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Filed pursuant to Rule 424(b)(3)
1933 Act File No. 333-269139
PROSPECTUS
SUPPLEMENT dated June 12, 2023
(to Prospectus dated June 9, 2023, as supplemented from time to
time)
EAGLE
POINT CREDIT COMPANY INC.
$225,000,000 of
Common Stock
Up
to 800,000 Shares of 6.50% Series C Term Preferred Stock due 2031
Liquidation Preference $25 per share
Up
to 200,000 Shares of 6.75% Series D Preferred Stock
Liquidation Preference $25 per share
We are an externally managed, non-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 equity and 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 may also invest in other related
securities and instruments or other securities and instruments that our investment adviser believes are consistent with our investment
objectives, including senior debt tranches of CLOs, loan accumulation facilities, or “LAFs”, securities issued by other securitization
vehicles, such as credit-linked notes and collateralized bond obligations, or “CBOs”, and synthetic investments, such as significant
risk transfer securities and credit risk transfer securities issued by banks or other financial institutions. LAFs are short- to medium-term
facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. LAFs typically incur leverage
between four and six times prior to a CLO’s pricing. The CLO securities in which we primarily seek to invest are unrated or rated
below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal. Unrated and
below investment grade securities are also sometimes referred to as “junk” securities. In addition, the CLO equity and junior
debt securities in which we invest are highly leveraged (with CLO equity securities typically being leveraged ten times), which magnifies
our risk of loss on such investments. 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”
in the accompanying prospectus.
Eagle Point Credit Management LLC,
or the “Adviser,” our investment adviser, manages our investments subject to the supervision of our board of directors. As
of March 31, 2023, the Adviser, collectively with an affiliate of the Adviser, Eagle Point Income Management LLC or “Eagle
Point Income Management,” had approximately $7.8 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
are offering up to $225,000,000 aggregate offering price of our common stock, up to 800,000 shares of our 6.50% Series C
Term Preferred Stock due 2031, or the “Series C Term Preferred Stock,” with an aggregate liquidation preference of $20,000,000,
and up to 200,000 shares of our 6.75% Series D Preferred Stock, or the “Series D Preferred Stock” and, together
with the Series C Term Preferred Stock, the “Preferred Stock,” with an aggregate liquidation preference of $5,000,000 pursuant
to this prospectus supplement and the accompanying prospectus. We have entered into a Third Amended and Restated At Market Issuance Sales
Agreement, dated June 12, 2023 or the “Sales Agreement,” with B. Riley Securities, Inc. (“B. Riley”), which
we refer to as the placement agent, relating to the sale of shares of common stock, Series C Term Preferred Stock, and Series D
Preferred Stock offered by this prospectus supplement and the accompanying prospectus.
The Sales Agreement provides that
we may offer and sell shares of our common stock, Series C Term Preferred Stock, and Series D Preferred Stock from time to time
through the placement agent, as placement agent or principal. Sales of our common stock, Series C Term Preferred Stock, and Series D
Preferred Stock, if any, under this prospectus supplement and the accompanying prospectus may be made by any method that is deemed to
be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. There is no arrangement
for funds to be received in an escrow, trust or similar arrangement.
We are required to redeem all outstanding
shares of the Series C Term Preferred Stock on June 30, 2031, at a redemption price of $25 per share, or the “Series C Liquidation
Preference,” plus accumulated but unpaid dividends, if any, to, but excluding, the Series C Redemption Date (as defined below).
At any time on or after June 16, 2024, we may, at our sole option, redeem the outstanding shares of the Series C Term Preferred Stock
at a redemption price per share equal to the Series C Liquidation Preference plus accumulated but unpaid dividends, if any, to, but excluding,
the Series C Redemption Date. We intend to pay monthly dividends on the Series C Term Preferred Stock at an annual rate of 6.50% of the
Series C Liquidation Preference, or $1.625 per share per year.
At any time after November 29, 2026,
we may, at our sole option, redeem the outstanding shares of the Series D Preferred Stock upon giving a notice of redemption at a redemption
price of $25 per share, or the “Series D Liquidation Preference,” plus accumulated but unpaid dividends, if any, to, but excluding,
the Series D Redemption Date (as defined below). We intend to pay monthly dividends on the Series D Preferred Stock at an annual rate
of 6.75% of the Series D Liquidation Preference, or $1.6875 per share per year. The Series D Preferred Stock has no maturity date and
will remain outstanding indefinitely unless redeemed by us.
In addition, if we fail to maintain
asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200%, 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 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) results in us having asset
coverage of at least 200%, or (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%. The Preferred
Stock ranks senior in right of payment to our common stock, ranks equally in right of payment with any shares of preferred stock we have
issued or may issue in the future and is subordinated in right of payment to our existing and future senior indebtedness (including our
6.6875% notes due 2028, 5.375% notes due 2029, and 6.75% notes due 2031). Each holder of the Preferred Stock is entitled to one vote on
each matter submitted to a vote of our stockholders, and the holders of all of our outstanding preferred stock and common stock generally
vote together as a single class. The holders of shares of the Preferred Stock are entitled as a class to elect two of our directors and,
if dividends on any outstanding shares of our preferred stock are in arrears by two years or more, to elect a majority of our directors
(and to continue to be so represented until all dividends in arrears have been paid or otherwise provided for).
The
placement agent will receive a commission from us equal to up to 2.0% of the gross sales price of any shares of our common stock or Preferred
Stock sold through it under the Sales Agreement. The placement agent is not required to sell any specific number or dollar amount of common
stock or Preferred Stock but will use its commercially reasonable efforts consistent with its sales and trading practices to sell the
shares of our common stock and Preferred Stock offered by this prospectus supplement and the accompanying prospectus. For all fees and
expenses paid to the placement agent, see “Plan of Distribution” beginning on page S-38 of
this prospectus supplement. The sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus,
less commissions payable under the Sales Agreement and discounts, if any, will not be less than the net asset value per share of our common
stock at the time of such sale.
Our
common stock, Series C Term Preferred Stock, Series D Preferred Stock, 6.6875% notes due 2028, 5.375% notes due 2029, and 6.75%
notes due 2031 trade on the New York Stock Exchange under the symbols “ECC,” “ECCC,” “ECC PRD,” “ECCX,”
“ECCV,” and “ECCW,” respectively. We determine the net asset value, or “NAV,” per share of our common
stock on a quarterly basis. As of March 31, 2023, the NAV of our common stock was $9.10
(the last date prior to the date of this prospectus supplement 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 May 31, 2023 was between $8.46
and $8.56.
The last reported closing sales price for our common stock on June 8, 2023 was $10.87 per
share, representing a 19.5%
premium to our NAV per share as of March 31, 2023.
Even
though shares of the common stock and Preferred Stock are listed on an exchange, such shares may be thinly traded
and you may face a greater risk of loss if you sell on the secondary market under these conditions. Investors who purchase shares of the
common stock at a premium may also may be subject to a heighted risk of loss under certain circumstances. 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.
We may borrow funds to make
investments. As a result, we are exposed to the risk of borrowing (also known as leverage) which may be considered a speculative investment
technique. Leverage increases the volatility of investments and magnifies the potential for loss on amounts invested thereby increasing
the risk associated with investing in our common stock or Preferred Stock.
Investing
in our securities involves a high degree of risk, including the risk of a substantial loss of investment. Before purchasing any shares
of our common stock or Preferred Stock, you should read the discussion of the principal risks of investing in our securities, which are
summarized in “Risk Factors” beginning on page S-17 of this prospectus supplement
and on page 13 of the accompanying prospectus.
This
prospectus supplement, the accompanying prospectus, any free writing prospectus, and the documents incorporated by reference in this prospectus
supplement and the accompanying prospectus contain important information you should know before investing in our securities. Please read
these documents before you invest and retain them for future reference. We file annual and semi-annual stockholder reports, proxy statements
and other information with the U.S. 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.eaglepointcreditcompany.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).
Information on our website is not incorporated by reference into or a part of this prospectus supplement or the accompanying prospectus.
See “Additional Information” on page S-40 of this prospectus supplement.
Neither the SEC nor any
state securities commission, nor any other regulatory body, has approved or disapproved of these securities or determined that this prospectus
supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus supplement is June 12, 2023
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PROSPECTUS
PROSPECTUS SUMMARY |
1 |
FEES AND EXPENSES |
12 |
RISK FACTORS |
13 |
USE OF PROCEEDS |
52 |
SENIOR SECURITIES |
52 |
PRICE RANGE OF COMMON STOCK |
52 |
ADDITIONAL BUSINESS INFORMATION |
53 |
THE ADVISER AND THE ADMINISTRATOR |
55 |
MANAGEMENT |
64 |
DETERMINATION OF NET ASSET VALUE |
68 |
DIVIDEND REINVESTMENT PLAN |
69 |
CONFLICTS OF INTEREST |
69 |
U.S. FEDERAL INCOME TAX MATTERS |
73 |
DESCRIPTION OF OUR SECURITIES |
86 |
DESCRIPTION OF OUR CAPITAL STOCK |
86 |
DESCRIPTION OF OUR PREFERRED STOCK |
93 |
DESCRIPTION OF OUR SUBSCRIPTION RIGHTS |
94 |
DESCRIPTION OF OUR DEBT SECURITIES |
96 |
BOOK-ENTRY ISSUANCE |
108 |
PLAN OF DISTRIBUTION |
110 |
REGULATION AS A CLOSED-END MANAGEMENT INVESTMENT
COMPANY |
112 |
ADDITIONAL INVESTMENTS AND TECHNIQUES |
115 |
CONTROL PERSONS, PRINCIPAL STOCKHOLDERS
AND SELLING STOCKHOLDERS |
118 |
BROKERAGE ALLOCATION |
119 |
LEGAL MATTERS |
119 |
CUSTODIAN AND TRANSFER AGENT |
119 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM |
119 |
ADDITIONAL INFORMATION |
119 |
INCORPORATION BY REFERENCE |
120 |
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The
first part is this prospectus supplement, which describes the specific details regarding this offering and also adds to and updates information
contained in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement and the accompanying
prospectus. The second part is the accompanying prospectus, which provides general information about us and the securities we may offer
from time to time, some of which may not apply to this offering. To the extent the information contained in this prospectus supplement
differs from the information contained in the accompanying prospectus or the information included in any document filed prior to the date
of this prospectus supplement and incorporated by reference in this prospectus supplement and the accompanying prospectus, the information
in this prospectus supplement shall control. Generally, when we refer to this “prospectus,” we are referring to both this
prospectus supplement and the accompanying prospectus combined, together with any free writing prospectus that we have authorized for
use in connection with this offering.
YOU SHOULD RELY ONLY ON
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND THEREIN, AND ANY FREE WRITING PROSPECTUS PREPARED BY, OR ON BEHALF OF, US THAT RELATES TO THIS OFFERING. WE HAVE
NOT, AND THE PLACEMENT AGENT HAS NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. IF ANYONE PROVIDES
YOU WITH DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE PLACEMENT AGENT IS NOT, MAKING AN OFFER TO
SELL THE COMMON STOCK AND PREFERRED STOCK IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION
APPEARING IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN
AND THEREIN, AND ANY FREE WRITING PROSPECTUS PREPARED BY OR ON BEHALF OF US THAT RELATES TO THIS OFFERING IS ACCURATE ONLY AS OF ITS RESPECTIVE
DATE, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS, ANY FREE WRITING PROSPECTUS OR ANY
SALES OF THE COMMON STOCK OR PREFERRED STOCK. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED
SINCE THOSE DATES.
PROSPECTUS
SUPPLEMENT SUMMARY
The following summary highlights
some of the information included elsewhere, or incorporated by reference, in this prospectus supplement or the accompanying prospectus.
It is not complete and may not contain all the information that you may want to consider before making any investment decision regarding
the securities offered hereby. To understand the terms of the securities offered hereby before making any investment decision, you should
carefully read this entire prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein
or therein, and any free writing prospectus related to the offering, including “Risk Factors,” “Additional Information,”
“Incorporation by Reference,” and “Use of Proceeds” and the financial statements contained elsewhere or incorporated
by reference in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the
securities we are offering.
Except where the context suggests
otherwise, the terms:
|
● |
“Eagle Point Credit Company,” the “Company,” “we,” “us”
and “our” refer to Eagle Point Credit Company Inc., a Delaware corporation, and its consolidated subsidiaries or, for periods
prior to our conversion to a corporation, Eagle Point Credit Company LLC, a Delaware limited liability company; |
|
● |
“Eagle Point Credit Management” and “Adviser” refer to Eagle Point Credit Management
LLC, a Delaware limited liability company; |
|
● |
“Eagle Point Administration” and “Administrator” refer 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 Credit Company
We are an externally managed, non-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,” commencing with our tax year ended November 30, 2014.
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 equity and 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 may
also invest in other related securities and instruments or other securities and instruments that the Adviser believes are consistent with
our investment objectives, including senior debt tranches of CLOs, LAFs, securities issued by other securitization vehicles, such as credit-linked
notes and CBOs, and synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by
banks or other financial institutions. We may also acquire securities issued by other investments companies, including closed-end funds,
business development companies (“BDCs”), mutual funds, and exchange-traded funds (“ETFs”), and may otherwise invest
indirectly in securities consistent with our investment objectives. 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. Unrated and below investment grade securities are also sometimes
referred to as “junk” securities. In addition, the CLO equity and junior debt securities in which we invest are highly leveraged
(with CLO equity securities typically being leveraged ten times), which magnifies our risk of loss on such investments. LAFs are short-
to medium-term facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. LAFs typically
incur leverage between four and six times prior to a CLO’s pricing.
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” in the accompanying prospectus.
In the primary CLO market (i.e.,
acquiring securities at the inception of a CLO), we seek to invest in CLO securities that the Adviser believes have the potential to generate
attractive risk-adjusted returns and to outperform other similar CLO securities issued within the respective vintage period. In the secondary
CLO market (i.e., acquiring existing CLO securities), we seek to invest in CLO securities that the Adviser believes have the potential
to generate attractive risk-adjusted returns.
“Names Rule” Policy
In accordance with the requirements
of the 1940 Act, we have adopted a policy to invest at least 80% of our assets in the particular type of investments suggested by our
name. Accordingly, under normal circumstances, we invest at least 80% of the aggregate of our net assets and borrowings for investment
purposes in credit and credit-related instruments. For purposes of this policy, we consider credit and credit-related instruments to include,
without limitation: (i) equity and debt tranches of CLOs, LAFs, securities issued by other securitization vehicles, such as credit-linked
notes and CBOs, and synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by
banks or other financial institutions; (ii) secured and unsecured floating rate and fixed rate loans; (iii) investments in corporate
debt obligations, including bonds, notes, debentures, commercial paper and other obligations of corporations to pay interest and repay
principal; (iv) debt issued by governments, their agencies, instrumentalities, and central banks; (v) commercial paper and short-term
notes; (vi) preferred stock; (vii) convertible debt securities; (viii) certificates of deposit, bankers’ acceptances
and time deposits; and (ix) other credit-related instruments. Our investments in derivatives, other investment companies, and other
instruments designed to obtain indirect exposure to credit and credit-related instruments are counted towards our 80% investment policy
to the extent such instruments have similar economic characteristics to the investments included within that policy.
Our 80% policy with respect to investments
in credit and credit-related instruments is not fundamental and may be changed by our board of directors without stockholder approval.
Stockholders will be provided with sixty (60) days’ notice in the manner prescribed by the SEC before making any change to this
policy. Our investments in derivatives, other investment companies, and other instruments designed to obtain indirect exposure to credit
and credit-related instruments are counted towards our 80% investment policy to the extent such instruments have similar economic characteristics
to the investments included within that policy. See “Business” in the accompanying prospectus.
Eagle Point Credit Management
Eagle
Point Credit Management, our investment adviser, manages our investments subject to the supervision of our board of directors pursuant
to an amended and restated investment advisory agreement, or the “Investment Advisory Agreement.” 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 Incentive Fee” and “The Adviser and the Administrator —The
Administrator and the Administration Agreement” in the accompanying prospectus.
The Adviser is registered as an
investment adviser with the SEC. As of March 31, 2023, the Adviser, collectively with Eagle Point Income Management, an affiliate
of the Adviser, had approximately $7.8 billion of total assets under management (including capital commitments that were undrawn as of
such date). The Adviser’s diversified investor base is comprised of institutional investors, high net worth individuals and retail
investors. Based on the Adviser’s CLO equity assets under management, the Adviser believes that, collectively with Eagle Point Income
Management, it is among the largest CLO equity investors in the market.
The Adviser was established in November 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.” The Adviser is wholly owned by Eagle Point Holdings
LP (“EP Holdings”). EP Holdings, in turn, is primarily owned by certain of the Trident Funds through intermediary holding
companies. Additionally, certain of the Adviser’s employees also 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. Stone Point, an investment adviser registered with the SEC, is
a specialized private equity firm focused on the financial services industry. The “Senior Investment Team” is led by Mr. Majewski,
Managing Partner and founder 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 Senior Investment Team is primarily responsible for our day-to-day investment
management and the implementation of our investment strategy and process. See “The Adviser and the Administrator”
in the accompanying 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, 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 our 6.6875% notes due 2028, or the “2028 Notes,”
our 5.375% notes due 2029, or the “2029 Notes,” our 6.75% notes due 2031, or the “2031 Notes,” and collectively
with the 2028 Notes and the 2029 Notes, the “Notes”), 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),
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 March 31, 2023, we had
two series of preferred stock outstanding, the Series C Term Preferred Stock and the Series D Preferred Stock (together with
any additional shares of preferred stock the Company may issue from time to time, the “Preferred Stock”).
As of March 31, 2023, our leverage,
including the outstanding Notes and the Preferred Stock, represented approximately 33.4% of our total assets (less current liabilities).
On a pro forma basis, after giving effect to the $30.9 million in net proceeds received from sales of our common stock from April 1, 2023
through June 7, 2023 in connection with our prior “at-the-market” offering, our leverage, including the outstanding Notes,
the Series C Term Preferred Stock, and Series D Preferred Stock, represented approximately 32.1% of our total assets (less current liabilities)
as of March 31, 2023 (excluding distributions paid after March 31, 2023) and approximately 33.7% of our total assets (less current liabilities)
as of May 31, 2023 (based on the midpoint of management’s unaudited estimate of the range of our NAV as of such date). As of March
31, 2023, our asset coverage ratios in respect of (i) senior securities representing indebtedness and (ii) our outstanding Preferred Stock,
each as calculated pursuant to Section 18 of the 1940 Act, were 443% and 299%, respectively. 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 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.
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
entering into 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 or not at all 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. Accordingly, any event that adversely affects the value of an
investment would be magnified to the extent leverage is utilized. 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” in the accompanying prospectus.
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” in the accompanying prospectus.
Operating and Regulatory
Structure
We
are an externally managed, non-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 the accompanying prospectus. In addition, we have elected to be treated,
and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our tax year ended on November 30, 2014.
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 an annual base management fee based on our “Total Equity Base”, as well as an incentive fee
based on our “Pre-Incentive Fee Net Investment Income.” See “The Adviser and The Administrator—Investment
Advisory Agreement - Management Fee and Incentive Fee” in the accompanying
prospectus. “Total Equity Base” means the net asset value attributable to the common stock and the paid-in, or stated, capital
of the Preferred Stock.
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” in the accompanying prospectus.
Recent Developments
Estimated Net Asset Value
Management’s
unaudited estimate of the range of our NAV per share of our common stock as of May 31, 2023 was between $8.46 and $8.56.
Offerings
From
April 1, 2023 through June 7, 2023, we sold 2,985,239 shares of our common stock pursuant to our prior “at-the-market”
offering, for total net proceeds to us of approximately $30.9 million. In connection with such sales, we paid a total of $0.6 million
in sales agent commissions.
Our Corporate Information
Our
offices are located at 600 Steamboat Road, Suite 202, Greenwich, CT 06830, and our telephone number is (203) 340-8500.
THE
OFFERING
The Offering
Issuer |
Eagle
Point Credit Company Inc. |
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Securities
Offered by Us |
Up to $225,000,000 aggregate
amount of our common stock.
Up to 800,000 shares
of Series C Term Preferred Stock.
Up to 200,000 shares
of Series D Preferred Stock. |
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Manner
of Offering |
“At
the market offering” that may be made from time to time through B. Riley, as placement agent or principal, using commercially reasonable
efforts consistent with its sales and trading practices. See “Plan of Distribution” in this prospectus
supplement. |
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Use
of Proceeds |
We
intend to use the net proceeds from the sale of our securities to acquire investments in accordance with our investment objectives and
strategies described in this prospectus supplement and in the accompanying prospectus, to make distributions to our stockholders and for
general working capital purposes. In addition, we may also use a portion of the net proceeds from the sale of our securities to repay
any outstanding indebtedness or preferred stock at the time of the offering. See “Use of Proceeds”
in this prospectus supplement. |
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Custodian
and Transfer Agent |
Wells
Fargo Bank, National Association serves as our custodian, and American Stock Transfer and Trust Company, LLC serves as our transfer agent,
registrar, dividend disbursement agent and stockholder servicing agent. See “Custodian and Transfer Agent”
in the accompanying prospectus. |
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Risk
Factors |
An
investment in our securities is subject to risks and involves a heightened risk of total loss of investment. In addition, the companies
in which we invest are subject to special risks. See “Risk Factors” in this prospectus supplement
and the accompanying prospectus to read about factors you should consider, including the risks of leverage, before investing in our securities. |
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Additional
Information |
An
investment in our securities is subject to risks and involves a heightened risk of total loss of investment. In addition, the companies
in which we invest are subject to special risks. See “Risk Factors” in this prospectus supplement
and the accompanying prospectus to read about factors you should consider, including the risks of leverage, before investing in our securities.
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Common
Stock |
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Listing |
Our
common stock is traded on the NYSE under the symbol “ECC.” |
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Trading
at a Discount |
Shares
of closed-end investment companies that are listed on an exchange frequently trade at a discount to their NAV. If our shares trade at
a discount to our NAV, it will likely increase the risk of loss for purchasers in this offering. Investing in our common stock involves
a high degree of risk. Before buying any securities, you should read the discussion of the material risks of investing in our securities
under “Risk Factors” in this prospectus supplement and the accompanying prospectus. |
Distributions |
We intend to make regular
monthly ordinary income distributions of all or a portion of our “investment company taxable income” (which generally consists
of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, and excluding
any deduction for distributions paid to stockholders) to common stockholders. We also intend to make at least annual distributions of
all or a portion of our “net capital gains” (which is the excess of net long-term capital gains over net short-term capital
losses). At times, in order to maintain a stable level of distributions, we may distribute less than all of our net investment income
or distribute accumulated undistributed income in addition to current net investment income.
If a record date for a
particular distribution occurs before an investor’s date of settlement, such investor who purchases shares in this offering will
not be entitled to receive such distribution.
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Dividend
Reinvestment Plan |
Under
the dividend reinvestment plan, or the “DRIP”, each holder of at least one full share of our common stock will be automatically
enrolled in the DRIP and distributions on shares of our common stock are automatically reinvested in additional shares of our common stock
by American Stock Transfer and Trust Company, LLC, or the “DRIP agent”, unless a stockholder “opts-out” of the
DRIP. Holders of our common stock who receive distributions in the form of additional shares of our common stock are nonetheless subject
to the applicable federal, state or local taxes on the reinvested distribution but will not receive a corresponding cash distribution
with which to pay any applicable tax. The DRIP agent (acting on our behalf) will primarily use newly-issued, authorized shares of common
stock to implement reinvestment of distributions under the DRIP. Distributions that are reinvested through the issuance of new shares
increase our stockholders’ equity on which a management fee is payable to the Adviser. If we declare a distribution payable in cash,
holders of shares of our common stock who opt-out of participation in the DRIP (including those holders whose shares are held through
a broker or other nominee who has opted out of participation in the DRIP) generally will receive such distributions in cash. See “Dividend
Reinvestment Plan” in our Annual Report filed on Form N-CSR for the fiscal year ended December 31, 2022. |
Series C
Term Preferred Stock |
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Listing |
Our
Series C Term Preferred Stock is traded on the NYSE under the symbol “ECCC.” |
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Liquidation
Preference |
In
the event of 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 $25 per share, or the “Series C 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 payment date. |
Series C
Term Preferred Stock Dividends |
We intend to pay monthly
dividends on the Series C Term Preferred Stock at a fixed annual rate of 6.50% of the Series C Liquidation Preference ($1.625 per
share per year), or the "Series C Dividend Rate.” Our board of directors may determine not to pay, or may be precluded from
paying, such dividends if our board of directors believes it is not in the best interest of our stockholders or if we fail to maintain
the asset coverage required by the 1940 Act. Subject to certain cure provisions, if we fail to redeem the Series C Term Preferred
Stock as required on the Mandatory Redemption Date (as defined below) or fail to pay any dividend on the payment date for such dividend,
the Series C Dividend Rate will increase by 2% per annum until we redeem the Series C Term Preferred Stock or pay
the dividend, as applicable. See “Description of the Series C Term Preferred Stock — Dividends — Adjustment
to Fixed Dividend Rate — Default Period” in this prospectus supplement. The Series C Dividend
Rate will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Cumulative cash dividends
on each share of Series C Term Preferred Stock are payable monthly, when, as and if declared, or under authority granted, by our
board of directors out of funds legally available for such payment. Only holders of Series C Term Preferred Stock on the record date
for a Series C Dividend Period will be entitled to receive dividends and distributions payable with respect to such Series C
Dividend Period, and holders of Series C Term Preferred Stock who sell shares before such a record date and purchasers of Series C
Term Preferred Stock who purchase shares after such a record date should take the effect of the foregoing provisions into account in evaluating
the price to be received or paid for such Series C Term Preferred Stock. See “Description of the Series C Term
Preferred Stock — Dividends — General” and “— Dividend
Periods” in this prospectus supplement. |
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Ranking
of Series C Term Preferred Stock |
The shares of Series C
Term Preferred Stock are senior securities that constitute capital stock. The Series C Term Preferred Stock ranks:
● 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;
● equal
in priority with all other series of preferred stock we have issued (including the Series D 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
● subordinate
in right of payment to the holders of our existing and future senior indebtedness (including the Notes).
Subject to the asset coverage
requirements of the 1940 Act, we may issue additional series of preferred stock (or additional shares of the Series C Term Preferred
Stock), but we may not issue additional classes of capital stock that rank senior or junior to the Series C Term Preferred Stock
as to priority of payment of dividends or as to the distribution of assets upon dissolution, liquidation or winding-up of our affairs. |
Mandatory
Term Redemption |
We are required to redeem
all outstanding shares of the Series C Term Preferred Stock on June 30, 2031, or the “Mandatory Redemption Date,”
at a redemption price equal to the Series C 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 Mandatory Redemption
Date. See “Description of the Series C Term Preferred Stock — Redemption” in
this prospectus supplement.
We cannot effect any modification
of or repeal our obligation to redeem the Series C Term Preferred Stock on the Mandatory Redemption Date without the prior unanimous
approval of the holders of the Series C Term Preferred Stock. |
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Leverage |
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. See “Prospectus Supplement Summary — Financing and Hedging
Strategy — Leverage by the Company” in this prospectus supplement. 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 entering into a credit facility,
issuing additional shares of preferred stock or debt securities or through other leveraging instruments.
Certain instruments that
create leverage are considered to be senior securities under the 1940 Act.
With respect to senior
securities that are stocks (i.e., shares of preferred stock, including the Series C Term Preferred Stock and Series D 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.
With respect to senior
securities representing indebtedness (i.e., borrowing or deemed borrowing, including the Notes), 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. |
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Mandatory
Redemption for Asset Coverage |
If we fail to maintain
asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200% as of the last business day of any calendar quarter
and such failure is not cured by 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, or the “Series C
Asset Coverage Cure Date,” then we will be required to redeem, within 90 calendar days of the Series C Asset Coverage Cure
Date, 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) results in us having asset coverage of at least 200%, or (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%. |
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If shares of Series C Term Preferred Stock
are to be redeemed for failure to maintain asset coverage of at least 200%, such shares will be redeemed at a redemption price equal to
the Series C Liquidation Preference plus accumulated but unpaid dividends, if any, on such shares (whether or not declared, but excluding
interest on accumulated but unpaid dividends, if any) to, but excluding, the date fixed for such redemption. See “Description
of the Series C Term Preferred Stock — Redemption — Redemption for Failure to Maintain Asset Coverage”
in this prospectus supplement. |
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Optional
Redemption of Series C Term Preferred Stock |
At
any time on or after June 16, 2024, we may, in our sole option, redeem the outstanding shares of Series D Preferred Stock in
whole or, from time to time, in part, out of funds legally available for such redemption, at the Series C 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. See “Description of the Series C
Term Preferred Stock — Redemption — Optional Redemption” in this prospectus supplement. |
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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 C Term Preferred Stock, the Series D Preferred
Stock, and common stock will vote together as a single class; provided that holders of preferred stock (including the Series C Term
Preferred Stock and Series D Preferred Stock) voting separately as a single 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 or Series D 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. One of the Preferred Directors will
be up for election in 2025, and the other Preferred Director will be up for election in 2026.
Holders of shares of the
Series C Term Preferred Stock will also vote separately as a class on any matter that materially and adversely affects any preference,
right or power of holders of the Series C Term Preferred Stock.
See “Description
of the Series C Term Preferred Stock —Voting Rights” in this prospectus supplement. |
Conversion
Rights |
The
shares of Series C Term Preferred Stock have no conversion rights. |
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Redemption
and Paying Agent |
American
Stock Transfer & Trust Company, LLC, or the “Redemption and Paying Agent,” serves as transfer agent and registrar,
dividend disbursing agent and redemption and paying agent with respect to the Series C Term Preferred Stock. |
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U.S.
Federal Income Taxes |
We
have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code. Prospective investors are urged to
consult their own tax advisors regarding the tax implications associated with acquiring holding and disposing of an investment in the
Series C Term Preferred Stock in light of their personal investment circumstances. |
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Series D
Preferred Stock |
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Listing |
Our
Series D Preferred Stock is traded on the NYSE under the symbol “ECC PRD”. |
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Liquidation
Preference |
In
the event of liquidation, dissolution or winding up of our affairs, holders of Series D Preferred Stock will be entitled to receive
a liquidation distribution equal to $25 per share, or 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 payment date. |
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Series D
Preferred Stock Dividends |
We intend to pay monthly
dividends on the Series D Preferred Stock at a fixed annual rate of 6.75% of the Liquidation Preference ($1.6875 per share per year),
or the “Series D Dividend Rate.” Our board of directors may determine not to pay, or may be precluded from paying, such
dividends if our board of directors believes it is not in the best interest of our stockholders or if we fail to maintain the asset coverage
required by the 1940 Act. If we fail to pay any dividend on the payment date for such dividend, the Series D Dividend Rate will increase
by 2% per annum until we redeem the Series D Preferred Stock or pay the dividend, as applicable. See “Description
of the Series D Preferred Stock — Dividends — Adjustment to Fixed Dividend Rate — Default
Period” in this prospectus supplement. The Series D Dividend Rate will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
Cumulative cash dividends
on each share of Series D Preferred Stock are payable monthly, when, as and if declared, or under authority granted, by our board
of directors out of funds legally available for such payment. Only holders of Series D Preferred Stock on the record date for a Series D
Dividend Period will be entitled to receive dividends and distributions payable with respect to such Series D Dividend Period, and
holders of Series D Preferred Stock who sell shares before such a record date and purchasers of Series D Preferred Stock who
purchase shares after such a record date should take the effect of the foregoing provisions into account in evaluating the price to be
received or paid for such Series D Preferred Stock. See “Description of the Series D Preferred Stock — Dividends — General”
and “— Dividend Periods” in this prospectus supplement. |
Ranking
of Series D Preferred Stock |
The shares of Series D
Preferred Stock are senior securities that constitute capital stock. The Series D Preferred Stock ranks:
● 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;
●
equal in priority with all other series of preferred stock we have issued or may issue
in the future (including the Series C Term Preferred Stock), as to priority of payment of dividends and as to distributions of assets
upon dissolution, liquidation or the winding-up of our affairs; and
● subordinate
in right of payment to the holders of our existing and future senior indebtedness (including the Notes).
Subject to the asset coverage
requirements of the 1940 Act, we may issue additional series of preferred stock (or additional shares of the Series D Preferred Stock),
but we may not issue additional classes of capital stock that rank senior or junior to the Series D Preferred Stock as to priority
of payment of dividends or as to the distribution of assets upon dissolution, liquidation or winding-up of our affairs. |
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Leverage |
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. See “Prospectus Supplement Summary — Financing and Hedging
Strategy — Leverage by the Company” in this prospectus supplement. 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 entering into a credit facility,
issuing additional shares of preferred stock or debt securities or through other leveraging instruments.
Certain instruments that
create leverage are considered to be senior securities under the 1940 Act.
With respect to senior
securities that are stocks (i.e., shares of preferred stock, including the Series C Term Preferred Stock and Series D 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.
With respect to senior
securities representing indebtedness (i.e., borrowing or deemed borrowing, including the Notes), 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. |
Mandatory
Redemption for Asset Coverage |
If we fail to maintain
asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200% as of the last business day of any calendar quarter
and such failure is not cured by 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, or the “Series D
Asset Coverage Cure Date,” then we will be required to redeem, within 90 calendar days of the Asset Coverage Cure Date, the number
of shares of our preferred stock (which at our discretion may include any number or portion of the Series D 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) results in us having asset coverage of at least 200%, or (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%.
If shares of Series D
Preferred Stock are to be redeemed for failure to maintain asset coverage of at least 200%, such shares will be redeemed at a redemption
price equal to the Liquidation Preference plus accumulated but unpaid dividends, if any, on such shares (whether or not declared, but
excluding interest on accumulated but unpaid dividends, if any) to, but excluding, the date fixed for such redemption. See “Description
of the Series D Preferred Stock — Redemption — Redemption for Failure to Maintain Asset Coverage”
in this prospectus supplement. |
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Optional
Redemption of Series D Preferred Stock |
At
any time after November 29, 2026, we may, in our sole option, redeem the outstanding shares of Series D Preferred Stock in whole
or, from time to time, in part, out of funds legally available for such redemption, at the Series D 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. See “Description of the Series D
Preferred Stock — Redemption — Optional Redemption” in this prospectus supplement. |
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Voting
Rights |
Except as otherwise provided
in our certificate of incorporation or as otherwise required by law, (1) each holder of Series D Preferred Stock is entitled
to one vote for each share of Series D 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 C Term Preferred Stock, the Series D Preferred Stock, and common
stock will vote together as a single class; provided that holders of preferred stock (including the Series C Term Preferred Stock
and Series D Preferred Stock) voting separately as a single 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 or Series D 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. One of the Preferred Directors will be up for election
in 2025, and the other Preferred Director will be up for election in 2026. |
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Holders of shares of the Series D
Preferred Stock will also vote separately as a class on any matter that materially and adversely affects any preference, right or power
of holders of the Series D Preferred Stock. |
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See “Description of the Series D Preferred Stock —Voting
Rights” in this prospectus supplement. |
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Conversion
Rights |
The
shares of Series D Preferred Stock have no conversion rights. |
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Redemption
and Paying Agent |
American
Stock Transfer & Trust Company, LLC, or the “Redemption and Paying Agent,” serves as transfer agent and registrar,
dividend disbursing agent and redemption and paying agent with respect to the Series D Preferred Stock. |
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U.S.
Federal Income Taxes |
We
have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code. Prospective investors are urged to
consult their own tax advisors regarding the tax implications associated with acquiring holding and disposing of an investment in the
Series D Preferred Stock in light of their personal investment circumstances. |
RISK
FACTORS
Investing
in our securities involves a number of significant risks. In addition to the risks described below and in “Risk Factors”
in the accompanying prospectus, you should carefully consider all other information contained in this prospectus supplement, the accompanying
prospectus, any free writing prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying
prospectus before making a decision to purchase our securities. The risks and uncertainties described below and in the accompanying prospectus
are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us,
may also impair our operations and performance.
If
any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected.
If that happens, our net asset value and the trading price of our securities could decline and you may lose all or part of your investment.
The risks described below
specifically relate to this offering. Please see the “Risk Factors” section of the accompanying prospectus and in our Annual
Report on Form N-CSR for the fiscal year ended December 31, 2022 filed with the SEC on February 24, 2023 and incorporated by
reference herein.
Risks Related
to the Offering
Management will
have broad discretion as to the use of the proceeds, if any, from this offering and may not use the proceeds effectively.
We
cannot specify with certainty all of the particular uses of the net proceeds, if any, of this offering. Our management will have significant
flexibility in applying the net proceeds from this offering, and you will not have the opportunity as part of your investment decision
to assess whether the net proceeds are being used appropriately. Investors may not agree with our decisions, and our use of the proceeds
may not yield any return on your investment. Because of the number and variability of factors that will determine our use of the net proceeds
from this offering, their ultimate use may vary substantially from their currently intended use. Our management may use the net proceeds
for purposes that may not improve our financial condition or market value. Our failure to apply the net proceeds of this offering effectively
could impair our ability to pursue our growth strategy or could require us to raise additional capital. Pending their use, we intend to
invest the net proceeds from the offering 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. These investments may not yield a favorable return to our stockholders.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
All
statements contained in or incorporated by reference into this prospectus supplement or the accompanying prospectus, other than historical
facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our
future operating results, actual and potential conflicts of interest with the Adviser, the Administrator and their affiliates, and the
adequacy of our financing sources and working capital, among other factors. In some cases, you can identify forward-looking statements
by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,”
“anticipate,” “future,” “could,” “growth,” “plan,” “project,”
“intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,”
“potential,” “likely” or the negative or other variations of such terms or comparable terminology. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by such forward-looking statements. Such factors include:
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changes in the economy and the capital markets; |
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risks associated with negotiation and consummation of pending and future transactions; |
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changes in our investment objectives and strategy; |
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● |
availability, terms (including the possibility of interest rate volatility) and deployment
of capital; |
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● |
changes in interest rates, exchange rates, regulation or the general economy; |
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● |
changes in governmental regulations, tax rates and similar matters; |
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● |
our ability to exit investments in a timely manner; |
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● |
our ability to maintain our qualification as a RIC; |
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● |
use of the proceeds of this offering; |
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● |
our ability to sell our securities in this offering in the amounts
and on the terms contemplated, or at all; and |
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● |
those factors described in the “Risk Factors”
section of this prospectus supplement and the accompanying prospectus and in similar sections in the documents incorporated by reference
into this prospectus supplement and the accompanying prospectus. |
We
caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Actual results
could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical
performance. We have based forward-looking statements on information available to us on the date of this prospectus supplement. We undertake
no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise,
after the date of this prospectus supplement or the accompanying prospectus, except as otherwise required by applicable law. The forward-looking
statements contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus are excluded from
the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act.
USE
OF PROCEEDS
Sales
of our common stock, Series C Term Preferred Stock, and Series D Preferred Stock, if any, under this prospectus supplement and
the accompanying prospectus may be made by any method that is deemed to be an “at the market offering,” as defined in Rule 415
under the Securities Act. There is no guarantee that there will be any sales of our common stock, Series C Term Preferred Stock,
or Series D Preferred Stock pursuant to this prospectus supplement and the accompanying prospectus. Actual sales, if any, of our
common stock, Series C Term Preferred Stock, or Series D Preferred Stock under this prospectus supplement and the accompanying
prospectus may be less than as set forth on the cover page of this prospectus supplement depending on, among other things, the market
price of our common stock, Series C Term Preferred Stock, or Series D Preferred Stock, as applicable, at the time of any such
sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this prospectus
supplement. However, the sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus,
less commissions payable under the Sales Agreement, will not be less than the net asset value per share of our common stock at the time
of such sale.
Assuming
the sale of $225 million of common stock, 800,000 shares of Series C Term Preferred Stock at an assumed offering price
equal to the $25 per share liquidation preference, and 200,000 shares of Series D Preferred Stock at an assumed offering price
equal to the $25 per share liquidation preference, offered by this prospectus supplement, we anticipate that our net proceeds from this
offering will be approximately $244.7 million, after deducting the placement agent’s commissions and estimated offering expenses
payable by us.
We
intend to use the net proceeds from the sale of our common stock, Series C Term Preferred Stock, and Series D Preferred Stock
pursuant to this prospectus supplement to acquire investments in accordance with our investment objectives and strategies described in
this prospectus supplement and the accompanying prospectus, to make distributions to our stockholders and for general working capital
purposes. In addition, we may also use a portion of the net proceeds from the sale of our securities to repay any Preferred Stock or outstanding
indebtedness, including the Notes.
We
currently anticipate that it will take approximately three to six months after completion of any sale pursuant to this offering to invest
substantially all of the net proceeds in our targeted investments or otherwise utilize such proceeds, although such period may vary and
depends on 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 may 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 this 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.
DESCRIPTION
OF THE SERIES C TERM PREFERRED STOCK
For
a description of the particular terms of our common stock, see “Description of our Capital Stock—Common
Stock” in the accompanying prospectus.
The
following description of the particular terms of the Series C Term Preferred Stock supplements and, to the extent inconsistent with, replaces
the description of the general terms and provisions of our preferred stock set forth in the accompanying prospectus. This is not a complete
description and is subject to, and entirely qualified by reference to, our certificate of incorporation and the certificate of designation
setting forth the terms of the Series C Term Preferred Stock. The certificate of designation is attached as Appendix A to this prospectus
supplement. You may obtain copies of these documents using the methods described in “Additional Information”
in this prospectus supplement.
General
We
are authorized to issue 20,000,000
shares of preferred
stock, and we have designated 3,100,000
shares as Series
C Term Preferred Stock. At the time of issuance, the Series C Term Preferred Stock offered pursuant to this prospectus
supplement will be fully paid and non-assessable and have no preemptive, conversion or exchange rights or rights to cumulative voting.
Ranking
The
shares of Series C Term Preferred Stock rank equally in right with all other preferred stock that we have issued (including the Series
D Preferred Stock) or may issue from time to time in accordance with the 1940 Act, if any, as to payment of dividends and the distribution
of our assets upon dissolution, liquidation or winding up of our affairs. The shares of Series C Term Preferred Stock, together with the
Series D Preferred Stock and all other preferred stock that we may issue from time to time in accordance with the 1940 Act, if any, rank
senior to our common stock as to payment of dividends and the distribution of our assets upon dissolution, liquidation or winding up of
our affairs and subordinate to the rights of holders of our existing and future senior indebtedness (including the Notes).
Dividends
General.
Holders of the Series C Term Preferred Stock are entitled to receive cumulative cash
dividends and distributions at the Dividend Rate of 6.50% of the Series C Liquidation Preference, or $1.625 per share per year (subject
to adjustment in certain circumstances as described below), when, as and if declared by, or under authority granted by, our board of directors
out of funds legally available for payment, in parity with dividends and distributions to holders of the Series D Preferred Stock and
in preference to dividends and distributions on shares of our common stock. Dividends on the shares of Series C Term Preferred Stock offered
pursuant to this prospectus supplement will be payable monthly in arrears on the last business day of each calendar month, or the “Series
C Dividend Payment Date.” Dividends on the Series C Term Preferred Stock are computed on the basis of a 360-day year consisting
of twelve 30-day months. The amount of dividends payable on the shares of Series C Term Preferred Stock on any date prior to the end of
a Series C Dividend Period will be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed
over a 30-day month.
Dividend
Periods. Each Series C Dividend Period will be the period beginning on and including
the last Series C Dividend Payment Date and ending on, but excluding, the next Series C Dividend Payment Date or stated maturity date,
as the case may be. Dividends will be payable monthly in arrears on the Series C Dividend Payment Date and upon redemption of the Series
C Term Preferred Stock. Dividends with respect to any monthly Series C Dividend Period will be declared and paid to holders of record
of Series C Term Preferred Stock as their names appear on our registration books at the close of business on the applicable record date,
which will be a date designated by the board of directors that is not more than 20 nor less than 7 calendar days prior to the applicable
Series C Dividend Payment Date.
Only
holders of Series C Term Preferred Stock on the record date for a Series C Dividend Period will be entitled to receive dividends and distributions
payable with respect to such Series C Dividend Period, and holders of Series C Term Preferred Stock who sell shares before such a record
date and purchasers of Series C Term Preferred Stock who purchase shares after such a record date should take the effect of the foregoing
provisions into account in evaluating the price to be received or paid for such Series C Term Preferred Stock.
Mechanics
of Payment of Dividends. Not later than 12:00 noon, New York City time, on a Series
C Dividend Payment Date, we are required to deposit with the Redemption and Paying Agent sufficient funds for the payment of dividends
in the form of Deposit Securities. “Deposit Securities” will generally consist of (1) cash or cash equivalents; (2) direct
obligations of the United States or its agencies or instrumentalities that are entitled to the full faith and credit of the United States,
which we refer to as the U.S. Government Obligations; (3) short-term money market instruments; (4) investments in money market funds registered
under the 1940 Act that qualify under Rule 2a-7 under the 1940 Act and certain similar investment vehicles that invest principally in
U.S. Government Obligations, short-term money market instruments or any combination thereof; or (5) any letter of credit from a bank or
other financial institution that has a credit rating from at least one ratings agency that is the highest applicable rating generally
ascribed by such ratings agency to bank deposits or short-term debt of similar banks or other financial institutions, in each case either
that is a demand obligation payable to the holder on any business day or that has a maturity date, mandatory redemption date or mandatory
payment date, preceding the relevant Series C Redemption Date (as defined below), Series C Dividend Payment Date or other payment date.
We do not intend to establish any reserves for the payment of dividends.
All
Deposit Securities paid to the Redemption and Payment Agent for the payment of dividends will be held in trust for the payment of such
dividends to the holders of Series C Term Preferred Stock. Dividends will be paid by the Redemption and Payment Agent to the holders of
Series C Term Preferred Stock as their names appear on our registration books on the applicable record date preceding the applicable Series
C Dividend Payment Date. Dividends that are in arrears for any past Series C Dividend Period may be declared and paid at any time, without
reference to any regular Series C Dividend Payment Date. Such payments are made to holders of Series C Term Preferred Stock as their names
appear on our registration books on such date, which date will not be more than 20 nor less than 7 calendar days before the payment date,
as may be fixed by our board of directors. Any payment of dividends in arrears will first be credited against the earliest accumulated
but unpaid dividends. No interest or sum of money in lieu of interest will be payable in respect of any dividend payment or payments on
any Series C Term Preferred Stock which may be in arrears. See “—Adjustment
to Fixed Dividend Rate—Default Period” below.
Upon
our failure to pay dividends for at least two years, the holders of Series C Term Preferred Stock will acquire certain additional voting
rights. See “—Voting Rights” below. Such rights will be
the exclusive remedy of the holders of Series C Term Preferred Stock upon any failure to pay dividends on Series C Term Preferred Stock.
Adjustment
to Fixed Dividend Rate—Default Period.
Subject to the cure provisions below, a “Series C Default Period” with respect to Series C Term Preferred Stock will commence
on a date we fail to deposit the Deposit Securities as required in connection with a Series C Dividend Payment Date or a Series C Redemption
Date. A Series C Default Period will end on the business day on which, by 12:00 noon, New York City time, an amount equal to all unpaid
dividends and any unpaid redemption price has have been deposited irrevocably in trust in same-day funds with the Redemption and Paying
Agent. The applicable dividend rate for each day during the Series C Default Period will be equal to the Series C Dividend Rate in effect
on such day plus two percent (2%) per annum, or the “Series C Default Rate.”
No
Series C Default Period will be deemed to commence if the amount of any dividend or any redemption price due (if such default is not solely
due to our willful failure) is deposited irrevocably in trust, in same-day funds with the Redemption and Paying Agent by 12:00 noon, New
York City time, on a business day that is not later than three business days after the applicable Series C Dividend Payment Date or Series
C Redemption Date, together with an amount equal to the Series C Default Rate applied to the amount and period of such non-payment based
on the actual number of calendar days comprising such period divided by 360.
Restrictions
on Dividend, Redemption, Other Payments and Issuance of Debt. No full dividends
and distributions will be declared or paid on shares of the Series C Term Preferred Stock for any Series C Dividend Period, or a part
of a Series C Dividend Period, unless the full cumulative dividends and distributions due through the most recent Series C Dividend Payment
Dates for all outstanding shares of our preferred stock of any series have been, or contemporaneously are, declared and paid through the
most recent Series C Dividend Payment Dates for each share of our preferred stock. If full cumulative dividends and distributions due
have not been declared and paid on all outstanding shares of preferred stock of any series, any dividends and distributions being declared
and paid on Series C Term Preferred Stock will be declared and paid as nearly pro rata as possible in proportion to the respective amounts
of dividends and distributions accumulated but unpaid on the shares of each such series of preferred stock on the relevant Series C Dividend
Payment Date. No holders of Series C Term Preferred Stock will be entitled to any dividends and distributions in excess of full cumulative
dividends and distributions as provided in the certificate of designation.
For
so long as any shares of Series C Term Preferred Stock are outstanding, we will not: (x) declare any dividend or other distribution (other
than a dividend or distribution paid in common stock) in respect of the common stock, (y) call for redemption, redeem, purchase or otherwise
acquire for consideration any such common stock, or (z) pay any proceeds of our liquidation in respect of such common stock, unless, in
each case, (A) immediately thereafter, we will be in compliance with the 200% asset coverage limitations set forth under the 1940 Act
with respect to a class of senior security which is stock, after deducting the amount of such dividend or distribution or redemption or
purchasing price or liquidation proceeds, as described below, (B) all cumulative dividends and distributions of shares of the Series C
Term Preferred Stock and all series of preferred stock ranking on parity with the Series C Term Preferred Stock (including the Series
D Preferred Stock) due on or prior to the date of the applicable dividend, distribution, redemption, purchase or acquisition have been
declared and paid (or have been declared and sufficient funds or Deposit Securities as permitted by the terms of such preferred stock
for the payment thereof have been deposited irrevocably with the applicable paying agent) and (C) we have deposited Deposit Securities
with the Redemption and Paying Agent in accordance with the requirements described herein with respect to outstanding Series C Term Preferred
Stock to be redeemed pursuant to a mandatory term redemption or mandatory redemption resulting from the failure to comply with the asset
coverage requirements as described below for which a Series C Notice of Redemption (as defined below) has been given or has been required
to be given in accordance with the terms described herein on or prior to the date of the applicable dividend, distribution, redemption,
purchase or acquisition.
Except
as required by law, we will not redeem any shares of Series C Term Preferred Stock unless all accumulated and unpaid dividends and distributions
on all outstanding shares of preferred stock of any series (including the Series D Preferred Stock) ranking on parity with the Series
C Term Preferred Stock with respect to dividends and distributions for all applicable past Series C Dividend Periods (whether or not earned
or declared by us) (x) will have been or are contemporaneously paid or (y) will have been or are contemporaneously declared and Deposit
Securities or sufficient funds (in accordance with the terms of such preferred stock) for the payment of such dividends and distributions
will have been or are contemporaneously deposited with the applicable paying agent, provided, however, that the foregoing will not prevent
the purchase or acquisition of outstanding shares of Series C Term Preferred Stock pursuant to an otherwise lawful purchase or exchange
offer made on the same terms to holders of all outstanding shares of any other series of preferred stock (including the Series D Preferred
Stock) for which all accumulated and unpaid dividends and distributions have not been paid.
1940
Act Asset Coverage. Under the 1940 Act, we may not (1) declare any dividend with
respect to any preferred stock if, at the time of such declaration (and after giving effect thereto), our asset coverage with respect
to any of our borrowings that are senior securities representing indebtedness (as determined in accordance with Section 18(h) under the
1940 Act), would be less than 200% or (2) declare any other distribution on the preferred stock or purchase or redeem preferred stock
if at the time of the declaration or redemption (and after giving effect thereto), asset coverage with respect to such borrowings that
are senior securities representing indebtedness would be less than 300% (other than certain privately arranged debt). “Senior securities
representing indebtedness” generally means any bond, debenture, note or similar obligation or instrument constituting a security
(other than shares of capital stock) and evidencing indebtedness and could include our obligations under any borrowings. For purposes
of determining our asset coverage for senior securities representing indebtedness in connection with the payment of dividends or other
distributions on or purchases or redemptions of stock, the term senior security does not include any promissory note or other evidence
of indebtedness issued in consideration of any loan, extension or renewal thereof, made by a bank or other person and privately arranged,
and not intended to be publicly distributed. The term senior security also does not include any such promissory note or other evidence
of indebtedness in any case where such a loan is for temporary purposes only and in an amount not exceeding 5% of the value of
our total assets at the time when the loan is made; a loan is presumed under the 1940 Act to be for temporary purposes if it is repaid
within 60 calendar days and is not extended or renewed; otherwise such loan is presumed not to be for temporary purposes.
Liquidation Rights
In
the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, the holders of our preferred
stock (including the Series C Term Preferred Stock and Series D Preferred Stock) will be entitled to receive out of our assets available
for distribution to stockholders, after satisfying claims of creditors but before any distribution or payment will be made in respect
of the common stock, a liquidation distribution equal to the Series C Liquidation Preference plus an amount equal to all unpaid dividends
and distributions accumulated to, but excluding, the date fixed for such distribution or payment (whether or not earned or declared by
us, but excluding interest thereon), and such holders will be entitled to no further participation in any distribution or payment in connection
with any such liquidation, dissolution or winding up.
If,
upon any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, our assets available for distribution
among the holders of all Series C Term Preferred Stock, and any other outstanding shares of preferred stock, if any, will be insufficient
to permit the payment in full to such holders of Series C Term Preferred Stock of the Series C Liquidation Preference plus accumulated
and unpaid dividends and distributions and the amounts due upon liquidation with respect to such other shares of preferred stock, then
the available assets will be distributed among the holders of such Series C Term Preferred Stock and such other series of preferred stock
ratably in proportion to the respective preferential liquidation amounts to which they are entitled. In connection with any liquidation,
dissolution or winding up of our affairs whether voluntary or involuntary, unless and until the Series C Liquidation Preference on each
outstanding share of Series C Term Preferred Stock plus accumulated and unpaid dividends and distributions has been paid in full to the
holders of Series C Term Preferred Stock, no dividends, distributions or other payments will be made on, and no redemption, repurchase
or other acquisition by us will be made by us in respect of, our common stock.
Neither
the sale of all or substantially all of our property or business, nor the merger, consolidation or our reorganization into or with any
other business or corporation, statutory trust or other entity, nor the merger, consolidation or reorganization of any other business
or corporation, statutory trust or other entity into or with us will be a dissolution, liquidation or winding up, whether voluntary or
involuntary, for purposes of the provisions relating to liquidation set forth in the certificate of designation.
Redemption
Mandatory
Term Redemption. We are required to redeem all outstanding shares of the Series
C Term Preferred Stock on the Mandatory Redemption Date, at a redemption price equal to the Series C Liquidation Preference plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or declared, but excluding interest on such dividends) to, but
excluding, the Mandatory Redemption Date. If the Mandatory Redemption Date occurs after the applicable record date for a dividend but
on or prior to the related Series C Dividend Payment Date, the dividend payable on such Series C Dividend Payment Date in respect of such
shares of Series C Term Preferred Stock will be payable on such Series C Dividend Payment Date to the holders of record of such shares
of Series C Term Preferred Stock at the close of business on the applicable Series C Dividend Record Date, and will not be payable as
part of the redemption price for such shares of Series C Term Preferred Stock.
Redemption
for Failure to Maintain Asset Coverage. If
we fail to maintain asset coverage (as defined in the 1940 Act) of at least 200% as provided in the certificate of designation for the
Series C Term Preferred Stock and our other preferred stock and such failure is not cured as of the close of business on the Series C
Asset Coverage Cure Date, we will fix a redemption date and proceed to redeem the number of shares of preferred stock (including the Series
C Term Preferred Stock and Series D Preferred Stock), as described below at a price per share equal to the Series C Liquidation Preference
plus accumulated but unpaid dividends and distributions thereon (whether or not earned or declared but excluding interest thereon) to,
but excluding, the date fixed for redemption by our board of directors. We will redeem out of funds legally available 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)
would result in us having asset coverage of at least 200% if the redemption of such securities were deemed to have occurred immediately
prior to the opening of business on the Series C Asset Coverage Cure Date or (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 such redemption for failure to maintain
the asset coverage required by the 1940 Act, we may, at our sole option, redeem such additional number of shares of preferred stock that
will result in our having asset coverage of up to and including 285%. We will effect a redemption on the date fixed by us, which date
will not be later than 90 calendar days after the Series C Asset Coverage Cure Date, except that if we do not have funds legally available
for the redemption of all of the required number of shares of preferred stock which have been designated to be redeemed or we otherwise
are unable to effect such redemption on or prior to 90 calendar days after the Series C Asset Coverage Cure Date, we will redeem those
shares of preferred stock which we were unable to redeem on the earliest practicable date on which we are able to effect such redemption.
Optional
Redemption. The Series C Term Preferred Stock may, at our sole option, be redeemed,
in whole or in part, at any time on or after June 16, 2024, upon giving a notice of redemption, or “Series C Notice of Redemption,”
at a redemption price per share equal to the Series C 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.
Subject
to the provisions of the certificate of designation for the Series C Term Preferred Stock and applicable law, our board of directors will
have the full power and authority to prescribe the terms and conditions upon which shares of Series C Term Preferred Stock will be redeemed
from time to time.
We
may not on any date deliver a Series C Notice of Redemption to redeem any shares of Series C Term Preferred Stock pursuant to the optional
redemption provisions described above unless on such date we have available Deposit Securities for the redemption contemplated by such
notice having a value not less than the amount due to holders of shares of Series C Term Preferred Stock by reason of the redemption of
such shares of Series C Term Preferred Stock on such Series C Redemption Date.
Redemption
Procedures. We will file a notice of our intention to redeem with the SEC so as
to provide the 30 calendar day notice period contemplated by Rule 23c-2 under the 1940 Act, or such shorter notice period as may be permitted
by the SEC or its staff.
If
we determine to or are required to redeem, in whole or in part, shares of Series C Term Preferred Stock, we will deliver a Series C Notice
of Redemption by overnight delivery, by first class mail, postage prepaid or by electronic means to the holders of record of such shares
of Series C Term Preferred Stock to be redeemed, or request the Redemption and Paying Agent, on our behalf, to promptly do so by overnight
delivery, by first class mail or by electronic means. A Series C Notice of Redemption will be provided not more than 60 calendar days
prior to the date fixed for redemption in such Series C Notice of Redemption, or the “Series C Redemption Date.” If fewer
than all of the outstanding shares of Series C Term Preferred Stock are to be redeemed pursuant to either the mandatory redemption provisions
triggered by our failure to maintain the required asset coverage or the optional redemption provisions, the shares of Series C Term Preferred
Stock to be redeemed will be selected either (1) pro rata among Series C Term Preferred Stock or (2) by lot. If fewer than all shares
of Series C Term Preferred Stock held by any holder are to be redeemed, the Series C Notice of Redemption mailed to such holder will also
specify the number of shares of Series C Term Preferred Stock to be redeemed from such holder or the method of determining such number.
We may provide in any Series C Notice of Redemption relating to a redemption contemplated to be effected pursuant to the certificate of
designation for the Series C Term Preferred Stock that such redemption is subject to one or more conditions precedent and that we will
not be required to effect such redemption unless each such condition has been satisfied. No defect in any Series C Notice of Redemption
or delivery thereof will affect the validity of redemption proceedings except as required by applicable law.
If
we give a Series C Notice of Redemption, then at any time from and after the giving of such Series C Notice of Redemption and prior to
12:00 noon, New York City time, on the Series C Redemption Date (so long as any conditions precedent to such redemption have been met
or waived by us), we will (i) deposit with the Redemption and Paying Agent Deposit Securities having an aggregate market value at the
time of deposit not less than the redemption price of the shares of Series C Term Preferred Stock to be redeemed on the Series C Redemption
Date and (ii) give the Redemption and Paying Agent irrevocable instructions and authority to pay the applicable redemption price to the
holders of shares of Series C Term Preferred Stock called for redemption on the Series C Redemption Date. Notwithstanding the foregoing,
if the Series C Redemption Date is the Mandatory Redemption Date, then such deposit of Deposit Securities will be made no later than 15
calendar days prior to the Mandatory Redemption Date.
Upon
the date of the deposit of Deposit Securities by us for purposes of redemption of shares of Series C Term Preferred Stock, all rights
of the holders of Series C Term Preferred Stock so called for redemption will cease and terminate except the right of the holders thereof
to receive the applicable redemption price and such shares of Series C Term Preferred Stock will no longer be deemed outstanding for any
purpose whatsoever (other than the transfer thereof prior to the applicable Series C Redemption Date and other than the accumulation of
dividends on such stock in accordance with the terms of the Series C Term Preferred Stock up to, but excluding, the applicable Series
C Redemption Date). We will be entitled to receive, promptly after the Series C Redemption Date, any Deposit Securities in excess of the
aggregate redemption price of shares of Series C Term Preferred Stock called for redemption on the Series C Redemption Date. Any Deposit
Securities so deposited that are unclaimed at the end of 90 calendar days from the Series C Redemption Date will, to the extent permitted
by law, be repaid to us, after which the holders of shares of Series C Term Preferred Stock so called for redemption can look only to
us for payment of the Series C Redemption Price. We will be entitled to receive, from time to time after the Series C Redemption Date,
any interest on the Deposit Securities so deposited.
If
any redemption for which a Series C Notice of Redemption has been provided is not made by reason of the absence of our legally available
funds in accordance with the certificate of designation and applicable law, such redemption will be made as soon as practicable to the
extent such funds become available. No default will be deemed to have occurred if we have failed to deposit in trust with the Redemption
and Paying Agent the applicable redemption price with respect to any shares where (1) the Series C Notice of Redemption relating to such
redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition precedent has not
been satisfied at the time or times and in the manner specified in such Series C Notice of Redemption. Notwithstanding the fact that a
Series C Notice of Redemption has been provided with respect to any shares of Series C Term Preferred Stock, dividends may be declared
and paid on such shares of Series C Term Preferred Stock in accordance with their terms if Deposit Securities for the payment of the redemption
price of such shares of Series C Term Preferred Stock have not been deposited in trust with the Redemption and Paying Agent for that purpose.
We
may, in our sole discretion and without a stockholder vote, modify the redemption procedures with respect to notification of redemption
for the Series C Term Preferred Stock, provided that such modification does not materially and adversely affect the holders of Series
C Term Preferred Stock or cause us to violate any applicable law, rule or regulation.
Voting Rights
Except
for matters that do not require the vote of holders of the Series C Term Preferred Stock under the 1940 Act and except as otherwise provided
in our certificate of incorporation or bylaws, in the certificate of designation or as otherwise required by applicable law, each holder
of shares of the 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 the holders of outstanding shares of our preferred stock, including the Series C Term
Preferred Stock and Series D Preferred Stock, and shares of our common stock will vote together as a single class on all matters submitted
to stockholders.
In
addition, the holders of our preferred stock (including the Series C Term Preferred Stock and Series D Preferred Stock), voting as a separate
class, will have the right to elect two Preferred Directors at all times (regardless of the number of directors serving on the board of
directors). The holders of outstanding shares of our common stock together with the holders of outstanding shares of our preferred stock,
voting together as a single class, will elect the remaining members of the board of directors. Under our certificate of incorporation,
our directors are divided into three classes, with the term of one class expiring at each annual meeting of our stockholders. One of our
Preferred Directors will be up for election at the annual meeting of our stockholders in 2025 and the other Preferred Director will be
up for election at the annual meeting of our stockholders in 2026.
Notwithstanding
the foregoing, if (1) at the close of business on any Series C Dividend Payment Date for dividends on any outstanding share of
any series of our preferred stock, including any outstanding shares of the Series C Term Preferred Stock, accumulated dividends (whether
or not earned or declared) on such share of preferred stock equal to at least two full years’ dividends are due and unpaid and sufficient
cash or specified securities have not been deposited with the Redemption and Paying Agent or other applicable paying agent for the payment
of such accumulated dividends; or (2) at any time holders of any shares of Series C Term Preferred Stock, together with holders of shares
of any of our outstanding preferred stock, are entitled under the 1940 Act to elect a majority of our directors (a period when either
of the foregoing conditions exists, a “Voting Period”), then the number of members constituting our board of directors will
automatically be increased by the smallest number of directors (each, a “New Preferred Director”) that, when added to the
two Preferred Directors, would constitute a majority of our board of directors as so increased by such smallest number. The terms of office
of the persons who are directors at the time of that election will not be affected by the election of the New Preferred Directors. If
we pay, or declare and set apart for payment, in full all dividends payable on all outstanding shares of preferred stock, including the
Series C Term Preferred Stock, for all past Series C Dividend Periods, or the Voting Period is otherwise terminated, (1) the voting rights
stated above will cease, subject always, however, to the re-vesting of such voting rights in the holders of shares of our preferred stock
upon the further occurrence of any of the events described herein, and (2) the terms of office of all New Preferred Directors will terminate
automatically. Any preferred stock issued after the date hereof will vote with the Series C Term Preferred Stock as a single class on
the matters described above, and the issuance of any other preferred stock by us may reduce the voting power of the holders of the Series
C Term Preferred Stock.
As
soon as practicable after the accrual of any right of the holders of shares of preferred stock to elect New Preferred Directors, we will
call a special meeting of such holders and notify the Redemption and Paying Agent and/or such other person as is specified in the terms
of such preferred stock to receive notice, (i) by mailing or delivery by electronic means or (ii) in such other manner and by such other
means as are specified in the terms of such preferred stock, a notice of such special meeting to such holders, such meeting to be held
not less than 10 nor more than 30 calendar days after the date of the delivery by electronic means or mailing of such notice. If we fail
to call such a special meeting, it may be called at our expense by any such holder on like notice. The record date for determining the
holders of shares of preferred stock entitled to notice of and to vote at such special meeting will be the close of business on the business
day preceding the calendar day on which such notice is mailed. At any such special meeting and at each meeting of holders of shares of
preferred stock held during a Voting Period at which directors are to be elected, such holders, voting together as a class (to the exclusion
of the holders of all our other securities and classes of capital stock), will be entitled to elect the number of New Preferred Directors
prescribed above on a one-vote-per-share basis.
Except
as otherwise permitted by the terms of the certificate of designation, (1) so long as any shares of preferred stock are outstanding, we
will not, without the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of preferred stock,
voting as a separate class, amend, alter or repeal the provisions of our certificate of incorporation or any applicable certificates of
designation (or any other document governing the rights of our preferred stock or the holders thereof as may be required by the rules
of any applicable securities exchange), whether by merger, consolidation or otherwise, so as to materially and adversely affect any preference,
right or power of our preferred stock or the holders thereof and (2) so long as any shares of the Series C Term Preferred Stock are outstanding,
we will not, without the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of the Series C Term
Preferred Stock, voting as a separate class, amend, alter or repeal the provisions of our certificate of incorporation or the applicable
certificate of designation (or any other document governing the rights of the Series C Term Preferred Stock or the holders thereof as
may be required by the rules of any applicable securities exchange), whether by merger, consolidation or otherwise, so as to materially
and adversely affect any preference, right or power of the Series C Term Preferred Stock or the holders thereof differently from shares
of any other outstanding series of our preferred stock; provided, however, that (i) a change in our capitalization as described under
the heading “—Issuance of Additional Preferred Stock” below
will not be considered to materially and adversely affect the rights and preferences of any holder of our preferred stock, and (ii) a
division of a share of preferred stock will be deemed to affect such preferences, rights or powers only if the terms of such division
materially and adversely affect the holders of such preferred stock.
No
matter will be deemed to adversely affect any preference, right or power of a share of preferred stock, including the Series C Term Preferred
Stock or the holders of Series C Term Preferred Stock, unless such matter (i) alters or abolishes any preferential right of such share
of preferred stock, or (ii) creates, alters or abolishes any right in respect of redemption of the preferred stock or the applicable series
thereof (other than as a result of a division of a share of preferred stock). So long as any shares of preferred stock are outstanding,
we will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of the preferred stock outstanding
at the time, voting as a separate class, file a voluntary application for relief under federal bankruptcy law or any similar application
under state law for so long as we are solvent and does not foresee becoming insolvent.
The
affirmative vote of the holders of at least a “majority of the shares of our preferred stock,” including the shares of the
Series C Term Preferred Stock and Series D Preferred Stock outstanding at the time, voting as a separate class, will be required (i) to
approve any action requiring a vote of our security holders pursuant to Section 13(a) of the 1940 Act, or (ii) to approve any plan of
“reorganization” (as such term is defined in Section 2(a)(33) of the 1940 Act) adversely affecting such shares of preferred
stock. For purposes of the foregoing, the vote of a “majority of the outstanding shares of preferred stock” means the vote
at an annual or special meeting duly called (a) of 67% or more of such shares present at a meeting, if the holders of more than 50% of
such outstanding shares are present or represented by proxy at such meeting, or (b) of more than 50% of such outstanding shares, whichever
is less.
For
purposes of determining any rights of the holders of Series C Term Preferred Stock to vote on any matter, whether such right is created
by our certificate of incorporation, by the provisions of the certificate of designation for the Series C Term Preferred Stock, by statute
or otherwise, no holder of the Series C Term Preferred Stock will be entitled to vote any shares of the Series C Term Preferred Stock
and no share of the Series C Term Preferred Stock will be deemed to be “outstanding” for the purpose of voting or determining
the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to
vote or the time of the actual vote on the matter, as the case may be, the requisite Notice of Redemption with respect to such share of
Series C Term Preferred Stock will have been given in accordance with the certificate of designation, and the price for the redemption
of such shares of Series C Term Preferred Stock will have been irrevocably deposited with the Redemption and Paying Agent for that purpose.
No shares of Series C Term Preferred Stock held by us will have any voting rights or be deemed to be outstanding for voting or for calculating
the voting percentage required on any other matter or other purposes.
Unless
otherwise required by law or our certificate of incorporation, holders of the Series C Term Preferred Stock will not have any relative
rights or preferences or other special rights with respect to voting other than those specifically set forth in the certificate of designation
for the Series C Term Preferred Stock. The holders of shares of Series C Term Preferred Stock will have no rights to cumulative voting.
In the event that we fail to declare or pay any dividends on shares of the Series C Term Preferred Stock, the exclusive remedy of the
holders will be the right to vote for additional directors as discussed above; provided that the foregoing does not affect our obligation
to accumulate and, if permitted by applicable law and the certificate of designation for the Series C Term Preferred Stock, pay dividends
at the Series C Default Rate as discussed above.
Issuance of Additional Preferred
Stock
So
long as any shares of Series C Term Preferred Stock are outstanding, we may, without the vote or consent of the holders thereof, authorize,
establish and create and issue and sell shares of one or more series of a class of our senior securities representing stock under Section
18 of the 1940 Act, ranking on parity with the Series C Term Preferred Stock as to payment of dividends and distribution of assets upon
dissolution, liquidation or the winding up of our affairs, including additional series of preferred stock, and authorize, issue and sell
additional shares of any such series of preferred stock then outstanding (including additional shares of the Series C Term Preferred Stock)
or so established and created, in each case in accordance with applicable law, provided that we will, immediately after giving effect
to the issuance of such additional preferred stock and to its receipt and application of the proceeds thereof, including to the redemption
of preferred stock with such proceeds, have asset coverage of at least 200%.
Actions on Other than Business Days
Unless
otherwise provided in the certificate of designation for the Series C Term Preferred Stock, if the date for making any payment, performing
any act or exercising any right is not a business day (i.e., a calendar day on which the NYSE is open for trading), such payment
will be made, act performed or right exercised on the next succeeding business day, with the same force and effect as if made or done
on the nominal date provided therefor, and, with respect to any payment so made, no dividends, interest or other amount will accrue for
the period between such nominal date and the date of payment.
Modification
Without
the consent of any holders of the Series C Term Preferred Stock, our board of directors may amend or modify these terms of the Series
C Term Preferred Stock to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision
in our certificate of incorporation or make any other provisions with respect to matters or questions arising under these terms of the
Series C Term Preferred Stock that are not inconsistent with the provisions in our certificate of incorporation.
DESCRIPTION
OF THE SERIES D PREFERRED STOCK
The
following description of the particular terms of the Series D Preferred Stock supplements and, to the extent inconsistent with, replaces
the description of the general terms and provisions of our preferred stock set forth in the accompanying prospectus. This is not a complete
description and is subject to, and entirely qualified by reference to, our certificate of incorporation and the certificate of designation
setting forth the terms of the Series D Preferred Stock. The certificate of designation is attached as Appendix B to this prospectus
supplement. You may obtain copies of these documents using the methods described in “Additional Information”
in this prospectus supplement.
General
We
are authorized to issue 20,000,000
shares of preferred
stock, and we have designated 3,500,000
shares as Series
D Preferred Stock. At the time of issuance, the Series D Preferred Stock offered pursuant to this prospectus supplement
will be fully paid and non-assessable and have no preemptive, conversion or exchange rights or rights to cumulative voting.
Ranking
The
shares of Series D Preferred Stock rank equally in right with all other preferred stock (including the Series C Term Preferred
Stock) that we have issued or may issue from time to time in accordance with the 1940 Act, if any, as to payment of dividends and the
distribution of our assets upon dissolution, liquidation or winding up of our affairs. The shares of Series D Preferred Stock, together
with the Series C Term Preferred Stock and all other preferred stock that we may issue from time to time in accordance with the 1940
Act, if any, rank senior to our common stock as to payment of dividends and the distribution of our assets upon dissolution, liquidation
or winding up of our affairs and subordinate to the rights of holders of our existing and future senior indebtedness (including the Notes).
Dividends
General.
Holders of the Series D Preferred Stock are entitled to receive cumulative cash
dividends and distributions at the Dividend Rate of 6.75% of the Series D Liquidation Preference, or $1.6875 per share per year (subject
to adjustment in certain circumstances as described below), when, as and if declared by, or under authority granted by, our board of directors
out of funds legally available for payment, in parity with dividends and distributions to holders of the Series C Term Preferred
Stock and in preference to dividends and distributions on shares of our common stock. Dividends on the shares of Series D Preferred
Stock offered pursuant to this prospectus supplement will be payable monthly in arrears on the last business day of every month, or the
“Series D Dividend Payment Date.” Dividends on the Series D Preferred Stock are computed on the basis of a 360-day
year consisting of twelve 30-day months. The amount of dividends payable on the shares of Series D Preferred Stock on any date prior
to the end of a Series D Dividend Period will be computed on the basis of a 360-day year consisting of twelve 30-day months, and
actual days elapsed over a 30-day month.
Dividend
Periods. Each Series D Dividend Period will be the period beginning on and including
the last Series D Dividend Payment Date and ending on, but excluding, the next Series D Dividend Payment Date. Dividends will
be payable monthly in arrears on the Series D Dividend Payment Date and upon redemption of the Series D Preferred Stock. Dividends
with respect to any monthly Series D Dividend Period will be declared and paid to holders of record of Series D Preferred Stock
as their names appear on our registration books at the close of business on the applicable record date, which will be a date designated
by the board of directors that is not more than 20 nor less than 7 calendar days prior to the applicable Series D Dividend Payment
Date.
Only
holders of Series D Preferred Stock on the record date for a Series D Dividend Period will be entitled to receive dividends
and distributions payable with respect to such Series D Dividend Period, and holders of Series D Preferred Stock who sell shares
before such a record date and purchasers of Series D Preferred Stock who purchase shares after such a record date should take the
effect of the foregoing provisions into account in evaluating the price to be received or paid for such Series D Preferred Stock.
Mechanics
of Payment of Dividends. Not later than 12:00 noon, New York City time, on a Series D
Dividend Payment Date, we are required to deposit with the Redemption and Paying Agent sufficient funds for the payment of dividends in
the form of Deposit Securities. “Deposit Securities” will generally consist of (1) cash or cash equivalents; (2) direct
obligations of the United States or its agencies or instrumentalities that are entitled to the full faith and credit of the United States,
which we refer to as the U.S. Government Obligations; (3) short-term money market instruments; (4) investments in money market
funds registered under the 1940 Act that qualify under Rule 2a-7 under the 1940 Act and certain similar investment vehicles that
invest principally in U.S. Government Obligations, short-term money market instruments or any combination thereof; or (5) any letter
of credit from a bank or other financial institution that has a credit rating from at least one ratings agency that is the highest applicable
rating generally ascribed by such ratings agency to bank deposits or short-term debt of similar banks or other financial institutions,
in each case either that is a demand obligation payable to the holder on any business day or that has a maturity date, mandatory redemption
date or mandatory payment date, preceding the relevant Series D Redemption Date (as defined below), Series D Dividend Payment
Date or other payment date. We do not intend to establish any reserves for the payment of dividends.
All
Deposit Securities paid to the Redemption and Payment Agent for the payment of dividends will be held in trust for the payment of such
dividends to the holders of Series D Preferred Stock. Dividends will be paid by the Redemption and Payment Agent to the holders of
Series D Preferred Stock as their names appear on our registration books on the applicable record date preceding the applicable Series D
Dividend Payment Date. Dividends that are in arrears for any past Series D Dividend Period may be declared and paid at any time,
without reference to any regular Series D Dividend Payment Date. Such payments are made to holders of Series D Preferred Stock
as their names appear on our registration books on such date, which date will not be more than 20 nor less than 7 calendar days before
the payment date, as may be fixed by our board of directors. Any payment of dividends in arrears will first be credited against the earliest
accumulated but unpaid dividends. No interest or sum of money in lieu of interest will be payable in respect of any dividend payment or
payments on any Series D Preferred Stock which may be in arrears. See “—Adjustment
to Fixed Dividend Rate—Default Period” below.
Upon
our failure to pay dividends for at least two years, the holders of Series D Preferred Stock will acquire certain additional voting
rights. See “—Voting Rights” below. Such rights will be
the exclusive remedy of the holders of Series D Preferred Stock upon any failure to pay dividends on Series D Preferred Stock.
Adjustment
to Fixed Dividend Rate—Default Period.
Subject to the cure provisions below, a “Series D Default Period” with respect to Series D Preferred Stock will
commence on a date we fail to deposit the Deposit Securities as required in connection with a Series D Dividend Payment Date or a
Series D Redemption Date. A Series D Default Period will end on the business day on which, by 12:00 noon, New York City time,
an amount equal to all unpaid dividends and any unpaid redemption price has have been deposited irrevocably in trust in same-day funds
with the Redemption and Paying Agent. The applicable dividend rate for each day during the Series D Default Period will be equal
to the Series D Dividend Rate in effect on such day plus two percent (2%) per annum, or the “Series D Default Rate.”
No
Series D Default Period will be deemed to commence if the amount of any dividend or any redemption price due (if such default is
not solely due to our willful failure) is deposited irrevocably in trust, in same-day funds with the Redemption and Paying Agent by 12:00
noon, New York City time, on a business day that is not later than three business days after the applicable Series D Dividend Payment
Date or Series D Redemption Date, together with an amount equal to the Series D Default Rate applied to the amount and period
of such non-payment based on the actual number of calendar days comprising such period divided by 360.
Restrictions
on Dividend, Redemption, Other Payments and Issuance of Debt. No full dividends and distributions
will be declared or paid on shares of the Series D Preferred Stock for any Series D Dividend Period, or a part of a Series D
Dividend Period, unless the full cumulative dividends and distributions due through the most recent Series D Dividend Payment Dates
for all outstanding shares of our preferred stock of any series have been, or contemporaneously are, declared and paid through the most
recent Series D Dividend Payment Dates for each share of our preferred stock. If full cumulative dividends and distributions due
have not been declared and paid on all outstanding shares of preferred stock of any series, any dividends and distributions being declared
and paid on Series D Preferred Stock will be declared and paid as nearly pro rata as possible in proportion to the respective amounts
of dividends and distributions accumulated but unpaid on the shares of each such series of preferred stock on the relevant Series D
Dividend Payment Date. No holders of Series D Preferred Stock will be entitled to any dividends and distributions in excess of full
cumulative dividends and distributions as provided in the certificate of designation.
For
so long as any shares of Series D Preferred Stock are outstanding, we will not: (x) declare any dividend or other distribution
(other than a dividend or distribution paid in common stock) in respect of the common stock, (y) call for redemption, redeem, purchase
or otherwise acquire for consideration any such common stock, or (z) pay any proceeds of our liquidation in respect of such common
stock, unless, in each case, (A) immediately thereafter, we will be in compliance with the 200% asset coverage limitations set forth
under the 1940 Act with respect to a class of senior security which is stock, after deducting the amount of such dividend or distribution
or redemption or purchasing price or liquidation proceeds, as described below, (B) all cumulative dividends and distributions of
shares of the Series D Preferred Stock and all series of preferred stock ranking on parity with the Series D Preferred Stock
(including the Series C Term Preferred Stock) due on or prior to the date of the applicable dividend, distribution, redemption, purchase
or acquisition have been declared and paid (or have been declared and sufficient funds or Deposit Securities as permitted by the terms
of such preferred stock for the payment thereof have been deposited irrevocably with the applicable paying agent) and (C) we have
deposited Deposit Securities with the Redemption and Paying Agent in accordance with the requirements described herein with respect to
outstanding Series D Preferred Stock to be redeemed pursuant to a mandatory redemption resulting from the failure to comply with
the asset coverage requirements as described below for which a Series D Notice of Redemption (as defined below) has been given or
has been required to be given in accordance with the terms described herein on or prior to the date of the applicable dividend, distribution,
redemption, purchase or acquisition.
Except
as required by law, we will not redeem any shares of Series D Preferred Stock unless all accumulated and unpaid dividends and distributions
on all outstanding shares of preferred stock of any series (including the Series C Term Preferred Stock) ranking on parity with the
Series D Preferred Stock with respect to dividends and distributions for all applicable past Series D Dividend Periods (whether
or not earned or declared by us) (x) will have been or are contemporaneously paid or (y) will have been or are contemporaneously
declared and Deposit Securities or sufficient funds (in accordance with the terms of such preferred stock) for the payment of such dividends
and distributions will have been or are contemporaneously deposited with the applicable paying agent, provided, however, that the foregoing
will not prevent the purchase or acquisition of outstanding shares of Series D Preferred Stock pursuant to an otherwise lawful purchase
or exchange offer made on the same terms to holders of all outstanding shares of any other series of preferred stock (including the Series C
Term Preferred Stock) for which all accumulated and unpaid dividends and distributions have not been paid.
1940
Act Asset Coverage. Under the 1940 Act, we may not (1) declare any dividend with
respect to any preferred stock if, at the time of such declaration (and after giving effect thereto), our asset coverage with respect
to any of our borrowings that are senior securities representing indebtedness (as determined in accordance with Section 18(h) under
the 1940 Act), would be less than 200% or (2) declare any other distribution on the preferred stock or purchase or redeem preferred
stock if at the time of the declaration or redemption (and after giving effect thereto), asset coverage with respect to such borrowings
that are senior securities representing indebtedness would be less than 300%. “Senior securities representing indebtedness”
generally means any bond, debenture, note or similar obligation or instrument constituting a security (other than shares of capital stock)
and evidencing indebtedness and could include our obligations under any borrowings. For purposes of determining our asset coverage for
senior securities representing indebtedness in connection with the payment of dividends or other distributions on or purchases or redemptions
of stock, the term senior security does not include any promissory note or other evidence of indebtedness issued in consideration of any
loan, extension or renewal thereof, made by a bank or other person and privately arranged, and not intended to be publicly distributed.
The term senior security also does not include any such promissory note or other evidence of indebtedness in any case where such a loan
is for temporary purposes only and in an amount not exceeding 5% of the value of our total assets at the time when the loan is made; a
loan is presumed under the 1940 Act to be for temporary purposes if it is repaid within 60 calendar days and is not extended or renewed;
otherwise such loan is presumed not to be for temporary purposes.
Liquidation Rights
In
the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, the holders of our preferred
stock (including the Series C Term Preferred Stock and Series D Preferred Stock) will be entitled to receive out of our assets
available for distribution to stockholders, after satisfying claims of creditors but before any distribution or payment will be made in
respect of the common stock, a liquidation distribution equal to the Series D Liquidation Preference plus an amount equal to all
unpaid dividends and distributions accumulated to, but excluding, the date fixed for such distribution or payment (whether or not earned
or declared by us, but excluding interest thereon), and such holders will be entitled to no further participation in any distribution
or payment in connection with any such liquidation, dissolution or winding up.
If,
upon any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, our assets available for distribution
among the holders of all Series D Preferred Stock, and any other outstanding shares of preferred stock, if any, will be insufficient
to permit the payment in full to such holders of Series D Preferred Stock of the Series D Liquidation Preference plus accumulated
and unpaid dividends and distributions and the amounts due upon liquidation with respect to such other shares of preferred stock, then
the available assets will be distributed among the holders of such Series D Preferred Stock and such other series of preferred stock
ratably in proportion to the respective preferential liquidation amounts to which they are entitled. In connection with any liquidation,
dissolution or winding up of our affairs whether voluntary or involuntary, unless and until the Series D Liquidation Preference on
each outstanding share of Series D Preferred Stock plus accumulated and unpaid dividends and distributions has been paid in full
to the holders of Series D Preferred Stock, no dividends, distributions or other payments will be made on, and no redemption, repurchase
or other acquisition by us will be made by us in respect of, our common stock.
Neither
the sale of all or substantially all of our property or business, nor the merger, consolidation or our reorganization into or with any
other business or corporation, statutory trust or other entity, nor the merger, consolidation or reorganization of any other business
or corporation, statutory trust or other entity into or with us will be a dissolution, liquidation or winding up, whether voluntary or
involuntary, for purposes of the provisions relating to liquidation set forth in the certificate of designation.
Redemption
Redemption
for Failure to Maintain Asset Coverage. If
we fail to maintain asset coverage (as defined in the 1940 Act) of at least 200% as provided in the certificate of designation for the
Series D Preferred Stock and our other preferred stock, and such failure is not cured as of the close of business on the Series D Asset
Coverage Cure Date, we will fix a redemption date and proceed to redeem the number of shares of preferred stock (including the Series
C Term Preferred Stock and the Series D Preferred Stock), as described below, at a price per share equal to the Series D Liquidation Preference
plus accumulated but unpaid dividends and distributions thereon (whether or not earned or declared but excluding interest thereon) to,
but excluding, the date fixed for redemption by our board of directors. We will redeem out of funds legally available the number of shares
of our preferred stock (which at our discretion may include any number or portion of the Series D 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)
would result in us having asset coverage of at least 200% if the redemption of such securities were deemed to have occurred immediately
prior to the opening of business on the Series D Asset Coverage Cure Date or (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 such redemption for failure to maintain
the asset coverage required by the 1940 Act, we may, at our sole option, redeem such additional number of shares of preferred stock that
will result in our having asset coverage of up to and including 285%. We will effect a redemption on the date fixed by us, which date
will not be later than 90 calendar days after the Series D Asset Coverage Cure Date, except that if we do not have funds legally available
for the redemption of all of the required number of shares of preferred stock which have been designated to be redeemed or we otherwise
are unable to effect such redemptions on or prior to 90 calendar days after the Series D Asset Coverage Cure Date, we will redeem those
shares of preferred stock which we were unable to redeem on the earliest practicable date on which we are able to effect such redemption.
Optional
Redemption. The Series D Preferred Stock may, at our sole option, be redeemed, in
whole or in part, at any time after November 29, 2026, upon giving a notice of redemption, or “Series D Notice of Redemption,”
at a redemption price per share equal to the Series D 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.
Subject
to the provisions of the certificate of designation for the Series D Preferred Stock and applicable law, our board of directors will
have the full power and authority to prescribe the terms and conditions upon which shares of Series D Preferred Stock will be redeemed
from time to time.
We
may not on any date deliver a Series D Notice of Redemption to redeem any shares of Series D Preferred Stock pursuant to the
optional redemption provisions described above unless on such date we have available Deposit Securities for the redemption contemplated
by such notice having a value not less than the amount due to holders of shares of Series D Preferred Stock by reason of the redemption
of such shares of Series D Preferred Stock on such Series D Redemption Date.
Redemption
Procedures. We will file a notice of our intention to redeem with the SEC so as to provide
the 30 calendar day notice period contemplated by Rule 23c-2 under the 1940 Act, or such shorter notice period as may be permitted
by the SEC or its staff.
If
we determine to or are required to redeem, in whole or in part, shares of Series D Preferred Stock, we will deliver a Series D
Notice of Redemption by overnight delivery, by first class mail, postage prepaid or by electronic means to the holders of record of such
shares of Series D Preferred Stock to be redeemed, or request the Redemption and Paying Agent, on our behalf, to promptly do so by
overnight delivery, by first class mail or by electronic means. A Series D Notice of Redemption will be provided not more than 60
calendar days prior to the date fixed for redemption in such Series D Notice of Redemption, or the “Series D Redemption
Date.” If fewer than all of the outstanding shares of Series D Preferred Stock are to be redeemed pursuant to either the mandatory
redemption provisions triggered by our failure to maintain the required asset coverage or the optional redemption provisions, the shares
of Series D Preferred Stock to be redeemed will be selected either (1) pro rata among Series D Preferred Stock or (2) by
lot. If fewer than all shares of Series D Preferred Stock held by any holder are to be redeemed, the Series D Notice of Redemption
mailed to such holder will also specify the number of shares of Series D Preferred Stock to be redeemed from such holder or the method
of determining such number. We may provide in any Series D Notice of Redemption relating to a redemption contemplated to be effected
pursuant to the certificate of designation for the Series D Preferred Stock that such redemption is subject to one or more conditions
precedent and that we will not be required to effect such redemption unless each such condition has been satisfied. No defect in any Series D
Notice of Redemption or delivery thereof will affect the validity of redemption proceedings except as required by applicable law.
If
we give a Series D Notice of Redemption, then at any time from and after the giving of such Series D Notice of Redemption and
prior to 12:00 noon, New York City time, on the Series D Redemption Date (so long as any conditions precedent to such redemption
have been met or waived by us), we will (i) deposit with the Redemption and Paying Agent Deposit Securities having an aggregate market
value at the time of deposit not less than the redemption price of the shares of Series D Preferred Stock to be redeemed on the Series D
Redemption Date and (ii) give the Redemption and Paying Agent irrevocable instructions and authority to pay the applicable redemption
price to the holders of shares of Series D Preferred Stock called for redemption on the Series D Redemption Date.
Upon
the date of the deposit of Deposit Securities by us for purposes of redemption of shares of Series D Preferred Stock, all rights
of the holders of Series D Preferred Stock so called for redemption will cease and terminate except the right of the holders thereof
to receive the applicable redemption price and such shares of Series D Preferred Stock will no longer be deemed outstanding for any
purpose whatsoever (other than the transfer thereof prior to the applicable Series D Redemption Date and other than the accumulation
of dividends on such stock in accordance with the terms of the Series D Preferred Stock up to, but excluding, the applicable Series D
Redemption Date). We will be entitled to receive, promptly after the Series D Redemption Date, any Deposit Securities in excess of
the aggregate redemption price of shares of Series D Preferred Stock called for redemption on the Series D Redemption Date.
Any Deposit Securities so deposited that are unclaimed at the end of 90 calendar days from the Series D Redemption Date will, to
the extent permitted by law, be repaid to us, after which the holders of shares of Series D Preferred Stock so called for redemption
can look only to us for payment of the Series D Redemption Price. We will be entitled to receive, from time to time after the Series D
Redemption Date, any interest on the Deposit Securities so deposited.
If
any redemption for which a Series D Notice of Redemption has been provided is not made by reason of the absence of our legally available
funds in accordance with the certificate of designation and applicable law, such redemption will be made as soon as practicable to the
extent such funds become available. No default will be deemed to have occurred if we have failed to deposit in trust with the Redemption
and Paying Agent the applicable redemption price with respect to any shares where (1) the Series D Notice of Redemption relating
to such redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition precedent
has not been satisfied at the time or times and in the manner specified in such Series D Notice of Redemption. Notwithstanding the
fact that a Series D Notice of Redemption has been provided with respect to any shares of Series D Preferred Stock, dividends
may be declared and paid on such shares of Series D Preferred Stock in accordance with their terms if Deposit Securities for the
payment of the redemption price of such shares of Series D Preferred Stock have not been deposited in trust with the Redemption and
Paying Agent for that purpose.
We
may, in our sole discretion and without a stockholder vote, modify the redemption procedures with respect to notification of redemption
for the Series D Preferred Stock, provided that such modification does not materially and adversely affect the holders of Series D
Preferred Stock or cause us to violate any applicable law, rule or regulation.
Voting Rights
Except
for matters that do not require the vote of holders of the Series D Preferred Stock under the 1940 Act and except as otherwise provided
in our certificate of incorporation or bylaws, in the certificate of designation or as otherwise required by applicable law, each holder
of shares of the Series D Preferred Stock will be entitled to one vote for each share of Series D Preferred Stock held on each
matter submitted to a vote of our stockholders, and the holders of outstanding shares of our preferred stock, including the Series C
Term Preferred Stock and Series D Preferred Stock, and shares of our common stock will vote together as a single class on all matters
submitted to stockholders.
In
addition, the holders of our preferred stock (including the Series C Term Preferred Stock and Series D Preferred Stock), voting
as a separate class, will have the right to elect two Preferred Directors at all times (regardless of the number of directors serving
on the board of directors). The holders of outstanding shares of our common stock together with the holders of outstanding shares of our
preferred stock, voting together as a single class, will elect the remaining members of the board of directors. Under our certificate
of incorporation, our directors are divided into three classes, with the term of one class expiring at each annual meeting of our stockholders.
One of our Preferred Directors will be up for election at the annual meeting of our stockholders in 2025 and the other Preferred Director
will be up for election at the annual meeting of our stockholders in 2026.
Notwithstanding
the foregoing, if (1) at the close of business on any Series D Dividend Payment Date for dividends on any outstanding
share of any series of our preferred stock, including any outstanding shares of the Series D Preferred Stock, accumulated dividends
(whether or not earned or declared) on such share of preferred stock equal to at least two full years’ dividends are due and unpaid
and sufficient cash or specified securities have not been deposited with the Redemption and Paying Agent or other applicable paying agent
for the payment of such accumulated dividends; or (2) at any time holders of any shares of Series D Preferred Stock, together
with holders of shares of any of our outstanding preferred stock, are entitled under the 1940 Act to elect a majority of our directors
(a period when either of the foregoing conditions exists, a “Voting Period”), then the number of members constituting our
board of directors will automatically be increased by the smallest number of directors (each, a “New Preferred Director”)
that, when added to the two Preferred Directors, would constitute a majority of our board of directors as so increased by such smallest
number. The terms of office of the persons who are directors at the time of that election will not be affected by the election of the
New Preferred Directors. If we pay, or declare and set apart for payment, in full all dividends payable on all outstanding shares of preferred
stock, including the Series D Preferred Stock, for all past Series D Dividend Periods, or the Voting Period is otherwise terminated,
(1) the voting rights stated above will cease, subject always, however, to the re-vesting of such voting rights in the holders of
shares of our preferred stock upon the further occurrence of any of the events described herein, and (2) the terms of office of all
New Preferred Directors will terminate automatically. Any preferred stock issued after the date hereof will vote with the Series D
Preferred Stock as a single class on the matters described above, and the issuance of any other preferred stock by us may reduce the voting
power of the holders of the Series D Preferred Stock.
As
soon as practicable after the accrual of any right of the holders of shares of preferred stock to elect New Preferred Directors, we will
call a special meeting of such holders and notify the Redemption and Paying Agent and/or such other person as is specified in the terms
of such preferred stock to receive notice, (i) by mailing or delivery by electronic means or (ii) in such other manner and by
such other means as are specified in the terms of such preferred stock, a notice of such special meeting to such holders, such meeting
to be held not less than 10 nor more than 30 calendar days after the date of the delivery by electronic means or mailing of such notice.
If we fail to call such a special meeting, it may be called at our expense by any such holder on like notice. The record date for determining
the holders of shares of preferred stock entitled to notice of and to vote at such special meeting will be the close of business on the
business day preceding the calendar day on which such notice is mailed. At any such special meeting and at each meeting of holders of
shares of preferred stock held during a Voting Period at which directors are to be elected, such holders, voting together as a class (to
the exclusion of the holders of all our other securities and classes of capital stock), will be entitled to elect the number of New Preferred
Directors prescribed above on a one-vote-per-share basis.
Except
as otherwise permitted by the terms of the certificate of designation, (1) so long as any shares of preferred stock are outstanding,
we will not, without the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of preferred stock,
voting as a separate class, amend, alter or repeal the provisions of our certificate of incorporation or any applicable certificates of
designation (or any other document governing the rights of our preferred stock or the holders thereof as may be required by the rules of
any applicable securities exchange), whether by merger, consolidation or otherwise, so as to materially and adversely affect any preference,
right or power of our preferred stock or the holders thereof and (2) so long as any shares of the Series D Preferred Stock are
outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of the
Series D Preferred Stock, voting as a separate class, amend, alter or repeal the provisions of our certificate of incorporation or
the applicable certificate of designation (or any other document governing the rights of the Series D Preferred Stock or the holders
thereof as may be required by the rules of any applicable securities exchange), whether by merger, consolidation or otherwise, so
as to materially and adversely affect any preference, right or power of the Series D Preferred Stock or the holders thereof differently
from shares of any other outstanding series of our preferred stock; provided, however, that (i) a change in our capitalization as
described under the heading “—Issuance of Additional Preferred Stock”
below will not be considered to materially and adversely affect the rights and preferences of any holder of our preferred stock, and (ii) a
division of a share of preferred stock will be deemed to affect such preferences, rights or powers only if the terms of such division
materially and adversely affect the holders of such preferred stock.
No
matter will be deemed to adversely affect any preference, right or power of a share of preferred stock, including the Series D Preferred
Stock or the holders of Series D Preferred Stock, unless such matter (i) alters or abolishes any preferential right of such
share of preferred stock, or (ii) creates, alters or abolishes any right in respect of redemption of the preferred stock or the applicable
series thereof (other than as a result of a division of a share of preferred stock). So long as any shares of preferred stock are
outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of the preferred
stock outstanding at the time, voting as a separate class, file a voluntary application for relief under federal bankruptcy law or any
similar application under state law for so long as we are solvent and does not foresee becoming insolvent.
The
affirmative vote of the holders of at least a “majority of the shares of our preferred stock,” including the shares of the
Series C Term Preferred Stock and Series D Preferred Stock outstanding at the time, voting as a separate class, will be required
(i) to approve any action requiring a vote of our security holders pursuant to Section 13(a) of the 1940 Act, or (ii) to
approve any plan of “reorganization” (as such term is defined in Section 2(a)(33) of the 1940 Act) adversely affecting
such shares of preferred stock. For purposes of the foregoing, the vote of a “majority of the outstanding shares of preferred stock”
means the vote at an annual or special meeting duly called (a) of 67% or more of such shares present at a meeting, if the holders
of more than 50% of such outstanding shares are present or represented by proxy at such meeting, or (b) of more than 50% of such
outstanding shares, whichever is less.
For
purposes of determining any rights of the holders of Series D Preferred Stock to vote on any matter, whether such right is created
by our certificate of incorporation, by the provisions of the certificate of designation for the Series D Preferred Stock, by statute
or otherwise, no holder of the Series D Preferred Stock will be entitled to vote any shares of the Series D Preferred Stock
and no share of the Series D Preferred Stock will be deemed to be “outstanding” for the purpose of voting or determining
the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to
vote or the time of the actual vote on the matter, as the case may be, the requisite Notice of Redemption with respect to such share of
Series D Preferred Stock will have been given in accordance with the certificate of designation, and the price for the redemption
of such shares of Series D Preferred Stock will have been irrevocably deposited with the Redemption and Paying Agent for that purpose.
No shares of Series D Preferred Stock held by us will have any voting rights or be deemed to be outstanding for voting or for calculating
the voting percentage required on any other matter or other purposes.
Unless
otherwise required by law or our certificate of incorporation, holders of the Series D Preferred Stock will not have any relative
rights or preferences or other special rights with respect to voting other than those specifically set forth in the certificate of designation
for the Series D Preferred Stock. The holders of shares of Series D Preferred Stock will have no rights to cumulative voting.
In the event that we fail to declare or pay any dividends on shares of the Series D Preferred Stock, the exclusive remedy of the
holders will be the right to vote for additional directors as discussed above; provided that the foregoing does not affect our obligation
to accumulate and, if permitted by applicable law and the certificate of designation for the Series D Preferred Stock, pay dividends
at the Series D Default Rate as discussed above.
Issuance of Additional Preferred
Stock
So
long as any shares of Series D Preferred Stock are outstanding, we may, without the vote or consent of the holders thereof, authorize,
establish and create and issue and sell shares of one or more series of a class of our senior securities representing stock under Section 18
of the 1940 Act, ranking on parity with the Series D Preferred Stock as to payment of dividends and distribution of assets upon dissolution,
liquidation or the winding up of our affairs, including additional series of preferred stock, and authorize, issue and sell additional
shares of any such series of preferred stock then outstanding (including additional shares of the Series D Preferred Stock) or so
established and created, in each case in accordance with applicable law, provided that we will, immediately after giving effect to the
issuance of such additional preferred stock and to its receipt and application of the proceeds thereof, including to the redemption of
preferred stock with such proceeds, have asset coverage of at least 200%.
Actions on Other than Business Days
Unless
otherwise provided in the certificate of designation for the Series D Preferred Stock, if the date for making any payment, performing
any act or exercising any right is not a business day (i.e., a calendar day on which the NYSE is open for trading), such payment
will be made, act performed or right exercised on the next succeeding business day, with the same force and effect as if made or done
on the nominal date provided therefor, and, with respect to any payment so made, no dividends, interest or other amount will accrue for
the period between such nominal date and the date of payment.
Modification
Without
the consent of any holders of the Series D Preferred Stock, our board of directors may amend or modify these terms of the Series D
Preferred Stock to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision in
our certificate of incorporation or make any other provisions with respect to matters or questions arising under these terms of the Series D
Preferred Stock that are not inconsistent with the provisions in our certificate of incorporation.
PLAN
OF DISTRIBUTION
We
have entered into the Sales Agreement with B. Riley acting as our placement agent. Pursuant to the Sales Agreement, we may at any time
and from time to time offer and sell shares of our common stock and Preferred Stock.
Upon
written instructions from us, the placement agent will use its commercially reasonable efforts consistent with its normal sales and trading
practices to sell, as our agent or principal, our common stock and Preferred Stock under the terms and subject to the conditions set forth
in the Sales Agreement and our instructions. We will instruct the placement agent as to the amount of common stock or Preferred Stock
to be sold by it and the minimum price below which sales of common stock or Preferred Stock may not be made. We may instruct the placement
agent not to sell common stock or Preferred Stock if the sales cannot be effected at or above the price designated by us in any instruction,
or for any other reason. The sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus,
less commissions payable under the Sales Agreement and discounts, if any, will not be less than the net asset value per share of our common
stock at the time of such sale. We or the placement agent may suspend the offering of shares of our common stock or Preferred Stock upon
proper notice and subject to other conditions.
Sales
of our common stock and Preferred Stock, if any, under this prospectus supplement and the accompanying prospectus may be made by any method
that is deemed to be an “at the market offering,” as defined in Rule 415 under the Securities Act. The placement agent
will provide written confirmation of a sale to us no later than the opening of the trading day on the NYSE following each trading day
in which shares of our common stock or Preferred Stock are sold under the Sales Agreement. Each confirmation will include the number of
shares of common stock or Preferred Stock sold on the preceding day, the net proceeds to us and the commission payable by us to the placement
agent, in connection with the sales.
The
placement agent will receive a commission from us equal to up to 2.0% of the gross sales price of any shares of our common stock or Preferred
Stock sold through it under the Sales Agreement. We have agreed to reimburse fees and expenses of counsel to the placement agent up to
$75,000 for entering into the Sales Agreement (inclusive of expenses paid in connection with entering into the third amended and restated
at market issuance sales agreement, dated June 12, 2023, by and among the Company, the Adviser, the Administrator, and B. Riley, the second
amended and restated at market issuance sales agreement, dated July 14, 2021, by and among the Company, the Adviser, the Administrator,
and B. Riley, and the at market issuance sales agreement, dated as of November 22, 2019 and amended on June 1, 2020, by and
among the Company, the Adviser, the Administrator, B. Riley, and National Securities Corporation), and up to $3,750 per calendar quarter
during the term of the Sales Agreement for fees and expenses of counsel to the placement agent incurred in connection with quarterly updates
for this offering. We estimate that the total expenses for the offering, excluding commission and reimbursements payable to the placement
agent under the terms of the Sales Agreement, will be approximately $231,500.
Unless
otherwise specified in our instructions, settlement for sales of shares of common stock and Preferred Stock will occur on the second trading
day (or such shorter settlement cycle as may be in effect under the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 15c6-1
from time to time) following the date on which such sales are made, in return for payment of the net proceeds to us. There is no arrangement
for funds to be received in an escrow, trust or similar arrangement. We will disclose, through our annual report, semi-annual report and
quarterly report, as applicable, at least quarterly, the number of shares of our common stock and Preferred Stock sold through the placement
agent under the Sales Agreement and the net proceeds to us.
In
connection with the sale of the common stock and Preferred Stock on our behalf, the placement agent will be deemed to be an “underwriter”
within the meaning of the Securities Act, and the commission of the placement agent will be deemed to be underwriting commissions or discounts.
We have agreed to provide indemnification and contribution to the placement agent against certain civil liabilities, including liabilities
under the Securities Act.
The
offering of our shares of common stock and Preferred Stock pursuant to the Sales Agreement will terminate upon the earlier of (i) the
sale of all the shares of common stock and Preferred Stock registered under the registration statement of which this prospectus supplement
forms a part or (ii) the termination of the Sales Agreement as permitted therein.
The
placement agent and its affiliates have provided and may in the future provide various investment banking and advisory services to us
from time to time for which they have received, and are expected to receive, customary fees and expenses.
The
principal business address of the placement agent is: B. Riley, 299 Park Avenue, 21st Floor, New York, NY 10171.
LEGAL
MATTERS
Certain
legal matters in connection with the common stock and Preferred Stock will be passed upon for us by Dechert LLP, One International Place,
40th Floor, 100 Oliver Street, Boston, Massachusetts, and for the placement agent by Duane Morris LLP, One Riverfront Plaza, 1037 Raymond
Boulevard, Suite 1800, Newark, New Jersey 07102.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
KPMG
LLP, an independent registered public accounting firm located at 345 Park Avenue, New York, New York 10154, provides audit services, tax
return preparation, and assistance and consultation with respect to the preparation of filings with the SEC.
ADDITIONAL
INFORMATION
This
prospectus supplement and the accompanying prospectus constitute part of a registration statement on Form N-2 that we have filed
with the SEC, together with any and all amendments and related exhibits under the Securities Act. This prospectus supplement and the accompanying
prospectus do not contain all of the information set forth in the registration statement, some of which is contained in exhibits filed
as part of, or incorporated by reference into, the registration statement as permitted by the rules and regulations of the SEC. For
further information with respect to us and the securities we are offering under this prospectus supplement and the accompanying prospectus,
we refer you to the registration statement, including the exhibits filed as a part of, or incorporated by reference into, the registration
statement. Statements contained in this prospectus supplement and the accompanying prospectus concerning the contents of any contract
or any other document are not necessarily complete. If a contract or other document has been filed as an exhibit to the registration statement
or otherwise incorporated by reference as an exhibit thereto, please see the copy of the contract or document that has been filed or incorporated
by reference. Each statement in this prospectus supplement and the accompanying prospectus relating to a contract or document filed or
incorporated by reference as an exhibit is qualified in all respects by such exhibit.
We
file with or submit to the SEC annual and semi-annual reports, proxy statements and other information meeting the informational requirements
of the Securities Exchange Act of 1934, as amended. The SEC maintains a website that contains reports, proxy and information statements
and other information we file with the SEC at www.sec.gov. Information on our website is not incorporated by reference into or
a part of this prospectus supplement or the accompanying prospectus. This information is available free of charge by writing us at Eagle
Point Credit 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.eaglepointcreditcompany.com. Information on our website is not incorporated by reference into
or a part of this prospectus supplement or the accompanying prospectus.
INCORPORATION
BY REFERENCE
We
incorporate by reference in this prospectus supplement the documents listed below and any future reports and other documents we file with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act or pursuant to Rule 30b2-1 under the 1940 Act,
until all of the securities offered by this prospectus supplement have been sold or we otherwise terminate the offering of these securities
(such reports and other documents deemed to be incorporated by reference into this prospectus supplement and to be part hereof from the
date of filing of such reports and other documents). To obtain copies of these filings, see “Additional Information.”
|
• |
our Annual
Report on Form N-CSR, as amended, for the fiscal year ended December 31, 2022, filed with the SEC on February 24,
2023; |
|
• |
our Definitive
Proxy Statement on Schedule 14A for the annual meeting of the stockholders, filed with the SEC on April 12, 2023; |
|
• |
our Interim
Report filed pursuant to Rule 30b2-1 under the 1940 Act, for the quarter ended March 31, 2023, filed with the SEC on
May 23, 2023. |
APPENDIX
A
CERTIFICATE OF DESIGNATION
OF
6.50% SERIES C TERM PREFERRED STOCK DUE 2031
OF
EAGLE POINT CREDIT COMPANY INC.
Pursuant to Section 151
of the
General Corporation Law of the State of Delaware
Eagle
Point Credit Company Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”),
certifies that pursuant to the authority contained in its certificate of incorporation (the “Certificate of Incorporation”),
and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the “DGCL”),
the Board of Directors of the Corporation (the “Board of Directors,” which term as used herein shall include any duly authorized
committee of the Board of Directors) has duly approved and adopted the following resolution on June 10, 2021:
RESOLVED,
that pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation
and as set forth in Section 151 of the DGCL, the Board of Directors does hereby approve the designation of 3,100,000 authorized but
unissued shares of preferred stock, par value $0.001 per share, without designation as to series as 6.50% Series C Term Preferred
Stock due 2031 (the “Series C Term Preferred Stock”), having the designations, preferences, relative, participating,
optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of
Incorporation and in this resolution as follows:
ARTICLE I
NUMBER
OF SHARES; RANKING
1.1.
A series of 3,100,000 shares of the preferred stock, par value $0.001 per share, authorized by the Certificate of Incorporation are hereby
designated as the Series C Term Preferred Stock. Each share of Series C Term Preferred Stock shall have such preferences, voting
powers, restrictions, limitations as to dividends and distributions, qualifications and terms and conditions of redemption, in addition
to those required by applicable law and those that are expressly set forth in the Certificate of Incorporation, as are set forth in this
Certificate of Designation. The Series C Term Preferred Stock shall constitute a separate series of Capital Stock (as defined below)
and each share of Series C Term Preferred Stock shall be identical. No fractional shares of Series C Term Preferred Stock shall
be issued.
1.2.
The Series C Term Preferred Stock shall rank on parity with (i) shares of the Corporation’s 7.75% Series B Term Preferred
Stock due 2026, par value $0.001 per share, (ii) any other series of preferred stock, whether now or hereafter issued by the Corporation
and (iii) any other shares of Capital Stock hereafter authorized and issued by the Corporation of a class having priority over any
other class as to distribution of assets or payments of dividends (collectively with the Series C Term Preferred Stock, the “Preferred
Stock”) as to the payment of dividends and as to the distribution of assets upon dissolution, liquidation or winding up of the affairs
of the Corporation. The Series C Term Preferred Stock shall have preference with respect to the payment of dividends and as to distribution
of assets upon dissolution, liquidation or winding up of the affairs of the Corporation over the shares of common stock, par value $0.001
per share (the “Common Stock” and, together with the Preferred Stock, the “Capital Stock”), of the Corporation
as set forth herein.
1.3.
No individual, partnership, trust, corporation, limited liability company, unincorporated association, joint venture or other entity,
or government or any agency or political subdivision thereof (each, a “Person”) in whose name the Series C Term Preferred
Stock or any other security issued by the Corporation is registered in the registration books of the Corporation maintained by American
Stock Transfer & Trust Company, LLC and its successors, or any other redemption and paying agent appointed by the Corporation
with respect to the Series C Term Preferred Stock (the “Redemption and Paying Agent”) or otherwise (such Person, a “Holder”),
shall have, solely by reason of being such a Holder, any preemptive or other right to acquire, purchase or subscribe for any shares of
Series C Term Preferred Stock, shares of other Preferred Stock, shares of Common Stock or other securities of the Corporation that
it may hereafter issue or sell.
ARTICLE II
DIVIDENDS
AND DISTRIBUTIONS
2.1.
The Holders of shares of Series C Term Preferred Stock shall be entitled to receive, when, as and if declared by, or under authority
granted by, the Board of Directors, out of funds legally available therefor and in preference to dividends and distributions on the Common
Stock, cumulative cash dividends and distributions on each share of Series C Term Preferred Stock, calculated separately for each
Dividend Period (as defined below) at, as of any date, 6.50% per annum (the “Fixed Dividend Rate”) as adjusted, if a Default
Period (as defined below) shall be in existence on such date, in accordance with the provisions of Section 2.8 (the “Dividend
Rate”) in effect from time to time for the Series C Term Preferred Stock during such Dividend Period, computed on the basis
of a 360-day year consisting of twelve 30-day months, on an amount equal to $25.00 (the “Liquidation Preference”) for each
share of the Series C Term Preferred Stock, and no more. In the case of each share of Series C Term Preferred Stock issued on
June 16, 2021 (the “Date of Original Issue”), dividends and distributions on such shares of Series C Term Preferred
Stock shall accumulate from the Date of Original Issue. In the case of a share of Series C Term Preferred Stock issued on a date
subsequent to the Date of Original Issue, (a) if such share is issued before the Record Date (as defined below) for the Dividend
Period in which such share is issued, dividends and distributions on such share of Series C Term Preferred Stock shall accumulate
from the first day of such Dividend Period and (b) if such share is issued after the Record Date for the Dividend Period in which
such share is issued, dividends and distributions on such share of Series C Term Preferred Stock shall accumulate from the first
day of the Dividend Period immediately following the issuance of such share. Dividends and distributions on all shares of Series C
Term Preferred Stock shall be payable monthly in arrears as provided in Section 2.2. The amount of dividends payable on shares of
the Series C Term Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, will be
computed on the basis of actual days elapsed over a 30-day month.
“Dividend
Period” means, with respect to each share of Series C Term Preferred Stock then Outstanding (as defined below), in the case
of the first Dividend Period, the period beginning on and including the Date of Original Issue and ending on, but excluding July 31,
2021 and, for each subsequent Dividend Period, the period beginning on and including the last Dividend Payment Date (as defined below)
and ending on, but excluding, the next Dividend Payment Date or the stated maturity date, as the case may be.
2.2. Declaration and Payment;
Dividends in Arrears.
(a) Dividends
on shares of the Series C Term Preferred Stock with respect to any Dividend Period shall be declared to the Holders of record of
such shares as their names shall appear on the registration books of the Corporation at the close of business on the applicable record
date, which shall be such date designated by the Board of Directors that is not more than twenty (20) nor less than seven (7) calendar
days prior to the Dividend Payment Date with respect to such Dividend Period (each, a “Record Date”).
(b) Dividends
declared pursuant to Section 2.1 shall be paid on the last day of every calendar month, beginning July 31, 2021 (each, a “Dividend
Payment Date”) to the Holders of shares of Series C Term Preferred Stock as their names appear on the registration books of
the Corporation at the close of business on the applicable Record Date for such dividend; provided, however, that dividends with respect
to the first Dividend Period of the Series C Term Preferred Stock will be paid on July 31, 2021 to Holders of record of such
Series C Term Preferred Stock as their names appear on the registration books of the Corporation at the close of business on July 12,
2021. If a Dividend Payment Date falls on a non-Business Day (as defined below), the applicable dividend payment will be made on the next
Business Day and no additional dividend payment will accrue as a result of such delayed payment.
(c) Dividends
in arrears on shares of Series C Term Preferred Stock for any past Dividend Period may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to the Holders of such shares as their names appear on the registration books of the Corporation
on the applicable Record Date. No interest or sum of money in lieu of interest will be payable in respect of any dividend payment or payments
on shares of Series C Term Preferred Stock which may be in arrears.
2.3.
No full dividends and distributions shall be declared or paid on shares of the Series C Term Preferred Stock for any Dividend Period
or part thereof unless full cumulative dividends and distributions due through the most recent Dividend Payment Dates therefor for all
Outstanding shares of Preferred Stock have been or contemporaneously are declared and paid through the most recent Dividend Payment Dates
therefor. If full cumulative dividends and distributions due have not been declared and paid on all Outstanding shares of Preferred Stock,
any dividends and distributions being declared and paid on the Series C Term Preferred Stock will be declared and paid as nearly
pro rata as possible in proportion to the respective amounts of dividends and distributions accumulated but unpaid on each such series
of Preferred Stock on the relevant dividend payment date for such series. No Holders of shares of Series C Term Preferred Stock shall
be entitled to any dividends and distributions, whether payable in cash, property or shares, in excess of full cumulative dividends and
distributions as provided in this Section 2.3 on the Series C Term Preferred Stock.
2.4.
For so long as any shares of Series C Term Preferred Stock are Outstanding, the Corporation shall not: (x) declare any dividend
or other distribution (other than a dividend or distribution paid in shares of Common Stock) in respect of the Common Stock, (y) call
for redemption, redeem, purchase or otherwise acquire for consideration any Common Stock, or (z) pay any proceeds of the liquidation
of the Corporation in respect of the Common Stock, unless, in each case,
(a) immediately
thereafter, the Corporation shall have “asset coverage,” as defined for purposes of Section 18(h) of the Investment
Company Act of 1940, as amended, or any successor statute (the “1940 Act”), of at least 200% with respect to all Outstanding
senior securities which are stock of the Corporation, including all Outstanding shares of Series C Term Preferred Stock (or such
other percentage as may in the future be specified in the 1940 Act or by rule, regulation or order of the Securities and Exchange Commission
(the “SEC”) as the minimum asset coverage for senior securities which are stock of a closed-end registered investment company),
after deducting the amount of such dividend or distribution or redemption or purchase price or liquidation proceeds;
(b) all
cumulative dividends and distributions on all shares of Preferred Stock due on or prior to the date of the applicable dividend, distribution,
redemption, purchase or acquisition shall have been either (i) declared and paid or (ii) declared and Deposit Securities (as
defined below) or sufficient funds (in accordance with the terms of such Preferred Stock) for the payment thereof shall have been deposited
irrevocably with the paying agent for such Preferred Stock; and
(c) the
Corporation shall have deposited Deposit Securities pursuant to and in accordance with the requirements of Section 5.4 hereof with
respect to Outstanding shares of Series C Term Preferred Stock to be redeemed pursuant to Section 5.1 or Section 5.2 hereof
for which a Notice of Redemption (as defined below) shall have been given or shall have been required to be given in accordance with the
terms hereof on or prior to the date of the applicable dividend, distribution, redemption, purchase or acquisition.
“Outstanding”
means, as of any date with respect to a series of Preferred Stock, the number of shares of such series of Preferred Stock theretofore
issued by the Corporation except (without duplication): (A) any shares of the applicable series of Preferred Stock theretofore cancelled
or redeemed or delivered to the Redemption and Paying Agent for cancellation or redemption in accordance with the terms hereof; (B) any
shares of the applicable series of Preferred Stock as to which the Corporation shall have given a Notice of Redemption and irrevocably
deposited with the Redemption and Paying Agent sufficient Deposit Securities to redeem such shares in accordance with ARTICLE V hereof;
and (C) any shares of the applicable series of Preferred Stock as to which the Corporation shall be the Holder or the beneficial
owner.
“Deposit
Securities” means, as of any date, any U.S. dollar-denominated security or other investment of a type described below that either
(i) is a demand obligation payable to the holder thereof on any Business Day or (ii) has a maturity date, mandatory redemption
date or mandatory payment date, on its face or at the option of the holder, preceding the relevant Redemption Date (as defined below),
Dividend Payment Date or other payment date in respect of which such security or other investment has been deposited or set aside as a
Deposit Security: (A) cash or any cash equivalent; (B) any U.S. Government Obligation (as defined below); (C) any Short-Term
Money Market Instrument (as defined below); (D) any investment in any money market fund registered under the 1940 Act that qualifies
under Rule 2a-7 under the 1940 Act, or similar investment vehicle described in Rule 12d1-1(b)(2) under the 1940 Act, that
invests principally in Short-Term Money Market Instruments or U.S. Government Obligations or any combination thereof; or (E) any
letter of credit from a bank or other financial institution that has a credit rating from at least one nationally recognized statistical
rating organization that is the highest applicable rating generally ascribed by such rating agency to bank deposits or short-term debt
of similar banks or other financial institutions as of the date of this Certificate of Designation (or such rating’s future equivalent).
“Short-Term
Money Market Instruments” means the following types of instruments if, on the date of purchase or other acquisition thereof by the
Corporation, the remaining term to maturity thereof is not in excess of 180 days: (i) commercial paper rated A-1, if such commercial
paper matures within 30 days, or A-1+, if such commercial paper matures in over 30 days; (ii) demand or time deposits in, and bankers’
acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United
States of America or any state thereof or the District of Columbia or (B) a U.S. branch office or agency of a foreign depository
institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state
thereof or the District of Columbia); and (iii) overnight funds.
“U.S.
Government Obligations” means direct obligations of the United States or of its agencies or instrumentalities that are entitled
to the full faith and credit of the United States and that, other than U.S. treasury bills, provide for the periodic payment of interest
and the full payment of principal at maturity or call for redemption.
2.5.
Any dividend payment made on shares of Series C Term Preferred Stock shall first be credited against the dividends and distributions
accumulated with respect to the earliest Dividend Period for which dividends and distributions have not been paid.
2.6.
Not later than 12:00 noon, New York City time, on a Dividend Payment Date, the Corporation shall deposit with the Redemption and Paying
Agent Deposit Securities having an aggregate Market Value (as defined below) on such date sufficient to pay the dividends and distributions
that are payable on such Dividend Payment Date. The Corporation may direct the Redemption and Paying Agent with respect to the investment
or reinvestment of any such Deposit Securities prior to the Dividend Payment Date, provided, that such investment consists exclusively
of Deposit Securities and provided, further, that the proceeds of any such investment will be available as same day funds at the opening
of business on such Dividend Payment Date.
“Market
Value” of any asset means, for securities for which market quotations are readily available, the market value thereof determined
by an independent third-party pricing service designated from time to time by the Board of Directors. Market Value of any asset shall
include any interest accrued thereon. The pricing service values portfolio securities at the mean between the quoted bid and asked price
or the yield equivalent when quotations are readily available. Securities for which quotations are not readily available are valued at
fair value as determined by the pricing service using methods that include consideration of: yields or prices of securities of comparable
quality, type of issue, coupon, maturity and rating, indications as to value from dealers and general market conditions. The pricing service
may employ electronic data processing techniques or a matrix system, or both, to determine recommended valuations.
2.7.
All Deposit Securities paid to the Redemption and Paying Agent for the payment of dividends payable on the Series C Term Preferred
Stock shall be held in trust for the payment of such dividends by the Redemption and Paying Agent for the benefit of the Holders entitled
to the payment of such dividends pursuant to Section 2.2. Any moneys paid to the Redemption and Paying Agent in accordance with the
foregoing but not applied by the Redemption and Paying Agent to the payment of dividends, including interest earned on such moneys while
so held, will, to the extent permitted by law, be repaid to the Corporation as soon as possible after the date on which such moneys were
to have been so applied, upon request of the Corporation.
2.8. Dividend Default.
(a) The
Dividend Rate on the Series C Term Preferred Stock shall be adjusted, for any calendar day, to the Fixed Dividend Rate plus two percent
(2%) per annum (the “Default Rate”) in the following circumstances. Subject to the cure provisions below, a “Default
Period” with respect to the Series C Term Preferred Stock shall commence on any date the Corporation fails to deposit with
the Redemption and Paying Agent by 12:00 noon, New York City time, on (A) a Dividend Payment Date, Deposit Securities that will provide
funds available to the Redemption and Paying Agent on such Dividend Payment Date sufficient to pay the full amount of any dividend
payable on such Dividend Payment Date (a “Dividend Default”) or (B) an applicable Redemption Date, Deposit Securities
that will provide funds available to the Redemption and Paying Agent on such Redemption Date sufficient to pay the full amount of the
Liquidation Preference for the shares of the Series C Term Preferred Stock, plus an amount equal to all unpaid dividends and distributions
on such shares accumulated to (but excluding) the date fixed for such distribution or payment on such shares (whether or not earned or
declared by the Corporation, but excluding interest thereon) (such amount, the “Redemption Price”), payable in respect of
such series on such Redemption Date (a “Redemption Default” and together with a Dividend Default, hereinafter referred to
as “Default”). Subject to the cure provisions of Section 2.8(b) below, a Default Period with respect to a Default
on the Series C Term Preferred Stock shall end on the calendar day on which the New York Stock Exchange is open for trading (each
such day, a “Business Day”) on which, by 12:00 noon, New York City time, an amount equal to all unpaid dividends and any unpaid
Redemption Price shall have been deposited irrevocably in trust in same-day funds with the Redemption and Paying Agent. The Dividend Rate
on the Series C Term Preferred Stock for each calendar day during the Default Period will be equal to the Default Rate.
(b) No
Default Period for the Series C Term Preferred Stock with respect to any Default on the Series C Term Preferred Stock shall
be deemed to commence if the amount of any dividend or any Redemption Price due in respect of the Series C Term Preferred Stock (if
such Default is not solely due to the willful failure of the Corporation) is deposited irrevocably in trust, in same-day funds, with the
Redemption and Paying Agent by 12:00 noon, New York City time, on a Business Day that is not later than three (3) Business Days after
the applicable Dividend Payment Date or Redemption Date with respect to which such Default occurred, together with an amount equal to
the Default Rate applied to the amount and period of such non-payment based on the actual number of calendar days comprising such period
divided by three hundred and sixty (360).
ARTICLE III
LIQUIDATION
RIGHTS
3.1.
In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders
of shares of Series C Term Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution
to stockholders, after satisfying claims of creditors but before any distribution or payment shall be made in respect of the Common Stock,
a liquidation distribution of the Redemption Price, and such Holders shall be entitled to no further participation in any distribution
or payment in connection with any such liquidation, dissolution or winding up.
3.2.
If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of
the Corporation available for distribution among the Holders of all Outstanding shares of Series C Term Preferred Stock and any other
Outstanding shares of Preferred Stock shall be insufficient to permit the payment in full to such Holders of the Redemption Price as provided
in Section 3.1 above and the amounts due upon liquidation with respect to such other Preferred Stock, then such available assets
shall be distributed among the Holders of such shares of Series C Term Preferred Stock and such other Preferred Stock ratably in
proportion to the respective preferential liquidation amounts to which they are entitled. In connection with any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary or involuntary, unless and until the Redemption Price, as provided
in Section 3.1 above has been paid in full to the Holders of such shares, no dividends, distributions or other payments will be made
on, and no redemption, purchase or other acquisition by the Corporation will be made by the Corporation in respect of, shares of the Common
Stock.
3.3.
Neither the sale of all or substantially all of the property or business of the Corporation, nor the merger, consolidation or reorganization
of the Corporation into or with any other business or statutory trust, corporation or other entity, nor the merger, consolidation or reorganization
of any other business or statutory trust, corporation or other entity into or with the Corporation shall be a dissolution, liquidation
or winding up, whether voluntary or involuntary, for the purpose of this ARTICLE III.
ARTICLE IV
ASSET
COVERAGE TEST
4.1.
Asset Coverage Requirement. For so long as any shares of Series C Term Preferred Stock are Outstanding, the Corporation shall have
“asset coverage” of a class of senior security which is stock, as defined for purposes of Section 18(h) of the 1940
Act as in effect on the date hereof (“Asset Coverage”), of at least 200% as of the close of business on the last Business
Day of any of the three month periods ending March 31, June 30, September 30 or December 31 of each year (each, a
“Calendar Quarter”). If the Corporation shall fail to maintain such Asset Coverage as of any time as of which such compliance
is required to be determined as aforesaid, the provisions of Section 5.2(a) shall be applicable, which provisions shall constitute
the sole remedy for the Corporation’s failure to comply with the provisions of this Section 4.1.
4.2.
Calculation of Asset Coverage. For purposes of determining whether the requirements of Section 4.1 are satisfied, (i) no shares
of Series C Term Preferred Stock or other Preferred Stock shall be deemed to be Outstanding for purposes of any computation required
by Section 4.1 if, prior to or concurrently with such determination, either (x) sufficient Deposit Securities or other sufficient
funds (in accordance with the terms of the Series C Term Preferred Stock or other Preferred Stock) to pay the full Redemption Price
for the Series C Term Preferred Stock or other Preferred Stock (or the portion thereof to be redeemed) shall have been deposited
in trust with the paying agent for the Series C Term Preferred Stock or other Preferred Stock and the requisite notice of redemption
for the Series C Term Preferred Stock or other Preferred Stock (or the portion thereof to be redeemed) shall have been given or (y) sufficient
Deposit Securities or other sufficient funds (in accordance with the terms of the Series C Term Preferred Stock or other Preferred
Stock) to pay the full Redemption Price for the Series C Term Preferred Stock or other Preferred Stock (or the portion thereof to
be redeemed) shall have been segregated by a bank, as defined in Section 2(a)(5) of the 1940 Act, that has the qualifications
prescribed in Section 26(a)(1) of the 1940 Act, or such other entity as shall be then providing custodian services to the Corporation
as permitted by the 1940 Act or any rule, regulation, or order thereunder (the “Custodian,” which shall include any similarly
qualified sub-custodian duly appointed by the Custodian) and the Corporation from the assets of the Corporation, by means of appropriate
identification on the Custodian’s books and records or otherwise in accordance with the Custodian’s normal procedures, and
(ii) the Deposit Securities or other sufficient funds that shall have been deposited with the applicable paying agent and/or segregated
by the Custodian, as applicable, as provided in clause (i) of this sentence shall not be included as assets of the Corporation for
purposes of such computation.
ARTICLE V
REDEMPTION
Shares
of Series C Term Preferred Stock shall be subject to redemption by the Corporation as provided below:
5.1.
Term Redemption. The Corporation shall redeem all shares of Series C Term Preferred Stock on June 30, 2031 (the “Term
Redemption Date”) at a price per share equal to the Redemption Price.
5.2. Asset Coverage Mandatory
Redemption.
(a) If
the Corporation fails to comply with the Asset Coverage requirement as provided in Section 4.1 as of the last Business Day of any
Calendar Quarter and such failure is not cured as of the date that is thirty (30) calendar days following the date of filing of the Corporation’s
Annual Report on Form N-CSR, Semiannual Report on Form N-CSRS or Reports on Form N-PORT, as applicable (each, an “SEC
Report”) with the SEC with respect to such Calendar Quarter (such Business Day, the “Asset Coverage Cure Date”), the
Corporation shall, to the extent permitted by the 1940 Act and Delaware law, by the close of business on such Asset Coverage Cure Date,
fix a redemption date and proceed to redeem in accordance with the terms of such Preferred Stock, a sufficient number of shares of Preferred
Stock, which at the Corporation’s sole option (to the extent permitted by the 1940 Act and Delaware law) may include any number
or proportion of the shares of Series C Term Preferred Stock, to enable it to meet the requirements of Section 5.2(b). In the
event that any shares of Series C Term Preferred Stock then Outstanding are to be redeemed pursuant to this Section 5.2(a),
the Corporation shall redeem such shares at a price per share equal to the Redemption Price.
(b) On
the redemption date for a redemption contemplated by Section 5.2(a), the Corporation shall redeem, out of funds legally available
therefor, (x) such number of shares of Preferred Stock (which may include at the sole option of the Corporation any number or proportion
of the shares of 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, the redemption of which, if deemed to have occurred immediately prior
to the opening of business on the Asset Coverage Cure Date, would result in the Corporation having Asset Coverage on such Asset Coverage
Cure Date of at least 200% (provided, however, that if there is no such minimum number of shares of Series C Term Preferred Stock
and other shares of Preferred Stock the redemption or retirement of which would have such result, all shares of Series C Term Preferred
Stock and other shares of Preferred Stock then Outstanding shall be redeemed), or (y) if fewer, the maximum number of shares of Preferred
Stock that can be redeemed out of funds expected to be legally available therefor in accordance with the Certificate of Incorporation
and applicable law, provided, further, that in connection with redemption for failure to maintain such Asset Coverage requirement, the
Corporation may at its sole option, but is not required to, redeem a sufficient number of shares of Series C Term Preferred Stock
pursuant to this Section 5.2 that, when aggregated with other shares of Preferred Stock redeemed by the Corporation, would result,
if deemed to have occurred immediately prior to the opening of business on the Asset Coverage Cure Date, in the Corporation having Asset
Coverage on such Asset Coverage Cure Date of up to and including 285%. The Corporation shall effect such redemption on the date fixed
by the Corporation therefor, which date shall not be later than ninety (90) calendar days after such Asset Coverage Cure Date, except
that if the Corporation does not have funds legally available for the redemption of all of the required number of shares of Series C
Term Preferred Stock and other shares of Preferred Stock which have been designated to be redeemed or the Corporation otherwise is unable
to effect such redemption on or prior to ninety (90) calendar days after such Asset Coverage Cure Date, the Corporation shall redeem those
shares of Series C Term Preferred Stock and other shares of Preferred Stock which it was unable to redeem on the earliest practicable
date on which it is able to effect such redemption. If fewer than all of the Outstanding shares of Series C Term Preferred Stock
are to be redeemed pursuant to this Section 5.2, the number of shares of Series C Term Preferred Stock to be redeemed shall
be redeemed (A) pro rata among the Outstanding shares of Series C Term Preferred Stock or (B) by lot.
5.3. Optional Redemption.
(a) Subject
to the provisions of Section 5.3(b), on any Business Day following the expiration of the “No-Call Period,” which is the
period beginning on the Date of Original Issue and ending at the close of business on June 16, 2024, the Corporation may redeem in
whole or in part from time to time the Outstanding shares of Series C Term Preferred Stock at a price per share equal to the Redemption
Price (any such Business Day referred to in this sentence, an “Optional Redemption Date”).
(b) If
fewer than all of the Outstanding shares of Series C Term Preferred Stock are to be redeemed pursuant to Section 5.3(a), the
shares of Series C Term Preferred Stock to be redeemed shall be selected either (A) pro rata or (B) by lot. Subject to
the provisions of this Certificate of Designation and applicable law, the Board of Directors will have the full power and authority to
prescribe the terms and conditions upon which shares of Series C Term Preferred Stock will be redeemed pursuant to this Section 5.3
from time to time.
(c) The
Corporation may not on any date deliver a Notice of Redemption pursuant to Section 5.4 in respect of a redemption contemplated to
be effected pursuant to this Section 5.3 unless on such date the Corporation has available Deposit Securities for the Optional Redemption
Date contemplated by such Notice of Redemption having a Market Value not less than the amount due to Holders of shares of Series C
Term Preferred Stock by reason of the redemption of such shares of Series C Term Preferred Stock on such Optional Redemption Date.
5.4. Procedures for Redemption.
(a) If
the Corporation shall determine or be required to redeem, in whole or in part, shares of Series C Term Preferred Stock pursuant to
Section 5.1, Section 5.2, or Section 5.3, the Corporation shall deliver a notice of redemption (the “Notice of Redemption”),
by overnight delivery, by first class mail, postage prepaid or by Electronic Means (as defined below) to Holders thereof, or request the
Redemption and Paying Agent, on behalf of the Corporation, to promptly do so by overnight delivery, by first class mail, postage prepaid
or by Electronic Means. A Notice of Redemption shall be provided not less than thirty (30) nor more than sixty (60) calendar days prior
to the date fixed for redemption in such Notice of Redemption (the “Redemption Date”). Each such Notice of Redemption shall
state: (A) the Redemption Date; (B) the number of shares of Series C Term Preferred Stock to be redeemed; (C) the
CUSIP number for shares of Series C Term Preferred Stock; (D) the applicable Redemption Price on a per share basis; (E) that
dividends on the shares of Series C Term Preferred Stock to be redeemed will cease to accumulate from and after such Redemption Date;
and (F) the provision(s) of this Certificate of Designation under which such redemption is made. If fewer than all shares of
Series C Term Preferred Stock held by any Holder are to be redeemed, the Notice of Redemption delivered to such Holder shall also
specify the number of shares of Series C Term Preferred Stock to be redeemed from such Holder or the method of determining such number.
The Corporation may provide in any Notice of Redemption relating to a redemption contemplated to be effected pursuant to this Certificate
of Designation that such redemption is subject to one or more conditions precedent and that the Corporation shall not be required to effect
such redemption unless each such condition has been satisfied at the time or times and in the manner specified in such Notice of Redemption.
No defect in the Notice of Redemption or delivery thereof shall affect the validity of redemption proceedings, except as required by applicable
law.
“Electronic
Means” means e-mail transmission, facsimile transmission or other similar electronic means of communication providing evidence of
transmission (but excluding online communications systems covered by a separate agreement) acceptable to the sending party and the receiving
party, in any case if operative as between any two parties, or, if not operative, by telephone (promptly confirmed by any other method
set forth in this definition), which, in the case of notices to the Redemption and Paying Agent and the Custodian, shall be sent by such
means to each of its representatives set forth in (i) the Redemption and Paying Agent Agreement, or other similarly titled agreement,
by and among the Redemption and Paying Agent for the Series C Term Preferred Stock and the Corporation and (ii) the Custodian
Agreement by and among the Custodian and the Corporation with respect to the Series C Term Preferred Stock, respectively.
(b) If
the Corporation shall give a Notice of Redemption, then at any time from and after the giving of such Notice of Redemption and prior to
12:00 noon, New York City time, on the Redemption Date (so long as any conditions precedent to such redemption have been met or waived
by the Corporation), the Corporation shall (A) deposit with the Redemption and Paying Agent Deposit Securities having an aggregate
Market Value on the date thereof no less than the Redemption Price of the shares of Series C Term Preferred Stock to be redeemed
on the Redemption Date and (B) give the Redemption and Paying Agent irrevocable instructions and authority to pay the applicable
Redemption Price to the Holders of the shares of Series C Term Preferred Stock called for redemption on the Redemption Date. The
Corporation may direct the Redemption and Paying Agent with respect to the investment of any Deposit Securities consisting of cash so
deposited prior to the Redemption Date, provided, that the proceeds of any such investment shall be available at the opening of business
on the Redemption Date as same day funds.
(c) Upon
the date of the deposit of such Deposit Securities, which in the case of term redemption pursuant to Section 5.1, shall be no later
than fifteen (15) calendar days prior to the Term Redemption Date, all rights of the Holders of the shares of Series C Term Preferred
Stock so called for redemption shall cease and terminate except the right of the Holders thereof to receive the Redemption Price thereof
and such shares of Series C Term Preferred Stock shall no longer be deemed Outstanding for any purpose whatsoever (other than (A) the
transfer thereof prior to the applicable Redemption Date and (B) the accumulation of dividends thereon in accordance with the terms
hereof up to (but excluding) the applicable Redemption Date, which accumulated dividends, unless previously or contemporaneously declared
and paid as contemplated by Section 5.4(d) below, shall be payable only as part of the applicable Redemption Price on the Redemption
Date). The Corporation shall be entitled to receive, promptly after the Redemption Date, any Deposit Securities in excess of the aggregate
Redemption Price of the shares of Series C Term Preferred Stock called for redemption on the Redemption Date. Any Deposit Securities
so deposited that are unclaimed at the end of ninety (90) calendar days from the Redemption Date shall, to the extent permitted by law,
be repaid to the Corporation, after which the Holders of the shares of Series C Term Preferred Stock so called for redemption shall
look only to the Corporation for payment of the Redemption Price thereof. The Corporation shall be entitled to receive, from time to time
after the Term Redemption Date, any interest on the Deposit Securities so deposited.
(d) Notwithstanding
the other provisions of this ARTICLE V, except as otherwise required by law, the Corporation shall not redeem any shares of Series C
Term Preferred Stock unless all accumulated and unpaid dividends and distributions on all Outstanding shares of Series C Term Preferred
Stock and other series of Preferred Stock ranking on a parity with the Series C Term Preferred Stock with respect to dividends and
distributions for all applicable past Dividend Periods (whether or not earned or declared by the Corporation) (x) shall have been
or are contemporaneously paid or (y) shall have been or are contemporaneously declared and Deposit Securities or sufficient funds
(in accordance with the terms of such Preferred Stock) for the payment of such dividends and distributions shall have been or are contemporaneously
deposited with the Redemption and Paying Agent or other applicable paying agent for such Preferred Stock in accordance with the terms
of such Preferred Stock, provided, however, that the foregoing shall not prevent the purchase or acquisition of Outstanding shares of
Series C Term Preferred Stock pursuant to an otherwise lawful purchase or exchange offer made on the same terms to Holders of all
Outstanding shares of Series C Term Preferred Stock and any other series of Preferred Stock for which all accumulated and unpaid
dividends and distributions have not been paid.
(e) To
the extent that any redemption for which Notice of Redemption has been provided is not made by reason of the absence of legally available
funds therefor in accordance with the Certificate of Incorporation and applicable law, such redemption shall be made as soon as practicable
to the extent such funds become available. No Redemption Default shall be deemed to have occurred if the Corporation shall fail to deposit
in trust with the Redemption and Paying Agent the Redemption Price with respect to any shares where (1) the Notice of Redemption
relating to such redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption. Notwithstanding
the fact that a Notice of Redemption has been provided with respect to any shares of Series C Term Preferred Stock, dividends may
be declared and paid on the shares of Series C Term Preferred Stock in accordance with their terms if Deposit Securities for the
payment of the Redemption Price of such shares of Series C Term Preferred Stock shall not have been deposited in trust with the Redemption
and Paying Agent for that purpose.
5.5.
Redemption Date After Record Date and Before Dividend Payment Date. Notwithstanding Section 5.1, Section 5.2, and Section 5.3,
if any Redemption Date occurs after the applicable Record Date for a dividend, but on or prior to the related Dividend Payment Date, the
dividend payable on such Dividend Payment Date in respect of such Series C Term Preferred Stock shall be payable on such Dividend
Payment Date to the Holders of record of such shares of Series C Term Preferred Stock at the close of business on the applicable
Record Date, and shall not be payable as part of the Redemption Price for such shares of Series C Term Preferred Stock.
5.6.
Redemption and Paying Agent as Trustee of Redemption Payments by Corporation. All Deposit Securities transferred to the Redemption and
Paying Agent for payment of the Redemption Price of the shares of Series C Term Preferred Stock called for redemption shall be held
in trust by the Redemption and Paying Agent for the benefit of Holders of shares of Series C Term Preferred Stock so to be redeemed
until paid to such Holders in accordance with the terms hereof or returned to the Corporation in accordance with the provisions of Section 5.4(c) above.
5.7.
Compliance with Applicable Law. In effecting any redemption pursuant to this ARTICLE V, the Corporation shall use its best efforts
to comply with all applicable conditions precedent to effecting such redemption under the 1940 Act and any applicable Delaware law, but
shall effect no redemption except in accordance with the 1940 Act and any applicable Delaware law.
5.8.
Modification of Redemption Procedures. Notwithstanding the foregoing provisions of this ARTICLE V, the Corporation may, in its sole
discretion and without a stockholder vote, modify the procedures set forth above with respect to notification of redemption for the shares
of Series C Term Preferred Stock, provided, that such modification does not materially and adversely affect the Holders of the shares
of Series C Term Preferred Stock or cause the Corporation to violate any applicable law, rule or regulation; and provided, further,
that no such modification shall in any way alter the rights or obligations of the Redemption and Paying Agent without its prior consent.
ARTICLE VI
VOTING
RIGHTS
6.1.
One Vote Per Share of Series C Term Preferred Stock. Except as otherwise provided in the Certificate of Incorporation or as otherwise
required by applicable law, (i) each Holder of shares of Series C Term Preferred Stock shall be entitled to one vote for each
share of Series C Term Preferred Stock held by such Holder on each matter submitted to a vote of stockholders of the Corporation,
and (ii) the Holders of Outstanding shares of Preferred Stock, including Outstanding shares of Series C Term Preferred Stock,
and holders of outstanding shares of Common Stock shall vote together as a single class; provided, however, that the Holders of Outstanding
shares of Preferred Stock, including Outstanding shares of Series C Term Preferred Stock, shall be entitled, as a class, to the exclusion
of the Holders of all other securities and classes of Capital Stock of the Corporation, to elect two Directors of the Corporation at all
times. Subject to Section 6.2, the Holders of outstanding shares of Common Stock and Preferred Stock, including shares of Series C
Term Preferred Stock, voting together as a single class, shall elect the balance of the Directors.
6.2. Voting For Additional
Directors.
(a) Voting
Period. During any period in which any one or more of the conditions described in clauses (i) or (ii) of this Section 6.2(a) shall
exist (such period being referred to herein as a “Voting Period”), the number of Directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the two Directors elected exclusively by the Holders of Preferred
Stock, including shares of Series C Term Preferred Stock, would constitute a majority of the Board of Directors as so increased by
such smallest number; and the Holders of Preferred Stock, including Series C Term Preferred Stock, shall be entitled, voting as a
class on a one-vote-per-share basis (to the exclusion of the Holders of all other securities and classes of Capital Stock of the Corporation),
to elect such smallest number of additional Directors, together with the two Directors that such Holders are in any event entitled to
elect. A Voting Period shall commence:
(i) if,
at the close of business on any dividend payment date for any Outstanding shares of Preferred Stock including any Outstanding shares of
Series C Term Preferred Stock, accumulated dividends (whether or not earned or declared) on such Outstanding shares of Preferred
Stock equal to at least two (2) full years’ dividends shall be due and unpaid and sufficient cash or specified securities shall
not have been deposited with the Redemption and Paying Agent or other applicable paying agent for the payment of such accumulated dividends;
or
(ii) if
at any time Holders of shares of Preferred Stock are otherwise entitled under the applicable provisions of the 1940 Act to elect a majority
of the Board of Directors.
Upon
the termination of a Voting Period, the voting rights described in this Section 6.2(a) shall cease, subject always, however,
to the revesting of such voting rights in the Holders of shares of Preferred Stock upon the further occurrence of any of the events described
in this Section 6.2(a).
(b) Notice
of Special Meeting. As soon as practicable after the accrual of any right of the Holders of shares of Preferred Stock to elect additional
Directors as described in Section 6.2(a), the Corporation shall call a special meeting of such Holders and notify the Redemption
and Paying Agent and/or such other Person as is specified in the terms of such Preferred Stock to receive notice (i) by mailing or
delivery by Electronic Means or (ii) in such other manner and by such other means as are specified in the terms of such Preferred
Stock, a notice of such special meeting to such Holders, such meeting to be held not less than ten (10) nor more than thirty (30)
calendar days after the date of the delivery by Electronic Means or mailing of such notice. If the Corporation fails to call such a special
meeting, it may be called at the expense of the Corporation by any such Holder on like notice. The record date for determining the Holders
of shares of Preferred Stock entitled to notice of and to vote at such special meeting shall be the close of business on the Business
Day preceding the calendar day on which such notice is mailed. At any such special meeting and at each meeting of Holders of shares of
Preferred Stock held during a Voting Period at which Directors are to be elected, such Holders, voting together as a class (to the exclusion
of the Holders of all other securities and classes of Capital Stock of the Corporation), shall be entitled to elect the number of Directors
prescribed in Section 6.2(a) on a one-vote-per-share basis.
(c) Terms
of Office of Existing Directors. The terms of office of the incumbent Directors of the Corporation at the time of a special meeting
of Holders of the shares of Preferred Stock to elect additional Directors in accordance with Section 6.2(a) shall not be affected
by the election at such meeting by the Holders of shares of Series C Term Preferred Stock and such other Holders of shares of Preferred
Stock of the number of Directors that they are entitled to elect, and the Directors so elected by the Holders of shares of Series C
Term Preferred Stock and such other Holders of shares of Preferred Stock, together with the two (2) Directors elected by the Holders
of shares of Preferred Stock in accordance with Section 6.1 hereof and the remaining Directors elected by the Holders of the shares
of Common Stock and Preferred Stock, shall constitute the duly elected Directors of the Corporation.
(d) Terms
of Office of Certain Directors to Terminate Upon Termination of Voting Period. Simultaneously with the termination of a Voting Period,
the terms of office of the additional Directors elected by the Holders of the shares of Preferred Stock pursuant to Section 6.2(a) shall
terminate, the remaining Directors shall constitute the Directors of the Corporation and the voting rights of the Holders of shares of
Preferred Stock to elect additional Directors pursuant to Section 6.2(a) shall cease, subject to the provisions of the last
sentence of Section 6.2(a).
6.3. Holders of Shares
of Series C Term Preferred Stock to Vote on Certain Matters.
(a) Certain
Amendments Requiring Approval of Preferred Stock. Except as otherwise permitted by the terms of this Certificate of Designation, (1) so
long as any shares of Preferred Stock are Outstanding, the Corporation shall not, without the affirmative vote or consent of the Holders
of at least two-thirds of the shares of Preferred Stock Outstanding at the time, voting together as a separate class, amend, alter or
repeal the provisions of the Certificate of Incorporation or this Certificate of Designation (or any other document governing the rights
of the Preferred Stock or the Holders thereof as may be required by the rules of any applicable securities exchange), whether by
merger, consolidation or otherwise, so as to materially and adversely affect any preference, right or power of such shares of the Preferred
Stock or the Holders thereof and (2) so long as any shares of Series C Term Preferred Stock are Outstanding, the Corporation
shall not, without the affirmative vote or consent of the Holders of at least two-thirds of the shares of Series C Term Preferred
Stock Outstanding at the time, voting together as a separate class, amend, alter or repeal the provisions of the Certificate of Incorporation
or this Certificate of Designation (or any other document governing the rights of the Series C Term Preferred Stock or the Holders
thereof as may be required by the rules of any applicable securities exchange), whether by merger, consolidation or otherwise, so
as to materially and adversely affect any preference, right or power of such shares of the Series C Term Preferred Stock or the Holders
thereof differently than shares of any other series of Preferred Stock; provided, however, that for purposes of this Section 6.3(a),
(i) a change in the capitalization of the Corporation in accordance with Section 7.1 hereof shall not be considered to materially
and adversely affect the rights and preferences of the Preferred Stock, including the Series C Term Preferred Stock, and (ii) a
division of a share of the Preferred Stock, including the Series C Term Preferred Stock, shall be deemed to affect such preferences,
rights or powers only if the terms of such division materially and adversely affect the Holders of the shares. For purposes of the foregoing,
no matter shall be deemed to adversely affect any preference, right or power of a share of Preferred Stock or any series thereof, or the
Holder of any such share unless such matter (x) alters or abolishes any preferential right of such share of Preferred Stock, or (y) creates,
alters or abolishes any right in respect of redemption of such share (other than as a result of a division of a share of Preferred Stock).
So long as any shares of Preferred Stock are Outstanding, the Corporation shall not, without the affirmative vote or consent of at least
sixty-seven percent (67%) of the Holders of the shares of Preferred Stock Outstanding at the time, voting as a separate class, file a
voluntary application for relief under federal bankruptcy law or any similar application under state law for so long as the Corporation
is solvent and does not foresee becoming insolvent.
(b) Certain
Amendments Requiring Approval of Series C Term Preferred Stock. The Corporation cannot effect any amendment, alteration or repeal
of the obligation to redeem all of the Series C Term Preferred Stock on June 30, 2031 without the prior unanimous consent of
the Holders of Series C Term Preferred Stock.
(c) 1940
Act Matters. Unless a higher percentage is provided for in the Certificate of Incorporation, the affirmative vote of the Holders of
at least “a majority of the outstanding shares of Preferred Stock,” including shares of Series C Term Preferred Stock
Outstanding at the time, voting as a separate class, shall be required (A) to approve any plan of reorganization (as such term is
used in the 1940 Act) adversely affecting such shares or (B) any action requiring a vote of Holders of the Corporation’s securities
pursuant to Section 13(a) of the 1940 Act. For purposes of the foregoing, the vote of a “majority of the outstanding shares
of Preferred Stock” means the vote at an annual or special meeting duly called of (i) sixty-seven percent (67%) or more of
such shares present at a meeting, if the Holders of more than fifty percent (50%) of such shares are present or represented by proxy at
such meeting, or (ii) more than fifty percent (50%) of such shares, whichever is less.
6.4.
Voting Rights Set Forth Herein Are Sole Voting Rights. Unless otherwise required by law or the Certificate of Incorporation, the Holders
of shares of Series C Term Preferred Stock shall not have any relative rights or preferences or other special rights with respect
to voting other than those specifically set forth in this ARTICLE VI.
6.5.
No Cumulative Voting. The Holders of shares of Series C Term Preferred Stock shall have no rights to cumulative voting.
6.6.
Voting for Directors Sole Remedy for Corporation’s Failure to Declare or Pay Dividends. In the event that the Corporation fails
to declare or pay any dividends on shares of Series C Term Preferred Stock on the Dividend Payment Date therefor, the exclusive remedy
of the Holders of the shares of Series C Term Preferred Stock shall be the right to vote for Directors pursuant to the provisions
of this ARTICLE VI. Nothing in this Section 6.6 shall be deemed to affect the obligation of the Corporation to accumulate and,
if permitted by applicable law, the Certificate of Incorporation and this Certificate of Designation, pay dividends at the Default Rate
in the circumstances contemplated by Section 2.8 hereof.
6.7.
Holders Entitled to Vote. For purposes of determining any rights of the Holders of shares of Series C Term Preferred Stock to vote
on any matter, whether such right is created by this Certificate of Designation, by the Certificate of Incorporation, by statute or otherwise,
no Holder of shares of Series C Term Preferred Stock shall be entitled to vote any share of Series C Term Preferred Stock and
no share of Series C Term Preferred Stock shall be deemed to be “Outstanding” for the purpose of voting or determining
the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to
vote or the time of the actual vote on the matter, as the case may be, the requisite Notice of Redemption with respect to such share of
Series C Term Preferred Stock shall have been given in accordance with this Certificate of Designation and Deposit Securities for
the payment of the Redemption Price of such share of Series C Term Preferred Stock shall have been deposited in trust with the Redemption
and Paying Agent for that purpose. No share of Series C Term Preferred Stock held by the Corporation shall have any voting rights
or be deemed to be Outstanding for voting or for calculating the voting percentage required on any other matter or other purposes.
ARTICLE VII
MISCELLANEOUS
7.1.
Issuance of Additional Preferred Stock. So long as any shares of Series C Term Preferred Stock are Outstanding, the Corporation may,
without the vote or consent of the Holders thereof, (a) authorize, establish and create and issue and sell shares of one or more
series of a class of senior securities of the Corporation representing stock under Section 18 of the 1940 Act, ranking on a parity
with the Series C Term Preferred Stock as to the payment of dividends and the distribution of assets upon dissolution, liquidation
or the winding up of the affairs of the Corporation, in addition to then Outstanding shares of Series C Term Preferred Stock, and
(b) authorize, issue and sell additional shares of any such series then Outstanding or so established and created, including additional
shares of Series C Term Preferred Stock, in each case in accordance with applicable law, provided that the Corporation shall, immediately
after giving effect to the issuance of such additional shares of Preferred Stock and to its receipt and application of the proceeds thereof,
including to the redemption of shares of Preferred Stock with such proceeds, have Asset Coverage (calculated in the same manner as is
contemplated by Section 4.2 hereof) of at least 200%.
7.2.
Status of Redeemed or Repurchased Series C Term Preferred Stock. Shares of Series C Term Preferred Stock that at any time have
been redeemed or purchased by the Corporation shall, after such redemption or purchase, have the status of authorized but unissued shares
of Capital Stock.
7.3.
Registered Name. Prior to the commencement of a Voting Period, (i) all shares of Series C Term Preferred Stock Outstanding from
time to time shall be registered in the name of the Depository Trust Company and its successors and assigns, or any other securities depository
selected by the Corporation that agrees to follow the procedures required to be followed by such securities depository as set forth in
this Certificate of Designation with respect to the Series C Term Preferred Stock (the “Securities Depository”) or its
nominee and (ii) no registration of transfer of shares of such Series C Term Preferred Stock shall be made on the books of the
Corporation to any Person other than the Securities Depository or its nominee.
7.4.
Notice. All notices or communications hereunder, unless otherwise specified in this Certificate of Designation, shall be sufficiently
given if in writing and delivered in person, by Electronic Means or by overnight mail or delivery or mailed by first-class mail, postage
prepaid. Notices delivered pursuant to this Section 7.4 shall be deemed given on the date received or, if mailed by first class mail,
on the date five (5) calendar days after which such notice is mailed.
7.5.
Termination. In the event that no shares of Series C Term Preferred Stock are Outstanding, all rights and preferences of the shares
of Series C Term Preferred Stock established and designated hereunder shall cease and terminate, and all obligations of the Corporation
under this Certificate of Designation with respect to such Series C Term Preferred Stock shall terminate.
7.6.
Amendment. The Board of Directors may, by resolution duly adopted, without stockholder approval (except as otherwise provided by this
Certificate of Designation or required by applicable law) amend this Certificate of Designation so as to reflect any amendments to the
terms applicable to the Series C Term Preferred Stock, including an increase in the number of authorized shares of the Series C
Term Preferred Stock.
7.7.
Actions on Other than Business Days. Unless otherwise provided herein, if the date for making any payment, performing any act or exercising
any right, in each case as provided for in this Certificate of Designation, is not a Business Day, such payment shall be made, act performed
or right exercised on the next succeeding Business Day, with the same force and effect as if made or done on the nominal date provided
therefor, and, with respect to any payment so made, no dividends, interest or other amount shall accrue for the period between such nominal
date and the date of payment.
7.8.
Modification. The Board of Directors, without the vote of the Holders of Series C Term Preferred Stock, may interpret, supplement
or amend the provisions of this Certificate of Designation to supply any omission, resolve any inconsistency or ambiguity or to cure,
correct or supplement any defective or inconsistent provision, including any provision that becomes defective after the date hereof because
of impossibility of performance or any provision that is inconsistent with any provision of any other Capital Stock of the Corporation.
7.9.
Information Rights. During any period in which the Corporation is not subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any shares of Series C Term Preferred Stock
are Outstanding, the Corporation will provide Holders of Series C Term Preferred Stock, without cost, copies of SEC Reports that
the Corporation would have been required to file pursuant to Section 13 or 15(d) of the Exchange Act if the Corporation was
subject to such provisions or, alternatively, the Corporation will voluntarily file SEC Reports as if the Corporation was subject to Section 13
or 15(d) of the Exchange Act.
7.10.
No Additional Rights. Unless otherwise required by law or the Certificate of Incorporation, the Holders of shares of Series C Term
Preferred Stock shall not have any relative rights or preferences or other special rights other than those specifically set forth in this
Certificate of Designation.
7.11. Interpretation.
(a) The
headings preceding the text of the Articles and Sections included in this Certificate of Designation are for convenience only and shall
not be deemed part of this Certificate of Designation or be given any effect in interpreting this Certificate of Designation. The use
of the masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit any provision of this
Certificate of Designation. The use of the terms “including” or “include” shall in all cases herein mean “including,
without limitation” or “include, without limitation,” respectively. Reference to any Person includes such Person’s
successors and assigns to the extent such successors and assigns are permitted by the terms of any applicable agreement, and reference
to a Person in a particular capacity excludes such Person in any other capacity or individually.
(b) Reference
to any agreement (including this Certificate of Designation), document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof. Except as otherwise
expressly set forth herein, reference to any law means such law as amended, modified, codified, replaced or re-enacted, in whole or in
part, including rules, regulations, enforcement procedures and any interpretations promulgated thereunder. Underscored references to Articles
and Sections shall refer to those portions of this Certificate of Designation. The use of the terms “hereunder,” “hereof,”
“hereto” and words of similar import shall refer to this Certificate of Designation as a whole and not to any particular Article,
Section or clause of this Certificate of Designation.
[Signature Page Follows]
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be duly executed by its duly authorized officer as of this
15th day of June 2021.
EAGLE POINT CREDIT COMPANY INC.
By: |
/s/ Thomas P. Majewski |
|
Name: Thomas P. Majewski |
|
Title: Chief Executive Officer |
|
APPENDIX
B
CERTIFICATE OF
DESIGNATION
OF
6.75% SERIES D PREFERRED STOCK
OF
EAGLE POINT CREDIT COMPANY INC.
Pursuant to Section 151
of the
General Corporation Law of the State of Delaware
Eagle
Point Credit Company Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”),
certifies that pursuant to the authority contained in its certificate of incorporation (the “Certificate of Incorporation”),
and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the “DGCL”),
the Board of Directors of the Corporation (the “Board of Directors,” which term as used herein shall include any duly authorized
committee of the Board of Directors) has duly approved and adopted the following resolution on November 17, 2021:
RESOLVED,
that pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation
and as set forth in Section 151 of the DGCL, the Board of Directors does hereby approve the designation of 3,500,000 authorized but
unissued shares of preferred stock, par value $0.001 per share, without designation as to series as 6.75% Series D Preferred Stock
(the “Series D Preferred Stock”), having the designations, preferences, relative, participating, optional and other special
rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this
resolution as follows:
ARTICLE I
NUMBER
OF SHARES; RANKING
1.1.
A series of 3,500,000 shares of the preferred stock, par value $0.001 per share, authorized by the Certificate of Incorporation are hereby
designated as the Series D Preferred Stock. Each share of Series D Preferred Stock shall have such preferences, voting powers,
restrictions, limitations as to dividends and distributions, qualifications and terms and conditions of redemption, in addition to those
required by applicable law and those that are expressly set forth in the Certificate of Incorporation, as are set forth in this Certificate
of Designation. The Series D Preferred Stock shall constitute a separate series of Capital Stock (as defined below) and each share
of Series D Preferred Stock shall be identical. No fractional shares of Series D Preferred Stock shall be issued.
1.2.
The Series D Preferred Stock shall rank on parity with (i) shares of the Corporation’s 7.75% Series B Term Preferred
Stock due 2026, par value $0.001 per share, (ii) shares of the Corporation’s 6.50% Series C Term Preferred Stock due 2031,
par value $0.001 per share, (iii) any other series of preferred stock, whether now or hereafter issued by the Corporation and (iv) any
other shares of Capital Stock hereafter authorized and issued by the Corporation of a class having priority over any other class as to
distribution of assets or payments of dividends (collectively with the Series D Preferred Stock, the “Preferred Stock”)
as to the payment of dividends and as to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the
Corporation. The Series D Preferred Stock shall have preference with respect to the payment of dividends and as to distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Corporation over the shares of common stock, par value $0.001
per share (the “Common Stock” and, together with the Preferred Stock, the “Capital Stock”), of the Corporation
as set forth herein.
1.3.
No individual, partnership, trust, corporation, limited liability company, unincorporated association, joint venture or other entity,
or government or any agency or political subdivision thereof (each, a “Person”) in whose name the Series D Preferred
Stock or any other security issued by the Corporation is registered in the registration books of the Corporation maintained by American
Stock Transfer & Trust Company, LLC and its successors, or any other redemption and paying agent appointed by the Corporation
with respect to the Series D Preferred Stock (the “Redemption and Paying Agent”) or otherwise (such Person, a “Holder”),
shall have, solely by reason of being such a Holder, any preemptive or other right to acquire, purchase or subscribe for any shares of
Series D Preferred Stock, shares of other Preferred Stock, shares of Common Stock or other securities of the Corporation that it
may hereafter issue or sell.
ARTICLE II
DIVIDENDS
AND DISTRIBUTIONS
2.1.
The Holders of shares of Series D Preferred Stock shall be entitled to receive, when, as and if declared by, or under authority granted
by, the Board of Directors, out of funds legally available therefor and in preference to dividends and distributions on the Common Stock,
cumulative cash dividends and distributions on each share of Series D Preferred Stock, calculated separately for each Dividend Period
(as defined below) at, as of any date, 6.75% per annum (the “Fixed Dividend Rate”) as adjusted, if a Default Period (as defined
below) shall be in existence on such date, in accordance with the provisions of Section 2.8 (the “Dividend Rate”) in
effect from time to time for the Series D Preferred Stock during such Dividend Period, computed on the basis of a 360-day year consisting
of twelve 30-day months, on an amount equal to $25.00 (the “Liquidation Preference”) for each share of the Series D Preferred
Stock, and no more. In the case of each share of Series D Preferred Stock issued on November 29, 2021 (the “Date of Original
Issue”), dividends and distributions on such shares of Series D Preferred Stock shall accumulate from the Date of Original
Issue. In the case of a share of Series D Preferred Stock issued on a date subsequent to the Date of Original Issue, (a) if
such share is issued before the Record Date (as defined below) for the Dividend Period in which such share is issued, dividends and distributions
on such share of Series D Preferred Stock shall accumulate from the first day of such Dividend Period and (b) if such share
is issued after the Record Date for the Dividend Period in which such share is issued, dividends and distributions on such share of Series D
Preferred Stock shall accumulate from the first day of the Dividend Period immediately following the issuance of such share. Dividends
and distributions on all shares of Series D Preferred Stock shall be payable monthly in arrears as provided in Section 2.2.
The amount of dividends payable on shares of the Series D Preferred Stock on any date prior to the end of a Dividend Period, and
for the initial Dividend Period, will be computed on the basis of actual days elapsed over a 30-day month.
“Dividend
Period” means, with respect to each share of Series D Preferred Stock then Outstanding (as defined below), in the case of the
first Dividend Period, the period beginning on and including the Date of Original Issue and ending on, but excluding December 31,
2021 and, for each subsequent Dividend Period, the period beginning on and including the last Dividend Payment Date (as defined below)
and ending on, but excluding, the next Dividend Payment Date.
2.2.
Declaration and Payment; Dividends in Arrears.
(a) Dividends
on shares of the Series D Preferred Stock with respect to any Dividend Period shall be declared to the Holders of record of such
shares as their names shall appear on the registration books of the Corporation at the close of business on the applicable record date,
which shall be such date designated by the Board of Directors that is not more than twenty (20) nor less than seven (7) calendar
days prior to the Dividend Payment Date with respect to such Dividend Period (each, a “Record Date”).
(b) Dividends
declared pursuant to Section 2.1 shall be paid on the last business day of every calendar month, beginning December 31, 2021
(each, a “Dividend Payment Date”) to the Holders of shares of Series D Preferred Stock as their names appear on the registration
books of the Corporation at the close of business on the applicable Record Date for such dividend; provided, however, that dividends with
respect to the first Dividend Period of the Series D Preferred Stock will be paid on December 31, 2021 to Holders of record
of such Series D Preferred Stock as their names appear on the registration books of the Corporation at the close of business on December 13,
2021. If a Dividend Payment Date falls on a non-Business Day (as defined below), the applicable dividend payment will be made on the next
Business Day and no additional dividend payment will accrue as a result of such delayed payment.
(c) Dividends
in arrears on shares of Series D Preferred Stock for any past Dividend Period may be declared and paid at any time, without reference
to any regular Dividend Payment Date, to the Holders of such shares as their names appear on the registration books of the Corporation
on the applicable Record Date. No interest or sum of money in lieu of interest will be payable in respect of any dividend payment or payments
on shares of Series D Preferred Stock which may be in arrears.
2.3.
No full dividends and distributions shall be declared or paid on shares of the Series D Preferred Stock for any Dividend Period or
part thereof unless full cumulative dividends and distributions due through the most recent Dividend Payment Dates therefor for all Outstanding
shares of Preferred Stock have been or contemporaneously are declared and paid through the most recent Dividend Payment Dates therefor.
If full cumulative dividends and distributions due have not been declared and paid on all Outstanding shares of Preferred Stock, any dividends
and distributions being declared and paid on the Series D Preferred Stock will be declared and paid as nearly pro rata as possible
in proportion to the respective amounts of dividends and distributions accumulated but unpaid on each such series of Preferred Stock on
the relevant dividend payment date for such series. No Holders of shares of Series D Preferred Stock shall be entitled to any dividends
and distributions, whether payable in cash, property or shares, in excess of full cumulative dividends and distributions as provided in
this Section 2.3 on the Series D Preferred Stock.
2.4.
For so long as any shares of Series D Preferred Stock are Outstanding, the Corporation shall not: (x) declare any dividend or
other distribution (other than a dividend or distribution paid in shares of Common Stock) in respect of the Common Stock, (y) call
for redemption, redeem, purchase or otherwise acquire for consideration any Common Stock, or (z) pay any proceeds of the liquidation
of the Corporation in respect of the Common Stock, unless, in each case,
(a) immediately
thereafter, the Corporation shall have “asset coverage,” as defined for purposes of Section 18(h) of the Investment
Company Act of 1940, as amended, or any successor statute (the “1940 Act”), of at least 200% with respect to all Outstanding
senior securities which are stock of the Corporation, including all Outstanding shares of Series D Preferred Stock (or such other
percentage as may in the future be specified in the 1940 Act or by rule, regulation or order of the Securities and Exchange Commission
(the “SEC”) as the minimum asset coverage for senior securities which are stock of a closed-end registered investment company),
after deducting the amount of such dividend or distribution or redemption or purchase price or liquidation proceeds;
(b) all
cumulative dividends and distributions on all shares of Preferred Stock due on or prior to the date of the applicable dividend, distribution,
redemption, purchase or acquisition shall have been either (i) declared and paid or (ii) declared and Deposit Securities (as
defined below) or sufficient funds (in accordance with the terms of such Preferred Stock) for the payment thereof shall have been deposited
irrevocably with the paying agent for such Preferred Stock; and
(c) the
Corporation shall have deposited Deposit Securities pursuant to and in accordance with the requirements of Section 5.4 hereof with
respect to Outstanding shares of Series D Preferred Stock to be redeemed pursuant to Section 5.1 or Section 5.2 hereof
for which a Notice of Redemption (as defined below) shall have been given or shall have been required to be given in accordance with the
terms hereof on or prior to the date of the applicable dividend, distribution, redemption, purchase or acquisition.
“Outstanding”
means, as of any date with respect to a series of Preferred Stock, the number of shares of such series of Preferred Stock theretofore
issued by the Corporation except (without duplication): (A) any shares of the applicable series of Preferred Stock theretofore cancelled
or redeemed or delivered to the Redemption and Paying Agent for cancellation or redemption in accordance with the terms hereof; (B) any
shares of the applicable series of Preferred Stock as to which the Corporation shall have given a Notice of Redemption and irrevocably
deposited with the Redemption and Paying Agent sufficient Deposit Securities to redeem such shares in accordance with ARTICLE V hereof;
and (C) any shares of the applicable series of Preferred Stock as to which the Corporation shall be the Holder or the beneficial
owner.
“Deposit
Securities” means, as of any date, any U.S. dollar-denominated security or other investment of a type described below that either
(i) is a demand obligation payable to the holder thereof on any Business Day or (ii) has a maturity date, mandatory redemption
date or mandatory payment date, on its face or at the option of the holder, preceding the relevant Redemption Date (as defined below),
Dividend Payment Date or other payment date in respect of which such security or other investment has been deposited or set aside as a
Deposit Security: (A) cash or any cash equivalent; (B) any U.S. Government Obligation (as defined below); (C) any Short-Term
Money Market Instrument (as defined below); (D) any investment in any money market fund registered under the 1940 Act that qualifies
under Rule 2a-7 under the 1940 Act, or similar investment vehicle described in Rule 12d1-1(b)(2) under the 1940 Act, that
invests principally in Short-Term Money Market Instruments or U.S. Government Obligations or any combination thereof; or (E) any
letter of credit from a bank or other financial institution that has a credit rating from at least one nationally recognized statistical
rating organization that is the highest applicable rating generally ascribed by such rating agency to bank deposits or short-term debt
of similar banks or other financial institutions as of the date of this Certificate of Designation (or such rating’s future equivalent).
“Short-Term
Money Market Instruments” means the following types of instruments if, on the date of purchase or other acquisition thereof by the
Corporation, the remaining term to maturity thereof is not in excess of 180 days: (i) commercial paper rated A-1, if such commercial
paper matures within 30 days, or A-1+, if such commercial paper matures in over 30 days; (ii) demand or time deposits in, and bankers’
acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United
States of America or any state thereof or the District of Columbia or (B) a U.S. branch office or agency of a foreign depository
institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state
thereof or the District of Columbia); and (iii) overnight funds.
“U.S.
Government Obligations” means direct obligations of the United States or of its agencies or instrumentalities that are entitled
to the full faith and credit of the United States and that, other than U.S. treasury bills, provide for the periodic payment of interest
and the full payment of principal at maturity or call for redemption.
2.5.
Any dividend payment made on shares of Series D Preferred Stock shall first be credited against the dividends and distributions accumulated
with respect to the earliest Dividend Period for which dividends and distributions have not been paid.
2.6.
Not later than 12:00 noon, New York City time, on a Dividend Payment Date, the Corporation shall deposit with the Redemption and Paying
Agent Deposit Securities having an aggregate Market Value (as defined below) on such date sufficient to pay the dividends and distributions
that are payable on such Dividend Payment Date. The Corporation may direct the Redemption and Paying Agent with respect to the investment
or reinvestment of any such Deposit Securities prior to the Dividend Payment Date, provided, that such investment consists exclusively
of Deposit Securities and provided, further, that the proceeds of any such investment will be available as same day funds at the opening
of business on such Dividend Payment Date.
“Market
Value” of any asset means, for securities for which market quotations are readily available, the market value thereof determined
by an independent third-party pricing service designated from time to time by the Board of Directors. Market Value of any asset shall
include any interest accrued thereon. The pricing service values portfolio securities at the mean between the quoted bid and asked price
or the yield equivalent when quotations are readily available. Securities for which quotations are not readily available are valued at
fair value as determined by the pricing service using methods that include consideration of: yields or prices of securities of comparable
quality, type of issue, coupon, maturity and rating, indications as to value from dealers and general market conditions. The pricing service
may employ electronic data processing techniques or a matrix system, or both, to determine recommended valuations.
2.7.
All Deposit Securities paid to the Redemption and Paying Agent for the payment of dividends payable on the Series D Preferred Stock
shall be held in trust for the payment of such dividends by the Redemption and Paying Agent for the benefit of the Holders entitled to
the payment of such dividends pursuant to Section 2.2. Any moneys paid to the Redemption and Paying Agent in accordance with the
foregoing but not applied by the Redemption and Paying Agent to the payment of dividends, including interest earned on such moneys while
so held, will, to the extent permitted by law, be repaid to the Corporation as soon as possible after the date on which such moneys were
to have been so applied, upon request of the Corporation.
2.8. Dividend Default.
(a) The
Dividend Rate on the Series D Preferred Stock shall be adjusted, for any calendar day, to the Fixed Dividend Rate plus two percent
(2%) per annum (the “Default Rate”) in the following circumstances. Subject to the cure provisions below, a “Default
Period” with respect to the Series D Preferred Stock shall commence on any date the Corporation fails to deposit with the Redemption
and Paying Agent by 12:00 noon, New York City time, on (A) a Dividend Payment Date, Deposit Securities that will provide funds available
to the Redemption and Paying Agent on such Dividend Payment Date sufficient to pay the full amount of any dividend payable on such Dividend
Payment Date (a “Dividend Default”) or (B) an applicable Redemption Date, Deposit Securities that will provide funds
available to the Redemption and Paying Agent on such Redemption Date sufficient to pay the full amount of the Liquidation Preference for the
shares of the Series D Preferred Stock, plus an amount equal to all unpaid dividends and distributions on such shares accumulated
to (but excluding) the date fixed for such distribution or payment on such shares (whether or not earned or declared by the Corporation,
but excluding interest thereon) (such amount, the “Redemption Price”), payable in respect of such series on such Redemption
Date (a “Redemption Default” and together with a Dividend Default, hereinafter referred to as “Default”). Subject
to the cure provisions of Section 2.8(b) below, a Default Period with respect to a Default on the Series D Preferred Stock
shall end on the calendar day on which the New York Stock Exchange is open for trading (each such day, a “Business Day”) on
which, by 12:00 noon, New York City time, an amount equal to all unpaid dividends and any unpaid Redemption Price shall have been deposited
irrevocably in trust in same-day funds with the Redemption and Paying Agent. The Dividend Rate on the Series D Preferred Stock for
each calendar day during the Default Period will be equal to the Default Rate.
(b) No
Default Period for the Series D Preferred Stock with respect to any Default on the Series D Preferred Stock shall be deemed
to commence if the amount of any dividend or any Redemption Price due in respect of the Series D Preferred Stock (if such Default
is not solely due to the willful failure of the Corporation) is deposited irrevocably in trust, in same-day funds, with the Redemption
and Paying Agent by 12:00 noon, New York City time, on a Business Day that is not later than three (3) Business Days after the applicable
Dividend Payment Date or Redemption Date with respect to which such Default occurred, together with an amount equal to the Default Rate
applied to the amount and period of such non-payment based on the actual number of calendar days comprising such period divided by three
hundred and sixty (360).
ARTICLE III
LIQUIDATION
RIGHTS
3.1.
In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders
of shares of Series D Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution
to stockholders, after satisfying claims of creditors but before any distribution or payment shall be made in respect of the Common Stock,
a liquidation distribution of the Redemption Price, and such Holders shall be entitled to no further participation in any distribution
or payment in connection with any such liquidation, dissolution or winding up.
3.2.
If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of
the Corporation available for distribution among the Holders of all Outstanding shares of Series D Preferred Stock and any other
Outstanding shares of Preferred Stock shall be insufficient to permit the payment in full to such Holders of the Redemption Price as provided
in Section 3.1 above and the amounts due upon liquidation with respect to such other Preferred Stock, then such available assets
shall be distributed among the Holders of such shares of Series D Preferred Stock and such other Preferred Stock ratably in proportion
to the respective preferential liquidation amounts to which they are entitled. In connection with any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary, unless and until the Redemption Price, as provided in Section 3.1
above has been paid in full to the Holders of such shares, no dividends, distributions or other payments will be made on, and no redemption,
purchase or other acquisition by the Corporation will be made by the Corporation in respect of, shares of the Common Stock.
3.3.
Neither the sale of all or substantially all of the property or business of the Corporation, nor the merger, consolidation or reorganization
of the Corporation into or with any other business or statutory trust, corporation or other entity, nor the merger, consolidation or reorganization
of any other business or statutory trust, corporation or other entity into or with the Corporation shall be a dissolution, liquidation
or winding up, whether voluntary or involuntary, for the purpose of this ARTICLE III.
ARTICLE IV
ASSET
COVERAGE TEST
4.1.
Asset Coverage Requirement. For so long as any shares of Series D Preferred Stock are Outstanding, the Corporation shall have “asset
coverage” of a class of senior security which is stock, as defined for purposes of Section 18(h) of the 1940 Act as in
effect on the date hereof (“Asset Coverage”), of at least 200% as of the close of business on the last Business Day of
any of the three month periods ending March 31, June 30, September 30 or December 31 of each year (each, a “Calendar
Quarter”). If the Corporation shall fail to maintain such Asset Coverage as of any time as of which such compliance is required
to be determined as aforesaid, the provisions of Section 5.2(a) shall be applicable, which provisions shall constitute the sole
remedy for the Corporation’s failure to comply with the provisions of this Section 4.1.
4.2.
Calculation of Asset Coverage. For purposes of determining whether the requirements of Section 4.1 are satisfied, (i) no shares
of Series D Preferred Stock or other Preferred Stock shall be deemed to be Outstanding for purposes of any computation required by
Section 4.1 if, prior to or concurrently with such determination, either (x) sufficient Deposit Securities or other sufficient
funds (in accordance with the terms of the Series D Preferred Stock or other Preferred Stock) to pay the full Redemption Price for
the Series D Preferred Stock or other Preferred Stock (or the portion thereof to be redeemed) shall have been deposited in trust
with the paying agent for the Series D Preferred Stock or other Preferred Stock and the requisite notice of redemption for the Series D
Preferred Stock or other Preferred Stock (or the portion thereof to be redeemed) shall have been given or (y) sufficient Deposit
Securities or other sufficient funds (in accordance with the terms of the Series D Preferred Stock or other Preferred Stock) to pay
the full Redemption Price for the Series D Preferred Stock or other Preferred Stock (or the portion thereof to be redeemed) shall
have been segregated by a bank, as defined in Section 2(a)(5) of the 1940 Act, that has the qualifications prescribed in Section 26(a)(1) of
the 1940 Act, or such other entity as shall be then providing custodian services to the Corporation as permitted by the 1940 Act or any
rule, regulation, or order thereunder (the “Custodian,” which shall include any similarly qualified sub-custodian duly appointed
by the Custodian) and the Corporation from the assets of the Corporation, by means of appropriate identification on the Custodian’s
books and records or otherwise in accordance with the Custodian’s normal procedures, and (ii) the Deposit Securities or other
sufficient funds that shall have been deposited with the applicable paying agent and/or segregated by the Custodian, as applicable, as
provided in clause (i) of this sentence shall not be included as assets of the Corporation for purposes of such computation.
ARTICLE V
REDEMPTION
Shares
of Series D Preferred Stock shall be subject to redemption by the Corporation as provided below:
5.1. [Reserved].
5.2. Asset Coverage Mandatory
Redemption.
(a) If
the Corporation fails to comply with the Asset Coverage requirement as provided in Section 4.1 as of the last Business Day of any
Calendar Quarter and such failure is not cured as of the date that is thirty (30) calendar days following the date of filing of the Corporation’s
Annual Report on Form N-CSR, Semiannual Report on Form N-CSRS or Reports on Form N-PORT, as applicable (each, an “SEC
Report”) with the SEC with respect to such Calendar Quarter (such Business Day, the “Asset Coverage Cure Date”), the
Corporation shall, to the extent permitted by the 1940 Act and Delaware law, by the close of business on such Asset Coverage Cure Date,
fix a redemption date and proceed to redeem in accordance with the terms of such Preferred Stock, a sufficient number of shares of Preferred
Stock, which at the Corporation’s sole option (to the extent permitted by the 1940 Act and Delaware law) may include any number
or proportion of the shares of Series D Preferred Stock, to enable it to meet the requirements of Section 5.2(b). In the event
that any shares of Series D Preferred Stock then Outstanding are to be redeemed pursuant to this Section 5.2(a), the Corporation
shall redeem such shares at a price per share equal to the Redemption Price.
(b) On
the redemption date for a redemption contemplated by Section 5.2(a), the Corporation shall redeem, out of funds legally available
therefor, (x) such number of shares of Preferred Stock (which may include at the sole option of the Corporation any number or proportion
of the shares of Series D Preferred Stock) that, when combined with any debt securities redeemed for failure to maintain the asset
coverage required by the indenture governing such securities, the redemption of which, if deemed to have occurred immediately prior to
the opening of business on the Asset Coverage Cure Date, would result in the Corporation having Asset Coverage on such Asset Coverage
Cure Date of at least 200% (provided, however, that if there is no such minimum number of shares of Series D Preferred Stock and
other shares of Preferred Stock the redemption or retirement of which would have such result, all shares of Series D Preferred Stock
and other shares of Preferred Stock then Outstanding shall be redeemed), or (y) if fewer, the maximum number of shares of Preferred
Stock that can be redeemed out of funds expected to be legally available therefor in accordance with the Certificate of Incorporation
and applicable law, provided, further, that in connection with redemption for failure to maintain such Asset Coverage requirement, the
Corporation may at its sole option, but is not required to, redeem a sufficient number of shares of Series D Preferred Stock pursuant
to this Section 5.2 that, when aggregated with other shares of Preferred Stock redeemed by the Corporation, would result, if deemed
to have occurred immediately prior to the opening of business on the Asset Coverage Cure Date, in the Corporation having Asset Coverage
on such Asset Coverage Cure Date of up to and including 285%. The Corporation shall effect such redemption on the date fixed by the Corporation
therefor, which date shall not be later than ninety (90) calendar days after such Asset Coverage Cure Date, except that if the Corporation
does not have funds legally available for the redemption of all of the required number of shares of Series D Preferred Stock and
other shares of Preferred Stock which have been designated to be redeemed or the Corporation otherwise is unable to effect such redemption
on or prior to ninety (90) calendar days after such Asset Coverage Cure Date, the Corporation shall redeem those shares of Series D
Preferred Stock and other shares of Preferred Stock which it was unable to redeem on the earliest practicable date on which it is able
to effect such redemption. If fewer than all of the Outstanding shares of Series D Preferred Stock are to be redeemed pursuant to
this Section 5.2, the number of shares of Series D Preferred Stock to be redeemed shall be redeemed (A) pro rata among
the Outstanding shares of Series D Preferred Stock or (B) by lot.
5.3. Optional Redemption.
(a) Subject
to the provisions of Section 5.3(b), on any Business Day following the expiration of the “No-Call Period,” which is the
period beginning on the Date of Original Issue and ending at the close of business on November 29, 2026, the Corporation may redeem
in whole or in part from time to time the Outstanding shares of Series D Preferred Stock at a price per share equal to the Redemption
Price (any such Business Day referred to in this sentence, an “Optional Redemption Date”).
(b) If
fewer than all of the Outstanding shares of Series D Preferred Stock are to be redeemed pursuant to Section 5.3(a), the shares
of Series D Preferred Stock to be redeemed shall be selected either (A) pro rata or (B) by lot. Subject to the provisions
of this Certificate of Designation and applicable law, the Board of Directors will have the full power and authority to prescribe the
terms and conditions upon which shares of Series D Preferred Stock will be redeemed pursuant to this Section 5.3 from time to
time.
(c) The
Corporation may not on any date deliver a Notice of Redemption pursuant to Section 5.4 in respect of a redemption contemplated to
be effected pursuant to this Section 5.3 unless on such date the Corporation has available Deposit Securities for the Optional Redemption
Date contemplated by such Notice of Redemption having a Market Value not less than the amount due to Holders of shares of Series D
Preferred Stock by reason of the redemption of such shares of Series D Preferred Stock on such Optional Redemption Date.
5.4. Procedures for Redemption.
(a) If
the Corporation shall determine or be required to redeem, in whole or in part, shares of Series D Preferred Stock pursuant to Section 5.1,
Section 5.2, or Section 5.3, the Corporation shall deliver a notice of redemption (the “Notice of Redemption”),
by overnight delivery, by first class mail, postage prepaid or by Electronic Means (as defined below) to Holders thereof, or request the
Redemption and Paying Agent, on behalf of the Corporation, to promptly do so by overnight delivery, by first class mail, postage prepaid
or by Electronic Means. A Notice of Redemption shall be provided not less than thirty (30) nor more than sixty (60) calendar days prior
to the date fixed for redemption in such Notice of Redemption (the “Redemption Date”). Each such Notice of Redemption shall
state: (A) the Redemption Date; (B) the number of shares of Series D Preferred Stock to be redeemed; (C) the CUSIP
number for shares of Series D Preferred Stock; (D) the applicable Redemption Price on a per share basis; (E) that dividends
on the shares of Series D Preferred Stock to be redeemed will cease to accumulate from and after such Redemption Date; and (F) the
provision(s) of this Certificate of Designation under which such redemption is made. If fewer than all shares of Series D
Preferred Stock held by any Holder are to be redeemed, the Notice of Redemption delivered to such Holder shall also specify the number
of shares of Series D Preferred Stock to be redeemed from such Holder or the method of determining such number. The Corporation may
provide in any Notice of Redemption relating to a redemption contemplated to be effected pursuant to this Certificate of Designation that
such redemption is subject to one or more conditions precedent and that the Corporation shall not be required to effect such redemption
unless each such condition has been satisfied at the time or times and in the manner specified in such Notice of Redemption. No defect
in the Notice of Redemption or delivery thereof shall affect the validity of redemption proceedings, except as required by applicable
law.
“Electronic
Means” means e-mail transmission, facsimile transmission or other similar electronic means of communication providing evidence of
transmission (but excluding online communications systems covered by a separate agreement) acceptable to the sending party and the receiving
party, in any case if operative as between any two parties, or, if not operative, by telephone (promptly confirmed by any other method
set forth in this definition), which, in the case of notices to the Redemption and Paying Agent and the Custodian, shall be sent by such
means to each of its representatives set forth in (i) the Redemption and Paying Agent Agreement, or other similarly titled agreement,
by and among the Redemption and Paying Agent for the Series D Preferred Stock and the Corporation and (ii) the Custodian Agreement
by and among the Custodian and the Corporation with respect to the Series D Preferred Stock, respectively.
(b) If
the Corporation shall give a Notice of Redemption, then at any time from and after the giving of such Notice of Redemption and prior to
12:00 noon, New York City time, on the Redemption Date (so long as any conditions precedent to such redemption have been met or waived
by the Corporation), the Corporation shall (A) deposit with the Redemption and Paying Agent Deposit Securities having an aggregate
Market Value on the date thereof no less than the Redemption Price of the shares of Series D Preferred Stock to be redeemed on the
Redemption Date and (B) give the Redemption and Paying Agent irrevocable instructions and authority to pay the applicable Redemption
Price to the Holders of the shares of Series D Preferred Stock called for redemption on the Redemption Date. The Corporation may
direct the Redemption and Paying Agent with respect to the investment of any Deposit Securities consisting of cash so deposited prior
to the Redemption Date, provided, that the proceeds of any such investment shall be available at the opening of business on the Redemption
Date as same day funds.
(c) Upon
the date of the deposit of such Deposit Securities, all rights of the Holders of the shares of Series D Preferred Stock so called
for redemption shall cease and terminate except the right of the Holders thereof to receive the Redemption Price thereof and such shares
of Series D Preferred Stock shall no longer be deemed Outstanding for any purpose whatsoever (other than (A) the transfer thereof
prior to the applicable Redemption Date and (B) the accumulation of dividends thereon in accordance with the terms hereof up to (but
excluding) the applicable Redemption Date, which accumulated dividends, unless previously or contemporaneously declared and paid as contemplated
by Section 5.4(d) below, shall be payable only as part of the applicable Redemption Price on the Redemption Date). The Corporation
shall be entitled to receive, promptly after the Redemption Date, any Deposit Securities in excess of the aggregate Redemption Price of
the shares of Series D Preferred Stock called for redemption on the Redemption Date. Any Deposit Securities so deposited that are
unclaimed at the end of ninety (90) calendar days from the Redemption Date shall, to the extent permitted by law, be repaid to the Corporation,
after which the Holders of the shares of Series D Preferred Stock so called for redemption shall look only to the Corporation for
payment of the Redemption Price thereof. The Corporation shall be entitled to receive, from time to time after the Redemption Date, any
interest on the Deposit Securities so deposited.
(d) Notwithstanding
the other provisions of this ARTICLE V, except as otherwise required by law, the Corporation shall not redeem any shares of Series D
Preferred Stock unless all accumulated and unpaid dividends and distributions on all Outstanding shares of Series D Preferred Stock
and other series of Preferred Stock ranking on a parity with the Series D Preferred Stock with respect to dividends and distributions
for all applicable past Dividend Periods (whether or not earned or declared by the Corporation) (x) shall have been or are contemporaneously
paid or (y) shall have been or are contemporaneously declared and Deposit Securities or sufficient funds (in accordance with the
terms of such Preferred Stock) for the payment of such dividends and distributions shall have been or are contemporaneously deposited
with the Redemption and Paying Agent or other applicable paying agent for such Preferred Stock in accordance with the terms of such
Preferred Stock, provided, however, that the foregoing shall not prevent the purchase or acquisition of Outstanding shares of Series D
Preferred Stock pursuant to an otherwise lawful purchase or exchange offer made on the same terms to Holders of all Outstanding shares
of Series D Preferred Stock and any other series of Preferred Stock for which all accumulated and unpaid dividends and distributions
have not been paid.
(e) To
the extent that any redemption for which Notice of Redemption has been provided is not made by reason of the absence of legally available
funds therefor in accordance with the Certificate of Incorporation and applicable law, such redemption shall be made as soon as practicable
to the extent such funds become available. No Redemption Default shall be deemed to have occurred if the Corporation shall fail to deposit
in trust with the Redemption and Paying Agent the Redemption Price with respect to any shares where (1) the Notice of Redemption
relating to such redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption. Notwithstanding
the fact that a Notice of Redemption has been provided with respect to any shares of Series D Preferred Stock, dividends may be declared
and paid on the shares of Series D Preferred Stock in accordance with their terms if Deposit Securities for the payment of the Redemption
Price of such shares of Series D Preferred Stock shall not have been deposited in trust with the Redemption and Paying Agent for
that purpose.
5.5.
Redemption Date After Record Date and Before Dividend Payment Date. Notwithstanding Section 5.1, Section 5.2, and Section 5.3,
if any Redemption Date occurs after the applicable Record Date for a dividend, but on or prior to the related Dividend Payment Date, the
dividend payable on such Dividend Payment Date in respect of such Series D Preferred Stock shall be payable on such Dividend Payment
Date to the Holders of record of such shares of Series D Preferred Stock at the close of business on the applicable Record Date,
and shall not be payable as part of the Redemption Price for such shares of Series D Preferred Stock.
5.6.
Redemption and Paying Agent as Trustee of Redemption Payments by Corporation. All Deposit Securities transferred to the Redemption and
Paying Agent for payment of the Redemption Price of the shares of Series D Preferred Stock called for redemption shall be held in
trust by the Redemption and Paying Agent for the benefit of Holders of shares of Series D Preferred Stock so to be redeemed until
paid to such Holders in accordance with the terms hereof or returned to the Corporation in accordance with the provisions of Section 5.4(c) above.
5.7.
Compliance with Applicable Law. In effecting any redemption pursuant to this ARTICLE V, the Corporation shall use its best efforts
to comply with all applicable conditions precedent to effecting such redemption under the 1940 Act and any applicable Delaware law, but
shall effect no redemption except in accordance with the 1940 Act and any applicable Delaware law.
5.8.
Modification of Redemption Procedures. Notwithstanding the foregoing provisions of this ARTICLE V, the Corporation may, in its sole
discretion and without a stockholder vote, modify the procedures set forth above with respect to notification of redemption for the shares
of Series D Preferred Stock, provided, that such modification does not materially and adversely affect the Holders of the shares
of Series D Preferred Stock or cause the Corporation to violate any applicable law, rule or regulation; and provided, further,
that no such modification shall in any way alter the rights or obligations of the Redemption and Paying Agent without its prior consent.
ARTICLE VI
VOTING
RIGHTS
6.1.
One Vote Per Share of Series D Preferred Stock. Except as otherwise provided in the Certificate of Incorporation or as otherwise
required by applicable law, (i) each Holder of shares of Series D Preferred Stock shall be entitled to one vote for each share
of Series D Preferred Stock held by such Holder on each matter submitted to a vote of stockholders of the Corporation, and (ii) the
Holders of Outstanding shares of Preferred Stock, including Outstanding shares of Series D Preferred Stock, and holders of outstanding
shares of Common Stock shall vote together as a single class; provided, however, that the Holders of Outstanding shares of Preferred Stock,
including Outstanding shares of Series D Preferred Stock, shall be entitled, as a class, to the exclusion of the Holders of
all other securities and classes of Capital Stock of the Corporation, to elect two Directors of the Corporation at all times. Subject
to Section 6.2, the Holders of outstanding shares of Common Stock and Preferred Stock, including shares of Series D Preferred
Stock, voting together as a single class, shall elect the balance of the Directors.
6.2. Voting For Additional
Directors.
(a) Voting
Period. During any period in which any one or more of the conditions described in clauses (i) or (ii) of this Section 6.2(a) shall
exist (such period being referred to herein as a “Voting Period”), the number of Directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the two Directors elected exclusively by the Holders of Preferred
Stock, including shares of Series D Preferred Stock, would constitute a majority of the Board of Directors as so increased by such
smallest number; and the Holders of Preferred Stock, including Series D Preferred Stock, shall be entitled, voting as a class on
a one-vote-per-share basis (to the exclusion of the Holders of all other securities and classes of Capital Stock of the Corporation),
to elect such smallest number of additional Directors, together with the two Directors that such Holders are in any event entitled to
elect. A Voting Period shall commence:
(i) if,
at the close of business on any dividend payment date for any Outstanding shares of Preferred Stock including any Outstanding shares of
Series D Preferred Stock, accumulated dividends (whether or not earned or declared) on such Outstanding shares of Preferred Stock
equal to at least two (2) full years’ dividends shall be due and unpaid and sufficient cash or specified securities shall not
have been deposited with the Redemption and Paying Agent or other applicable paying agent for the payment of such accumulated dividends;
or
(ii) if
at any time Holders of shares of Preferred Stock are otherwise entitled under the applicable provisions of the 1940 Act to elect a majority
of the Board of Directors.
Upon
the termination of a Voting Period, the voting rights described in this Section 6.2(a) shall cease, subject always, however,
to the revesting of such voting rights in the Holders of shares of Preferred Stock upon the further occurrence of any of the events described
in this Section 6.2(a).
(b) Notice
of Special Meeting. As soon as practicable after the accrual of any right of the Holders of shares of Preferred Stock to elect additional
Directors as described in Section 6.2(a), the Corporation shall call a special meeting of such Holders and notify the Redemption
and Paying Agent and/or such other Person as is specified in the terms of such Preferred Stock to receive notice (i) by mailing or
delivery by Electronic Means or (ii) in such other manner and by such other means as are specified in the terms of such Preferred
Stock, a notice of such special meeting to such Holders, such meeting to be held not less than ten (10) nor more than thirty (30)
calendar days after the date of the delivery by Electronic Means or mailing of such notice. If the Corporation fails to call such a special
meeting, it may be called at the expense of the Corporation by any such Holder on like notice. The record date for determining the Holders
of shares of Preferred Stock entitled to notice of and to vote at such special meeting shall be the close of business on the Business
Day preceding the calendar day on which such notice is mailed. At any such special meeting and at each meeting of Holders of shares of
Preferred Stock held during a Voting Period at which Directors are to be elected, such Holders, voting together as a class (to the exclusion
of the Holders of all other securities and classes of Capital Stock of the Corporation), shall be entitled to elect the number of Directors
prescribed in Section 6.2(a) on a one-vote-per-share basis.
(c) Terms
of Office of Existing Directors. The terms of office of the incumbent Directors of the Corporation at the time of a special meeting
of Holders of the shares of Preferred Stock to elect additional Directors in accordance with Section 6.2(a) shall not be affected
by the election at such meeting by the Holders of shares of Series D Preferred Stock and such other Holders of shares of Preferred
Stock of the number of Directors that they are entitled to elect, and the Directors so elected by the Holders of shares of Series D
Preferred Stock and such other Holders of shares of Preferred Stock, together with the two (2) Directors elected by the Holders of
shares of Preferred Stock in accordance with Section 6.1 hereof and the remaining Directors elected by the Holders of the shares
of Common Stock and Preferred Stock, shall constitute the duly elected Directors of the Corporation.
(d) Terms
of Office of Certain Directors to Terminate Upon Termination of Voting Period. Simultaneously with the termination of a Voting Period,
the terms of office of the additional Directors elected by the Holders of the shares of Preferred Stock pursuant to Section 6.2(a) shall
terminate, the remaining Directors shall constitute the Directors of the Corporation and the voting rights of the Holders of shares of
Preferred Stock to elect additional Directors pursuant to Section 6.2(a) shall cease, subject to the provisions of the last
sentence of Section 6.2(a).
6.3. Holders of Shares
of Series D Preferred Stock to Vote on Certain Matters.
(a) Certain
Amendments Requiring Approval of Preferred Stock. Except as otherwise permitted by the terms of this Certificate of Designation, (1) so
long as any shares of Preferred Stock are Outstanding, the Corporation shall not, without the affirmative vote or consent of the Holders
of at least two-thirds of the shares of Preferred Stock Outstanding at the time, voting together as a separate class, amend, alter or
repeal the provisions of the Certificate of Incorporation or this Certificate of Designation (or any other document governing the rights
of the Preferred Stock or the Holders thereof as may be required by the rules of any applicable securities exchange), whether by
merger, consolidation or otherwise, so as to materially and adversely affect any preference, right or power of such shares of the Preferred
Stock or the Holders thereof and (2) so long as any shares of Series D Preferred Stock are Outstanding, the Corporation shall
not, without the affirmative vote or consent of the Holders of at least two-thirds of the shares of Series D Preferred Stock Outstanding
at the time, voting together as a separate class, amend, alter or repeal the provisions of the Certificate of Incorporation or this Certificate
of Designation (or any other document governing the rights of the Series D Preferred Stock or the Holders thereof as may be required
by the rules of any applicable securities exchange), whether by merger, consolidation or otherwise, so as to materially and adversely
affect any preference, right or power of such shares of the Series D Preferred Stock or the Holders thereof differently than shares
of any other series of Preferred Stock; provided, however, that for purposes of this Section 6.3(a), (i) a change in the capitalization
of the Corporation in accordance with Section 7.1 hereof shall not be considered to materially and adversely affect the rights and
preferences of the Preferred Stock, including the Series D Preferred Stock, and (ii) a division of a share of the Preferred
Stock, including the Series D Preferred Stock, shall be deemed to affect such preferences, rights or powers only if the terms of
such division materially and adversely affect the Holders of the shares. For purposes of the foregoing, no matter shall be deemed to adversely
affect any preference, right or power of a share of Preferred Stock or any series thereof, or the Holder of any such share unless such
matter (x) alters or abolishes any preferential right of such share of Preferred Stock, or (y) creates, alters or abolishes
any right in respect of redemption of such share (other than as a result of a division of a share of Preferred Stock). So long as any
shares of Preferred Stock are Outstanding, the Corporation shall not, without the affirmative vote or consent of at least sixty-seven
percent (67%) of the Holders of the shares of Preferred Stock Outstanding at the time, voting as a separate class, file a voluntary application
for relief under federal bankruptcy law or any similar application under state law for so long as the Corporation is solvent and does
not foresee becoming insolvent.
(b) Certain
Amendments Requiring Approval of Series D Preferred Stock. The Corporation cannot effect any amendment, alteration or repeal
of the obligation to redeem all of the Series D Preferred Stock without the prior unanimous consent of the Holders of Series D
Preferred Stock.
(c) 1940
Act Matters. Unless a higher percentage is provided for in the Certificate of Incorporation, the affirmative vote of the Holders of
at least “a majority of the outstanding shares of Preferred Stock,” including shares of Series D Preferred Stock Outstanding
at the time, voting as a separate class, shall be required (A) to approve any plan of reorganization (as such term is used in the
1940 Act) adversely affecting such shares or (B) any action requiring a vote of Holders of the Corporation’s securities pursuant
to Section 13(a) of the 1940 Act. For purposes of the foregoing, the vote of a “majority of the outstanding shares of
Preferred Stock” means the vote at an annual or special meeting duly called of (i) sixty-seven percent (67%) or more of such
shares present at a meeting, if the Holders of more than fifty percent (50%) of such shares are present or represented by proxy at such
meeting, or (ii) more than fifty percent (50%) of such shares, whichever is less.
6.4.
Voting Rights Set Forth Herein Are Sole Voting Rights. Unless otherwise required by law or the Certificate of Incorporation, the Holders
of shares of Series D Preferred Stock shall not have any relative rights or preferences or other special rights with respect to voting
other than those specifically set forth in this ARTICLE VI.
6.5.
No Cumulative Voting. The Holders of shares of Series D Preferred Stock shall have no rights to cumulative voting.
6.6.
Voting for Directors Sole Remedy for Corporation’s Failure to Declare or Pay Dividends. In the event that the Corporation fails
to declare or pay any dividends on shares of Series D Preferred Stock on the Dividend Payment Date therefor, the exclusive remedy
of the Holders of the shares of Series D Preferred Stock shall be the right to vote for Directors pursuant to the provisions of this
ARTICLE VI. Nothing in this Section 6.6 shall be deemed to affect the obligation of the Corporation to accumulate and, if permitted
by applicable law, the Certificate of Incorporation and this Certificate of Designation, pay dividends at the Default Rate in the circumstances
contemplated by Section 2.8 hereof.
6.7.
Holders Entitled to Vote. For purposes of determining any rights of the Holders of shares of Series D Preferred Stock to vote on
any matter, whether such right is created by this Certificate of Designation, by the Certificate of Incorporation, by statute or otherwise,
no Holder of shares of Series D Preferred Stock shall be entitled to vote any share of Series D Preferred Stock and no share
of Series D Preferred Stock shall be deemed to be “Outstanding” for the purpose of voting or determining the number of
shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to vote or the time
of the actual vote on the matter, as the case may be, the requisite Notice of Redemption with respect to such share of Series D Preferred
Stock shall have been given in accordance with this Certificate of Designation and Deposit Securities for the payment of the Redemption
Price of such share of Series D Preferred Stock shall have been deposited in trust with the Redemption and Paying Agent for that
purpose. No share of Series D Preferred Stock held by the Corporation shall have any voting rights or be deemed to be Outstanding
for voting or for calculating the voting percentage required on any other matter or other purposes.
ARTICLE VII
MISCELLANEOUS
7.1.
Issuance of Additional Preferred Stock. So long as any shares of Series D Preferred Stock are Outstanding, the Corporation may, without
the vote or consent of the Holders thereof, (a) authorize, establish and create and issue and sell shares of one or more series of
a class of senior securities of the Corporation representing stock under Section 18 of the 1940 Act, ranking on a parity with the
Series D Preferred Stock as to the payment of dividends and the distribution of assets upon dissolution, liquidation or the winding
up of the affairs of the Corporation, in addition to then Outstanding shares of Series D Preferred Stock, and (b) authorize,
issue and sell additional shares of any such series then Outstanding or so established and created, including additional shares of Series D
Preferred Stock, in each case in accordance with applicable law, provided that the Corporation shall, immediately after giving effect
to the issuance of such additional shares of Preferred Stock and to its receipt and application of the proceeds thereof, including to
the redemption of shares of Preferred Stock with such proceeds, have Asset Coverage (calculated in the same manner as is contemplated
by Section 4.2 hereof) of at least 200%.
7.2.
Status of Redeemed or Repurchased Series D Preferred Stock. Shares of Series D Preferred Stock that at any time have been redeemed
or purchased by the Corporation shall, after such redemption or purchase, have the status of authorized but unissued shares of Capital
Stock.
7.3.
Registered Name. Prior to the commencement of a Voting Period, (i) all shares of Series D Preferred Stock Outstanding from time
to time shall be registered in the name of the Depository Trust Company and its successors and assigns, or any other securities depository
selected by the Corporation that agrees to follow the procedures required to be followed by such securities depository as set forth in
this Certificate of Designation with respect to the Series D Preferred Stock (the “Securities Depository”) or its nominee
and (ii) no registration of transfer of shares of such Series D Preferred Stock shall be made on the books of the Corporation
to any Person other than the Securities Depository or its nominee.
7.4.
Notice. All notices or communications hereunder, unless otherwise specified in this Certificate of Designation, shall be sufficiently
given if in writing and delivered in person, by Electronic Means or by overnight mail or delivery or mailed by first-class mail, postage
prepaid. Notices delivered pursuant to this Section 7.4 shall be deemed given on the date received or, if mailed by first class mail,
on the date five (5) calendar days after which such notice is mailed.
7.5.
Termination. In the event that no shares of Series D Preferred Stock are Outstanding, all rights and preferences of the shares of
Series D Preferred Stock established and designated hereunder shall cease and terminate, and all obligations of the Corporation under
this Certificate of Designation with respect to such Series D Preferred Stock shall terminate.
7.6.
Amendment. The Board of Directors may, by resolution duly adopted, without stockholder approval (except as otherwise provided by this
Certificate of Designation or required by applicable law) amend this Certificate of Designation so as to reflect any amendments to the
terms applicable to the Series D Preferred Stock, including an increase in the number of authorized shares of the Series D Preferred
Stock.
7.7.
Actions on Other than Business Days. Unless otherwise provided herein, if the date for making any payment, performing any act or exercising
any right, in each case as provided for in this Certificate of Designation, is not a Business Day, such payment shall be made, act performed
or right exercised on the next succeeding Business Day, with the same force and effect as if made or done on the nominal date provided
therefor, and, with respect to any payment so made, no dividends, interest or other amount shall accrue for the period between such nominal
date and the date of payment.
7.8.
Modification. The Board of Directors, without the vote of the Holders of Series D Preferred Stock, may interpret, supplement or amend
the provisions of this Certificate of Designation to supply any omission, resolve any inconsistency or ambiguity or to cure, correct or
supplement any defective or inconsistent provision, including any provision that becomes defective after the date hereof because of impossibility
of performance or any provision that is inconsistent with any provision of any other Capital Stock of the Corporation.
7.9.
Information Rights. During any period in which the Corporation is not subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any shares of Series D Preferred Stock are
Outstanding, the Corporation will provide Holders of Series D Preferred Stock, without cost, copies of SEC Reports that the Corporation
would have been required to file pursuant to Section 13 or 15(d) of the Exchange Act if the Corporation was subject to such
provisions or, alternatively, the Corporation will voluntarily file SEC Reports as if the Corporation was subject to Section 13 or
15(d) of the Exchange Act.
7.10.
No Additional Rights. Unless otherwise required by law or the Certificate of Incorporation, the Holders of shares of Series D Preferred
Stock shall not have any relative rights or preferences or other special rights other than those specifically set forth in this Certificate
of Designation.
7.11. Interpretation.
(a) The
headings preceding the text of the Articles and Sections included in this Certificate of Designation are for convenience only and shall
not be deemed part of this Certificate of Designation or be given any effect in interpreting this Certificate of Designation. The use
of the masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit any provision of this Certificate
of Designation. The use of the terms “including” or “include” shall in all cases herein mean “including,
without limitation” or “include, without limitation,” respectively. Reference to any Person includes such Person’s
successors and assigns to the extent such successors and assigns are permitted by the terms of any applicable agreement, and reference
to a Person in a particular capacity excludes such Person in any other capacity or individually.
(b) Reference
to any agreement (including this Certificate of Designation), document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof. Except as otherwise
expressly set forth herein, reference to any law means such law as amended, modified, codified, replaced or re-enacted, in whole
or in part, including rules, regulations, enforcement procedures and any interpretations promulgated thereunder. Underscored references
to Articles and Sections shall refer to those portions of this Certificate of Designation. The use of the terms “hereunder,”
“hereof,” “hereto” and words of similar import shall refer to this Certificate of Designation as a whole and not
to any particular Article, Section or clause of this Certificate of Designation.
[Signature Page Follows]
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be duly executed by its duly authorized officer as of this
24th day of November 2021.
EAGLE POINT CREDIT COMPANY INC. |
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By: |
/s/ Thomas P. Majewski |
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Name: |
Thomas P. Majewski |
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Title: |
Chief Executive Officer |
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$1,000,000,000
Eagle Point Credit Company Inc.
Common Stock
Preferred Stock
Subscription
Rights
Debt Securities
We are an externally managed, non-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 equity and 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 may also invest in other related
securities and instruments or other securities and instruments that the Adviser believes are consistent with our investment objectives,
including senior debt tranches of CLOs, loan accumulation facilities (“LAFs”), securities issued by other securitization vehicles,
such as credit-linked notes and collateralized bond obligations, or “CBOs”, and synthetic investments, such as significant
risk transfer securities and credit risk transfer securities issued by banks or other financial institutions. LAFs are short- to medium-term
facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. LAFs typically incur leverage
between four and six times prior to a CLO’s pricing. The CLO securities in which we primarily seek to invest are unrated or rated
below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal. Unrated and
below investment grade securities are also sometimes referred to as “junk” securities. In addition, the CLO equity and junior
debt securities in which we invest are highly leveraged (with CLO equity securities typically being leveraged ten times), which magnifies
our risk of loss on such investments. 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.”
Eagle
Point Credit Management LLC, or the “Adviser,” our investment adviser, manages our investments subject to the supervision
of our board of directors. As of March 31, 2023, the Adviser, collectively with an affiliate of the Adviser, Eagle Point Income Management
LLC, or “Eagle Point Income Management,” had approximately $7.8 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 $1,000,000,000 of our common stock, Preferred Stock (as defined herein),
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 5,822,728 shares of our common stock that may be sold 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, 6.50% Series C Term Preferred Stock due 2031, 6.75% Series D Preferred Stock, 6.6875% notes due 2028, 5.375% notes
due 2029 and 6.75% notes due 2031 trade on the New York Stock Exchange under the symbols “ECC,” “ECCC,” “ECC
PRD,” “ECCX,” “ECCV,” and “ECCW,” respectively. Based on the closing price of our common stock
on June 5, 2023, the aggregate market value of the 5,822,728 shares of our common stock held by the selling stockholders is approximately
$59.2 million. We determine the NAV per share of our common stock on a quarterly basis. As of March 31, 2023, the NAV per
share of our common stock was $9.10 (the last date prior to the date of this prospectus as of which we determined our NAV). Management’s
unaudited estimate of our NAV per share of our common stock as of April 30, 2023 was $8.88. The last
reported closing sales price for our common stock on June 5, 2023 was $10.17 per share, representing a 11.8% premium to our NAV per share
as of March 31, 2023.
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 13 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.eaglepointcreditcompany.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 June 9,
2023
TABLE OF CONTENTS
Page
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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 $1,000,000,000 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. In addition,
this prospectus relates to 5,822,728 shares of our common stock that may be sold by the selling stockholders identified under “Control
Persons, Principal Stockholders and Selling Stockholders.” This prospectus provides you with a general description
of the securities that we and the selling stockholders may offer. Each time we or the selling stockholders 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. 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:
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The “Company,” “we,” “us,” and “our” refer to Eagle Point
Credit Company Inc., a Delaware corporation, and its consolidated subsidiaries or, for periods prior to our conversion to a corporation
on October 6, 2014, Eagle Point Credit Company LLC, a Delaware limited liability company; |
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The “Adviser” refers to Eagle Point Credit Management LLC, a Delaware limited liability company; |
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The “Administrator” refers to Eagle Point Administration LLC, a Delaware limited liability company;
and |
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“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 Credit Company
Inc.
We are an externally managed, non-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,” commencing with our tax year ended November 30, 2014.
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 equity and 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 may also invest in other related securities and instruments or other securities and instruments that the Adviser
believes are consistent with our investment objectives, including senior debt tranches of CLOs, LAFs, securities issued by other securitization
vehicles, such as credit-linked notes and CBOs, and synthetic investments, such as significant risk transfer securities and credit risk
transfer securities issued by banks or other financial institutions. We may also acquire securities issued by other investment companies,
including closed-end funds, business development companies (“BDCs”,) mutual funds, and exchange-traded funds (“ETFs”,)
and may otherwise invest indirectly in securities consistent with our investment objectives. 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. Unrated and below investment grade securities are also sometimes
referred to as “junk” securities. In addition, the CLO equity and junior debt securities in which we invest are highly leveraged
(with CLO equity securities typically being leveraged ten times), which magnifies our risk of loss on such investments. LAFs are short-
to medium-term facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. LAFs typically
incur leverage between four and six times prior to a CLO’s pricing.
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.”
In the primary CLO market (i.e.,
acquiring securities at the inception of a CLO), we seek to invest in CLO securities that the Adviser believes have the potential to generate
attractive risk-adjusted returns and to outperform other similar CLO securities issued within the respective vintage period. In the secondary
CLO market (i.e., acquiring existing CLO securities), we seek to invest in CLO securities that the Adviser believes have the potential
to generate attractive risk-adjusted returns.
The Adviser pursues a differentiated strategy within the CLO
market focused on:
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proactive sourcing and identification of investment opportunities; |
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utilization of the Adviser’s methodical investment analysis and due diligence process; |
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active involvement at the CLO structuring and formation stage; and |
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taking, in many instances, significant stakes in CLO equity and junior debt tranches. |
We believe that the Adviser’s
direct and often longstanding relationships with CLO collateral managers, its CLO structural expertise and its relative scale in the CLO
market will enable us to source and execute investments with attractive economics and terms relative to other CLO opportunities.
When we make a significant primary
market investment in a particular CLO tranche, we generally expect to be able to influence the CLO’s key terms and conditions. In
particular, the Adviser believes that, although typically exercised only a minority of the time in the Adviser’s experience, the
protective rights associated with holding a majority position in a CLO equity tranche (such as the ability to call the CLO after the non-call
period, to refinance/reprice certain CLO debt tranches after a period of time and to influence potential amendments to the governing documents
of the CLO) may reduce our risk in these investments. We may acquire a majority position in a CLO tranche directly, or we may benefit
from the advantages of a majority position where both we and other accounts managed by the Adviser collectively hold a majority position,
subject to any restrictions on our ability to invest alongside such other accounts. See “Conflicts of Interest —
Co-Investments and Related Party Transactions.”
We seek to construct a portfolio
of CLO securities that provides varied exposure across a number of key categories, including:
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number of borrowers underlying each CLO; |
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industry type of a CLO’s underlying borrowers; |
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number and investment style of CLO collateral managers; and |
The Adviser has a long-term investment
horizon and invests primarily with a buy-and-hold mentality. However, on an ongoing basis, the Adviser actively monitors each investment
and may sell positions if circumstances change from the time of investment or if the Adviser believes it is in our best interest to do
so.
“Names Rule” Policy
In accordance with the requirements
of the 1940 Act, we have adopted a policy to invest at least 80% of our assets in the particular type of investments suggested by our
name. Accordingly, under normal circumstances, we invest at least 80% of the aggregate of our net assets and borrowings for investment
purposes in credit and credit-related instruments. For purposes of this policy, we consider credit and credit- related instruments to
include, without limitation: (i) equity and debt tranches of CLOs, LAFs, securities issued by other securitization vehicles, such
as credit-linked notes and CBOs, and synthetic investments, such as significant risk transfer securities and credit risk transfer securities
issued by banks or other financial institutions; (ii) secured and unsecured floating rate and fixed rate loans; (iii) investments
in corporate debt obligations, including bonds, notes, debentures, commercial paper and other obligations of corporations to pay interest
and repay principal; (iv) debt issued by governments, their agencies, instrumentalities, and central banks; (v) commercial paper
and short-term notes; (vi) preferred stock; (vii) convertible debt securities; (viii) certificates of deposit, bankers’
acceptances and time deposits; and (ix) other credit-related instruments. Our investments in derivatives, other investment companies,
and other instruments designed to obtain indirect exposure to credit and credit-related instruments are counted towards our 80% investment
policy to the extent such instruments have similar economic characteristics to the investments included within that policy.
Our 80% policy with respect to investments
in credit and credit-related instruments is not fundamental and may be changed by our board of directors without stockholder approval.
Stockholders will be provided with sixty (60) days’ notice in the manner prescribed by the SEC before making any change to this
policy. Our investments in derivatives, other investment companies, and other instruments designed to obtain indirect exposure to credit
and credit-related instruments are counted towards our 80% investment policy to the extent such instruments have similar economic characteristics
to the investments included within that policy.
Eagle
Point Credit Management
The
Adviser manages our investments subject to the supervision of our board of directors pursuant to an amended and restated investment advisory
agreement, or the “Investment Advisory Agreement.” 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 Incentive Fee” and “The Adviser and the Administrator — The Administrator and the Administration
Agreement.”
The
Adviser is registered as an investment adviser with the SEC. As of March 31, 2023, the Adviser, collectively with Eagle Point Income
Management, an affiliate of the Adviser, had approximately $7.8 billion of total assets under management (including capital commitments
that were undrawn as of such date). The Adviser’s diversified investor base is comprised of institutional investors, high net worth
individuals and retail investors. Based on the Adviser’s CLO equity assets under management, the Adviser believes that, collectively
with Eagle Point Income Management, it is among the largest CLO equity investors in the market.
The
Adviser was established in November 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.” The Adviser
is wholly owned by Eagle Point Holdings LP (“EP Holdings”). EP Holdings, in turn, is primarily owned by certain of the Trident
Funds through intermediary holding companies. Additionally, certain of the Adviser’s employees also hold indirect economic 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. Stone Point, an investment adviser registered
with the SEC, is a specialized private equity firm focused on the financial services industry. The “Senior Investment Team”
is led by Mr. Majewski, Managing Partner and founder 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 Senior Investment Team is primarily responsible
for our day-to-day investment management and the implementation of our investment strategy and process. See “The Adviser
and the Administrator.”
Each
member of the Senior Investment Team 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 Senior Investment Team have been involved in the CLO market as:
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the head of the CLO business at various investment
banks; |
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a lead CLO structurer and collateralized debt obligation,
or “CDO,” workout specialist at an investment bank; |
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a CLO equity and debt investor; |
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principal investors in CLO collateral management firms;
and |
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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 Senior Investment Team provides the Adviser with
a competitive advantage in its CLO-focused investment strategy. See “The Adviser and the Administrator — Portfolio
Managers.”
In
addition to managing our investments, the Adviser, the Adviser’s affiliates and the members of the Senior Investment Team manage
investment accounts for other clients, including Eagle Point Income Company Inc., or “Eagle Point Income Company” or “EIC,”
a publicly traded closed-end management investment company that is registered under the 1940 Act and for which Eagle Point Income 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, 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
Our
investment portfolio is comprised primarily of investments in the equity and junior debt tranches of CLOs. 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 equity and debt 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
We
were organized as Eagle Point Credit Company LLC, a Delaware limited liability company, on March 24, 2014, converted to a Delaware
corporation on October 6, 2014 and completed our initial public offering on October 7, 2014. We have two wholly-owned subsidiaries:
(1) Eagle Point Credit Company Sub (Cayman) Ltd., or the “Cayman Subsidiary” and (2) Eagle Point Credit Company
Sub II (Cayman) Ltd., or the “Cayman II Subsidiary.” We generally gain access to certain newly issued Regulation S securities
and hold other securities through the Cayman Subsidiary, and hold certain other investments through the Cayman II Subsidiary. Regulation
S securities are securities of U.S. and non-U.S. issuers that are issued through offerings made pursuant to Regulation S under the Securities
Act of 1933, as amended, or the “Securities Act.” Each of our subsidiaries is advised by the Adviser pursuant to the Investment
Advisory Agreement. 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, 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 our 6.6875% notes due 2028,
or the “2028 Notes,” our 5.375% notes due 2029, or the “2029 Notes,” our 6.75% notes due 2031, or the “2031
Notes,” and collectively with the 2028 Notes and the 2029 Notes, the “Notes”), 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), 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 March 31, 2023, we had two series of Preferred Stock outstanding, the 6.50% Series C Term Preferred Stock due 2031,
or the “Series C Term Preferred Stock,” and the 6.75% Series D Preferred Stock, which is “perpetual”
and has no fixed maturity date, or the “Series D Preferred Stock” and together with the Series C Term Preferred
Stock and any additional shares of Preferred Stock, which the Company may issue from time to time, the “Preferred Stock.”
As
of March 31, 2023, our leverage, including the outstanding Notes and the Preferred Stock, represented approximately 33.4%
of our total assets (less current liabilities). On a pro forma basis, our leverage, including the outstanding Notes and the Preferred
Stock, represented approximately 33.8% of our total assets (less current liabilities) as of April 30, 2023 (based on management’s
unaudited estimate of our NAV as of such date). As of March 31, 2023, our asset coverage ratios in respect of (i) senior securities
representing indebtedness and (ii) our outstanding Preferred Stock, each as calculated pursuant to Section 18 of the 1940 Act,
were 443% and 299%, respectively. 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.
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
entering into 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 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. Accordingly, any event that adversely affects the value of an investment would
be magnified to the extent leverage is utilized. 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” and see also “Business — Our Structure —Other Investment Techniques”
for a more detailed description of the Company’s investment techniques.
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, non-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, commencing with our tax year ended on November 30, 2014.
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 an annual base management fee based on our “Total Equity Base” as well as an incentive fee
based on our “Pre-Incentive Fee Net Investment Income.” See “The Adviser and the Administrator — Investment
Advisory Agreement — Management Fee and Incentive Fee.” “Total Equity Base” means the NAV attributable
to the common stock and the paid-in, or stated, capital of the Preferred Stock.
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 Senior
Investment Team, 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 Income 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. See “Control Persons, Principal Stockholders and Selling Stockholders.” The Adviser
and the Administrator are wholly owned by Eagle Point Holdings LP (“EP Holdings”). EP Holdings, in turn, is 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. These relationships may cause the Adviser’s or the Administrator’s and certain
of their affiliates’ interests, and the interests of their officers and employees, including the Senior Investment Team, 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
EIC 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. Further, certain of our stockholders are affiliated with our Adviser or may from time to time have business relationships
with the Adviser. In such cases, such stockholders may have an incentive to vote shares held by them in a manner that takes such relationships
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.”
In
order to address such conflicts of interest, we have, among other things, adopted a code of ethics under Rule 17j-1 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. 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.
Pursuant
to the investment allocation policies and procedures of the Adviser and Eagle Point Income 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 Income 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 the Adviser
and may do so 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. Exemptive relief granted by the SEC to us, Eagle Point
Credit Management and certain of our affiliates permits us to participate in certain negotiated co-investments alongside other accounts,
including EIC and EPIIF, managed by the Adviser, or certain of its affiliates, subject to certain conditions including (i) that 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 us approve the co-investment and (ii) the price, terms and conditions of the co-investment
are the same for each participant. 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.
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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. |
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Subordinated
Securities Risk. CLO equity and junior debt securities that we may acquire are subordinated to more senior tranches of CLO
debt. CLO equity and junior debt 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. |
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High Yield Investment
Risk. The CLO equity and junior debt securities that we acquire are typically rated below investment grade, or in the case
of CLO 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 equity and junior debt securities and other high yield investments
involves greater credit and liquidity risk than investment grade obligations, which may adversely impact our performance. |
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Leverage Risk.
The use of leverage, whether directly or indirectly through investments such as CLO equity or junior debt securities that
inherently involve leverage, may magnify our risk of loss. CLO equity or junior debt 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. |
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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. |
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Key Personnel
Risk. We are dependent upon the key personnel of the Adviser for our future success. |
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Conflicts of
Interest Risk. Our executive officers and directors, and the Adviser and certain of its affiliates and their officers and
employees, including the Senior Investment Team, have several conflicts of interest as a result of the other activities in which they
engage. See “Conflicts of Interest.” |
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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. |
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LIBOR Risk. Certain
CLO securities in which we invest continue to earn interest at (or, from the perspective of the Company as CLO equity investor, obtain
financing at) a floating rate based on LIBOR. After the global financial crisis, regulators globally determined that existing interest
rate benchmarks should be reformed based on concerns that LIBOR was susceptible to manipulation. Replacement rates that have been identified
include the Secured Overnight Financing Rate (SOFR, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight
borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities) and the Sterling Overnight Index Average
Rate (SONIA, which is intended to replace pound sterling LIBOR and measures the overnight interest rate paid by banks for unsecured transactions
in the sterling market). Each of LIBOR, SONIA and SOFR is referred to herein as a “Benchmark.” With respect to our investments
in CLO equity securities, to the extent that any LIBOR replacement rate (or the relevant credit spread adjustment) utilized for senior
secured loans differs from that utilized for debt of a CLO that holds those loans, for the duration of such mismatch, the CLO would experience
an interest rate mismatch between its assets and liabilities, which could have an adverse impact on the cash flows distributed to CLO
equity investors as well as our net investment income and portfolio returns until such mismatch is corrected or minimized. As of the date
hereof, certain senior secured loans have transitioned to utilizing SOFR based interest rates and certain CLO debt securities have also
transitioned to SOFR. |
Certain
underlying loans held by CLOs do not include a “fall back” provision that addresses how interest rates will be determined
once LIBOR stops being published, or otherwise leave certain aspects of the replacement rate to be negotiated between the loan issuer
and the lender group. For example, certain loans held by CLOs in which we invest provide for a negotiated “credit spread adjustment”
(i.e., a marginal increase in the applicable replacement rate to compensate lenders for the tendency of SOFR and other alternative rates
to price lower than LIBOR). If a CLO’s collateral manager and other members of the lending group agree to (or fail to reject) an
amendment to an underlying loan that provides for a below-market spread adjustment, then the equity investors in such CLO (such as the
Company) would be disadvantaged if the debt securities issued by the CLO have a larger spread adjustment.
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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. |
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Incentive Fee
Risk. Our incentive fee structure and the formula for calculating the fee payable to the Adviser may incentivize the Adviser
to pursue speculative investments and use leverage in a manner that adversely impacts our performance. |
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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. |
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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. |
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Non-Diversification
Risk. We are a non-diversified investment company under the 1940 Act and expect to hold a narrower range of investments than
a diversified fund under the 1940 Act. |
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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. |
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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. |
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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 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 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. |
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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. |
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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. |
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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 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. 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. |
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Interest Rate
Risk. The price of certain of our investments may be significantly affected by changes in interest rates, including recent
increases in interest rates. |
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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. |
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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 our stockholders, and the amount of income available for payment of our other liabilities. |
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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, 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. |
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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. |
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Global Economy
Risk. 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. |
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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 us, our underlying obligors, the collateral
managers of the CLOs in which we invest, or our service providers could adversely affect our
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, our performance). |
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Price Risk.
Investors who buy shares at different times will likely pay different prices. |
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Russia Risk.
Russia’s military incursion into Ukraine, the response of the United States and other countries, and the potential for wider conflict,
has increased volatility and uncertainty in the financial markets and may adversely affect us. |
Our
Corporate Information
Our
offices are located at 600 Steamboat Road, Suite 202, Greenwich, CT 06830, and our telephone number is (203) 340-8500.
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, 2022, filed with the SEC on February 24, 2023,
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 and equity and junior debt 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 equity and junior debt 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.
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 equity and debt investors to
receive less than face value of their investment.
Our
portfolio of investments may lack 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, we do not have fixed guidelines for diversification, we do not have any limitations on the ability
to invest in any one CLO, and our investments may be concentrated in relatively few CLO securities. 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 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 equity and junior debt 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 and incentive 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 and incentive 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.
In
the course of our investing activities, we pay management and incentive fees to the Adviser and reimburse the Adviser for certain expenses
it incurs. As a result, investors in our securities invest on a “gross” basis and receive distributions on a “net”
basis after expenses, potentially resulting in a lower rate of return than an investor might achieve through direct investments.
Our
investments in CLO securities may be less transparent to us and our stockholders than direct investments in the collateral.
We
invest primarily in equity and 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 Internal Revenue Service,
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 equity and junior debt 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
are subject to risks associated with our wholly-owned subsidiaries.
We
invest indirectly through wholly-owned subsidiaries, including the Cayman Subsidiary through which we expect to invest in securities of
U.S. and non-U.S. issuers that are issued in private offerings without registration with the SEC pursuant to Regulation S under the Securities
Act. 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 Cayman Islands could result in the inability of the Cayman Subsidiary and Cayman
II Subsidiary to operate as anticipated.
We
and our investments are subject to interest rate risk.
Since
we have issued Preferred Stock and Notes, and since we may incur leverage (including through 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.
Because
of inflationary pressure, the U.S. government has recently increased interest rates. Interest rates may rise rather than fall, in the
future. 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. Although senior secured loans are
generally floating rate instruments, our investments in senior secured loans through investments in junior equity and debt 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. Certain CLO securities in which we invest continue to earn interest at (or, from the perspective of the Company as CLO
equity investor, obtain financing at) a floating rate based on LIBOR. After the global financial crisis, regulators globally determined
that existing interest rate benchmarks should be reformed based on concerns that LIBOR was susceptible to manipulation. In a speech on
July 27, 2017, the then-Chief Executive of the Financial Conduct Authority of the UK (the “FCA”) announced the FCA’s
intention to cease sustaining LIBOR. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided
by any administrator, or no longer be representative immediately after December 31, 2021, for all GBP, EUR, CHF and JPY LIBOR settings
and one-week and two-month US dollar LIBOR settings, and immediately after June 30, 2023 for the remaining US dollar LIBOR settings,
including three-month US dollar LIBOR. In addition, based on supervisory guidance from regulators, many banks have ceased issuance of
new LIBOR-based instruments as of January 1, 2022.
Replacement
rates that have been identified include the Secured Overnight Financing Rate (SOFR, which is intended to replace U.S. dollar LIBOR and
measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities) and
the Sterling Overnight Index Average Rate (SONIA, which is intended to replace GBP LIBOR and measures the overnight interest rate paid
by banks for unsecured transactions in the sterling market), although other replacement rates could be adopted by market participants.
On April 3, 2018, the New York Federal Reserve Bank began publishing its alternative rate, the Secured Overnight Financing Rate (“SOFR”).
The Bank of England followed suit on April 23, 2018 by publishing its proposed alternative rate, the Sterling Overnight Index Average
(“SONIA”). Each of SOFR and SONIA significantly differ from LIBOR, both in the actual rate and how it is calculated, and therefore
it is unclear whether and when markets will adopt either of these rates as a widely accepted replacement for LIBOR. On July 29, 2021,
the Alternative Reference Rates Committee (“ARRC”) announced that it recommended “Term SOFR,” a similar forward-looking
term rate which will be based on SOFR, for business loans. CME Group currently publishes the Term SOFR Rate in one-month, three-month
and six-month tenors. As of the date of this prospectus, it is unclear how the market will respond to ARRC’s formal recommendation.
If no widely accepted conventions develop, it is uncertain what effect broadly divergent interest rate calculation methodologies in the
markets will have on the price and liquidity of leverage loans or CLO securities and the ability for CLOs to effectively mitigate interest
rate risks. Many CLOs, as well as underlying loans held by CLOs, which have moved to a SOFR-based rate (such as Term SOFR), have included
a credit spread adjustment to account for the fact that USD LIBOR has historically tracked lower than Term SOFR. However, the credit spread
adjustment utilized for CLO liabilities may differ from the credit spread adjustments utilized for the underlying loans. To the extent
CLO liabilities may differ from the credit spread adjustments that exceeds the average credit spread adjustment of the loans which they
hold, this could negatively impact the returns on the CLO equity investments which we hold. In general, varying market approaches on what
benchmark replacement to adopt, as well as what credit spread adjustment to utilize, may create significant uncertainty for CLO managers
(and the CLO market generally) and negatively affect returns on CLO investments.
Potential
Effects of Alternative Reference Rates. For CLOs that issue debt based on Term SOFR, investors should be aware that such CLO
debt may fluctuate from one interest accrual period to another in response to changes in Term SOFR. Term SOFR has a limited history of
use as a benchmark rate and, as a risk-free rate, differs in material respects from LIBOR. Neither the historical performance of LIBOR
nor Term SOFR should be taken as an indication of future performance of Term SOFR during the term of any CLO. 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, but it is impossible to predict whether such levels will rise or fall.
As
LIBOR is currently being reformed, investors should be aware that: (a) any changes to LIBOR could affect the level of the published
rate, including to cause it to be lower and/or more volatile than it would otherwise be; (b) 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; (c) the administrator
of LIBOR will not have any involvement in the CLOs or loans and may take any actions in respect of LIBOR without regard to the effect
of such actions on the CLOs or loans; and (d) any uncertainty in the value of LIBOR or, the development of a widespread market view
that LIBOR has been manipulated or any uncertainty in the prominence of LIBOR as a benchmark interest rate due to the recent regulatory
reform may adversely affect the liquidity of the securities in the secondary market and their market value. Any of the above or any other
significant change to the setting of LIBOR could have a material adverse effect on the value of, and the amount payable under, (i) any
underlying asset of the CLO which pay interest linked to a LIBOR rate and (ii) the CLO securities in which we invest.
Once
LIBOR is eliminated as a benchmark rate, it is uncertain whether broad replacement conventions in the CLO markets will develop and, if
conventions develop, what those conventions will be and whether they will create adverse consequences for the issuer or the holders of
CLO securities. Currently, the CLOs we are invested in generally contemplate a scenario where LIBOR is no longer available by requiring
the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there
is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations,
which could adversely impact our net investment income. Some of the CLOs we are invested in have included, or have been amended to include,
language permitting the CLO investment manager to implement a market replacement rate (like those proposed by the ARRC) upon the occurrence
of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor
can we ensure the CLO investment managers will undertake the suggested amendments when able, nor can we ensure that the credit spread
adjustments utilized will be favorable to CLO equity investors.
If
no replacement conventions develop, it is uncertain what effect broadly divergent interest rate calculation methodologies in the markets
will have on the price and liquidity of CLO securities and the ability of the collateral manager to effectively mitigate interest rate
risks. While the issuers and the trustee of a CLO may enter into a reference rate amendment or the collateral manager may designate a
designated reference rate, in each case, subject to the conditions described in a CLO indenture, there can be no assurance that a change
to any alternative benchmark rate (a) will be adopted, (b) will effectively mitigate interest rate risks or result in an equivalent
methodology for determining the interest rates on the floating rate instrument, (c) will be adopted prior to any date on which the
issuer suffers adverse consequences from the elimination or modification or potential elimination or modification of LIBOR or (d) will
not have a material adverse effect on the holders of the CLO securities.
In
addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently
unclear. As discussed above, to the extent that any replacement rate or credit spread adjustment utilized for senior secured loans differs
from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities,
which could have an adverse impact on our net investment income and portfolio returns.
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.
To
the extent that any LIBOR replacement rate utilized for senior secured loans differs from that utilized for debt of a CLO that holds those
loans (including instances where the replacement rate is utilized for such loans prior to it being utilized by the CLO), for the duration
of such mismatch, the CLO would experience an interest rate mismatch between its assets and liabilities, which could have an adverse impact
on the cash flows distributed to CLO equity investors as well as our net investment income and portfolio returns until such mismatch is
corrected or minimized, which would be expected to occur when both the underlying senior secured loans and the CLO debt securities utilize
the same LIBOR replacement rate. As of the date hereof, certain senior secured loans have transitioned to utilizing SOFR based interest
rates and certain CLO debt securities have also transitioned to SOFR.
Interest
Rate Environment. The senior secured loans underlying the CLOs in which we invest typically have floating interest rates. A
rising 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.”
Further, a general rise in interest rates will increase the financing costs of the CLOs. However, since many of the senior secured loans
within these CLOs have Benchmark floors, if the Benchmark is below the applicable Benchmark floor, there may not be corresponding increases
in investment income which could result in the CLO not having adequate cash to make interest or other payments on the securities which
we hold.
For
detailed discussions of the risks associated with a rising 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 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.
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 the issuance of the Preferred Stock and the Notes. 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, including the Notes), 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), 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, 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
Return to Common Stockholder(1) |
|
-17.40% |
|
-10.17% |
|
-2.94% |
|
4.29% |
|
11.51% |
|
(1) |
Assumes (i) $765.9
million in assets as of March 31, 2023; (ii) $529.8 million in net assets as of March 31, 2023; and (iii) an annualized
average interest rate on our indebtedness and preferred equity, as of March 31, 2023, of 6.18%. |
Based
on our assumed leverage described above, our investment portfolio would have been required to experience an annual return of at least
2.03%
to cover annual dividend and interest payments on our outstanding Preferred Stock and additional indebtedness.
Our
investments may be highly subordinated and subject to leveraged securities risk.
Our
portfolio includes equity and junior debt 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 equity and debt tranches in which we are currently
invested and in which we 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:
|
(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 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 may incur additional expenses to the extent it (or any investment
manager) 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.
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 equity
and debt 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 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.
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.
Russia
Risk. Russia’s military incursion into Ukraine, the response of the United States and other countries, and the potential
for wider conflict, has increased volatility and uncertainty in the financial markets and may adversely affect us. Immediately
following Russia’s invasion, the United States and other countries imposed wide-ranging economic sanctions on Russia, individual
Russian citizens, and Russian banking entities and other businesses, including those in the energy sector. These unprecedented sanctions
have been highly disruptive to the Russian economy and, given the interconnectedness of today’s global economy, could have broad
and unforeseen macroeconomic implications. The ultimate nature, extent and duration of Russia’s military actions (including the
potential for cyberattacks and espionage), and the response of state governments and businesses, cannot be predicted at this time. However,
further escalation of the conflict could result in significant market disruptions, and negatively affect global supply chains, inflation
and global growth. These and any related events could negatively impact the performance of our underlying obligors and/or
the market value of our common shares or Preferred Stock.
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:
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• |
price and volume fluctuations in the overall stock
market from time to time; |
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• |
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; |
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• |
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; |
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• |
changes, or perceived changes, in the value of our
portfolio investments; |
|
• |
departures of any members of the Senior Investment
Team; |
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• |
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 in their ownership percentage 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 Notes may cause the NAV and market value of our common stock to be more volatile.
The
Preferred Stock and Notes, 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 debt securities. This greater NAV
decrease would also tend to cause a greater decline in the market price for our common stock. We might be in danger of failing to maintain
the required asset coverage of the Preferred Stock or indebtedness or of losing our ratings, if any, on 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 fund
a redemption of some or all of the Preferred Stock or debt. 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 indebtedness, including higher advisory fees if
our total return exceeds the dividend rate on the Preferred Stock.
Market
yields may increase, which would result in a decline in the price of our Preferred Stock or Notes.
The
prices of fixed income investments, such as our Preferred Stock and Notes, vary inversely with changes in market yields. The market yields
on securities comparable to our Preferred Stock and Notes may increase, which would result in a decline in the secondary market price
of shares of our Preferred Stock and Notes.
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 date stated in the applicable governing
documents. We also may be forced to redeem some or all of the outstanding shares of any 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 the respective
Preferred Stock. We may have an incentive to redeem any of our outstanding Preferred Stock voluntarily 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 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 is subordinate to the rights of holders of senior indebtedness.
While
Preferred Stockholders, including holders of the Series C Term Preferred Stock and Series D Preferred Stock, will have equal
liquidation and distribution rights to any other series of Preferred Stock, they are subordinated to the rights of holders of our other
senior indebtedness, including the Notes. Therefore, dividends, distributions and other payments to Preferred Stockholders 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 our Preferred Stock.
Holders
of our Preferred Stock 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
U.S. resident 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 redemption date for an outstanding series of Preferred Stock, including the Series C Term Preferred Stock,
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
debt securities are unsecured and therefore effectively subordinated to any secured indebtedness we may incur in the future.
Our
debt securities, including the Notes, are not secured by any of our assets or any of the assets of our subsidiaries. As a result, our
debt securities are 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 debt securities.
Our
debt securities are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
Our
debt securities, including the Notes, are obligations exclusively of Eagle Point Credit Company Inc. and not of any of our subsidiaries.
None of our subsidiaries are or will act as a guarantor of our debt securities and our debt securities will not be required to be guaranteed
by any subsidiaries we may acquire or create in the future. The assets of any such subsidiary are not directly available to satisfy the
claims of our creditors, including holders of our debt securities.
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 debt securities) 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 debt securities are 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 debt securities may not exist, which could adversely affect the market price of our debt securities or a
holder’s ability to sell them.
Each
series of our Notes currently is listed on the NYSE and future debt securities also may be listed on the NYSE. However, we cannot provide
any assurances that an active trading market for our debt securities will exist in the future or that you will be able to sell our debt
securities, including the Notes. Even if an active trading market does exist, our debt securities 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 debt securities may be harmed. Accordingly, holders may be required to bear the financial risk
of an investment in our debt securities for an indefinite period of time.
A
downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our Preferred Stock or debt securities,
if any, or change in the debt markets could cause the liquidity or market value of our Preferred Stock or debt securities to decline significantly.
Any
credit rating is an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes
in any credit ratings will generally affect the market value of our Preferred Stock and debt securities, including the Notes. These credit
ratings may not reflect the potential impact of risks relating to the structure or marketing of our Preferred Stock and debt securities.
Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing
organization in its sole discretion. Neither we nor any underwriter undertakes any obligations to obtain or maintain any credit ratings
or to advise holders of our Preferred Stock or debt securities of any changes in any credit ratings. There can be no assurance that any
credit ratings will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely by the rating
agencies if, in their judgment, future circumstances relating to the basis of the credit rating, such as adverse changes in the Company,
so warrant. The conditions of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate
in the future, which could have an adverse effect on the market prices of our Preferred Stock and debt securities.
The
indenture governing our debt securities contains limited protection for holders of our debt securities.
The
indenture governing our debt securities, including the Notes, offers limited protection to holders of our debt securities. The terms of
the indenture do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate
transactions, circumstances or events that could have an adverse impact on your investment in our debt securities. In particular, the
terms of the indenture do not place any restrictions on our or our subsidiaries’ ability to:
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issue securities or otherwise
incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right
of payment to our debt securities, (2) any indebtedness or other obligations that would be secured and therefore rank effectively
senior in right of payment to our debt securities to the extent of the values of the assets securing such debt, (3) indebtedness
of ours that is guaranteed by one or more of our subsidiaries and which therefore would rank structurally senior to our debt securities
and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests
in our subsidiaries and therefore rank structurally senior to our debt securities with respect to the assets of our subsidiaries, in each
case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the
1940 Act or any successor provisions; |
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• |
pay distributions or dividends
on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to
our debt securities, other than a distribution, dividend or purchase that would cause a violation of Section 18(a)(1)(B) of
the 1940 Act or any successor provisions; |
|
• |
sell assets (other than
certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
|
• |
enter into transactions
with affiliates; |
|
• |
create liens (including
liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
|
• |
create restrictions on the payment of dividends or
other amounts to us from our subsidiaries. |
Furthermore,
the terms of the indenture do not protect holders of our debt securities in the event that we experience changes (including significant
adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries
adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity, except as required
under the 1940 Act.
Our
ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of our debt securities
may have important consequences for you as a holder of our debt securities, including making it more difficult for us to satisfy our obligations
with respect to our debt securities or negatively affecting the trading value of our debt securities.
Other
debt we issue or incur in the future could contain more protections for its holders than the indenture and our debt securities, including
additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the
market for and trading levels and prices of our debt securities.
Any
optional redemption provision may materially adversely affect the return on our debt securities.
Our
debt securities 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 debt securities, including the Notes, at times when prevailing interest rates
are lower than the interest rate paid on the applicable debt securities. 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 debt securities being redeemed.
If
we default on our obligations to pay our other indebtedness, we may not be able to make payments on our debt securities.
Any
default under any agreements governing the Notes, 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 debt securities and substantially decrease the market value of our debt securities.
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 debt securities, including the Notes, 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 debt securities 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 debt securities are held, the holder could be subject to this 30% withholding tax in respect
of any interest paid on our debt securities as well as any proceeds from the sale or other disposition of our debt securities. You should
consult your own tax advisors regarding FATCA and how it may affect your investment in our debt securities. See “U.S
. Federal Income Tax Matters — Taxation of Securityholders — FATCA Withholding on Payments to Certain Foreign Entities”
in this prospectus for more information.
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 noteholders.
The
Biden Administration has enacted significant changes to the existing U.S. tax rules that include, among others, a minimum tax on
book income and profits of certain multinational corporations, and there are a number of proposals in the U.S. Congress that would similarly
modify the existing U.S. tax rules. The impact of this new legislation on us, the entities in which we invest and our noteholders is uncertain.
Any new legislation and any Treasury Regulations, administrative interpretations or court decisions interpreting such legislation could
affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders and could
have other adverse consequences. 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.
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, our 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 Eagle Point Credit Management LLC continuing to serve as the 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.
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 to attract and retain qualified personnel in a competitive environment.
Our
growth will require that the Adviser attract and retain new investment and administrative personnel in a competitive market. The Adviser’s
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 Senior
Investment Team, 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, including EIC and EPIIF, and may have conflicts of interest in allocating their time. Moreover, each member of the Senior Investment
Team 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
incentive fee structure may incentivize the Adviser to pursue speculative investments, use leverage when it may be unwise to do so, or
refrain from de-levering when it would otherwise be appropriate to do so.
The
incentive fee payable by us to the Adviser may create an incentive for the Adviser to pursue investments on our behalf that are riskier
or more speculative than would be the case in the absence of such compensation arrangement. Such a practice could result in our investing
in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic
downturns. The incentive fee payable to the Adviser is based on our Pre-Incentive Fee Net Investment Income, as calculated in accordance
with our Investment Advisory Agreement. This may encourage the Adviser to use leverage to increase the return on our investments, even
when it may not be appropriate to do so, and to refrain from de-levering when it would otherwise be 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. See “—
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 be obligated to pay the Adviser incentive compensation even if we incur a loss or with respect to investment income that we have accrued
but not received.
The
Adviser is entitled to incentive compensation for each fiscal quarter based, in part, on our Pre-Incentive Fee Net Investment Income,
if any, for the immediately preceding calendar quarter above a performance threshold for that quarter. Accordingly, since the performance
threshold is based on a percentage of our NAV, decreases in our NAV make it easier to achieve the performance threshold. Our Pre-Incentive
Fee Net Investment Income for incentive compensation purposes excludes realized and unrealized capital losses or depreciation that we
may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that
quarter. Thus, we may be required to pay the Adviser incentive compensation for a fiscal quarter even if there is a decline in the value
of our portfolio or we incur a net loss for that quarter. In addition, we accrue an incentive fee on accrued income that we have not yet
received in cash. However, the portion of the incentive fee that is attributable to such income will be paid to the Adviser, without interest,
only if and to the extent we actually receive such income in cash.
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 Senior Investment
Team.
Although
the Senior Investment Team 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 such portfolios.
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 market discount, which may arise if we acquire a debt security at a significant discount to par, or payment-in-kind interest, 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. In addition, since our incentive fee is payable
on our income recognized, rather than cash received, we may be required to pay advisory fees on income before or without receiving cash
representing such income. 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. 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 DRIP. 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 equity and debt 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. See “—If
we are unable to obtain and/or refinance additional debt capital, our business could be materially adversely affected.”
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. In addition, our stockholders would not benefit from the potential for increased returns
on equity that incurring leverage creates. 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.
We
may be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory
occurrence.
We
are classified as “non-diversified” under the 1940 Act. As a result, we can invest a greater portion of our assets in obligations
of a single issuer than a “diversified” fund. We may therefore be more susceptible than a diversified fund to being adversely
affected by any single corporate, economic, political or regulatory occurrence. In particular, because our portfolio of investments may
lack diversification among CLO securities and related investments, we are susceptible to a risk of significant loss if one or more of
these CLO securities and related investments experience a high level of defaults on the collateral that they hold.
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). See “— 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” for
details concerning how asset coverage is calculated. 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, 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:
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• |
delaying, deferring or preventing a change in corporate
control; |
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• |
impeding a merger, consolidation, takeover or other
business combination involving us; or |
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• |
discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us. |
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 Senior Investment Team 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 intend to 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, 2020It 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 by Regulation (EU) 2021/557 and as further 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 31 December 2020 (which forms
part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended, the “EUWA”)) (as amended by the
Securitization (Amendment) (EU Exit) Regulations 2019 and as further 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 each investor that is an “institutional investor” (as such term is defined in the EU Securitization Regulation), being
an investor which is one of the following: (a) an insurance undertaking as defined in Directive 2009/138/EC of the European Parliament
and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast)
(“Solvency II”); (b) a reinsurance undertaking as defined in Solvency II; (c) subject to certain conditions and
exceptions, an institution for occupational retirement provision falling within the scope of Directive (EU) 2016/2341 of the European
Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision
(IORPs) (the “IORP Directive”), or an investment manager or an authorised entity appointed by an institution for occupational
retirement provision pursuant to the IORP Directive; (d) an alternative investment fund manager (“AIFM”) as defined in
Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers that manages
and/or markets alternative investment funds in the EU; (e) an undertaking for the collective investment in transferable securities
(“UCITS”) management company, as defined in Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009
on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable
securities (UCITS) (the “UCITS Directive”); (f) an internally managed UCITS, which is an investment company authorised
in accordance with the UCITS Directive and which has not designated a management company authorised under the UCITS Directive for its
management; or (g) a credit institution as defined in Regulation (EU) No 575/2013 of the European Parliament and of the Council of
26 June 2013 on prudential requirements for credit institutions and investment firms (the “CRR”) for the purposes of
the CRR, or an investment firm as defined in the CRR, in each case, such investor an “EU Institutional Investor.”
The
due diligence requirements of Article 5 of the UK Securitization Regulation (the “UK Due Diligence Requirements” and,
together with the EU Due Diligence Requirements, the “Due Diligence Requirements”) apply to each investor that is an “institutional
investor” (as such term is defined in the UK Securitization Regulation), being an investor which is one of the following: (a) an
insurance undertaking as defined in the Financial Services and Markets Act 2000 (as amended, the “FSMA”); (b) a reinsurance
undertaking as defined in the FSMA; (c) an occupational pension scheme as defined in the Pension Schemes Act 1993 that has its main
administration in the UK, or a fund manager of such a scheme appointed under the Pensions Act 1995 that, in respect of activity undertaken
pursuant to that appointment, is authorised under the FSMA; (d) an AIFM (as defined in the Alternative Investment Fund Managers Regulations
2013 (the “AIFM Regulations”)) which markets or manages AIFs (as defined in the AIFM Regulations) in the UK; (e) a management
company as defined in the FSMA; (f) a UCITS as defined by the FSMA, which is an authorised open ended investment company as defined
in the FSMA; (g) a FCA investment firm as defined by the CRR as it forms part of UK domestic law by virtue of EUWA (the “UK
CRR”); or (h) a CRR investment firm as defined in the UK CRR, in each case, such investor a “UK Institutional Investor”
and, such investors together with EU Institutional Investors, “Institutional Investors.”
Among
other things, the applicable Due Diligence Requirements require that prior to holding a “securitisation position” (as defined
in each Securitization Regulation) an Institutional Investor (other than the originator, sponsor or original lender) has verified that:
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(1) |
the originator, sponsor
or original lender will retain on an ongoing basis a material net economic interest which, in any event, shall be not less than five per
cent. in the securitization, determined in accordance with Article 6 of the applicable Securitization Regulation, and has disclosed
the risk retention to such Institutional Investor; |
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(2) |
(in the case of each EU
Institutional Investor only) the originator, sponsor or securitization special purpose entity (“SSPE”) has, where applicable,
made available the information required by Article 7 of the EU Securitization Regulation in accordance with the frequency and modalities
provided for thereunder; |
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(3) |
(in the case of each UK
Institutional Investor only) the originator, sponsor or SSPE: |
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(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; or |
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(ii) |
if established in a country
other than the UK, 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 under the UK Transparency Requirements if it had been
established in the UK; and |
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|
|
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(4) |
in the case of each Institutional
Investor, where the originator or original lender either (i) is not a credit institution or an investment firm (each as defined in
the applicable Securitization Regulation) or (ii) is established in a third country (being (x) in respect of the EU Securitization
Regulation, a country other than an EU member state, or (y) in respect of the UK Securitization Regulation, a country other than
the UK), the originator or original lender grants all the credits giving rise to the underlying exposures 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 in order to ensure that credit-granting is based on a thorough assessment of the obligor’s
creditworthiness. |
The
Due Diligence Requirements further require that prior to holding a securitisation position, an Institutional Investor, other than the
originator, sponsor or original lender, carry out a due diligence assessment which enables it to assess the risks involved, including
but not limited to (a) the risk characteristics of the individual securitisation position and the underlying exposures; and (b) all
the structural features of the securitization that can materially impact the performance of the securitisation position, including the
contractual priorities of payment and priority of payment-related triggers, credit enhancements, liquidity enhancements, market value
triggers, and transaction-specific definitions of default.
In
addition, pursuant to the applicable Due Diligence Requirements, while holding a securitization position, an Institutional Investor, other
than the originator, sponsor or original lender, is subject to various ongoing monitoring obligations, including but not limited to: (a) establishing
appropriate written procedures to monitor compliance with the Due Diligence Requirements and the performance of the securitisation position
and of the underlying exposures; (b) performing stress tests on the cash flows and collateral values supporting the underlying exposures
or, in the absence of sufficient data on cash flows and collateral values, stress tests on loss assumptions, having regard to the nature,
scale and complexity of the risk of the securitisation position; (c) ensuring internal reporting to its management body so that the
management body is aware of the material risks arising from the securitisation position and so that those risks are adequately managed;
and (d) being able to demonstrate to its competent authorities, upon request, that it has a comprehensive and thorough understanding
of the securitisation position and underlying exposures and that it has implemented written policies and procedures for the risk management
of the securitisation position and for maintaining records of (i) the verifications and due diligence in accordance with the applicable
Due Diligence Requirements and (ii) any other relevant information.
Any
Institutional Investor that fails to comply with the applicable Due Diligence Requirements in respect of a securitization position which
it holds may become subject to a range of regulatory sanctions including, in the case of a credit institution, investment firm, insurer
or reinsurer, a punitive regulatory capital charge with respect to such securitization position, or, in certain other cases, a requirement
to take corrective action.
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.
Private
Funds Rule. On February 9, 2022, the SEC proposed certain rules and amendments under the Investment Advisers Act
of 1940, as amended, to enhance the regulations applicable to private fund advisers (the “Proposed Private Fund Rules”) that,
if adopted in their current form, would affect investment advisers such as the CLO collateral managers, by, among other things, (i) requiring
such managers to comply with additional reporting and compliance obligations, (ii) prohibiting certain types of preferential treatment,
including, among other things, the provision of information regarding portfolio holdings of the private fund, and (iii) prohibiting
or imposing requirements on certain business practices, including prohibiting certain types of indemnification (which could include indemnification
provided for in the CLO’s management agreement) and requiring fairness opinions for adviser-led secondary transactions. Because
most CLOs in which we invest rely on Section 3(c)(7) of the 1940 Act, each such CLO will be considered a “private fund”
within the meaning of the Proposed Private Fund Rules. The costs in complying with certain of the reporting and compliance obligations
under the Proposed Private Fund Rules could be substantial, and it is unclear if the costs of preparing such reports would be borne
by the CLO or the CLO’s collateral manager. If the CLOs in which we invest are responsible for such expenses, it could affect the
return on our investments in CLO securities. In addition, if any CLO collateral manager were prohibited from discussing the underlying
portfolio of CLO assets with investors, entirely or absent highly specific disclosure, it could result in a reduction or elimination of
any CLO collateral manager’s ability to provide information to us relating to such CLO’s assets other than the reporting required
by the CLO’s transaction documents. In addition, the Proposed Private Fund Rules could adversely affect a CLO’s ability
to consummate a refinancing or other optional redemption. As a result, adoption of the Proposed Private Fund Rules could have a material
and adverse effect on the market value and/or liquidity of the CLO securities in which we invest.
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
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. Since December 2019, the spread of COVID-19 has caused social unrest and commercial disruption on a
global scale.
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 COVID-19 pandemic has magnified these risks and has had, and may
continue to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross
border commercial activity and market sentiment have been impacted by the outbreak and government and other measures seeking to contain
its spread. The effects of the COVID-19 pandemic contributed to increased volatility in global financial markets and likely will affect
countries, regions, companies, industries and market sectors more dramatically than others. The COVID-19 pandemic has had, and any other
outbreak of an infectious disease or serious environmental or public health concern could have, a significant negative impact on economic
and market conditions, could exacerbate pre-existing political, social and economic risks in certain countries or regions and could trigger
a prolonged period of global economic slowdown, which may impact us and our underlying investments.
Following
the onset of the pandemic, certain CLOs experienced increased defaults by underlying borrowers. Obligor defaults and rating agency downgrades
caused, and may in the future cause, payments that would have otherwise been made to the CLO equity or CLO debt securities to instead
be diverted to buy additional loans within a given CLO or paid to senior CLO debt holders as an early amortization payment. In addition,
defaults and downgrades of underlying obligors caused, and may in the future cause, a decline in the value of CLO securities generally.
If CLO cash flows or income decrease as a result of the pandemic, the portion of our distribution comprised of a return of capital could
increase or distributions could be reduced.
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 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 to repay any Preferred Stock or outstanding indebtedness, including the Notes.
We
currently anticipate that it will generally take approximately three to six months after the completion of any offering of securities
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
may use the proceeds from the sale of our securities to 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. However, the selling stockholders will
bear all other expenses, including any brokerage fees, underwriting discounts and commissions, of any such offering. We will not receive
any proceeds from any sale of common stock by the selling stockholders.
SENIOR
SECURITIES
Information
about the Company’s outstanding senior securities as of the end of each fiscal year since its inception may be found in the “Supplemental
Information—Senior Securities Table” section of the Company’s most recent Annual
Report on Form N-CSR, as amended, for the fiscal year ended December 31, 2022, filed with the SEC on February 24,
2023, which is incorporated by reference herein.
PRICE
RANGE OF COMMON STOCK
Our
common stock began trading on October 8, 2014 and is currently traded on the NYSE under the symbol “ECC.” 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, 2021.
|
|
|
|
|
|
|
|
Premium |
|
|
Premium |
|
|
|
|
|
|
|
|
|
|
|
|
(Discount) |
|
|
(Discount) |
|
|
|
|
|
|
|
|
|
|
|
|
of
High |
|
|
of
Low |
|
|
|
|
|
|
|
|
|
Closing
Sales Price |
|
|
Sales
Price |
|
|
Sales
Price |
|
|
Distributions |
|
Period |
|
NAV(1) |
|
|
High |
|
|
Low |
|
|
to
NAV(2) |
|
|
to
NAV(2) |
|
|
Declared(3) |
|
Fiscal
year ending December 31, 2021(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter |
|
$ |
12.02 |
|
|
$ |
11.98 |
|
|
$ |
10.12 |
|
|
|
(0.3 |
)% |
|
|
(15.8 |
)% |
|
$ |
0.24 |
|
Second quarter |
|
$ |
12.97 |
|
|
$ |
14.40 |
|
|
$ |
12.15 |
|
|
|
11.0 |
% |
|
|
(6.3 |
)% |
|
$ |
0.30 |
|
Third quarter |
|
$ |
13.98 |
|
|
$ |
14.40 |
|
|
$ |
12.73 |
|
|
|
3.0 |
% |
|
|
(8.9 |
)% |
|
$ |
0.36 |
|
Fourth quarter |
|
$ |
13.39 |
|
|
$ |
15.49 |
|
|
$ |
13.70 |
|
|
|
15.7 |
% |
|
|
2.3 |
% |
|
$ |
0.86 |
|
Fiscal year ending
December 31, 2022(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
12.64 |
|
|
$ |
14.27 |
|
|
$ |
12.98 |
|
|
|
12.9 |
% |
|
|
2.7 |
% |
|
$ |
0.42 |
|
Second quarter |
|
$ |
10.08 |
|
|
$ |
13.30 |
|
|
$ |
11.41 |
|
|
|
31.9 |
% |
|
|
13.2 |
% |
|
$ |
0.42 |
|
Third quarter |
|
$ |
10.23 |
|
|
$ |
12.22 |
|
|
$ |
10.60 |
|
|
|
19.5 |
% |
|
|
3.6 |
% |
|
$ |
0.67 |
|
Fourth quarter |
|
$ |
9.07 |
|
|
$ |
11.69 |
|
|
$ |
10.08 |
|
|
|
28.9 |
% |
|
|
11.1 |
% |
|
$ |
0.92 |
|
Fiscal year ending December 31,
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
9.10 |
|
|
$ |
11.70 |
|
|
$ |
10.16 |
|
|
|
28.6 |
% |
|
|
11.6 |
% |
|
$ |
0.48 |
|
|
(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, 2021, as
reported on our 2021 Form 1099-DIV, distributions made by us did not comprise of a return of capital. |
|
(5) |
For the fiscal year ending December 31, 2022, as
reported on our 2022 Form 1099-DIV, distributions made by us did not comprise of a return of capital. |
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 $9.10
as of March 31, 2023. The closing sales price for shares of our common stock on the NYSE on June 5, 2023 was $10.17,
which represented a 11.8%
premium to NAV per share.
On
June 5, 2023, the last reported closing sales price of our common stock was $10.17 per share. As of June 5, 2023, we had 10 stockholders
of record of our 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 equity and debt 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, which is typically up to five
years. 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 equity and debt 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. Among our primary
targeted investments, the risks associated with CLO equity are generally greater than those associated with CLO debt. 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 Eagle Point Credit Management
LLC as our investment adviser.
The
Adviser
The
Adviser is registered as an investment adviser with the SEC. As of March 31, 2023, the Adviser, collectively with Eagle Point Income
Management, an affiliate of the Adviser, had approximately $7.8 billion of total assets under management (including capital commitments
that were undrawn as of such date). Based on the Adviser’s CLO equity assets under management, the Adviser believes that, collectively
with Eagle Point Income Management, it is among the largest CLO equity investors in the market.
The
Adviser was established in 2012 by Thomas P. Majewski and Stone Point. The Adviser is wholly owned by Eagle Point Holdings LP (“EP
Holdings”). EP Holdings, in turn, is primarily owned by certain of the Trident Funds through intermediary holding companies.
Additionally, the Adviser’s Senior Investment Team also holds 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. Stone Point, an investment adviser registered with the SEC, is a specialized
private equity firm focused on the financial services industry.
In
addition to managing our investments, the Adviser and its affiliates and the members of the Senior Investment Team manage investment accounts
for other clients, including EIC, a publicly traded, closed-end management investment company that is registered under the 1940 Act and
for which Eagle Point Income Management serves as investment adviser, and EPIIF, a non-listed, closed-end management investment company
that is registered under the 1940 Act, as well as multiple 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 certain of the Trident Funds, and the management of EIC and EPIIF and such other vehicles and accounts
by the Adviser’s affiliates and Senior Investment Team, give rise to certain conflicts of interest. See “Conflicts
of Interest.”
Portfolio
Managers
We
are managed by members of the Senior Investment Team. The Senior Investment Team 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 Senior Investment Team is primarily responsible for our day-to-day investment management and the implementation of our investment
strategy and process.
Each
member of the Senior Investment Team 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 Senior Investment Team 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 Senior Investment Team provides the Adviser with
a competitive advantage in its CLO-focused investment strategy.
Biographical
information on the Senior Investment Team, each of whom has served as a portfolio manager since our inception, is set forth below:
Thomas
P. Majewski, Managing Partner of the Adviser (since November 2012). Mr. Majewski is the
Managing Partner and founder of the Adviser and a director, Chairman and Chief Executive Officer of Eagle Point Income Company. He serves
as a trustee, Chairman and Chief Executive Officer of Eagle Point Institutional Income Fund. Mr. Majewski has been involved in the
formation and/or monetization of many CLO transactions across multiple market cycles. Mr. Majewski led the creation of some of the
earliest refinancing CLOs, introducing techniques that are now commonplace in the market. Mr. Majewski’s experience in the
CLO market dates back to the 1990s. He has spent his entire career in the structured finance and credit markets. Mr. Majewski is
a member of the Adviser’s Board of Managers and the Adviser’s investment committee. Mr. Majewski is also the Managing
Partner of Eagle Point Income Management.
Prior
to joining the Adviser in September 2012, Mr. Majewski was a Managing Director and U.S. Head of CLO Banking at RBS Securities
Inc., or “RBS,” from September 2011 through September 2012, where he was responsible for all aspects of RBS’s
new-issue CLO platform. Prior to joining RBS, Mr. Majewski was the U.S. country head at AMP Capital Investors (US) Ltd. and AE Capital
Advisers (US) LLC, where he was responsible for investing in credit, structured products and other private assets on behalf of several
Australian investors. Prior to this, Mr. Majewski was a Managing Director and head of CLO banking at Merrill Lynch Pierce Fenner
and Smith Inc. Mr. Majewski also has held leadership positions within the CLO groups at JPMorgan Securities Inc. and Bear, Stearns &
Co. Inc. Mr. Majewski formerly served as a member of the board of managers and investment committee of Marble Point, and as a director
of Marble Point Loan Financing Limited, an investment fund managed by Marble Point listed on the London Stock Exchange. Mr. Majewski
has a B.S. from Binghamton University and has been a Certified Public Accountant (inactive).
Mr. Majewski
also serves as chairman of the board of directors of Eagle Point Income Company and chairman of the board of trustees of Eagle Point Institutional
Income Fund.
Daniel
W. Ko, Portfolio Manager (since December 2012). Mr. Ko is a Senior Principal and Portfolio Manager of the
Adviser and Eagle Point Income Management. Mr. Ko is responsible for manager evaluation and structuring investment opportunities
in the primary CLO market, analyzing secondary CLO market opportunities, executing trades and monitoring investments. Mr. Ko has
specialized in structured finance throughout his entire career.
Prior
to joining the Adviser in December 2012, Mr. Ko was with Bank of America Merrill Lynch, or “BAML,” for the previous
six years, most recently as Vice President of the CLO structuring group, where he was responsible for modeling the projected deal cash
flows, negotiating deal terms with both equity and debt investors and coordinating the rating process. In addition, he was responsible
for exploring non-standard structuring initiatives such as financing trades with dynamic leverage, emerging market CBOs and European CLOs.
Prior to joining the CLO structuring group, Mr. Ko managed BAML’s legacy CLO, trust-preferred securities CDO and asset-backed
securities CDO portfolios. Prior to Bank of America’s merger with Merrill Lynch, Mr. Ko was an associate in Merrill Lynch’s
CDO structuring group, Mr. Ko graduated magna cum laude from the University of Pennsylvania’s Wharton School with a B.S. in
finance and accounting.
Daniel
M. Spinner (CAIA), Portfolio Manager (since February 2013). Mr. Spinner is a Senior Principal
and Portfolio Manager of the Adviser and Eagle Point Income Management. Mr. Spinner is primarily responsible for manager evaluation
and due diligence and for monitoring investments. Mr. Spinner is also actively involved in investor relations and communications.
Mr. Spinner is an alternative asset management industry specialist with 20 years of experience advising, financing and investing
in alternative asset management firms and funds. Mr. Spinner’s experience in the CLO market dates back to the late 1990s.
Prior
to joining the Adviser in February 2013, Mr. Spinner was an Investment Analyst at the 1199SEIU Benefit and Pension Funds, from
June 2009 to February 2013, where he oversaw the private equity, special opportunities credit and real estate allocations. The
1199SEIU Benefit and Pension Funds are collectively among the largest Taft-Hartley plans in the United States. Prior to this, Mr. Spinner
was a Managing Director at Bear, Stearns & Co. Inc. focused on alternative asset managers. Prior to Bear Stearns, Mr. Spinner
was the co-founder and president of Structured Capital Partners, Inc., a financial holding company formed to invest in structured
credit managers. Mr. Spinner was credit trained at Chase Manhattan Bank where he began his career as an investment banker and spent
seven years in the Financial Institutions Group (including at JPMorgan Securities Inc. post-merger), where he had coverage responsibility
for asset management firms including CLO collateral managers. Mr. Spinner formerly served as a member of the board of managers and
investment committee of Marble Point. Mr. Spinner earned a B.A., summa cum laude, from Gettysburg College and an M.B.A. from Columbia
University.
The
following table sets forth accounts within each category listed for which members of the Senior Investment Team are jointly and primarily
responsible for day-to-day portfolio management as of December 31, 2022. Among the accounts listed below, one of the “Registered
Investment Companies” (with total assets of $14.5 million), seven of the “Other Pooled Investment Vehicles” (with total
assets of $2,350.1 million) and 26 of the “Other Accounts” (with total assets of $1,710.6 million) are subject to a performance
fee. In addition, we are subject to a performance fee.
|
|
Registered Investment
Companies |
|
|
Other
Pooled Investment Vehicle |
|
|
Other
Accounts |
|
Portfolio
Manager |
|
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 |
|
|
2 |
|
|
$ |
163.0 |
|
|
|
10 |
|
|
$ |
2,652.4 |
|
|
|
55 |
|
|
$ |
4,617.9 |
|
Daniel W. Ko |
|
|
2 |
|
|
$ |
163.0 |
|
|
|
10 |
|
|
$ |
2,652.4 |
|
|
|
55 |
|
|
$ |
4,617.9 |
|
Daniel M. Spinner |
|
|
2 |
|
|
$ |
163.0 |
|
|
|
10 |
|
|
$ |
2,652.4 |
|
|
|
55 |
|
|
$ |
4,617.9 |
|
|
(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. The investment professionals are paid out of the total revenues of the Adviser and certain
of its affiliates, including the advisory fees earned with respect to providing advisory services to us. Professional compensation at
the Adviser is structured so that key professionals benefit from strong investment performance generated on the accounts that the Adviser
and such affiliates manage and from their longevity with the Adviser. Each member of the Senior Investment Team has indirect equity ownership
interests in the Adviser and related long-term incentives. Members of the Senior Investment Team also receive a fixed base salary and
an annual market and performance-based cash bonus. The bonus is determined by the Adviser’s Board of Managers, and is based on both
quantitative and qualitative analysis of several factors, including the profitability of the Adviser 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, 2022. 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 M. Spinner |
|
$ |
100,001 – $500,000 |
|
Daniel W. Ko |
|
$ |
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, Mr. James Carey,
Mr. Scott Bronner 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 Income 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. Biographical
information regarding each other member of the Adviser’s Board of Managers is summarized below:
James
D. Carey. Mr. Carey is a Senior Principal of Stone Point and a member of the investment committees of the Trident
Funds. Mr. Carey is also a member of the Adviser’s Board of Managers. Mr. Carey joined Stone Point in 1997 from Merrill
Lynch & Co. Prior to joining Merrill Lynch & Co., Mr. Carey was a corporate attorney with Kelley Drye &
Warren LLP. Mr. Carey is a director of a number of portfolio companies of the Trident Funds managed by Stone Point, including Alliant
Insurance Services, Inc., the holding company of Amherst Pierpont Securities LLC, Enstar Group Limited, Privilege Underwriters, Inc.,
HireRight and Sedgwick Claims Management Services, Inc.
Mr. Carey
holds a B.S. from Boston College, a J.D. from Boston College Law School and an M.B.A. from the Duke University Fuqua School of Business.
Scott
Bronner. Mr. Bronner is a Managing Director at Stone Point. Mr. Bronner is also a member of the Adviser’s
Board of Managers. Mr. Bronner joined Stone Point in 2009. He is a director of a number of portfolio companies of the Trident Funds
managed by Stone Point. Prior to joining Stone Point, Mr. Bronner was an Analyst in the Private Equity Division at Lehman Brothers
Inc.
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 2023. 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, 2023.
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 and Incentive Fee. We pay the Adviser a fee for its services under the Investment Advisory Agreement consisting
of two components — a base management fee and an incentive fee. To the extent permitted by applicable law, the Adviser may elect
to defer all or a portion of these fees for a specified period of time.
The
base management fee is calculated and payable quarterly in arrears and equals an annual rate of 1.75% of our “Total Equity Base.”
“Total Equity Base” means the NAV attributable to our common stockholders and the paid-in capital of our Preferred Stock.
The base management fee is calculated based on the Total Equity Base at the end of the most recently completed calendar quarter and, with
respect to any common stock or Preferred Stock issued or repurchased during such quarter, is adjusted to reflect the number of days during
such quarter that such common stock and/or Preferred Stock, if any, was outstanding. In addition, the base management fee for any partial
quarter is pro-rated (based on the number of days actually elapsed at the end of such partial quarter relative to the total number of
days in such calendar quarter).
In
addition, we pay the Adviser an incentive fee based on our performance. The incentive fee is calculated and payable quarterly in arrears
and equals 20% of our “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter, subject to a hurdle
and a “catch up” feature. No incentive fees are payable to our investment adviser in respect of any capital gains. For this
purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including
any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from an investment)
accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable
under the Administration Agreement to Eagle Point Administration, and any interest expense and/or dividends paid on any issued and outstanding
debt or Preferred Stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments
with a deferred interest feature (such as original issue discount, debt instruments PIK interest and zero-coupon securities), accrued
income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any capital gains or losses.
Pre-Incentive
Fee Net Investment Income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar
quarter, is compared to a hurdle of 2.00% of our NAV per quarter (or an annualized hurdle rate of 8.00%). For such purposes, our quarterly
rate of return is determined by dividing our Pre-Incentive Fee Net Investment Income by our reported net assets as of the prior period
end. Our net investment income used to calculate this part of the incentive fee is also included in the calculation of the Total Equity
Base which is used to calculate the 1.75% base management fee.
The incentive
fee in each calendar quarter is paid to the Adviser as follows:
|
• |
no incentive fee in any calendar quarter in which our
Pre-Incentive Fee Net Investment Income does not exceed the hurdle of 2.00% of our NAV (or an annualized hurdle rate of 8.00%); |
|
• |
100% of our Pre-Incentive Fee Net Investment Income with
respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle but is less than 2.50% of our
NAV in any calendar quarter (or an annualized rate of 10.00%). We refer to this portion of our Pre-Incentive Fee Net Investment Income
(which exceeds the hurdle but is less than 2.50% of our NAV) as the “catch-up.” The “catch-up” is meant to provide
the Adviser with 20% of our Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or
exceeds 2.50% of our NAV in any calendar quarter; and |
|
• |
20% of the amount of our Pre-Incentive Fee Net Investment
Income, if any, that exceeds 2.50% of our NAV in any calendar quarter is payable to the Adviser (that is, once the hurdle is reached and
the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income thereafter is paid to the Adviser). |
You
should be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our
investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and
may result in a substantial increase of the amount of incentive fees payable to the Adviser with respect to Pre-Incentive Fee Net Investment
Income.
The
portion of such incentive fee that is attributable to deferred interest (such as PIK interest or original issue discount) will be paid
to the Adviser, without interest, only if and to the extent we actually receive such deferred interest in cash, and any accrual will be
reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving
rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal
(after taking into account the reversal of incentive fees payable) and would result in a reduction of the incentive fees for such quarter.
No
incentive fee is payable to the Adviser on capital gains, whether realized or unrealized. In addition, the amount of the incentive fee
is not affected by any realized or unrealized losses that we may suffer.
The
payment of monthly dividends on our Preferred Stock (including on any shares of Preferred Stock that may be held by officers or other
affiliates of the Adviser) is not subject to Pre-Incentive Fee Net Investment Income meeting or exceeding any hurdle rate.
The
following is a graphical representation of the calculation of the incentive fee as well as examples of its application.
Quarterly
Incentive Fee Based on Net Investment Income
Pre-Incentive
Fee Net Investment Income
(expressed
as a percentage of the value of net assets)
Examples
of Quarterly Incentive Fee Calculation (amounts expressed as a percentage of the value of net assets, and are not annualized)*
Alternative
1:
Assumptions
Investment
income (including interest, distributions, fees, etc.) = 1.25% Hurdle rate(1) = 2.00%
Base
management fee(2) = 0.4375%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.25%
Pre-Incentive
Fee Net Investment Income
(investment
income – (base management fee + other expenses)) = 0.5625%
Pre-Incentive
Fee Net Investment Income does not exceed the hurdle rate, therefore there is no incentive fee.
Alternative
2:
Assumptions
Investment
income (including interest, distributions, fees, etc.) = 2.70% Hurdle rate(1) = 2.00%
Base
management fee(2) = 0.4375%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.25%
Pre-Incentive
Fee Net Investment Income
(investment
income – (base management fee + other expenses)) = 2.0125%
Pre-Incentive
Fee Net Investment Income exceeds the hurdle rate, therefore there is an incentive fee.
Incentive fee
= (100% × “Catch-Up”) + (the greater of 0% AND (20% × (Pre-Incentive Fee Net Investment Income – 2.50%)))
= (100.0% ×
(Pre-Incentive Fee Net Investment Income – 2.00%)) + 0%
= 100.0% ×
(2.0125% – 2.00%)
= 100.0% ×
0.0125%
= 0.0125%
Alternative
3:
Assumptions
Investment
income (including interest, distributions, fees, etc.) = 3.25% Hurdle rate(1) = 2.00%
Base
management fee(2) = 0.4375%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.25%
Pre-Incentive
Fee Net Investment Income
(investment
income – (base management fee + other expenses)) = 2.5625%
Pre-Incentive
Fee Net Investment Income exceeds the hurdle rate, therefore there is an incentive fee.
Incentive fee
= (100% × “Catch-Up”) + (the greater of 0% AND (20% × (Pre-Incentive Fee Net Investment Income – 2.50%)))
= (100.0% ×
(2.50% – 2.00%)) + (20% × (Pre-Incentive Fee Net Investment Income – 2.50%))
= (100.0% ×
(2.50% – 2.00%)) + (20% × (2.5625% – 2.50%))
= 0.5000% + .0125%
= 0.5125%
|
* |
The hypothetical amount of Pre-Incentive Fee Net Investment Income shown is based
on a percentage of net assets. |
|
(1) |
Represents 8.00% annualized hurdle rate. |
|
(2) |
Represents 1.75% annualized base management fee. |
|
(3) |
Excludes organizational and offering expenses. |
During
the fiscal years ended December 31, 2022, 2021 and 2020, we incurred base management and incentive fees (inclusive of incentive fees
voluntarily waived by the Adviser) of $26.1 million, $20.2 million and $14.2 million, respectively, and paid $23.5 million, $19.0 million
and $13.0 million, respectively, to the Adviser pursuant to the Investment Advisory Agreement. The waived incentive fee is not subject
to recoupment by 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); (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 base management fee and any incentive fee; (9) distributions on 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 Credit” name and logo. Under the License Agreement, we have
a right to use the “Eagle Point Credit” 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 Credit” 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, or “ICR,” 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. During
the fiscal years ended December 31, 2022, 2021 and 2020, we incurred expenses of $0.8 million, $0.7 million and $0.7 million, respectively,
under, and paid $0.7 million, $0.7 million and $0.7 million, respectively, to the Administrator pursuant to the Administration Agreement.
During the fiscal years ended December 31, 2022, 2021 and 2020, we incurred expenses of $0.3 million, $0.3 million and $0.2 million,
respectively, under, and paid $0.3 million, $0.3 million and $0.1 million, respectively, to SS&C. We also incurred expenses of $0.2
million for each fiscal year ended December 31, 2022, 2021 and 2020 payable to ICR.
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 2022.
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. Matthews 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, 2022, 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, 2022.
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, 2022.
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 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 12, 2023 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. Effective April 2023, the current principal occupation
of Paul E. Tramontano (Independent Director) is Executive Managing Director at Cresset Asset Management, LLC.
Executive Officers
Please
refer to the section of the Company’s April 12, 2023 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 12, 2023 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, 2022.
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 |
|
— |
|
|
— |
|
Independent Directors |
|
|
|
|
|
|
Scott W. Appleby |
|
Over
$100,000 |
|
|
Over
$100,000 |
|
Kevin F. McDonald |
|
Over
$100,000 |
|
|
Over
$100,000 |
|
Paul E. Tramontano |
|
Over
$100,000 |
|
|
Over
$100,000 |
|
Jeffrey L. Weiss |
|
Over
$100,000 |
|
|
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 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 the Adviser fair values 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, 2022, filed with the SEC on February 24,
2023, 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 Senior Investment Team, 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 Income 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, which hold a significant
number of shares of our common stock. See “Control Persons, Principal Stockholders and Selling Stockholders.” The
Adviser and the Administrator are wholly owned by Eagle Point Holdings LP (“EP Holdings”). EP Holdings, in turn, is 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. Further, 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 CLO collateral managers that encompass a range of activities, such as investing in CLOs
managed by a CLO collateral manager on behalf of the Company, financing, or investing in other securities issued by, other vehicles managed
by such CLO collateral manager or an affiliate thereof, or otherwise providing advisory, research or data services to such CLO collateral
manager for compensation. 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 Senior Investment Team, 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
Eagle Point Income Management, 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 or certain of its affiliates hold, and may in the future
be allocated, certain investments in CLOs, such as debt tranches, which conflict with the positions held by other accounts in such CLOs,
such as us. 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, Eagle Point Income
Management, Stone Point and their affiliates, and the investment funds managed by Eagle Point Income Management, Stone Point and 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, including EIC 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.
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 Eagle Point Income Company, 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, CLOs or other
similar entities. 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 the Company may invest.
The Company 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 the Company, other accounts that they provide services to, their affiliates and other business ventures
or clients.
Allocation of 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 Eagle Point Income Management
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 Eagle Point Income Management may take into account
regulatory, tax or legal requirements applicable to an account. In allocating investment opportunities, the Adviser and Eagle Point Income
Management may use rotational, percentage or other allocation methods provided that doing so is consistent with the Adviser’s and
Eagle Point Income Management’s 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, including Eagle Point Income 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.
Leverage
We previously incurred leverage
through the issuance of the Preferred Stock and the Notes. 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. 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. Our incentive fee structure and the
formula for calculating the fee payable to the Adviser may incentivize the Adviser to pursue speculative investments and use leverage
in a manner that adversely impacts our performance. The incentive fee payable to the Adviser is based on our Pre-Incentive Fee Net Investment
Income, as calculated in accordance with our Investment Advisory Agreement. This may encourage the Adviser to use leverage to increase
the return on our investments, even when it may not be appropriate to do so, and to refrain from de-levering when it would otherwise be
appropriate to do so. In addition, because our management fee is based in part on the paid-in capital of any Preferred Stock that we issue,
we may have an incentive to incur leverage by issuing additional Preferred Stock when it is not appropriate to do so or when it is advantageous
to use other forms of leverage, such as issuing debt. 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
Generally, there is not a public
market for the CLO 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 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 base
management fee paid to the Adviser is based, in part, on 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 Eagle Point Income Management 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. For example, we may be limited in our ability to invest in CLOs managed by certain affiliates
of the Adviser.
In certain instances, we co-invest
on a concurrent basis with other accounts managed by the Adviser and may do so with other accounts managed by certain of our Adviser’s
affiliates, subject to compliance with applicable regulations and regulatory guidance and our written allocation procedures. We have received
exemptive relief from the SEC that permits us to participate in certain negotiated co-investments alongside other accounts, including
EIC and EPIIF, managed by the Adviser or certain of 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. 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 CLOs that include loans underwritten by such a portfolio company or affiliate. In addition, the CLOs in which we expect to invest consist
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.
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 securities, including our
common stock and Preferred Stock, which collectively will be referred to as “stock,” as well as our debt securities, or “notes,”
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:
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an individual citizen or resident of the United States; |
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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); |
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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 |
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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:
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a dealer in securities or currencies; |
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a financial institution; |
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a real estate investment trust; |
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a tax-exempt organization; |
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a person holding the securities as part of a hedging, integrated, conversion or constructive sale transaction
or a straddle; |
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a trader in securities that has elected the mark-to-market method of accounting for their securities; |
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a person subject to alternative minimum tax; |
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a partnership or other pass-through entity for U.S. federal income tax purposes; |
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a U.S. holder whose “functional currency” (as defined in Section 985 of the Code) is not the
U.S. dollar; |
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A United States expatriate or foreign persons or entities (except to the extent set forth below); or |
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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 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 excess non-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 U.S. stockholders, on December 31 of the calendar year in which the distribution was declared.
We have previously incurred, and
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 shareholder
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 shareholders and (ii) for the dividends received deduction, or the “DRD,” in the case
of certain corporate shareholders. 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 OID (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 OID 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 PIK 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 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 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. This deemed distribution is required to be included in the income of a U.S. Shareholder of a CFC regardless of whether
the shareholder has made a QEF election with respect to such CFC. 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) 10% or more of the combined voting power or value of all classes of shares 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.
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 shareholders.
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 shareholders, 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. Resident 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 pursuant to the DRIP will be treated as receiving a taxable distribution in an amount generally
equal to the cash that would have been received if they had elected to receive the distribution in cash, unless we issue new shares that
are trading at or above NAV, in which case such stockholders will be treated as receiving a distribution equal to the fair market value
of the shares received, determined as of the reinvestment date.
We will 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 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.
The IRS currently requires that
a RIC that has two or more classes of stock allocate to each class proportionate amounts of each type of its income (such as ordinary
income, capital gains, qualified dividend income and dividends qualifying for the DRD) based upon the percentage of total dividends paid
to each class for the tax year. Accordingly, we intend to allocate capital gain distributions and distributions of qualified dividend
income and distributions qualifying for the DRD, if any, between our common shares and Preferred Stock in proportion to the total distributions
paid to each class with respect to such tax year.
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 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 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).
Accordingly, investment in the shares may not be appropriate for a non-U.S. holder.
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.
Taxation
of U.S. resident holders of our notes. Except as discussed below, payments or accruals of interest on our notes generally will
be taxable to a U.S. holder as ordinary interest income at the time they are received (actually or constructively) or accrued, in accordance
with the U.S. holder’s regular method of tax accounting. In addition, if the issue price of our notes (i.e., the first price
at which a substantial amount of the notes is sold to investors) is less than their “stated redemption price at maturity”
(i.e., the sum of all payments to be made on the notes, other than payments of “qualified stated interest”) by more
than a specified de minimis amount, the notes will be considered as having been issued for U.S. federal income tax purposes with
OID. In the case of the notes, the term “qualified stated interest” generally means that interest that is unconditionally
payable at least annually and at a single fixed rate.
If the notes are issued with OID,
a U.S. holder generally will be required to include the OID in gross income as ordinary interest income in advance of the receipt of cash
attributable to that income and regardless of such holder’s regular method of tax accounting. Such OID will be included in gross
income for each day during each tax year in which a note is held by a U.S. holder using a constant yield method that reflects the compounding
of interest. This means that a U.S. holder will be required to include increasingly greater amounts of OID over time. Alternatively, if
a U.S. holder acquires a note with de minimis OID (i.e., discount that is not OID), the U.S. holder generally will be required
to include the de minimis OID in income at the time a principal payment on the note is made in proportion to the amount paid. Any
amount of de minimis OID that a U.S. holder has included in income will be characterized as capital gain. Notice will be given
if we determine that any of our notes will be issued with OID. We are required to provide information returns stating the amount of OID
accrued on the notes held by persons of record, other than certain U.S. tax-exempt holders.
Upon the sale, exchange, redemption
or retirement of our notes, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized
on the sale, exchange, redemption or retirement (excluding any amounts representing accrued and unpaid interest, which are treated as
ordinary income) and the U.S. holder’s adjusted tax basis in the note. A U.S. holder’s tax basis in our notes generally will
equal the amount of the U.S. holder’s initial investment in the note increased by OID, if any, previously included in income with
respect to such notes, and reduced by any cash payments on the notes other than qualified stated interest. Capital gain or loss generally
will be long-term capital gain or loss if the note was held for more than one year. Long-term capital gains recognized by individuals
and certain other non-corporate U.S. holders generally are eligible for preferential rates of taxation, currently at a rate of either
15% or 20%, depending on whether the U.S. holder’s income exceeds certain threshold amounts, and the deductibility of capital losses
is subject to certain limitations prescribed under the Code. The distinction between capital gain or loss and ordinary income or loss
is also important in other contexts, such as, for example, for purposes of the limitations on a U.S. holder’s ability to offset
capital losses against ordinary income.
If a U.S. holder acquires a note
for an amount that is less than its principal amount, the amount of the difference generally will be treated as “market discount”
for U.S. federal income tax purposes, unless that difference is less than a specified de minimis amount. Under the market discount rules,
a U.S. holder will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of,
a note as ordinary income to the extent of the market discount that the U.S. holder has not previously included in income and are treated
as having accrued on the Note at the time of the payment or disposition. In addition, a U.S. holder may be required to defer, until the
maturity of a note or its earlier sale or other disposition in a taxable transaction, the deduction of all or a portion of the interest
expense on any indebtedness attributable to the note. A U.S. holder may elect, on a note-by-note basis, to deduct such deferred interest
expense in a tax year prior to the tax year of disposition. If a U.S. holder makes this election, it will only apply to any note with
respect to which it is made, and such election is irrevocable without the consent of the IRS. U.S. holders should consult their own tax
advisors before making this election.
Any market discount on a note will
be considered to accrue ratably during the period from the date of acquisition to the maturity date of the note, unless a U.S. holder
elects to accrue such market discount on a constant interest method. In addition, a U.S. holder may make a separate election to include
market discount in income currently as it accrues, on either a ratable or constant yield method, in which case the rule described
above regarding deferral of interest deductions will not apply. If a U.S. holder makes this election, it will apply to all debt instruments
acquired with market discount (including, if applicable, a note) that the U.S. holder acquires on or after the first day of the first
tax year to which the election applies. A U.S. holder may not revoke this election without the consent of the IRS. U.S. holders should
consult their own tax advisors before making either of such election.
If a U.S. holder acquires a note
for an amount in excess of its stated principal amount, the U.S. holder will be considered to have purchased the note at a “premium.”
A U.S. holder generally may elect to amortize such premium over the remaining term of the note on a constant yield method as an offset
to interest when includible in taxable income under the U.S. holder’s regular accounting method. If a U.S. holder makes this election,
it will apply to all debt instruments acquired with premium (including, if applicable, a note) that the U.S. holder acquires on or after
the first day of the first tax year to which the election applies. A U.S. holder may not revoke this election without the consent of the
IRS. If a U.S. holder does not elect to amortize premium on the note, that premium will decrease the gain or increase the loss the U.S.
holder would otherwise recognize on disposition of the note.
Taxation
of non-U.S. holders of our notes. A non-U.S. holder generally will not be subject to U.S. federal income or withholding taxes
on payments of principal or stated interest on our notes provided that, in the case of interest on a note (i) the interest is not
effectively connected with the conduct by the non-U.S. holder of a trade or business within the U.S., (ii) the non-U.S. holder is
not a controlled foreign corporation related to us through sufficient stock ownership, (iii) the recipient is not a bank receiving
interest described in Section 881(c)(3)(A) of the Code, (iv) the non-U.S. holder does not own (actually or constructively)
10% or more of the total combined voting power of all classes of our stock, and (v)(A) the non-U.S. holder provides to the applicable
withholding agent a statement on an IRS Form W-8BEN or W-8BEN-E (or other applicable U.S. nonresident withholding tax certification
form) signed under penalties of perjury that includes its name and address and certifies that it is not a United States person for U.S.
federal income tax purposes in compliance with applicable requirements, or satisfies documentary evidence requirements for establishing
that it is a non-U.S. holder, or (B) a securities clearing organization, bank, or other financial institution that holds customer
securities in the ordinary course of its trade or business (i.e., a “financial institution”) and holds a note certifies
to us under penalties of perjury that either it or another financial institution has received the required statement from the non-U.S.
holder certifying that it is a non-U.S. person and furnishes us with a copy of the statement.
A non-U.S. holder that is not exempt
from tax under these rules generally will be subject to withholding of U.S. federal income tax on payments of interest on our notes
at a rate of 30% unless (i) the interest is effectively connected with the conduct of a U.S. trade or business, in which case the
interest will be subject to U.S. federal income tax on a net income basis as applicable to U.S. holders generally (unless an applicable
income tax treaty provides otherwise), or (ii) an applicable income tax treaty provides for a lower rate of, or exemption from, this
withholding. In the case of a non-U.S. holder that is classified as a corporation for U.S. federal income tax purposes and receives income
that is effectively connected with the conduct of a U.S. trade or business, such income may also be subject to a branch profits tax (which
is generally imposed on a non-U.S. corporation on the actual or deemed repatriation from the United States of earnings and profits attributable
to a United States trade or business) at a 30% rate. The branch profits tax may not apply (or may apply at a reduced rate) if the non-U.S.
holder is a qualified resident of a country with which the U.S. has an income tax treaty.
To claim the benefit of an income
tax treaty or to claim exemption from withholding because interest is effectively connected with a U.S. trade or business, the non-U.S.
holder must timely provide the appropriate, properly executed applicable U.S. nonresident withholding tax certification IRS form signed
under penalties of perjury to the applicable withholding agent.
Generally, a non-U.S. holder will
not be subject to U.S. federal income or withholding taxes on any amount that constitutes capital gain upon the sale, exchange, redemption
or retirement of a note, provided the gain is not effectively connected with the conduct of a trade or business in the United States by
the non-U.S. holder (and, if required by an applicable income tax treaty, is not attributable to a United States “permanent establishment”
maintained by the non-U.S. holder). Certain other exceptions may be applicable, and a non-U.S. holder should consult its tax advisor in
this regard.
A note that is held by an individual
who, at the time of death, is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes)
generally will not be subject to U.S. federal estate tax, unless, at the time of death, (i) such individual directly or indirectly,
actually or constructively, owns ten percent or more of the total combined voting power of all classes of our stock entitled to vote within
the meaning of Section 871(h)(3) of the Code and the Treasury Regulations thereunder or (ii) such individual’s interest
in the Notes is effectively connected with the individual’s conduct of a U.S. trade or business.
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. 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.
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 OID, 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.
If you are a non-U.S. holder, generally,
the applicable withholding agent is generally required to report to the IRS and to you payments of interest, including OID (if any), on
our securities and the amount of tax, if any, withheld with respect to those payments. Copies of the information returns reporting such
interest payments and any withholding may also be made available to the tax authorities in the country in which you reside under the provisions
of a treaty or agreement. In general, backup withholding will not apply to payments of interest on your securities if you have provided
to the applicable withholding agent the required certification that you are not a U.S. person and the applicable withholding agent does
not have actual knowledge or reason to know that you are a U.S. person. Information reporting and, depending on the circumstances, backup
withholding will apply to payment to you of the proceeds of a sale or other disposition (including a retirement or redemption) of your
securities within the United States or conducted through certain U.S.-related financial intermediaries, unless you certify under penalties
of perjury that you are not a U.S. person or you otherwise establish an exemption, and the applicable withholding agent does not have
actual knowledge or reason to know that you are a U.S. person.
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 interest
earned in respect of a debt instrument, such as our notes and 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. If FATCA withholding taxes are imposed with respect to
any payments of interest or proceeds made under our debt securities, holders that are otherwise eligible for an exemption from, or reduction
of, U.S. federal withholding taxes with respect to such interest or proceeds will be required to seek a credit or refund from the IRS
in order to obtain the benefit of such exemption or reduction, if any. Securityholders 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. Pursuant
to these proposed Treasury Regulations, the Company and any other applicable withholding agent may (but is not required to) rely on this
proposed change to FATCA withholding 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 June 5, 2023:
(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 |
|
100,000,000
shares |
|
— |
|
60,662,524
shares |
Series C
Term Preferred stock, par value $0.001 per share |
|
3,100,000
shares |
|
— |
|
2,172,553
shares |
Series D
Preferred stock, par value $0.001 per share |
|
3,500,000
shares |
|
— |
|
1,093,245
shares |
2028
Notes |
|
$69,000,000 |
|
— |
|
$32,423,800 |
2029
Notes |
|
$100,000,000 |
|
— |
|
$93,250,000 |
2031
Notes |
|
$44,850,000 |
|
— |
|
$44,850,000 |
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 amended and restated bylaws for a more detailed
description of the provisions summarized below.
Capital
Stock
Our
authorized stock consists of 100,000,000 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 June 5, 2023, we had 3,265,798 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.
Series C
Term Preferred Stock. As of June 5, 2023, we had 2,172,553 shares of Series C Term Preferred Stock outstanding.
Redemption.
We are required to redeem all outstanding shares of the Series C Term Preferred Stock on June 30, 2031. 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 after June 16, 2024, 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. The price that we will pay to redeem shares of the Series C 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 C Term Preferred Stock are senior securities that constitute capital stock. The
Series C 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 the Series D
Preferred Stock and all other future series of Preferred Stock we 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 the holders of the Notes
and any future senior indebtedness. In the event of 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 $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 C Term Preferred Stock at a fixed annual rate of 6.50% of the liquidation
preference ($1.625 per share per year), or the “Series C Dividend Rate.” If we fail to redeem the Series C Term
Preferred Stock as required on June 30, 2031, or fail to pay any dividend on the payment date for such dividend, the Series C
Dividend Rate will increase by 2% per annum until we redeem the Series C Term Preferred Stock or pay the dividend, as applicable.
The Series C 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 is 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 C Term
Preferred Stock, and common stock vote together as a single class; provided that holders of Preferred Stock, including the 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 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.
Series D
Preferred Stock. As of June 5, 2023, we had 1,093,245 shares of Series D Preferred Stock outstanding.
Redemption.
The Series D Preferred Stock has no maturity date and will remain outstanding indefinitely unless redeemed by us. 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 D 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 November 29, 2026, we may,
in our sole option, redeem the outstanding shares of Series 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 D 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 D Preferred Stock are senior securities that constitute capital stock. The Series D
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 the Series C Term Preferred Stock
and all other future series of Preferred Stock we 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 the holders of the Notes and any future
senior indebtedness. In the event of liquidation, dissolution or winding up of our affairs, holders of Series D 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 D Preferred Stock at a fixed annual rate of 6.75% of the liquidation
preference ($1.6875 per share per year), or the “Series D Dividend Rate.” If we fail to pay any dividend on the payment
date for such dividend, the Series D Dividend Rate will increase by 2% per annum until we redeem the Series D Preferred Stock
or pay the dividend, as applicable. The Series D 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 D Preferred Stock is entitled to one vote for each share of Series D 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 D Preferred Stock,
and common stock vote together as a single class; provided that holders of Preferred Stock, including the Series D 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 Preferred Stock, including the Series D 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.
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 June 5, 2023, we had 2,172,553 shares of Series C Term
Preferred Stock outstanding and 1,093,245 shares of Series D Preferred Stock outstanding. See “Description of our
Capital Stock — Preferred Stock — Series C Term Preferred Stock” and “Description
of our Capital Stock — Preferred Stock — Series D Preferred Stock” for a description of our outstanding
Preferred Stock. 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), 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:
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the designation and number of shares of such series; |
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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; |
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any provisions relating to convertibility or exchangeability
of the shares of such series, including adjustments to the conversion price of such series; |
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the rights and preferences, if any, of holders of shares
of such series upon our liquidation, dissolution or winding up of our affairs; |
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the voting powers, if any, of the holders of shares of such series; |
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any provisions relating to the redemption of the shares of such series; |
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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; |
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any conditions or restrictions on our ability to issue
additional shares of such series or other securities; |
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if applicable, a discussion of certain U.S. federal income tax considerations; and |
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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.
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:
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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); |
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the title and aggregate number of such subscription rights; |
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the exercise price for such subscription rights (or method of calculation thereof); |
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the currency or currencies, including composite currencies,
in which the price of such subscription rights may be payable; |
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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; |
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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); |
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the number of such subscription rights issued to each stockholder; |
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the extent to which such subscription rights are transferable
and the market on which they may be traded if they are transferable; |
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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); |
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if applicable, the minimum or maximum number of subscription
rights that may be exercised at one time; |
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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; |
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any termination right we may have in connection with such subscription rights offering; |
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the terms of any rights to redeem, or call such subscription rights; |
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information with respect to book-entry procedures, if any; |
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the terms of the securities issuable upon exercise of the subscription rights; |
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the material terms of any standby underwriting, backstop or other purchase arrangement
that we may enter into in connection with the subscription rights offering; |
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if applicable, a discussion of certain U.S. federal income tax considerations applicable
to the issuance or exercise of such subscription rights; and |
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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
As
of June 5, 2023, we had $32,423,800
aggregate principal amount of the 2028
Notes outstanding, $93,250,000
aggregate principal amount of the 2029
Notes outstanding and $44,850,000
aggregate principal amount of the 2031
Notes outstanding. We may issue additional 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. See “—
2028 Notes,” “— 2029 Notes,” and “— 2031 Notes” below for
a description of certain specific terms of our outstanding debt securities.
As
required by federal law for all bonds and notes of companies that are publicly offered, the Notes and 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:
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the designation or title of the series of debt securities; |
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the total principal amount of the series of debt securities; |
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the percentage of the principal amount at which the series of debt securities will
be offered; |
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the date or dates on which principal will be payable; |
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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; |
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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; |
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the terms for redemption, extension or early repayment, if any; |
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the currencies in which the series of debt securities are issued and payable; |
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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; |
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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; |
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the denominations in which the offered debt securities will be issued; |
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the provision for any sinking fund; |
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any restrictive covenants; |
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any Events of Default (as described below); |
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whether the series of debt securities are issuable in certificated form; |
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any provisions for defeasance or covenant defeasance; |
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if applicable, a discussion of U.S. federal income tax
considerations; |
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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); |
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any provisions for convertibility or exchangeability
of the debt securities into or for any other securities; |
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whether the debt securities are subject to subordination and the terms of such subordination; |
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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
Pursuant
to the indenture, we have the ability, without the consent of the holders thereof, to reopen the 2028 Notes, 2029 Notes or 2031 Notes
and issue additional 2028 Notes, 2029 Notes or 2031 Notes having identical terms and conditions as the 2028 Notes, 2029 Notes or 2031
Notes, respectively, except for the offering price and the issue date, in one or more series. 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. 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):
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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. |
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We do not pay interest on a debt security of the series
when due, and such default is not cured within 30 days. |
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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. |
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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. |
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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. |
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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. |
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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:
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you must give the applicable trustee written notice that
an Event of Default has occurred and remains uncured; |
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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; |
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the trustee must not have taken action for 60 days after
receipt of the above notice and offer of indemnity and/or security; and |
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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:
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in the payment of principal or interest; or |
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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:
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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; |
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immediately after the transaction, no default or Event
of Default will have happened and be continuing; |
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we must deliver certain certificates and documents to the trustee; and |
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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:
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change the stated maturity of the principal of or interest on a debt security; |
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change the terms of any sinking fund with respect to any debt security; |
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reduce any amounts due on a debt security; |
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reduce the amount of principal payable upon acceleration
of the maturity of a debt security following a default; |
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adversely affect any right of repayment at the holder’s option; |
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change the place or currency of payment on a debt security; |
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impair your right to sue for payment following the date on which such amount is
due and payable; |
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adversely affect any right to convert or exchange a debt security in accordance
with its terms; |
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• |
reduce the percentage in principal amount of holders
of debt securities whose consent is needed to modify or amend the indenture; |
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• |
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;
and |
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modify any other aspect of the provisions of the indenture
dealing with supplemental indentures, waiver of past defaults, changes to the quorum or voting requirements or the waiver of certain covenants. |
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:
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• |
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 |
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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 the Notes and any future indebtedness:
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• |
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; |
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• |
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 |
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|
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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:
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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; |
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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 and just repaid the debt securities ourselves at maturity; |
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we must deliver to the trustee a legal opinion and officers’
certificate stating that all conditions precedent to covenant defeasance have been complied with; |
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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 |
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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:
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• |
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; |
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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; |
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• |
we must deliver to the trustee a legal opinion and officers’
certificate stating that all conditions precedent to defeasance have been complied with; |
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• |
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 |
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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 such 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.
2028
Notes
The
following description of the specific terms of the 2028 Notes supplements and, to the extent inconsistent with, replaces the description
of the general terms and provisions of our debt securities set forth above.
General.
As of June 5, 2023, we had $32,423,800 aggregate principal amount of the 2028 Notes outstanding. The 2028 Notes were issued
in denominations of $25 and integral multiples of $25 in excess thereof. The
2028 Notes will mature on April 30, 2028 and 100% of the aggregate principal amount will be paid at maturity (unless the 2028 Notes are
earlier redeemed as described below). The 2028 Notes are not subject to any sinking fund, and holders of the 2028 Notes do not have the
option to have the 2028 Notes repaid prior to the stated maturity date. The interest rate of the 2028 Notes is 6.6875% per year, and interest
payments are made every March 31, June 30, September 30 and December 31. The regular record dates for interest payments
are every March 15, June 15, September 15 and December 15. The interest periods for the 2028 Notes are the periods
from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case
may be. American Stock Transfer & Trust Company, LLC serves as trustee under the indenture governing the 2028 Notes.
The
2028 Notes are our unsecured obligations and, upon our liquidation, dissolution or winding up, will rank (1) senior to the outstanding
shares of our common stock and our Preferred Stock, (2) pari passu (or equally) with our existing and future unsecured indebtedness,
(3) effectively subordinated to any existing or future secured indebtedness (including indebtedness that is initially unsecured to
which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, and (4) structurally
subordinated to all existing and future indebtedness of our subsidiaries, financing vehicles or similar facilities.
Redemption.
The 2028 Notes may be redeemed in whole or in part at any time or from time to time on or after April 30, 2021 at our
option, upon not less than 30-days’ nor more than 60-days’ written notice by mail prior to the date fixed for redemption thereof,
at a redemption price equal to $25 per 2028 Note plus unpaid interest payable thereon accrued to, but excluding, the date fixed for redemption.
If we fail to maintain asset coverage (as defined in the 1940 Act) with respect to securities issued under the indenture, including the
2028 Notes, of at least the percentage required under Section 18(a)(1)(A) of the 1940 Act or any successor provisions (currently
300%) as of close of business on the last business day of any calendar quarter and such failure is not cured as of the close of business
on a certain date, we will fix a redemption date and proceed to redeem 2028 Notes as described below at a price equal to 100% of the aggregate
principal amount thereof plus unpaid interest payable thereon accrued to, but excluding, the date fixed for redemption. We will redeem
out of funds legally available an aggregate principal amount of securities issued under the indenture (which at our discretion may include
any number or portion of the 2028 Notes) that, when combined with any shares of our Preferred Stock redeemed pursuant to mandatory redemption
for failing to maintain the asset coverage required by 1940 Act for such Preferred Stock, (1) results in us having asset coverage
of at least the percentage required under Section 18(a)(1)(A) of the 1940 Act or any successor provisions or (2) if smaller,
the maximum aggregate principal amount of such securities that can be redeemed out of funds legally available for such redemption; provided
that in connection with any such redemption for failure to maintain the asset coverage required by the 1940 Act, we may, at our sole option,
redeem such additional amount of securities, including the 2028 Notes, that will result in our having asset coverage of up to and including
385%.
On
February 14, 2022, we redeemed 50% or $32.4 million of the aggregate principal amount of the issued and outstanding 2028 Notes at
a redemption price of $25 per 2028 Note plus accrued and unpaid interest to, but excluding the date of redemption.
Covenants.
In addition to any other covenants described above, as well as standard covenants relating to payment of principal and interest,
maintaining an office where payments may be made or securities can be surrendered for payment, payment of taxes by us and related matters,
the following covenants apply to the 2028 Notes:
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We have agreed that, for the period of time during which
the 2028 Notes remain outstanding, we will remain a non-diversified closed-end management investment company for purposes of the 1940
Act. |
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We have agreed that, for the period of time during which
the 2028 Notes remain outstanding, our payment obligations under the indenture and the 2028 Notes will at all times rank pari passu,
without preference or priority, with all of our existing and future unsecured indebtedness and senior to any Preferred Stock we may issue. |
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We have agreed that, for the period of time during which
the 2028 Notes are outstanding, we will not violate Section 18(a)(1)(A) of the 1940 Act, as modified by the other provisions
of Section 18, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving
effect, in either case, to any exemptive relief granted to us by the SEC, if any. Currently, these provisions generally prohibit us from
making additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as defined in the
1940 Act, with respect to such borrowings equals at least 300% after such borrowings. See “Risk Factors — Risks
Relating 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.” |
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• |
We have agreed that, for the period of time during which
the 2028 Notes are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified by the other provisions
of Section 18, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, giving effect
to (i) any exemptive relief granted to us by the SEC, if any, and (ii) no-action relief granted by the SEC to another closed-end
investment company (or to us if we determine to seek such similar no-action or other relief) permitting the closed-end investment company
to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) of the 1940 Act
in order to maintain the closed-end investment company’s status as a RIC under Subchapter M of the Code. These provisions generally
prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock
if our asset coverage, as defined in the 1940 Act, with respect to our borrowings or other indebtedness is below 300% at the time of the
declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase
(provided that we may declare dividends on our Preferred Stock as long as such asset coverage with respect to our borrowings or other
indebtedness is not below 200%). |
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• |
If, at any time, we are not subject to the reporting
requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we have agreed to furnish to
holders of the 2028 Notes and the trustee, for the period of time during which the 2028 Notes are outstanding, our audited annual consolidated
financial statements, within 60 days after the close of our fiscal year end, and our unaudited interim consolidated financial statements,
within 60 days after the close of our second fiscal quarter end. All such financial statements will be prepared, in all material respects,
in accordance with applicable GAAP. |
2029 Notes
The
following description of the specific terms of the 2029 Notes supplements and, to the extent inconsistent with, replaces the description
of the general terms and provisions of our debt securities set forth above.
General.
As of June 5, 2023, we had $93,250,000 aggregate principal amount of the 2029 Notes outstanding. The 2029 Notes were issued
in denominations of $25 and integral multiples of $25 in excess thereof. The
2029 Notes will mature on January 31, 2029 and 100% of the aggregate principal amount will be paid at maturity (unless the 2029 Notes
are earlier redeemed as described below). The 2029 Notes are not subject to any sinking fund, and holders of the 2029 Notes do not have
the option to have the 2029 Notes repaid prior to the stated maturity date. The interest rate of the 2029 Notes is 5.375% per year, and
interest payments are made every March 31, June 30, September 30 and December 31. The regular record dates for interest
payments are every March 15, June 15, September 15 and December 15. The interest periods for the 2029 Notes are the
periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as
the case may be. American Stock Transfer & Trust Company, LLC serves as trustee under the indenture governing the 2029 Notes.
The
2029 Notes are our unsecured obligations and, upon our liquidation, dissolution or winding up, will rank (1) senior to the outstanding
shares of our common stock and our Preferred Stock, (2) pari passu (or equally) with our existing and future unsecured indebtedness,
(3) effectively subordinated to any existing or future secured indebtedness (including indebtedness that is initially unsecured to
which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, and (4) structurally
subordinated to all existing and future indebtedness of our subsidiaries, financing vehicles or similar facilities.
Redemption.
The 2029 Notes may be redeemed in whole or in part at any time or from time to time on or after January 31, 2025 at our
option, upon not less than 30-days’ nor more than 60-days’ written notice by mail prior to the date fixed for redemption thereof,
at a redemption price equal to $25 per 2029 Note plus unpaid interest payable thereon accrued to, but excluding, the date fixed for redemption.
Covenants.
In addition to any other covenants described above, as well as standard covenants relating to payment of principal and interest,
maintaining an office where payments may be made or securities can be surrendered for payment, payment of taxes by us and related matters,
the following covenants apply to the 2029 Notes:
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• |
We have agreed that, for the period of time during which
the 2029 Notes remain outstanding, we will remain a closed-end management investment company for purposes of the 1940 Act. |
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We have agreed that, for the period of time during which
the 2029 Notes remain outstanding, our payment obligations under the indenture and the 2029 Notes will at all times rank pari passu,
without preference or priority, with all of our existing and future unsecured indebtedness and senior to any Preferred Stock we may issue. |
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• |
We have agreed that, for the period of time during which
the 2029 Notes are outstanding, we will not violate Section 18(a)(1)(A) of the 1940 Act, as modified by the other provisions
of Section 18, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving
effect, in either case, to any exemptive relief granted to us by the SEC, if any. Currently, these provisions generally prohibit us from
making additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as defined in the
1940 Act, with respect to such borrowings equals at least 300% after such borrowings. See “Risk Factors — Risks
Relating 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.” |
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We have agreed that, for the period of time during which
the 2029 Notes are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified by the other provisions
of Section 18, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, giving effect
to (i) any exemptive relief granted to us by the SEC, if any, and (ii) no-action relief granted by the SEC to another closed-end
investment company (or to us if we determine to seek such similar no-action or other relief) permitting the closed-end investment company
to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) of the 1940 Act
in order to maintain the closed-end investment company’s status as a RIC under Subchapter M of the Code. These provisions generally
prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock
if our asset coverage, as defined in the 1940 Act, with respect to our borrowings or other indebtedness is below 300% at the time of the
declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase
(provided that we may declare dividends on our Preferred Stock as long as such asset coverage with respect to our borrowings or other
indebtedness is not below 200%). |
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If, at any time, we are not subject to the reporting
requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we have agreed to furnish to
holders of the 2029 Notes and the trustee, for the period of time during which the 2029 Notes are outstanding, our audited annual consolidated
financial statements, within 60 days after the close of our fiscal year end, and our unaudited interim consolidated financial statements,
within 60 days after the close of our second fiscal quarter end. All such financial statements will be prepared, in all material respects,
in accordance with applicable GAAP. |
2031 Notes
The
following description of the specific terms of the 2031 Notes supplements and, to the extent inconsistent with, replaces the description
of the general terms and provisions of our debt securities set forth above.
General.
As of June 5, 2023, we had $44,850,000 aggregate principal amount of the 2031 Notes outstanding. The 2031 Notes were issued
in denominations of $25 and integral multiples of $25 in excess thereof. The
2031 Notes will mature on March 31, 2031 and 100% of the aggregate principal amount will be paid at maturity (unless the 2031 Notes are
earlier redeemed as described below). The 2031 Notes are not subject to any sinking fund, and holders of the 2031 Notes do not have the
option to have the 2031 Notes repaid prior to the stated maturity date. The interest rate of the 2031 Notes is 6.75% per year, and interest
payments are made every March 31, June 30, September 30 and December 31. The regular record dates for interest payments
are every March 15, June 15, September 15 and December 15. The interest periods for the 2031 Notes are the periods
from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case
may be. American Stock Transfer & Trust Company, LLC serves as trustee under the indenture governing the 2031 Notes.
The
2031 Notes are our unsecured obligations and, upon our liquidation, dissolution or winding up, will rank (1) senior to the outstanding
shares of our common stock and our Preferred Stock, (2) pari passu (or equally) with our existing and future unsecured indebtedness,
(3) effectively subordinated to any existing or future secured indebtedness (including indebtedness that is initially unsecured to
which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, and (4) structurally
subordinated to all existing and future indebtedness of our subsidiaries, financing vehicles or similar facilities.
Redemption.
The 2031 Notes may be redeemed in whole or in part at any time or from time to time on or after March 29, 2024 at our
option, upon not less than 30-days’ nor more than 60-days’ written notice by mail prior to the date fixed for redemption thereof,
at a redemption price equal to $25 per 2031 Note plus unpaid interest payable thereon accrued to, but excluding, the date fixed for redemption.
Covenants.
In addition to any other covenants described above, as well as standard covenants relating to payment of principal and interest,
maintaining an office where payments may be made or securities can be surrendered for payment, payment of taxes by us and related matters,
the following covenants apply to the 2031 Notes:
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• |
We have agreed that, for the period of time during which
the 2031 Notes remain outstanding, we will remain a closed-end management investment company for purposes of the 1940 Act. |
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• |
We have agreed that, for the period of time during which
the 2031 Notes remain outstanding, our payment obligations under the indenture and the 2031 Notes will at all times rank pari passu,
without preference or priority, with all of our existing and future unsecured indebtedness and senior to any Preferred Stock we may issue. |
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• |
We have agreed that, for the period of time during which
the 2031 Notes are outstanding, we will not violate Section 18(a)(1)(A) of the 1940 Act, as modified by the other provisions
of Section 18, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving
effect, in either case, to any exemptive relief granted to us by the SEC, if any. Currently, these provisions generally prohibit us from
making additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as defined in the
1940 Act, with respect to such borrowings equals at least 300% after such borrowings. See “Risk Factors — Risks
Relating 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.” |
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• |
We have agreed that, for the period of time during which
the 2031 Notes are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified by the other provisions
of Section 18, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, giving effect
to (i) any exemptive relief granted to us by the SEC, if any, and (ii) no-action relief granted by the SEC to another closed-end
investment company (or to us if we determine to seek such similar no-action or other relief) permitting the closed-end investment company
to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) of the 1940 Act
in order to maintain the closed-end investment company’s status as a RIC under Subchapter M of the Code. These provisions generally
prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock
if our asset coverage, as defined in the 1940 Act, with respect to our borrowings or other indebtedness is below 300% at the time of the
declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase
(provided that we may declare dividends on our Preferred Stock as long as such asset coverage with respect to our borrowings or other
indebtedness is not below 200%). |
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• |
If, at any time, we are not subject to the reporting
requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we have agreed to furnish to
holders of the 2031 Notes and the trustee, for the period of time during which the 2031 Notes are outstanding, our audited annual consolidated
financial statements, within 60 days after the close of our fiscal year end, and our unaudited interim consolidated financial statements,
within 60 days after the close of our second fiscal quarter end. All such financial statements will be prepared, in all material respects,
in accordance with applicable GAAP. |
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 $1,000,000,000 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 5,822,728 shares of our common stock that
may be sold 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.
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:
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(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; |
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(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; |
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(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; |
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(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 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, collateralized bond obligation, CDO or a swap or other
derivative will be considered to be an investment in the industry (if any) of the underlying or reference security, instrument or asset;
and |
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(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.
Our
80% policy with respect to investments in credit and credit-related instruments is not fundamental and may be changed by our board of
directors without stockholder approval. Stockholders will be provided with sixty (60) days’ notice in the manner prescribed by the
SEC before making any change to this policy. Our investments in derivatives, other investment companies, and other instruments designed
to obtain indirect exposure to credit and credit-related instruments are counted towards our 80% investment policy to the extent such
instruments have similar economic characteristics to the investments included within that policy.
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
Credit 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 will 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 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 May 31, 2023 with respect to shares of our common stock, our Series C Term Preferred Stock and Series D
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, our Series C Term Preferred Stock and our Series D Preferred Stock, (2) all of
our officers and directors as a group and (3) selling stockholders.
This
prospectus also relates to 5,822,728 shares of our common stock that may be offered for resale by the stockholders identified below. The
selling stockholders acquired their shares of our common stock in connection with our conversion to a corporation. The Adviser is primarily
owned by the selling stockholders. We are registering the shares to permit the stockholders and their pledgees, donees, transferees and
other successors-in-interest that receive their shares from a 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 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 stockholders regarding the sale of any of the resale shares. 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 |
|
|
% |
|
Trident
Capital IX, L.P.(2) |
|
|
5,822,728 |
|
|
|
9.7 |
% |
|
|
— |
|
|
|
— |
|
|
|
5,822,728 |
|
|
|
— |
|
|
|
— |
|
(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) Trident
ECC Aggregator, LP is the sole record owner of 5,822,728 shares of our Common Stock. In its capacity as sole general partner of Trident
ECC Aggregator, LP, Trident Capital IX L.P. shares dispositive power with respect to, and may be deemed to beneficially own, all of the
Common Shares directly owned by Trident ECC Aggregator, LP. Trident Capital IX L.P. is a Cayman Islands limited partnership and Trident
ECC Aggregator, LP is a Delaware limited partnership. The principal business and principal office address of each of Trident Capital IX
L.P. and Trident ECC Aggregator, LP is 20 Horseneck Lane, Greenwich, CT 06830.
All
directors and officers of the Company as a group own less than 1.0% of each of our common stock and our aggregate outstanding Preferred
Stock.
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 Wells Fargo Bank, National Association. The principal business
address of Wells Fargo Bank, National Association is 9062 Old Annapolis Road, Columbia, MD 21045.
American
Stock Transfer & 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 American Stock & Transfer Company, LLC is 6201 15th Avenue,
Brooklyn, NY 11219.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
KPMG
LLP, an independent registered public accounting firm located at 345 Park Avenue, New York, NY 10154-0102, 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 or pursuant to Rule 30b2-1 under the 1940 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 Credit 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.eaglepointcreditcompany.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, 2022, filed with the SEC on February 24, 2023; |
|
• |
our Definitive
Proxy Statement on Schedule 14A for the annual meeting of the stockholders, filed with the SEC on April 12, 2023; |
|
• |
our Interim
Report filed pursuant to Rule 30b2-1 under the 1940 Act, for the quarter ended March 31, 2023, filed with the SEC on May 23,
2023. |
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 this registration
statement and prior to effectiveness of the registration statement shall be deemed to be incorporated by reference into this prospectus.
Eagle Point Credit
Company Inc.
$225,000,000
of Common Stock
Up to 800,000
Shares of 6.50% Series C Term Preferred Stock due 2031 and
Liquidation Preference
$25 per share
Up to 200,000
Shares of 6.75% Series D Preferred Stock and Liquidation
Preference $25
per share
PROSPECTUS SUPPLEMENT
June 12,
2023
B.
Riley Securities
Eagle Point Credit (NYSE:ECC)
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