13 years from the date of
issuance. However, CLO investors do face reinvestment risk with respect to a CLO’s underlying portfolio. In addition, in most CLO
transactions, CLO debt investors are subject to prepayment risk in that the holders of a majority of the equity tranche can direct a call
or refinancing of a CLO, which would cause the CLO’s outstanding CLO debt securities to be repaid at par. See “Risk
Factors — Risks Related to Our Investments — We and our investments are subject to reinvestment
risk.”
Our Structure
The following chart reflects our organizational
structure and our relationship with the Adviser and the Administrator as of the date of this prospectus:
Financing and Hedging Strategy
Leverage
by the Company. We may use leverage as and to the extent permitted by the 1940 Act. We are permitted to obtain leverage
using any form of financial leverage instruments, including funds borrowed from banks or other financial institutions, margin facilities,
notes or preferred stock and leverage attributable to reverse repurchase agreements or similar transactions. Over the long term, management
expects us to operate under normal market conditions generally with leverage within a range of 25% to 35% of total assets through borrowings
under the BNP Credit Facility described below, or through the issuance of preferred stock or debt securities, although the actual amount
of our leverage will vary over time. Certain instruments that create leverage are considered to be senior securities under the 1940 Act.
With respect to
senior securities representing indebtedness (i.e., borrowing or deemed borrowing, including borrowings under the BNP Credit Facility
(defined below)), other than temporary borrowings as defined under the 1940 Act, we are required under current law to have an asset coverage
of at least 300%, as measured at the time of borrowing and calculated as the ratio of our total assets (less all liabilities and indebtedness
not represented by senior securities) over the aggregate amount of our outstanding senior securities representing indebtedness. With respect
to senior securities that are stocks (i.e., shares of our preferred stock, including the Preferred Stock (defined below)), we are
required under current law to have an asset coverage of at least 200%, as measured at the time of the issuance of any such shares of preferred
stock and calculated as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) over
the aggregate amount of our outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding
shares of preferred stock.
As of June 30,
2024, we had three series of preferred stock outstanding, the 5.00% Series A Term Preferred Stock due 2026, or the “Series A
Term Preferred Stock,” the 7.75% Series B Term Preferred Stock due 2028, or the “Series B Term Preferred Stock,”
and the 8.00% Series C Term Preferred Stock due 2029, or the “Series C Term Preferred Stock” and with the Series A
Term Preferred Stock and Series B Term Preferred Stock, the “Preferred Stock.”
On September 24,
2021, we entered into a credit agreement, which was amended on September 6, 2022 and September 18, 2023, with BNP Paribas, as
lender, that established a revolving credit facility or the “BNP Credit Facility”. Pursuant to the terms of the BNP Credit
Facility, we can borrow up to an aggregate principal balance of $25,000,000 (the “Commitment Amount”). Such borrowings under
the BNP Credit Facility bear interest at Term SOFR plus a spread under the amended credit agreement. We are required to pay a commitment
fee on the unused amount.
The BNP Credit
Facility will mature on the earlier of (i) the termination of the Commitment, as defined by the terms of the BNP Credit Facility
or (ii) the scheduled maturity date of September 21, 2024. We have the option to extend the maturity from time to time in accordance
with the BNP Credit Facility agreement.
As of June 30,
2024, our leverage, which includes the Preferred Stock, represented approximately 32.2% of our total assets (less current liabilities).
As of June 30, 2024, our asset coverage ratio in respect of our outstanding preferred stock, calculated pursuant to Section 18
of the 1940 Act, was 311% and we had no amounts drawn under the BNP Credit Facility. In the event we fail to meet our applicable asset
coverage ratio requirements, we may not be able to incur additional debt and/or issue additional preferred stock, and could be required
by law or otherwise to sell a portion of our investments to repay some debt or redeem shares of preferred stock (if any) when it is disadvantageous
to do so, which could have a material adverse effect on our operations, and we may not be able to make certain distributions or pay dividends
of an amount necessary to continue to qualify as a RIC for U.S. federal income tax purposes. In addition, we may borrow for temporary
or other purposes as permitted under the 1940 Act, which indebtedness would be in addition to the asset coverage requirements described
above.
We expect that
we will, or that we may need to, raise additional capital in the future to fund our continued growth, and we may do so by borrowing under
a credit facility, issuing additional shares of preferred stock or debt securities or through other leveraging instruments. Subject to
the limitations under the 1940 Act, we may incur additional leverage opportunistically and may choose to increase or decrease our leverage.
In addition, we may borrow for temporary, emergency or other purposes as permitted under the 1940 Act, which indebtedness would be in
addition to the asset coverage requirements described above. By leveraging our investment portfolio, we may create an opportunity for
increased net income and capital appreciation. However, the use of leverage also involves significant risks and expenses, which will be
borne entirely by our common stockholders, and our leverage strategy may not be successful. For example, the more leverage is employed,
the more likely a substantial change will occur in our NAV. See “Risk Factors — Risks Related to Our Investments —
We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing
in us.”
Derivative
Transactions. We may engage in “Derivative Transactions,” as described below, from time to time. To the extent
we engage in Derivative Transactions, we expect to do so to hedge against interest rate, credit, currency and/or other risks, or for other
investment or risk management purposes. We may use Derivative Transactions for investment purposes to the extent consistent with our investment
objectives if the Adviser deems it appropriate to do so. We may purchase and sell a variety of derivative instruments, including exchange-listed
and over-the-counter, or “OTC,” options, futures, options on futures, swaps and similar instruments, various interest rate
transactions, such as swaps, caps, floors or collars, and credit transactions and credit default swaps. We also may purchase and sell
derivative instruments that combine features of these instruments. Collectively, we refer to these financial management techniques as
“Derivative Transactions.” Our use of Derivative Transactions, if any, will generally be deemed to create leverage for us
and involves significant risks. No assurance can be given that our strategy and use of derivatives will be successful, and our investment
performance could diminish compared with what it would have been if Derivative Transactions were not used. See “Risk Factors
— Risks Related to Our Investments — We are subject to risks associated with any hedging or Derivative Transactions in which
we participate.”
Temporary
Defensive Position. We may take a temporary defensive position and invest all or a substantial portion of our total assets
in cash or cash equivalents, government securities or short-term fixed income securities during periods in which we believe that adverse
market, economic, political or other conditions make it advisable to maintain a temporary defensive position. As the CLOs and LAFs in
which we invest are generally illiquid in nature, we may not be able to dispose of such investments and take a defensive position. To
the extent that we invest defensively, we likely will not achieve our investment objectives.
Operating and Regulatory Structure
We are an externally
managed, diversified closed-end management investment company that has registered as an investment company under the 1940 Act. As a registered
closed-end management investment company, we are required to meet certain regulatory tests. See “Regulation as a Closed-End
Management Investment Company.” In addition, we have elected to be treated, and intend to qualify annually, as a RIC under
Subchapter M of the Code, beginning with our tax year ended December 31, 2018.
Our investment
activities are managed by the Adviser and supervised by our board of directors. Under the Investment Advisory Agreement, we have agreed
to pay the Adviser a management fee based on our “Managed Assets.” “Managed Assets” means our total assets (including
assets attributable to our use of leverage) minus the sum of our accrued liabilities (other than liabilities incurred for the purpose
of creating leverage). The management fee is calculated monthly based on our Managed Assets at the end of each calendar month and is payable
quarterly in arrears. The management fee for any partial month will be pro-rated (based on the number of days actually elapsed at the
end of such partial month relative to the total number of days in such calendar month). See “The Adviser and the Administrator
— Investment Advisory Agreement — Management Fee.”
We
have also entered into an administration agreement, which we refer to as the “Administration Agreement,” under which we have
agreed to reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing
its obligations under the Administration Agreement. See “The Adviser and the Administrator
— The Administrator and the Administration Agreement.”
Conflicts of Interest
Our executive
officers and directors, and the Adviser and certain of its affiliates and their officers and employees, including the Investment Committee,
have several conflicts of interest as a result of the other activities in which they engage. The Adviser and the Administrator are affiliated
with other entities engaged in the financial services business. In particular, the Adviser and the Administrator are affiliated with Eagle
Point Credit Management and Stone Point, and certain members of the Adviser’s Board of Managers are principals of Stone Point. Pursuant
to certain management agreements, Stone Point has received delegated authority to act as the investment manager of the Trident Funds.
The Adviser and the Administrator are primarily owned by certain of the Trident Funds through intermediary holding companies. The Trident
Funds and other private equity funds managed by Stone Point invest in financial services companies. Additionally, an affiliate of Enstar
and its other affiliates that are our stockholders indirectly own a portion of the limited liability company interests in the Adviser.
Also, under the Personnel and Resources Agreement, Eagle Point Credit Management makes available the personnel and resources, including
portfolio managers and investment personnel, to the Adviser as the Adviser may determine to be reasonably necessary to the conduct of
its operations. These relationships may cause the Adviser’s, the Administrator’s and certain of their affiliates’ interests,
and the interests of their officers and employees, including the Investment Committee, to diverge from our interests and may result in
conflicts of interest that may not be foreseen or resolved in a manner that is always or exclusively in our best interest.
Our executive
officers and directors, as well as other current and potential future affiliated persons, officers and employees of the Adviser and certain
of its affiliates, may serve as officers, directors or principals of, or manage the accounts for, other entities, including ECC and EPIIF,
with investment strategies that substantially or partially overlap with the strategy that we pursue. Accordingly, they may have obligations
to investors in those entities, the fulfillment of which obligations may not be in the best interests of us or our stockholders. The Adviser
has entered into, and may in the future enter into additional, business arrangements with certain of our stockholders, including granting
indirect ownership in limited liability company interests in the Adviser. In such cases, such stockholders may have an incentive to vote
shares held by them in a manner that takes such arrangements into account. As a result of these relationships and separate business activities,
the Adviser has conflicts of interest in allocating management time, services and functions among us, other advisory clients and other
business activities. See “Conflicts of Interest.”
Pursuant to the
investment allocation policies and procedures of the Adviser and Eagle Point Credit Management, they seek to allocate investment opportunities
among accounts in a manner that is fair and equitable over time. In addition, an account managed by the Adviser, such as us, is expected
to be considered for the allocation of investment opportunities together with other accounts managed by certain affiliates of the Adviser,
including Eagle Point Credit Management. There is no assurance that such opportunities will be allocated to any particular account equitably
in the short-term or that any such account, including us, will be able to participate in all investment opportunities that are suitable
for it. See “Conflicts of Interest — Code of Ethics and Compliance Procedures.”
Co-Investment
with Affiliates. In certain instances, we co-invest on a concurrent basis with other accounts managed by certain of the
Adviser’s affiliates, subject to compliance with applicable regulations and regulatory guidance and the Adviser’s written
allocation procedures. See “Conflicts of Interest — Co-Investments and Related Party Transactions.”
Summary Risk Factors
The value of our
assets, as well as the market price of our securities, will fluctuate. Our investments should be considered risky, and you may lose all
or part of your investment in us. Investors should consider their financial situation and needs, other investments, investment goals,
investment experience, time horizons, liquidity needs and risk tolerance before investing in our securities. An investment in our securities
may be speculative in that it involves a high degree of risk and should not be considered a complete investment program. We are designed
primarily as a long-term investment vehicle, and our securities are not an appropriate investment for a short-term trading strategy. We
can offer no assurance that returns, if any, on our investments will be commensurate with the risk of investment in us, nor can we provide
any assurance that enough appropriate investments that meet our investment criteria will be available.
The following
is a summary of certain principal risks of an investment in us. See “Risk Factors” for a more complete discussion
of the risks of investing in our securities, including certain risks not summarized below.
| • | Key Personnel Risk. We are dependent upon the key personnel of the Adviser and certain of
our Adviser’s affiliates for our future success. |
| • | Conflicts of Interest Risk. Our executive officers and directors, and the Adviser and certain
of its affiliates and their officers and employees, including the Investment Committee, have several conflicts of interest as a result
of the other activities in which they engage. See “Conflicts of Interest.” |
| • | Interest Rate Risk. The price of certain of our investments may be significantly affected
by changes in interest rates, including increases and decreases in interest rates caused by governmental actions and/or other factors.
In general, rising interest rates will negatively affect the price of a fixed rate instrument and falling interest rates will have a positive
effect on the price of a fixed rate instrument. If general interest rates rise, there is a risk that the Company’s floating rate
investments (or an issuer’s underlying obligors) will be unable to pay escalating interest amounts, which could result in a default
under their loan documents and credit losses to the Company. Rising interest rates could also cause issuers 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. If interest rates fall, the Company’s floating rate investments would generally be expected to generate a
lower rate of income. |
| • | Prepayment Risk. The assets underlying the CLO securities in which we invest are subject
to prepayment by the underlying corporate borrowers. In addition, the CLO securities and related investments in which we invest are subject
to prepayment risk. If we or a CLO collateral manager are unable to reinvest prepaid amounts in a new investment with an expected rate
of return at least equal to that of the investment repaid, our investment performance will be adversely impacted. |
| • | Liquidity Risk. Generally, there is no public market for the CLO investments we target.
As such, we may not be able to sell such investments quickly, or at all. If we are able to sell such investments, the prices we receive
may not reflect the Adviser’s assessment of their fair value or the amount paid for such investments by us. |
| • | Management Fee Risk. Our management fee structure may incentivize the Adviser to use leverage
in a manner that adversely impacts our performance. |
| • | Subordinated Securities. CLO junior debt and equity securities that we may acquire are subordinated
to more senior tranches of CLO debt. CLO junior debt and equity securities are subject to increased risks of default relative to the holders
of superior priority interests in the same CLO. In addition, at the time of issuance, CLO equity securities are under-collateralized in
that the face amount of the CLO debt and CLO equity of a CLO at inception exceed its total assets. We will typically be in a subordinated
or first loss position with respect to realized losses on the underlying assets held by the CLOs in which we are invested. |
| • | High-Yield Investment Risk. The CLO junior debt and equity securities that we acquire are
typically rated below investment grade or, in the case of equity securities, unrated and are therefore considered “higher-yield”
or “junk” securities and are considered speculative with respect to timely payment of interest and repayment of principal.
The senior secured loans and other credit-related assets underlying CLOs are also typically higher-yield investments. Investing in CLO
junior debt and equity securities and other high-yield investments involves greater credit and liquidity risk than investment grade obligations,
which may adversely impact our performance. |
| • | Risks of Investing in CLOs and Other Structured Debt Securities. CLOs and other structured
finance securities are generally backed by a pool of credit-related assets that serve as collateral. Accordingly, CLO and structured finance
securities present risks similar to those of other types of credit investments, including default (credit), interest rate and prepayment
risks. In addition, CLOs and other structured finance securities are often governed by a complex series of legal documents and contracts,
which increases the risk of dispute over the interpretation and enforceability of such documents relative to other types of investments.
There is also a risk that the trustee of a CLO does not properly carry out its duties to the CLO, potentially resulting in loss to the
CLO. CLOs are also inherently leveraged vehicles and are subject to leverage risk. |
| • | Leverage Risk. The use of leverage, whether directly or indirectly through investments such
as CLO junior debt and equity securities that inherently involve leverage, may magnify our risk of loss. CLO junior debt and equity securities
are very highly leveraged (with CLO equity securities typically being leveraged ten times), and therefore the CLO securities in which
we invest are subject to a higher degree of loss since the use of leverage magnifies losses. |
| • | Credit Risk. If (1) a CLO in which we invest, (2) an underlying asset of any such
CLO or (3) any other type of credit investment in our portfolio declines in price or fails to pay interest or principal when due
because the issuer or debtor, as the case may be, experiences a decline in its financial status, our income, NAV and/or market price would
be adversely impacted. |
| • | Fair Valuation of Our Portfolio Investments. Generally, there is no public market for the
CLO investments we target. As a result, the Adviser values these securities at least quarterly, or more frequently as may be required
from time to time, at fair value. The Adviser’s determinations of the fair value of our investments have a material impact on our
net earnings through the recording of unrealized appreciation or depreciation of investments and may cause our NAV on a given date to
understate or overstate, possibly materially, the value that we ultimately realize on one or more of our investments. |
| • | Limited Investment Opportunities Risk. The market for CLO securities is more limited than
the market for other credit related investments. We can offer no assurances that sufficient investment opportunities for our capital will
be available. |
| • | Market Risk. Political, regulatory, economic and social developments, and developments that
impact specific economic sectors, industries or segments of the market, can affect the value of our investments. A disruption or downturn
in the capital markets and the credit markets could impair our ability to raise capital, reduce the availability of suitable investment
opportunities for us, or adversely and materially affect the value of our investments, any of which would negatively affect our business.
These risks may be magnified if certain events or developments adversely interrupt the global supply chain, and could affect companies
worldwide. |
| • | LAFs Risk. We may invest in LAFs, which are short to medium term facilities often provided
by the bank that will serve as placement agent or arranger on a CLO transaction and which acquire loans on an interim basis which are
expected to form part of the portfolio of a future CLO. Investments in LAFs have risks similar to those applicable to investments in CLOs.
Leverage is typically utilized in such a facility and as such the potential risk of loss will be increased for such facilities employing
leverage. In the event a planned CLO is not consummated, or the loans are not eligible for purchase by the CLO, the Company may be responsible
for either holding or disposing of the loans. This could expose the Company primarily to credit and/or mark-to-market losses, and other
risks. |
| • | Synthetic Investments Risk. We may invest in synthetic investments, such as significant
risk transfer securities and credit risk transfer securities issued by banks or other financial institutions, or acquire interests in
lease agreements that have the general characteristics of loans and are treated as loans for withholding tax purposes. In addition to
the credit risks associated with directly or indirectly holding senior secured loans and high-yield debt securities, with respect to synthetic
strategy, we will usually have a contractual relationship only with the counterparty of such synthetic investment, and not with the reference
obligor of the reference asset. We generally will have no right to directly enforce compliance by the reference obligor with the terms
of the reference asset nor will we have any rights of setoff against the reference obligor or rights with respect to the reference asset.
We will not directly benefit from the collateral supporting the reference asset and will not have the benefit of the remedies that would
normally be available to a holder of such reference asset. In addition, in the event of the insolvency of the counterparty, we may be
treated as a general creditor of such counterparty, and will not have any claim with respect to the reference asset. Consequently, we
will be subject to the credit risk of the counterparty as well as that of the reference obligor. As a result, concentrations of synthetic
securities in any one counterparty subject us to an additional degree of risk with respect to defaults by such counterparty as well as
by the reference obligor. |
| • | Currency Risk. Although we primarily make investments denominated in U.S. dollars, we may
make investments denominated in other currencies. Our investments denominated in currencies other than U.S. dollars will be subject to
the risk that the value of such currency will decrease in relation to the U.S. dollar. We may or may not hedge currency risk. |
| • | Hedging Risk. Hedging transactions seeking to reduce risks may result in poorer overall
performance than if we had not engaged in such hedging transactions. Additionally, such transactions may not fully hedge the relevant
risks. |
| • | Reinvestment Risk. CLOs will typically generate cash from asset repayments and sales that
may be reinvested in substitute assets, subject to compliance with applicable investment tests. If the CLO collateral manager causes the
CLO to purchase substitute assets at a lower yield than those initially acquired (for example, during periods of loan compression or as
may be required to satisfy a CLO’s covenants) or sale proceeds are maintained temporarily in cash, it would reduce the excess interest-related
cash flow, thereby having a negative effect on the fair value of our assets and the market value of our securities and potentially limiting
our ability to make distributions to our common stockholders or payments on our preferred stock or debt securities (if any). In addition,
the reinvestment period for a CLO may terminate early, which would cause the holders of the CLO’s securities to receive principal
payments earlier than anticipated. There can be no assurance that we will be able to reinvest such amounts in an alternative investment
that provides a comparable return relative to the credit risk assumed. |
| • | Refinancing Risk. If we incur debt financing and subsequently refinance such debt, the replacement
debt may be at a higher cost and on less favorable terms and conditions. If we fail to extend, refinance or replace such debt financings
prior to their maturity on commercially reasonable terms, our liquidity will be lower than it would have been with the benefit of such
financings, which would limit our ability to grow, and holders of our common stock would not benefit from the potential for increased
returns on equity that incurring leverage creates. |
| • | Tax Risk. If we fail to qualify for tax treatment as a RIC under Subchapter M of the Code
for any reason, or otherwise become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net
assets, the amount of income available for distributions to Stockholders, including holders of our Preferred Stock (if any), and the amount
of income available for payment of our other liabilities. |
| • | Derivatives Risk. Derivative instruments in which we may invest may be volatile and involve
various risks different from, and in certain cases greater than, the risks presented by other instruments. The primary risks related to
Derivative Transactions include counterparty, correlation, liquidity, leverage, volatility, and OTC trading, operational and legal risks.
In addition, a small investment in derivatives could have a large potential impact on our performance, effecting a form of investment
leverage on our portfolio. In certain types of Derivative Transactions, we could lose the entire amount of our investment; in other types
of Derivative Transactions the potential loss is theoretically unlimited. |
| • | Counterparty Risk. We may be exposed to counterparty risk, which could make it difficult
for us or the CLOs in which we invest to collect on obligations, thereby resulting in potentially significant losses. |
| • | Non-U.S. Investing Risk. Investing in foreign entities may expose us to additional risks
not typically associated with investing in U.S. issuers. These risks include changes in exchange control regulations, political and social
instability, restrictions on the types or amounts of investment, expropriation, imposition of foreign taxes, less liquid markets and less
available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers
and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing
standards, currency fluctuations and greater price volatility. Further, we, and the CLOs in which we invest, may have difficulty enforcing
creditor’s rights in foreign jurisdictions. |
| • | Global Risks. Due to highly interconnected global economies and financial markets, the value
of our securities and our underlying investments may go up or down in response to governmental actions and/or general economic conditions
throughout the world. Events such as war, military conflict, acts of terrorism, social unrest, natural disasters, recessions, inflation,
rapid interest rate changes, supply chain disruptions, sanctions, the spread of infectious illness or other public health threats could
also significantly impact us and its investments. |
| • | Banking Risk. The possibility of future bank failures poses risks of reduced financial market
liquidity at clearing, cash management and other custodial financial institutions. The failure of banks which hold cash on behalf of the
Company, the Company's underlying obligors, the collateral managers of the CLOs in which the Company invests, or the Company’s service
providers could adversely affect the Company’s ability to pursue its investment strategies and objectives. For example, if an underlying
obligor has a commercial relationship with a bank that has failed or is otherwise distressed, such company may experience delays or other
disruptions in meeting its obligations and consummating business transactions. Additionally, if a collateral manager has a commercial
relationship with a distressed bank, the manager may experience issues conducting its operations or consummating transactions on behalf
of the CLOs it manages, which could negatively affect the performance of such CLOs (and, therefore, the performance of the Company). |
| • | Issuance of Additional Shares Risk. The sale of the shares of common stock issued pursuant
to other offerings, or the perception that such sales may occur, could cause the price of our common stock to fall. Shares of our common
stock sold pursuant to other offerings will share voting power with our existing shares of common stock. Accordingly, such sales will
result in dilution of our current stockholders’ voting power with respect to matters on which our stockholders are entitled to vote. |
| • | Price Risk. Investors who buy shares at different times will likely pay different prices. |
Registration of Resale Shares
This prospectus
relates in part to the offer and resale, from time to time, of up to 3,764,580 shares of our common stock by the selling stockholders
identified under “Control Persons, Principal Stockholders and Selling Stockholders.” We and Enstar Group Limited
have entered into a registration rights agreement, dated August 20, 2024 (the “Registration Rights Agreement”), pursuant
to which we agreed to register the resale of the shares of the selling stockholders covered by this prospectus.
Our Corporate Information
Our offices are
located at 600 Steamboat Road, Suite 202, Greenwich, CT 06830, and our telephone number is (844) 810-6501.
FEES AND EXPENSES
Information
about the Company’s fees and expenses may be found in the “Fees and Expenses” section of the Company’s most recent
Annual
Report on Form N-CSR, as amended, for the fiscal year ended December 31, 2023, filed with the SEC on February 22,
2024, which is incorporated by reference herein.
RISK FACTORS
Investing in
our securities involves a number of significant risks. In addition to the other information contained in this prospectus, you should consider
carefully the following information before making an investment in our securities. The risks set out below are not the only risks we face.
Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and
performance and the value of our securities. If any of the following events occur, our business, financial condition and results of operations
could be materially adversely affected and the value of our securities may be impaired. In such case, the price of our securities could
decline, and you may lose all or part of your investment.
Risks Related to Our Investments
Investing in senior secured loans
indirectly through CLO securities involves particular risks.
We obtain exposure
to underlying senior secured loans through our investments in CLOs, but may obtain such exposure directly or indirectly through other
means from time to time. Such loans may become nonperforming or impaired for a variety of reasons. Nonperforming or impaired loans may
require substantial workout negotiations or restructuring that may entail a substantial reduction in the interest rate and/or a substantial
write-down of the principal of the loan. In addition, because of the unique and customized nature of a loan agreement and the private
syndication of a loan, certain loans may not be purchased or sold as easily as publicly traded securities, and, historically, the trading
volume in the loan market has been small relative to other markets. Loans may encounter trading delays due to their unique and customized
nature, and transfers may require the consent of an agent bank and/or borrower. Risks associated with senior secured loans include the
fact that prepayments generally may occur at any time without premium or penalty.
In addition, the
portfolios of certain CLOs in which we invest may contain middle market loans. Loans to middle market companies may carry more inherent
risks than loans to larger, publicly traded entities. These companies generally have more limited access to capital and higher funding
costs, may be in a weaker financial position, may need more capital to expand or compete, and may be unable to obtain financing from public
capital markets or from traditional sources, such as commercial banks. Middle market companies typically have narrower product lines and
smaller market shares than large companies. Therefore, they tend to be more vulnerable to competitors’ actions and market conditions,
as well as general economic downturns. These companies may also experience substantial variations in operating results. The success of
a middle market business may also depend on the management talents and efforts of one or two persons or a small group of persons. The
death, disability or resignation of one or more of these persons could have a material adverse impact on the obligor. Accordingly, loans
made to middle market companies may involve higher risks than loans made to companies that have greater financial resources or are otherwise
able to access traditional credit sources. Middle market loans are less liquid and have a smaller trading market than the market for broadly
syndicated loans and may have default rates or recovery rates that differ (and may be better or worse) than has been the case for broadly
syndicated loans or investment grade securities. There can be no assurance as to the levels of defaults and/or recoveries that may be
experienced with respect to middle market loans in any CLO in which we may invest. As a consequence of the forgoing factors, the securities
issued by CLOs that primarily invest in middle market loans (or hold significant portions thereof) are generally considered to be a riskier
investment than securities issued by CLOs that primarily invest in broadly syndicated loans.
Covenant-lite
loans may comprise a significant portion of the senior secured loans underlying the CLOs in which we invest. Over the past decade, the
senior secured loan market has evolved from one in which covenant-lite loans represented a minority of the market to one in which such
loans represent a significant majority of the market. Generally, covenant-lite loans provide borrower companies more freedom to negatively
impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative
action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent that the
CLOs that we invest in hold covenant-lite loans, our CLOs may have fewer rights against a borrower and may have a greater risk of loss
on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
Our investments in CLO securities
and other structured finance securities involve certain risks.
Our investments
consist primarily of CLO securities, and we may invest in other related structured finance securities. CLOs and structured finance securities
are generally backed by an asset or a pool of assets (typically senior secured loans and other credit-related assets in the case of a
CLO) that serve as collateral. We and other investors in CLO and related structured finance securities ultimately bear the credit risk
of the underlying collateral. In most CLOs, the structured finance securities are issued in multiple tranches, offering investors various
maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their degree of
risk. If there are defaults or the relevant collateral otherwise underperforms, scheduled payments to senior tranches of such securities
take precedence over those of junior tranches which are the focus of our investment strategy, and scheduled payments to junior tranches
have a priority in right of payment to subordinated/equity tranches.
CLO and other
structured finance securities may present risks similar to those of the other types of debt obligations and, in fact, such risks may be
of greater significance in the case of CLO and other structured finance securities. For example, investments in structured vehicles, including
CBOs, junior debt and equity securities issued by CLOs, involve risks, including credit risk and market risk. Changes in interest rates
and credit quality may cause significant price fluctuations. A CBO is a trust which is often backed by a diversified pool of high risk,
below investment grade fixed income securities. The collateral can be from many different types of fixed income securities, such as high
yield debt, residential privately issued mortgage-related securities, commercial privately issued mortgage related securities, trust preferred
securities and emerging market debt. The pool of high yield securities underlying CBOs is typically separated into tranches representing
different degrees of credit quality. The higher quality tranches have greater degrees of protection and pay lower interest rates, whereas
the lower tranches, with greater risk, pay higher interest rates.
In addition to
the general risks associated with investing in debt securities, CLO securities carry additional risks, including: (1) the possibility
that distributions from collateral assets will not be adequate to make interest or other payments; (2) the quality of the collateral
may decline in value or default; (3) our investments in CLO junior debt and equity tranches will likely be subordinate in right of
payment to other senior classes of CLO debt; and (4) the complex structure of a particular security may not be fully understood at
the time of investment and may produce disputes with the issuer or unexpected investment results. Changes in the collateral held by a
CLO may cause payments on the instruments we hold to be reduced, either temporarily or permanently. Structured investments, particularly
the subordinated interests in which we invest, are less liquid than many other types of securities and may be more volatile than the assets
underlying the CLOs we may target. In addition, CLO and other structured finance securities may be subject to prepayment risk. Further,
the performance of a CLO or other structured finance security may be adversely affected by a variety of factors, including the security’s
priority in the capital structure of the issuer thereof, the availability of any credit enhancement, the level and timing of payments
and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness
of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability
of the servicer of the securitized assets. There are also the risks that the trustee of a CLO does not properly carry out its duties to
the CLO, potentially resulting in loss to the CLO. In addition, the complex structure of the security may produce unexpected investment
results, especially during times of market stress or volatility. Investments in structured finance securities may also be subject to liquidity
risk.
The Adviser has wide discretion
over our choice of investments.
We invest primarily
in junior debt tranches of CLOs and other related investments. Investments in these different categories of securities subject us to related
but distinct risks, as described herein. The Adviser has wide discretion to determine our allocation of funds to the foregoing categories
of investments so long as the investments are consistent with the Fund’s investment objectives. We expect that such allocations
will vary over time, as will our exposure to the related risks. Accordingly, our exposure to any particular investment category may or
may not constitute a material part of our portfolio on any given date.
Our investments
in the primary CLO market involve certain additional risks.
Between the pricing
date and the effective date of a CLO, the CLO collateral manager will generally expect to purchase additional collateral obligations for
the CLO. During this period, the price and availability of these collateral obligations may be adversely affected by a number of market
factors, including price volatility and availability of investments suitable for the CLO, which could hamper the ability of the collateral
manager to acquire a portfolio of collateral obligations that will satisfy specified concentration limitations and allow the CLO to reach
the target initial par amount of collateral prior to the effective date. An inability or delay in reaching the target initial par amount
of collateral may adversely affect the timing and amount of interest or principal payments received by the holders of the CLO debt securities
and distributions on the CLO equity securities and could result in early redemptions which may cause CLO debt and equity investors to
receive less than face value of their investment.
Our portfolio
of investments may lack broad diversification among CLO securities, which may subject us to a risk of significant loss if one or more
of these CLO securities experience a high level of defaults on collateral.
Our portfolio
may hold investments in a limited number of CLO securities. Beyond the asset diversification requirements associated with our qualification
as a RIC under the Code and the requirements of the 1940 Act, we do not have fixed guidelines for diversification and we do not have any
limitations on the ability to invest in any one CLO. As our portfolio may be less diversified than the portfolios of some larger funds,
we are more susceptible to risk of loss if one or more of the CLOs in which we are invested experiences a high level of defaults on its
collateral. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform
poorly or if we need to write down the value of any one investment. We may also invest in multiple CLOs managed by the same CLO collateral
manager, thereby increasing our risk of loss in the event the CLO collateral manager were to fail, experience the loss of key portfolio
management employees or sell its business.
Failure to maintain
a broad range of underlying obligors across the CLOs in which we invest would make us more vulnerable to defaults.
We may be subject
to concentration risk since CLO portfolios tend to have a certain amount of overlap across underlying obligors. This trend is generally
exacerbated when demand for bank loans by CLO issuers outpaces supply. Market analysts have noted that the overlap of obligor names among
CLO issuers has increased recently and is particularly evident across CLOs of the same year of origination, as well as with CLOs managed
by the same asset manager. To the extent we invest in CLOs which have a high percentage of overlap, this may increase the likelihood of
defaults on our CLO investments occurring together.
Our portfolio
is focused on CLO securities, and the CLO securities in which we invest may hold loans that are concentrated in a limited number of industries.
Our portfolio
is focused on securities issued by CLOs and related investments, and the CLOs in which we invest may hold loans that are concentrated
in a limited number of industries. As a result, a downturn in the CLO industry or in any particular industry that the CLOs in which we
invest are concentrated could significantly impact the aggregate returns we realize.
Failure by a CLO in which we are invested
to satisfy certain tests will harm our operating results.
The failure by
a CLO in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage
tests, would lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of CLO senior debt would
be entitled to additional payments that would, in turn, reduce the payments we, as a holder of junior debt or equity tranches, would otherwise
be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms,
which may include the waiver of certain financial covenants, with a defaulting CLO or any other investment we may make. If any of these
occur, it could materially and adversely affect our operating results and cash flows.
Negative loan ratings migration may
also place pressure on the performance of certain of our investments.
Per the terms
of a CLO’s indenture, assets rated “CCC+” or lower or their equivalent in excess of applicable limits typically do not
receive full par credit for purposes of calculation of the CLO’s overcollateralization tests. As a result, negative rating migration
could cause a CLO to be out of compliance with its overcollateralization tests. This could cause a diversion of cash flows away from the
CLO junior debt and equity tranches in favor of the more senior CLO debt tranches until the relevant overcollateralization test breaches
are cured. This could have a negative impact on our NAV and cash flows.
Our investments in CLOs and other
investment vehicles result in additional expenses to us.
We invest in CLO
securities and may invest, to the extent permitted by law, in the securities and other instruments of other investment companies, including
private funds, and, to the extent we so invest, will bear our ratable share of a CLO’s or any such investment vehicle’s expenses,
including management and performance fees. In addition to the management and performance fees borne by our investments in CLOs, we also
remain obligated to pay management fees to the Adviser with respect to the assets invested in the securities and other instruments of
other investment vehicles, including CLOs. With respect to each of these investments, each holder of our common stock bears his or her
share of the management fee of the Adviser as well as indirectly bearing the management and performance fees charged by the underlying
advisor and other expenses of any investment vehicles in which we invest.
Our investments
in CLO securities may be less transparent to us and our stockholders than direct investments in the collateral.
We invest primarily
in junior debt tranches of CLOs and other related investments. Generally, there may be less information available to us regarding the
collateral held by such CLOs than if we had invested directly in the debt of the underlying obligors. As a result, our stockholders do
not know the details of the collateral of the CLOs in which we invest or receive the reports issued with respect to such CLO. In addition,
none of the information contained in certain monthly reports nor any other financial information furnished to us as a noteholder in a
CLO is audited and reported upon, nor is an opinion expressed, by an independent public accountant. Our CLO investments are also subject
to the risk of leverage associated with the debt issued by such CLOs and the repayment priority of senior debt holders in such CLOs.
CLO investments involve complex documentation
and accounting considerations.
CLOs and other
structured finance securities in which we invest are often governed by a complex series of legal documents and contracts. As a result,
the risk of dispute over interpretation or enforceability of the documentation may be higher relative to other types of investments.
The accounting
and tax implications of the CLO investments that we make are complicated. In particular, reported earnings from CLO equity securities
are recorded under U.S. generally accepted accounting principles, or “GAAP,” based upon an effective yield calculation. Current
taxable earnings on certain of these investments, however, will generally not be determinable until after the end of the fiscal year of
each individual CLO that ends within our fiscal year, even though the investments are generating cash flow throughout the fiscal year.
The tax treatment of certain of these investments may result in higher distributable earnings in the early years and a capital loss at
maturity, while for reporting purposes the totality of cash flows are reflected in a constant yield to maturity.
We are dependent
on the collateral managers of the CLOs in which we invest, and those CLOs are generally not registered under the 1940 Act.
We rely on CLO
collateral managers to administer and review the portfolios of collateral they manage. The actions of the CLO collateral managers may
significantly affect the return on our investments; however, we, as investors of the CLO, typically do not have any direct contractual
relationship with the collateral managers of the CLOs in which we invest. The ability of each CLO collateral manager to identify and report
on issues affecting its securitization portfolio on a timely basis could also affect the return on our investments, as we may not be provided
with information on a timely basis in order to take appropriate measures to manage our risks. We will also rely on CLO collateral managers
to act in the best interests of a CLO it manages; however, such CLO collateral managers are subject to fiduciary duties owed to other
classes of notes besides those in which we invest; therefore, there can be no assurance that the collateral managers will always act in
the best interest of the class or classes of notes in which we are invested. If any CLO collateral manager were to act in a manner that
was not in the best interest of the CLOs (e.g., gross negligence, with reckless disregard or in bad faith), this could adversely impact
the overall performance of our investments. Furthermore, since the underlying CLO issuer often provides an indemnity to its CLO collateral
manager, we may not be incentivized to pursue actions against the collateral manager since any such action, if successful, may ultimately
be borne by the underlying CLO issuer and payable from its assets, which could create losses to us as investors in the CLO. In addition,
to the extent we invest in CLO equity, liabilities incurred by the CLO manger to third parties may be borne by us to the extent the CLO
is required to indemnify its collateral manager for such liabilities.
In addition, the
CLOs in which we invest are generally not registered as investment companies under the 1940 Act. As investors in these CLOs, we are not
afforded the protections that stockholders in an investment company registered under the 1940 Act would have.
The collateral managers of the CLOs
in which we invest may not continue to manage such CLOs.
Given that we
invest in CLO securities issued by CLOs which are managed by unaffiliated collateral managers, we are dependent on the skill and expertise
of such managers. We believe our Adviser’s ability to analyze and diligence potential CLO managers differentiates our approach to
investing in CLO securities. However, we cannot assure you that, for any CLO we invest in, the collateral manager in place when we invest
in such CLO securities will continue to manage such CLO through the life of our investment. Collateral managers are subject to removal
or replacement by other holders of CLO securities without our consent, and may also voluntarily resign as collateral manager or assign
their role as collateral manager to another entity. There can be no assurance that any removal, replacement, resignation or assignment
of any particular CLO manager’s role will not adversely affect the returns on the CLO securities in which we invest.
Our investments in CLO securities
may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash
distributions related to such income.
Some of the CLOs
in which we invest may constitute “passive foreign investment companies,” or “PFICs.” If we acquire interests
treated as equity for U.S. federal income tax purposes in PFICs (including equity tranche investments and certain debt tranche investments
in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the
disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders. Certain elections may be
available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize
our share of the PFIC’s income for each tax year regardless of whether we receive any distributions from such PFIC. We must nonetheless
distribute such income to maintain our status as a RIC. Treasury Regulations generally treat our income inclusion with respect to a PFIC
with respect to which we have made a qualified electing fund, or “QEF,” election, as qualifying income for purposes of determining
our ability to be subject to tax as a RIC if (i) there is a current distribution out of the earnings and profits of the PFIC that
are attributable to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities,
or currencies. As such, we may be restricted in our ability to make QEF elections with respect to our holdings in issuers that could be
treated as PFICs in order to ensure our continued qualification as a RIC and/or maximize our after-tax return from these investments.
If we hold 10%
or more of the interests treated as equity (by vote or value) for U.S. federal income tax purposes in a foreign corporation that is treated
as a controlled foreign corporation, or “CFC” (including equity tranche investments and certain debt tranche investments in
a CLO treated as a CFC), we may be treated as receiving a deemed distribution (taxable as ordinary income) each tax year from such foreign
corporation in an amount equal to our pro rata share of the corporation’s income for the tax year (including both ordinary earnings
and capital gains). If we are required to include such deemed distributions from a CFC in our income, we will be required to distribute
such income to maintain our RIC status regardless of whether or not the CFC makes an actual distribution during such tax year. Treasury
Regulations generally treat our income inclusion with respect to a CFC as qualifying income for purposes of determining our ability to
be subject to tax as a RIC either if (i) there is a current distribution out of the earnings and profits of the CFC that are attributable
to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities, or currencies.
As such, we may limit and/or manage our holdings in issuers that could be treated as CFCs in order to ensure our continued qualification
as a RIC and/ or maximize our after-tax return from these investments.
If we are required
to include amounts from CLO securities in income prior to receiving the cash distributions representing such income, we may have to sell
some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo
new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax
treatment and thus become subject to corporate-level income tax.
If
a CLO in which we invest is treated as engaged in a U.S. trade or business for U.S. federal income tax purposes, such CLO could be subject
to U.S. federal income tax on a net basis, which could affect our operating results and cash flows.
Each CLO in which
we invest will generally operate pursuant to investment guidelines intended to ensure the CLO is not treated as engaged in a U.S. trade
or business for U.S. federal income tax purposes. Each CLO will generally receive an opinion of counsel, subject to certain assumptions
(including compliance with the investment guidelines) and limitations, that the CLO will not be engaged in a U.S. trade or business for
U.S. federal income tax purposes. If a CLO fails to comply with the investment guidelines or the IRS otherwise successfully asserts that
the CLO should be treated as engaged in a U.S. trade or business for U.S. federal income tax purposes, such CLO could be subject to U.S.
federal income tax on a net basis, which could reduce the amount available to distribute to junior debt and equity holders in such CLO,
including the Company.
If a CLO in which
we invest fails to comply with certain U.S. tax disclosure requirements, such CLO may be subject to withholding requirements that could
materially and adversely affect our operating results and cash flows.
The U.S. Foreign
Account Tax Compliance Act provisions of the Code, or “FATCA,” imposes a withholding tax of 30% on U.S. source periodic payments,
including interest and dividends to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds,
unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners. Most
CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with
these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements,
it could reduce the amount available to distribute to junior debt and equity holders in such CLO, which could materially and adversely
affect the fair value of the CLO’s securities, our operating results and cash flows.
Increased competition
in the market or a decrease in new CLO issuances may result in increased price volatility or a shortage of investment opportunities.
In recent years
there has been a marked increase in the number of, and flow of capital into, investment vehicles established to pursue investments in
CLO securities whereas the size of this market is relatively limited. While we cannot determine the precise effect of such competition,
such increase may result in greater competition for investment opportunities, which may result in an increase in the price of such investments
relative to the risk taken on by holders of such investments. Such competition may also result under certain circumstances in increased
price volatility or decreased liquidity with respect to certain positions.
In addition, the
volume of new CLO issuances and CLO refinancings varies over time as a result of a variety of factors including new regulations, changes
in interest rates, and other market forces. As a result of increased competition and uncertainty regarding the volume of new CLO issuances
and CLO refinancings, we can offer no assurances that we will deploy all of our capital in a timely manner or at all. Prospective investors
should understand that we may compete with other investment vehicles, as well as investment and commercial banking firms, which have substantially
greater resources, in terms of financial wherewithal and research staffs, than may be available to us.
We will be subject to risks associated
with any wholly-owned subsidiaries.
We may in the
future invest indirectly through one or more wholly-owned subsidiaries. Such wholly-owned subsidiaries are not separately registered under
the 1940 Act and are not subject to all the investor protections of the 1940 Act. In addition, changes in the laws of the jurisdiction
of formation of any future wholly-owned subsidiary could result in the inability of such subsidiary to operate as anticipated.
We and our investments are subject
to interest rate risk.
Since we borrow
money under the BNP Credit Facility and have issued Preferred Stock, and since we may incur additional leverage (including through issuing
additional preferred stock and/or debt securities) to make investments, our net investment income depends, in part, upon the difference
between the rate at which we borrow funds and the rate at which we invest those funds.
Interest rates
may increase or decrease due to governmental actions, among other factors. In a rising interest rate environment, any additional leverage
that we incur may bear a higher interest rate than our current leverage. There may not, however, be a corresponding increase in our investment
income. Any reduction in the level of rate of return on new investments relative to the rate of return on our current investments, and
any reduction in the rate of return on our current investments, could adversely impact our net investment income, reducing our ability
to service the interest obligations on, and to repay the principal of, our indebtedness, as well as our capacity to pay distributions
to our stockholders. See “— Benchmark Floor Risk.”
The fair value
of certain of our investments may be significantly affected by changes in interest rates. In general, rising interest rates will negatively
affect the price of a fixed rate instrument and falling interest rates will have a positive effect on the price of a fixed rate instrument.
In the event of a significantly rising interest rate environment and/or economic downturn, loan defaults may increase and result in credit
losses that may adversely affect the cash flows from investments held in the Company and/or such investments’ fair value.
Although senior
secured loans are generally floating rate instruments, our investments in senior secured loans through investments in junior debt and
equity tranches of CLOs are sensitive to interest rate levels and volatility. For example, because CLO debt securities are floating rate
securities, a reduction in interest rates would generally result in a reduction in the coupon payment and cash flow we receive on our
CLO debt investments. Further, there may be some difference between the timing of interest rate resets on the assets and liabilities of
a CLO. Such a mismatch in timing could have a negative effect on the amount of funds distributed to CLO equity investors. In addition,
CLOs may not be able to enter into hedge agreements, even if it may otherwise be in the best interests of the CLO to hedge such interest
rate risk. Furthermore, in the event of a significant rising interest rate environment and/or economic downturn, loan defaults may increase
and result in credit losses that may adversely affect our cash flow, fair value of our assets and operating results. In the event that
our interest expense were to increase relative to income, or sufficient financing became unavailable, our return on investments and cash
available for distribution to stockholders or to make other payments on our securities would be reduced. In addition, future investments
in different types of instruments may carry a greater exposure to interest rate risk.
Benchmark
Floor Risk. Because CLOs generally issue debt on a floating rate basis, an increase in the relevant benchmark will increase
the financing costs of CLOs. Many of the senior secured loans held by these CLOs have benchmark floors such that, when the relevant benchmark
is below the stated Benchmark floor, the stated benchmark floor (rather than the benchmark itself) is used to determine the interest payable
under the loans. Therefore, if the relevant benchmark increases but stays below the average benchmark floor rate of the senior secured
loans held by a CLO, there would not be a corresponding increase in the investment income of such CLOs. The combination of increased financing
costs without a corresponding increase in investment income in such a scenario could result in the CLO not having adequate cash to make
interest or other payments on the securities which we hold.
LIBOR
Risk. LIBOR, the London Interbank Offered Rate, was a leading floating rate benchmark used in loans, notes, derivatives and
other instruments or investments. As a result of benchmark reforms, publication of most LIBOR settings has ceased. Some LIBOR settings
continue to be published but only on a temporary, synthetic and non-representative basis. Regulated entities have generally ceased entering
into new LIBOR contracts in connection with regulatory guidance or prohibitions. Public and private sector actors have worked to establish
new or alternative reference rates to be used in place of LIBOR. The collateral of certain CLOs in which we invest may have earned interest
at (or, in some limited circumstances, continue to earn interest at) a floating rate based on LIBOR (or which was previously based on
LIBOR) or the relevant benchmark replacement. LIBOR is currently published on a temporary, non-representative and synthetic basis and
is expected to cease being published in September 2024 (which may be referred to as “synthetic LIBOR”). Synthetic LIBOR
is determined using Term SOFR settings and may perform different from how LIBOR previously performed and could be lower or more volatile
than it would have otherwise been if LIBOR’s methodology had not changed. The limited universe of instruments still utilizing LIBOR
may adversely affect the liquidity of the investments in the secondary market and their market value.
SOFR
Risk. Since the discontinuation of LIBOR, CLOs (and the collateral they hold) have generally issued debt based on Term SOFR.
SOFR is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury
securities. SOFR is calculated based on transaction-level data collected from various sources. SOFR is calculated and published by the
Federal Reserve Bank of New York (“FRBNY”). Term SOFR is a forward-looking term rate determined with reference to certain
SOFR derivatives. Changes in the levels of Term SOFR will affect the amount of interest payable on the CLO debt securities, the distributions
on the CLO equity and the trading price of the CLO securities. Both SOFR and Term SOFR are fundamentally different from LIBOR. LIBOR was
intended to be an unsecured rate that represents interbank funding costs for different short-term maturities or tenors. It was a forward-looking
rate reflecting expectations regarding interest rates for the applicable tenor. Thus, LIBOR was intended to be sensitive, in certain respects,
to bank credit risk and to term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of U.S. Treasury
securities as collateral. Thus, it is largely insensitive to credit-risk considerations and to short-term interest rate risks. SOFR is
a transaction-based rate, and it has been more volatile than other benchmark or market rates, such as three-month LIBOR, during certain
periods. For these reasons, among others, there is no assurance that SOFR, or rates derived from SOFR or related derivatives markets,
like Term SOFR, will perform in the same or similar way as LIBOR would have performed at any time, and there is no assurance that SOFR
or such SOFR-based rates will be a suitable substitute for LIBOR. SOFR has a limited history, having been first published in April 2018.
The future performance of SOFR, and SOFR-based reference rates like Term SOFR, cannot be predicted based on SOFR’s history or otherwise.
Levels of SOFR or Term SOFR in the future, including following the discontinuation of synthetic LIBOR, may bear little or no relation
to historical levels of SOFR, LIBOR or other rates.
Risks
of Replacement Rates. If the applicable rate of interest on any CLO security is calculated with reference to a tenor which
is discontinued, such rate of interest will then be determined by the provisions of the affected CLO security, which may include determination
by the relevant calculation agent in its discretion. The administrator of a reference rate will not have any involvement in the affected
CLOs or loans and may take any actions in respect of such rate without regard to the effect of such actions on the CLOs or loans.
Alteration of
the terms of a debt instrument or a modification of the terms of other types of contracts to replace the reference rate could result in
a taxable exchange and the realization of income and gain/loss for U.S. federal income tax purposes. The IRS has issued regulations regarding
the tax consequences of the transition from an interbank offered rate (“IBOR”) (such as LIBOR) to a new reference rate in
debt instruments and non-debt contracts. Under the regulations, alteration or modification of the terms of a debt instrument to replace
an operative rate that uses a discontinued IBOR with a qualified rate (as defined in the regulations) including true up payments equalizing
the fair market value of contracts before and after such IBOR transition, to add a qualified rate as a fallback rate to a contract whose
operative rate uses a discontinued IBOR or to replace a fallback rate that uses a discontinued IBOR with a qualified rate would not be
taxable. The IRS may provide additional guidance, with potential retroactive effect.
Base
Rate Mismatch. Many underlying corporate borrowers can elect to pay interest based on a 1-month, 3-month and/or other term
base rates in respect of the loans held by CLOs in which we are invested, in each case plus an applicable spread, whereas CLOs generally
pay interest to holders of the CLO’s debt tranches based today on 3-month term plus a spread. The 3-month term rate may fluctuate
in excess of other potential term rates, which may result in many underlying corporate borrowers electing to pay interest based on a shorter,
but in any event lower, base rate. This mismatch in the rate at which CLOs earn interest and the rate at which they pay interest on their
debt tranches negatively impacts the cash flows on a CLO’s equity tranche, which may in turn adversely affect our cash flows and
results of operations. Unless spreads are adjusted to account for such increases, these negative impacts may worsen as the amount by which
the 3-month term rate exceeds such other chosen term base rate.
Interest
Rate Environment. The senior secured loans underlying the CLOs in which we invest typically have floating interest rates. A
sustained high interest rate environment may increase loan defaults, resulting in losses for the CLOs in which we invest. In addition,
increasing interest rates may lead to higher prepayment rates, as corporate borrowers look to avoid escalating interest payments or refinance
floating rate loans. See “— Risks Related to Our Investments — Our investments are subject to prepayment risk.”
For detailed discussions of the risks associated with a high interest rate environment, see “— Risks Related to Our
Investments — We and our investments are subject to interest rate risk” and “— Risks Related to
Our Investments — We and our investments are subject to risks associated with investing in high-yield and unrated, or “junk,”
securities.”
Our investments are subject to credit
risk.
If a CLO in which
we invest, an underlying asset of any such CLO or any other type of credit investment in our portfolio declines in price or fails to pay
interest or principal when due because the issuer or debtor, as the case may be, experiences a decline in its financial status either
or both our income and NAV may be adversely impacted. Non-payment would result in a reduction of our income, a reduction in the value
of the applicable CLO security or other credit investment experiencing non-payment and, potentially, a decrease in our NAV. With respect
to our investments in CLO securities and credit investments that are secured, there can be no assurance that liquidation of collateral
would satisfy the issuer’s obligation in the event of non-payment of scheduled dividend, interest or principal or that such collateral
could be readily liquidated. In the event of bankruptcy of an issuer, we could experience delays or limitations with respect to its ability
to realize the benefits of any collateral securing a CLO security or credit investment. To the extent that the credit rating assigned
to a security in our portfolio is downgraded, the market price and liquidity of such security may be adversely affected. In addition,
if a CLO in which we invest triggers an event of default as a result of failing to make payments when due or for other reasons, the CLO
would be subject to the possibility of liquidation, which could result in full loss of value to the CLO junior debt and equity investors.
CLO equity tranches are the most likely tranche to suffer a loss of all of their value in these circumstances. Heightened inflationary
pressures could increase the risk of default by the Company’s underlying obligors.
Our investments are subject to prepayment
risk.
Although the Adviser’s
valuations and projections take into account certain expected levels of prepayments, the collateral of a CLO may be prepaid more quickly
than expected. Prepayment rates are influenced by changes in interest rates and a variety of factors beyond our control and consequently
cannot be accurately predicted. Early prepayments give rise to increased reinvestment risk, as a CLO collateral manager might realize
excess cash from prepayments earlier than expected. If a CLO collateral manager is unable to reinvest such cash in a new investment with
an expected rate of return at least equal to that of the investment repaid, this may reduce our net income and the fair value of that
asset.
In addition, in
most CLO transactions, CLO debt investors, such as us, are subject to prepayment risk in that the holders of a majority of the equity
tranche can direct a call or refinancing of a CLO, which would cause such CLO’s outstanding CLO debt securities to be repaid at
par. Such prepayments of CLO debt securities held by us also give rise to reinvestment risk if we are unable to reinvest such cash in
a new investment with an expected rate of return at least equal to that of the investment repaid.
We may leverage
our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us.
We have incurred
leverage through indebtedness for borrowed money and the issuance of the Preferred Stock. We may incur additional leverage, directly or
indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of Derivative
Transactions, additional shares of preferred stock, debt securities and other structures and instruments, in significant amounts and on
terms that the Adviser and our board of directors deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage
may be used for the acquisition and financing of our investments, to pay fees and expenses and for other purposes. Such leverage may be
secured and/or unsecured. Any such leverage does not include leverage embedded or inherent in the CLO structures in which we invest or
in derivative instruments in which we may invest. Accordingly, there is a layering of leverage in our overall structure.
The more leverage
we employ, the more likely a substantial change will occur in our NAV. Accordingly, any event that adversely affects the value of an investment
would be magnified to the extent leverage is utilized. For instance, any decrease in our income would cause net income to decline more
sharply than it would have had we not borrowed. Such a decline could also negatively affect our ability to make distributions and other
payments to our securityholders. Leverage is generally considered a speculative investment technique. Our ability to service any debt
that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures.
The cumulative effect of the use of leverage with respect to any investments in a market that moves adversely to such investments could
result in a substantial loss that would be greater than if our investments were not leveraged.
As a registered
closed-end management investment company, we are required to meet certain asset coverage requirements, as defined under the 1940 Act,
with respect to any senior securities. With respect to senior securities representing indebtedness (i.e., borrowings or deemed borrowings),
other than temporary borrowings as defined under the 1940 Act, we are required under current law to have an asset coverage of at least
300%, as measured at the time of borrowing and calculated as the ratio of our total assets (less all liabilities and indebtedness not
represented by senior securities) over the aggregate amount of our outstanding senior securities representing indebtedness. With respect
to senior securities that are stocks (i.e., shares of our preferred stock, including the Preferred Stock), we are required under current
law to have an asset coverage of at least 200%, as measured at the time of the issuance of any such shares of preferred stock and calculated
as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) over the aggregate amount
of our outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding shares of
preferred stock. If legislation were passed that modifies this section of the 1940 Act and increases the amount of senior securities that
we may incur, we may increase our leverage to the extent then permitted by the 1940 Act and the risks associated with an investment in
us may increase.
If our asset coverage
declines below 300% (or 200%, as applicable), we would not be able to incur additional debt or issue additional preferred stock, and could
be required by law to sell a portion of our investments to repay some debt or redeem shares of preferred stock when it is disadvantageous
to do so, which could have a material adverse effect on our operations, and we may not be able to make certain distributions or pay dividends
of an amount necessary to continue to be subject to tax as a RIC. The amount of leverage that we employ will depend on the Adviser’s
and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that
we will be able to obtain credit at all or on terms acceptable to us.
In addition, our
BNP Credit Facility imposes and any debt facility into which we may enter would likely impose financial and operating covenants that restrict
our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the
distributions required to maintain our ability to be subject to tax as a RIC under Subchapter M of the Code.
The following
table is furnished in response to the requirements of the SEC and illustrates the effect of leverage on returns from an investment in
our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns
may be higher or lower than those appearing in the table below.
| Assumed Return on Our Portfolio (Net of Expenses) | |
| -10% | | |
| -5% | | |
| 0% | | |
| 5% | | |
| 10% | |
| Corresponding
net Return to Common Stockholder(1) | |
| -19.05 | % | |
| -11.42 | % | |
| -3.78 | % | |
| 3.86 | % | |
| 11.50 | % |
| (1) | Assumes (i) $393.7 million in pro forma total assets as of June 30, 2024 (adjusted to reflect
(a) the issuance in the Company’s “at-the-market” offering of shares of our common stock from July 1, 2024
through July 31, 2024, yielding net proceeds to the Company of approximately $17.9 million; and (b) the hypothetical borrowings
of the full $25,000,000 available under the BNP Credit Facility); (ii) $257.7 million in pro forma net assets as of June 30,
2024 (adjusted to reflect the issuances and borrowings described above); and (iii) an annualized average interest rate on the Company’s
indebtedness and preferred equity of 7.0%. |
Based on our assumed
leverage described above, our investment portfolio would have been required to experience an annual return of at least 2.5% to cover annual
dividend and interest payments on our outstanding preferred stock and assumed indebtedness.
Our investments may be highly subordinated
and subject to leveraged securities risk.
Our portfolio
includes junior debt and equity investments in CLOs, which involve a number of significant risks. CLOs are typically very highly levered
(with CLO equity securities being leveraged ten times), and therefore the junior debt and equity tranches in which we are currently invested
and in which we seek to invest will be subject to a higher degree of risk of total loss. In particular, investors in CLO securities indirectly
bear risks of the collateral held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally not
have direct rights against the underlying borrowers or the entity that sponsored the CLO. While the CLOs we target generally enable an
equity investor therein to acquire interests in a pool of senior secured loans without the expenses associated with directly holding the
same investments, we generally pay a proportionate share of the CLOs’ administrative, management and other expenses if we make a
CLO equity investment. In addition, we may have the option in certain CLOs to contribute additional amounts to the CLO issuer for purposes
of acquiring additional assets or curing coverage tests, thereby increasing our overall exposure and capital at risk to such CLO. Although
it is difficult to predict whether the prices of assets underlying CLOs will rise or fall, these prices (and, therefore, the prices of
the CLOs’ securities) are influenced by the same types of political and economic events that affect issuers of securities and capital
markets generally. The interests we acquire in CLOs generally are thinly traded or have only a limited trading market. CLO securities
are typically privately offered and sold, even in the secondary market. As a result, investments in CLO securities are illiquid.
We and our investments
are subject to risks associated with investing in high-yield and unrated, or “junk,” securities.
We invest primarily
in securities that are rated below investment grade or, in the case of CLO equity securities, are not rated by a nationally recognized
statistical rating organization. The primary assets underlying our CLO security investments are senior secured loans, although these transactions
may allow for limited exposure to other asset classes including unsecured loans, high yield bonds, emerging market loans or bonds and
structured finance securities with underlying exposure to CBO and CDO tranches, residential mortgage-backed securities, commercial mortgage-backed
securities, trust preferred securities and other types of securitizations. CLOs generally invest in lower-rated debt securities that are
typically rated below Baa/BBB by Moody’s, S&P or Fitch. In addition, we may obtain direct exposure to such financial assets/instruments.
Securities that are not rated or are rated lower than Baa by Moody’s or lower than BBB by S&P or Fitch are sometimes referred
to as “high yield” or “junk.” High-yield debt securities have greater credit and liquidity risk than investment
grade obligations. High-yield debt securities are generally unsecured and may be subordinated to certain other obligations of the issuer
thereof. The lower rating of high-yield debt securities and below investment grade loans reflects a greater possibility that adverse changes
in the financial condition of an issuer or in general economic conditions or both may impair the ability of the issuer thereof to make
payments of principal or interest.
Risks of high-yield
debt securities may include (among others):
| (1) | limited liquidity and secondary market support; |
| (2) | substantial marketplace volatility resulting from changes in
prevailing interest rates; |
| (3) | subordination to the prior claims of banks and other senior
lenders; |
| (4) | the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest
rates that could cause the CLO issuer (or the Company, as applicable) to reinvest premature redemption proceeds in lower-yielding debt
obligations; |
| (5) | the possibility that earnings of the high-yield debt security issuer may be insufficient to meet its debt
service; |
| (6) | the declining creditworthiness and potential for insolvency of the issuer of such high-yield debt securities
during periods of rising interest rates and/or economic downturn; and |
| (7) | greater susceptibility to losses and real or perceived adverse economic and competitive industry conditions
than higher grade securities. |
An economic downturn
or an increase in interest rates could severely disrupt the market for high-yield debt securities and adversely affect the value of outstanding
high-yield debt securities and the ability of the issuers thereof to repay principal and interest.
Issuers of high-yield
debt securities may be highly leveraged and may not have available to them more traditional methods of financing. The risk associated
with acquiring (directly or indirectly) the securities of such issuers generally is greater than is the case with highly rated securities.
For example, during an economic downturn or a sustained period of rising interest rates, issuers of high-yield debt securities may be
more likely to experience financial stress, especially if such issuers are highly leveraged. During such periods, timely service of debt
obligations also may be adversely affected by specific issuer developments, or the issuer’s inability to meet specific projected
business forecasts or the unavailability of additional financing. The risk of loss due to default by the issuer is significantly greater
for the holders of high-yield debt securities because such securities may be unsecured and may be subordinated to obligations owed to
other creditors of the issuer of such securities. In addition, the CLO issuer (or the Company, as applicable) may incur additional expenses
to the extent it (or the Company) is required to seek recovery upon a default on a high yield bond (or any other debt obligation) or participate
in the restructuring of such obligation.
A portion of the
loans held by CLOs in which we invest may consist of second lien loans. Second lien loans are secured by liens on the collateral securing
the loan that are subordinated to the liens of at least one other class of obligations of the related obligor, and thus, the ability of
the CLO issuer to exercise remedies after a second lien loan becomes a defaulted obligation is subordinated to, and limited by, the rights
of the senior creditors holding such other classes of obligations. In many circumstances, the CLO issuer may be prevented from foreclosing
on the collateral securing a second lien loan until the related first lien loan is paid in full. Moreover, any amounts that might be realized
as a result of collection efforts or in connection with a bankruptcy or insolvency proceeding involving a second lien loan must generally
be turned over to the first lien secured lender until the first lien secured lender has realized the full value of its own claims. In
addition, certain of the second lien loans contain provisions requiring the CLO issuer’s interest in the collateral to be released
in certain circumstances. These lien and payment obligation subordination provisions may materially and adversely affect the ability of
the CLO issuer to realize value from second lien loans and adversely affect the fair value of and income from our investment in the CLO’s
securities.
We are subject to risks associated
with loan assignments and participations.
We, or the CLOs
in which we invest, may acquire interests in loans either directly (by way of assignment, or “Assignments”) or indirectly
(by way of participation, or “Participations”). The purchaser by an Assignment of a loan obligation typically succeeds to
all the rights and obligations of the selling institution and becomes a lender under the loan or credit agreement with respect to the
debt obligation. In contrast, Participations acquired by us or the CLOs in which we invest in a portion of a debt obligation held by a
selling institution, or the “Selling Institution,” typically result in a contractual relationship only with such Selling Institution,
not with the obligor. We or the CLOs in which we invest would have the right to receive payments of principal, interest and any fees to
which we (or the CLOs in which we invest) are entitled under the Participation only from the Selling Institution and only upon receipt
by the Selling Institution of such payments from the obligor. In purchasing a Participation, we or the CLOs in which we invest generally
will have no right to enforce compliance by the obligor with the terms of the loan or credit agreement or other instrument evidencing
such debt obligation, nor any rights of setoff against the obligor, and we or the CLOs in which we invest may not directly benefit from
the collateral supporting the debt obligation in which it has purchased the Participation. As a result, we or the CLOs in which we invest
would assume the credit risk of both the obligor and the Selling Institution. In the event of the insolvency of the Selling Institution,
we or the CLOs in which we invest will be treated as a general creditor of the Selling Institution in respect of the Participation and
may not benefit from any setoff between the Selling Institution and the obligor.
The holder of
a Participation in a debt obligation may not have the right to vote to waive enforcement of any default by an obligor. Selling Institutions
commonly reserve the right to administer the debt obligations sold by them as they see fit and to amend the documentation evidencing such
debt obligations in all respects. However, most participation agreements with respect to senior secured loans provide that the Selling
Institution may not vote in favor of any amendment, modification or waiver that (1) forgives principal, interest or fees, (2) reduces
principal, interest or fees that are payable, (3) postpones any payment of principal (whether a scheduled payment or a mandatory
prepayment), interest or fees or (4) releases any material guarantee or security without the consent of the participant (at least
to the extent the participant would be affected by any such amendment, modification or waiver).
A Selling Institution
voting in connection with a potential waiver of a default by an obligor may have interests different from ours, and the Selling Institution
might not consider our interests in connection with its vote. In addition, many participation agreements with respect to senior secured
loans that provide voting rights to the participant further provide that, if the participant does not vote in favor of amendments, modifications
or waivers, the Selling Institution may repurchase such Participation at par. An investment by us in a synthetic security related to a
loan involves many of the same considerations relevant to Participations.
The lack of liquidity
in our investments may adversely affect our business.
High-yield investments,
including subordinated CLO securities and collateral held by CLOs in which we invest, generally have limited liquidity. As a result, prices
of high-yield investments have at times experienced significant and rapid decline when a substantial number of holders (or a few holders
of a significantly large “block” of the securities) decided to sell. In addition, we (or the CLOs in which we invest) may
have difficulty disposing of certain high-yield investments because there may be a thin trading market for such securities. To the extent
that a secondary trading market for non-investment grade high-yield investments does exist, it would not be as liquid as the secondary
market for highly rated investments. Reduced secondary market liquidity would have an adverse impact on the fair value of the securities
and on our direct or indirect ability to dispose of particular securities in response to a specific economic event such as deterioration
in the creditworthiness of the issuer of such securities.
Purchasers of
loans are predominately commercial banks, investment funds and investment banks. As secondary market trading volumes increase, new loans
frequently contain standardized documentation to facilitate loan trading that may improve market liquidity. There can be no assurance,
however, that future levels of supply and demand in loan trading will provide an adequate degree of liquidity or that the current level
of liquidity will continue. Because holders of such loans are offered confidential information relating to the borrower, the unique and
customized nature of the loan agreement, and the private syndication of the loan, loans are not purchased or sold as easily as publicly
traded securities are purchased or sold. Although a secondary market may exist, risks similar to those described above in connection with
an investment in high-yield debt investments are also applicable to investments in lower rated loans.
The securities
issued by CLOs generally offer less liquidity than other investment grade or high-yield corporate debt, and are subject to certain transfer
restrictions that impose certain financial and other eligibility requirements on prospective transferees. Other investments that we may
purchase in privately negotiated transactions may also be illiquid or subject to legal restrictions on their transfer. As a result of
this illiquidity, our ability to sell certain investments quickly, or at all, in response to changes in economic and other conditions
and to receive a fair price when selling such investments may be limited, which could prevent us from making sales to mitigate losses
on such investments. In addition, CLOs are subject to the possibility of liquidation upon an event of default, which could result in full
loss of value to the CLO equity and junior debt investors. CLO equity tranches are the most likely tranche to suffer a loss of all of
their value in these circumstances.
We may be exposed to counterparty
risk.
We may be exposed to counterparty risk,
which could make it difficult for us or the CLOs in which we invest to collect on the obligations represented by investments and result
in significant losses.
We may hold investments
(including synthetic securities) that would expose us to the credit risk of our counterparties or the counterparties of the CLOs in which
it invests. In the event of a bankruptcy or insolvency of such a counterparty, we or a CLO in which such an investment is held could suffer
significant losses, including the loss of that part of our or the CLO’s portfolio financed through such a transaction, declines
in the value of our investment, including declines that may occur during an applicable stay period, the inability to realize any gains
on our investment during such period and fees and expenses incurred in enforcing our rights. If the CLO enters into or owns synthetic
securities, the CLO may fall within the definition of “commodity pool” under CFTC rules, and the collateral manager of the
CLO may be required to register as a commodity pool operator with the CFTC, which could increase costs for the CLO and reduce amounts
available to pay to the residual tranche.
In addition, with
respect to certain swaps and synthetic securities, neither a CLO nor we usually has a contractual relationship with the entities, referred
to as “Reference Entities” whose payment obligations are the subject of the relevant swap agreement or security. Therefore,
neither the CLOs nor we generally have a right to directly enforce compliance by the Reference Entity with the terms of this kind of underlying
obligation, any rights of set-off against the Reference Entity or any voting rights with respect to the underlying obligation. Neither
the CLOs nor we will directly benefit from the collateral supporting the underlying obligation and will not have the benefit of the remedies
that would normally be available to a holder of such underlying obligation.
Furthermore, we
may invest in unsecured notes which are linked to loans or other assets held by a bank or other financial institution on its balance sheet
(so called “credit-linked notes”). Although the credit-linked notes are tied to the underlying performance of the assets held
by the bank, such credit-linked notes are not secured by such assets and we have no direct or indirect ownership of the underlying assets.
Thus, as a holder of such credit-linked notes, we would be subject to counterparty risk of the bank which issues the credit-linked notes
(in addition to the risk associated with the assets themselves). To the extent the relevant bank experiences an insolvency event or goes
into receivership, we may not receive payments on the credit-linked notes, or such payments may be delayed.
We are subject to risks associated
with defaults on an underlying asset held by a CLO.
A default and
any resulting loss as well as other losses on an underlying asset held by a CLO may reduce the fair value of our corresponding CLO investment.
A wide range of factors could adversely affect the ability of the borrower of an underlying asset to make interest or other payments on
that asset. To the extent that actual defaults and losses on the collateral of an investment exceed the level of defaults and losses factored
into its purchase price, the value of the anticipated return from the investment will be reduced. The more deeply subordinated the tranche
of securities in which we invest, the greater the risk of loss upon a default. For example, CLO equity is the most subordinated tranche
within a CLO and is therefore subject to the greatest risk of loss resulting from defaults on the CLO’s collateral, whether due
to bankruptcy or otherwise. Any defaults and losses in excess of expected default rates and loss model inputs will have a negative impact
on the fair value of our investments, will reduce the cash flows that we receive from our investments, adversely affect the fair value
of our assets and could adversely impact our ability to pay dividends. Furthermore, the holders of the junior debt and equity tranches
typically have limited rights with respect to decisions made with respect to collateral following an event of default on a CLO. In some
cases, the senior most class of notes can elect to liquidate the collateral even if the expected proceeds are not expected to be able
to pay in full all classes of notes. We could experience a complete loss of our investment in such a scenario.
In addition, the
collateral of CLOs may require substantial workout negotiations or restructuring in the event of a default or liquidation. Any such workout
or restructuring is likely to lead to a substantial reduction in the interest rate of such asset and/or a substantial write-down or write-off
of all or a portion the principal of such asset. Any such reduction in interest rates or principal will negatively affect the fair value
of our portfolio.
We are subject
to risks associated with LAFs.
We may invest
capital in LAFs, which are short- to medium-term facilities often provided by the bank that will serve as placement agent or arranger
on a CLO transaction and which acquire loans on an interim basis which are expected to form part of the portfolio of a future CLO. Investments
in LAFs have risks similar to those applicable to investments in CLOs. There typically will be no assurance that the future CLO will be
consummated or that the loans held in such a loan accumulation facility are eligible for purchase by the CLO. In the event a planned CLO
is not consummated, or the loans are not eligible for purchase by the CLO, the Company may be responsible for either holding or disposing
of the loans. This could expose the Company primarily to credit and/or mark-to-market losses, and other risks. Leverage is typically utilized
in such a facility and as such the potential risk of loss will be increased for such facilities employing leverage.
Furthermore, we
likely will have no consent rights in respect of the loans to be acquired in such a facility and in the event we do have any consent rights,
they will be limited. In the event a planned CLO is not consummated, or the loans are not eligible for purchase by the CLO, we may be
responsible for either holding or disposing of the loans. This could expose us primarily to credit and/or mark-to-market losses, and other
risks. LAFs typically incur leverage from four to six times prior to a CLO’s closing and as such the potential risk of loss will
be increased for such facilities that employ leverage.
Our synthetic strategy involves
certain additional risks.
We may invest
in synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by banks or other financial
institutions, or acquire interests in lease agreements that have the general characteristics of loans and are treated as loans for withholding
tax purposes. In addition to the credit risks associated with the applicable reference assets, we will usually have a contractual relationship
only with the counterparty of such synthetic investment, and not with the reference obligor of the reference asset. Accordingly, we generally
will have no right to directly enforce compliance by the reference obligor with the terms of the reference asset nor will it have any
rights of setoff against the reference obligor or rights with respect to the reference asset. We will not directly benefit from the collateral
supporting the reference asset and will not have the benefit of the remedies that would normally be available to a holder of such reference
asset. In addition, in the event of the insolvency of the counterparty, we may be treated as a general creditor of such counterparty,
and will not have any claim with respect to the reference asset. Consequently, we will be subject to the credit risk of the counterparty
as well as that of the reference obligor. As a result, concentrations of synthetic securities in any one counterparty subject us to an
additional degree of risk with respect to defaults by such counterparty as well as by the reference obligor.
We are subject
to risks associated with the bankruptcy or insolvency of an issuer or borrower of a loan that we hold or of an underlying asset held by
a CLO in which we invest.
In the event of
a bankruptcy or insolvency of an issuer or borrower of a loan that we hold or of an underlying asset held by a CLO or other vehicle in
which we invest, a court or other governmental entity may determine that our claims or those of the relevant CLO are not valid or not
entitled to the treatment we expected when making our initial investment decision.
Various laws enacted
for the protection of debtors may apply to the underlying assets in our investment portfolio. The information in this and the following
paragraph represents a brief summary of certain points only, is not intended to be an extensive summary of the relevant issues and is
applicable with respect to U.S. issuers and borrowers only. The following is not intended to be a summary of all relevant risks. Similar
avoidance provisions to those described below are sometimes available with respect to non-U.S. issuers or borrowers, and there is no assurance
that this will be the case which may result in a much greater risk of partial or total loss of value in that underlying asset.
If a court in
a lawsuit brought by an unpaid creditor or representative of creditors of an issuer or borrower of underlying assets, such as a trustee
in bankruptcy, were to find that such issuer or borrower did not receive fair consideration or reasonably equivalent value for incurring
the indebtedness constituting such underlying assets and, after giving effect to such indebtedness, the issuer or borrower (1) was
insolvent; (2) was engaged in a business for which the remaining assets of such issuer or borrower constituted unreasonably small
capital; or (3) intended to incur, or believed that it would incur, debts beyond our ability to pay such debts as they mature, such
court could decide to invalidate, in whole or in part, the indebtedness constituting the underlying assets as a fraudulent conveyance,
to subordinate such indebtedness to existing or future creditors of the issuer or borrower or to recover amounts previously paid by the
issuer or borrower in satisfaction of such indebtedness. In addition, in the event of the insolvency of an issuer or borrower of underlying
assets, payments made on such underlying assets could be subject to avoidance as a “preference” if made within a certain period
of time (which may be as long as one year under U.S. Federal bankruptcy law or even longer under state laws) before insolvency.
Our underlying
assets may be subject to various laws for the protection of debtors in other jurisdictions, including the jurisdiction of incorporation
of the issuer or borrower of such underlying assets and, if different, the jurisdiction from which it conducts business and in which it
holds assets, any of which may adversely affect such issuer’s or borrower’s ability to make, or a creditor’s ability
to enforce, payment in full, on a timely basis or at all. These insolvency considerations will differ depending on the jurisdiction in
which an issuer or borrower or the related underlying assets are located and may differ depending on the legal status of the issuer or
borrower.
We are subject
to risks associated with any hedging or Derivative Transactions in which we participate.
We may in the
future purchase and sell a variety of derivative instruments. To the extent we engage in Derivative Transactions, we expect to do so to
hedge against interest rate, credit, currency and/or other risks or for other investment or risk management purposes. We may use Derivative
Transactions for investment purposes to the extent consistent with our investment objectives if the Adviser deems it appropriate to do
so. Derivative Transactions may be volatile and involve various risks different from, and in certain cases, greater than the risks presented
by other instruments. The primary risks related to Derivative Transactions include counterparty, correlation, illiquidity, leverage, volatility,
and OTC trading, operational and legal risks. A small investment in derivatives could have a large potential impact on our performance,
effecting a form of investment leverage on our portfolio. In certain types of Derivative Transactions, we could lose the entire amount
of our investment. In other types of Derivative Transactions, the potential loss is theoretically unlimited.
The following
is a more detailed discussion of primary risk considerations related to the use of Derivative Transactions that investors should understand
before investing in our securities.
Counterparty
risk. Counterparty risk is the risk that a counterparty in a Derivative Transaction will be unable to honor its financial obligation
to us, or the risk that the reference entity in a credit default swap or similar derivative will not be able to honor its financial obligations.
Certain participants in the derivatives market, including larger financial institutions, have experienced significant financial hardship
and deteriorating credit conditions. If our counterparty to a Derivative Transaction experiences a loss of capital, or is perceived to
lack adequate capital or access to capital, it may experience margin calls or other regulatory requirements to increase equity. Under
such circumstances, the risk that a counterparty will be unable to honor its obligations may increase substantially. If a counterparty
becomes bankrupt, we may experience significant delays in obtaining recovery (if at all) under the derivative contract in bankruptcy or
other reorganization proceeding; if our claim is unsecured, we will be treated as a general creditor of such prime broker or counterparty
and will not have any claim with respect to the underlying security. We may obtain only a limited recovery or may obtain no recovery in
such circumstances. The counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivatives since generally
a clearing organization becomes substituted for each counterparty to a cleared derivative and, in effect, guarantees the parties’
performance under the contract as each party to a trade looks only to the clearing house for performance of financial obligations. However,
there can be no assurance that the clearing house, or its members, will satisfy its obligations to us.
Correlation
risk. When used for hedging purposes, an imperfect or variable degree of correlation between price movements of the derivative
instrument and the underlying investment sought to be hedged may prevent us from achieving the intended hedging effect or expose us to
the risk of loss. The imperfect correlation between the value of a derivative and our underlying assets may result in losses on the Derivative
Transaction that are greater than the gain in the value of the underlying assets in our portfolio. The Adviser may not hedge against a
particular risk because it does not regard the probability of the risk occurring to be sufficiently high as to justify the cost of the
hedge, or because it does not foresee the occurrence of the risk. These factors may have a significant negative effect on the fair value
of our assets and the market value of our securities.
Liquidity
risk. Derivative Transactions, especially when traded in large amounts, may not be liquid in all circumstances, so that in
volatile markets we would not be able to close out a position without incurring a loss. Although both OTC and exchange-traded derivatives
markets may experience a lack of liquidity, OTC non-standardized derivative transactions are generally less liquid than exchange-traded
instruments. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations
on deliverable supplies, the participation of speculators, government regulation and intervention, and technical and operational or system
failures. In addition, daily limits on price fluctuations and speculative position limits on exchanges on which we may conduct transactions
in derivative instruments may prevent prompt liquidation of positions, subjecting us to the potential of greater losses. As a result,
we may need to liquidate other investments to meet margin and settlement payment obligations.
Leverage
risk. Trading in Derivative Transactions can result in significant leverage and risk of loss. Thus, the leverage offered by
trading in derivative instruments will magnify the gains and losses we experience and could cause our NAV to be subject to wider fluctuations
than would be the case if we did not use the leverage feature in derivative instruments.
Volatility
risk. The prices of many derivative instruments, including many options and swaps, are highly volatile. Price movements of
options contracts and payments pursuant to swap agreements are influenced by, among other things, interest rates, changing supply and
demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international
political and economic events and policies. The value of options and swap agreements also depends upon the price of the securities or
currencies underlying them.
OTC
trading. Derivative Transactions that may be purchased or sold may include instruments not traded on an organized market. The
risk of non-performance by the counterparty to such Derivative Transaction may be greater and the ease with which we can dispose of or
enter into closing transactions with respect to such an instrument may be less than in the case of an exchange traded instrument. In addition,
significant disparities may exist between “bid” and “ask” prices for certain derivative instruments that are not
traded on an exchange. Such instruments are often valued subjectively and may result in mispricings or improper valuations. Improper valuations
can result in increased cash payment requirements to counterparties or a loss of value, or both. In contrast, cleared derivative transactions
benefit from daily mark-to-market pricing and settlement, and segregation and minimum capital requirements applicable to intermediaries.
Derivatives are also subject to operational and legal risks. Operational risk generally refers to risk related to potential operational
issues, including documentation issues, settlement issues, system failures, inadequate controls, and human errors. Legal risk generally
refers to insufficient documentation, insufficient capacity or authority of counterparty, or legality or enforceability of a contract.
Transactions entered into directly between two counterparties generally do not benefit from such protections; however, certain uncleared
derivative transactions are subject to minimum margin requirements which may require us and our counterparties to exchange collateral
based on daily marked-to-market pricing. OTC trading generally exposes us to the risk that a counterparty will not settle a transaction
in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because
of a credit or liquidity problem, thus causing us to suffer a loss. Such “counterparty risk” is accentuated for contracts
with longer maturities where events may intervene to prevent settlement, or where we have concentrated our transactions with a single
or small group of counterparties.
We may be subject to risks associated
with investments in other investment companies.
We may invest
in securities of other investment companies, including closed-end funds, BDCs, mutual funds, and ETFs, and may otherwise invest indirectly
in securities consistent with our investment objectives, subject to statutory limitations prescribed by the 1940 Act. These limitations
include in certain circumstances a prohibition on us acquiring more than 3% of the voting shares of any other investment company, and
a prohibition on investing more than 5% of our total assets in securities of any one investment company or more than 10% of our total
assets in securities of all investment companies. Subject to applicable law and/or pursuant to an exemptive order obtained from the SEC
or under an exemptive rule adopted by the SEC, we may invest in certain other investment companies (including ETFs and money market
funds) and business development companies beyond these statutory limits or otherwise provided that certain conditions are met. We will
indirectly bear our proportionate share of any management fees and other expenses paid by such other investment companies, in addition
to the fees and expenses that we regularly bear. We may only invest in other investment companies to the extent that the asset class exposure
in such investment companies is consistent with the permissible asset class exposure for us had we invested directly in securities, and
the portfolios of such investment companies are subject to similar risks as we are.
Investors will bear indirectly the
fees and expenses of the CLO equity securities in which we invest.
Investors will
bear indirectly the fees and expenses (including management fees and other operating expenses) of the CLO equity securities in which we
invest. CLO collateral manager fees are charged on the total assets of a CLO but are assumed to be paid from the residual cash flows after
interest payments to the CLO senior debt tranches. Therefore, these CLO collateral manager fees (which generally range from 0.35% to 0.50%
of a CLO’s total assets) are effectively much higher when allocated only to the CLO equity tranche. The calculation does not include
any other operating expense ratios of the CLOs, as these amounts are not routinely reported to shareholders on a basis consistent with
this methodology; however, it is estimated that additional operating expenses of 0.30% to 0.70% could be incurred. In addition, CLO collateral
managers may earn fees based on a percentage of the CLO’s equity cash flows after the CLO equity has earned a cash-on-cash return
of its capital and achieved a specified “hurdle” rate.
We and our investments are subject
to reinvestment risk.
As part of the
ordinary management of its portfolio, a CLO will typically generate cash from asset repayments and sales and reinvest those proceeds in
substitute assets, subject to compliance with its investment tests and certain other conditions. The earnings with respect to such substitute
assets will depend on the quality of reinvestment opportunities available at the time. If the CLO collateral manager causes the CLO to
purchase substitute assets at a lower yield than those initially acquired (for example, during periods of loan compression or need to
satisfy the CLO’s covenants) or sale proceeds are maintained temporarily in cash, it would reduce the excess interest-related cash
flow that the CLO collateral manager is able to achieve. The investment tests may incentivize a CLO collateral manager to cause the CLO
to buy riskier assets than it otherwise would, which could result in additional losses. These factors could reduce our return on investment
and may have a negative effect on the fair value of our assets and the market value of our securities. In addition, the reinvestment period
for a CLO may terminate early, which would cause the holders of the CLO’s securities to receive principal payments earlier than
anticipated. In addition, in most CLO transactions, CLO debt investors are subject to the risk that the holders of a majority of the equity
tranche, who can direct a call or refinancing of a CLO, causing such CLO’s outstanding CLO debt securities to be repaid at par earlier
than expected. There can be no assurance that we will be able to reinvest such amounts in an alternative investment that provides a comparable
return relative to the credit risk assumed.
We and our investments are subject
to risks associated with non-U.S. investing.
While we invest
primarily in CLOs that hold underlying U.S. assets, these CLOs may be organized outside the United States. We may also invest in CLOs
that hold collateral that are non-U.S. assets, or otherwise invest in securities of non-U.S. issuers to the extent consistent with our
investment strategies and objectives. Investing in foreign entities may expose us to additional risks not typically associated with investing
in U.S. issuers. These risks include changes in exchange control regulations, political and social instability, restrictions on the types
or amounts of investment, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally
the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy
laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards, currency fluctuations and greater
price volatility. Further, we, and the CLOs in which we invest, may have difficulty enforcing creditor’s rights in foreign jurisdictions.
In addition, international
trade tensions may arise from time to time which could result in trade tariffs, embargoes or other restrictions or limitations on trade.
The imposition of any actions on trade could trigger a significant reduction in international trade, supply chain disruptions, an oversupply
of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies or industries, which
could have a negative impact on the value of the CLO securities that we hold.
Foreign markets
also have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result
in periods when our assets are uninvested. Our inability to make intended investments due to settlement problems or the risk of intermediary
counterparty failures could cause it to miss investment opportunities. The inability to dispose of an investment due to settlement problems
could result either in losses to the funds due to subsequent declines in the value of such investment or, if we have entered into a contract
to sell the security, could result in possible liability to the purchaser. Transaction costs of buying and selling foreign securities
also are generally higher than those involved in domestic transactions. Furthermore, foreign financial markets have, for the most part,
substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies.
The economies
of individual non-U.S. countries may also differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, volatility of currency exchange rates, depreciation, capital reinvestment, resources self-sufficiency and
balance of payments position.
Global
Risks. Due to highly interconnected global economies and financial markets, the value of our securities and our underlying
investments may go up or down in response to governmental actions and/or general economic conditions throughout the world. Events such
as war, military conflict, acts of terrorism, social unrest, natural disasters, recessions, inflation, rapid interest rate changes, supply
chain disruptions, sanctions, the spread of infectious illness or other public health threats could also significantly impact us and its
investments.
Currency
Risk. Any of our investments that are denominated in currencies other than U.S. dollars will be subject to the risk that the
value of such currency will decrease in relation to the U.S. dollar. Although we will consider hedging any non-U.S. dollar exposures back
to U.S. dollars, an increase in the value of the U.S. dollar compared to other currencies in which we make investments would otherwise
reduce the effect of increases and magnify the effect of decreases in the prices of our non-U.S. dollar denominated investments in their
local markets. Fluctuations in currency exchange rates will similarly affect the U.S. dollar equivalent of any interest, dividends or
other payments made that are denominated in a currency other than U.S. dollars.
Any unrealized
losses we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution
or to make payments on our other obligations.
As a registered
closed-end management investment company, we are required to carry our investments at market value or, if no market value is ascertainable,
at the fair value as determined in good faith by the Adviser. Decreases in the market values or fair values of our investments are recorded
as unrealized depreciation. Any unrealized losses in our portfolio could be an indication of an issuer’s inability to meet its repayment
obligations to us with respect to the affected investments. This could result in realized losses in the future and ultimately in reductions
of our income available for distribution or to make payments on our other obligations in future periods.
If our distributions
exceed our taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable
year may be recharacterized as a return of capital to our common stockholders. A return of capital distribution will generally not be
taxable to our stockholders.
However, a return
of capital distribution will reduce a stockholder’s cost basis in shares of our common stock on which the distribution was received,
thereby potentially resulting in a higher reported capital gain or lower reported capital loss when those shares of our common stock are
sold or otherwise disposed of.
A portion
of our income and fees may not be qualifying income for purposes of the income source requirement.
Some of the income
and fees that we may recognize will not satisfy the qualifying income requirement applicable to RICs. In order to ensure that such income
and fees do not disqualify us as a RIC for a failure to satisfy such requirement, we may need to recognize such income and fees indirectly
through one or more entities classified as corporations for U.S. federal income tax purposes. Such corporations will be subject to U.S.
corporate income tax on their earnings, which ultimately will reduce our return on such income and fees.
Risks Relating to an Investment in Our
Securities
Common stock
of closed-end management investment companies frequently trades at discounts to their respective NAVs, and we cannot assure you that the
market price of our common stock will not decline below our NAV per share.
Common stock of
closed-end management investment companies frequently trades at discounts to their respective NAVs and our common stock may also be discounted
in the market. This characteristic of closed-end management investment companies is separate and distinct from the risk that our NAV per
share may decline. We cannot predict whether shares of our common stock will trade above, at or below our NAV per share. The risk of loss
associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell common
stock purchased in an offering soon after such offering. In addition, if our common stock trades below our NAV per share, we will generally
not be able to sell additional common stock to the public at market price except (1) in connection with a rights offering to our
existing stockholders, (2) with the consent of the majority of the holders of our common stock, (3) upon the conversion of a
convertible security in accordance with its terms or (4) under such circumstances as the SEC may permit. See “Description
of Our Capital Stock - Repurchase of Shares and Other Discount Measures.”
Our common stock price may be volatile
and may decrease substantially.
The trading price
of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market may be higher or lower
than the price you paid to purchase shares of our common stock, depending on many factors, some of which are beyond our control and may
not be directly related to our operating performance. These factors include the following:
| • | price and volume fluctuations in the overall stock market from time to time; |
| • | investor demand for shares of our common stock; |
| • | significant volatility in the market price and trading volume of securities of registered closed-end management
investment companies or other companies in our sector, which are not necessarily related to the operating performance of these companies; |
| • | changes in regulatory policies or tax guidelines with respect to RICs or registered closed-end management
investment companies; |
| • | failure to qualify as a RIC, or the loss of RIC status; |
| • | any shortfall in revenue or net income or any increase in losses from levels expected by investors or
securities analysts; |
| • | changes, or perceived changes, in the value of our portfolio investments; |
| • | departures of any members of the Investment Committee; |
| • | operating performance of companies comparable to us; or |
| • | general economic conditions and trends and other external factors. |
We and the Adviser could be the target
of litigation.
We or the Adviser
could become the target of securities class action litigation or other similar claims if our stock price fluctuates significantly or for
other reasons. The outcome of any such proceedings could materially adversely affect our business, financial condition, and/or operating
results and could continue without resolution for long periods of time. Any litigation or other similar claims could consume substantial
amounts of our management’s time and attention, and that time and attention and the devotion of associated resources could, at times,
be disproportionate to the amounts at stake. Litigation and other claims are subject to inherent uncertainties, and a material adverse
impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome in litigation or other
similar claims becomes probable and reasonably estimable. In addition, we could incur expenses associated with defending ourselves against
litigation and other similar claims, and these expenses could be material to our earnings in future periods.
Sales in the
public market of substantial amounts of our common stock may have an adverse effect on the market price of our common stock.
Sales of substantial
amounts of our common stock, including by the selling stockholders, or the availability of such common stock for sale, whether or not
actually sold, could adversely affect the prevailing market price of our common stock. If this occurs and continues, it could impair our
ability to raise additional capital through the sale of equity securities should we desire to do so. For a discussion of the adverse effect
that the concentration of beneficial ownership may have on the market price of our common stock, see “— Risks Related
to Our Business and Structure — Significant stockholders may control the outcome of matters submitted to our stockholders or adversely
impact the market price of our securities.”
Our stockholders
will experience dilution if they do not participate in our dividend reinvestment plan.
All distributions
declared in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares
of our common stock. As a result, our stockholders that do not participate in our dividend reinvestment plan will experience dilution
in their ownership percentage of our common stock over time.
Your interest in us may be diluted
if you do not fully exercise your subscription rights in any rights offering.
In the event we
issue subscription rights to purchase shares of our common stock to existing stockholders, stockholders who do not fully exercise their
rights should expect that they will, at the completion of the offer, own a smaller proportional interest in us than would otherwise be
the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we
do not know at this time what proportion of the shares will be purchased as a result of the offer.
In addition, if
the subscription price is less than our net asset value per share, then our stockholders would experience an immediate dilution of the
aggregate net asset value of their shares as a result of the offer. The amount of any decrease in net asset value is not predictable because
it is not known at this time what the subscription price and net asset value per share will be on the expiration date of the rights offering
or what proportion of the shares will be purchased as a result of the offer. Such dilution could be substantial.
The impact of tax legislation on us,
our stockholders and our investments is uncertain.
Changes in tax
laws, regulations or administrative interpretations or any amendments thereto could adversely affect us, the entities in which we invest,
or our stockholders. You are urged to consult with your tax advisor with respect to the impact of any such legislation or other regulatory
or administrative developments and proposals and their potential effect on your investment in us.
Our preferred
stock and/or the indebtedness incurred in connection with borrowings under our BNP Credit Facility may cause the NAV and market value
of our common stock to be more volatile.
Any indebtedness
incurred in connection with our BNP Credit Facility, the Preferred Stock, and any future issuances of additional series of preferred stock
or debt securities or other indebtedness, may cause the NAV and market value of our common stock to become more volatile. If the dividend
rate on the preferred stock or interest rate payable on our indebtedness were to approach the net rate of return on our investment portfolio,
the benefit of leverage to the common stockholders would be reduced. If the dividend rate on the preferred stock or interest rate payable
on our indebtedness were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the
common stockholders than if we had not issued preferred stock or incurred any indebtedness. Any decline in the NAV of our investments
would be borne entirely by the common stockholders. Therefore, if the market value of our portfolio were to decline, the leverage would
result in a greater decrease in NAV to the common stockholders than if we were not leveraged through the issuance of preferred stock and
the borrowings under our BNP Credit Facility or the future issuance of any debt securities. This greater NAV decrease would also tend
to cause a greater decline in the market price for common stock. We might be in danger of failing to maintain the required asset coverage
of the preferred stock or indebtedness or, in an extreme case, our current investment income might not be sufficient to meet the dividend
requirements on the preferred stock or interest payments on our indebtedness. In order to counteract such an event, we might need to liquidate
investments in order to make payments under our BNP Credit Facility or other future indebtedness or in order to fund a redemption of some
or all of the preferred stock. In addition, we would pay (and the common stockholders would bear) all costs and expenses relating to the
issuance and ongoing maintenance of the preferred stock or our BNP Credit Facility, including higher advisory fees if our total return
exceeds the dividend rate on the preferred stock or the interest rate payable on our indebtedness.
Market yields may increase, which
would result in a decline in the price of our Preferred Stock.
The prices of
fixed income investments, such as our Preferred Stock, vary inversely with changes in market yields. The market yields on securities comparable
to our Preferred Stock may increase, which would result in a decline in the secondary market price of shares of our Preferred Stock prior
to the redemption date of such Preferred Stock. Our future debt securities, if any, would be expected to be subject to similar risks.
Our Preferred Stock is subject
to a risk of early redemption, and holders may not be able to reinvest their funds.
We may voluntarily
redeem some or all of the outstanding shares of our Preferred Stock on or after the dates stated in the applicable governing documents.
We also may be forced to redeem some or all of the outstanding shares of our Preferred Stock to meet regulatory requirements and the asset
coverage requirements of such shares. Any such redemption may occur at a time that is unfavorable to holders of our Preferred Stock. We
may have an incentive to redeem any of our outstanding Preferred Stock if market conditions allow us to issue other preferred stock or
debt securities at a rate that is lower than the dividend rate on the outstanding Preferred Stock. If we redeem shares of Preferred Stock,
the holders of such redeemed shares face the risk that the return on an investment purchased with proceeds from such redemption may be
lower than the return previously obtained from the investment in the Preferred Stock.
An active trading market for
the Preferred Stock may not exist, which could adversely affect the market price of our Preferred Stock or a holder’s ability to
sell their shares.
Our outstanding
Preferred Stock is currently listed on the New York Stock Exchange, or the “NYSE,” and future preferred stock also may be
listed on the NYSE. However, we cannot provide any assurances that an active trading market for the Preferred Stock will exist in the
future or that you will be able to sell your shares of the Preferred Stock. Even if an active trading market does exist, shares of the
Preferred Stock may trade at a discount from the liquidation preference for such shares depending on prevailing interest rates, the market
for similar securities, our credit ratings, if any, general economic conditions, our financial condition, performance and prospects and
other factors. To the extent an active trading market does not exist, the liquidity and trading price for shares of the Preferred Stock
may be harmed. Accordingly, holders may be required to bear the financial risk of an investment in the Preferred Stock for an indefinite
period of time.
Our Preferred Stock will be subordinate
to the rights of holders of senior indebtedness.
While the holders
of Preferred Stock will have equal liquidation and distribution rights to any other series of preferred stock that may be issued in the
future, they will be subordinated to the rights of holders of our other senior indebtedness, including indebtedness under our BNP Credit
Facility. Therefore, dividends, distributions and other payments to holders of the Preferred Stock in liquidation or otherwise may be
subject to prior payments due to the holders of senior indebtedness. In addition, the 1940 Act may provide debt holders with voting rights
that are superior to the voting rights of the Preferred Stock.
Holders of our Preferred Stock
will bear dividend risk.
We may be unable
to pay dividends on our Preferred Stock under some circumstances. The terms of any future indebtedness we may incur could preclude the
payment of dividends in respect of equity securities, including our Preferred Stock, under certain conditions.
To the extent that our distributions
represent a return of capital for U.S. federal income tax purposes, holders of our Preferred Stock may recognize an increased gain or
a reduced loss upon subsequent sales (including cash redemptions) of their shares of Preferred Stock.
The dividends
payable by us on our Preferred Stock may exceed our current and accumulated earnings and profits as determined for U.S. federal income
tax purposes. If that were to occur, it would result in the amount of distributions that exceed our earnings and profits being treated
first as a return of capital to the extent of a holder’s adjusted tax basis in the holder’s Preferred Stock and then, to the
extent of any excess over the holder’s adjusted tax basis in the holder’s Preferred Stock, as capital gain. Any distribution
that is treated as a return of capital will reduce the holder’s adjusted tax basis in the holder’s Preferred Stock, and subsequent
sales (including cash redemptions) of such holder’s Preferred Stock will result in recognition of an increased taxable gain or reduced
taxable loss due to the reduction in such adjusted tax basis. See “U.S. Federal Income Tax Matters — Taxation of Stockholders
— Taxation of U.S. holders of our stock.”
There is a risk of delay in our
redemption of our Preferred Stock, and we may fail to redeem such securities as required by their terms.
We generally make
investments in CLO vehicles whose securities are not traded in any public market. Substantially all of the investments we presently hold
and the investments we expect to acquire in the future are, and will be, subject to legal and other restrictions on resale and will otherwise
be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to obtain cash equal to
the value at which we record our investments quickly if a need arises. If we are unable to obtain sufficient liquidity prior to the mandatory
redemption date, we may be forced to engage in a partial redemption or to delay a required redemption. If such a partial redemption or
delay were to occur, the market price of shares of our Preferred Stock might be adversely affected.
Our future debt securities, if
any, may be unsecured and therefore effectively subordinated to any secured indebtedness we may incur in the future.
Our future debt
securities, if any, may not be secured by any of our assets or any of the assets of our subsidiaries. In such cases, our future debt securities,
if any, would be subordinated to any secured indebtedness we or our subsidiaries may incur in the future (or any indebtedness that is
initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any
liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our future secured indebtedness and the secured
indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment
of their indebtedness before the assets may be used to pay other creditors, including the holders of our future debt securities to the
extent such debt securities are unsecured.
Our future debt securities, if
any, may be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
Our future debt
securities, if any, may be obligations exclusively of Eagle Point Income Company Inc. and not of any of our subsidiaries. In such cases,
none of our subsidiaries would act as a guarantor of our future debt securities, if any, and our future debt securities, if any, would
not be required to be guaranteed by any subsidiaries we may acquire or create in the future. The assets of any such subsidiary would not
be directly available to satisfy the claims of our creditors, including holders of our future debt securities, if any.
Except to the
extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including holders of Preferred Stock
or debt, if any) of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our
creditors, including holders of our future debt securities, if any) with respect to the assets of such subsidiaries. Even if we were recognized
as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the
assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently,
our future debt securities, if any, would be structurally subordinated to all indebtedness and other liabilities (including trade payables)
of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.
An active trading market for
our future debt securities, if any, may not exist, which could adversely affect the market price of our future debt securities, if any,
or a holder’s ability to sell them.
Future debt securities,
if any, may be listed on the NYSE. However, we cannot provide any assurances that an active trading market for our future debt securities,
if any, will exist in the future or that you will be able to sell our future debt securities, if any. Even if an active trading market
does exist, our future debt securities, if any, may trade at a discount from their initial offering price depending on prevailing interest
rates, the market for similar securities, our credit ratings, if any, general economic conditions, our financial condition, performance
and prospects and other factors. To the extent an active trading market does not exist, the liquidity and trading price for our future
debt securities, if any, may be harmed. Accordingly, holders may be required to bear the financial risk of an investment in our future
debt securities, if any, for an indefinite period of time.
Any optional redemption provision
may materially adversely affect the return on our future debt securities, if any.
Our future debt
securities, if any, may be redeemable in whole or in part at any time or from time to time at our sole option as set forth in the applicable
indenture or otherwise. We may choose to redeem any of our future debt securities, if any, at times when prevailing interest rates are
lower than the interest rate paid on the applicable future debt securities, if any. In this circumstance, holders may not be able to reinvest
the redemption proceeds in a comparable security at an effective interest rate as high as that of the future debt securities, if any,
being redeemed.
If we default on our obligations
to pay our other indebtedness, we may not be able to make payments on our future debt securities, if any.
Any default under
any agreements that may govern our future debt securities, if any, our future indebtedness or under other indebtedness to which we may
be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make
us unable to pay principal, premium, if any, and interest on our future debt securities, if any, and substantially decrease the market
value of our future debt securities, if any. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds
necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply
with the various covenants, including financial and operating covenants, in the instruments governing any future indebtedness, we could
be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness
could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders
of the debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure
proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in
the future need to seek to obtain waivers from the required lenders or holders of any debt that we may incur in the future to avoid being
in default. If we breach our covenants under our debt and seek a waiver, we may not be able to obtain a waiver from the required lenders
or holders of the debt. If this occurs, we would be in default and our lenders or debt holders could exercise their rights as described
above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could
proceed against the collateral securing the debt. Because any future debt will likely have customary cross-default provisions, if the
indebtedness thereunder or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due. See
“Description of Our Debt Securities.”
FATCA withholding may apply to
payments to certain foreign entities.
Payments made
under our future debt securities, if any, to a foreign financial institution, or “FFI,” or non-financial foreign entity, or
“NFFE” (including such an institution or entity acting as an intermediary), may be subject to a U.S. withholding tax of 30%
under U.S. Foreign Account Tax Compliance Act provisions of the Code (commonly referred to as “FATCA”). This withholding tax
may apply to certain payments of interest on our future debt securities, if any, unless the FFI or NFFE complies with certain information
reporting, withholding, identification, certification and related requirements imposed by FATCA. Depending upon the status of a holder
and the status of an intermediary through which any of our future debt securities, if any, may be held, the holder could be subject to
this 30% withholding tax in respect of any interest paid on our future debt securities, if any, as well as any proceeds from the sale
or other disposition of our future debt securities, if any. See “U.S. Federal Income Tax Matters — Taxation of Stockholders
— FATCA Withholding on Payments to Certain Foreign Entities” in this prospectus for more information.
Risks Relating to Our Business and Structure
Our investment
portfolio is recorded at fair value in accordance with the 1940 Act. As a result, there will be uncertainty as to the value of our portfolio
investments.
Under the 1940
Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value
as determined by the Adviser in accordance with written valuation policies and procedures, subject to oversight by our board of directors,
in accordance with Rule 2a-5 under the 1940 Act. Typically, there is no public market for the type of investments we target. As a
result, the Adviser values these securities at least quarterly based on relevant information compiled by itself and third-party pricing
services (when available) and with the oversight of our board of directors.
The determination
of fair value and, consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree subjective and dependent
on a valuation process approved and overseen by our board of directors. Certain factors that may be considered in determining the fair
value of our investments include non-binding indicative bids and the number of trades (and the size and timing of each trade) in an investment.
Valuation of certain investments is also based, in part, upon third party valuation models which take into account various market inputs.
Investors should be aware that the models, information and/or underlying assumptions utilized by the Adviser or such models will not always
correctly capture the fair value of an asset. Because such valuations, and particularly valuations of securities that are not publicly
traded like those we hold, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The
Adviser’s determinations of fair value may differ materially from the values that would have been used if an active public market
for these securities existed. The Adviser’s determinations of the fair value of our investments have a material impact on our net
earnings through the recording of unrealized appreciation or depreciation of investments and may cause our NAV on a given date to understate
or overstate, possibly materially, the value that we may ultimately realize on one or more of our investments. See “Conflicts
of Interest — Valuation.”
Our financial
condition and results of operations depend on the Adviser’s ability to effectively manage and deploy capital.
Our ability to
achieve our investment objectives depends on the Adviser’s ability to effectively manage and deploy capital, which depends, in turn,
on the Adviser’s ability to identify, evaluate and monitor, and our ability to acquire, investments that meet our investment criteria.
Accomplishing
our investment objectives on a cost-effective basis is largely a function of the Adviser’s handling of the investment process, its
ability to provide competent, attentive and efficient services and our access to investments offering acceptable terms, either in the
primary or secondary markets. Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively
could have a material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations
will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding
alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement
our investment policies and strategies as described in this prospectus, it could adversely impact our ability to pay dividends or make
distributions. In addition, because the trading methods employed by the Adviser on our behalf are proprietary, stockholders will not be
able to determine details of such methods or whether they are being followed.
We are reliant on the Adviser continuing
to serve as our investment adviser.
The Adviser manages
our investments. Consequently, our success depends, in large part, upon the services of the Adviser and the skill and expertise of the
Adviser’s professional personnel, in particular, Thomas P. Majewski. Incapacity of Mr. Majewski could have a material and adverse
effect on our performance. There can be no assurance that the professional personnel of the Adviser will continue to serve in their current
positions or continue to be employed by the Adviser. We can offer no assurance that their services will be available for any length of
time or that the Adviser will continue indefinitely as our investment adviser.
Under the Personnel
and Resources Agreement, Eagle Point Credit Management makes available the personnel and resources, including portfolio managers and investment
personnel, to the Adviser as the Adviser may determine to be reasonably necessary to the conduct of its operations. The Adviser depends
upon access to the investment professionals and other resources of Eagle Point Credit Management and its affiliates to fulfill its obligations
to us under the Investment Advisory Agreement. We are not a party to the Personnel and Resources Agreement and cannot assure you that
Eagle Point Credit Management will fulfill its obligations under the agreement. If Eagle Point Credit Management fails to perform, we
cannot assure that Eagle Point Income Management will enforce the Personnel and Resources Agreement, that such agreement will not be terminated
by either party or that we will continue to have access to the investment professionals of Eagle Point Credit Management and its affiliates
or their information.
The Adviser and
the Administrator each has the right to resign on 90 days’ notice, and we may not be able to find a suitable replacement within
that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
The Adviser has
the right, under the Investment Advisory Agreement, and the Administrator has the right under the Administration Agreement, to resign
at any time upon 90 days’ written notice, whether we have found a replacement or not. If the Adviser or the Administrator resigns,
we may not be able to find a new investment adviser or hire internal management, or find a new administrator, as the case may be, with
similar expertise and ability to provide the same or equivalent services on acceptable terms within 90 days, or at all. If we are unable
to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations, as
well as our ability to make distributions to our stockholders and other payments to securityholders, are likely to be adversely affected
and the market price of our securities may decline. In addition, the coordination of our internal management and investment activities
is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise
possessed by the Adviser and the Administrator and their affiliates. Even if we are able to retain comparable management and administration,
whether internal or external, the integration of such management and their lack of familiarity with our investment objectives and operations
would likely result in additional costs and time delays that may adversely affect our financial condition, business and results of operations.
Our success will
depend on the ability of the Adviser and certain of its affiliates to attract and retain qualified personnel in a competitive environment.
Our growth will
require that the Adviser and certain of its affiliates attract and retain new investment and administrative personnel in a competitive
market. The Adviser’s and such affiliates’ ability to attract and retain personnel with the requisite credentials, experience
and skills will depend on several factors including its ability to offer competitive compensation, benefits and professional growth opportunities.
Many of the entities, including investment funds (such as private equity funds, mezzanine funds and business development companies) and
traditional financial services companies, with which the Adviser will compete for experienced personnel have greater resources than the
Adviser has.
There are significant
actual and potential conflicts of interest which could impact our investment returns.
Our executive
officers and directors, and the Adviser and certain of its affiliates and their officers and employees, including the Investment Committee,
have several conflicts of interest as a result of the other activities in which they engage. For example, the members of the Adviser’s
investment team are and may in the future become affiliated with entities engaged in business activities similar to ours and may have
conflicts of interest in allocating their time. Moreover, each member of the Investment Committee is engaged in other business activities
which divert their time and attention. The professional staff of the Adviser will devote as much time to us as such professionals deem
appropriate to perform their duties in accordance with the Investment Advisory Agreement. However, such persons may be committed to providing
investment advisory and other services for other clients, and engage in other business ventures in which we have no interest. As a result
of these separate business activities, the Adviser has conflicts of interest in allocating management time, services and functions among
us, other advisory clients and other business ventures.
Our management
fee structure may create incentives for the Adviser that are not fully aligned with the interests of our stockholders.
In the course
of our investing activities, we pay a management fee to the Adviser and reimburse the Adviser for certain expenses it incurs. As a result,
investors in our securities receive distributions on a “net” basis after expenses, potentially resulting in a lower rate of
return than an investor might achieve through direct investments.
Since the management
fee is based on our Managed Assets, which includes assets purchased using leverage, the Adviser benefits when we incur debt or use leverage.
The use of leverage increases the risk of investing in us.
The Adviser’s liability is limited
under the Investment Advisory Agreement, and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser
to act in a riskier manner on our behalf than it would when acting for its own account.
Under the Investment
Advisory Agreement, the Adviser does not assume any responsibility to us other than to render the services called for under the agreement,
and it is not responsible for any action of our board of directors in following or declining to follow the Adviser’s advice or recommendations.
The Adviser maintains a contractual and fiduciary relationship with us. Under the terms of the Investment Advisory Agreement, the Adviser,
its officers, managers, members, agents, employees and other affiliates are not liable to us for acts or omissions performed in accordance
with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting willful misfeasance, bad faith,
gross negligence or reckless disregard of the Adviser’s duties under the Investment Advisory Agreement. In addition, we have agreed
to indemnify the Adviser and each of its officers, managers, members, agents, employees and other affiliates from and against all damages,
liabilities, costs and expenses (including reasonable legal fees and other amounts reasonably paid in settlement) incurred by such persons
arising out of or based on performance by the Adviser of its obligations under the Investment Advisory Agreement, except where attributable
to willful misfeasance, bad faith, gross negligence or reckless disregard of the Adviser’s duties under the Investment Advisory
Agreement. These protections may lead the Adviser to act in a riskier manner when acting on our behalf than it would when acting for its
own account.
The Adviser may not be able to achieve
the same or similar returns as those achieved by other portfolios managed by the Investment Committee.
Although the Investment
Committee manages other investment portfolios, including accounts using investment objectives, investment strategies and investment policies
similar to ours, we cannot assure you that we will be able to achieve the results realized by any other vehicles managed by the Investment
Committee.
We may experience fluctuations in
our NAV and quarterly operating results.
We could experience
fluctuations in our NAV from month to month and in our quarterly operating results due to a number of factors, including the timing of
distributions to our stockholders, fluctuations in the value of the CLO securities that we hold, our ability or inability to make investments
that meet our investment criteria, the interest and other income earned on our investments, the level of our expenses (including the interest
or dividend rate payable on the debt securities or preferred stock we issue), variations in and the timing of the recognition of realized
and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result
of these factors, our NAV and results for any period should not be relied upon as being indicative of our NAV and results in future periods.
Our board of directors may change
our operating policies and strategies without stockholder approval, the effects of which may be adverse.
Our board of directors
has the authority to modify or waive our current operating policies, investment criteria and strategies, other than those that we have
deemed to be fundamental, without prior stockholder approval. We cannot predict the effect any changes to our current operating policies,
investment criteria and strategies would have on our business, NAV, operating results and value of our securities. However, the effects
of any such changes could adversely impact our ability to pay dividends and cause you to lose all or part of your investment.
Our management’s estimates of
certain metrics relating to our financial performance for a period are subject to revision based on our actual results for such period.
Our management
makes and publishes unaudited estimates of certain metrics indicative of our financial performance, including the NAV per share of our
common stock and the range of NAV per share of our common stock on a monthly basis, and the range of the net investment income and realized
gain/loss per share of our common stock on a quarterly basis. While any such estimate will be made in good faith based on our most recently
available records as of the date of the estimate, such estimates are subject to financial closing procedures, the Adviser’s final
determination of the fair value of our applicable investments as of the end of the applicable quarter and other developments arising between
the time such estimate is made and the time that we finalize our quarterly financial results and may differ materially from the results
reported in the audited financial statements and/or the unaudited financial statements included in filings we make with the SEC. As a
result, investors are cautioned not to place undue reliance on any management estimates presented in this prospectus or any related amendment
to this prospectus or related prospectus supplement and should view such information in the context of our full quarterly or annual results
when such results are available.
We will be subject to corporate-level
income tax if we are unable to maintain our RIC status for U.S. federal income tax purposes.
We can offer no
assurance that we will be able to maintain RIC status. To obtain and maintain RIC tax treatment under the Code, we must meet certain annual
distribution, income source and asset diversification requirements.
The annual distribution
requirement for a RIC will be satisfied if we distribute dividends to our stockholders each tax year of an amount generally at least equal
to 90% of the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses,
if any. Because we use debt financing, we are subject to certain asset coverage requirements under the 1940 Act and may be subject to
financial covenants that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution
requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject
to corporate-level income tax.
The income source
requirement will be satisfied if we obtain at least 90% of our income for each tax year from dividends, interest, gains from the sale
of our securities or similar sources.
The asset diversification
requirement will be satisfied if we meet certain asset composition requirements at the end of each quarter of our tax year. Failure to
meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status.
Because most of our investments are expected to be in CLO securities for which there will likely be no active public market, any such
dispositions could be made at disadvantageous prices and could result in substantial losses.
If we fail to
qualify for RIC tax treatment for any reason and remain or become subject to corporate income tax, the resulting corporate taxes could
substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.
We may have difficulty paying our
required distributions if we recognize income before or without receiving cash representing such income.
For federal income
tax purposes, we will include in income certain amounts that we have not yet received in cash, such as original issue discount, or “OID,”
or market discount, which may arise if we acquire a debt security at a significant discount to par, or payment-in-kind interest, or “PIK,”
which represents contractual interest added to the principal amount of a debt security and due at the maturity of the debt security. We
also may be required to include in income certain other amounts that we have not yet, and may not ever, receive in cash. Our investments
in payment-in-kind interest may represent a higher credit risk than loans for which interest must be paid in full in cash on a regular
basis. For example, even if the accounting conditions for income accrual are met, the issuer of the security could still default when
our actual collection is scheduled to occur upon maturity of the obligation.
Since, in certain
cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual distribution
requirement necessary to maintain RIC tax treatment under the Code. Accordingly, we may have to sell some of our investments at times
and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for
this purpose. Market prices of OID instruments are more volatile because they are affected to a greater extent by interest rate changes
than instruments that pay interest periodically in cash. Further, the interest rates on PIK loans may be higher to reflect the time-value
of money on deferred interest payments and the higher credit risk of borrowers who may need to defer interest payments. If we are not
able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income
tax.
Our cash distributions to stockholders
may change and a portion of our distributions to stockholders may be a return of capital.
The amount of
our cash distributions may increase or decrease at the discretion of our board of directors, based upon its assessment of the amount of
cash available to us for this purpose and other factors. Unless we are able to generate sufficient cash through the successful implementation
of our investment strategy, we may not be able to sustain a given level of distributions and may need to reduce the level of our cash
distributions in the future. Further, to the extent that the portion of the cash generated from our investments that is recorded as interest
income for financial reporting purposes is less than the amount of our distributions, all or a portion of one or more of our future distributions,
if declared, may comprise a return of capital. Accordingly, stockholders should not assume that the sole source of any of our distributions
is net investment income. Any reduction in the amount of our distributions would reduce the amount of cash received by our stockholders
and could have a material adverse effect on the market price of our shares. See “— Risks Related to Our Investments
— Our investments are subject to prepayment risk” and “— Any unrealized losses we experience on
our portfolio may be an indication of future realized losses, which could reduce our income available for distribution or to make payments
on our other obligations.”
Our stockholders
may receive shares of our common stock as distributions, which could result in adverse tax consequences to them.
In order to satisfy
certain annual distribution requirements to maintain RIC tax treatment under Subchapter M of the Code, we may declare a large portion
of a distribution in shares of our common stock instead of in cash even if a stockholder has opted out of participation in the dividend
reinvestment plan. Historically, we have not declared any portion of our distributions in shares of our common stock. As long as at least
20% of such distribution is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S.
federal income tax purposes. As a result, a stockholder generally would be subject to tax on 100% of the fair market value of the distribution
on the date the distribution is received by the stockholder in the same manner as a cash distribution, even though most of the distribution
was paid in shares of our common stock.
Because we expect
to distribute substantially all of our ordinary income and net realized capital gains to our stockholders, we may need additional capital
to finance the acquisition of new investments and such capital may not be available on favorable terms, or at all.
In order to maintain
our RIC status, we are required to distribute at least 90% of the sum of our net ordinary income and realized net short-term capital gains
in excess of realized net long-term capital losses, if any. As a result, these earnings will not be available to fund new investments,
and we will need additional capital to fund growth in our investment portfolio. If we fail to obtain additional capital, we could be forced
to curtail or cease new investment activities, which could adversely affect our business, operations and results. Even if available, if
we are not able to obtain such capital on favorable terms, it could adversely affect our net investment income.
A disruption or downturn in the capital
markets and the credit markets could impair our ability to raise capital and negatively affect our business.
We may be materially
affected by market, economic and political conditions globally and in the jurisdictions and sectors in which we invest or operate, including
conditions affecting interest rates and the availability of credit. Unexpected volatility, illiquidity, governmental action, currency
devaluation or other events in the global markets in which we directly or indirectly hold positions could impair our ability to carry
out our business and could cause us to incur substantial losses. These factors are outside our control and could adversely affect the
liquidity and value of our investments, and may reduce our ability to make attractive new investments.
In particular,
economic and financial market conditions significantly deteriorated for a significant part of the past decade as compared to prior periods.
Global financial markets experienced considerable declines in the valuations of debt and equity securities, an acute contraction in the
availability of credit and the failure of a number of leading financial institutions. As a result, certain government bodies and central
banks worldwide, including the U.S. Treasury Department and the U.S. Federal Reserve, undertook unprecedented intervention programs, the
effects of which remain uncertain. Although certain financial markets have improved, to the extent economic conditions experienced during
the past decade recur, they may adversely impact our investments. Signs of deteriorating sovereign debt conditions in Europe and elsewhere
and uncertainty regarding the U.S. economy more generally could lead to further disruption in the global markets. Trends and historical
events do not imply, forecast or predict future events, and past performance is not necessarily indicative of future results. There can
be no assurance that the assumptions made or the beliefs and expectations currently held by the Adviser will prove correct, and actual
events and circumstances may vary significantly.
We may be subject
to risk arising from a default by one of several large institutions that are dependent on one another to meet their liquidity or operational
needs, so that a default by one institution may cause a series of defaults by the other institutions. This is sometimes referred to as
“systemic risk” and may adversely affect financial intermediaries with which we interact in the conduct of our business.
We also may be
subject to risk arising from a broad sell off or other shift in the credit markets, which may adversely impact our income and NAV. In
addition, if the value of our assets declines substantially, we may fail to maintain the minimum asset coverage imposed upon us by the
1940 Act. Any such failure would affect our ability to issue additional preferred stock, debt securities and other senior securities,
including borrowings, and may affect our ability to pay distributions on our capital stock, which could materially impair our business
operations. Our liquidity could be impaired further by an inability to access the capital markets or to obtain additional debt financing.
For example, we cannot be certain that we would be able to obtain debt financing on commercially reasonable terms, if at all. In previous
market cycles, many lenders and institutional investors have previously reduced or ceased lending to borrowers. In the event of such type
of market turmoil and tightening of credit, increased market volatility and widespread reduction of business activity could occur, thereby
limiting our investment opportunities.
Moreover, we are
unable to predict when economic and market conditions may be favorable in future periods. Even if market conditions are broadly favorable
over the long term, adverse conditions in particular sectors of the financial markets could adversely impact our business.
If we are unable to refinance and/or
obtain additional debt capital, our business could be materially adversely affected.
We have obtained
debt financing in order to obtain funds to make additional investments and grow our portfolio of investments. Such debt capital may take
the form of a term credit facility with a fixed maturity date or other fixed term instruments, and we may be unable to extend, refinance
or replace such debt financings prior to their maturity. If we are unable to refinance and/or obtain additional debt capital on commercially
reasonable terms, our liquidity will be lower than it would have been with the benefit of such financings, which would limit our ability
to grow our business. Any such limitations on our ability to grow and take advantage of leverage may decrease our earnings, if any, and
distributions to stockholders, which in turn may lower the trading price of our securities. In addition, in such event, we may need to
liquidate certain of our investments, which may be difficult to sell if required, meaning that we may realize significantly less than
the value at which we have recorded our investments. Furthermore, to the extent we are not able to raise capital and are at or near our
targeted leverage ratios, we may receive smaller allocations, if any, on new investment opportunities under the Adviser’s allocation
policy.
Debt capital that
is available to us in the future, if any, including upon the refinancing of then-existing debt prior to its maturity, may be at a higher
cost and on less favorable terms and conditions than costs and other terms and conditions at which we can currently obtain debt capital.
In addition, if we are unable to repay amounts outstanding under any such debt financings and are declared in default or are unable to
renew or refinance these debt financings, we may not be able to make new investments or operate our business in the normal course. These
situations may arise due to circumstances that we may be unable to control, such as lack of access to the credit markets, a severe decline
in the value of the U.S. dollar, an economic downturn or an operational problem that affects third parties or us, and could materially
damage our business.
Regulations governing
our operation as a registered closed-end management investment company affect our ability to raise additional capital and the way in which
we do so. The raising of debt capital may expose us to risks, including the typical risks associated with leverage.
Under the provisions
of the 1940 Act, we are permitted, as a registered closed-end management investment company, to issue senior securities (including debt
securities, preferred stock and/or borrowings from banks or other financial institutions); provided we meet certain asset coverage requirements
(i.e., 300% for senior securities representing indebtedness and 200% in the case of the issuance of preferred stock under current law).
If the value of our assets declines, we may be unable to satisfy this test. 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 (including by redeeming a portion of any
series of preferred stock or notes that may be outstanding) at a time when such sales or redemptions may be disadvantageous. Also, any
amounts that we use to service or repay our indebtedness would not be available for distributions to our stockholders.
We are not generally
able to issue and sell shares of our common stock at a price below the then current NAV per share (exclusive of any distributing commission
or discount). We may, however, sell shares of our common stock at a price below the then current NAV per share (1) in connection
with a rights offering to our existing stockholders, (2) with the consent of the majority of our common stockholders, (3) upon
the conversion of a convertible security in accordance with its terms or (4) under such circumstances as the SEC may permit.
Provisions of the General Corporation
Law of the State of Delaware and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse effect
on the price of our securities.
The General Corporation
Law of the State of Delaware, or 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 certificate of incorporation and bylaws contain provisions that limit liability
and provide for indemnification of our directors and officers. These provisions and others 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, or with their affiliates, unless our directors or stockholders
approve the business combination in the prescribed manner. If our board of directors 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 certificate of incorporation
classifying our board of directors in three classes serving staggered three-year terms, and provisions of our certificate of incorporation
authorizing our board of directors 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 capital stock, and to amend our certificate of incorporation, without stockholder approval, in
certain instances. These provisions, as well as other provisions of our certificate of incorporation and bylaws, may delay, defer or prevent
a transaction or a change in control that might otherwise be in the best interests of our securityholders.
Significant stockholders
may control the outcome of matters submitted to our stockholders or adversely impact the market price or liquidity of our securities.
To the extent
any stockholder, such as Cavello Bay Reinsurance Limited, or “Cavello Bay,” and Enstar’s other affiliates, individually
or acting together with other stockholders, controls a significant number of our voting securities (as defined in the 1940 Act) or any
class of voting securities, they may have the ability to control the outcome of matters submitted to our stockholders for approval, including
the election of directors and any merger, consolidation or sale of all or substantially all of our assets, and may cause actions to be
taken that you may not agree with or that are not in your interests or those of other securityholders.
This concentration
of beneficial ownership also might harm the market price of our securities by:
| • | delaying, deferring or preventing a change in corporate control; |
| • | impeding a merger, consolidation, takeover or other business combination involving us; or |
| • | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
To the extent
that any stockholder that holds a significant number of our securities is subject to temporary restrictions on resale of such securities,
including certain lock-up restrictions, such restrictions could adversely affect the liquidity of trading in our securities, which may
harm the market price of our securities.
We are subject to the risk of legislative
and regulatory changes impacting our business or the markets in which we invest.
Legal
and regulatory changes. Legal and regulatory changes could occur and may adversely affect us and our ability to pursue our
investment strategies and/or increase the costs of implementing such strategies. New or revised laws or regulations may be imposed by
the Commodity Futures Trading Commission, or the “CFTC,” the SEC, the U.S. Federal Reserve, other banking regulators, other
governmental regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect
us. In particular, these agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform
legislation in the United States. We also may be adversely affected by changes in the enforcement or interpretation of existing statutes
and rules by these governmental regulatory authorities or self-regulatory organizations. Such changes, or uncertainty regarding any
such changes, could adversely affect the strategies and plans set forth in this prospectus and may result in our investment focus shifting
from the areas of expertise of the Investment Committee to other types of investments in which the investment team may have less expertise
or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and
the value of your investment.
Derivative
Investments. The derivative investments in which we may invest are subject to comprehensive statutes, regulations and margin
requirements. In particular, certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank
Act,” requires certain standardized derivatives to be executed on a regulated market and cleared through a central counterparty,
which may result in increased margin requirements and costs for us. The Dodd-Frank Act also established minimum margin requirements on
certain uncleared derivatives which may result in us and our counterparties posting higher margin amounts for uncleared derivatives. In
addition, we have claimed an exclusion from the definition of the term “commodity pool operator” pursuant to CFTC No-Action
Letter 12-38 issued by the staff of the CFTC Division of Swap Dealer and Intermediary Oversight. For us to continue to qualify for this
exclusion, (i) the aggregate initial margin and premiums required to establish our positions in derivative instruments subject to
the jurisdiction of the U.S. Commodity Exchange Act, as amended, or the “CEA,” and (other than positions entered into for
hedging purposes) may not exceed five percent of our liquidation value, (ii) the net notional value of our aggregate investments
in CEA-regulated derivative instruments (other than positions entered into for hedging purposes) may not exceed 100% of our liquidation
value, or (iii) we must meet an alternative test appropriate for a “fund of funds” as set forth in CFTC No-Action Letter
12-38. In the event we fail to qualify for the exclusion and the Adviser is required to register as a “commodity pool operator”
in connection with serving as our investment adviser and becomes subject to additional disclosure, recordkeeping and reporting requirements,
our expenses may increase. The Adviser has claimed an exclusion from the definition of the term “ commodity pool operator”
under the CEA pursuant to CFTC Regulation 4.5 under the CEA promulgated by the CFTC with respect to us, and we currently operate in a
manner that would permit the Adviser to continue to claim such exclusion.
Under SEC Rule 18f-4,
related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment
companies, we are permitted to enter into derivatives and other transactions that create future payment or delivery obligations, including
short sales, notwithstanding the senior security provisions of the 1940 Act if we comply with certain value-at-risk leverage limits and
derivatives risk management program and board oversight and reporting requirements or comply with a “limited derivatives users”
exception. We have elected to rely on the limited derivatives users exception. We may change this election and comply with the other provisions
of Rule 18f-4 related to derivatives transactions at any time and without notice. To satisfy the limited derivatives users exception,
we have adopted and implemented written policies and procedures reasonably designed to manage our derivatives risk and limit our derivatives
exposure in accordance with Rule 18f-4. Rule 18f-4 also permits us to enter into reverse repurchase agreements or similar financing
transactions notwithstanding the senior security provisions of the 1940 Act if we aggregate the amount of indebtedness associated with
our reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing
indebtedness when calculating our asset coverage ratios as discussed above or treat all such transactions as derivatives transactions
for all purposes under Rule 18f-4. In addition, we are permitted to invest in a security on a when-issued or forward-settling basis,
or with a non-standard settlement cycle, and the transaction will be deemed not to involve a senior security under the 1940 Act, provided
that (i) we intend to physically settle the transaction and (ii) the transaction will settle within 35 days of its trade date
(the “Delayed-Settlement Securities Provision”). We may otherwise engage in such transactions that do not meet the conditions
of the Delayed-Settlement Securities Provision so long as we treat any such transaction as a “derivatives transaction” for
purposes of compliance with the rule. Furthermore, we are permitted to enter into an unfunded commitment agreement, and such unfunded
commitment agreement will not be subject to the asset coverage requirements under the 1940 Act, if we reasonably believe, at the time
we enter into such agreement, that we will have sufficient cash and cash equivalents to meet our obligations with respect to all such
agreements as they come due. We cannot predict the effects of these requirements. The Adviser intends to monitor developments and seek
to manage our assets in a manner consistent with achieving our investment objective, but there can be no assurance that it will be successful
in doing so.
Loan
Securitizations. Section 619 of the Dodd-Frank Act, commonly referred to as the “Volcker Rule,” generally
prohibits, subject to certain exemptions, covered banking entities from engaging in proprietary trading or sponsoring, or acquiring or
retaining an ownership interest in, a hedge fund or private equity fund, or “covered funds,” (which have been broadly defined
in a way which could include many CLOs). Given the limitations on banking entities investing in CLOs that are covered funds, the Volcker
Rule may adversely affect the market value or liquidity of any or all of the investments held by us. Although the Volcker Rule and
the implementing rules exempt “loan securitizations” from the definition of covered fund, not all CLOs will qualify for
this exemption.
In June 2020,
the five federal agencies responsible for implementing the Volcker Rule adopted amendments to the Volcker Rule’s implementing
regulations, including changes relevant to the treatment of securitizations (the “Volcker Changes”). Among other things, the
Volcker Changes ease certain aspects of the “loan securitization” exclusion, and create additional exclusions from the “covered
fund” definition, and narrow the definition of “ownership interest” to exclude certain “senior debt interests.”
Also, under the Volcker Changes, a debt interest would no longer be considered an “ownership interest” solely because the
holder has the right to remove or replace the manager following a cause-related default. The Volcker Changes were effective October 1,
2020. It is currently unclear how, or if, the Volcker Changes will affect the CLO securities in which the Company invests.
U.S.
Risk Retention. In October 2014, six federal agencies (the Federal Deposit Insurance Corporation, or the “FDIC,”
the Comptroller of the Currency, the Federal Reserve Board, the SEC, the Department of Housing and Urban Development and the Federal Housing
Finance Agency) adopted joint final rules implementing certain credit risk retention requirements contemplated in Section 941
of the Dodd-Frank Act, or the “Final U.S. Risk Retention Rules.” These rules were published in the Federal Register on
December 24, 2014. With respect to the regulation of CLOs, the Final U.S. Risk Retention Rules require that the “sponsor”
or a “majority owned affiliate” thereof (in each case as defined in the rules), will retain an “eligible vertical interest”
or an “eligible horizontal interest” (in each case as defined therein) or any combination thereof in the CLO in the manner
required by the Final U.S. Risk Retention Rules.
The Final U.S.
Risk Retention Rules became fully effective on December 24, 2016, or the “Final U.S. Risk Retention Effective Date,”
and to the extent applicable to CLOs, the Final U.S. Risk Retention Rules contain provisions that may adversely affect the return
of our investments. On February 9, 2018, a three judge panel of the United States Court of Appeals for the District of Columbia Circuit,
or the “DC Circuit Court,” rendered a decision in The Loan Syndications and Trading Association v. Securities and Exchange
Commission and Board of Governors of the Federal Reserve System, No. 1:16-cv-0065, in which the DC Circuit Court held that open
market CLO collateral managers are not “securitizers” subject to the requirements of the Final U.S. Risk Retention Rules,
or the “DC Circuit Ruling.” Thus, collateral managers of open market CLOs are no longer required to comply with the Final
U.S. Risk Retention Rules at this time. As such, it is possible that some collateral managers of open market CLOs will decide to
dispose of the notes (or cause their majority owned affiliates to dispose of the notes) constituting the “eligible vertical interest”
or “eligible horizontal interest” they were previously required to retain, or decide to take other action with respect to
such notes that is not otherwise prohibited by the Final U.S. Risk Retention Rules. To the extent either the underlying collateral manager
or its majority-owned affiliate divests itself of such notes, this will reduce the degree to which the relevant collateral manager’s
incentives are aligned with those of the noteholders of the CLO (which may include us as a CLO noteholder), and could influence the way
in which the relevant collateral manager manages the CLO assets and/or makes other decisions under the transaction documents related to
the CLO in a manner that is adverse to us.
There can be no
assurance or representation that any of the transactions, structures or arrangements currently under consideration by or currently used
by CLO market participants will comply with the Final U.S. Risk Retention Rules to the extent such rules are reinstated or otherwise
become applicable to open market CLOs. The ultimate impact of the Final U.S. Risk Retention Rules on the loan securitization market
and the leveraged loan market generally remains uncertain, and any negative impact on secondary market liquidity for securities comprising
a CLO may be experienced due to the effects of the Final U.S. Risk Retention Rules on market expectations or uncertainty, the relative
appeal of other investments not impacted by the Final U.S. Risk Retention Rules and other factors.
EU/UK
Risk Retention. The securitization industry in both European Union (“EU”) and the United Kingdom (“UK”)
has also undergone a number of significant changes in the past few years. Regulation (EU) 2017/2402 relating to a European framework for
simple, transparent and standardized securitization (as amended from time to time, the “EU Securitization Regulation”) applies
to certain specified EU investors, and Regulation (EU) 2017/2402 relating to a European framework for simple, transparent and standardised
securitization in the form in effect on December 31, 2020 (which forms part of UK domestic law by virtue of the European Union (Withdrawal)
Act 2018 (as amended, the “EUWA”)) (as amended from time to time, the “UK Securitization Regulation” and, together
with the EU Securitization Regulation, the “Securitization Regulations”) applies to certain specified UK investors, in each
case, who are investing in a “securitisation” (as such term is defined under each Securitization Regulation).
The due diligence
requirements of Article 5 of the EU Securitization Regulation (the “EU Due Diligence Requirements”) apply to “institutional
investors” (as defined in the EU Securitization Regulation), being (a) subject to certain conditions and exceptions, institutions
for occupational retirement provision and certain investment managers and authorized entities appointed by such institutions; (b) credit
institutions (as defined in Regulation (EU) No 575/2013 (as amended, the “CRR”)); (c) alternative investment fund managers
who manage and/or market alternative investment funds in the EU; (d) investment firms (as defined in the CRR); (e) insurance
and reinsurance undertakings; and (f) management companies of UCITS funds (or internally managed UCITS); and the EU Due Diligence
Requirements apply also to certain consolidated affiliates of entities that are subject to the CRR. Such institutional investors and their
relevant affiliates, “EU Institutional Investors.”
The due diligence
requirements of Article 5 of the UK Securitization Regulation (the “UK Due Diligence Requirements”) apply to “institutional
investors” (as defined in the UK Securitization Regulation) being: (a) insurance undertakings and reinsurance undertakings
as defined in the Financial Services and Markets Act 2000 (as amended, the “FSMA”); (b) occupational pension schemes
as defined in the Pension Schemes Act 1993 that have their main administration in the UK, and certain fund managers of such schemes; (c) AIFMs
as defined in the Alternative Investment Fund Managers Regulations 2013 (as amended, the “AIFM Regulations”) which market
or manage AIFs (as defined in the AIFM Regulations) in the UK; (d) UCITS as defined in the FSMA, which are authorized open ended
investment companies as defined in the FSMA, and management companies as defined in the FSMA; (e) FCA investment firms as defined
in Regulation (EU) No 575/2013 as it forms part of UK domestic law by virtue of the EUWA (as amended, the “UK CRR”); and (f) CRR
firms as defined in the UK CRR; and the UK Due Diligence Requirements apply also to certain consolidated affiliates of entities that are
subject to the UK CRR. Such institutional investors and their relevant affiliates, “UK Institutional Investors”, and together
with EU Institutional Investors, “Institutional Investors.”
The applicable
EU/UK Due Diligence Requirements restrict an Institutional Investor from investing in securitizations unless:
(1) in
each case, it has verified that the originator, sponsor or original lender will retain, on an ongoing basis, a material net economic interest
of not less than five per cent. in the securitization determined in accordance with Article 6 of the applicable EU/UK Securitization
Regulation, and the risk retention is disclosed to the Institutional Investor;
(2) in
the case of an EU Institutional Investor, it has verified that the originator, sponsor or SSPE (each as defined in the EU Securitization
Regulation) has, where applicable, made available the information required by Article 7 of the EU Securitization Regulation (the
“EU Transparency Requirements”) in accordance with the frequency and modalities provided for thereunder;
(3) in
the case of a UK Institutional Investor, it has verified that the originator, sponsor or SSPE (each as defined in the UK Securitization
Regulation): (i) if established in the UK has, where applicable, made available the information required by Article 7 of the
UK Securitization Regulation (the “UK Transparency Requirements”) in accordance with the frequency and modalities provided
for thereunder; and (ii) if established in a third country has, where applicable, made available information which is substantially
the same as that which it would have made available under the UK Transparency Requirements if it had been established in the UK, and has
done so with such frequency and modalities as are substantially the same as those with which it would have made information available
if it had been established in the UK; and
(4)
in each case, it has verified that, where the originator or original lender either (i) is not a credit institution or an
investment firm (each as defined in the applicable EU/UK Securitization Regulation) or (ii) is established in a third country,
the originator or original lender grants all the credits giving rise to the underlying exposure on the basis of sound and
well-defined criteria and clearly established processes for approving, amending, renewing and financing those credits and has
effective systems in place to apply those criteria and processes to ensure that credit-granting is based on thorough assessment of
the obligor’s creditworthiness.
The applicable
EU/UK Due Diligence Requirements further require that an Institutional Investor carry out a due diligence assessment which enables it
to assess the risks involved prior to investing, including but not limited to the risk characteristics of the individual investment position
and the underlying assets and all the structural features of the securitization that can materially impact the performance of the investment.
In addition, pursuant to the applicable EU/UK Securitization Regulation, while holding an exposure to a securitization, an Institutional
Investor is subject to various monitoring obligations in relation to such exposure, including but not limited to: (i) establishing
appropriate written procedures to monitor compliance with the due diligence requirements and the performance of the investment and of
the underlying assets; (ii) performing stress tests on the cash flows and collateral values supporting the underlying assets; (iii) ensuring
internal reporting to its management body; and (iv) being able to demonstrate to its competent authorities, upon request, that it
has a comprehensive and thorough understanding of the investment and underlying assets and that it has implemented written policies and
procedures for the risk management and as otherwise required by the applicable EU/UK Securitization Regulation.
Failure on the
part of an Institutional Investor to comply with the applicable EU/UK Due Diligence Requirements may result in various penalties including,
in the case of those Institutional Investors subject to regulatory capital requirements, the imposition of a punitive capital charge in
respect of such securitization position.
CLOs issued in
Europe are generally structured in compliance with the Securitization Regulations so that prospective investors subject to the Securitization
Regulations can invest in compliance with such requirements. To the extent a CLO is structured in compliance with the Securitization Regulations,
our ability to invest in the residual tranches of such CLOs could be limited, or we could be required to hold our investment for the life
of the CLO. If a CLO has not been structured to comply with the Securitization Regulations, it will limit the ability of Institutional
Investors to purchase CLO securities, which may adversely affect the price and liquidity of the securities (including the residual tranche)
in the secondary market. Additionally, the Securitization Regulations and any regulatory uncertainty in relation thereto may reduce the
issuance of new CLOs and reduce the liquidity provided by CLOs to the leveraged loan market generally. Reduced liquidity in the loan market
could reduce investment opportunities for collateral managers, which could negatively affect the return of our investments. Any reduction
in the volume and liquidity provided by CLOs to the leveraged loan market could also reduce opportunities to redeem or refinance the securities
comprising a CLO in an optional redemption or refinancing and could negatively affect the ability of obligors to refinance of their collateral
obligations, either of which developments could increase defaulted obligations above historic levels.
Japanese
Risk Retention. The Japanese Financial Services Agency (the “JFSA”) published a risk retention rule as part
of the regulatory capital regulation of certain categories of Japanese investors seeking to invest in securitization transactions (the
“JRR Rule”). The JRR Rule mandates an “indirect” compliance requirement, meaning that certain categories
of Japanese investors will be required to apply higher risk weighting to securitization exposures they hold unless the relevant originator
commits to hold a retention interest equal to at least 5% of the exposure of the total underlying assets in the transaction (the “Japanese
Retention Requirement”) or such investors determine that the underlying assets were not “inappropriately originated.”
The Japanese investors to which the JRR Rule applies include banks, bank holding companies, credit unions (shinyo kinko), credit
cooperatives (shinyo kumiai), labor credit unions (rodo kinko), agricultural credit cooperatives (nogyo kyodo kumiai), ultimate parent
companies of large securities companies and certain other financial institutions regulated in Japan (such investors, “Japanese Affected
Investors”). Such Japanese Affected Investors may be subject to punitive capital requirements and/or other regulatory penalties
with respect to investments in securitizations that fail to comply with the Japanese Retention Requirement.
The JRR Rule became
effective on March 31, 2019. At this time, there are a number of unresolved questions and no established line of authority, precedent
or market practice that provides definitive guidance with respect to the JRR Rule, and no assurances can be made as to the content, impact
or interpretation of the JRR Rule. In particular, the basis for the determination of whether an asset is “inappropriately originated”
remains unclear and, therefore, unless the JFSA provides further specific clarification, it is possible that CLO securities we have purchased
may contain assets deemed to be “inappropriately originated” and, as a result, may not be exempt from the Japanese Retention
Requirement. The JRR Rule or other similar requirements may deter Japanese Affected Investors from purchasing CLO securities, which
may limit the liquidity of CLO securities and, in turn, adversely affect the price of such CLO securities in the secondary market. Whether
and to what extent the JFSA may provide further clarification or interpretation as to the JRR Rule is unknown.
The SEC staff
could modify its position on certain non-traditional investments, including investments in CLO securities.
The staff of the
SEC from time to time has undertaken a broad review of the potential risks associated with different asset management activities, focusing
on, among other things, liquidity risk and leverage risk. The staff of the Division of Investment Management of the SEC has, in correspondence
with registered management investment companies, previously raised questions about the level of, and special risks associated with, investments
in CLO securities. While it is not possible to predict what conclusions, if any, the staff may reach in these areas, or what recommendations,
if any, the staff might make to the SEC, the imposition of limitations on investments by registered management investment companies in
CLO securities could adversely impact our ability to implement our investment strategy and/or our ability to raise capital through public
offerings, or could cause us to take certain actions that may result in an adverse impact on our stockholders, our financial condition
and/or our results of operations. We are unable at this time to assess the likelihood or timing of any such regulatory development.
General Risk Factors
General Economic and Financial
Conditions May Negatively Affect the Fund’s Investment Activity.
The success of
any investment activity is influenced by general economic and financial conditions that may affect the level and volatility of equity
prices, interest rates and the extent and timing of investor participation in the markets for both equity and interest-rate-sensitive
securities. Unexpected volatility, illiquidity, governmental action, currency devaluation or other events in the global markets in which
the Company directly or indirectly holds positions could impair the Company’s ability to carry out its business and could cause
the Company to incur substantial losses.
Inflation.
Inflation and
rapid fluctuations in inflation rates, as has recently occurred in the U.S., have had in the past, and may in the future have, negative
effects on economies and financial markets. Wage and price controls have been imposed at times in certain countries in an attempt to control
inflation, which could significantly affect the operation of the issuers of securities or other investments in which the Company invests.
Governmental efforts to curb inflation often have negative effects on the level of economic activity. As such, inflation and rapid fluctuations
in inflation rates can adversely affect the financial performance of the Company and/or the collateral underlying the CLOs in which it
invests. There can be no assurance that inflation will not continue to be a serious problem and have an adverse impact on the performance
of the Company and its investments. Were significant inflation to continue, the effect on the Adviser’s strategy could be materially
adverse.
Terrorist actions,
natural disasters, outbreaks or pandemics may disrupt the market and impact our operations.
Terrorist acts,
acts of war, natural disasters, outbreaks or pandemics may disrupt our operations, as well as the operations of the businesses in which
we invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic
instability. For example, many countries have experienced outbreaks of infectious illnesses in recent decades, including swine flu, avian
influenza, SARS and COVID-19.
Global
economies and financial markets are highly interconnected, and conditions and events in one country, region or financial market may adversely
impact issuers in a different country, region or financial market. The responses to viral illnesses outbreaks have varied as has their
impact on human health, local economies and the global economy, and it is impossible at the outset of any such outbreak to estimate accurately
what the ultimate impact of any such outbreak will be. Protective measures taken by governments and the private sector to mitigate the
spread of such illness, including travel restrictions and outright bans, quarantines, and work-at-home arrangements, and the spread of
any such illness within our offices and the offices of our service providers, could seriously impair our operational capabilities, potentially
harming our business and our operating results. We are subject to risks related to cybersecurity
and other disruptions to information systems.
We are highly
dependent on the communications and information systems of the Adviser, the Administrator and their affiliates as well as certain other
third-party service providers. We, and our service providers, are susceptible to operational and information security risks. While we,
the Adviser and the Administrator have procedures in place with respect to information security, technologies may become the target of
cyber-attacks or information security breaches that could result in the unauthorized gathering, monitoring, release, misuse, loss or destruction
of our and/or our stockholders’ confidential and other information, or otherwise disrupt our operations or those of our service
providers. Disruptions or failures in the physical infrastructure or operating systems and cyber-attacks or security breaches of the networks,
systems or devices that we and our service providers use to service our operations, or disruption or failures in the movement of information
between service providers could disrupt and impact the service providers’ and our operations, potentially resulting in financial
losses, the inability of our stockholders to transact business and of us to process transactions, inability to calculate our NAV, misstated
or unreliable financial data, violations of applicable privacy and other laws, regulatory fines, penalties, litigation costs, increased
insurance premiums, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Our service providers’
policies and procedures with respect to information security have been established to seek to identify and mitigate the types of risk
to which we and our service providers are subject. As with any risk management system, there are inherent limitations to these policies
and procedures as there may exist, or develop in the future, risks that have not been anticipated or identified. There can be no assurance
that we or our service providers will not suffer losses relating to information security breaches (including cyber-attacks) or other disruptions
to information systems in the future.
USE OF PROCEEDS
Unless otherwise
specified in the applicable prospectus supplement, we intend to use the proceeds from the sale of our securities by us pursuant to this
prospectus to acquire investments in accordance with our investment objectives and strategies described in this prospectus, to make distributions
to our stockholders and for general working capital purposes. In addition, we may also use all or a portion of the net proceeds from the
sale of our securities by us to repay any Preferred Stock or outstanding indebtedness at the time of the offering, including any borrowings
from the BNP Credit Facility. We currently anticipate that it will generally take approximately three to six months after the completion
of any offering of securities by us to invest substantially all of the net proceeds of the offering in our targeted investments, although
such period may vary and depends on the size of the offering and the availability of appropriate investment opportunities consistent with
our investment objectives and market conditions. We cannot assure you we will achieve our targeted investment pace, which may negatively
impact our returns. Until appropriate investments or other uses can be found, we will invest in temporary investments, such as cash, cash
equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less, which we expect will
have returns substantially lower than the returns that we anticipate earning from investments in CLO securities and related investments.
Investors should expect, therefore, that before we have fully invested the proceeds of the offering in accordance with our investment
objectives and strategies, assets invested in these instruments would earn interest income at a modest rate, which may not exceed our
expenses during this period. To the extent that the net proceeds from an offering have not been fully invested in accordance with our
investment objectives and strategies prior to the next payment of a distribution to our stockholders, a portion of the proceeds may be
used to pay such distribution and may represent a return of capital.
We will not receive
any proceeds from any sale of common stock by the selling stockholders. Pursuant to the Registration Rights Agreement, we have agreed
to pay 50% of the costs, expenses and fees relating to the registration of the selling stockholders’ securities covered by this
prospectus. The selling stockholders have agreed to pay the remaining 50% of such costs, expenses and fees. Expenses incurred that are
not covered under the Registration Rights Agreement will be borne by each respective party that incurs such expense.
SENIOR SECURITIES
Information
about the Company’s outstanding senior securities as of the end of each fiscal year since its inception and as of June 30,
2024 may be found in the “Supplemental Information—Senior Securities Table” section of the Company’s most recent
Semi-Annual
Report on Form N-CSR for the six-months ended June 30, 2024, filed with the SEC on August 6, 2024.
PRICE RANGE OF COMMON STOCK
Our common stock
began trading on July 24, 2019 and is currently traded on the NYSE under the symbol “EIC.” The following table lists
the high and low closing sale price for our common stock, the high and low closing sale price as a percentage of NAV and distributions
declared per share each quarter since January 1, 2022.
| | |
| | |
Closing Sales
Price | | |
Premium
(Discount)
of High
Sales Price | | |
Premium
(Discount)
of Low
Sales Price | | |
Distributions | |
| Period | |
NAV(1) | | |
High | | |
Low | | |
to NAV(2) | | |
to NAV(2) | | |
Declared(3) | |
| Fiscal year ending
December 31, 2022(4) |
| First Quarter | |
$ | 16.52 | | |
$ | 17.38 | | |
$ | 15.85 | | |
| 5.2 | % | |
| (4.1 | )% | |
$ | 0.38 | |
| Second Quarter | |
$ | 13.66 | | |
$ | 17.91 | | |
$ | 14.75 | | |
| 31.1 | % | |
| 8.0 | % | |
$ | 0.38 | |
| Third Quarter | |
$ | 13.05 | | |
$ | 17.29 | | |
$ | 13.60 | | |
| 32.5 | % | |
| 4.2 | % | |
$ | 0.42 | |
Fourth Quarter
| |
$ | 12.91 | | |
$ | 16.11 | | |
$ | 13.57 | | |
| 24.8 | % | |
| 5.1 | % | |
$ | 0.48 | |
| Fiscal year ending
December 31, 2023 (5) |
| First Quarter | |
$ | 13.20 | | |
$ | 15.48 | | |
$ | 13.85 | | |
| 17.3 | % | |
| 4.9 | % | |
$ | 0.48 | |
| Second Quarter | |
$ | 13.00 | | |
$ | 14.88 | | |
$ | 13.05 | | |
| 14.5 | % | |
| 0.3 | % | |
$ | 0.48 | |
| Third Quarter | |
$ | 14.08 | | |
$ | 14.55 | | |
$ | 13.14 | | |
| 3.3 | % | |
| (6.7 | )% | |
$ | 0.54 | |
| Fourth Quarter | |
$ | 14.39 | | |
$ | 14.91 | | |
$ | 13.64 | | |
| 3.5 | % | |
| (5.2 | )% | |
$ | 0.60 | |
| Fiscal year ending December 31, 2024 |
| First Quarter | |
$ | 15.12 | | |
$ | 16.65 | | |
$ | 14.56 | | |
| 10.1 | % | |
| (3.7 | )% | |
$ | 0.60 | |
| Second Quarter | |
$ | 15.24 | | |
$ | 16.60 | | |
$ | 15.38 | | |
| 8.9 | % | |
| 0.9 | % | |
$ | 0.60 | |
| (1) | NAV per share is determined
as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales
prices. The NAVs shown are based on outstanding shares at the end of each period. |
| (2) | Calculated as of the respective high or low closing sales price divided by the quarter end NAV. |
| (3) | Represents the cash distributions (including dividends, dividends reinvested and returns of capital, if
any) per share that we have declared on our common stock in the specified quarter. Tax characteristics of distributions will vary. |
| (4) | For the fiscal year ending December 31, 2022, as reported on the Company’s 2022 Form 1099-DIV,
distributions made by the Company were comprised of net investment income, as calculated on a per share basis, of 100% (or $1.53 per share
of common stock). |
| (5) | For the fiscal year ending December 31, 2023, as reported on the Company’s 2023 Form 1099-DIV,
distributions made by the Company were comprised of net investment income, as calculated on a per share basis, of 100% (or $1.98 per share
of common stock). |
Shares of closed-end
management investment companies may trade at a market price that is less than the NAV that is attributable to those shares. The possibility
that our shares of common stock will trade at a discount to NAV or at a premium that is unsustainable over the long term is separate and
distinct from the risk that our NAV will decrease. It is not possible to predict whether our shares will trade at, above or below NAV
in the future. Our NAV per share was $15.24 as of June 30, 2024. The closing sales price for shares of the Company’s common
stock on the NYSE on June 30, 2024 was $15.80, which represented a 3.67% premium to NAV per share. On August 22, 2024, the last
reported closing sales price of the Company’s common stock was $15.22 per share. As of July 31, 2024, there were 9 stockholders
of record of the Company’s common stock (which does not reflect holders whose shares are held in street name by a broker, bank or
other nominee).
ADDITIONAL BUSINESS INFORMATION
Additional Information
on the Structural Advantages of CLOs
CLOs are generally
required to hold a portfolio of assets that is highly diversified by underlying borrower and industry and that is subject to a variety
of asset concentration limitations. Most CLOs are non-static, revolving structures that generally allow for reinvestment over a reinvestment
period, which is typically up to five years. The terms and covenants of a typical CLO structure are, with certain exceptions, based primarily
on the cash flow generated by, and the par value (as opposed to the market price or fair value) of, the collateral. These covenants include
collateral coverage tests, interest coverage tests and collateral quality tests.
CLOs have two
priority-of-payment schedules (commonly called “waterfalls”), which are detailed in a CLO’s indenture and govern how
cash generated from a CLO’s underlying collateral is distributed to the CLO’s debt and equity investors. The interest waterfall
applies to interest payments received on a CLO’s underlying collateral. The principal waterfall applies to cash generated from principal
on the underlying collateral, primarily through loan repayments and the proceeds from loan sales. Through the interest waterfall, any
excess interest-related cash flow available after the required quarterly interest payments to CLO debt investors are made and certain
CLO expenses (such as administration and management fees) are paid is then distributed to the CLO’s equity investors each quarter,
subject to compliance with certain tests.
The Adviser believes
that excess interest-related cash flow is an important driver of CLO equity returns. In addition, relative to certain other high-yielding
credit investments such as mezzanine or subordinated debt, CLO equity is expected to have a shorter payback period with higher front-end
loaded quarterly cash flows during the early years of a CLO’s life if there is no disruption in the interest waterfall due to a
failure to remain in compliance with certain tests.
Most CLOs are
non-static, revolving structures that generally allow for reinvestment over a reinvestment period. Specifically, a CLO’s collateral
manager normally has broad latitude — within a specified set of asset eligibility and diversity criteria — to manage and modify
a CLO’s portfolio over time. We believe that skilled CLO collateral managers can add significant value to both CLO debt and equity
investors through a combination of their credit expertise and a strong understanding of how to manage effectively within the rules-based
structure of a CLO.
After the CLO’s
reinvestment period has ended, in accordance with the CLO’s principal waterfall, cash generated from principal payments or other
proceeds are generally distributed to repay CLO debt investors in order of seniority. That is, the AAA tranche investors are repaid first,
the AA tranche investors second and so on, with any remaining principal being distributed to the equity tranche investors. In certain
instances, principal may be reinvested after the end of the reinvestment period.
CLOs contain a
variety of structural features and covenants that are designed to enhance the credit protection of CLO debt investors, including overcollateralization
tests and interest coverage tests. The overcollateralization tests and interest coverage tests require CLOs to maintain certain levels
of overcollateralization (measured as par value of assets to liabilities subject to certain adjustments) and interest coverage, respectively.
If a CLO breaches an overcollateralization test or interest coverage test, excess interest-related cash flow that would otherwise be available
for distribution to the CLO equity tranche investors is diverted to prepay CLO debt investors in order of seniority until such time as
the covenant breach is cured. If the covenant breach is not or cannot be cured, the CLO equity investors (and potentially other debt tranche
investors) may experience a deferral of cash flow, a partial or total loss of their investment and/or the CLO may eventually experience
an event of default. For this reason, CLO equity investors are often referred to as being in a first loss position. The Adviser will have
no control over whether or not the CLO is able to satisfy its relevant interest coverage tests or overcollateralization tests.
CLOs also typically
have interest diversion tests, which also act to ensure that CLOs maintain adequate overcollateralization. If a CLO breaches an interest
diversion test, excess interest-related cash flow that would otherwise be available for distribution to the CLO equity tranche investors
is diverted to acquire new loan collateral until the test is satisfied. Such diversion would lead to payments to the equity investors
being delayed and/or reduced.
Cash flow CLOs
do not have mark-to-market triggers and, with limited exceptions (such as the proportion of assets rated “CCC+” or lower (or
their equivalent) by which such assets exceed a specified concentration limit, discounted purchases and defaulted assets), CLO covenants
are generally calculated using the par value of collateral, not the market value or purchase price. As a result, a decrease in the market
price of a CLO’s performing collateral portfolio does not generally result in a requirement for the CLO collateral manager to sell
assets (i.e., no forced sales) or for CLO equity investors to contribute additional capital (i.e., no margin calls).
Overview of Senior
Secured Loans
Senior secured
loans have the most senior position in a borrower’s capital structure or share the senior position with other senior debt securities
of the borrower. This capital structure position generally gives holders of senior secured loans a priority claim on some or all of the
borrower’s assets in the event of default and therefore the lenders will be paid before certain other creditors of the borrower.
Broadly syndicated senior secured loans are typically originated and structured by banks on behalf of corporate borrowers with proceeds
often used for leveraged buyout transactions, mergers and acquisitions, stock repurchases, recapitalizations, refinancings, financing
capital expenditures, and internal growth. Broadly syndicated senior secured loans are typically acquired through both primary bank syndications
and in the secondary market, and distributed by the arranging bank to a diverse group of investors primarily consisting of CLOs, loan
and high-yield bond registered funds, loan separate accounts, banks, insurance companies, finance companies and hedge funds. Senior secured
loans are floating rate instruments, typically making quarterly interest payments based on a spread over LIBOR. We believe that senior
secured loans represent an attractive and stable base of collateral for CLOs. In most cases, a senior secured loan will be secured by
specific collateral of the issuer. Historically, many of these investments have traded at or near par (i.e., 100% of face value), although
they more recently have traded at greater discounts on the current market environment, the Adviser may also purchase stressed and distressed
senior secured loans at a material discount to par, if the Adviser believes that there are attractive opportunities to generate capital
appreciation by making such investments.
Senior secured
loans generally are negotiated between a borrower and several financial institution lenders represented by one or more lenders acting
as agent of all the lenders. The agent is responsible for negotiating the loan agreement that establishes the terms and conditions of
the senior secured loan and the rights of the borrower and the lenders. The agent is responsible for negotiating the loan agreement that
establishes the terms and conditions of the senior secured loan and the rights of the borrower and the lenders. Senior secured loans also
have contractual terms designed to protect lenders. Senior secured loans also have contractual terms designed to protect lenders. These
covenants may include mandatory prepayment out of excess cash flows, restrictions on dividend payments, the maintenance of minimum financial
ratios, limits on indebtedness and financial tests. Breach of these covenants generally is an event of default and, if not waived by the
lenders, may give lenders the right to accelerate principal and interest payments. Other senior secured loans may be issued with less
restrictive covenants which are often referred to as “covenant-lite” transactions. In a “covenant-lite” loan,
the covenants that require the borrower to “maintain” certain financial ratios are eliminated altogether, and the lenders
are left to rely only on covenants that restrict a company from “incurring” or actively engaging certain action. But a covenant
that only restricts a company from incurring new debt cannot be violated simply by a deteriorating financial condition, the company has
to take affirmative action to breach it. The impact of these covenant-lite transactions may be to retard the speed with which lenders
will be able to take control over troubled deals. We generally acquire senior secured loans of borrowers that, among other things, in
the Adviser’s judgment, can make timely payments on their senior secured loans and that satisfy other credit standards established
by the Adviser.
When we purchase
first and second lien senior floating rate loans and other floating rate debt securities, coupon rates are floating, not fixed and are
tied to a benchmark lending rate. The interest rates of these floating rate debt securities vary periodically based upon a benchmark indicator
of prevailing interest rates.
When we purchase
an Assignment, we succeed to all the rights and obligations under the loan agreement of the assigning lender and becomes a lender under
the loan agreement with the same rights and obligations as the assigning lender. These rights include the ability to vote along with the
other lenders on such matters as enforcing the terms of the loan agreement (e.g., declaring defaults, initiating collection action, etc.).
Taking such actions typically requires a vote of the lenders holding at least a majority of the investment in the loan, and may require
a vote by lenders holding two-thirds or more of the investment in the loan. Because we typically do not hold a majority of the investment
in any loan, we will not be able by ourselves to control decisions that require a vote by the lenders.
While we believe
that senior secured loans and CLO securities have certain attractive fundamental attributes, such securities are subject to a number of
risks as discussed in the “Risk Factors” section of this prospectus. In addition, many of the statistics and data noted in
this prospectus relate to historical periods when market conditions were, in some cases, materially different than they are as of the
date of this prospectus. As with other asset classes, market conditions and dynamics for senior secured loans and CLO securities evolve
over time. For example, over the past decade, the senior secured loan market has evolved from one in which covenant-lite loans represented
a minority of the market to one in which such loans represent a significant majority of the market.
THE ADVISER AND THE ADMINISTRATOR
Our board of directors
is responsible for the overall management and supervision of our business and affairs, including the appointment of advisers and sub-advisers.
Pursuant to the Investment Advisory Agreement, our board of directors has appointed the Adviser as our investment adviser.
The Adviser
The Adviser was
established in September 2018 and is registered as an investment adviser with the SEC. The Adviser, collectively with certain of
its affiliates, as of December 31, 2023, had approximately $9.1 billion of total assets under management, including capital commitments
that were undrawn as of such date. Based on Eagle Point Credit Management’s CLO equity assets under management, the Adviser believes
that, collectively with Eagle Point Credit Management, it is among the largest CLO equity investors in the market. The Adviser is primarily
owned by certain of the Trident Funds through intermediary holding companies. Additionally, the Investment Committee, certain other employees
of Eagle Point Credit Management, and an affiliate of Enstar hold an indirect ownership interest in the Adviser. The Adviser is ultimately
governed through intermediary holding companies by the Adviser’s Board of Managers, which includes Mr. Majewski and certain
principals of Stone Point. See “— Adviser’s Board of Managers.” The Adviser is located at 600 Steamboat
Road, Suite 202, Greenwich, CT 06830.
In addition to
managing our investments, the Adviser’s affiliates and members of the Investment Committee manage investment accounts for other
clients, including other closed-end management investment companies that are registered under the 1940 Act, privately offered pooled investment
vehicles and institutional separate accounts. Many of these accounts pursue an investment strategy that substantially or partially overlaps
with the strategy that we pursue. The Adviser’s affiliation with Stone Point and the Trident Funds, and the management of other
vehicles and accounts by the Adviser’s affiliates, give rise to certain conflicts of interest. See “Conflicts of Interest.”
Investment Committee
The Adviser’s
Investment Committee is ultimately responsible for our day-to-day investment management and the implementation of our investment strategy
and process. All final investment decisions are made by the Investment Committee or, in some cases, other senior members of the Adviser’s
investment team pursuant to delegated authority. The Investment Committee is led by Mr. Majewski, Managing Partner and founder of
the Adviser and Eagle Point Credit Management, and is also comprised of Daniel W. Ko, Senior Principal and Portfolio Manager, and Daniel
M. Spinner, Senior Principal and Portfolio Manager.
Each member of
the Investment Committee is a CLO industry specialist who has been directly involved in the CLO market for the majority of his career
and has built relationships with key market participants, including CLO collateral managers, investment banks and investors. Members of
the Investment Committee have been involved in the CLO market as:
| • | the head of the CLO business at various investment banks; |
| • | a lead CLO structurer and CDO workout specialist at an investment bank; |
| • | a CLO equity and debt investor; |
| • | principal investors in CLO collateral management firms; and |
| • | a lender and mergers and acquisitions adviser to CLO collateral management firms. |
We believe that
the complementary, yet highly specialized, skill set of each member of the Investment Committee provides the Adviser with a competitive
advantage in its CLO-focused investment strategy.
Biographical information
on the members of the Investment Committee is set forth below:
Thomas
P. Majewski. Mr. Majewski is the Founder and Managing Partner of the Adviser. He manages the Adviser and its affiliates,
or “Eagle Point” or the “firm,” and oversees all of the firm’s investment offerings. Mr. Majewski is
Chairman of the firm’s Investment Committee.
Mr. Majewski
has over 28 years of experience in credit and structured finance. He led the creation of some of the earliest refinancing CLOs, pioneering
techniques that are now commonplace in the market. Prior to founding Eagle Point in 2012, Mr. Majewski held leadership positions
within the fixed income divisions at J.P. Morgan, Merrill Lynch, Bear Stearns, and Royal Bank of Scotland. He was the US Country Head
at AMP Capital/AE Capital, where he oversaw a diverse portfolio of credit and other private investments on behalf of Australian investors.
Mr. Majewski began his career in the securitization group at Arthur Andersen. Mr. Majewski also serves as a director and Chief
Executive Officer of Eagle Point Credit Company; director and Chief Executive Officer of Eagle Point Income Company; trustee, Chief Executive
Officer, and Principal Executive Officer of Eagle Point Institutional Income Fund; and trustee, Chief Executive Officer, and Principal
Executive Officer of Eagle Point Enhanced Income Trust.
Mr. Majewski
holds a BS in Accounting from Binghamton University.
Daniel
W. Ko. Mr. Ko is a Senior Principal and Portfolio Manager at the Adviser. He is a member of the firm’s Investment
Committee. Mr. Ko has over 17 years of experience in structured finance. Prior to joining Eagle Point in 2012, he was a Vice President
in Bank of America’s (f/k/a Bank of America Merrill Lynch) CLO structuring group, where he modeled cash flows, negotiated deal terms
with debt and equity investors, and coordinated the rating process. Mr. Ko was also responsible for exploring non-standard structuring
initiatives, including financing trades with dynamic leverage, emerging market CBOs and European CLOs. Earlier, he managed their legacy
CLO, TruPS CDO, and ABS CDO portfolios and started in their CDO/CLO structuring group.
Mr. Ko holds
a BS in Finance and Accounting, magna cum laude, from The Wharton School of the University of Pennsylvania.
Daniel
M. Spinner (CAIA). Mr. Spinner is a Senior Principal and Portfolio Manager at the Adviser. He is a member of the firm’s
Investment Committee.
Mr. Spinner
has over 27 years of experience in credit and advising, financing, and investing in alternative asset management firms and funds. He has
been involved in the credit markets for the majority of his career. Prior to joining Eagle Point in 2013, Mr. Spinner oversaw the
Private Equity, Special Opportunities Credit, and Real Estate allocations for the 1199SEIU Benefit and Pension Funds. He was also a Managing
Director in the Financial Institutions Group at Bear Stearns focused on alternative asset managers, and a co-founder and President of
Structured Capital Partners (a financial holding company formed to invest in CLO and structured credit managers). Mr. Spinner started
his career in the Financial Institutions Group at Chase Manhattan Bank.
Mr. Spinner
holds a BA in Business Management, summa cum laude, from Gettysburg College and an MBA from Columbia Business School.
The following
table sets forth accounts within each category listed for which members of the Investment Committee are jointly and primarily responsible
for day-to-day portfolio management as of December 31, 2023. Among the accounts listed below, three of the “Registered Investment
Companies” (with total assets of $1,056.3 million), eight of the “Other Pooled Investment Vehicles” (with total assets
of $2,645.3 million) and 32 of the “Other Accounts” (with total assets of $2,072 million) are subject to a performance fee.
| | |
Registered Investment
Companies | | |
Other Pooled Investment
Vehicles | | |
Other Accounts | |
| | |
Number
of
Accounts | | |
Total
Assets (in
millions) | | |
Number
of
Accounts | | |
Total
Assets (in
millions)(1) | | |
Number
of
Accounts | | |
Total
Assets (in
millions) | |
| Thomas P. Majewski | |
3 | | |
$ | 1,056.3 | | |
13 | | |
$ | 3,283.8 | | |
61 | | |
$ | 5,265.2 | |
| Daniel W. Ko | |
3 | | |
$ | 1,056.3 | | |
13 | | |
$ | 3,283.8 | | |
61 | | |
$ | 5,265.2 | |
| Daniel M. Spinner | |
3 | | |
$ | 1,056.3 | | |
13 | | |
$ | 3,283.8 | | |
61 | | |
$ | 5,265.2 | |
| (1) | Total Assets are estimated and unaudited and may vary from final
audited figures. Total assets exclude amounts invested in the equity of another investment vehicle managed by the portfolio manager so
as to avoid double counting. |
Compensation
of Portfolio Managers. Investment professionals of the Adviser are paid out of the total revenues of the Adviser and certain
of its affiliates, including Eagle Point Credit Management, including the advisory fees earned with respect to providing advisory services
to us. Professional compensation is structured so that key professionals benefit from strong investment performance generated on accounts
that the Adviser and such affiliates manage and from their longevity with the Adviser and its affiliates. Each member of the Investment
Committee has indirect equity ownership interests in the Adviser and related long-term incentives. Members of the Investment Committee
also receive a fixed base salary and an annual market and performance-based cash bonus. The bonus is determined by the Adviser’s
ultimate Board of Managers, and is based on both quantitative and qualitative analysis of several factors, including the profitability
of the Adviser and its affiliates, and the contribution of the individual employee. Many of the factors considered by management in reaching
its compensation determinations will be impacted by our long-term performance and the value of our assets as well as the portfolios managed
for the Adviser’s and such affiliates’ other clients.
Securities
Owned in the Company by Portfolio Managers. The table below sets forth the dollar range of the value of the shares of our
common stock that are owned beneficially by each portfolio manager as of December 31, 2023. For purposes of this table, beneficial
ownership is defined to mean a direct or indirect pecuniary interest.
| Name of Portfolio Manager | |
Dollar Range of Equity
Securities in the
Company(1) |
| Thomas P. Majewski | |
$100,001-$500,000 |
| Daniel W. Ko | |
$50,001-$100,000 |
| Daniel M. Spinner | |
$100,001-$500,000 |
| (1) | Dollar ranges are as follows: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000,
$100,001 – $500,000, $500,001 – $1,000,000 and over $1,000,000. |
Adviser’s Board of Managers
The Adviser is
ultimately governed through intermediary holding companies by the Adviser’s Board of Managers, which governs and oversees the overall
activities of the Adviser. The Adviser’s Board of Managers is comprised of Mr. Majewski and Mr. James Matthews. The Adviser’s
Board of Managers is also responsible for governance and oversight of certain affiliates of the Adviser, including Eagle Point Credit
Management. Mr. Majewski’s biographical information is included above under “— Portfolio Managers”
and Mr. Matthews’ biographical information is included under “Management — Biographical Information about
each Director” below.
Investment Advisory
Agreement
Services.
Subject to the overall supervision of our board of directors, the Adviser manages the day-to-day operations of, and provides investment
advisory and management services to, us. Under the terms of our Investment Advisory Agreement, the Adviser:
| • | determines the composition of our portfolio, the nature and timing of the changes to our portfolio and
the manner of implementing such changes; |
| • | identifies, evaluates and negotiates the structure of the investments we make (including performing due
diligence on our prospective investments); |
| • | executes, closes, services and monitors the investments we make; |
| • | determines the securities and other assets that we purchase, retain or sell; and |
| • | provides us with such other investment advisory, research and related services as we may from time to
time reasonably require for the investment of our funds. |
The Adviser’s
services under the Investment Advisory Agreement are not exclusive, and both it and its members, officers and employees are free to furnish
similar services to other persons and entities so long as its services to us are not impaired.
The Investment
Advisory Agreement was most recently approved by the board of directors in May 2024. A discussion regarding the basis for the board
of directors’ most recent approval of the Investment Advisory Agreement will be included in our semi-annual report for the period
ending June 30, 2024.
Duration
and Termination. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect
if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities,
including, in either case, approval by a majority of our directors who are not “interested persons” of any party to such agreement,
as such term is defined in Section 2(a)(19) of the 1940 Act. The Investment Advisory Agreement will automatically terminate in the
event of its assignment. The Investment Advisory Agreement may also be terminated by our board of directors or the affirmative vote of
a majority of our outstanding voting securities without penalty upon not less than 60 days’ written notice to the Adviser and by
the Adviser upon not less than 90 days’ written notice to us.
Indemnification.
The Investment Advisory 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, the Adviser and its officers, managers, partners, agents, employees,
controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages,
liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the
rendering of the Adviser’s services under the Investment Advisory Agreement or otherwise as our investment adviser.
Management
Fee. We pay the Adviser a management fee for its services under the Investment Advisory Agreement. To the extent permitted
by applicable law, the Adviser may elect to defer all or a portion of these management fee for a specified period of time. The management
fee equals an annual rate of 1.25% of our Managed Assets and is calculated monthly based on our Managed Assets at the end of each calendar
month and payable quarterly in arrears. “Managed Assets” means our total assets (including assets attributable to our use
of leverage) minus the sum of our accrued liabilities (other than liabilities incurred for the purpose of creating leverage). The management
fee for any partial month will be pro-rated (based on the number of days actually elapsed at the end of such partial month relative to
the total number of days in such calendar month). For the fiscal year ended December 31, 2021, we incurred management fees of approximately
$1.7 million payable to the Adviser. For the fiscal year ended December 31, 2022, we incurred management fees of approximately $2.0
million payable to the Adviser. For the fiscal year ended December 31, 2023, we incurred management fees of approximately $2.3 million
payable to the Adviser.
Payment
of Expenses. The Adviser’s investment team, when and to the extent engaged in providing investment advisory and management
services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by
the Adviser. We bear all other costs and expenses of our operations and transactions, including (without limitation): (1) the cost
of calculating our NAV (including the cost and expenses of any independent valuation firm or pricing service); (2) interest payable
on debt, if any, incurred to finance our investments; (3) fees and expenses, including legal fees and expenses and travel expenses,
incurred by the Adviser or payable to third parties relating to performing due diligence on prospective investments, monitoring our investments
and, if necessary, enforcing our rights; (4) brokerage fees and commissions; (5) federal and state registration fees and exchange
listing fees; (6) federal, state and local taxes; (7) costs of offerings or repurchases of our common stock and other securities;
(8) the management fee; (9) distributions on our shares of our common stock and other securities; (10) administration fees
payable to the Administrator under the Administration Agreement; (11) direct costs and expenses of administration and operation, including
printing, mailing, long distance telephone and staff, including fees payable in connection with outsourced administrative functions; (12)
transfer agent and custody fees and expenses; (13) independent director fees and expenses; (14) the costs of any reports, proxy statements
or other notices to our stockholders, including printing costs; (15) costs of holding stockholder meetings; (16) litigation, indemnification
and other non-recurring or extraordinary expenses; (17) fees and expenses associated with marketing and investor relations efforts; (18)
dues, fees and charges of any trade association of which we are a member; (19) fees and expenses associated with independent audits and
outside legal costs; (20) fidelity bond; (21) directors and officers/errors and omissions liability insurance, and any other insurance
premiums; (22) costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state
securities laws; and (23) all other expenses reasonably incurred by us or the Administrator in connection with administering our business,
such as the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration
Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs
of compensation and related expenses of our chief compliance officer, chief financial officer, chief operating officer and their respective
support staff.
License Agreement
We have entered
into a license agreement, or the “License Agreement,” with the Adviser pursuant to which the Adviser has granted us a non-exclusive,
royalty-free license to use the “Eagle Point” name and logo. Under the License Agreement, we have a right to use the “Eagle
Point” name and logo, for so long as the Adviser or one of its affiliates remains our investment adviser. The License Agreement
is terminable by either party at any time in its sole discretion upon 60 days’ prior written notice and is also terminable by the
Adviser in the case of certain events, including certain events of non-compliance. Other than with respect to this license, we have no
legal right to the “Eagle Point” name and logo.
The Administrator
and the Administration Agreement
We have entered
into the Administration Agreement, pursuant to which the Administrator furnishes us with office facilities, equipment and clerical, bookkeeping
and record-keeping services at such facilities. Under the Administration Agreement, the Administrator performs, or arranges for the performance
of, our required administrative services, which include being responsible for the financial records which we are required to maintain
and preparing reports to our stockholders. In addition, the Administrator provides us with accounting services; assists us in determining
and publishing our NAV; oversees the preparation and filing of our tax returns; monitors our compliance with tax laws and regulations;
and prepares, and assists us with any audits by an independent public accounting firm of, our financial statements. The Administrator
is also responsible for the printing and dissemination of reports to our stockholders and the maintenance of our website; provides support
for our investor relations; generally oversees the payment of our expenses and the performance of administrative and professional services
rendered to us by others; and provides such other administrative services as we may from time to time designate. Payments under the Administration
Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead in performing its obligations
under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable
portion of the compensation of our chief financial officer and chief compliance officer and our allocable portion of the compensation
of any administrative support staff. Our allocable portion of such total compensation is based on an allocation of the time spent on us
relative to other matters. To the extent the Administrator outsources any of its functions, we pay the fees on a direct basis, without
profit to the Administrator. Certain accounting and other administrative services have been delegated by the Administrator to SS&C
Technologies, Inc., or “SS&C,” for which the fee is calculated based on our net assets (subject to a monthly minimum),
and certain investor relations related services have been delegated to ICR, LLC, whose charges are payable monthly. The Administration
Agreement may be terminated by us without penalty upon not less than 60 days’ written notice to the Administrator and by the Administrator
upon not less than 90 days’ written notice to us. The Administration Agreement will remain in effect if approved by the board of
directors, including by a majority of our independent directors, on an annual basis. For the fiscal year ended December 31, 2023,
we incurred approximately $0.56 million in administration fees consisting of approximately $0.43 million and approximately $0.13 million
relating to services provided by the Administrator and SS&C, respectively.
When considering
the approval of the Administration Agreement, the board of directors considers, among other factors, (i) the reasonableness of the
compensation paid by us to the Administrator and any third-party service providers in light of the services provided, the quality of such
services, any cost savings to us as a result of the arrangements and any conflicts of interest, (ii) the methodology employed by
the Administrator in determining how certain expenses are allocated to the Company, (iii) the breadth, depth and quality of such
administrative services provided, (iv) certain comparative information on expenses borne by other companies for somewhat similar
services known to be available and (v) the possibility of obtaining such services from a third party. The Administration Agreement
was most recently reapproved by the board of directors in May 2024.
Limitation
on Liability and Indemnification. The Administration Agreement provides that the Administrator and its officers, directors,
employees agents, control persons and affiliates are not liable to us or any of our stockholders for any act or omission by it or its
employees in the supervision or management of our investment activities or for any damages, liabilities, costs and expenses (including
reasonable attorneys’ fees and amounts reasonably paid in settlement) or losses sustained by us or our stockholders, except that
the foregoing exculpation does not extend to any act or omission constituting willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations under the Administration Agreement. The Administration Agreement also provides for indemnification by us
of the Administrator’s members, directors, officers, employees, agents, control persons and affiliates for liabilities incurred
by them in connection with their services to us, subject to the same limitations and to certain conditions.
MANAGEMENT
Our board of directors
is responsible for the overall management and supervision of our business and affairs, including the appointment of advisers and sub-advisers.
Our directors may appoint officers who assist in managing our day-to-day affairs.
The Board of Directors
The board of directors
currently consists of six members, four of whom are not “interested persons” (as defined in the 1940 Act) of us. We refer
to these directors as our “independent directors.”
Under our certificate
of incorporation and bylaws, our board of directors is divided into three classes with staggered three-year terms. The term of only one
of the three classes expires at each annual meeting of our stockholders. The classification of our board of directors across staggered
terms may prevent replacement of a majority of the directors for up to a two-year period.
Duties of Directors; Meetings and Committees
Under our certificate
of incorporation, our board of directors is responsible for managing our affairs, including the appointment of advisers and sub-advisers.
The board of directors appoints officers who assist in managing our day-to-day affairs.
The board of directors
has appointed Mr. Majewski as Chairperson. The Chairperson presides at meetings of the board of directors and may call meetings of
the board and any committee whenever he deems necessary. The Chairperson participates in the preparation of the agenda for meetings of
the board of directors and the identification of information to be presented to the board of directors with respect to matters to be acted
upon by the directors. The Chairperson also acts as a liaison with our management, officers and attorneys and the other directors generally
between meetings. The Chairperson may perform such other functions as may be requested by the board of directors from time to time. Except
for any duties specified in this prospectus or pursuant to our certificate of incorporation or bylaws, or as assigned by the board of
directors, the designation of a director as Chairperson does not impose on that director any duties, obligations or liability that are
greater than the duties, obligations or liability imposed on any other director, generally.
The board of directors
has designated Mr. Weiss as Lead Independent Director. The Lead Independent Director generally acts as a liaison between the other
independent directors and our management, officers and attorneys between meetings of the board of directors. The Lead Independent Director
may perform such other functions as may be requested by the board of directors from time to time. Except for any duties specified in this
prospectus or pursuant to our certificate of incorporation or bylaws, or as assigned by the board of directors, the designation of a director
as Lead Independent Director does not impose on that director any duties, obligations or liability that are greater than the duties, obligations
or liability imposed on any other director, generally.
The board of directors
believes that this leadership structure is appropriate because it allows the board of directors to exercise informed judgment over matters
under its purview, and it allocates areas of responsibility among committees or working groups of directors and the full board of directors
in a manner that enhances effective oversight. The board of directors also believes that having a majority of independent directors is
appropriate and in the best interest of our stockholders. Nevertheless, the board of directors also believes that having interested persons
serve on the board of directors brings corporate and financial viewpoints that are, in the board of directors’ view, crucial elements
in its decision-making process. In addition, the board of directors believes that Mr. Majewski, Managing Partner of the Adviser,
provides the board of directors with the Adviser’s perspective in managing and sponsoring us. The leadership structure of the board
of directors may be changed, at any time and in the discretion of the board of directors, including in response to changes in circumstances
or our characteristics. During the fiscal year ended December 31, 2023, the board of directors held four regular meetings.
Committees of the Board of Directors
The board of directors
has established two standing committees: the audit committee and the nominating committee. The current membership of each committee is
set forth below. Interested directors are generally able to attend and participate in any committee meeting, as appropriate.
| Audit | |
Nominating |
| Scott W. Appleby | |
Scott W. Appleby, Chair |
| Kevin F. McDonald | |
Kevin F. McDonald |
| Paul E. Tramontano | |
Paul E. Tramontano |
| Jeffrey L. Weiss, Chair | |
Jeffrey L. Weiss |
Audit Committee
All of the members
of the audit committee are independent directors, and each member is financially literate with at least one having accounting or financial
management expertise. The board of directors has adopted a written charter for the audit committee. The audit committee recommends to
the full board of directors the independent registered public accounting firm for us, oversees the work of the independent registered
public accounting firm in connection with our audit, communicates with the independent registered public accounting firm on a regular
basis and provides a forum for the independent registered public accounting firm to report and discuss any matters it deems appropriate
at any time. Mr. Weiss serves as Chairperson of the audit committee. The audit committee also functions as our qualified legal compliance
committee and is responsible for the confidential receipt, retention and consideration of any report of evidence of (1) a material
violation of applicable federal or state securities law, (2) a material breach of fiduciary duty arising under federal or state law
or (3) a similar material violation of any federal or state law by us or any of our officers, directors, employees or agents that
has occurred, is ongoing or is about to occur. The audit committee met four times during the fiscal year ended December 31, 2023.
Nominating Committee
The nominating
committee is comprised of all of the independent directors. The nominating committee periodically reviews the committee structure, conducts
an annual self-assessment of the board of directors and makes the final selection and nomination of candidates to serve as independent
directors. In addition, the nominating committee makes recommendations regarding the compensation of the Company’s independent directors
for approval by the board of directors as there is no separate compensation committee of the Company. The board of directors nominates
and selects our interested directors and the officers. Mr. Appleby serves as Chairperson of the nominating committee. The nominating
committee met three times during the fiscal year ended December 31, 2023.
In reviewing a
potential nominee and in evaluating the re-nomination of current independent directors, the nominating committee will generally apply
the following criteria: (1) the nominee’s reputation for integrity, honesty and adherence to high ethical standards; (2) the
nominee’s business acumen, experience and ability to exercise sound judgment; (3) a commitment to understand the Company and
the responsibilities of a director of an investment company; (4) a commitment to regularly attend and participate in meetings of
the board of directors and its committees; (5) the ability to understand potential conflicts of interest involving management of
the Company and to act in the interests of all stockholders; and (6) the absence of a real or apparent conflict of interest that
would impair the nominee’s ability to represent the interests of all the stockholders and to fulfill the responsibilities of an
independent director. The nominating committee does not necessarily place the same emphasis on each criteria and each nominee may not
have each of these qualities.
As long as an
existing independent director continues, in the opinion of the nominating committee, to satisfy these criteria, we anticipate that the
nominating committee would favor the re-nomination of an existing independent director rather than nominate a new candidate. Consequently,
while the nominating committee will consider nominees recommended by stockholders to serve as independent directors, the nominating committee
may only act upon such recommendations if there is a vacancy on the board of directors or a committee and it determines that the selection
of a new or additional independent director is in our best interests. In the event that a vacancy arises or a change in membership is
determined to be advisable, the nominating committee will, in addition to any stockholder recommendations, consider candidates identified
by other means, including candidates proposed by members of the nominating committee. The nominating committee may retain a consultant
to assist it in a search for a qualified candidate. The nominating committee has adopted procedures for the selection of independent directors.
The nominating
committee has not adopted a formal policy with regard to the consideration of diversity in identifying individuals for election as independent
directors, but the nominating committee will consider such factors as it may deem are in the best interests of the Company and the stockholders.
Such factors may include the individual’s professional experience, education, skills and other individual qualities or attributes,
including gender, race or national origin.
For any stockholder
recommendation for independent director to be included in our proxy statement, it must be submitted in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934, or the “Exchange Act,” to be considered by the nominating
committee. In evaluating a nominee recommended by a stockholder, the nominating committee, in addition to the criteria discussed above,
may consider the objectives of the stockholder in submitting that nomination and whether such objectives are consistent with the interests
of all stockholders. If the board of directors determines to include a stockholder’s candidate among the slate of nominees, the
candidate’s name will be placed on our proxy card. If the nominating committee or the board of directors determines not to include
such candidate among the board of directors’ designated nominees and the stockholder has satisfied the requirements of Rule 14a-8,
the stockholder’s candidate will be treated as a nominee of the stockholder who originally nominated the candidate. In that case,
the candidate will not be named on the proxy card distributed with our proxy statement.
A stockholder
who is entitled to vote at the applicable annual meeting and who intends to nominate a director must comply with the advance notice procedures
in our bylaws. To be timely, a stockholder’s notice must be delivered by a nationally recognized courier service or mailed by first
class United States mail, postage or delivery charges prepaid, and received at our principal executive offices addressed to the attention
of the Secretary not less than ninety (90) days nor more than one hundred twenty (120) days in advance of the anniversary of the date
our proxy statement was released to the stockholders in connection with the previous year’s annual meeting of stockholders; provided,
however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholder
must be received by the Secretary no later than the close of business on the later of (x) the ninetieth (90th) day prior to such
annual meeting and (y) the seventh (7th) day following the day on which public announcement of the date of such meeting is first
made. Such stockholder’s notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, (a) the name, age, business address and residence address of the person, (b) the principal
occupation or employment of the person, (c) the class and number of shares of our capital stock that are beneficially owned by the
person and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election
of directors pursuant to the rules and regulations of the SEC under Section 14 of the Exchange Act, and (ii) as to the
stockholder giving the notice (a) the name and record address of the stockholder and (b) the class and number of shares of our
capital stock that are beneficially owned by the stockholder. We may require any proposed nominee to furnish such other information as
may reasonably be required to determine the eligibility of such proposed nominee to serve as a director.
Stockholders may
communicate with the directors as a group or individually. Any such communication should be sent to the board of directors or an individual
director c/o the Secretary of the Company at the following address: 600 Steamboat Road, Suite 202, Greenwich, CT 06830. The Secretary
may determine not to forward any letter to directors that does not relate to the business of the Company.
Risk Oversight
As a registered
investment company, we are subject to a variety of risks, including investment risks, financial risks, compliance risks and operational
risks. As part of its overall activities, the board of directors oversees the management of our risk management structure by various departments
of the Adviser and the Administrator, as well as by our chief compliance officer. The responsibility to manage our risk management structure
on a day-to-day basis is subsumed within the Adviser’s overall investment management responsibilities. The Adviser has its own,
independent interest in risk management.
The board of directors
recognizes that it is not possible to identify all of the risks that may affect us or to develop processes and controls to eliminate or
mitigate their occurrence or effects. The board of directors discharges risk oversight as part of its overall activities. In addressing
issues regarding our risk management between meetings, appropriate representatives of the Adviser communicate with the Chairperson of
the board of directors, the relevant committee chair or our chief compliance officer, who is directly accountable to the board of directors.
As appropriate, the Chairperson of the board of directors and the committee chairs confer among themselves, with our chief compliance
officer, the Adviser, other service providers and external fund counsel to identify and review risk management issues that may be placed
on the board of director’s agenda and/or that of an appropriate committee for review and discussion with management.
Compliance Policies and Procedures
We have adopted
and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and
are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation.
The chief compliance officer is responsible for administering the policies and procedures.
Biographical Information about each Director
Please
refer to the section of the Company’s April 8, 2024 definitive
proxy statement on Schedule 14A for the annual meeting of the Company’s stockholders entitled “Information
about the Directors and Nominees,” which is incorporated by reference herein, for a discussion of the Company’s Directors,
their principal occupations during the past five years and other information about them.
Executive Officers
Please
refer to the section of the Company’s April 8, 2024 definitive
proxy statement on Schedule 14A for the annual meeting of the Company’s stockholders entitled “Information
about the Officers who are Not Directors,” which is incorporated by reference herein, for certain biographical and other information
relating to the officers of the Company who are not Directors.
Director Compensation
Please
refer to the section of the Company’s April 8, 2024 definitive
proxy statement on Schedule 14A for the annual meeting of the Company’s stockholders entitled “Information
about the Directors and Nominees—Compensation,” which is incorporated by reference herein, for certain information relating
to the compensation paid to our independent directors.
Director Ownership of Company Shares
The table below
sets forth the dollar range of the value of our common stock and the Preferred Stock that is owned beneficially by each director as of
December 31, 2023. For purposes of this table, beneficial ownership is defined to mean a direct or indirect pecuniary interest.
| Name of Director | |
Dollar Range of Equity
Securities in the Company(1) | |
Aggregate Dollar
Range of Equity
Securities in the Fund
Complex(1) |
| Interested Directors | |
| |
|
| Thomas P. Majewski | |
Over $100,000 | |
Over $100,000 |
| James R. Matthews | |
None | |
None |
| Independent Directors | |
| |
|
| Scott W. Appleby | |
$50,001 - $100,000 | |
Over $100,000 |
| Kevin F. McDonald | |
$10,001 - $50,000 | |
Over $100,000 |
| Paul E. Tramontano | |
$50,001 - $100,000 | |
Over $100,000 |
| Jeffrey L. Weiss | |
$10,001 - $50,000 | |
Over $100,000 |
(1) Dollar ranges are as follows: None,
$1 – $10,000, $10,001 – $50,000, $50,001 – $100,000 and over $100,000.
DETERMINATION OF NET ASSET VALUE
We determine the
NAV per share of our common stock by dividing the value of our portfolio investments, cash and other assets (including interest accrued
but not collected) less all of our liabilities (including accrued expenses, the aggregate liquidation preference of our preferred stock,
borrowings, including the BNP Credit Facility, and interest payables) by the total number of outstanding shares of our common stock on
a quarterly basis (or more frequently, as appropriate). The most significant estimate inherent in the preparation of our financial statements
is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. There is
no single method for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the
specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of
investments we make. Rule 2a-5 under the 1940 Act establishes requirements for determining fair value in good faith for purposes
of the 1940 Act. Pursuant to Rule 2a-5, our board has elected to designate the Adviser as “valuation designee” to perform
fair value determinations in respect of our portfolio investments that do not have readily available market quotations.
We account for
our investments in accordance with GAAP, and fair value our investment portfolio in accordance with the provisions of the FASB ASC Topic
820 Fair Value Measurements and Disclosures of the Financial Accounting Standards Board’s Accounting Standards Codification, as
amended, which defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value
measurements. Fair value is the estimated amount 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 (i.e., the exit price).
In valuing our
investments in CLO debt, CLO equity and LAFs, the Adviser considers a variety of relevant factors, including price indications from a
third-party pricing service, recent trading prices for specific investments, recent purchases and sales known to the Adviser in similar
securities and output from a third-party financial model. The third-party financial model contains detailed information on the characteristics
of CLOs, including recent information about assets and liabilities, and is used to project future cash flows. Key inputs to the model,
including assumptions for future loan default rates, recovery rates, prepayment rates, reinvestment rates and discount rates are determined
by considering both observable and third-party market data and prevailing general market assumptions and conventions as well as those
of the Adviser.
Specifically,
the Adviser utilizes a third-party pricing service in connection with the valuation of our investments in CLO debt. However, if pricing
from such third-party pricing service is determined to be stale or otherwise not reflective of current market conditions, the Adviser
may use an average of independent broker quotes to determine fair value. The Adviser engages a third-party independent valuation firm
as an input to the valuation of the fair value of the Company’s investments in CLO equity. The valuation firm’s advice is
only one factor considered in the valuation of such investments, and the Adviser does not rely on such advice in determining the fair
value of our investments in accordance with the 1940 Act.
Our investment
portfolio is valued at least each quarter in accordance with the Adviser’s valuation policies and procedures. Fair valuations are
ultimately determined by the Adviser’s valuation committee, which is comprised of a majority of non-investment personnel. Our board
of directors oversees the valuation designee and the process that it uses to determine the fair value of our assets. In this regard, the
board receives periodic and, as applicable, prompt reporting regarding certain material valuation matters, as required by Rule 2a-5
under the 1940 Act.
DIVIDEND REINVESTMENT PLAN
Information
about the Company’s dividend reinvestment plan may be found in the “Supplemental Information—Dividend Reinvestment Plan”
section of the Company’s most recent Annual
Report on Form N-CSR, as amended, for the fiscal year ended December 31, 2023, filed with the SEC on February 22,
2024, which is incorporated by reference herein.
CONFLICTS OF INTEREST
Affiliations of the Adviser and the Administrator
Our executive
officers and directors, and the Adviser and certain of its affiliates and their officers and employees, including the members of the Investment
Committee, have several conflicts of interest as a result of the other activities in which they engage. The Adviser and the Administrator
are affiliated with other entities engaged in the financial services business. In particular, the Adviser and the Administrator are affiliated
with other Eagle Point advisers and Stone Point, and certain members of the Adviser’s Board of Managers are principals of Stone
Point. Pursuant to certain management agreements, Stone Point has received delegated authority to act as the investment manager of the
Trident V Funds. The Adviser and the Administrator are primarily owned indirectly by certain of the Trident Funds through intermediary
holding companies. The Trident Funds and other private equity funds managed by Stone Point invest in financial services companies.
The Adviser and
its affiliates engage and may in the future engage in a variety of business activities, including investment management, financing, and
software analytics. As such, the Adviser and its affiliates may have multiple business relationships with sponsors of funds and investment
vehicles and CLO collateral managers that encompass a range of activities, such as (i) investing in CLOs managed by a CLO collateral
manager on behalf of the Company, (ii) financing or investing in other securities issued by, other vehicles managed by such sponsor
or CLO collateral manager or an affiliate thereof for other Eagle Point-managed accounts, or (iii) otherwise providing advisory,
research or data services to such sponsor or CLO collateral manager for compensation. Additionally, an affiliate of Enstar indirectly
owns a portion of the limited liability interests in the Adviser. Also, under the Personnel and Resources Agreement, Eagle Point Credit
Management makes available the personnel and resources, including portfolio managers and investment personnel, to the Adviser as the Adviser
may determine to be reasonably necessary to the conduct of its operations. For example, a conflict of interest can occur if we hold investments
in an issuer managed by a firm with which the Adviser or its affiliates have a material relationship. In this circumstance, the Adviser
could, due to its relationship with such firm, have an incentive to prefer the interests of such person over our interests. While the
Adviser believes such relationships are helpful in sourcing investment opportunities, any of these potential transactions, activities
and relationships can result in the Adviser having a conflict of interest that may not currently be foreseen, which conflict may not be
resolved in a manner that is always or exclusively in the best interest of the Company or its stockholders. The Adviser has entered into,
and may in the future enter into additional, business arrangements with certain of our stockholders, including granting indirect ownership
in limited liability company interests in the Adviser. In such cases, such stockholders may have an incentive to vote shares held by them
in a manner that takes such arrangements into account.
These relationships
may cause the Adviser’s, the Administrator’s and certain of their affiliates’ interests, and the interests of their
officers and employees, including the members of the Investment Committee, to diverge from our interests and may result in conflicts of
interest that may not be foreseen, which conflicts may not be resolved in a manner that is always or exclusively in our best interest.
Other Accounts
The Adviser is
responsible for the investment decisions made on our behalf. There are no restrictions on the ability of the Adviser and certain of its
affiliates (including other Eagle Point advisers and Stone Point) to manage accounts for multiple clients, including accounts for affiliates
of the Adviser or their directors, officers or employees, following the same, similar or different investment objectives, philosophies
and strategies as those used by the Adviser for our account. In those situations, the Adviser and its affiliates may have conflicts of
interest in allocating investment opportunities between us and any other account managed by such person. See “— Allocation
of Opportunities” below. Such conflicts of interest would be expected to be heightened where the Adviser manages an account
for an affiliate or its directors, officers or employees. In addition, certain of these accounts may provide for higher management fees
or have incentive fees or may allow for higher expense reimbursements, all of which may contribute to a conflict of interest and create
an incentive for the Adviser to favor such other accounts. Further, accounts managed by the Adviser and its affiliates hold, and may in
the future be allocated, certain investments, which conflict with the positions held by other accounts, such as us. For example, another
Eagle Point-managed account could hold a senior debt position in an issuer’s capital structure while we hold a subordinated position.
In these cases, when exercising the rights of each account with respect to such investments, the Adviser and/or its affiliates will have
a conflict of interest as actions on behalf of one account may have an adverse effect on another account managed by the Adviser or such
affiliate, including us. In such cases, such conflicts may not be resolved in a manner that is always or exclusively in our best interests.
In addition, other
Eagle Point advisers, Stone Point and their affiliates, and the investment funds managed by such affiliates, may also invest in companies
that compete with the Adviser and that therefore manage other accounts and funds that compete for investment opportunities with us.
Our executive
officers and directors, as well as other current and potential future affiliated persons, officers and employees of the Adviser and certain
of its affiliates, may serve as officers, directors or principals of, or manage the accounts for, other entities with investment strategies
that substantially or partially overlap with the strategy that we pursue. Accordingly, they may have obligations to investors in those
entities, the fulfillment of which obligations may not be in the best interests of us or our stockholders.
Further, the professional
staff of the Adviser and Administrator will devote as much time to us as such professionals deem appropriate to perform their duties in
accordance with the Investment Advisory Agreement and Administration Agreement, respectively. However, such persons are also committed
to providing investment advisory and other services for other clients, including other funds, unregistered pooled investment vehicles,
and separately managed accounts, and engage in other business ventures in which we have no interest.
Certain of the
Adviser’s, the Administrator’s and their affiliates’ senior personnel and ultimate managers serve and may serve as officers,
directors, managers or principals of other entities that operate in the same or a related line of business as the Adviser, the Administrator,
and their affiliates, or that are service providers to firms or entities such as the Adviser, the Administrator, the Company, and certain
of the issuers in which we invest. Accordingly, such persons may have obligations to investors in those entities the fulfillment of which
may not be in our best interest. In addition, certain of such persons hold direct and indirect personal investments in various companies,
including certain investment advisers and other operating companies, some of which do or may provide services to the Adviser, the Administrator,
us, or other accounts serviced by the Adviser, the Administrator, or their affiliates, or to any issuer in which we may invest. We may
pay fees or other compensation to any such operating company or financial institution for services received. Further, these relationships
may result in conflicts of interest that may not be foreseen or may not be resolved in a manner that is always or exclusively in our best
interest.
In addition, payments
under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead. See
“The Adviser and the Administrator — The Administrator and the Administration Agreement” above.
As a result of
these separate business activities and payment structure, the Adviser and Administrator have conflicts of interest in allocating management
and administrative time, services and functions among us, other accounts that they provide services to, their affiliates and other business
ventures or clients.
Allocation of Investment Opportunities
As a fiduciary,
the Adviser owes a duty of loyalty to its clients and must treat each client fairly. When the Adviser purchases or sells securities for
more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. To this end, the Adviser and its
affiliated advisers have adopted and reviewed policies and procedures pursuant to which they allocate investment opportunities appropriate
for more than one client account in a manner deemed appropriate in their sole discretion to achieve a fair and equitable result over time.
Pursuant to these policies and procedures, when allocating investment opportunities, the Adviser and its affiliated advisers may take
into account regulatory, tax or legal requirements applicable to an account. In allocating investment opportunities, the Adviser and its
affiliated advisers may use rotational, percentage or other allocation methods provided that doing so is consistent with the Adviser’s
and its affiliated advisers’ internal conflict of interest and allocation policies and the requirements of the Investment Advisers
Act of 1940, or the “Advisers Act,” the 1940 Act and other applicable laws. In addition, an account managed by the Adviser,
such as us, is expected to be considered for the allocation of investment opportunities together with other accounts managed by affiliates
of the Adviser. There is no assurance that such opportunities will be allocated to any particular account equitably in the short-term
or that any such account, including us, will be able to participate in all investment opportunities that are suitable for it.
Leverage
We have incurred
leverage through the issuance of the Preferred Stock and indebtedness for borrowed money. We may incur additional leverage, directly or
indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of Derivative
Transactions, additional shares of preferred stock, debt securities and other structures and instruments, in significant amounts and on
terms that the Adviser and our board of directors deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage
may be used for the acquisition and financing of our investments, to pay fees and expenses and for other purposes. Such leverage may be
secured and/or unsecured. Any such leverage does not include leverage embedded or inherent in the issuers in which we invest or in derivative
instruments in which we may invest. The more leverage we employ, the more likely a substantial change will occur in our NAV. Accordingly,
any event that adversely affects the value of an investment would be magnified to the extent leverage is utilized. In addition, our BNP
Credit Facility imposes (and any other debt facility into which we may enter in the future would likely impose) financial and operating
covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments
or to make the distributions required to maintain our ability to be subject to tax as a RIC under Subchapter M of the Code. In addition,
because our management fee is based on total assets, we may have an incentive to incur leverage when it is not appropriate to do so. Under
certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our securities.
Allocation of Expenses
and Selection of Service Providers
From time to time,
the Adviser and the Administrator will be required to determine how certain costs and expenses are to be allocated among the Company and
certain other accounts. Often, an expense is relevant only to the Company and would be borne only by us. However, it is sometimes the
case that costs and expenses are relevant to more than one account. To the extent the Company, on the one hand, and Adviser, Administrator
and/or one or more accounts, on the other hand, incur costs or expenses that are applicable to more than one of them, the Adviser and
the Administrator will allocate such costs and expenses in a manner that they determine to be fair and reasonable, notwithstanding their
potential interest in the outcome, and may make corrective allocations should they determine that such corrections are necessary or advisable.
Further, the Adviser and the Administrator and their affiliates, and their respective personnel and the investment funds serviced by such
persons, have interests in companies that provide services to asset management firms such as the Adviser, and to other businesses. Because
of these relationships, such persons have a conflict of interest when considering service providers with respect to the Company and have
an incentive to select those service providers in which such persons have an interest. The selection of such a service provider may result
in the Company bearing fees and expenses paid to a service provider that is affiliated with, or otherwise has a relationship with, the
Adviser, the Administrator or their affiliates.
In addition, the
Adviser and the Administrator have a conflict of interest where a service provider provides services directly to the Adviser and/or the
Administrator or an affiliate thereof, and separately provides services to the Company, in that the Adviser, the Administrator and/or
an affiliate thereof may potentially obtain services at a lower cost than it otherwise could have as a result of the service provider’s
work performed on behalf of, and the compensation paid to the service provider by, the Company. In addition, the Adviser and the Administrator
and their affiliates may use some of the same service providers as are retained on behalf of the Company and, in some cases, fee rates,
amounts or discounts may be offered to the Adviser, the Administrator and/or their affiliates by a third party service provider which
differ from those offered to the Company as a result of scheduled or ad hoc rate changes, differences in the scope, type or nature of
the service or transaction, alternative fee arrangements and negotiation.
Valuation
There is not a
public market for many of the investments we target. As a result, the Adviser reviews and determines, in good faith, in accordance with
the 1940 Act, the value of, these securities based on relevant information compiled by itself and/or third-party pricing services (when
available) as described under “Determination of Net Asset Value.” Our interested directors are associated with
the Adviser and have an interest in the Adviser’s economic success. The participation of the Adviser’s investment professionals
in our valuation process, and the interest of our interested directors in the Adviser, could result in a conflict of interest as the management
fee paid to the Adviser is based, in part, on the value of our assets.
Co-Investments and Related Party Transactions
In the ordinary
course of business, we may enter into transactions with persons who are affiliated with us by reason of being under common control of
the Adviser or its affiliates, including other Eagle Point advisers and Stone Point. In order to ensure that we do not engage in any prohibited
transactions with any persons affiliated with us, we have implemented certain policies and procedures whereby our executive officers screen
each of our transactions for any possible affiliations between us, the Adviser and its affiliates and our employees, officers and directors.
We will not enter into any such transactions unless and until we are satisfied that doing so is consistent with the 1940 Act, applicable
SEC exemptive rules, interpretations or guidance, or the terms of our exemptive order (as discussed below), as applicable. Our affiliations
may require us to forgo attractive investment opportunities.
In certain instances,
we co-invest on a concurrent basis with other accounts managed by the Adviser and its affiliates, subject to compliance with applicable
regulations and regulatory guidance and the Adviser’s written allocation procedures. We are able to rely on the exemptive relief
granted by the SEC that permits us to participate in certain negotiated co-investments alongside other accounts managed by the Adviser
and its affiliates, subject to certain conditions, including that (i) a majority of our directors who have no financial interest
in the transaction and a majority of our directors who are not interested persons, as defined in the 1940 Act, of ours approve the co-investment
and (ii) the price, terms and conditions of the co-investment are the same for each participant, subject to the terms of the applicable
exemptive order. The Adviser may determine not to allocate certain potential co-investment opportunities to the Company after taking into
account regulatory requirements or other considerations. See “— Allocation of Opportunities” above. A
copy of our application for exemptive relief, including all of the conditions, and the related order are available on the SEC’s
website at www.sec.gov.
Stone Point-Related Investments
Portfolio companies
of investment funds managed by Stone Point and other affiliates of Stone Point may engage in lending activities, which could result in
us investing in issuers that include loans underwritten by such a portfolio company or affiliate. In addition, the issuers in which we
expect to invest are collateralized principally of senior secured loans, which in many cases may be issued to operating companies that
are primarily owned by private equity funds, including funds that may be managed by Stone Point or its affiliates. In addition to the
above, because portfolio companies of such investment funds engage in a wide range of businesses, such entities may engage in other activities
now or in the future that create a conflict of interest for the Adviser with respect to its management of us. Any of these potential transactions
and activities may result in the Adviser having a conflict of interest that may not be resolved in a manner that is always or exclusively
in our best interest or in the best interest of our stockholders.
Material Non-Public Information
By reason of the
advisory and/or other activities of the Adviser and its affiliates, the Adviser and its affiliates may acquire confidential or material
non-public information or be restricted from initiating transactions in certain securities. The Adviser will not be free to divulge, or
to act upon, any such confidential or material non-public information and, due to these restrictions, it may not be able to initiate a
transaction for our account that it otherwise might have initiated. As a result, we may be frozen in an investment position that we otherwise
might have liquidated or closed out or may not be able to acquire a position that we might otherwise have acquired.
Enstar’s Indirect Ownership Interest
in the Adviser
The Adviser has
entered into an arrangement with Enstar in connection with Cavello Bay’s, an affiliate of Enstar’s, contribution of BB-Rated
CLO Debt securities to us. See “Business — Our Structure and Formation Transactions.” This arrangement
provides that the Enstar affiliate will indirectly hold a portion of the limited liability company interests in the Adviser until such
time as either (i) the Enstar affiliate exercises a put right to sell its interest under the agreement to the Adviser or (ii) the
Adviser exercises a call right to buy the interest of the Enstar affiliate under the agreement (which call right is subject to certain
conditions). This arrangement may cause Enstar or its affiliates to have interests that diverge from the interests of other stockholders
on certain matters (e.g., on material amendments to the Investment Advisory Agreement).
Code of Ethics and Compliance Procedures
In order to address
the conflicts of interest described above, we have adopted a code of ethics under Rule 17j-l of the 1940 Act. Similarly, the Adviser
has separately adopted the “Adviser Code of Ethics.” The Adviser Code of Ethics requires the officers and employees of the
Adviser to act in the best interests of the Adviser and its client accounts (including us), act in good faith and in an ethical manner,
avoid conflicts of interests with the client accounts to the extent reasonably possible and identify and manage conflicts of interest
to the extent that they arise. Personnel subject to each 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’s requirements.
In addition, our code of ethics and the Adviser’s Code of Ethics are incorporated by reference as exhibits to the registration statement
of which this prospectus is a part, and are available on the EDGAR Database on the SEC’s website at www.sec.gov.
Our directors
and officers, and the officers and employees of the Adviser, are also required to comply with applicable provisions of the U.S. federal
securities laws and make prompt reports to supervisory personnel of any actual or suspected violations of law.
In addition, the
Adviser has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect
against potential incentives that may favor one account over another. The Adviser has adopted policies and procedures that address the
allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts
of interest that are designed to ensure that all client accounts are treated equitably over time.
U.S. FEDERAL INCOME TAX MATTERS
The following
is a summary of certain U.S. federal income tax consequences generally applicable to the purchase, ownership and disposition of our common
stock and preferred stock (including the Preferred Stock), which collectively will be referred to as “stock,” issued as of
the date of this prospectus. Unless otherwise stated, this summary deals only with our securities held as capital assets for U.S. federal
tax purposes (generally, property held for investment).
As used herein,
a “U.S. holder” means a beneficial owner of the securities that is for U.S. federal income tax purposes any of the following:
| • | an individual citizen or resident of the United States; |
| • | a corporation (or any 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, any state or other political subdivision thereof (including the District of Columbia); |
| • | a trust if it (a) is subject to the primary supervision of a court within the United States and one
or more United States persons have the authority to control all substantial decisions of the trust or (b) has a valid election in
effect under applicable United States Treasury regulations, or “Treasury Regulations,” to be treated as a United States person;
or |
| • | an estate, the income of which is subject to U.S. federal income taxation regardless of its source. |
The term “non-U.S.
holder” means a beneficial owner of the securities (other than a partnership or any other entity or other arrangement treated as
a partnership for U.S. federal income tax purposes) that is not a U.S. holder.
An individual
may, subject to exceptions, be deemed to be a resident of the United States for U.S. federal income tax purposes, as opposed to a non-resident
alien, by, among other ways, being present in the United States (i) on at least 31 days in the calendar year, and (ii) for an
aggregate of at least 183 days during a three-year period ending in the current calendar year, counting for such purposes all of the days
present in the current year, one-third of the days present in the immediately preceding calendar year, and one-sixth of the days present
in the second preceding calendar year. Individuals who are residents for such purposes are subject to U.S. federal income tax as if they
were United States citizens.
This summary does
not represent a detailed description of the U.S. federal income tax consequences applicable to you, as a holder of our securities, if
you are a person subject to special tax treatment under the
U.S. federal income tax laws, including, without limitation:
| • | a dealer in securities or currencies; |
| • | a financial institution; |
| • | a real estate investment trust; |
| • | a tax-exempt organization; |
| • | a person holding the securities as part of a hedging, integrated, conversion or constructive sale transaction
or a straddle; |
| • | a trader in securities that has elected the mark-to-market method of accounting for their securities; |
| • | a person subject to alternative minimum tax; |
| • | a partnership or other pass-through entity for U.S. federal income tax purposes; |
| • | a U.S. holder whose “functional currency” (as defined in Section 985 of the Code) is
not the U.S. dollar; |
| • | A United States expatriate or foreign persons or entities (except to the extent set forth below); or |
| • | A holder that is subject to special tax accounting rules under Section 451(b) of the Code. |
If a partnership
(including any entity classified or arrangement treated as a partnership for U.S. federal income tax purposes) holds the securities, the
tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership
or a partner in a partnership holding our securities, you should consult your own tax advisors regarding the tax consequences of an investment
in our securities.
This summary is
based on the Code, Treasury Regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, possibly
on a retroactive basis, so as to result in U.S. federal income tax consequences different from those summarized below. This summary does
not represent a detailed description of the U.S. federal income tax consequences that may be applicable to you in light of your particular
circumstances and does not address the effects of any aspects of U.S. estate or gift, or state, local or non-U.S. income, estate, or gift
tax laws. It is not intended to be, and should not be construed to be, legal or tax advice to any particular purchaser of our securities.
We have not sought and will not seek any ruling from the Internal Revenue Service, or the “IRS.” No assurance can be given
that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below. You
should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the ownership of our securities,
as well as the consequences to you arising under the laws or other guidance of any other taxing jurisdiction.
Important U.S. Federal Income Tax Considerations
Affecting Us
We have elected
to be treated, and intend to qualify each tax year thereafter, as a RIC under the Code. Accordingly, we must satisfy certain requirements
relating to sources of our income and diversification of our total assets and certain distribution requirements to maintain our RIC status
and to avoid being subject to U.S. federal income or excise tax on any undistributed taxable income. To the extent we qualify for treatment
as a RIC and satisfy the applicable distribution requirements, we will not be subject to U.S. federal income tax on income paid to our
stockholders in the form of dividends or capital gain dividends.
To qualify as
a RIC for U.S. federal income tax purposes, we must derive at least 90% of our gross income each tax year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, net income derived
from an interest in a qualified publicly traded partnership, or other income (including, but not limited to, gains from options, futures
or forward contracts) derived with respect to our business of investing in stock, securities and currencies, or the “90% Gross Income
Test.” A “qualified publicly traded partnership” is a publicly traded partnership that meets certain requirements with
respect to the nature of its income. To qualify as a RIC, we must also satisfy certain requirements with respect to the diversification
of our assets. We must have, at the close of each quarter of the tax year, at least 50% of the value of our total assets represented by
cash, cash items, U.S. government securities, securities of other RICs and other securities that, in respect of any one issuer, do not
represent more than 5% of the value of our assets nor more than 10% of the voting securities of that issuer. In addition, at those times,
not more than 25% of the value of our assets may be invested in securities (other than U.S. government securities or the securities of
other RICs) of any one issuer, or of two or more issuers, which we control and which are engaged in the same or similar trades or businesses
or related trades or businesses, or of one or more qualified publicly traded partnerships, or the “Asset Diversification Tests.”
If we fail to satisfy the 90% Gross Income Test, we will nevertheless be considered to have satisfied the test if (i) (a) such
failure is due to reasonable cause and not due to willful neglect and (b) we report the failure pursuant to Treasury Regulations
to be adopted, and (ii) we pay a tax equal to the amount by which our gross non-qualifying income exceeds one-ninth of our gross
qualifying income. If we fail to meet any of the Asset Diversification Tests with respect to any quarter of any tax year, we will nevertheless
be considered to have satisfied the requirements for such quarter if we cure such failure within six months and either (i) such failure
is de minimis or (ii) (a) such failure is due to reasonable cause and not due to willful neglect and (b) we report the
failure under Treasury Regulations to be adopted and pay an excise tax. If we fail to qualify as a RIC for more than two consecutive taxable
years and then seek to re-qualify as a RIC, we generally would be required to recognize gain to the extent of any unrealized appreciation
in our assets unless we elect to pay U.S. corporate income tax on any such unrealized appreciation during the succeeding 5-year period.
As a RIC, we generally
will not be subject to federal income tax on our investment company taxable income (as that term is defined in the Code) and net capital
gains (the excess of net long-term capital gains over net short-term capital loss), if any, that we distribute in each tax year as dividends
to stockholders, provided that we distribute dividends of an amount at least equal to the sum of 90% of our investment company taxable
income, determined without regard to any deduction for dividends paid, plus 90% of our net tax-exempt interest income for such tax year,
or the “90% Distribution Requirement.” We intend to distribute to our stockholders, at least annually, substantially all of
our investment company taxable income, net tax-exempt income and net capital gains. In order to avoid incurring a nondeductible 4% federal
excise tax obligation, the Code requires that we distribute (or be deemed to have distributed) by December 31 of each calendar year
dividends of an amount generally at least equal to the sum of (i) 98% of our ordinary income (taking into account certain deferrals
and elections) for such calendar year, (ii) 98.2% of our capital gain net income, adjusted for certain ordinary losses and generally
computed on the basis of the one-year period ending on October 31 of such calendar year (unless we have made an election under Section 4982(e)(4) of
the Code to have our required distribution from net income measured using the one-year period ending on November 30 of such calendar
year) and (iii) 100% of any ordinary income and capital gain net income from prior calendar years (as previously computed) that were
not paid out during such calendar years and on which we incurred no U.S. federal income tax, or the “Excise Tax Distribution Requirement.”
Any dividends
declared by us during 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 for federal income tax purposes
as if it had been paid by us, as well as received by our stockholders, on December 31 of the calendar year in which the distribution
was declared.
We may incur in
the future the 4% federal excise tax on a portion of our income and capital gains. While we intend to distribute income and capital gains
to minimize our exposure to the 4% federal excise tax, we may not be able to, or may choose not to, distribute amounts sufficient to avoid
the imposition of the tax entirely. In that event, we generally will be liable for the 4% federal excise tax only on the amount by which
we do not meet the excise tax avoidance requirement. If we do not qualify as a RIC or fail to satisfy the 90% Distribution Requirement
for any tax year, we would be subject to corporate income tax on our taxable income, and all distributions from earnings and profits,
including distributions of net capital gains (if any), will be taxable to the stockholder as ordinary income. Such distributions generally
would be eligible (i) to be treated as qualified dividend income in the case of individual and other non-corporate stockholders and
(ii) for the dividends received deduction, or the “DRD,” in the case of certain corporate stockholders. In addition,
in order to requalify for taxation as a RIC, we may be required to recognize unrealized gains, pay substantial taxes and interest, and
make certain distributions.
For purposes of
the 90% Gross Income Test, income that we earn from equity interests in certain entities that are not treated as corporations or as qualified
publicly traded partnerships for U.S. federal income tax purposes (e.g., certain CLOs that are treated as partnerships) will generally
have the same character for us as in the hands of such an entity; consequently, we may be required to limit our equity investments in
any such entities that earn fee income, rental income, or other nonqualifying income.
Because we expect
to use debt financing, we may be prevented by covenants contained in our debt financing agreements from making distributions to our stockholders
in certain circumstances. In addition, under the 1940 Act, we are generally 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. Restrictions
on our ability to make distributions to our stockholders may prevent us from satisfying the 90% Distribution Requirement or the Excise
Tax Distribution Requirement and, therefore, may jeopardize our qualification for taxation as a RIC, or subject us to the 4% U.S. federal
excise tax.
Some of the income
and fees that we may recognize will not satisfy the 90% Gross Income Test. In order to ensure that such income and fees do not disqualify
us as a RIC for a failure to satisfy such 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 subject to U.S. corporate income tax on their
earnings, which ultimately will reduce our return on such income and fees.
We may be required
to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt instruments that are treated
under applicable tax rules as having original issue discount (which may arise if we receive warrants in connection with the origination
of a loan or possibly in other circumstances), we must include in income each tax year a portion of the original issue discount that accrues
over the life of the obligation, regardless of whether cash representing such income is received by us in the same tax year. We may also
have to include in income other amounts that we have not yet received in cash, such as contractual payment-in-kind interest (which represents
contractual interest added to the loan balance and due at the end of the loan term) and deferred loan origination fees that are paid after
origination of the loan or are paid in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts
accrued will be included in our investment company taxable income for the tax year of accrual, we may be required to make a distribution
to our stockholders in order to satisfy the 90% Distribution Requirement or the Excise Tax Distribution Requirement, even though we will
not have received any corresponding cash amount.
We may invest
(directly or indirectly through an investment in an equity interest in a CLO treated as a partnership for U.S. federal income tax purposes)
a portion of our net assets in below investment grade instruments. Investments in these types of instruments may present special tax issues
for us. U.S. federal income tax rules are not entirely clear about issues such as when we may cease to accrue interest, original
issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments
received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy
or workout context are taxable. These and other issues will be addressed by us to the extent necessary in order to seek to ensure that
we distribute sufficient income that we do not become subject to U.S. federal income or excise tax.
Some of the CLOs
in which we invest may constitute PFICs for U.S. federal income tax purposes. Because we acquire interests treated as equity for U.S.
federal income tax purposes in PFICs (including equity tranche investments and certain debt tranche investments in CLOs that are PFICs),
we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares
even if such income is distributed as a taxable dividend by us to our stockholders. Additional charges in the nature of interest may be
imposed on us in respect of deferred taxes arising from any such excess distributions or gains. If we invest in a PFIC and elect to treat
the PFIC as a QEF in lieu of the foregoing requirements, we will be required to include in income each tax year our proportionate share
of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us. Alternatively, we can elect to
mark-to-market at the end of each tax year (as well as on certain other dates described in the Code) our shares in a PFIC; in this case,
we will recognize as ordinary income any increase in the value of such shares, and as an ordinary loss any decrease in such value to the
extent it does not exceed prior increases included in our ordinary income. Under either election, we may be required to recognize in a
tax year taxable income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that tax year,
and we may be required to distribute such taxable income in order to satisfy the 90% Gross Income Test, the Excise Tax Distribution Requirement
or the 90% Distribution Requirement. Our ability to make either election will depend on factors beyond our control, and is subject to
restrictions which may limit the availability of the benefit of these elections. Treasury Regulations generally treat our income inclusion
with respect to a PFIC with respect to which we have made a QEF election, as qualifying income for purposes of determining our ability
to be subject to tax as a RIC if (i) there is a current distribution out of the earnings and profits of the PFIC that are attributable
to such income inclusion or (ii) such inclusion is derived with respect to our business of investing in stock, securities, or currencies.
As such, we may be restricted in our ability to make QEF elections with respect to our holdings in issuers that could be treated as PFICs
in order to limit our tax liability or maximize our after-tax return from these investments.
If we hold 10%
or more of the interests treated as equity (by vote or value) for U.S. federal income tax purposes in a foreign corporation that is treated
as a CFC (including equity tranche investments and certain debt tranche investments in a CLO treated as CFC), we may be treated as receiving
a deemed distribution (taxable as ordinary income) each tax year from such foreign corporation in an amount equal to our pro rata share
of the corporation’s income for the tax year (including both ordinary earnings and capital gains), whether or not the corporation
makes an actual distribution during such tax year. In general, a foreign corporation will be classified as a CFC if more than 50% of the
shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution)
by U.S. Shareholders. A “U.S. Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively)
(a) 10% or more of the combined voting power of all classes of shares of a foreign corporation entitled to vote, or (b) 10%
or more of the total value of all classes of stock of a foreign corporation. If we are treated as receiving a deemed distribution from
a CFC, we will be required to include such deemed distribution in our investment company taxable income regardless of whether we receive
any actual distributions from such CFC, and we must distribute such income in order to satisfy the Excise Tax Distribution Requirement
or the 90% Distribution Requirement. Treasury Regulations generally treat our income inclusion with respect to a CFC as qualifying income
for purposes of determining our ability to be subject to tax as a RIC either if (i) there is a current distribution out of the earnings
and profits of the CFC that are attributable to such income inclusion or (ii) such inclusion is derived with respect to our business
of investing in stock, securities, or currencies. As such, we may limit and/or manage our holdings in issuers that could be treated as
CFCs in order to limit our tax liability or maximize our after-tax return from these investments.
FATCA generally
imposes a U.S. federal withholding tax of 30% on U.S. source periodic payments, including interest and dividends to certain non-U.S. entities,
including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements
regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial
entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If
a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute
to equity and junior debt holders in such CLO, which could materially and adversely affect our operating results and cash flows.
For federal income
tax purposes, we are generally permitted to carry forward a net capital loss in any taxable year to offset our own capital gains, if any.
These amounts are available to be carried forward to offset future capital gains to the extent permitted by the Code and applicable tax
regulations. Any such loss carryforwards will retain their character as short-term or long-term. In the event that we were to experience
an ownership change as defined under the Code, our capital loss carryforwards and other favorable tax attributes, if any, may be subject
to limitation.
Under Section 988
of the Code, gains or losses attributable to fluctuations in exchange rates between the time we accrue income, expenses or other liabilities
denominated in a foreign currency and the time we actually collect such income or pay such expenses or liabilities are generally treated
as ordinary income or loss. Similarly, gains or losses on foreign currency forward, futures and options contracts, similar financial instruments
as well as upon the disposition of debt securities denominated in a foreign currency, to the extent attributable to fluctuations in exchange
rates between the acquisition and disposition dates, are also treated as ordinary income or loss. Any such transactions that are not directly
related to our investment in securities (possibly including speculative currency positions or currency derivatives not used for hedging
purposes) also could, under future Treasury Regulations, produce income not among the types of “qualifying income” for purposes
of the 90% Gross Income Test.
Gain or loss realized
by us from the sale or exchange of 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. The treatment of such gain or loss as long-term or short-term will depend on how long we held a particular
warrant. Upon the exercise of a warrant acquired by us, our tax basis in the stock purchased under the warrant will equal the sum of the
amount paid for the warrant plus the strike price paid on the exercise of the warrant.
Our transactions
in futures contracts and options will be subject to special provisions of the Code that, among other things, may affect the character
of our realized gains and losses realized (i.e., may affect whether gains or losses are ordinary or capital, or short-term or long-term),
may accelerate recognition of income to us and may defer our losses. These rules could, therefore, affect the character, amount and
timing of distributions to stockholders. These provisions also (a) will require us to mark-to-market certain types of the positions
in our portfolio (i.e., treat them as if they were closed out), and (b) may cause us to recognize income without receiving cash with
which to make distributions in amounts necessary to satisfy the 90% Distribution Requirement for qualifying to be taxed as a RIC or the
Excise Tax Distribution Requirement. We will monitor our transactions, will make the appropriate tax elections and will make the appropriate
entries in our books and records when we acquire any futures contract, option or hedged investment in order to mitigate the effect of
these rules and prevent our disqualification from being taxed as a RIC.
Generally, our
hedging transactions (including certain covered call options) may result in “straddles” for U.S. federal income tax purposes.
The straddle rules may affect the character of our realized gains (or losses). In addition, our realized losses on positions that
are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income
for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated,
the tax consequences to us of engaging in hedging transactions are not entirely clear. Hedging transactions may increase the amount of
our realized short-term capital gain which is taxed as ordinary income when distributed to stockholders.
We may make one
or more of the elections available under the Code which are applicable to straddles. If we make any of the elections, the amount, character
and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains
or losses from the affected straddle positions.
Because the straddle
rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to stockholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not engage in such hedging transactions.
Certain of our
investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) convert
dividends that would otherwise constitute qualified dividend income into ordinary income, (ii) treat dividends that would otherwise
be eligible for deductions available to certain U.S. corporations under the Code as ineligible for such treatment, (iii) disallow,
suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gains into short-term capital
gains or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of which is more limited),
(vi) cause us to recognize income or gain without a corresponding receipt of cash, (vii) adversely alter the characterization
of certain complex financial transactions, and (viii) produce income that will not qualify as good income for purposes of the 90%
Gross Income Test. While we may not always be successful in doing so, we will seek to avoid or minimize the adverse tax consequences of
our investment practices.
We may recognize
gain (but not loss) from a constructive sale of certain “appreciated financial positions” if we enter into a short sale, offsetting
notional principal contract, or forward contract transaction with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment include interests (including options and forward contracts
and short sales) in stock and certain other instruments. Constructive sale treatment does not apply if the transaction is closed out no
later than thirty days after the end of the tax year in which the transaction was initiated, and the underlying appreciated securities
position is held unhedged for at least the next sixty days after the hedging transaction is closed.
Gain or loss from
a short sale of property is generally considered as capital gains or loss to the extent the property used to close the short sale constitutes
a capital asset in our hands. Except with respect to certain situations where the property used to close a short sale has a long-term
holding period on the date the short sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short
sale will be treated as a long-term capital loss if, on the date of the short sale, “substantially identical property” has
been held by us for more than one year. In addition, entering into a short sale may result in suspension of the holding period of “substantially
identical property” held by us.
Gain or loss on
a short sale will generally not be realized until such time as the short sale is closed. However, as described above in the discussion
of constructive sales, if we hold a short sale position with respect to securities that have appreciated in value, and we then acquire
property that is the same as or substantially identical to the property sold short, we generally will recognize gain on the date we acquire
such property as if the short sale were closed on such date with such property. Similarly, if we hold an appreciated financial position
with respect to securities and then enter into a short sale with respect to the same or substantially identical property, we generally
will recognize gain as if the appreciated financial position were sold at its fair market value on the date we enter into the short sale.
The subsequent holding period for any appreciated financial position that is subject to these constructive sale rules will be determined
as if such position were acquired on the date of the constructive sale.
Taxation of Stockholders
Taxation
of U.S. Holders of Our Stock. Dividends and distributions on our shares are generally subject to federal income tax as described
herein, even though such dividends and distributions may economically represent a return of a particular stockholder’s investment.
Such distributions are likely to occur in respect of shares purchased at a time when our NAV reflects gains that are either unrealized,
or realized but not distributed. Such realized gains may be required to be distributed even when our NAV also reflects unrealized losses.
Certain dividends and distributions declared by us in October, November, or December to stockholders of record of such month of a
calendar year and paid by us in January of the following calendar year will be treated by stockholders as if received on December 31
of the calendar year in which they were declared. In addition, certain other distributions made after the close of our tax year may be
“spilled back” and treated as paid by us (except for purposes of the nondeductible 4% federal excise tax) during such tax
year. In such case, stockholders will be treated as having received such dividends in the tax year in which the distributions were actually
made.
Stockholders receiving
any distribution from us in the form of additional shares will generally be treated as receiving a taxable distribution in an amount equal
to the fair market value of the additional shares received, pursuant to the dividend reinvestment plan.
We inform stockholders
of the source and tax status of all distributions promptly after the close of each calendar year.
For federal income
tax purposes, distributions paid out of our current or accumulated earnings and profits will, except in the case of distributions of qualified
dividend income and capital gain dividends described below, be taxable as ordinary dividend income. Certain income distributions paid
by us (whether paid in cash or reinvested in additional shares of our stock) to individual taxpayers are taxed at rates applicable to
net long-term capital gains. This tax treatment applies only if certain holding period requirements and other requirements are satisfied
by the stockholder and the dividends are attributable to qualified dividend income received by us, and there can be no assurance as to
what portion of our dividend distributions will qualify for favorable treatment. For this purpose, “qualified dividend income”
means dividends received from United States corporations and “qualified foreign corporations,” provided that we satisfy certain
holding period and other requirements in respect of the stock of such corporations. The maximum individual rate applicable to qualified
dividend income is either 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Given our
investment strategies, it is not anticipated that a significant portion of our dividends will be eligible to be treated as qualified dividend
income.
Dividends distributed
from our investment company taxable income which have been reported by us and received by certain of our corporate stockholders will qualify
for the DRD to the extent of the amount of qualifying dividends received by us from certain domestic corporations for the tax year. A
dividend received by us will not be treated as a qualifying dividend (i) to the extent the stock on which the dividend is paid is
considered to be “debt-financed” (generally, acquired with borrowed funds), (ii) if we fail to meet certain holding period
requirements for the stock on which the dividend is paid or (iii) to the extent we are under an obligation (pursuant to a short sale
or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the DRD may be
disallowed or reduced if an otherwise eligible corporate stockholder fails to satisfy the foregoing requirements with respect to shares
of our stock or by application of the Code. Given our investment strategies, it is not anticipated that a significant portion of our dividends
will be eligible for the DRD.
Capital gain dividends
distributed to a stockholder are characterized as long-term capital gains, regardless of how long the stockholder has held our shares.
A distribution of an amount in excess of our current and accumulated earnings and profits will be treated by a stockholder as a return
of capital which is applied against and reduces the stockholder’s tax basis in our shares. To the extent that the amount of any
such distribution exceeds a stockholder’s tax basis in our shares, the excess will be treated by the stockholder as gain from a
sale or exchange of the shares. Distributions of gains from the sale or other disposition of our investments that we owned for one year
or less are characterized as ordinary income.
Certain distributions
reported by us as Section 163(j) interest dividends may be treated as interest income by stockholders for purposes of the tax
rules applicable to interest expense limitations under Section 163(j) of the Code. Such treatment by stockholders is generally
subject to holding period requirements and other potential limitations, although the holding period requirements are generally not applicable
to dividends declared by money market funds and certain other funds that declare dividends daily and pay such dividends on a monthly or
more frequent basis. The amount that we are eligible to report as a Section 163(j) dividend for a tax year is generally limited
to the excess of our business interest income over the sum of our (i) business interest expense and (ii) other deductions properly
allocable to our business interest income.
We may elect to
retain our net capital gains or a portion thereof for investment and be subject to tax at corporate rates on the amount retained. In such
case, we may designate the retained amount as undistributed net capital gains in a notice to our stockholders who will be treated as if
each received a distribution of the pro rata share of such net capital gain, with the result that each stockholder will: (i) be required
to report the pro rata share of such net capital gain on the applicable tax return as long-term capital gains; (ii) receive a refundable
tax credit for the pro rata share of tax paid by us on the net capital gain; and (iii) increase the tax basis for the shares of our
stock held by an amount equal to the deemed distribution less the tax credit.
The IRS currently
requires that a RIC that has two or more classes of stock allocate to each such class proportionate amounts of each type of its income
(such as ordinary income and capital gains) based upon the percentage of total dividends paid to each class for the tax year. Accordingly,
we intend each year to allocate capital gain dividends, if any, between our shares of common stock and shares of preferred stock (including
the Preferred Stock) in proportion to the total dividends paid to each class with respect to such tax year.
The benefits of
the reduced tax rates applicable to long-term capital gains and qualified dividend income may be impacted by the application of the alternative
minimum tax to noncorporate stockholders.
Although we currently
do not intend to do so, we have the ability to declare a large portion of a distribution in shares of our stock. Generally, were we to
declare such a distribution, we would allow stockholders to elect payment in cash and/or shares of equivalent value. Under published IRS
guidance, the entire distribution by a publicly offered RIC will generally be treated as a taxable distribution for U.S. federal income
tax purposes, and count towards RIC distribution requirements under the Code, if certain conditions are satisfied. Among other things,
the aggregate amount of cash available to be distributed to all stockholders is required to be at least 20% of the aggregate declared
distribution. If too many stockholders elect to receive cash, the cash available for distribution is required to be allocated among the
stockholders electing to receive cash (with the balance of the distribution paid in stock) under a formula provided in the applicable
IRS guidance. Each stockholder electing to receive cash would be entitled to receive cash in an amount equal to at least the lesser of
(i) the portion of the distribution such stockholder elected to receive in cash and (ii) such stockholder’s entire distribution
multiplied by the percentage limitation on cash available for distribution. The number of shares of our stock distributed would thus depend
on the applicable percentage limitation on cash available for distribution, the stockholders’ individual elections to receive cash
or stock, and the value of the shares of stock. Each stockholder generally would be treated as having received a taxable distribution
on the date the distribution is received in an amount equal to the cash that such stockholder would have received if the entire distribution
had been paid in cash, even if such stockholder received all or most of the distribution in shares of our stock. This may result in a
stockholder having to pay tax on such distribution, even if no cash is received.
Selling stockholders
will generally recognize gain or loss in an amount equal to the difference between the amount realized on the sale and the stockholder’s
adjusted tax basis in the shares sold. The gain or loss will generally be a capital gain or loss. The current maximum tax rate applicable
to net capital gains recognized by individuals and other non-corporate taxpayers is: (i) the same as the maximum ordinary income
tax rate for gain recognized on the sale of capital assets held for one year or less; or (ii) generally 15% or 20% (depending on
whether the stockholder’s income exceeds certain threshold amounts) for gains recognized on the sale of capital assets held for
more than one year (as well as certain capital gain dividends).
Gain or loss,
if any, recognized by a holder in connection with our redemption of shares of the Preferred Stock generally will be characterized as gain
or loss from a sale or exchange of Preferred Stock if the redemption (a) is “not essentially equivalent to a dividend”
with respect to the stockholder, (b) results in a “complete termination” of holder’s ownership of our stock, or
(c) is “substantially disproportionate” with respect to the holder, in each case, within the meaning of Section 302(b) of
the Code. In determining whether any of these alternative tests has been met, stock considered to be owned by a holder of Preferred Stock
by reason of certain constructive ownership rules under the Code and the related administrative guidance promulgated thereunder as
well as judicial interpretations thereof, as well as stock actually owned by the holder, generally must be taken into account. The determination
as to whether any of the alternative tests described above will be satisfied with respect to a holder of Preferred Stock depends upon
the facts and circumstances at the time that the determination must be made.
Holders of Preferred
Stock are advised to consult their tax advisors to determine their own tax treatment in the event of a redemption of such stock.
Even if a redemption
of Preferred Stock is treated as a sale or exchange, a portion of the amount received by a holder on the redemption may be characterized
as dividend income for federal income tax purposes to the extent such portion is attributable to declared but unpaid dividends. If a redemption
of Preferred Stock from a holder is not treated as a sale or exchange for federal income tax purposes, the proceeds of such distribution
generally will be characterized for federal income tax purposes as a dividend.
Any loss realized
upon the sale or exchange of shares of our stock with a holding period of six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends received (or amounts designated as undistributed capital gains) with respect to such shares.
In addition, all or a portion of a loss realized by a stockholder on a sale or other disposition of shares of our stock may be disallowed
under “wash sale” rules to the extent the stockholder acquires other shares of our stock (whether through the reinvestment
of distributions or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of
our shares. Any disallowed loss will result in an adjustment to the stockholder’s tax basis in some or all of the other shares of
our stock acquired.
Certain commissions
or other sales charges paid upon a purchase of our shares cannot be taken into account for purposes of determining gain or loss on a sale
of the shares before the 91st day after their purchase to the extent a sales charge is reduced or eliminated in a subsequent acquisition
of our shares, during the period beginning on the date of such sale and ending on January 31 of the calendar year following the calendar
year in which the sale is made, pursuant to a reinvestment right. Any disregarded amounts will result in an adjustment to a stockholder’s
tax basis in some or all of any other shares of our stock acquired.
We or your financial
intermediary is also generally required by law to report to each stockholder and to the IRS cost basis information for shares of our stock
sold by or redeemed from the stockholder. This information includes the adjusted cost basis of the shares, the gross proceeds from disposition
and whether the gain or loss is long-term or short-term. The adjusted cost basis of shares will be based on the default cost basis reporting
method selected by us, unless a stockholder, before the sale or redemption, informs us that it has selected a different IRS-accepted method
offered by us. These requirements, however, will not apply for investments through a tax-advantaged account. Stockholders should consult
their financial intermediaries and tax advisers to determine the best cost basis method for their tax situation, and to obtain more information
about how these cost basis reporting requirements apply to them.
Medicare
Tax on Net Investment Income. A 3.8% tax is imposed under Section 1411 of the Code on the “net investment income”
of certain U.S. citizens and residents and on the undistributed net investment income of certain estates and trusts. Among other items,
net investment income generally includes payments of interest or dividends on, and net gains recognized from the sale, exchange, redemption,
retirement or other taxable disposition of our securities (unless the securities are held in connection with certain trades or businesses),
less certain deductions. Prospective investors in our securities should consult their own tax advisors regarding the effect, if any, of
this tax on their ownership and disposition of our securities.
Taxation
of Tax-Exempt Holders of Our Stock. A U.S. Shareholder 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. Shareholder of the activities
that we propose to conduct could give rise to UBTI. However, a RIC is a corporation for U.S. federal income tax purposes and its business
activities generally will not be attributed to its shareholders for purposes of determining their treatment under current law. Therefore,
a tax-exempt U.S. Shareholder should not be subject to U.S. federal income taxation solely as a result of such shareholder’s direct
or indirect ownership of shares of our stock and receipt of distributions with respect to such shares (regardless of whether we incur
indebtedness). Moreover, under current law, if we incur indebtedness, such indebtedness will not be attributed to a tax-exempt U.S. Shareholder.
Therefore, a tax-exempt U.S. Shareholder should not be treated as earning income from “debt-financed property” and distributions
that we pay should not be treated as “unrelated debt-financed income” solely as a result of indebtedness that we incur. Certain
tax-exempt private universities are subject to an additional 1.4% excise tax on their “net investment income,” including income
from interest, dividends, and capital gains. 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 RICs, the treatment of dividends payable to tax-exempt investors could be adversely affected. In addition, special rules would
apply if we were to invest in certain real estate mortgage investment conduits or taxable mortgage pools, which we do not currently plan
to do, that could result in a tax-exempt U.S. Shareholder recognizing income that would be treated as UBTI.
Taxation
of Non-U.S. Holders of Our Stock. Whether an investment in the shares of our stock is appropriate for a non-U.S. holder will
depend upon that person’s particular circumstances. An investment in the shares by a non-U.S. holder may have adverse tax consequences.
Non-U.S. holders should consult their tax advisors before investing in our stock.
Subject to the
discussions below, distributions of our “investment company taxable income” to non-U.S. holders (including interest income
and net short-term capital gain) are generally expected to be subject to withholding of U.S. federal taxes at a 30% rate (or lower rate
provided by an applicable treaty) to the extent of our current and accumulated earnings and profits. If the distributions are effectively
connected with a U.S. trade or business of the non-U.S. holder, we will not be required to withhold U.S. federal tax if the non-U.S. holder
complies with applicable certification and disclosure requirements, although the distributions will be subject to U.S. federal income
tax at the rates applicable to U.S. persons. Special certification requirements apply to a non-U.S. holder that is a foreign partnership
or a foreign trust, and such entities are urged to consult their own tax advisors. Backup withholding will not be applied to payments
that have been subject to the 30% (or lower applicable treaty rate) withholding tax described in this paragraph.
In addition, with
respect to certain distributions made by RICs to non-U.S. holders, no withholding is required and the distributions generally are not
subject to U.S. federal income tax if (i) the distributions are properly reported in a notice timely delivered to our stockholders
as “interest-related dividends” or “short-term capital gain dividends,” (ii) the distributions are derived
from sources specified in the Code for such dividends and (iii) certain other requirements are satisfied. 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 gain, and a portion of our distributions, which may be significant (e.g., interest from non-U.S. sources or non-U.S.
CLOs or any foreign currency gains) would be ineligible for this potential exemption from withholding. Moreover, 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 derived from such qualified net interest income or qualified short-term capital gain. Hence, no assurance can be provided as to whether
any amount of our dividends or distributions will be eligible for this exemption from withholding or if eligible, will be reported as
such by us.
Actual or deemed
distributions of our net long-term capital gains to a non-U.S. holder, and gains realized by a non-U.S. holder upon the sale of our stock,
will not be subject to federal withholding tax and generally will not be subject to U.S. federal income tax unless, (i) the distributions
or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. holder and, if an income tax treaty
applies, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States or (ii) in the case
of an individual stockholder, the stockholder is present in the United States for a period or periods aggregating 183 days or more during
the year of the sale or the receipt of the distributions or gains 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. holder 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. holder would be required to obtain a U.S. taxpayer
identification number and file a U.S. federal income tax return even if the non-U.S. holder 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. holder, distributions (both actual
and deemed), and gains realized upon the sale of our 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. holder
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 distributions unless the non-U.S. holder provides us or the distribution
paying agent with 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. holder or otherwise establishes an exemption from backup withholding.
Non-U.S. holders
may also be subject to U.S. estate tax with respect to their investment in our shares. Non-U.S. persons should consult their own tax advisors
with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the
shares.
Tax
Shelter Reporting Regulations. Under applicable Treasury Regulations, if a U.S. holder recognizes a loss with respect to our
securities of $2 million or more for a non-corporate U.S. holder or $10 million or more for a corporate U.S. holder in any single tax
year (or a greater loss over a combination of tax years), the U.S. holder may be required to file with the IRS a disclosure statement
on IRS Form 8886.
Direct U.S. holders
of portfolio securities are in many cases excepted from this reporting requirement, but, under current guidance, U.S. holders of a RIC
are not excepted. Future guidance may extend the current exception from this reporting requirement to U.S. holders of most or all RICs.
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. Significant monetary penalties apply to a failure to comply with this reporting requirement. States may also have
a similar reporting requirement. U.S. holders of our securities should consult their own tax advisors to determine the applicability of
these Treasury Regulations in light of their individual circumstances.
Information
Reporting and Backup Withholding. A U.S. holder (other than an “exempt recipient,” including a “C”
corporation and certain other persons who, when required, demonstrate their exempt status) may be subject to backup withholding at a rate
of 24% on, and will be subject to information reporting requirements with respect to, payments of principal or interest (including original
issue discount, if any) on, and proceeds from the sale, exchange, redemption or retirement of, our securities. In general, if a non-corporate
U.S. holder subject to information reporting fails to furnish a correct taxpayer identification number or otherwise fails to comply with
applicable backup withholding requirements, backup withholding at the applicable rate may apply.
You should consult
your own tax advisor regarding the application of information reporting and backup withholding in your particular circumstance and the
availability of and procedure for obtaining an exemption from backup withholding. Backup withholding is not an additional tax, and any
amounts withheld under the backup withholding rules may be allowed as a refund or a credit against your U.S. federal income tax liability,
provided the required information is timely furnished to the IRS.
FATCA
Withholding on Payments to Certain Foreign Entities. FATCA generally imposes a U.S. federal withholding tax of 30% on payments
of dividends made with respect to shares of our stock to certain non-U.S. entities (including, in some circumstances, where such an entity
is acting as an intermediary) that fail to comply (or be deemed compliant) with certain certification and information reporting requirements.
FATCA withholding taxes apply to all withholdable payments without regard to whether the beneficial owner of the payment would otherwise
be entitled to an exemption from withholding taxes pursuant to an applicable tax treaty with the United States or under U.S. domestic
law. Stockholders may be requested to provide additional information to enable the applicable withholding agent to determine whether withholding
is required.
Proposed Treasury
Regulations eliminate the application of withholding imposed under FATCA with respect to payments of gross proceeds. The Company and any
other applicable withholding agent may (but is not required to) rely on the Proposed Treasury Regulations until final regulations are
issued or until such proposed Treasury Regulations are rescinded. Prospective holders of in our securities should consult their own tax
advisors regarding the effect, if any, of the FATCA rules for them based on their particular circumstances.
The preceding
discussion of material U.S. federal income tax considerations is for general information only and is not tax advice. We urge you to consult
your own tax advisor with respect to the particular tax consequences to you of an investment in our securities, including the possible
effect of any pending legislation or proposed regulations.
DESCRIPTION OF OUR SECURITIES
This prospectus
contains a summary of our common stock, Preferred Stock, subscription rights and debt securities. These summaries are not meant to be
a complete description of each security. However, this prospectus and the accompanying prospectus supplement will contain the material
terms and conditions for each security being offered thereby.
The following
are our authorized classes of securities as of July 31, 2024:
(1) Title of Class | |
(2) Amount Authorized | |
(3) Amount Held by Us or
for Our Account | |
(4) Amount Outstanding
Exclusive of Amounts
Shown Under (3) |
| Common stock, par value $0.001 per share | |
150,000,000 shares | |
— | |
16,890,259 shares |
| Series A Term Preferred Stock, par value $0.001 per share | |
1,600,000 shares | |
— | |
1,521,649 shares |
| Series B Term Preferred Stock, par value $0.001 per share | |
2,400,000 shares | |
— | |
1,551,086 shares |
| Series C Term Preferred Stock, par value $0.001 per share | |
2,400,000 shares | |
— | |
1,480,495 shares |
DESCRIPTION OF OUR CAPITAL STOCK
The following
description is based on relevant portions of the DGCL and on our certificate of incorporation and bylaws. This summary is not necessarily
complete, and we refer you to the DGCL, our certificate of incorporation and our bylaws for a more detailed description of the provisions
summarized below.
Capital Stock
Our authorized
stock consists of 150,000,000 shares of common stock, par value $0.001 per share, and 20,000,000 shares of preferred stock, par value
$0.001 per share. There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under
any equity compensation plans. Under Delaware law, our stockholders generally are not personally liable for our debts or obligations.
Common Stock
All shares of
our common stock have equal rights as to earnings, assets, dividends and voting and, when they are issued, will be duly authorized, validly
issued, fully paid and nonassessable. Distributions may be paid to holders of our common stock if, as and when authorized by the board
of directors and declared by us out of funds legally available therefrom. Such distributions may be payable in cash, shares of our common
stock or a combination thereof. Shares of our common stock have no preemptive, exchange, conversion or redemption rights and are freely
transferable, except when their transfer is restricted by U.S. federal and state securities laws or by contract. In the event of our liquidation,
dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available
for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock,
if any preferred stock is outstanding at such time. Each share of common stock is entitled to one vote on all matters submitted to a vote
of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, holders of
our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors.
Preferred Stock
We are authorized
to issue 20,000,000 shares of preferred stock. As of July 31, 2024, we had 4,553,230 shares of Preferred Stock outstanding. Our certificate
of incorporation authorizes our board of directors to classify and reclassify any unissued shares of preferred stock into other classes
or series of preferred stock without stockholder approval. If we issue preferred stock, costs of the offering will be borne immediately
at such time by the holders of our common stock and result in a reduction of the NAV per share of our common stock at that time. We may
issue preferred stock at any time. Prior to issuance of shares of each class or series, our board of directors is required by the DGCL
and by our certificate of incorporation to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations
as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, our board
of directors could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying,
deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise
be in their best interest. See “Description of our Preferred Stock” below for additional information regarding
our Series A Term Preferred Stock, Series B Term Preferred Stock and Series C Term Preferred Stock.
Provisions of the
DGCL and Our Certificate of Incorporation and Bylaws
Limitation
on Liability of Directors and Officers; Indemnification and Advance of Expenses. The indemnification of our officers and directors
is governed by Section 145 of the DGCL, our certificate of incorporation and bylaws. Subsection (a) of DGCL Section 145
empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with such action, suit or proceeding if (1) such person acted in good faith,
(2) in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and (3) with
respect to any criminal action or proceeding, such person had no reasonable cause to believe the person’s conduct was unlawful.
Subsection (b) of
DGCL Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of
the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to,
the best interests of the corporation, and except that no indemnification may be made in respect of any claim, issue or matter as to which
such person has been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the
court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court
of Chancery or such other court deems proper.
DGCL Section 145
further provides that to the extent that a present or former director or officer is successful, on the merits or otherwise, in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue
or matter therein, such person will be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred
by such person in connection with such action, suit or proceeding. In all cases in which indemnification is permitted under subsections
(a) and (b) of Section 145 (unless ordered by a court), it will be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances
because the applicable standard of conduct has been met by the party to be indemnified. Such determination must be made, with respect
to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, (3) if there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (4) by the stockholders. The statute authorizes the corporation to pay expenses incurred by
an officer or director in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of the person
to whom the advance will be made, to repay the advances if it is ultimately determined that he or she was not entitled to indemnification.
DGCL Section 145 also provides that indemnification and advancement of expenses permitted under such Section are not to be exclusive
of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise. DGCL Section 145 also authorizes the corporation to purchase and maintain
liability insurance on behalf of its directors, officers, employees and agents regardless of whether the corporation would have the statutory
power to indemnify such persons against the liabilities insured.
Our certificate
of incorporation provides that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by the current DGCL or as the DGCL may hereafter be amended. DGCL Section 102(b)(7) provides
that the personal liability of a director to a corporation or its stockholders for breach of fiduciary duty as a director may be eliminated
except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174
of the DGCL, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock or (4) for any transaction
from which the director derives an improper personal benefit.
Our certificate
of incorporation provides for the indemnification of any person to the full extent permitted, and in the manner provided, by the current
DGCL or as the DGCL may hereafter be amended. In addition, we have entered into indemnification agreements with each of our directors
and officers in order to effect the foregoing.
Delaware
Anti-Takeover Law. The DGCL and our certificate of incorporation and bylaws contain provisions that could make it more difficult
for a potential acquirer to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage
certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate
first with our board of directors. These measures may delay, defer or prevent a transaction or a change in control that might otherwise
be in the best interests of our stockholders. These provisions could have the effect of depriving stockholders of an opportunity to sell
their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control over us. Such attempts
could have the effect of increasing our expenses and disrupting our normal operations. We believe that the benefits of these provisions
outweigh the potential disadvantages of discouraging any such acquisition proposals because the negotiation of such proposals may improve
their terms. Our board of directors has considered these provisions and has determined that the provisions are in the best interests of
us and our stockholders generally.
We are subject
to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, these provisions prohibit a Delaware corporation
from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder
became an interested stockholder, unless:
| • | prior to such time, the board of directors approved either the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder; |
| • | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced;
or |
| • | on or after the date the business combination is approved by the board of directors and authorized at
a meeting of stockholders, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
| • | Section 203 defines “business combination” to include the following: |
| • | any merger or consolidation involving the corporation and the interested stockholder; |
| • | any sale, transfer, pledge or other disposition (in one transaction or a series of transactions) of 10%
or more of either the aggregate market value of all the assets of the corporation or the aggregate market value of all the outstanding
stock of the corporation involving the interested stockholder; |
| • | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation
of any stock of the corporation to the interested stockholder; |
| • | any transaction involving the corporation that has the effect of increasing the proportionate share of
the stock of any class or series of the corporation owned by the interested stockholder; or |
| • | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation. |
In general, Section 203
defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation
and any entity or person affiliated with or controlling or controlled by any of these entities or persons.
The statute could
prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Election
of Directors. Our bylaws provide that the affirmative vote of a plurality of all votes cast by stockholders present in
person or by proxy at an annual or special meeting of the stockholders and entitled to vote thereat will be sufficient to elect a director.
Under our certificate of incorporation, our board of directors may amend the bylaws to alter the vote required to elect directors.
For so long as
any series of our preferred stock are outstanding, the holders of our preferred stock, voting as a class, will be entitled to elect two
of our directors.
Classified
Board of Directors. Our board of directors is divided into three classes of directors serving staggered three-year terms,
with the term of office of only one of the three classes expiring each year. A classified board may render a change in control of us or
removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified
board of directors helps to ensure the continuity and stability of our management and policies.
Number
of Directors; Removal; Vacancies. Our certificate of incorporation provides that the number of directors will be set only
by the board of directors in accordance with our bylaws. Our bylaws provide that a majority of our entire board of directors may at any
time increase or decrease the number of directors.
However, unless
our bylaws are amended, the number of directors may never be less than four nor more than eight. Under the DGCL, unless the certificate
of incorporation provides otherwise (which our certificate of incorporation does not), directors on a classified board such as our board
of directors may be removed only for cause, by the affirmative vote of stockholders. Under our certificate of incorporation and bylaws
and subject to applicable stockholder election requirements of the 1940 Act, any vacancy on the board of directors, including a vacancy
resulting from an enlargement of the board of directors, may be filled only by vote of a majority of the directors then in office. The
limitations on the ability of our stockholders to remove directors and fill vacancies could make it more difficult for a third-party to
acquire, or discourage a third-party from seeking to acquire, control of us.
Action
by Stockholders. Under our certificate of incorporation, stockholder action can be taken only at an annual or special meeting
of stockholders or by unanimous written consent in lieu of a meeting. This may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting.
Advance
Notice Provisions for Stockholder Nominations and Stockholder Proposals. Our bylaws provide that with respect to an annual
meeting of stockholders, nominations of persons for election to the board of directors and the proposal of business to be considered by
stockholders may be made only (1) by or at the direction of the board of directors, (2) pursuant to our notice of meeting or
(3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws.
Nominations of persons for election to the board of directors at a special meeting may be made only (1) by or at the direction of
the board of directors or (2) provided that the board of directors has determined that directors will be elected at the meeting,
by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.
The purpose of
requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity
to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed
necessary or desirable by our board of directors, to inform stockholders and make recommendations about such qualifications or business,
as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our board of directors
any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have
the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are
not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to
us and our stockholders.
Stockholder
Meetings. Our bylaws provide that any action required or permitted to be taken by stockholders at an annual meeting or
special meeting of stockholders may only be taken if it is properly brought before such meeting. In addition, our certificate of incorporation
provides that, in lieu of a meeting, any such action may be taken by unanimous written consent of our stockholders. In addition, our bylaws
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed
nominations of candidates for election to the board of directors. Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors, or by a stockholder
of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper
form to the secretary of the stockholder’s intention to bring such business before the meeting. These provisions could have the
effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding
voting securities.
Calling
of Special Meetings of Stockholders. Our bylaws provide that, except as required by law, special meetings of stockholders
may be called by the secretary at the request of the Chairman of the Board of Directors, the Chief Executive Officer or by a resolution
duly adopted by the affirmative vote of a majority of the Directors.
Conflict
with the 1940 Act. Our bylaws provide that, if and to the extent that any provision of the DGCL or bylaws conflicts with
any provision of the 1940 Act, the applicable provision of the 1940 Act will control.
Exclusive
Forum. Our bylaws provide that, unless the Company consents to the selection of an alternative forum in writing, the Court
of Chancery, or if that court does not have jurisdiction, the United States District Court for the District of Delaware shall be the sole
and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a
claim of breach of any duty owed by any director or officer or other agent of the Company to the Company or to the stockholders of the
Company, (c) any action asserting a claim against the Company or any Director or officer or other agent of the Company arising pursuant
to any provision of the DGCL or our certificate of incorporation or our Bylaws, or (d) any action asserting a claim against the Company
or any Director or officer or other agent of the Company that is governed by the internal affairs doctrine.
This choice of
forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with
us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively,
if a court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results
and financial condition.
Potential Conversion to Open-End Fund
We may be converted
to an open-end management investment company at any time if approved by each of the following: (i) a majority of our directors then
in office, (ii) the holders of not less than 75% of our outstanding shares entitled to vote thereon and (iii) such vote or votes
of the holders of any class or classes or series of shares as may be required by the 1940 Act. In considering whether to vote on any proposal
to convert us to an open-end management investment company, our board of directors may consider any potential benefits to stockholders
that may potentially be achieved based on the circumstances and related risks, and whether it would be in the long-term best interests
of stockholders to do so in light of any necessary changes in our investment policies and other factors. The composition of our portfolio
likely could prohibit us from complying with regulations of the SEC applicable to open-end management investment companies. Accordingly,
conversion likely would require significant changes in our investment policies and may require liquidation of a substantial portion of
relatively illiquid portions of its portfolio, to the extent such positions are held. In the event of conversion, the shares of our common
stock would cease to be listed on the NYSE or other national securities exchange or market system. Any outstanding shares of our preferred
stock would be redeemed by us prior to such conversion. Our board of directors believes, however, that the closed-end structure is desirable,
given our investment objectives and policies. Investors should assume, therefore, that it is unlikely that the board of directors would
vote to convert us to an open-end management investment company. Stockholders of an open-end management investment company may require
the open-end management investment company to redeem their shares at any time (except in certain circumstances as authorized by or under
the 1940 Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of a redemption. We would expect to
pay all such redemption requests in cash, but intends to reserve the right to pay redemption requests in a combination of cash or securities.
If such partial payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If we were
converted to an open-end fund, it is likely that new shares of our common stock would be sold at NAV plus a sales load.
Repurchase of Shares
and Other Discount Measures
Because shares
of common stock of closed-end management investment companies that are listed on an exchange frequently trade at a discount to their NAVs,
the board of directors may from time to time determine that it may be in the interest of the holders of our common stock to take certain
actions intended to reduce such discount. The board of directors, in consultation with the Adviser, will review at least annually the
possibility of open market repurchases and/or tender offers for shares of our common stock and will consider such factors as the market
price of shares of our common stock, the NAV per share of our common stock, the liquidity of our assets, the effect on our expenses, whether
such transactions would impair our status as a RIC or result in a failure to comply with applicable asset coverage requirements, general
economic conditions and such other events or conditions, which may have a material effect on our ability to consummate such transactions.
There are no assurances that the board of directors will, in fact, decide to undertake either of these actions or, if undertaken, that
such actions will result in shares of our common stock trading at a price which is equal to or approximates their NAV.
In recognition
of the possibility that shares of our common stock might trade at a discount to the NAV of such shares and that any such discount may
not be in the interest of the holders of our common stock, the board of directors, in consultation with the Adviser, from time to time
may review the possible actions to reduce any such discount.
DESCRIPTION OF OUR PREFERRED
STOCK
We are authorized
to issue up to 20,000,000 shares of preferred stock. As of July 31, 2024, we had 1,521,649 shares of Series A Term Preferred
Stock, 1,551,086 shares of Series B Term Preferred Stock, and 1,480,495 shares of Series C Term Preferred Stock outstanding.
We may issue additional preferred stock from time to time in one or more series without stockholder approval. Prior to issuance of shares
of each series, our board of directors is required by Delaware law and by our certificate of incorporation to set the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms
or conditions of redemption for each series. Thus, the board of directors could authorize the issuance of shares of preferred stock with
terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve
a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any such an issuance
must adhere to the requirements of the 1940 Act, Delaware law and any other limitations imposed by law.
With respect to
senior securities that are stocks (i.e., shares of our preferred stock, including the Series A Term Preferred Stock), we are
required under current law to have an asset coverage of at least 200%, as measured at the time of the issuance of any such shares of preferred
stock and calculated as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) over
the aggregate amount of our outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding
shares of preferred stock. In addition the 1940 Act requires that (i) the holders of shares of preferred stock must be entitled as
a class to elect two directors at all times and to elect a majority of the directors if dividends or other distribution on the preferred
stock are in arrears by two years or more and (ii) such class of stock have complete priority over any other class of stock as to
distribution of assets and payment of dividends or other distributions, which shall be cumulative. Some matters under the 1940 Act require
the separate vote of the holders of any issued and outstanding preferred stock. We believe that the availability for issuance of preferred
stock will provide us with increased flexibility in structuring future financings and acquisitions.
For any series
of preferred stock that we may issue, our board of directors will determine and the certificate of designation and the prospectus supplement
relating to such series will describe:
| • | the designation and number of shares of such series; |
| • | the rate and time at which, and the preferences and conditions under which, any dividends or other distributions
will be paid on shares of such series, as well as whether such dividends or other distributions are participating or non-participating; |
| • | any provisions relating to convertibility or exchangeability of the shares of such series, including adjustments
to the conversion price of such series; |
| • | the rights and preferences, if any, of holders of shares of such series upon our liquidation, dissolution
or winding up of our affairs; |
| • | the voting powers, if any, of the holders of shares of such series; |
| • | any provisions relating to the redemption of the shares of such series; |
| • | any limitations on our ability to pay dividends or make distributions on, or acquire or redeem, other
securities while shares of such series are outstanding; |
| • | any conditions or restrictions on our ability to issue additional shares of such series or other securities; |
| • | if applicable, a discussion of certain U.S. federal income tax considerations; and |
| • | any other relative powers, preferences and participating, optional or special rights of shares of such
series, and the qualifications, limitations or restrictions thereof. |
All shares of
preferred stock that we may issue will be of equal rank and identical except as to the particular terms thereof that may be fixed by our
board of directors, and all shares of each series of preferred stock will be identical except as to the dates from which dividends or
other distributions, if any, thereon will be cumulative.
Series A Term Preferred
Stock
Redemption.
We are required to redeem all outstanding shares of the Series A Term Preferred Stock on October 30, 2026. In addition, if we
fail to maintain asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200% as of the close of business on
the last business day of any calendar quarter and such failure is not cured by the close of business on the date that is 30 calendar days
following the filing date of our Annual Report on Form N-CSR, Semiannual Report on Form N-CSRS or Quarterly Report on Form N-PORT,
as applicable, for that quarter, we will be required to redeem the number of shares of our preferred stock (which at our discretion may
include any number or portion of the Series A Term Preferred Stock), that, when combined with any debt securities redeemed for failure
to maintain the asset coverage required by the indenture governing such securities, (1) result in us having asset coverage of at
least 200% and (2) if fewer, the maximum number of shares of preferred stock that can be redeemed out of funds legally available
for such redemption. In connection with any redemption for failure to maintain such asset coverage, we may, in our sole option, redeem
such additional number of shares of preferred stock that will result in asset coverage up to and including 285%. At any time after October 31,
2023, we may, in our sole option, redeem the outstanding shares of Series A Term Preferred Stock in whole or, from time to time,
in part, out of funds legally available for such redemption. The price that we will pay to redeem shares of the Series A Term Preferred
Stock pursuant to any redemption will equal $25 per share plus an amount equal to accumulated but unpaid dividends, if any, on such shares
(whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the redemption date.
Ranking
and Liquidation. The shares of Series A Term Preferred Stock are senior securities that constitute capital stock. The
Series A Term Preferred Stock rank (i) senior to shares of our common stock in priority of payment of dividends and as to the
distribution of assets upon dissolution, liquidation or the winding-up of our affairs; (ii) equal in priority with all other series
of preferred stock we have issued (including Series B Term Preferred Stock and Series C Term Preferred Stock) or may issue as
to payment of dividends and as to distributions of assets upon dissolution, liquidation or the winding-up of our affairs; and (iii) subordinate
in right of payment to any future senior indebtedness. In the event of liquidation, dissolution or winding up of our affairs, holders
of Series A Term Preferred Stock will be entitled to receive a liquidation distribution equal to $25 per share, plus an amount equal
to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends)
to, but excluding, the payment date.
Dividends.
We intend to pay monthly dividends on the Series A Term Preferred Stock at a fixed annual rate of 5.00% of the liquidation preference
($1.25 per share per year), or the “Series A Dividend Rate.” If we fail to redeem the Series A Term Preferred Stock
as required on October 30, 2026, or fail to pay any dividend on the payment date for such dividend, the Series A Dividend Rate
will increase by 2% per annum until we redeem the Series A Term Preferred Stock or pay the dividend, as applicable. The Series A
Dividend Rate will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Voting
Rights. Except as otherwise provided in our certificate of incorporation or as otherwise required by law, (1) each holder
of Series A Term Preferred Stock is entitled to one vote for each share of Series A Term Preferred Stock held on each matter
submitted to a vote of our stockholders and (2) the holders of all outstanding preferred stock, including the Series A Term
Preferred Stock, Series B Term Preferred Stock and Series C Term Preferred Stock, and common stock vote together as a single
class; provided that holders of preferred stock, including the Series A Term Preferred Stock, Series B Term Preferred Stock
and Series C Term Preferred Stock, voting separately as a class, are entitled to elect at least two (2) of our directors and,
if we fail to pay dividends on any outstanding shares of our preferred stock, including the Series A Term Preferred Stock, in an
amount equal to two (2) full years of dividends, and continuing until such failure is cured, will be entitled to elect a majority
of our directors.
Series B Term Preferred
Stock
Redemption.
We are required to redeem all outstanding shares of the Series B Term Preferred Stock on July 31, 2028. In addition,
if we fail to maintain asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200% as of the close of business
on the last business day of any calendar quarter and such failure is not cured by the close of business on the date that is 30 calendar
days following the filing date of our Annual Report on Form N-CSR, Semiannual Report on Form N-CSRS or Quarterly Report on Form N-PORT,
as applicable, for that quarter, we will be required to redeem the number of shares of our preferred stock (which at our discretion may
include any number or portion of the Series B Term Preferred Stock), that, when combined with any debt securities redeemed for failure
to maintain the asset coverage required by the indenture governing such securities, (1) result in us having asset coverage of at
least 200% and (2) if fewer, the maximum number of shares of preferred stock that can be redeemed out of funds legally available
for such redemption. In connection with any redemption for failure to maintain such asset coverage, we may, in our sole option, redeem
such additional number of shares of preferred stock that will result in asset coverage up to and including 285%. At any time on or after
July 31, 2025, we may, in our sole option, redeem the outstanding shares of Series B Term Preferred Stock in whole or, from
time to time, in part, out of funds legally available for such redemption, at the Liquidation Preference plus an amount equal to accumulated
but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding,
the date fixed for such redemption.
Ranking
and Liquidation. The shares of Series B Term Preferred Stock are senior securities that constitute capital stock. The
Series B Term Preferred Stock rank (i) senior to shares of our common stock in priority of payment of dividends and as to the
distribution of assets upon dissolution, liquidation or the winding-up of our affairs; (ii) equal in priority with all other series
of preferred stock we have issued (including Series A Term Preferred Stock and Series C Term Preferred Stock) or may issue in
the future as to priority of payment of dividends and as to distributions of assets upon dissolution, liquidation or the winding-up of
our affairs; and (iii) subordinate in right of payment to the holders of our existing and future indebtedness. In the event of a
liquidation, dissolution or winding up of our affairs, holders of Series B Term Preferred Stock will be entitled to receive a liquidation
distribution equal to the Series B Liquidation Preference of $25 per share, plus an amount equal to accumulated but unpaid dividends,
if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the payment date.
Dividends.
We intend to pay monthly dividends on the Series B Term Preferred Stock at a fixed annual rate of 7.75% of the Series B Liquidation
Preference ($1.9375 per share per year), or the “Series B Dividend Rate.” If we fail to redeem the Series B Term
Preferred Stock as required on the Series B Mandatory Redemption Date (as defined below) or fail to pay any dividend on the payment
date for such dividend, the Series B Dividend Rate will increase by 2% per annum until we redeem the Series B Term Preferred
Stock or pay the dividend, as applicable. The Series B Dividend Rate will be computed on the basis of a 360-day year consisting of
twelve 30-day months.
Voting
Rights. Except as otherwise provided in our certificate of incorporation or as otherwise required by law, (1) each holder
of Series B Term Preferred Stock is entitled to one vote for each share of Series B Term Preferred Stock held on each matter
submitted to a vote of our stockholders and (2) the holders of all outstanding preferred stock, including the Series A Term
Preferred Stock, Series B Term Preferred Stock and Series C Term Preferred Stock, and common stock will vote together as a single
class; provided that holders of preferred stock (including the Series A Term Preferred Stock, Series B Term Preferred Stock
and Series C Term Preferred Stock) voting separately as a class, are entitled to elect two (2) of our directors, or the “Preferred
Directors,” and, if we fail to pay dividends on any outstanding shares of preferred stock, including the Series A Term Preferred
Stock and Series B Term Preferred Stock, in an amount equal to two (2) full years of dividends, and continuing until such failure
is cured, will be entitled to elect a majority of our directors.
Series C Term Preferred
Stock
Redemption.
We are required to redeem all outstanding shares of the Series C Term Preferred Stock on April 30, 2029. In addition,
if we fail to maintain asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200% as of the close of business
on the last business day of any calendar quarter and such failure is not cured by the close of business on the date that is 30 calendar
days following the filing date of our Annual Report on Form N-CSR, Semiannual Report on Form N-CSRS or Quarterly Report on Form N-PORT,
as applicable, for that quarter, we will be required to redeem the number of shares of our preferred stock (which at our discretion may
include any number or portion of the Series C Term Preferred Stock), that, when combined with any debt securities redeemed for failure
to maintain the asset coverage required by the indenture governing such securities, (1) result in us having asset coverage of at
least 200% and (2) if fewer, the maximum number of shares of preferred stock that can be redeemed out of funds legally available
for such redemption. In connection with any redemption for failure to maintain such asset coverage, we may, in our sole option, redeem
such additional number of shares of preferred stock that will result in asset coverage up to and including 285%. At any time on or after
April 3, 2026, we may, in our sole option, redeem the outstanding shares of Series C Term Preferred Stock in whole or, from
time to time, in part, out of funds legally available for such redemption, at the Liquidation Preference plus an amount equal to accumulated
but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding,
the date fixed for such redemption.
Ranking
and Liquidation. The Series C Term Preferred Stock will be senior securities that constitute capital stock. The Series C
Term Preferred Stock will rank (i) senior to shares of our common stock in priority of payment of dividends and as to the distribution
of assets upon dissolution, liquidation or the winding-up of our affairs; (ii) equal in priority with all other series of preferred
stock we have issued (including Series A Term Preferred Stock and Series B Term Preferred Stock) or may issue in the future,
as to priority of payment of dividends and as to distributions of assets upon dissolution, liquidation or the winding-up of our affairs;
and (iii) subordinate in right of payment to the holders of our existing and future indebtedness. In the event of a liquidation,
dissolution or winding up of our affairs, holders of Series C Term Preferred Stock will be entitled to receive a liquidation distribution
equal to the Liquidation Preference of $25 per share, plus an amount equal to accumulated but unpaid dividends, if any, on such shares
(whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
Dividends.
We intend to pay monthly dividends on the Series C Term Preferred Stock at a fixed annual rate of 8.00% of the Liquidation Preference
($2.00 per share per year), or the “Series C Dividend Rate.” If we fail to redeem the Series C Term Preferred Stock
as required on the Mandatory Redemption Date or fail to pay any dividend on the payment date for such dividend, the Dividend Rate will
increase by an additional 2% of the Liquidation Preference per annum until we redeem the Series C Term Preferred Stock or pay the
dividend, as applicable. The Dividend Rate will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Voting
Rights. Except as otherwise provided in our certificate of incorporation or as otherwise required by law, (1) each holder
of Series C Term Preferred Stock will be entitled to one vote for each share of Series C Term Preferred Stock held on each matter
submitted to a vote of our stockholders and (2) the holders of all outstanding preferred stock, including the Series A Term
Preferred Stock, the Series B Term Preferred Stock, and the Series C Term Preferred Stock, and common stock will vote together
as a single class; provided that holders of preferred stock (including the Series A Term Preferred Stock, the Series B Term
Preferred Stock, and the Series C Term Preferred Stock) voting separately as a class, will be entitled to elect two (2) of our
directors, or the “Preferred Directors,” and, if we fail to pay dividends on any outstanding shares of preferred stock, including
the Series C Term Preferred Stock, in an amount equal to two (2) full years of dividends, and continuing until such failure
is cured, will be entitled to elect a majority of our directors.
DESCRIPTION OF OUR SUBSCRIPTION
RIGHTS
The following
is a general description of the terms of the subscription rights we may issue from time to time. Particular terms of any subscription
rights we offer will be described in the prospectus supplement relating to such subscription rights.
We may issue subscription
rights to our stockholders to purchase common stock. Subscription rights may be issued independently or together with any other offered
security and may or may not be transferable by the person purchasing or receiving the subscription rights. We will not offer transferable
subscription rights to our stockholders at a price equivalent to less than the then current NAV per share of common stock, taking into
account underwriting commissions, unless we first file a post-effective amendment that is declared effective by the SEC with respect to
such issuance and the common stock to be purchased in connection with the rights represents no more than one-third of our outstanding
common stock at the time such rights are issued. In connection with any subscription rights offering to our stockholders, we may enter
into a standby underwriting, backstop or other arrangement with one or more persons pursuant to which such persons would purchase any
offered securities remaining unsubscribed for after such subscription rights offering. In connection with a subscription rights offering
to our stockholders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to our stockholders
on the record date that we set for receiving subscription rights in such subscription rights offering. Our common stockholders will indirectly
bear all of the expenses incurred by us in connection with any subscription rights offerings, regardless of whether any common stockholder
exercises any subscription rights.
A prospectus supplement
will describe the particular terms of any subscription rights we may issue, including the following:
| • | the period of time the offering would remain open (which shall be open a minimum number of days such that
all record holders would be eligible to participate in the offering and shall not be open longer than 120 days); |
| • | the title and aggregate number of such subscription rights; |
| • | the exercise price for such subscription rights (or method of calculation thereof); |
| • | the currency or currencies, including composite currencies, in which the price of such subscription rights
may be payable; |
| • | if applicable, the designation and terms of the securities with which the subscription rights are issued
and the number of subscription rights issued with each such security or each principal amount of such security; |
| • | the ratio of the offering (which, in the case of transferable rights, will require a minimum of three
shares to be held of record before a person is entitled to purchase an additional share); |
| • | the number of such subscription rights issued to each stockholder; |
| • | the extent to which such subscription rights are transferable and the market on which they may be traded
if they are transferable; |
| • | the date on which the right to exercise such subscription rights shall commence, and the date on which
such right shall expire (subject to any extension); |
| • | if applicable, the minimum or maximum number of subscription rights that may be exercised at one time; |
| • | the extent to which such subscription rights include an over-subscription privilege with respect to unsubscribed
securities and the terms of such over-subscription privilege; |
| • | any termination right we may have in connection with such subscription rights offering; |
| • | the terms of any rights to redeem, or call such subscription rights; |
| • | information with respect to book-entry procedures, if any; |
| • | the terms of the securities issuable upon exercise of the subscription rights; |
| • | the material terms of any standby underwriting, backstop or other purchase arrangement that we may enter into in connection with the
subscription rights offering; |
| • | if applicable, a discussion of certain U.S. federal income tax considerations applicable to the issuance or exercise of such subscription
rights; and |
| • | any other terms of such subscription rights, including exercise, settlement and other procedures and limitations relating to the transfer
and exercise of such subscription rights. |
Each subscription
right will entitle the holder of the subscription right to purchase for cash or other consideration such amount of shares of common stock
at such subscription price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating
to the subscription rights offered thereby. Subscription rights may be exercised as set forth in the prospectus supplement beginning on
the date specified therein and continuing until the close of business on the expiration date for such subscription rights set forth in
the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights will become void.
Upon receipt of
payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription
rights agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the shares of common
stock purchasable upon such exercise. If less than all of the rights represented by such subscription rights certificate are exercised,
a new subscription certificate will be issued for the remaining rights. Prior to exercising their subscription rights, holders of subscription
rights will not have any of the rights of holders of the securities purchasable upon such exercise. To the extent permissible under applicable
law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents,
underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.
DESCRIPTION OF OUR DEBT SECURITIES
We may issue debt
securities in one or more series. The specific terms of each series of debt securities will be described in the particular prospectus
supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will
be filed with the SEC. For a complete description of the terms of a particular series of debt securities, you should read both this prospectus
and the prospectus supplement relating to that series.
As required by
federal law for all bonds and notes of companies that are publicly offered, any future debt securities we may issue, are governed by a
document called an “indenture.” An indenture is a contract between us and a financial institution acting as trustee on your
behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee
can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described
in the second paragraph under “— Events of Default — Remedies if an Event of Default Occurs.” Second, the trustee
performs certain administrative duties for us with respect to our debt securities.
Because this section
is a summary, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it,
and not this description, defines your rights as a holder of debt securities. We have filed the indenture with the SEC. See “Additional
Information” for information on how to obtain a copy of the indenture.
A prospectus supplement,
which will accompany this prospectus, will describe the particular terms of any series of debt securities being offered, including, as
applicable, the following:
| • | the designation or title of the series of debt securities; |
| • | the total principal amount of the series of debt securities; |
| • | the percentage of the principal amount at which the series of debt securities will be offered; |
| • | the date or dates on which principal will be payable; |
| • | the rate or rates (which may be either fixed or variable) and/or the method of determining such rate or rates of interest, if any; |
| • | the date or dates from which any interest will accrue, or the method of determining such date or dates, and the date or dates on which
any interest will be payable; |
| • | the terms for redemption, extension or early repayment, if any; |
| • | the currencies in which the series of debt securities are issued and payable; |
| • | whether the amount of payments of principal, premium or interest, if any, on a series of debt securities
will be determined with reference to an index, formula or other method (which could be based on one or more currencies, commodities, equity
indices or other indices) and how these amounts will be determined; |
| • | the place or places, if any, other than or in addition to the City of New York, of payment, transfer,
conversion and/or exchange of the debt securities; |
| • | the denominations in which the offered debt securities will be issued; |
| • | the provision for any sinking fund; |
| • | any restrictive covenants; |
| • | whether the series of debt securities are issuable in certificated form; |
| • | any provisions for defeasance or covenant defeasance; |
| • | if applicable, a discussion of U.S. federal income tax considerations; |
| • | whether and under what circumstances we will pay additional amounts in respect of any tax, assessment
or governmental charge and, if so, whether we will have the option to redeem the debt securities rather than pay the additional amounts
(and the terms of this option); |
| • | any provisions for convertibility or exchangeability of the debt securities into or for any other securities; |
| • | whether the debt securities are subject to subordination and the terms of such subordination; |
| • | the listing, if any, on a securities exchange; and |
Unless the prospectus
supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.
For purposes of
this prospectus, any reference to the payment of principal of or premium or interest, if any, on debt securities will include additional
amounts if required by the terms of the debt securities.
While any indebtedness
and other 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. For
a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to Our Business and Structure
— Regulations governing our operation as a registered closed-end management investment company affect our ability to raise additional
capital and the way in which we do so. The raising of debt capital may expose us to risks, including the typical risks associated with
leverage.”
General
The indenture
provides that any debt securities proposed to be sold under this prospectus and an attached prospectus supplement, or “offered debt
securities,” and any debt securities issuable upon the upon conversion or exchange of other offered securities, or “underlying
debt securities,” may be issued under the indenture in one or more series.
The indenture
does not limit the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture,
when a single trustee is acting for all debt securities issued under the indenture, are called the “indenture securities.”
The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture
securities. See “— Resignation of Trustee” section below. At a time when two or more trustees are acting
under the indenture, each with respect to only certain series, the term “indenture securities” means the one or more series
of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the
indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of
indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for
which each trustee is acting would be treated as if issued under separate indentures.
We refer you to
the applicable prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of
Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk or similar
protection.
We expect that
we will usually issue debt securities in book-entry only form represented by global securities.
Additional Debt Securities
Under the 1940
Act and pursuant to the indenture, we may only issue senior securities representing indebtedness that rank in parity with each other with
respect to the payment of interest and as to the distribution of assets upon dissolution, liquidation or the winding-up of our affairs.
We may also issue additional series of debt securities under the indenture and other debt securities in accordance with the limitations
of the 1940 Act. Under the 1940 Act, so long as any debt securities are outstanding, additional debt securities must rank in parity with
such securities with respect to the payment of interest and as to the distribution of assets upon dissolution, liquidation or the winding-up
of our affairs. In addition, we may also enter certain other evidences of indebtedness (including bank borrowings and commercial paper)
representing senior securities. We may also borrow in amounts up to 5% of our total assets if the borrowing is for temporary purposes
only (i.e., if it is to be repaid within 60 days and not extended or renewed).
Conversion and Exchange
If any debt securities
are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion
or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the
period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting
the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying
debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders
of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time
stated in the prospectus supplement.
Payment and Paying Agents
Unless the prospectus
supplement relating to such debt security states otherwise, we will pay interest to the person listed in the applicable trustee’s
records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even
if that person no longer owns the security on the interest due date. That day, usually about two weeks in advance of the interest due
date, is called the “record date.” Because we will pay all the interest for an interest period to the holders on the record
date, holders buying and selling the debt security must work out between themselves the appropriate purchase price. The most common manner
is to adjust the sales price of the security to prorate interest fairly between buyer and seller based on their respective ownership periods
within the particular interest period. This prorated interest amount is called “accrued interest.”
Payments on Global Securities
We will make payments
on debt securities so long as they are represented by a global security in accordance with the applicable policies of the depositary as
in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect
holders who own beneficial interests in the global security. An indirect holder’s right to those payments will be governed by the
rules and practices of the depositary and its participants, as described under “Book-Entry Issuance.”
Payments on Certificated Securities
In the event our
debt securities become represented by certificates, unless the prospectus supplement relating to such debt security states otherwise,
we will make payments on our debt securities as follows. We will pay interest that is due on an interest payment date by a check mailed
on the interest payment date to the securityholder at his or her address shown on the trustee’s records as of the close of business
on the record date. We will make all payments of principal and premium, if any, by check at the office of the trustee in New York, New
York and/or at other offices that may be specified in the Indenture or a notice to holders against surrender of the security.
Alternatively,
if the holder asks us to do so, we will pay any amount that becomes due on a debt security by wire transfer of immediately available funds
to an account at a bank in the United States, on the due date. To request payment by wire, the holder must give the trustee appropriate
transfer instructions at least 15 business days before the requested wire payment is due. In the case of any interest payment due on an
interest payment date, the instructions must be given by the person who is the holder on the relevant regular record date. Any wire instructions,
once properly given, will remain in effect unless and until new instructions are given in the manner described above.
Payment When Offices Are Closed
If any payment
is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments
made on the next business day in this situation will be treated under the indenture as if they were made on the original due date. Such
payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from
the original due date to the next day that is a business day.
Book-entry
and other indirect holders should consult their banks or brokers for information on how they will receive payments.
Events of Default
You will have
rights if an Event of Default occurs in respect of debt securities of your series and is not cured, as described later in this subsection.
The term “Event of Default” in respect of the debt securities of your series means any of the following (unless the prospectus
supplement relating to such debt security states otherwise):
| • | We do not pay the principal of, or any premium on, a debt security of the series when due and payable,
and such default is not cured within five days. |
| • | We do not pay interest on a debt security of the series when due, and such default is not cured within
30 days. |
| • | We do not deposit any sinking fund payment in respect of debt securities of the series on its due date,
and do not cure this default within five days. |
| • | We remain in breach of any other covenant with respect to debt securities of the series for 60 days after
we receive a written notice of default stating we are in breach. The notice must be sent by either the trustee or holders of at least
25% of the principal amount of debt securities of the series. |
| • | We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and in
the case of certain orders or decrees entered against us under any bankruptcy law, such order or decree remains undischarged or unstayed
for a period of 90 days. |
| • | On the last business day of each of twenty-four consecutive calendar months, all series of our debt securities
issued under the indenture together have an asset coverage, as defined in the 1940 Act, of less than 100% after giving effect to exemptive
relief, if any, granted to us by the SEC. |
| • | Any other Event of Default in respect of debt securities of the series described in the applicable prospectus
supplement occurs. |
An Event of Default
for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities
issued under the same or any other indenture. The trustee may withhold notice to the holders of the debt securities of any default, except
in the payment of principal or interest, if it in good faith considers the withholding of notice to be in the best interests of the holders.
Remedies if an Event of Default Occurs
If an Event of
Default has occurred and is continuing (unless the prospectus supplement relating to such debt security states otherwise), the following
remedies are available. The trustee or the holders of not less than 25% in principal amount of the debt securities of the affected series
may declare the entire principal amount of all of the debt securities of that series to be due and immediately payable. This is called
a declaration of acceleration of maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the
holders of a majority in principal amount of the debt securities of the affected series if (1) we have deposited with the trustee
all amounts due and owing with respect to the debt securities of that series (other than principal that has become due solely by reason
of such acceleration) and certain other amounts, and (2) any other Events of Default with respect to that series have been cured
or waived.
The trustee is
not required to take any action under the indenture at the request of any holders unless the holders offer the trustee protection from
expenses and liability reasonably satisfactory to it (called an “indemnity”). If indemnity reasonably satisfactory to the
trustee is provided, the holders of a majority in principal amount of the outstanding debt of the relevant series may direct the time,
method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse
to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver
of that right, remedy or Event of Default.
Before you are
allowed to bypass the trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect
your interests relating to the debt securities, the following must occur:
| • | you must give the applicable trustee written notice that an Event of Default has occurred and remains
uncured; |
| • | the holders of at least 25% in principal amount of all outstanding debt securities of the relevant series
must make a written request that the trustee take action because of the default and must offer the trustee reasonable indemnity, security
or both against the cost and other liabilities of taking that action; |
| • | the trustee must not have taken action for 60 days after receipt of the above notice and offer of indemnity
and/or security; and |
| • | the holders of a majority in principal amount of debt securities of the relevant series must not have
given the trustee a direction inconsistent with the above notice during that 60-day period. |
However, you are
entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.
Book-entry
and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request
of the trustee and how to declare or cancel an acceleration of maturity.
Each year, we
will furnish to the trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with
the Indenture and the debt securities, or else specifying any default.
Waiver of Default
The holders of
a majority in principal amount of the debt securities of the affected series may waive any past defaults other than a default:
| • | in the payment of principal or interest; or |
| • | in respect of a covenant that cannot be modified or amended without the consent of each holder. |
Merger or Consolidation
Under the terms
of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially
all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:
| • | where we merge out of existence or convey or transfer all of our assets, the resulting entity must agree
to be legally responsible for our obligations under the debt securities; |
| • | immediately after the transaction, no default or Event of Default will have happened and be continuing; |
| • | we must deliver certain certificates and documents to the trustee; and |
| • | we must satisfy any other requirements specified in the prospectus supplement relating to a particular
series of debt securities. |
Modification or Waiver
There are three types of changes we can make to
the indenture and the debt securities issued thereunder.
Changes Requiring Your Approval
First, there are
changes that we cannot make to debt securities without specific approval of all of the holders. The following is a list of those types
of changes:
| • | change the stated maturity of the principal of or interest on a debt security; |
| • | change the terms of any sinking fund with respect to any debt security; |
| • | reduce any amounts due on a debt security; |
| • | reduce the amount of principal payable upon acceleration of the maturity of a debt security following
a default; |
| • | change the place or currency of payment on a debt security; |
| • | impair your right to sue for payment following the date on which such amount is due and payable; |
| • | reduce the percentage in principal amount of holders of debt securities whose consent is needed to modify
or amend the indenture; and |
| • | reduce the percentage in principal amount of holders of debt securities whose consent is needed to waive
compliance with certain provisions of the indenture or to waive certain defaults. |
Changes Not Requiring Approval
The second type
of change does not require any vote by the securityholders. This type is limited to clarifications and certain other changes that would
not materially adversely affect holders of outstanding debt securities in any material respect. We also do not need any approval to make
any change that affects only debt securities to be issued under the indenture after the change takes effect.
Changes Requiring Majority Approval
Any other change
to the indenture and debt securities would require the following approval:
| • | if the change affects only one series of debt securities, it must be approved by the holders of a majority
in principal amount of that series; and |
| • | if the change affects more than one series of debt securities issued under the same indenture, it must
be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting
together as one class for this purpose. |
In each case,
the required approval must be given by written consent.
The holders of
a majority in principal amount of all of the series of debt securities issued under the indenture, voting together as one class for this
purpose, may waive our compliance with some of our covenants in the indenture. However, we cannot obtain a waiver of a payment default
or of any of the matters covered by the bullet points included above under “— Changes Requiring Your Approval.”
Further Details
Concerning Voting
When taking a
vote, we will use the following rules to decide how much principal to attribute to any notes and any future indebtedness:
| • | for original issue discount securities, we will use the principal amount that would be due and payable
on the voting date if the maturity of these debt securities were accelerated to that date because of a default; |
| • | for debt securities whose principal amount is not known (for example, because it is based on an index),
we will use a special rule for that debt security described in the prospectus supplement; and |
| • | for debt securities denominated in one or more foreign currencies, we will use the U.S. dollar equivalent. |
Debt securities
will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment
or redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described later under “—
Defeasance — Full Defeasance.”
We will generally
be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled
to vote or take other action under the indenture. However, the record date may not be more than 30 days before the date of the first solicitation
of holders to vote on or take such action. If we set a record date for a vote or other action to be taken by holders of one or more series,
that vote or action may be taken only by persons who are holders of outstanding indenture securities on the record date and must be taken
within eleven months following the record date.
Book-entry
and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to
change the indenture or debt securities or request a waiver.
Satisfaction and Discharge; Defeasance
We may satisfy
and discharge our obligations under the indenture by delivering to the trustee for cancellation all outstanding debt securities and by
depositing with the trustee after the debt securities have become due and payable, or otherwise, moneys sufficient to pay all of the outstanding
debt securities and paying all other sums payable under the indenture by us. Such discharge is subject to terms contained in the Indenture.
Defeasance
The following
defeasance provisions will be applicable to each series of debt securities (unless the prospectus supplement relating to such debt security
states otherwise). “Defeasance” means that, by depositing with the trustee an amount of cash and/or government securities
sufficient to pay all principal and interest, if any, on the debt securities when due and satisfying any additional conditions noted below,
we will be deemed to have been discharged from our obligations under the debt securities. In the event of a “covenant defeasance,”
upon depositing such funds and satisfying similar conditions discussed below we would be released from certain covenants under the indenture
relating to the applicable debt securities. The consequences to the holders of such securities would be that, while they would no longer
benefit from certain covenants under the indenture, and while such securities could not be accelerated for any reason, the holders of
applicable debt securities nonetheless would be guaranteed to receive the principal and interest owed to them.
Covenant Defeasance
Under current
U.S. federal income tax law and the indenture, we can make the deposit described below and be released from some of the restrictive covenants
in the indenture under which the particular series was issued. This is called “covenant defeasance.” In that event, you would
lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in
trust to repay your debt securities. In order to achieve covenant defeasance, the following must occur:
| • | if the debt securities of a particular series are denominated in U.S. dollars, we must deposit in trust
for the benefit of all holders of such securities a combination of cash and U.S. government or U.S. government agency notes or bonds that
will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates; |
| • | we must deliver to the trustee a legal opinion of our counsel confirming that, under current U.S. federal
income tax law, we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not
make the deposit; |
| • | we must deliver to the trustee a legal opinion and officers’ certificate stating that all conditions
precedent to covenant defeasance have been complied with; |
| • | defeasance must not result in a breach or violation of, or result in a default under, of the indenture
or any of our other material agreements or instruments; and |
| • | no default or Event of Default with respect to the applicable series shall have occurred and be continuing
and no defaults or Events of Default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
If we accomplish
covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the
trustee is prevented from making payment. In fact, if one of the remaining Events of Default occurred (such as our bankruptcy) and the
debt securities became immediately due and payable, there might be a shortfall. Depending on the event causing the default, you may not
be able to obtain payment of the shortfall.
Full Defeasance
If there is a
change in U.S. federal income tax law, as described below, we can legally release ourselves from all payment and other obligations on
the debt securities of a particular series (called “full defeasance”) if we put in place the following other arrangements
for you to be repaid:
| • | if the debt securities of a particular series are denominated in U.S. dollars, we must deposit in trust
for the benefit of all holders of such securities a combination of money and U.S. government or U.S. government agency notes or bonds
that will generate enough cash to make interest, principal and any other payments on such securities on their various due dates; |
| • | we must deliver to the trustee a legal opinion confirming that there has been a change in current U.S.
federal income tax law or an IRS ruling that allows us to make the above deposit without causing you to be taxed on the debt securities
any differently than if we did not make the deposit. Under current U.S. federal income tax law the deposit and our legal release from
the debt securities would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or
bonds were deposited in trust in exchange for your debt securities and you would recognize gain or loss on the debt securities at the
time of the deposit; |
| • | we must deliver to the trustee a legal opinion and officers’ certificate stating that all conditions
precedent to defeasance have been complied with; |
| • | defeasance must not result in a breach or violation of, or constitute a default under, of the Indenture
or any of our other material agreements or instruments; and |
| • | no default or Event of Default with respect to the applicable series shall have occurred and be continuing
and no defaults or Events of Default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
If we ever did
accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities.
You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected
from claims of our lenders and other creditors if we ever became bankrupt or insolvent. If your debt securities were effectively subordinated,
such subordination would not prevent the trustee under the indenture from applying the funds available to it from the deposit referred
to in the first bullet of the preceding paragraph to the payment of amounts due in respect of any notes for the benefit of the subordinated
debtholders.
Form, Exchange and Transfer of Certificated
Registered Securities
Holders may exchange
their certificated securities, if any, for debt securities of smaller denominations or combined into fewer debt securities of larger denominations,
as long as the total principal amount is not changed.
Holders may exchange
or transfer their certificated securities at the office of the trustee. We have appointed the trustee to act as our agent for registering
debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform
them ourselves.
Holders will not
be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or
other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is
satisfied with the holder’s proof of legal ownership.
If we have designated
additional transfer agents for your debt security, they will be named in your prospectus supplement. We may appoint additional transfer
agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer
agent acts.
If we redeem any
securities of a particular series, we may block the transfer or exchange of those securities selected for redemption during the period
beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to determine and fix
the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated security selected
for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any security that will be
partially redeemed.
Resignation of Trustee
Each trustee may
resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act
with respect to these series. In the event that two or more persons are acting as trustee with respect to different series of indenture
securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any
other trustee.
Concerning the Trustee
The trustee serves as transfer agent
for our common stock and the Preferred Stock and agent for our DRIP. We will appoint the trustee as registrar and paying agent under the
indenture.
Governing Law
The indenture and our debt securities
will be governed by, and construed in accordance with, the laws of the State of New York.
BOOK-ENTRY ISSUANCE
Unless otherwise
indicated in the applicable prospectus supplement, securities will be issued in the form of one or more global certificates, or “global
securities,” registered in the name of a depositary or its nominee. Unless otherwise indicated in the applicable prospectus supplement,
the depositary will be The Depository Trust Company, or “DTC.” DTC has informed us that its nominee will be Cede &
Co. Accordingly, we expect Cede & Co. to be the initial registered holder of all securities that are issued in global form. No
person that acquires a beneficial interest in those securities will be entitled to receive a certificate representing that person’s
interest in the securities except as described herein or in the applicable prospectus supplement. Unless and until definitive securities
are issued under the limited circumstances described below, all references to actions by holders of securities issued in global form will
refer to actions taken by DTC upon instructions from its participants, and all references to payments and notices to holders will refer
to payments and notices to DTC or Cede & Co., as the registered holder of these securities.
DTC has informed
us that it is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of
the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and
municipal debt issues, and money market instruments from over 100 countries that DTC’s participants, or “Direct Participants,”
deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions
in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts.
This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of
The Depository Trust & Clearing Corporation, or “DTCC.”
DTCC is the holding
company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing
agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly, or “Indirect Participants.” DTC has a S&P rating
of AA+. The DTC Rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of securities
under the DTC system must be made by or through Direct Participants, which will receive a credit for the securities on DTC’s records.
The ownership interest of each actual purchaser of each security, or the “Beneficial Owner,” is in turn to be recorded on
the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase.
Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements
of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers
of ownership interests in the securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the securities,
except in the event that use of the book-entry system for the securities is discontinued.
To facilitate
subsequent transfers, all securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee,
Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the securities with
DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the securities; DTC’s records reflect only the identity of the Direct Participants
to whose accounts the securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance
of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices
will be sent to DTC. If less than all of the securities within an issue are being redeemed, DTC’s practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor
Cede & Co. (nor any other DTC nominee) will consent or vote with respect to securities unless authorized by a Direct Participant
in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to us as soon as possible after the
record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts
securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds,
distributions and interest payments on the securities will be made to Cede & Co., or such other nominee as may be requested by
an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of
funds and corresponding detail information from us or the applicable trustee or depositary on the payment date in accordance with their
respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street
name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the applicable trustee or depositary,
or us, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions
and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the
responsibility of us or the applicable trustee or depositary. Disbursement of such payments to Direct Participants will be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue
providing its services as securities depository with respect to the securities at any time by giving reasonable notice to us or to the
applicable trustee or depositary. Under such circumstances, in the event that a successor securities depository is not obtained, certificates
are required to be printed and delivered. We may decide to discontinue use of the system of book-entry-only transfers through DTC (or
a successor securities depository). In that event, certificates will be printed and delivered to DTC.
The information
in this section concerning DTC and DTC’s book-entry system has been obtained from sources that we believe to be reliable, but we
take no responsibility for the accuracy thereof.
None of the Company,
the Adviser, any registrar and transfer agent, trustee, any depositary, or any agent of any of them, will have any responsibility or liability
for any aspect of DTC’s or any participant’s records relating to, or for payments made on account of, beneficial interests
in a global security, or for maintaining, supervising or reviewing any records relating to such beneficial interests.
Secondary trading
in notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, beneficial interests
in a global security, in some cases, may trade in the DTC’s same-day funds settlement system, in which case secondary market trading
activity in those beneficial interests would be required by DTC to settle in immediately available funds. There is no assurance as to
the effect, if any, that settlement in immediately available funds would have on trading activity in such beneficial interests. Also,
settlement for purchases of beneficial interests in a global security upon the original issuance of this security may be required to be
made in immediately available funds.
PLAN OF DISTRIBUTION
We may offer,
from time to time, up to $750,000,000 of our common stock, preferred stock, subscription rights to purchase shares of our common stock,
or debt securities in one or more underwritten public offerings, at-the-market offerings, negotiated transactions, block trades, best
efforts or a combination of these methods.
In addition, this
prospectus relates to the offer and resale, from time to time, of up to 3,764,580 shares of our common stock by the selling stockholders.
We or the selling
stockholders may sell securities directly or through agents we designate from time to time. Any underwriter or agent involved in the offer
and sale of the securities will be named in the applicable prospectus supplement. A prospectus supplement or supplements will also describe
the terms of the offering of the securities, including: the purchase price of the securities and the proceeds, if any, we will receive
from the sale; any overallotment options under which underwriters may purchase additional securities from us; any agency fees or underwriting
discounts and other items constituting agents’ or underwriters’ compensation; the public offering price; any discounts or
concessions allowed or re-allowed or paid to dealers; and any securities exchange or market on which the securities may be listed. Only
underwriters named in the prospectus supplement will be underwriters of the securities offered by such prospectus supplement.
The distribution
of the securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at prevailing
market prices at the time of sale, at prices related to such prevailing market prices, or at negotiated prices, provided, however, that
the offering price per share of our common stock, less any underwriting commissions or discounts, must equal or exceed the NAV per share
of our common stock at the time of the offering except (1) in connection with a rights offering to our existing stockholders, (2) with
the consent of the majority of our common stockholders, (3) the conversion of a convertible security in accordance with its terms
or (4) under such circumstances as the SEC may permit. The price at which securities may be distributed may represent a discount
from prevailing market prices.
In connection
with the sale of the securities, underwriters or agents may receive compensation from us or from purchasers of the securities, for whom
they may act as agents, in the form of discounts, concessions or commissions. Our common stockholders will indirectly bear such fees and
expenses as well as any other fees and expenses incurred by us in connection with any sale of securities. Underwriters may sell the securities
to or through dealers and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution
of the securities may be deemed to be underwriters under the Securities Act, and any discounts and commissions they receive from us and
any profit realized by them on the resale of the securities may be deemed to be underwriting discounts and commissions under the Securities
Act. Any such underwriter or agent will be identified and any such compensation received from us will be described in the applicable prospectus
supplement. The maximum aggregate commission or discount to be received by any member of the Financial Industry Regulatory Authority or
independent broker-dealer will not be greater than 8% of the gross proceeds of the sale of securities offered pursuant to this prospectus
and any applicable prospectus supplement. We may also reimburse the underwriter or agent for certain fees and legal expenses incurred
by it.
Any underwriter
may engage in overallotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under
the Exchange Act. Overallotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering
or other short-covering transactions involve purchases of the securities, either through exercise of the overallotment option or in the
open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling concession
from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to cover short
positions. Those activities may cause the price of the securities to be higher than it would otherwise be. If commenced, the underwriters
may discontinue any of the activities at any time.
Any underwriters
that are qualified market makers on the NYSE may engage in passive market making transactions in our common stock on NYSE in accordance
with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers
or sales of our common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as
passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid
for such security; if all independent bids are lowered below the passive market maker’s bid, however, the passive market maker’s
bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market price of the securities
at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
We may sell securities
directly or through agents we designate from time to time. We will name any agent involved in the offering and sale of securities and
we will describe any commissions we will pay the agent in the applicable prospectus supplement. Unless the prospectus supplement states
otherwise, our agent will act on a best-efforts basis for the period of its appointment.
Unless otherwise
specified in the applicable prospectus supplement, each series of securities will be a new issue with no trading market, other than our
common stock, which is traded on the NYSE. We may elect to list any other series of securities on any exchanges, but we are not obligated
to do so. We cannot guarantee the liquidity of the trading markets for any securities.
Under agreements
that we may enter, underwriters, dealers and agents who participate in the distribution of shares of our securities may be entitled to
indemnification by us against certain liabilities, including liabilities under the Securities Act, or contribution with respect to payments
that the agents or underwriters may make with respect to these liabilities. Underwriters, dealers and agents may engage in transactions
with, or perform services for, us in the ordinary course of business.
If so indicated
in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by certain
institutions to purchase our securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligations of any
purchaser under any such contract will be subject to the condition that the purchase of our securities shall not at the time of delivery
be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have
any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to those conditions
set forth in the prospectus supplement, and the prospectus supplement will set forth the commission payable for solicitation of such contracts.
We may enter into
Derivative Transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated
transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities
covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may
use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock,
and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third
parties in such sale transactions will be underwriters and, if not identified in this prospectus, will be identified in the applicable
prospectus supplement.
In order to comply
with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such jurisdictions only through
registered or licensed brokers or dealers.
As noted above,
this prospectus also relates to the offer and resale, from time to time, of up to 3,764,580 shares of our common stock by the selling
stockholders. We may refer to these shares of common stock as the selling stockholders’ securities or the resale securities. Each
selling stockholder of the securities and any of their transferees, donees, pledgees, assignees and successors-in-interest may, from time
to time, transfer or otherwise dispose of any or all of their respective securities covered hereby on the NYSE or any other stock exchange,
market or trading facility on which the securities are traded or in private transactions. These dispositions may be at fixed prices, at
market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. Each selling stockholder
may use any one or more of the following methods when disposing of the securities or interests therein:
| • | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| • | block trades in which the broker-dealer will attempt to sell the securities as agent but may position
and resell a portion of the block as principal to facilitate the transaction; |
| • | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| • | an exchange distribution in accordance with the rules of the applicable exchange; |
| • | privately negotiated transactions; |
| • | “at the market” sales or sales through market makers or into an existing market for stock; |
| • | in transactions through broker-dealers that agree with the selling stockholders to sell a specified number
of such securities at a stipulated price per security; |
| • | through one or more underwritten offerings on a firm commitment or best efforts basis; |
| • | through the writing or settlement of options or other hedging transactions, whether through an options
exchange or otherwise; |
| • | distributions to members, partners, stockholders or other equityholders of the selling stockholders; |
| • | by pledge to secure debts and other obligations; |
| • | a combination of any such methods of sale; or |
| • | any other method permitted pursuant to applicable law. |
A selling stockholder
may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended, or
the “Securities Act,” if available, rather than under this prospectus, provided they meet the criteria and conform to the
requirements of those provisions.
A selling stockholder
that is an entity may elect to make an in-kind distribution of the securities to its members, partners, stockholders or other equityholders
pursuant to the registration statement of which this prospectus forms a part by delivering a prospectus. To the extent that such members,
partners, stockholders or other equityholders are not affiliates of ours, such members, partners, stockholders or other equityholders
would thereby receive freely tradable securities pursuant to the distribution through a registration statement. To the extent a distributee
is an affiliate of ours (or to the extent otherwise required by law), we may file a prospectus supplement in order to permit such distributee
to use the prospectus to resell the securities acquired in the distribution.
Broker-dealers
engaged by a selling stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from a selling stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this prospectus: (i) in the case of an agency transaction,
not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and (ii) in the case of a principal transaction,
a markup or markdown in compliance with FINRA Rule 2121.
A selling stockholder
may enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities
which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities
such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
A selling stockholder
and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly,
with any person to distribute the securities.
We are required
to pay certain fees and expenses incurred by us incident to the registration of the securities. We have agreed to indemnify any selling
stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act, in accordance with
the Registration Rights Agreement, or the selling stockholder will be entitled to contribution. We may be indemnified by the selling stockholder
against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us
by the selling stockholder specifically for use in this prospectus, in accordance with the Registration Rights Agreement, or we may be
entitled to contribution.
We have agreed
to keep the registration statement of which this prospectus forms a part (including any replacement registration statement) continuously
effective until the earlier of (i) the date on which the resale securities may be resold by the selling stockholders without registration
and without regard to any volume or manner-of-sale limitations pursuant to Rule 144, without the requirement for us to be in compliance
with the current public information under Rule 144, as determined by our counsel pursuant to a written opinion letter to such effect,
addressed and acceptable to our transfer agent and the selling stockholders or (ii) all of the resale securities have been sold pursuant
to this prospectus or Rule 144. The resale securities will be sold only through registered or licensed brokers or dealers if required
under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they
have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement
is available and is complied with.
Under applicable
rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously
engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common
stock by a selling stockholder or any other person. We will make copies of this prospectus available to a selling stockholder and have
informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance
with Rule 172 under the Securities Act).
REGULATION AS A CLOSED-END MANAGEMENT
INVESTMENT COMPANY
General
As a registered
closed-end management investment company, we are subject to regulation under the 1940 Act. Under the 1940 Act, unless authorized by vote
of a majority of our outstanding voting securities, we may not:
| • | change our classification to an open-end management investment company; |
| • | alter any of our fundamental policies, which are set forth below in “— Investment Restrictions”; or |
| • | change the nature of our business so as to cease to be an investment company. |
A majority of
the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such company’s
voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented
by proxy, or (b) more than 50% of the outstanding voting securities of such company.
As with other
companies regulated by the 1940 Act, a registered closed-end management investment company must adhere to certain substantive regulatory
requirements. A majority of our directors must be persons who are not “interested persons” of us, as that term is defined
in the 1940 Act. We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the closed-end
management investment company. Furthermore, as a registered closed-end management investment company, we are 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 may also be prohibited under the 1940 Act
from knowingly participating in certain transactions with our affiliates absent exemptive relief or other prior approval by the SEC.
We will generally
not be able to issue and sell shares of our common stock at a price below the then current NAV per share (exclusive of any distributing
commission or discount). See “Risk Factors — Risks Relating to Our Business and Structure — Regulations governing
our operation as a registered closed-end management investment company affect our ability to raise additional capital and the way in which
we do so. The raising of debt capital may expose us to risks, including the typical risks associated with leverage.” We
may, however, sell shares of our common stock at a price below the then current NAV per share if our board of directors determines that
such sale is in our best interests and the best interests of our stockholders, and the holders of a majority of the shares of our common
stock, approves such sale. In addition, we may generally issue new shares of our common stock at a price below NAV in rights offerings
to existing stockholders, in payment of dividends and in certain other limited circumstances.
Investment Restrictions
Our investment
objectives and our investment policies and strategies described in this prospectus, except for the eight investment restrictions designated
as fundamental policies under this caption, are not fundamental and may be changed by the board of directors without stockholder approval.
As referred to
above, the following eight investment restrictions are designated as fundamental policies and, as such, cannot be changed without the
approval of the holders of a majority of our outstanding voting securities:
| (1) | We may not borrow money, except as permitted by (i) the 1940 Act, or interpretations or modifications
by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the
SEC, SEC staff or other authority with appropriate jurisdiction; |
| (2) | We may not engage in the business of underwriting securities issued by others, except to the extent that
we may be deemed to be an underwriter in connection with the disposition of portfolio securities; |
| (3) | We may not purchase or sell physical commodities or contracts for the purchase or sale of physical commodities.
Physical commodities do not include futures contracts with respect to securities, securities indices, currency or other financial instruments; |
| (4) | We may not purchase or sell real estate, which term does not include securities of companies which deal
in real estate or mortgages or investments secured by real estate or interests therein, except that we reserve freedom of action to hold
and to sell real estate acquired as a result of our ownership of securities; |
| (5) | We may not make loans, except to the extent permitted by (i) the 1940 Act, or interpretations or
modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission
from the SEC, SEC staff or other authority with appropriate jurisdiction. For purposes of this investment restriction, the purchase of
debt obligations (including acquisitions of loans, loan participations or other forms of debt instruments) shall not constitute loans
by us; |
| (6) | We may not issue senior securities, except to the extent permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff or other authority with appropriate jurisdiction; |
| (7) | We may not invest in any security if as a result of such investment, 25% or more of the value of our total
assets, taken at market value at the time of each investment, are in the securities of issuers in any particular industry or group of
industries except (a) securities issued or guaranteed by the U.S. government and its agencies and instrumentalities or tax-exempt
securities of state and municipal governments or their political subdivisions (however, not including private purpose industrial development
bonds issued on behalf of non-government issuers), or (b) as otherwise provided by the 1940 Act, as amended from time to time, and
as modified or supplemented from time to time by (i) the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, and (ii) any exemption or other relief applicable to us from the provisions of the 1940 Act, as amended
from time to time. For purposes of this restriction, in the case of investments in loan participations between us and a bank or other
lending institution participating out the loan, we will treat both the lending bank or other lending institution and the borrower as “issuers.”
For purposes of this restriction, an investment in a CLO, CBO, CDO or a swap or other derivative will be considered to be an investment
in the industry or group of industries (if any) of the underlying or reference security, instrument or asset; and |
| (8) | We may not engage in short sales, purchases on margin, or the writing of put or call options, except as
permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction
or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction. |
The latter part
of certain of our fundamental investment restrictions (i.e., the references to “except to the extent permitted by (i) the 1940
Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction”) provides us with flexibility
to change our limitations in connection with changes in applicable law, rules, regulations or exemptive relief. The language used in these
restrictions provides the necessary flexibility to allow our board of directors to respond efficiently to these kinds of developments
without the delay and expense of a stockholder meeting.
Whenever an investment
policy or investment restriction set forth in this prospectus states a maximum percentage of assets that may be invested in any security
or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall be determined immediately
after and as a result of our acquisition of such security or asset. Accordingly, any later increase or decrease resulting from a change
in values, assets or other circumstances or any subsequent rating change made by a rating agency (or as determined by the Adviser if the
security is not rated by a rating agency) will not compel us to dispose of such security or other asset. Notwithstanding the foregoing,
we must always be in compliance with the borrowing policies set forth above.
Proxy Voting Policies and Procedures
We have delegated
our proxy voting responsibility to the Adviser. The Proxy Voting Policies and Procedures of the Adviser are set forth below. The guidelines
will be reviewed periodically by the Adviser and our independent directors, and, accordingly, are subject to change. For purposes of these
Proxy Voting Policies and Procedures described below, “we,” “our” and “us” refers to the Adviser.
Introduction
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 client securities in a timely manner free of conflicts of interest and in the best interests of our clients.
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.
Proxy Policies
Based on the nature
of our investment strategy, we do not expect to receive proxy proposals but may from time to time receive amendments, consents or resolutions
applicable to investments held by us. It is our general policy to exercise our voting or consent authority in a manner that serves the
interests of the Company’s stockholders. We may occasionally be subject to material conflicts of interest in voting proxies due
to business or personal relationships we maintain with persons having an interest in the outcome of certain votes. If at any time we become
aware of a material conflict of interest relating to a particular proxy proposal, our chief compliance officer will review the proposal
and determine how to vote the proxy in a manner consistent with interests of the Company’s stockholders.
Proxy Voting Records
Information regarding
how we voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available, without
charge: (1) upon request, by calling toll free (844) 810-6501; and (2) on the SEC’s website at http://www.sec.gov. You
may also obtain information about how we voted proxies by making a written request for proxy voting information to: Eagle Point Income
Management LLC, 600 Steamboat Road, Suite 202, Greenwich, CT 06830.
Privacy Policy
We are committed
to protecting your privacy. This privacy notice explains our privacy policies and those of our affiliated companies. The terms of this
notice apply to both current and former stockholders. We safeguard, according to strict standards of security and confidentiality, all
information we receive about you. With regard to this information, we maintain procedural safeguards that are reasonably designed to comply
with federal standards. We have implemented procedures that are designed to restrict access to your personal information to authorized
employees of the Adviser, the Administrator and their affiliates who need to know your personal information to perform their jobs, and
in connection with servicing your account. Our goal is to limit the collection and use of information about you. While we may share your
personal information with our affiliates in connection with servicing your account, our affiliates are not permitted to share your information
with non-affiliated entities, except as permitted or required by law.
When you purchase
shares of our common stock and in the course of providing you with products and services, we and certain of our service providers, such
as a transfer agent, may collect personal information about you, such as your name, address, social security number or tax identification
number. This information may come from sources such as account applications and other forms, from other written, electronic or verbal
correspondence, from your transactions, from your brokerage or financial advisory firm, financial adviser or consultant, and/or information
captured on applicable websites.
We do not disclose
any personal information provided by you or gathered by us to non-affiliated third parties, except as permitted or required by law or
for our everyday business purposes, such as to process transactions or service your account. For example, we may share your personal information
in order to send you annual and semiannual reports, proxy statements and other information required by law, and to send you information
we believe may be of interest to you. We may disclose your personal information to unaffiliated third party financial service providers
(which may include a custodian, transfer agent, accountant or financial printer) who need to know that information in order to provide
services to you or to us. These companies are required to protect your information and use it solely for the purpose for which they received
it or as otherwise permitted by law. We may also provide your personal information to your brokerage or financial advisory firm and/or
to your financial adviser or consultant, as well as to professional advisors, such as accountants, lawyers and consultants.
We reserve the
right to disclose or report personal or account information to non-affiliated third parties in limited circumstances where we believe
in good faith that disclosure is required by law, such as in accordance with a court order or at the request of government regulators
or law enforcement authorities or to protect our rights or property. We may also disclose your personal information to a non-affiliated
third party at your request or if you consent in writing to the disclosure.
ADDITIONAL INVESTMENTS AND TECHNIQUES
Our primary investment
strategies are described elsewhere in this prospectus. The following is a description of the various investment policies that may be engaged
in as a secondary strategy, and a summary of certain attendant risks.
Investment in Debt Securities, Other
Types of Credit Instruments and Other Credit Investments
Debt
Securities. We may invest in debt securities, including debt securities rated below investment grade, or “junk”
securities. Debt securities of corporate and governmental issuers in which we may invest are subject to the risk of an issuer’s
inability to meet principal and interest payments on the obligations (credit risk) and also may be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (market
risk).
Defaulted
Securities. We may invest in defaulted securities. The risk of loss due to default may be considerably greater with lower-quality
securities because they are generally unsecured and are often subordinated to other debt of the issuer. Investing in defaulted debt securities
involves risks such as the possibility of complete loss of the investment where the issuer does not restructure to enable it to resume
principal and interest payments. If the issuer of a security in our portfolio defaults, we may have unrealized losses on the security,
which may lower our NAV. Defaulted securities tend to lose much of their value before they default. Thus, our NAV may be adversely affected
before an issuer defaults. In addition, we may incur additional expenses if it must try to recover principal or interest payments on a
defaulted security.
Certificates
of Deposit, Bankers’ Acceptances and Time Deposits. We may acquire certificates of deposit, bankers’ acceptances
and time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by
an importer or exporter to pay for specific merchandise, which are “accepted” by a bank, meaning in effect that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Certificates of deposit and bankers’ acceptances acquired by us will
be dollar-denominated obligations of domestic banks, savings and loan associations or financial institutions at the time of purchase,
have capital, surplus and undivided profits in excess of $100 million (including assets of both domestic and foreign branches), based
on latest published reports, or less than $100 million if the principal amount of such bank obligations are fully insured by the U.S.
government. In addition to purchasing certificates of deposit and bankers’ acceptances, to the extent permitted under our investment
objectives and policies stated in this prospectus, we may make interest-bearing time or other interest-bearing deposits in commercial
or savings banks. Time deposits are non-negotiable deposits maintained at a banking institution for a specified period of time at a specified
interest rate.
Commercial
Paper and Short-Term Notes. We may invest a portion of our assets in commercial paper and short-term notes. Commercial paper
consists of unsecured promissory notes issued by corporations. Issues of commercial paper and short-term notes will normally have maturities
of less than nine months and fixed rates of return, although such instruments may have maturities of up to one year. Commercial paper
and short-term notes will consist of issues rated at the time of purchase “A-2” or higher by S&P, “Prime-1”
or “Prime-2” by Moody’s, or similarly rated by another nationally recognized statistical rating organization or, if
unrated, will be determined by the Adviser to be of comparable quality.
CLO
Class M Notes, Fee Notes and Participation Agreements. We may acquire CLO Class M notes, fee notes and participation
agreements with CLO collateral managers. There is not an active secondary market for CLO Class M notes, fee notes and participation
agreements. Further, CLO Class M notes, fee notes and participation agreements may have significant restrictions on transfer and
require continued ownership of certain amounts of CLO equity in the related CLO for the instrument to be valid. CLO Class M notes,
fee notes and participation agreements are also subject to the risk of early call of the CLO, and may have no make-whole or other yield
protection provisions.
Zero
Coupon Securities. Among the debt securities in which we may invest are zero coupon securities. Zero coupon securities are
debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from their face amount or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates, liquidity of the security and the perceived credit quality
of the issuer. The market prices of zero coupon securities generally are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates to a greater degree than do other types of debt securities
having similar maturities and credit quality. Original issue discount earned on zero coupon securities must be included in our income.
Thus, to quality for tax treatment as a RIC and to avoid a certain excise tax on undistributed income, we may be required to distribute
as a dividend an amount that is greater than the total amount of cash we actually receive. These distributions must be made from our cash
assets or, if necessary, from the proceeds of sales of portfolio securities. We will not be able to purchase additional income-producing
securities with cash used to make such distributions, and our current income ultimately could be reduced as a result.
U.S.
Government Securities. We may invest in debt securities issued or guaranteed by agencies, instrumentalities and sponsored enterprises
of the U.S. Government. Some U.S. government securities, such as U.S. Treasury bills, notes and bonds, and mortgage-related securities
guaranteed by the Government National Mortgage Association, are supported by the full faith and credit of the U.S.; others, such as those
of the Federal Home Loan Banks, or “FHLBs,” or the Federal Home Loan Mortgage Corporation, or “FHLMC,” are supported
by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage Association, or “FNMA,”
are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the credit of the issuing agency, instrumentality or enterprise.
Although U.S. Government-sponsored enterprises, such as the FHLBs, FHLMC, FNMA and the Student Loan Marketing Association, may be chartered
or sponsored by Congress, they are not funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury
or supported by the full faith and credit of the U.S. Government and involve increased credit risks. Although legislation has been enacted
to support certain government sponsored entities, including the FHLBs, FHLMC and FNMA, there is no assurance that the obligations of such
entities will be satisfied in full, or that such obligations will not decrease in value or default. It is difficult, if not impossible,
to predict the future political, regulatory or economic changes that could impact the government sponsored entities and the values of
their related securities or obligations. In addition, certain governmental entities, including FNMA and FHLMC, have been subject to regulatory
scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight
and/or other consequences that could adversely affect the credit quality, availability or investment character of securities issued by
these entities. U.S. Government debt securities generally involve lower levels of credit risk than other types of debt securities of similar
maturities, although, as a result, the yields available from U.S. Government debt securities are generally lower than the yields available
from such other securities. Like other debt securities, the values of U.S. government securities change as interest rates fluctuate. Fluctuations
in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in our NAV.
Distressed Securities
We may invest
in distressed investments including loans, loan participations, or bonds, many of which are not publicly traded and which may involve
a substantial degree of risk. In certain periods, there may be little or no liquidity in the markets for these securities or instruments.
In addition, the prices of such securities or instruments may be subject to periods of abrupt and erratic market movements and above-average
price volatility. It may be more difficult to value such securities and the spread between the bid and asked prices of such securities
may be greater than normally expected. If the Adviser’s evaluation of the risks and anticipated outcome of an investment in a distressed
security should prove incorrect, we may lose a substantial portion or all of our investment or we may be required to accept cash or securities
with a value less than our original investment.
Equity Securities
We may hold long
and short positions in common stock, preferred stock and convertible securities of U.S. and non-U.S. issuers. We also may invest in depositary
receipts or shares relating to non-U.S. securities. Equity securities fluctuate in value, often based on factors unrelated to the fundamental
economic condition of the issuer of the securities, including general economic and market conditions, and these fluctuations can be pronounced.
We may purchase securities in all available securities trading markets and may invest in equity securities without restriction as to market
capitalization, such as those issued by smaller capitalization companies, including micro-cap companies.
Exchange-Traded Notes (“ETNs”)
We may invest
in ETNs. ETNs are a type of senior, unsecured, unsubordinated debt security issued by financial institutions that combines both aspects
of bonds and Exchange-Traded Funds, or “ETFs.” An ETN’s returns are based on the performance of a market index minus
fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN
can be held until the ETN’s maturity, at which time the issuer will pay a return linked to the performance of the market index to
which the ETN is linked minus certain fees. Unlike regular bonds, ETNs do not make periodic interest payments and principal is not protected.
ETNs are subject to credit risk and the value of an ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying
market benchmark or strategy remaining unchanged. The value of an ETN may also be influenced by time to maturity, level of supply and
demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer’s
credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset. When we invest in ETNs
we will bear our proportionate share of any fees and expenses borne by the ETN. Our decision to sell our ETN holdings may be limited by
the availability of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain
the listing and there can be no assurance that a secondary market will exist for an ETN.
Preferred Securities
Preferred securities
in which we may invest include trust preferred securities, monthly income preferred securities, quarterly income bond securities, quarterly
income debt securities, quarterly income preferred securities, corporate trust securities, traditional preferred stock, contingent-capital
securities, hybrid securities (which have characteristics of both equity and fixed-income instruments) and public income notes. Preferred
securities are typically issued by corporations, generally in the form of interest-bearing notes or preferred securities, or by an affiliated
business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities.
The preferred securities market consists of both fixed and adjustable coupon rate securities that are either perpetual in nature in that
they have no maturity dates or have stated maturity dates.
Investment in Relatively New Issuers
We may invest
in the securities of new issuers. Investments in relatively new issuers, i.e., those having continuous operating histories of less
than three years, may carry special risks and may be more speculative because such issuers are relatively unseasoned. Such issuers may
also lack sufficient resources, may be unable to generate internally the funds necessary for growth and may find external financing to
be unavailable on favorable terms or even totally unavailable. Certain issuers may be involved in the development or marketing of a new
product with no established market, which could lead to significant losses. Securities of such issuers may have a limited trading market
which may adversely affect their disposition and can result in their being priced lower than might otherwise be the case. If other investors
who invest in such issuers seek to sell the same securities when we attempt to dispose of our holdings, we may receive lower prices than
might otherwise be the case.
Demand Deposit Accounts
We may hold a
significant portion of our cash assets in interest-bearing or non-interest-bearing demand deposit accounts at our custodian or another
depository institution insured by the FDIC. The FDIC is an independent agency of the U.S. government, and FDIC deposit insurance is backed
by the full faith and credit of the U.S. government. We expect to hold cash that exceeds the amounts insured by the FDIC for such accounts.
As a result, in the event of a failure of a depository institution where we hold such cash, our cash is subject to the risk of loss.
Simultaneous Investments
Investment decisions,
made by the Adviser on our behalf, are made independently from those of the other funds and accounts advised by the Adviser and its affiliates.
If, however, such other accounts wish to invest in, or dispose of, the same securities as us, available investments will be allocated
equitably between us and other accounts. This procedure may adversely affect the size of the position we obtain or dispose of or the price
we pay.
Short Sales
When we engage
in a short sale of a security, we must, to the extent required by law, borrow the security sold short and deliver it to the counterparty.
We may have to pay a fee to borrow particular securities and would often be obligated to pay over any payments received on such borrowed
securities.
If the price of
the security sold short increases between the time of the short sale and the time that we replace the borrowed security, we will incur
a loss; conversely, if the price declines, we will realize a capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above.
To the extent
we engage in short sales, we will comply with the applicable provisions of Rule 18f-4 with respect to such transactions.
CONTROL PERSONS, PRINCIPAL STOCKHOLDERS
AND SELLING STOCKHOLDERS
A control person
is a person who beneficially owns more than 25% of the voting securities of a company. The following table sets forth certain ownership
information as of July 31, 2024 with respect to shares of our common stock, our Series A Term Preferred Stock, Series B
Term Preferred Stock and Series C Term Preferred Stock held by (1) those persons who directly or indirectly own, control or
hold with the power to vote, 5% or more of the outstanding shares of our common stock or our Series A Term Preferred Stock, our Series B
Term Preferred Stock and our Series C Term Preferred Stock, (2) all of our officers and directors, as a group, and (3) selling
stockholders. The table shows such ownership as of July 31, 2024.
This prospectus
also relates to the offer and resale, from time to time, of up to 3,764,580 shares of our common stock by the stockholders identified
below as selling stockholders. We are registering the shares to permit the selling stockholders and their pledgees, donees, transferees
and other successors-in-interest that receive their shares from a selling stockholder as a gift, partnership distribution or other non-sale
related transfer after the date of this prospectus to resell the shares when and as they deem appropriate. We do not know how long the
selling stockholders will hold the shares before selling them, if at all, or how many shares they will sell, if any, and we currently
have no agreements, arrangements or understandings with the selling stockholders regarding the sale of any of the resale shares. Information
about the selling stockholders may change over time. Any changed information will be set forth in an amendment to the registration statement
of which this prospectus forms a part or a supplement to this prospectus, to the extent required by law.
We may pay the
printing, legal, filing and other similar expenses of any offering of common stock by the selling stockholders who are not our affiliates
at the time of the offering. The selling stockholders will bear all other expenses, including any brokerage fees, underwriting discounts
and commissions, of any such offering.
| | |
Common Stock
Beneficially Owned(1)
Immediately Prior to
Offering | | |
Preferred Stock
Beneficially Owned(1)
Immediately Prior to
Offering | | |
Shares of
Common
Stock | | |
Common Stock
Beneficially Owned(1)
Following the
Offering | |
Name and
Address | |
Number | | |
% | | |
Number | | |
% | | |
Offered | | |
Number | | |
% | |
| Enstar Group Limited*(2) | |
| 3,764,580 | | |
| 22.3 | % | |
| — | | |
| — | | |
| 3,764,580 | | |
| — | | |
| — | |
| Clarendon National Insurance Company* | |
| 1,731,290 | | |
| 10.3 | % | |
| — | | |
| — | | |
| 1,731,290 | | |
| — | | |
| — | |
| Enstar Holdings (US) LLC* | |
| 1,143,982 | | |
| 6.8 | % | |
| — | | |
| — | | |
| 1,143,982 | | |
| — | | |
| — | |
| Yosemite Insurance Company* | |
| 654,022 | | |
| 3.9 | % | |
| — | | |
| — | | |
| 654,022 | | |
| — | | |
| — | |
| Cavello Bay Reinsurance Limited* | |
| 235,286 | | |
| 1.4 | % | |
| — | | |
| — | | |
| 235,286 | | |
| — | | |
| — | |
| Karpus
Management, Inc.(3) | |
| — | | |
| — | | |
| 832,272 | | |
| 18.3 | % | |
| — | | |
| — | | |
| — | |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or
investment power with respect to the securities. |
| (2) | Enstar Group Limited has shared voting power and shared dispositive power over 3,764,580 shares of our
Common Stock. Enstar Holdings (US) LLC, a wholly-owned subsidiary of Enstar Group Limited, has shared voting power and shared dispositive
power over 1,143,982 shares of our Common Stock. Clarendon National Insurance Company, a wholly-owned subsidiary of Enstar Group Limited,
has shared voting power and shared dispositive power over 1,731,290 shares of our Common Stock. Cavello Bay Reinsurance Limited, a wholly-owned
subsidiary of Enstar Group Limited, has shared voting power and shared dispositive power over 235,286 shares of our Common Stock. Yosemite
Insurance Company, a wholly-owned subsidiary of Enstar Group Limited, has shared voting power and shared dispositive power over 654,022
shares of our Common Stock. The address of Enstar Group Limited is A.S. Cooper Building, 4th Floor, 26 Reid Street, Hamilton HM 11, Bermuda. |
| (3) | The number of shares beneficially owned is based on a Schedule 13G/A filed on April 9, 2024, reflecting
sole voting and dispositive power with respect to 832,272 shares of preferred stock. The address of Karpus Management, Inc. is 183
Sully’s Trail, Pittsford, NY 14534. |
All directors
and officers of the Company as a group own less than 1.0% of each of our outstanding Common Stock and our outstanding Preferred Stock.
On August 20,
2024, we entered into the Registration Rights Agreement with Enstar Group Limited pursuant to which we agreed to register the resale of
the shares of the selling stockholders covered by this prospectus.
BROKERAGE ALLOCATION
Since we acquire
and dispose of most of our investments in privately negotiated transactions or in the over-the-counter markets, we are generally not required
to pay a stated brokerage commission. However, to the extent a broker-dealer is involved in a transaction, the price paid or received
by us, as applicable, may reflect a mark-up or mark-down. Subject to policies established by our board of directors, the Adviser will
be primarily responsible for selecting brokers and dealers to execute transactions with respect to the publicly traded securities portion
of our portfolio transactions and the allocation of brokerage commissions. The Adviser does not expect to execute transactions through
any particular broker or dealer but will seek to obtain the best net results for us under the circumstances, taking into account such
factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational
facilities of the firm and the firm’s risk and skill in positioning blocks of securities. The Adviser generally will seek reasonably
competitive trade execution costs but will not necessarily pay the lowest spread or commission available. Subject to applicable legal
requirements and consistent with Section 28(e) of the Exchange Act, the Adviser may select a broker based upon brokerage or
research services provided. In return for such services, we may pay a higher commission than other brokers would charge if the Adviser
determines in good faith that such commission is reasonable in relation to the services provided.
LEGAL MATTERS
Certain legal
matters in connection with the securities offered by this prospectus will be passed upon for us by Dechert LLP, Boston, Massachusetts.
Dechert LLP also represents the Adviser.
CUSTODIAN AND TRANSFER AGENT
Our portfolio
securities are held pursuant to a custodian agreement between us and Computershare Trust Company, N.A. The principal business address
of Computershare Trust Company, N.A. is Computershare Trust Company, N.A., P.O. Box 43007 Providence, RI 02940-3006.
Equiniti Trust
Company, LLC serves as our transfer agent, registrar, dividend disbursement agent and stockholder servicing agent, as well as agent for
our DRIP. The principal business address of Equiniti Trust Company, LLC is 55 Challenger Road, Ridgefield Park, NJ 07669.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP, an independent
registered public accounting firm located at 345 Park Avenue, New York, NY 10154, provides audit services, tax return preparation, and
assistance and consultation with respect to the preparation of filings with the SEC.
ADDITIONAL INFORMATION
We file with or
submit to the SEC annual and semi-annual reports, proxy statements and other information meeting the informational requirements of the
Exchange Act. The SEC maintains a website that contains reports, proxy and information statements and other information we file with the
SEC at www.sec.gov.This information is also available free of charge by writing us at Eagle Point Income Company Inc., 600 Steamboat Road,
Suite 202, Greenwich, CT 06830, Attention: Investor Relations, by telephone at (844) 810-6501, or on our website at www.eaglepointincome.com.
Information on our website is not incorporated by reference into or a part of this prospectus.
Unresolved
Staff Comments: Not Applicable.
INCORPORATION BY REFERENCE
As noted above,
this prospectus is part of a registration statement that we have filed with the SEC. We are allowed to “incorporate by reference”
the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents.
The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information.
We incorporate
by reference any future filings (including those made after the date of the filing of the registration statement of which this prospectus
is a part) we will make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act or pursuant to Rule 30b2-1
under the 1940 Act including any filings on or after the date of this prospectus from the date of filing (excluding any information furnished,
rather than filed), until we have sold all of the offered securities to which this prospectus and any accompanying prospectus supplement
relates or the offering is otherwise terminated. The information incorporated by reference is an important part of this prospectus. Any
statement in a document incorporated by reference into this prospectus will be deemed to be automatically modified or superseded to the
extent a statement contained in (1) this prospectus or (2) any other subsequently filed document that is incorporated by reference
into this prospectus modifies or supersedes such statement. The documents incorporated by reference herein include:
| ● | our Annual
Report on Form N-CSR, as amended, for the fiscal year ended December 31, 2023, filed with the SEC on February 22,
2024; |
| ● | our interim
report filed pursuant to Rule 30b2-1 under the 1940 Act for the quarter ended March 31, 2024, filed with the SEC
on May 21, 2024; |
| ● | our Semi-Annual
Report on Form N-CSR for the period ended June 30, 2024, filed with the SEC on August 6, 2024; |
The
Company will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written
or oral request, a copy of any and all of the documents that have been or may be incorporated by reference in this prospectus or the accompanying
prospectus supplement.
All filings filed
by the Company pursuant to the Exchange Act or pursuant to Rule 30b2-1 under the 1940 Act after the date of filing of the registration
statement and prior to effectiveness of the registration statement shall be deemed to be incorporated by reference into this prospectus.
Paul H. Kim
(a) Name and address of each examining
or supervising authority to which it is subject.
(b) Whether it is authorized to
exercise corporate trust powers.
The trustee is authorized to exercise corporate
trust powers.
If the obligor is an affiliate of the trustee,
describe each such affiliation.
None.
Items 3-15 are not applicable
because, to the best of the trustee’s knowledge, the obligor is not in default under any indenture for which the trustee acts
as trustee.
We, the undersigned, MARTIN G. FLANIGAN and DAVID
BECKER, being respectively the President and Secretary of Equiniti Trust Company, LLC (the “Company”), do hereby certify that:
IN WITNESS WHEREOF, the undersigned
have subscribed this Second Amended and Restated Articles of Organization this 27th day of March, 2024.
THIS LIMITED LIABILITY TRUST
COMPANY AGREEMENT (as amended, amended and restated, supplemented or modified from time to time, the “Agreement”) of Equiniti
Trust Company, LLC (the “Company”) dated as of this 30th day of June, 2023 (the “Effective Date”), is entered into by Armor
Holding II LLC, as the sole member of the Company (the “Member”).
The Company shall be dissolved
and its affairs wound up only upon the occurrence of any of the following events (each, an “Event of Dissolution”):
The Member may sell, assign,
transfer, convey, gift, exchange or otherwise dispose of any or all of its Common Interests and, upon receipt by the Company of a written
agreement executed by the person or entity to whom such Common Interests are to be transferred agreeing to be bound by the terms of this
Agreement, such person shall be admitted as a member.
IN WITNESS WHEREOF, the undersigned has duly executed
this Agreement as of the date first written above.
THIS CERTIFICATE EVIDENCES COMMON INTERESTS IN
EQUINITI TRUST COMPANY, LLC (THE “COMPANY”) AND SHALL BE A SECURITY FOR PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE.
THE COMMON INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF THE LIMITED LIABILITY TRUST COMPANY AGREEMENT OF
THE COMPANY DATED AS OF JUNE 30, 2023 (AS MAY BE AMENDED, RESTATED, AMENDED AND RESTATED
OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “LLTC AGREEMENT”). A COPY OF THE LLTC AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER
OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
This Certifies that _________________________________
is the owner of _______ fully paid and non-assessable Common Interests of the above-named Company and is entitled to the full benefits
and privileges of such Common Interest, subject to the duties and obligations, as more fully set forth in the LLTC Agreement. This Certificate
is transferable on the books of the Company by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed.
Enstar,
through certain of its wholly-owned subsidiaries, is the holder of 3,764,580 shares (the “Shares”) of common stock,
par value $0.001 per share, of the Company (the “Common Stock”). The Company has agreed to provide the registration
rights set forth in this Agreement with respect to the Shares.
In
connection with the Company’s registration obligations hereunder, the Company shall:
An
Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party
has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense
of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel
to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent
of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section)
shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, provided
that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to
such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject
to appeal or further review) not to be entitled to indemnification hereunder.
The
indemnity and contribution agreements contained in this Section 5 are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
No
party shall be entitled to indemnification under this Section 5 to the extent, and only to the extent, such indemnification of such
party would violate Section 17(i) of the Investment Company Act.
EACH OF THE PARTIES HERETO
HERBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
A Selling Stockholder may
also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities
Act”), if available, rather than under this prospectus, provided they meet the criteria and conform to the requirements of those
provisions.
Broker-dealers
engaged by a Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from a Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess
of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown
in compliance with FINRA Rule 2121.
A
Selling Stockholder may enter into option or other transactions with broker-dealers or other financial institutions or create one or more
derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus,
which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
A
Selling Stockholder and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under
the Securities Act. Each Selling Stockholder has informed us that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the securities.
We
are required to pay certain fees and expenses incurred by us incident to the registration of the securities. We have agreed to indemnify
any Selling Stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act, in accordance
with the registration rights agreement, or the Selling Stockholder will be entitled to contribution. We may be indemnified by the Selling
Stockholder against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished
to us by the Selling Stockholder specifically for use in this prospectus, in accordance with the registration rights agreement, or we
may be entitled to contribution.
We
agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders
without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement
for us to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of
similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold
unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not
simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in
Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and
sales of the common stock by a Selling Stockholder or any other person. We will make copies of this prospectus available to a Selling
Stockholder and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale
(including by compliance with Rule 172 under the Securities Act).
The
table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of common stock by each
of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by each selling stockholder,
based on its ownership of the shares of common stock as of August 20, 2024.
The
third column lists the shares of common stock being offered by this prospectus by the selling stockholders. The fourth column assumes
the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.
The
selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
Certain
legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly,
holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.
The
undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:
1. Name.
(b) Full
Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
(c) Full
Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or
dispose of the securities covered by this Questionnaire):
(b) If
“yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to
the Company?
Note:
If “no” to Section 3(b), the Commission's staff has indicated that you should be identified as an underwriter in the
Registration Statement.
(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course
of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly
or indirectly, with any person to distribute the Registrable Securities?
Note:
If “no” to Section 3(d), the Commission's staff has indicated that you should be identified as an underwriter in the
Registration Statement.
(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
The
Selling Stockholders listed in Annex B to the Registration Rights Agreement collectively hold [ ]% of the Company’s outstanding
shares of common stock. Enstar Group Limited, a Bermuda holding company (“Enstar”), and the Selling Stockholders listed in
Annex B to the Registration Rights Agreement may be deemed to beneficially own all of such shares of common stock.
The
undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may
occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall
not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates.
By
signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and
the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto.
The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of
the Registration Statement and the related prospectus and any amendments or supplements thereto.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either
in person or by its duly authorized agent.
PLEASE
FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO:
Eagle Point Income Company Inc.
We have acted as counsel to Eagle Point Income
Company Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing of a Registration
Statement on Form N-2 (the “Registration Statement”), filed on the date hereof with the U.S. Securities and Exchange
Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”).
The Registration Statement relates to the possible
offerings from time to time of up to an aggregate of $750,000,000 of the following securities of the Company: (1) shares of common
stock, par value $0.001 per share, of the Company (“Common Stock”), (2) shares of preferred stock, par value $0.001
per share, of the Company (“Preferred Stock”), (3) subscription rights to purchase Common Stock (“Subscription
Rights”) and (4) debt securities (“Debt Securities”) to be issued pursuant to an indenture between the
Company and a trustee (the “Trustee”). The Common Stock, Preferred Stock, Subscription Rights and Debt Securities are
collectively referred to herein as the “Securities.” The Registration Statement also relates to the offer and sale
from time to time by certain selling stockholders named therein of up to 3,764,580 shares of Common Stock (the “Selling Stockholder
Shares”).
The Registration Statement provides that the Securities
and the Selling Stockholder Shares may be offered separately or together, in separate series, in amounts, at prices and on terms to be
set forth in one or more supplements to the prospectus included in the Registration Statement (each, a “Prospectus Supplement”).
This opinion letter is being furnished to the Company in accordance with the requirements of Item 25 of Form N-2 under the Investment
Company Act of 1940, as amended, and we express no opinion herein as to any matter other than as to the legality of the Securities and
the Selling Stockholder Shares.
In rendering the opinions expressed below, we
have examined and relied on originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records
and other instruments and such agreements, certificates and receipts of public officials, certificates of officers or other representatives
of the Company and others, and such other documents as we have deemed necessary or appropriate as a basis for rendering the opinions set
forth below, including the following documents:
As to the facts upon which this opinion letter
is based, we have relied, to the extent we deem proper, upon certificates of public officials and certificates and written statements
of agents, officers, directors, employees and representatives of the Company without having independently verified such factual matters.
In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as original documents, the conformity to original documents of all
documents submitted to us as copies, the legal capacity of natural persons who are signatories to the documents examined by us and the
legal power and authority of all persons signing on behalf of the parties to such documents (other than the Company).
On the basis of the foregoing and subject to the
assumptions, qualifications and limitations set forth in this letter, we are of the opinion that:
The opinions set forth herein are subject to the
following assumptions, qualifications, limitations and exceptions being true and correct at or before the time of the delivery of any
Securities offered pursuant to the Registration Statement and appropriate Prospectus Supplement:
The opinions set forth herein as to enforceability
of obligations of the Company are subject to: (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar
laws now or hereinafter in effect affecting the enforcement of creditors’ rights generally, and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at law) and the discretion of the court or other body before
which any proceeding may be brought; (ii) the unenforceability under certain circumstances under law or court decisions of provisions
providing for the indemnification of, or contribution to, a party with respect to a liability where such indemnification or contribution
is contrary to public policy, (iii) provisions of law which may require that a judgment for money damages rendered by a court in
the United States be expressed only in U.S. dollars; (iv) requirements that a claim with respect to any Debt Securities denominated
other than in U.S. dollars (or a judgment denominated other than in U.S. dollars in respect of such claim) be converted into U.S. dollars
at a rate of exchange prevailing on a date determined pursuant to applicable law; and (v) governmental authority to limit, delay
or prohibit the making of payments outside the United States or in foreign currency or composite currency.
We express no opinion as to the validity, legally
binding effect or enforceability of any provision in any agreement or instrument that (i) requires or relates to payment of any interest
at a rate or in an amount which a court may determine in the circumstances under applicable law to be commercially unreasonable or a penalty
or forfeiture or (ii) relates to governing law and submission by the parties to the jurisdiction of one or more particular courts.
We are members of the bar of the State of New
York, and the foregoing opinions are limited to the laws of the State of New York and the General Corporation Law of the State of Delaware.
This opinion letter has been prepared for your
use solely in connection with the Registration Statement. We assume no obligation to advise you of any changes in the foregoing subsequent
to the date of this opinion.
We hereby consent to the filing of this opinion
letter as an exhibit to the Registration Statement and to the reference to this firm under the caption “Legal Matters” in
the prospectus which forms a part of the Registration Statement. In giving such consent, we do not thereby admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.
We consent to the use of our report dated February 21, 2024,
with respect to the consolidated financial statements, consolidated financial highlights, and accompanying supplemental information of
Eagle Point Income Company Inc., incorporated herein by reference and to the reference to our firm under the heading “Independent
Registered Public Accounting Firm” in the prospectus.
This Power of Attorney may be executed in multiple
counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument.
WITNESS our hands on the date(s) set forth below.
