This
preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but the
information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement is not
an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not
permitted.
Filed pursuant to Rule 424(b)(2)
1933 Act File No. 333-269139
SUBJECT TO COMPLETION, DATED JANUARY
11, 2024
PRELIMINARY PROSPECTUS SUPPLEMENT
(to Prospectus dated June 9, 2023)
EAGLE POINT CREDIT COMPANY
INC.
% Series F Term
Preferred Stock due 2029
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,”
and 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 (the “Board of Directors”). As of November 30, 2023, our Adviser, collectively with certain
affiliates, had approximately $8.9 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 shares of
our % Series F Term Preferred Stock due 2029, or the “Series F Term Preferred Stock.” We are required to redeem
all outstanding shares of the Series F Term Preferred Stock on , 2029, at a redemption price of $25 per share, or the “Liquidation
Preference,” plus accumulated but unpaid dividends, if any, to, but excluding, the Mandatory Redemption Date (as defined below).
At any time on or after , 2026, we may, at our sole option, redeem the outstanding shares of the Series F Term Preferred Stock at
a redemption price per share equal to the Liquidation Preference plus accumulated but unpaid dividends, if any, to, but excluding, the
Redemption Date. 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 Series F 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%. We intend to pay monthly dividends on the Series F
Term Preferred Stock at an annual rate of % of the Liquidation Preference, or $ per share per year, beginning
on February 29, 2024. The Series F Term Preferred Stock will rank senior in right of payment to our common stock, will rank equally in right
of payment with any shares of preferred stock (including our 6.50% Series C Term Preferred Stock due 2031 and 6.75% Series D
Preferred Stock) we have issued or may issue in the future and will be subordinated in right of payment to our existing and future indebtedness
(including our 5.375% notes due 2029, 6.6875% notes due 2028 and 6.75% notes due 2031). Each holder of the Series F Term Preferred
Stock will be 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 will generally vote together as a single class. The holders of shares of the Series F Term Preferred
Stock (together with the holders of our 6.50% Series C Term Preferred Stock due 2031, our 6.75% Series D Preferred Stock and
any additional series of preferred stock we may issue in the future) 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).
We intend to list the Series F
Term Preferred Stock on the New York Stock Exchange under the symbol “ECCF” so that trading will begin within 30 days after
the date of this prospectus supplement, subject to notice of issuance. Our common stock, 6.50% Series C Term Preferred Stock due
2031 (the “Series C Term Preferred Stock”), 6.75% Series D Preferred Stock (the “Series D Preferred
Stock”), 6.6875% notes due 2028 (the “2028 Notes”), 5.375% notes due 2029 (the “2029 Notes”), and 6.75%
notes due 2031 (the “2031 Notes”) trade on the New York Stock Exchange under the symbols “ECC,”“ECCC,”
“ECC PRD,” “ECCX,” “ECCV,” and “ECCW” respectively. The Series F Term Preferred
Stock has no history of public trading. We may borrow funds to make investments. As a result, we would be 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 Series F Term
Preferred Stock. We determine the net asset value, or “NAV,” per share of our common stock on a quarterly basis. The unaudited
NAV per share of our common stock on September 30, 2023 (the last date prior to the date of this prospectus supplement as of which
we determined our NAV) was $9.33. Management’s unaudited estimate of our net asset value per share of our common stock as of November 30,
2023 was $8.88.
Investing in the Series F
Term Preferred Stock involves a high degree of risk, including the risk of a substantial loss of investment. Before purchasing any Series F
Term Preferred Stock, you should read the discussion of the principal risks of investing in the Series F Term Preferred Stock, which
are summarized in “Risk Factors” beginning on page S-10 of this prospectus supplement and 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 the Series F
Term Preferred Stock. 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). Information on our website is not incorporated by reference into or a part of this prospectus supplement
or the accompanying prospectus. You may also obtain a copy of any information regarding us filed with the SEC from the SEC’s website
(www.sec.gov). See “Additional Information” on page S-27 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.
| |
Per Share | | |
Total
(1) | |
Public offering price | |
$ | 25.00 | | |
$ | | |
Sales load (underwriting discounts and commissions) | |
$ | | | |
$ | | |
Proceeds
to us (before expenses)(2)(3) | |
$ | | | |
$ | | |
| (1) | We have granted the underwriters an
option to purchase up to an additional shares of Series F Term Preferred Stock at the
public offering price, less the sales load payable by us, for 30 days after the date of this
prospectus supplement. If the underwriters exercise this option in full, the total sales
load paid by us will be $ , and total proceeds to us, before expenses, will be $ . |
| (2) | Total offering expenses payable by
us, excluding sales load, are estimated to be $330,000. |
| (3) | The proceeds to us before expenses
will be reduced by the $      per share distribution on the
Series F Term Preferred Stock to be paid on       ,
2024 for any shares issued pursuant to the underwriters’ option to purchase additional
shares of Series F Term Preferred Stock after the       ,
2024 record date. |
The underwriters expect to
deliver the Series F Term Preferred Stock on or about ,
2024.
Joint Book-Running Managers
Ladenburg Thalmann | |
B. Riley Securities | |
Piper Sandler |
Lead Managers
InspereX | |
Wedbush Securities |
The date of this prospectus supplement is ,
2024
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 of the Series F Term
Preferred Stock 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 OF THE SERIES
F TERM PREFERRED STOCK. WE HAVE NOT, AND THE UNDERWRITERS HAVE 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 UNDERWRITERS
ARE NOT, MAKING AN OFFER TO SELL THE SERIES F TERM 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 SERIES F TERM PREFERRED STOCK. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND PROSPECTS MAY HAVE CHANGED SINCE THOSE DATES.
Table
of Contents
Page
Prospectus
Page
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 Series F Term Preferred Stock offered hereby. To understand the terms of the Series F Term Preferred Stock 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 of the Series F
Term Preferred Stock, 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 Series F Term Preferred Stock 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. |
Unless otherwise noted,
the information contained in this prospectus supplement assumes the underwriters’ option to purchase additional shares of Series F
Term Preferred Stock is not exercised.
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, mutual funds, and exchange-traded funds, 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 “Regulation
as a Closed-End Management Investment Company—Investment Restrictions” 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.
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 November 30, 2023, the Adviser, collectively with certain affiliates, had approximately
$8.9 billion of total assets under management (including capital commitments that were undrawn as of such date).
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 September 30,
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, including the Series F Term Preferred
Stock, the “Preferred Stock”).
As of September 30,
2023, our leverage, including the outstanding Notes, the Series C Term Preferred Stock and the Series D Preferred Stock, represented
approximately 28.3% of our total assets (less current liabilities). On a pro forma basis, after giving effect to $42.5 million in net
proceeds received from sales of our common stock and $0.9 million in net proceeds from the sales of our Series D Preferred Stock
from September 30, 2023 through December 31, 2023 in connection with our ATM Program (as defined below), our leverage represented
approximately 28.2% of our total assets (less current liabilities) as of November 30, 2023 (based on management’s unaudited
estimate of the NAV per share of our common stock as of such date and after giving effect to all common stock distributions paid as of
the date hereof). As of September 30, 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 524% and 354%, 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 or convert
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 the NAV per share of our common stock. 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 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” in the accompanying prospectus.
Recent Developments
Net Asset Value
Management’s
unaudited estimate of the net asset value per share of our common stock as of November 30, 2023 was $8.88.
Distributions
On each of October 31,
2023, November 30, 2023, and December 29, 2023, the Company paid a distribution of $0.16 per share on its common stock, consisting
of a regular distribution of $0.14 per share and a supplemental distribution of $0.02 per share, to holders of record as of October 11,
2023, November 13, 2023, and December 11, 2023, respectively. Additionally, on November 8, 2023, the Company declared
three separate distributions of $0.16 per share on its common stock, with each distribution consisting of a regular distribution of $0.14
per share and a supplemental distribution of $0.02 per share. The distributions are payable on each of January 31, 2024, February 29,
2024 and March 28, 2024 to holders of record as of January 11, 2024, February 9, 2024 and March 8, 2024, respectively.
On each of October 31,
2023, November 30, 2023, and December 29, 2023, the Company paid a monthly distribution of $0.135417 per share on its Series C
Term Preferred Stock to holders of record as of October 11, 2023, November 13, 2023, and December 11, 2023, respectively.
Additionally, on November 8, 2023, the Company declared three separate distributions of $0.135417 per share of its Series C
Term Preferred Stock. The distributions are payable on each of January 31, 2024, February 29, 2024 and March 28, 2024
to holders of record as of January 11, 2024, February 9, 2024 and March 8, 2024, respectively.
On each of October 31,
2023, November 30, 2023, and December 29, 2023, the Company paid a monthly distribution of $0.140625 per share on its Series D
Preferred Stock to holders of record as of October 11, 2023, November 13, 2023, and December 11, 2023, respectively. Additionally,
on November 8, 2023, the Company declared three separate distributions of $0.140625 per share of its Series D Preferred Stock.
The distributions are payable on each of January 31, 2024, February 29, 2024 and March 28, 2024 to holders of record as
of January 11, 2024, February 9, 2024 and March 8, 2024, respectively.
ATM Offering
On June 12, 2023, we
entered into a Third Amended and Restated At Market Issuance Sales Agreement with B. Riley Securities, Inc. (the “ATM Agent”),
pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock, Series C Term Preferred
Stock and Series D Preferred Stock through the ATM Agent (our “ATM Program”). For the period from October 1, 2023
to December 31, 2023, the Company sold 4,500,049 shares of common stock, pursuant to the ATM offering, for total net proceeds to
the Company of approximately $42.5 million. In connection with such sales, the Company paid a total of $0.8 million in sales agent commissions.
For the period from October 1, 2023 to December 31, 2023, the Company sold 45,402 shares of Series D Preferred Stock pursuant
to the ATM offering, for total net proceeds to the Company of approximately $0.9 million. In connection with such sales, the Company
paid a total of $18,038 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
Issuer |
Eagle
Point Credit Company Inc. |
Securities
Offered by Us |
shares
of Series F Term Preferred Stock. An additional shares of Series F Term Preferred Stock
will be issuable pursuant to an option granted to the underwriters to purchase additional shares of Series F Term Preferred
Stock. |
Use
of Proceeds |
We
intend to use the net proceeds from the sale of the shares of Series F Term Preferred Stock to acquire investments in accordance
with our investment objectives and strategies and for general working capital purposes. See “Use of Proceeds”
in this prospectus supplement. |
Listing |
We
intend to list the Series F Term Preferred Stock on the NYSE under the symbol “ECCF.” Trading in Series F Term
Preferred Stock on the NYSE is expected to begin within 30 days after the date of this prospectus supplement. Prior to the expected
commencement of trading, the underwriters may, but are not obligated, to make a market in Series F Term Preferred Stock. |
Liquidation
Preference |
In
the event of a liquidation, dissolution or winding up of our affairs, holders of Series F Term Preferred Stock will be entitled
to receive a liquidation distribution equal to the Liquidation Preference of $25 per share, plus an amount equal to accumulated but
unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding,
the payment date. |
Dividends |
We
intend to pay monthly dividends on the Series F Term Preferred Stock at a fixed annual
rate of % of the Liquidation Preference ($
per share per year), or the “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 redeem the Series F 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 Dividend Rate will increase by %
per annum until we redeem the Series F Term Preferred Stock or pay the dividend, as
applicable. See “Description of the Series F Term Preferred Stock —
Dividends — Adjustment to Fixed Dividend Rate — Default Period”
in this prospectus supplement. The 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 F Term Preferred Stock will be payable monthly in arrears on the last business day of every calendar month, when,
as and if declared, or under authority granted, by our Board of Directors out of funds legally available for such payment. The first
period for which dividends on the shares of Series F Term Preferred Stock offered pursuant to this prospectus supplement will
be calculated (each such period, a “Dividend Period”) will commence upon the closing of the offering, or the “Date
of Original Issue,” and will end on, but exclude February 29, 2024. Only holders of Series F Term Preferred Stock
on the record date for a Dividend Period (as defined below) will be entitled to receive dividends and distributions payable with
respect to such Dividend Period, and holders of Series F Term Preferred Stock who sell shares before such a record date and
purchasers of Series F 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 F Term Preferred Stock. See “Description
of the Series F Term Preferred Stock — Dividends — Dividend Periods” in this prospectus supplement. |
Ranking |
The
Series F Term Preferred Stock will be senior securities that constitute capital stock.
The Series F Term Preferred Stock will rank:
· 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 C Term Preferred Stock and 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 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 F Term Preferred Stock),
but we may not issue additional classes of capital stock that rank senior or junior to the Series F 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 F Term Preferred Stock on
, 2029, or the “Mandatory Redemption
Date,” at a redemption price equal to 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 Mandatory Redemption Date.
See “Description of the Series F Term Preferred Stock — Redemption” in
this prospectus supplement.
We cannot effect any modification of
or repeal our obligation to redeem the Series F Term Preferred Stock on the Mandatory Redemption Date without the prior unanimous
approval of the holders of the Series F Term Preferred Stock. |
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. We expect that we
will, or that we may need to, raise additional capital in the future to fund our continued
growth and may do so by further increasing our leverage through entry into a credit facility,
issuance of additional shares of preferred stock or debt securities or 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, Series D Preferred Stock and Series F Term Preferred Stock), we
are required 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 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 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 Reports on Form N-PORT, as applicable, for that quarter, or the “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 F 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%.
If shares of Series F 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 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 F Term Preferred Stock — Redemption — Redemption for Failure to Maintain Asset Coverage” in
this prospectus supplement. |
Optional
Redemption |
At
any time on or after , 2026, we may, in our sole option, redeem the outstanding shares of Series F Term
Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the Liquidation Preference
plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding
interest on such dividends) to, but excluding, the date fixed for such redemption. See “Description of the Series F
Term Preferred Stock — Redemption — Optional Redemption” in this prospectus supplement. |
Voting
Rights |
Except
as otherwise provided in our certificate of incorporation or as otherwise required by law,
(1) each holder of Series F Term Preferred Stock will be entitled to one vote for
each share of Series F 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 Series F
Term 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, Series D
Preferred Stock and Series F Term Preferred Stock) voting separately as a class, will
be entitled to elect two (2) of our directors, or the “Preferred Directors,”
and, if we fail to pay dividends on any outstanding shares of preferred stock, including
the Series C Term Preferred Stock, the Series D Preferred Stock and the Series F
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. 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 F
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 F Term Preferred Stock.
See “Description of the
Series F Term Preferred Stock — Voting Rights” in this prospectus supplement. |
Conversion
Rights |
The
shares of Series F Term Preferred Stock have no conversion rights. |
Redemption
and Paying Agent |
We
intend to enter into an amendment to our Transfer Agency and Registrar Services Agreement with Equiniti Trust Company, LLC, or the
“Redemption and Paying Agent.” Under this amendment, the Redemption and Paying Agent will serve as transfer agent and
registrar, dividend disbursing agent and redemption and paying agent with respect to the Series F Term Preferred Stock. |
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 F Term Preferred Stock in light of their personal investment circumstances. |
Risk
Factors |
Investing
in the Series F Term Preferred Stock involves risks. You should carefully consider the information set forth under the caption “Risk
Factors” in this prospectus supplement and the accompanying prospectus before deciding to invest in the Series F
Term Preferred Stock. |
Additional
Information |
We
have filed with the SEC a registration statement on Form N-2 under the Securities Act, which contains additional information
about us and the Series F Term Preferred Stock being offered by this prospectus supplement and the accompanying prospectus.
We file annual and semi-annual reports, proxy statements and other information with the SEC. Our SEC filings are also available to
the public at the SEC’s website at www.sec.gov. This information is also available free of charge by contacting us at
Eagle Point Credit Company Inc., Attention: Investor Relations, by telephone at (844) 810-6501, or via email at ir@eaglepointcredit.com. |
RISK
FACTORS
Investing in the Series F
Term Preferred Stock involves a number of significant risks. You should carefully consider the risks described below and 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 the Series F Term Preferred Stock.
The risks and uncertainties described below 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.
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, as amended, 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
from this offering and may not use the proceeds effectively.
We cannot specify with certainty
all of the particular uses of the net proceeds 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:
| · | changes
in the economy and the capital markets; |
| · | risks
associated with negotiation and consummation of pending and future transactions; |
| · | changes
in our investment objectives and strategy; |
| · | availability,
terms (including the possibility of interest rate volatility) and deployment of capital; |
| · | changes
in interest rates, exchange rates, regulation or the general economy; |
| · | changes
in governmental regulations, tax rates and similar matters; |
| · | our
ability to exit investments in a timely manner; |
| · | our
ability to maintain our qualification as a RIC; |
| · | use
of the proceeds of this offering; |
| · | our
ability to sell the Series F Term Preferred Stock in this offering in the amounts and
on the terms contemplated, or at all; and |
| · | 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
The net proceeds to us of
this offering are expected to be approximately $ million (or approximately $ million
if the underwriters exercise their option to purchase additional shares of Series F Term Preferred Stock in full), after deducting
the payment of underwriting discounts and commissions payable by us of approximately $
million (or approximately $ million if the underwriters exercise their option to purchase
additional shares of Series F Term Preferred Stock in full) and estimated offering expenses payable by us of approximately $330,000.
We intend to use the proceeds
from the sale of the Series F Term 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 and for general working
capital purposes, including, as applicable, making distributions to our stockholders and/or repaying any outstanding indebtedness. We
cannot estimate the approximate amount intended to be used for each of these purposes. Such amounts will depend on our cash flow needs
after closing of the offering, market conditions and other factors.
We currently anticipate that
it will take up to three to six months after completion of 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, our income may not exceed our expenses. To the extent that the net proceeds from an offering have
not been fully invested in accordance with our investment objectives and strategies, a portion of the proceeds may be used to pay distributions
and may represent a return of capital.
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2023:
· | on
a pro forma basis to give effect to (1) the distribution of $0.16 per share of common
stock on each of October 31, 2023, November 30, 2023, and December 29, 2023
to holders of record as of October 11, 2023, November 13, 2023, and December 11,
2023, respectively; (2) the issuance and sale of shares of common stock through our
ATM Program from October 1, 2023 to December 31, 2023, yielding net proceeds to
us of approximately $42.5 million; and (3) the issuance and sale of shares of Series D
Preferred Stock through our ATM Program from October 1, 2023 to December 31, 2023,
yielding net proceeds to us of approximately $0.9 million; and |
· | on
a pro forma (as adjusted) basis to give effect to (1) the distributions and issuances
described above; and (2) the issuance and sale of shares of the Series F Term Preferred
Stock in this offering (assuming no exercise of the underwriters’ option to purchase
additional shares of Series F Term Preferred Stock) at a public offering price of $25
per share, after deducting the assumed underwriting discounts and commissions payable by
us and estimated offering expenses of approximately $330,000 payable by us. |
| |
Actual | | |
Pro Forma | | |
Pro Forma
(as adjusted) | |
| |
| | |
| | |
| |
| |
(Dollars in Thousands) | |
Assets: | |
| |
Cash and cash equivalents | |
$ | 25,669 | | |
$ | 33,462 | | |
$ | | |
Investments at fair value | |
| 845,799 | | |
| 845,799 | | |
| | |
Other assets | |
| 51,089 | | |
| 51,089 | | |
| | |
Total assets | |
$ | 922,557 | | |
$ | 930,350 | | |
$ | | |
Liabilities: | |
| | | |
| | | |
| | |
2028 Notes ($32,423,800 aggregate principal
amount, actual, pro forma and pro forma as adjusted) | |
$ | 30,154 | | |
$ | 30,154 | | |
$ | | |
2029 Notes ($93,250,000 aggregate principal
amount, actual, pro forma and pro forma as adjusted) | |
| 79,216 | | |
| 79,216 | | |
| | |
2031 Notes ($44,850,000 aggregate principal
amount, actual, pro forma and pro forma as adjusted) | |
| 39,665 | | |
| 39,665 | | |
| | |
6.50% Series C Term Preferred
Stock due 2031, par value $0.001 per share; 20,000,000 shares authorized, 2,172,553 shares issued and outstanding, actual, pro forma
and pro forma as adjusted) | |
| 46,341 | | |
| 46,341 | | |
| | |
Unamortized share issuance premium
– 6.50% Series C Term Preferred Stock due 2031 | |
| 80 | | |
| 80 | | |
| | |
Other liabilities | |
| 29,167 | | |
| 29,167 | | |
| | |
Total liabilities | |
$ | 224,623 | | |
$ | 224,623 | | |
$ | | |
Temporary Equity: | |
| | | |
| | | |
| | |
6.75% Series D
Preferred Stock, par value $0.001 per share; 20,000,000 shares authorized, 1,110,993 shares issued and outstanding, actual; 1,156,395
shares issued and outstanding, pro forma and pro forma (as adjusted) | |
$ | 26,550 | | |
$ | 27,433 | | |
$ | | |
Net Assets applicable to 71,990,607
shares of common stock outstanding, actual; 76,490,656 shares outstanding, pro forma and pro forma (as adjusted) | |
$ | 671,384 | | |
$ | 678,294 | | |
$ | | |
Net Assets consist of: | |
| | | |
| | | |
| | |
Paid-in capital | |
$ | 891,731 | | |
$ | 934,272 | | |
$ | | |
Aggregate distributable earnings (losses) | |
| (220,215 | ) | |
| (255,846 | ) | |
| | |
Accumulated other
comprehensive income (loss) | |
| (132 | ) | |
| (132 | ) | |
| | |
Total Net Assets | |
$ | 671,384 | | |
$ | 678,294 | | |
$ | | |
DESCRIPTION
OF THE SERIES F TERM PREFERRED STOCK
The following description
of the particular terms of the Series F 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 F 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 shares
as Series F Term Preferred Stock. At the time of issuance the Series F Term Preferred Stock 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 F Term Preferred Stock will rank equally in right with all other preferred stock (including the Series C Term
Preferred Stock and the Series D 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 F Term Preferred Stock, together with the Series C Term Preferred Stock, 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, will 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 indebtedness (including the Notes).
Dividends
General.
Holders of the Series F Term Preferred Stock are entitled to receive cumulative cash dividends and distributions
at the Dividend Rate of % of the Liquidation Preference, or $ 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, Series D Preferred Stock and in preference to dividends and distributions on shares of our common stock. Dividends
on the shares of Series F Term Preferred Stock offered pursuant to this prospectus supplement will be payable monthly in arrears
on the last business day of every calendar month, or the “Dividend Payment Date,” commencing on February 29,
2024. Dividends on the Series F Term Preferred Stock will be 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 F 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 a 360-day year consisting of twelve 30-day months, and
actual days elapsed over a 30-day month.
Dividend
Periods. The first Dividend Period for holders of shares of Series F Term Preferred Stock offered pursuant
to this prospectus supplement will commence on the Date of Original Issue and will end on, but exclude February 29, 2024,
and each subsequent Dividend Period will be the period beginning on and including the last Dividend Payment Date and ending on, but excluding,
the next Dividend Payment Date or stated maturity date, as the case may be. Dividends will be payable monthly in arrears on the Dividend
Payment Date and upon redemption of the Series F Term Preferred Stock. Except for the first Dividend Period, dividends with respect
to any monthly Dividend Period will be declared and paid to holders of record of Series F 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 Dividend Payment Date. With respect to the first Dividend
Period, we expect that dividends of the shares of Series F Term Preferred Stock offered pursuant to this prospectus supplement will
be paid on February 29, 2024 to holders of record of such Series F Term Preferred Stock as their names appear on
our registration books at the close of business on February 9, 2024.
Only holders of Series F
Term Preferred Stock on the record date for a Dividend Period will be entitled to receive dividends and distributions payable with respect
to such Dividend Period, and holders of Series F Term Preferred Stock who sell shares before such a record date and purchasers of
Series F 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 F Term Preferred Stock.
Mechanics
of Payment of Dividends. Not later than 12:00 noon, New York City time, on a 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 Redemption Date (as defined below), 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 F Term Preferred Stock. Dividends will be paid by the Redemption and Payment Agent to the holders of Series F Term
Preferred Stock as their names appear on our registration books on the applicable record date preceding the applicable Dividend Payment
Date. Dividends that are in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date. Such payments are made to holders of Series F 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 F 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 F 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 F Term Preferred Stock upon
any failure to pay dividends on Series F Term Preferred Stock.
Adjustment
to Fixed Dividend Rate — Default Period. Subject to the cure provisions below, a “Default
Period” with respect to Series F Term Preferred Stock will commence on a date we fail to deposit the Deposit Securities as
required in connection with a Dividend Payment Date or a Redemption Date. A 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 Default Period
will be equal to the Dividend Rate in effect on such day plus two percent (2%) per annum, or the “Default Rate.”
No 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 Dividend Payment Date or Redemption Date, 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 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 F Term Preferred Stock for any Dividend Period, or a part of a Dividend Period, unless the full
cumulative dividends and distributions due through the most recent 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 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 F 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 Dividend Payment Date. No holders of Series F 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 F 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 F Term Preferred Stock and all series of preferred stock ranking on parity with the Series F Term Preferred Stock (including
the Series C Term Preferred Stock and 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 F 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 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 F Term 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 and the Series D Preferred
Stock) ranking on parity with the Series F Term Preferred Stock with respect to dividends and distributions for all applicable past
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 F 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 (such as the Series C Term Preferred Stock and 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%. “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, and includes the Notes. 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, the Series D Preferred Stock and the Series F Term 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 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 F 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 F Term Preferred Stock of the 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 F 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 Liquidation Preference on each outstanding share
of Series F Term Preferred Stock plus accumulated and unpaid dividends and distributions has been paid in full to the holders of
Series F 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 F Term Preferred Stock
on the Mandatory Redemption Date, at a redemption price equal to the 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 Dividend
Payment Date, the dividend payable on such Dividend Payment Date in respect of such shares of Series F Term Preferred Stock will
be payable on such Dividend Payment Date to the holders of record of such shares of Series F Term Preferred Stock at the close of
business on the applicable Dividend Record Date, and will not be payable as part of the redemption price for such shares of Series F
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 F Term Preferred Stock and our other preferred stock
and such failure is not cured as of the close of business on the 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, the Series D Preferred Stock
and the Series F Term Preferred Stock), as described below at a price per share equal to the 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 shares of Series F 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 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 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 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 F Term Preferred Stock may, at our sole option, be redeemed, in whole or in part,
at any time on or after , 2026, upon giving a notice of redemption, or “Notice of Redemption,” at
a redemption price per share equal to the Liquidation Preference plus an amount equal to accumulated but unpaid dividends, if any, on
such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such
redemption.
Subject to the provisions
of the certificate of designation for the Series F 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 F Term Preferred Stock will be redeemed
from time to time.
We may not on any date deliver
a Notice of Redemption to redeem any shares of Series F 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 F Term Preferred Stock by reason of the redemption of such shares of Series F
Term Preferred Stock on such 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 shall determine to
or are required to redeem, in whole or in part, shares of Series F Term Preferred Stock, we will deliver a 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 F
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 Notice of Redemption will 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, or the “Redemption Date.” If fewer than
all of the outstanding shares of Series F 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 F Term
Preferred Stock to be redeemed will be selected either (1) pro rata among Series F Term Preferred Stock, (2) by lot, or
(3) in such other manner as our Board of Directors may determine to be fair and equitable. If fewer than all shares of Series F
Term Preferred Stock held by any holder are to be redeemed, the Notice of Redemption mailed to such holder shall also specify the number
of shares of Series F Term Preferred Stock to be redeemed from such holder or the method of determining such number. We may provide
in any Notice of Redemption relating to a redemption contemplated to be effected pursuant to the certificate of designation for the Series F
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 Notice of Redemption or delivery thereof will affect the validity
of redemption proceedings except as required by applicable law.
If we 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 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 F Term Preferred Stock to be redeemed on the 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 F Term Preferred
Stock called for redemption on the Redemption Date. Notwithstanding the foregoing, if the 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 F Term Preferred Stock, all rights of the holders of
Series F 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 F Term Preferred Stock will no longer be deemed outstanding for any purpose
whatsoever (other than the transfer thereof prior to the applicable Redemption Date and other than the accumulation of dividends on such
stock in accordance with the terms of the Series F Term Preferred Stock up to, but excluding, the applicable Redemption Date). We
will be entitled to receive, promptly after the Redemption Date, any Deposit Securities in excess of the aggregate redemption price of
shares of Series F Term Preferred Stock called for redemption on the Redemption Date. Any Deposit Securities so deposited that are
unclaimed at the end of 90 calendar days from the Redemption Date will, to the extent permitted by law, be repaid to us, after which
the holders of shares of Series F Term Preferred Stock so called for redemption can look only to us for payment of the Redemption
Price. We will be entitled to receive, from time to time after the Redemption Date, any interest on the Deposit Securities so deposited.
If any redemption for which
a 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 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 Notice of Redemption. Notwithstanding the fact that a Notice of Redemption has been provided with respect
to any shares of Series F Term Preferred Stock, dividends may be declared and paid on such shares of Series F Term Preferred
Stock in accordance with their terms if Deposit Securities for the payment of the redemption price of such shares of Series F 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 F Term
Preferred Stock, provided that such modification does not materially and adversely affect the holders of Series F 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 F 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 F Term Preferred Stock will be entitled to one vote for each share of Series F 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, Series D Preferred Stock and Series F Term 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, Series D Preferred Stock and Series F Term 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 held in 2025 and the other Preferred
Director will be up for election at the annual meeting of our stockholders held in 2026.
Notwithstanding the foregoing,
if (1) at the close of business on any Dividend Payment Date for dividends on any outstanding share of any series of our preferred
stock, including any outstanding shares of the Series F 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 F 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 F
Term Preferred Stock, for all past 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 F 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 F 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 F 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 F 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 F 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 F 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 F Term Preferred Stock or the holders of Series F 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, the Series D Preferred Stock and Series F Term 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 F 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 F Term Preferred Stock, by statute or otherwise,
no holder of the Series F Term Preferred Stock will be entitled to vote any shares of the Series F Term Preferred Stock and
no share of the Series F 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 F 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 F Term Preferred Stock will have been irrevocably deposited with the Redemption and Paying Agent for that
purpose. No shares of Series F 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 F 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 F
Term Preferred Stock. The holders of shares of Series F 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 F 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 F Term Preferred Stock, pay dividends
at the Default Rate as discussed above.
Issuance of Additional
Preferred Stock
So long as any shares of
Series F 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 F 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 F 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 F 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 F Term Preferred Stock, our Board of Directors may amend or modify these terms of the Series F 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 F Term
Preferred Stock that are not inconsistent with the provisions in our certificate of incorporation.
UNDERWRITING
Ladenburg Thalmann &
Co. Inc. is acting as representative of the several underwriters named below. Subject to the terms and conditions stated in the underwriting
agreement dated , 2024, each underwriter named below has agreed to purchase, and we have
agreed to sell to that underwriter, the number of Series F Term Preferred Stock set forth opposite the underwriter’s name.
Underwriter | |
Number
of
Shares | |
Ladenburg
Thalmann & Co. Inc. | |
| | |
B. Riley
Securities, Inc. | |
| | |
Piper Sandler &
Co. | |
| | |
InspereX
LLC | |
| | |
Wedbush Securities
Inc. | |
| | |
| |
| | |
Total | |
| | |
Subject to the terms and
conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the Series F
Term Preferred Stock sold under the underwriting agreement if any of the Series F Term Preferred Stock are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the
underwriting agreement may be terminated.
We, the Adviser and the Administrator
have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute
to payments the underwriters may be required to make in respect of those liabilities.
The underwriting agreement
provides that the obligations of the underwriters to purchase the Series F Term Preferred Stock are subject to approval of legal
matters by counsel to the underwriters and certain other conditions, including the receipt by the underwriters of officers’ certificates
and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part. Investors must pay for the Series F Term Preferred Stock purchased in this offering on or about ,
2024.
Commission and Discount
An underwriting discount
of % per share will be paid by us. This underwriting discount will also apply to any
Series F Term Preferred Stock purchased pursuant to underwriters’ option to purchase additional shares of Series F Term
Preferred Stock. The underwriters have advised us that they propose initially to offer the Series F Term Preferred Stock to the
public at the public offering price on the cover of this prospectus supplement and to certain other Financial Industry Regulatory Authority, Inc.
members at that price less a concession not in excess of $ per
share.
The following table shows
the total underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. The information
assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares of Series F Term Preferred
Stock.
| |
No Exercise | | |
Full Exercise | |
Per Share | |
| | | |
| | |
Total | |
| | | |
| | |
We estimate that the total
expenses of this offering, excluding the sales load, will be approximately $330,000. As part of our payment of our offering expenses, we have agreed to pay expenses related to the reasonable fees and expenses of counsel
to the underwriters, in an amount not to exceed $35,000 in the aggregate, in connection with entering into the underwriting agreement
and the transactions associated with this offering.
Underwriters’ Option
We have granted an option
to the underwriters to purchase up to an additional shares
of Series F Term Preferred Stock offered hereby at the public offering price, less the underwriting discounts and commissions, within
30 days from the date of this prospectus supplement. If the underwriters exercise this option, each will be obligated, subject to conditions
contained in the underwriting agreement, to purchase a number of additional Series F Term Preferred Stock proportionate to that
underwriter’s initial amount reflected in the table above.
No Sales of Preferred Stock
Subject to certain exceptions,
we have agreed not to sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise
dispose of or agree to dispose of, directly or indirectly, any preferred stock issued or guaranteed by us or any securities convertible
into or exercisable or exchangeable for preferred stock issued or guaranteed by us or file or cause to be declared effective a registration
statement under the Securities Act with respect to any of the foregoing, without the consent of the underwriters, for a period of 30
days from the date of this prospectus supplement. This consent may be given at any time without public notice.
Listing
The Series F Term Preferred
Stock are a new issue of securities with no established trading market. We intend to list the Series F Term Preferred Stock on the
NYSE under the symbol “ECCF,” and we expect trading in the Series F Term Preferred Stock on the NYSE to begin within
30 days of the original issue date.
We have been advised by certain
of the underwriters that they presently intend to make a market in the Series F Term Preferred Stock after completion of the offering
as permitted by applicable laws and regulations. The underwriters are not obligated, however, to make a market in the Series F Term
Preferred Stock and any such market-making may be discontinued at any time in the sole discretion of the underwriters without any notice.
Accordingly, no assurance can be given as to the liquidity of, or development of a public trading market for, the Series F Term
Preferred Stock. If an active public trading market for the Series F Term Preferred Stock does not develop, the market price and
liquidity of the Series F Term Preferred Stock may be adversely affected.
Price Stabilization and Short Positions
In connection with the offering,
the underwriters may purchase and sell Series F Term Preferred Stock in the open market. These transactions may include overallotment,
covering transactions and stabilizing transactions. Overallotment involves sales of securities in excess of the aggregate principal amount
of securities to be purchased by the underwriters in the offering, which creates a short position for the underwriters. Covering transactions
involve purchases of the securities in the open market after the distribution has been completed in order to cover short positions. Stabilizing
transactions consist of certain bids or purchases of securities made for the purpose of preventing or retarding a decline in the market
price of the securities while the offering is in progress.
The underwriters also may
impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received
by it because the representative has repurchased Series F Term Preferred Stock sold by or for the account of such underwriter in
stabilizing or short covering transactions.
Any of these activities may
cause the price of the Series F Term Preferred Stock to be higher than the price that otherwise would exist in the open market in
the absence of such transactions. These transactions may be affected in the over-the-counter market or otherwise and, if commenced, may
be discontinued at any time without any notice relating thereto.
Alternative Settlement Cycle
We expect that delivery of
the Series F Term Preferred Stock will be made against payment therefor on or about ,
2024, which will be the third business day following the date of the pricing of the Series F Term Preferred Stock (such settlement
being herein referred to as “T+3”). Under Rule 15c6-1 promulgated under the Exchange Act, trades
in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the Series F Term Preferred Stock prior to the date of delivery hereunder will be required,
by virtue of the fact that the Series F Term Preferred Stock initially will settle in T+3 business days, to specify
an alternative settlement arrangement at the time of any such trade to prevent a failed settlement.
Other Relationships
We anticipate that, from
time to time, certain of the underwriters may act as a broker or a dealer in connection with the execution of our portfolio transactions
after it has ceased to be an underwriter and, subject to certain restrictions, may act as a broker while it is an underwriter.
Certain underwriters may
have performed investment banking and financial advisory services for us, the Adviser and our affiliates from time to time, for which
they have received customary fees and expenses. Certain underwriters may, from time to time, engage in transactions with or perform services
for us, the Adviser and our affiliates in the ordinary course of business.
The
principal business addresses of the underwriters are: Ladenburg Thalmann & Co. Inc., 640 Fifth Avenue, 4th
Floor, New York, New York 10019; B. Riley Securities, Inc., 299 Park Avenue, 21st Floor, New York, New York 10171;
Piper Sandler & Co., 800 Nicollet Mall, J12S03, Minneapolis, Minnesota 55402; InspereX LLC, 25 SE 4th Avenue,
Suite 400, Delray Beach, FL 33483; and Wedbush Securities Inc., 142 West 57th Street,
12th Floor, New York, New York 10019.
U.S.
FEDERAL INCOME TAX MATTERS
For
the U.S. federal income tax consequences of purchase, ownership and disposition of the Series F Term Preferred Stock, please
see the section “U.S. Federal Income Tax Matters” in the accompanying prospectus.
LEGAL
MATTERS
Certain
legal matters in connection with the Series F Term Preferred Stock will be passed upon for us by Dechert LLP, One International
Place, 40th Floor, 100 Oliver Street, Boston, Massachusetts, and for the underwriters by Duane Morris LLP, 1540 Broadway, New
York, New York 10036.
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 Series F Term Preferred Stock 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 Exchange
Act. The SEC maintains a website that contains reports, proxy and information statements and other information we file with the SEC at
www.sec.gov. Information contained on our website is not incorporated into this prospectus supplement or the accompanying prospectus
and you should not consider such information to be part of this prospectus supplement or the accompanying prospectus. 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 supplement or the accompanying prospectus.
INCORPORATION
BY REFERENCE
We incorporate by reference
in this prospectus supplement the document 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 stockholders, filed
with the SEC on April 12, 2023. |
| · | Our
Semi-Annual Report on Form N-CSRS for the six months ended June 30, 2023, filed
with the SEC on August 15, 2023. |
| · | Our
interim report filed pursuant to Rule 30b2-1 under the 1940 Act for the quarter ended
September 30, 2023, filed with the SEC on November 14, 2023. |
| · | Our
Current Report on Form 8-K filed with the SEC on December 12, 2023. |
| · | Our
Definitive Proxy Statement on Schedule 14A for the annual meeting of stockholders, filed
with the SEC on January 8, 2024. |
Appendix A
CERTIFICATE OF DESIGNATION
OF
% SERIES F TERM PREFERRED STOCK DUE 2029
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 January , 2024:
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 3,000,000 authorized but unissued shares of preferred stock, par value
$0.001 per share, without designation as to series as % Series F Term Preferred Stock due 2029 (the “Series F 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 3,000,000
shares of the preferred stock, par value $0.001 per share, authorized by the Certificate of Incorporation are hereby designated as the
Series F Term Preferred Stock. Each share of Series F 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 F Term Preferred Stock shall constitute a separate series of Capital Stock (as defined below) and each share of Series F
Term Preferred Stock shall be identical. No fractional shares of Series F Term Preferred Stock shall be issued.
1.2. The Series F Term
Preferred Stock shall rank on parity with (i) shares of the Corporation’s 6.50% Series C Term Preferred Stock due 2031,
par value $0.001 per share, (ii) shares of the Corporation’s 6.75% Series D Preferred Stock, 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 F 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 F 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 F Term Preferred Stock or any other
security issued by the Corporation is registered in the registration books of the Corporation maintained by Equiniti Trust Company, LLC
and its successors, or any other redemption and paying agent appointed by the Corporation with respect to the Series F 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 F 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 F 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 F Term Preferred Stock, calculated separately for each Dividend Period
(as defined below) at, as of any date, % 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 F 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 F Term Preferred Stock, and no more. In the case of each share of Series F Term Preferred Stock
issued on January , 2024 (the “Date of Original Issue”), dividends and distributions on such shares of Series F
Term Preferred Stock shall accumulate from the Date of Original Issue. In the case of a share of Series F 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 F 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 F 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 F
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 F 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 F 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 February 29, 2024
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 F 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 February 29, 2024 (each,
a “Dividend Payment Date”) to the Holders of shares of Series F 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 F Term Preferred Stock will be paid on February 29,
2024 to Holders of record of such Series F Term Preferred Stock as their names appear on the registration books of the Corporation
at the close of business on February 9, 2024. 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 F 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 F 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 F 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 F 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 F 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 F Term Preferred Stock.
2.4. For so long as any shares
of Series F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F Term Preferred Stock with respect to any Default on the Series F Term Preferred Stock shall be deemed to commence
if the amount of any dividend or any Redemption Price due in respect of the Series F 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 F 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 F 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 F 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 F 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 F 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 F Term Preferred Stock or other Preferred Stock) to pay the full Redemption
Price for the Series F 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 F Term Preferred Stock or other Preferred Stock and the requisite notice of redemption
for the Series F 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 F Term Preferred Stock
or other Preferred Stock) to pay the full Redemption Price for the Series F 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 F 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 F Term Preferred Stock on January , 2029 (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 F Term Preferred Stock, to enable it
to meet the requirements of Section 5.2(b). In the event that any shares of Series F 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 F 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 F Term
Preferred Stock and other shares of Preferred Stock the redemption or retirement of which would have such result, all shares of Series F
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 F
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 F 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 F 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 F Term Preferred Stock are to be redeemed pursuant to this Section 5.2, the number of shares of Series F
Term Preferred Stock to be redeemed shall be redeemed (A) pro rata among the Outstanding shares of Series F Term Preferred
Stock, (B) by lot, or (C) in such other manner as our Board of Directors may determine to be fair and equitable.
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 January , 2026, the Corporation may redeem
in whole or in part from time to time the Outstanding shares of Series F 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 F Term Preferred Stock are to be redeemed pursuant to Section 5.3(a), the shares
of Series F Term Preferred Stock to be redeemed shall be selected either (A) pro rata, (B) by lot, or (C) in such
other manner as our Board of Directors may determine to be fair and equitable. 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 F 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 F Term Preferred Stock by reason of the redemption of such shares of Series F 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 F 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 F Term Preferred Stock to be redeemed;
(C) the CUSIP number for shares of Series F Term Preferred Stock; (D) the applicable Redemption Price on a per share basis;
(E) that dividends on the shares of Series F 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 F 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 F 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 F Term Preferred Stock and the Corporation and (ii) the Custodian
Agreement by and among the Custodian and the Corporation with respect to the Series F 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 F 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 F 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 F 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 F 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 F 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 F 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 F Term Preferred Stock unless all accumulated and unpaid dividends and distributions on all Outstanding shares of Series F
Term Preferred Stock and other series of Preferred Stock ranking on a parity with the Series F 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 F 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 F 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 F Term Preferred Stock, dividends may be declared
and paid on the shares of Series F Term Preferred Stock in accordance with their terms if Deposit Securities for the payment of
the Redemption Price of such shares of Series F 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 F Term Preferred Stock shall be payable on such Dividend
Payment Date to the Holders of record of such shares of Series F 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 F 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 F 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 F 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 F
Term Preferred Stock, provided, that such modification does not materially and adversely affect the Holders of the shares of Series F
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 F 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 F Term Preferred Stock shall be entitled to one vote for each
share of Series F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F 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 F Term Preferred
Stock, and (ii) a division of a share of the Preferred Stock, including the Series F 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 two-thirds 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 F Term Preferred Stock. The Corporation cannot effect any amendment, alteration or repeal
of the obligation to redeem all of the Series F Term Preferred Stock on January , 2029 without the prior unanimous consent
of the Holders of Series F 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 F 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 F 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 F 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 F Term Preferred Stock on the Dividend Payment Date therefor, the exclusive remedy of the
Holders of the shares of Series F 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 F 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 F Term Preferred Stock shall be entitled to vote any share of Series F Term Preferred Stock and
no share of Series F 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 F 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 F Term Preferred Stock shall have been deposited in trust with the
Redemption and Paying Agent for that purpose. No share of Series F 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 F 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 F 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 F 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 F
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 F Term Preferred Stock. Shares of Series F 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 F 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 F Term Preferred Stock (the “Securities Depository”) or its nominee
and (ii) no registration of transfer of shares of such Series F 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 F Term Preferred Stock are Outstanding, all rights and preferences of the shares of Series F
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 F 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 F Term Preferred Stock, including an increase in the number of authorized shares of the Series F 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 F 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 F Term Preferred Stock are Outstanding,
the Corporation will provide Holders of Series F 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 F 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 day of January 2024.
|
EAGLE POINT CREDIT COMPANY INC. |
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|
|
By: |
/s/ Kenneth P. Onorio |
|
|
Name: |
Kenneth P. Onorio |
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Title: |
Chief Financial Officer and Chief Operating Officer |
$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 the range of our NAV per share of our common stock as of April 30, 2023 was between
$8.83 and $8.93. 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 May 25, 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:
| • | 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; |
| • | The “Adviser”
refers to Eagle Point Credit Management LLC, a Delaware limited liability company; |
| • | The “Administrator”
refers to Eagle Point Administration LLC, a Delaware limited liability company; and |
| • | “Risk-adjusted returns”
refers to the profile of expected asset returns across a range of potential macroeconomic
scenarios, and does not imply that a particular strategy or investment should be considered
low-risk. |
Eagle Point 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:
| • | proactive sourcing and identification of investment opportunities; |
| • | utilization of the Adviser’s methodical investment
analysis and due diligence process; |
| • | active involvement at the CLO structuring and formation
stage; and |
| • | 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:
| • | number of borrowers underlying each CLO; |
| • | industry type of a CLO’s underlying borrowers; |
| • | 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:
| • | the head of the CLO business at various investment banks; |
| • | a lead CLO structurer and collateralized debt obligation,
or “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. 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.
| • | 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. |
| • | 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. |
| • | 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. |
| • | 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. |
| • | 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. |
| • | Key Personnel Risk.
We are dependent upon the key personnel of the Adviser for our future success. |
| • | Conflicts of Interest
Risk. Our executive officers and directors, and the Adviser and certain of its affiliates
and their officers and employees, including the Senior Investment Team, have several conflicts
of interest as a result of the other activities in which they engage. See “Conflicts
of Interest.” |
| • | 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. |
| • | 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.
| • | 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. |
| • | 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. |
| • | Fair Valuation of Our
Portfolio Investments. Generally, there is no public market for the CLO investments
we target. As a result, the Adviser values these securities at least quarterly, or more frequently
as may be required from time to time, at fair value. The Adviser’s determinations of
the fair value of our investments have a material impact on our net earnings through the
recording of unrealized appreciation or depreciation of investments and may cause our NAV
on a given date to understate or overstate, possibly materially, the value that we ultimately
realize on one or more of our investments. |
| • | Limited Investment Opportunities
Risk. The market for CLO securities is more limited than the market for other credit
related investments. We can offer no assurances that sufficient investment opportunities
for our capital will be available. |
| • | 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. |
| • | Market Risk. Political,
regulatory, economic and social developments, and developments that impact specific economic
sectors, industries or segments of the market, can affect the value of our investments. A
disruption or downturn in the capital markets and the credit markets could impair our ability
to raise capital, reduce the availability of suitable investment opportunities for us, or
adversely and materially affect the value of our investments, any of which would negatively
affect our business. These risks may be magnified if certain events or developments adversely
interrupt the global supply chain, and could affect companies worldwide. |
| • | LAFs Risk. We
may invest in LAFs, which are short to medium term facilities often provided by the bank
that will serve as placement agent or arranger on a CLO transaction and which acquire loans
on an interim basis which are expected to form part of the portfolio of a future CLO. Investments
in LAFs have risks similar to those applicable to investments in CLOs. Leverage is typically
utilized in such a facility and as such the potential risk of loss will be increased for
such facilities employing leverage. In the event a planned CLO is not consummated, or the
loans are not eligible for purchase by the CLO, the Company may be responsible for either
holding or disposing of the loans. This could expose the Company primarily to credit and/or
mark-to-market losses, and other risks. |
| • | Synthetic
Investments Risk. We may invest in synthetic investments, such as significant
risk transfer securities and credit risk transfer securities issued by banks or other financial
institutions, or acquire interests in lease agreements that have the general characteristics
of loans and are treated as loans for withholding tax purposes. In addition to the credit
risks associated with 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. |
| • | Currency Risk. Although
we primarily make investments denominated in U.S. dollars, we may make investments denominated
in other currencies. Our investments denominated in currencies other than U.S. dollars will
be subject to the risk that the value of such currency will decrease in relation to the U.S.
dollar. We may or may not hedge currency risk. |
| • | Hedging Risk. Hedging
transactions seeking to reduce risks may result in poorer overall performance than if we
had not engaged in such hedging transactions. Additionally, such transactions may not fully
hedge the relevant risks. |
| • | Reinvestment Risk. CLOs
will typically generate cash from asset repayments and sales that may be reinvested in substitute
assets, subject to compliance with applicable investment tests. If the CLO collateral manager
causes the CLO to purchase substitute assets at a lower yield than those initially acquired
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. |
| • | 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. |
| • | Refinancing Risk. If
we incur debt financing and subsequently refinance such debt, the replacement debt may be
at a higher cost and on less favorable terms and conditions. If we fail to extend, refinance
or replace such debt financings prior to their maturity on commercially reasonable terms,
our liquidity will be lower than it would have been with the benefit of such financings,
which would limit our ability to grow, and holders of our common stock would not benefit
from the potential for increased returns on equity that incurring leverage creates. |
| • | Tax Risk. If
we fail to qualify for tax treatment as a RIC under Subchapter M of the Code for any reason,
or otherwise become subject to corporate income tax, the resulting corporate taxes could
substantially reduce our net assets, the amount of income available for distributions to
our stockholders, and the amount of income available for payment of our other liabilities. |
| • | Derivatives Risk. Derivative
instruments in which we may invest may be volatile and involve various risks different from,
and in certain cases greater than, the risks presented by other instruments. The primary
risks related to Derivative Transactions include counterparty, correlation, liquidity, leverage,
volatility, OTC trading, operational and legal risks. In addition, a small investment in
derivatives could have a large potential impact on our performance, effecting a form of investment
leverage on our portfolio. In certain types of Derivative Transactions, we could lose the
entire amount of our investment; in other types of Derivative Transactions the potential
loss is theoretically unlimited. |
| • | Counterparty Risk. We
may be exposed to counterparty risk, which could make it difficult for us or the CLOs in
which we invest to collect on obligations, thereby resulting in potentially significant losses. |
| • | 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. |
| • | Banking
Risk. The possibility of future bank failures poses risks of reduced financial market
liquidity at clearing, cash management and other custodial financial institutions. The failure
of banks which hold cash on behalf of the Company, the Company's underlying obligors, the
collateral managers of the CLOs in which the Company invests, or the Company’s service
providers could adversely affect the Company’s ability to pursue its investment strategies
and objectives. For example, if an underlying obligor has a commercial relationship with
a bank that has failed or is otherwise distressed, such company may experience delays or
other disruptions in meeting its obligations and consummating business transactions. Additionally,
if a collateral manager has a commercial relationship with a distressed bank, the manager
may experience issues conducting its operations or consummating transactions on behalf of
the CLOs it manages, which could negatively affect the performance of such CLOs (and, therefore,
the performance of the Company). |
| • | Price Risk.
Investors who buy shares at different times will likely pay different prices. |
| • | 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 the Company. |
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 the Company. 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 the Company’s underlying obligors and/or
the market value of the Company’s 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:
| • | price and volume fluctuations in the overall stock market
from time to time; |
| • | investor demand for shares of our common stock; |
| • | significant volatility in
the market price and trading volume of securities of registered closed-end management investment
companies or other companies in our sector, which are not necessarily related to the operating
performance of these companies; |
| • | changes in regulatory policies
or tax guidelines with respect to RICs or registered closed-end management investment companies; |
| • | failure to qualify as a RIC, or the loss of RIC status; |
| • | any shortfall in revenue or
net income or any increase in losses from levels expected by investors or securities analysts; |
| • | changes, or perceived changes, in the value of our portfolio
investments; |
| • | departures of any members of the Senior Investment Team; |
| • | 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:
| • | 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; |
| • | 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:
| • | delaying,
deferring or preventing a change in corporate control; |
| • | impeding
a merger, consolidation, takeover or other business combination involving us; or |
| • | discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control
of us. |
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:
| (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; |
| (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; |
| (3) | (in the case of each UK Institutional
Investor only) the originator, sponsor or SSPE: |
| (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 |
| (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 |
| (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(5) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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:
| • | an
individual citizen or resident of the United States; |
| • | a
corporation (or any other entity treated as a corporation for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state or other political
subdivision thereof (including the District of Columbia); |
| • | a
trust if it (a) is subject to the primary supervision of a court within the United States
and one or more United States persons have the authority to control all substantial decisions
of the trust or (b) has a valid election in effect under applicable United States Treasury
regulations, or “Treasury Regulations,” to be treated as a United States person;
or |
| • | an
estate, the income of which is subject to U.S. federal income taxation regardless of its
source. |
The term “non-U.S.
holder” means a beneficial owner of the securities (other than a partnership or any other entity or other arrangement treated as
a partnership for U.S. federal income tax purposes) that is not a U.S. holder.
An individual may, subject
to exceptions, be deemed to be a resident of the United States for U.S. federal income tax purposes, as opposed to a non-resident alien,
by, among other ways, being present in the United States (i) on at least 31 days in the calendar year, and (ii) for an aggregate
of at least 183 days during a three-year period ending in the current calendar year, counting for such purposes all of the days present
in the current year, one-third of the days present in the immediately preceding calendar year, and one-sixth of the days present in the
second preceding calendar year. Individuals who are residents for such purposes are subject to U.S. federal income tax as if they were
United States citizens.
This summary does not represent
a detailed description of the U.S. federal income tax consequences applicable to you, as a holder of our securities, if you are a person
subject to special tax treatment under the
U.S. federal income tax laws, including, without limitation:
| • | a
dealer in securities or currencies; |
| • | a
financial institution; |
| • | a
real estate investment trust; |
| • | a
tax-exempt organization; |
| • | a
person holding the securities as part of a hedging, integrated, conversion or constructive
sale transaction or a straddle; |
| • | a
trader in securities that has elected the mark-to-market method of accounting for their securities; |
| • | a
person subject to alternative minimum tax; |
| • | a
partnership or other pass-through entity for U.S. federal income tax purposes; |
| • | a
U.S. holder whose “functional currency” (as defined in Section 985 of the
Code) is not the U.S. dollar; |
| • | A
United States expatriate or foreign persons or entities (except to the extent set forth below);
or |
| • | A
holder that is subject to special tax accounting rules under Section 451(b) of
the Code. |
If a partnership (including
any entity classified or arrangement treated as a partnership for U.S. federal income tax purposes) holds the securities, the tax treatment
of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership or
a partner in a partnership holding our securities, you should consult your own tax advisors regarding the tax consequences of an investment
in our securities.
This summary is based on
the Code, Treasury Regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, possibly on a
retroactive basis, so as to result in U.S. federal income tax consequences different from those summarized below. This summary does not
represent a detailed description of the U.S. federal income tax consequences that may be applicable to you in light of your particular
circumstances and does not address the effects of any aspects of U.S. estate or gift, or state, local or non-U.S. income, estate, or
gift tax laws. It is not intended to be, and should not be construed to be, legal or tax advice to any particular purchaser of our securities.
We have not sought and will not seek any ruling from the 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:
| • | the
designation and number of shares of such series; |
| • | the
rate and time at which, and the preferences and conditions under which, any dividends or
other distributions will be paid on shares of such series, as well as whether such dividends
or other distributions are participating or non-participating; |
| • | any
provisions relating to convertibility or exchangeability of the shares of such series, including
adjustments to the conversion price of such series; |
| • | the
rights and preferences, if any, of holders of shares of such series upon our liquidation,
dissolution or winding up of our affairs; |
| • | the
voting powers, if any, of the holders of shares of such series; |
| • | any
provisions relating to the redemption of the shares of such series; |
| • | any
limitations on our ability to pay dividends or make distributions on, or acquire or redeem,
other securities while shares of such series are outstanding; |
| • | any
conditions or restrictions on our ability to issue additional shares of such series or other
securities; |
| • | if
applicable, a discussion of certain U.S. federal income tax considerations; and |
| • | any
other relative powers, preferences and participating, optional or special rights of shares
of such series, and the qualifications, limitations or restrictions thereof. |
All shares of Preferred
Stock that we may issue will be of equal rank and identical except as to the particular terms thereof that may be fixed by our board
of directors, and all shares of each series of Preferred Stock will be identical except as to the dates from which dividends or other
distributions, if any, thereon will be cumulative.
DESCRIPTION OF OUR SUBSCRIPTION
RIGHTS
The following is a general
description of the terms of the subscription rights we may issue from time to time. Particular terms of any subscription rights we offer
will be described in the prospectus supplement relating to such subscription rights.
We may issue subscription
rights to our stockholders to purchase common stock. Subscription rights may be issued independently or together with any other offered
security and may or may not be transferable by the person purchasing or receiving the subscription rights. We will not offer transferable
subscription rights to our stockholders at a price equivalent to less than the then current NAV per share of common stock, taking into
account underwriting commissions, unless we first file a post-effective amendment that is declared effective by the SEC with respect
to such issuance and the common stock to be purchased in connection with the rights represents no more than one-third of our outstanding
common stock at the time such rights are issued. In connection with any subscription rights offering to our stockholders, we may enter
into a standby underwriting, backstop or other arrangement with one or more persons pursuant to which such persons would purchase any
offered securities remaining unsubscribed for after such subscription rights offering. In connection with a subscription rights offering
to our stockholders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to our stockholders
on the record date that we set for receiving subscription rights in such subscription rights offering. Our common stockholders will indirectly
bear all of the expenses incurred by us in connection with any subscription rights offerings, regardless of whether any common stockholder
exercises any subscription rights.
A prospectus supplement
will describe the particular terms of any subscription rights we may issue, including the following:
| • | the
period of time the offering would remain open (which shall be open a minimum number of days
such that all record holders would be eligible to participate in the offering and shall not
be open longer than 120 days); |
| • | the
title and aggregate number of such subscription rights; |
| • | the
exercise price for such subscription rights (or method of calculation thereof); |
| • | the
currency or currencies, including composite currencies, in which the price of such subscription
rights may be payable; |
| • | if
applicable, the designation and terms of the securities with which the subscription rights
are issued and the number of subscription rights issued with each such security or each principal
amount of such security; |
| • | the
ratio of the offering (which, in the case of transferable rights, will require a minimum
of three shares to be held of record before a person is entitled to purchase an additional
share); |
| • | the
number of such subscription rights issued to each stockholder; |
| • | the
extent to which such subscription rights are transferable and the market on which they may
be traded if they are transferable; |
| • | the
date on which the right to exercise such subscription rights shall commence, and the date
on which such right shall expire (subject to any extension); |
| • | if
applicable, the minimum or maximum number of subscription rights that may be exercised at
one time; |
| • | the
extent to which such subscription rights include an over-subscription privilege with respect
to unsubscribed securities and the terms of such over-subscription privilege; |
| • | any
termination right we may have in connection with such subscription rights offering; |
| • | the
terms of any rights to redeem, or call such subscription rights; |
| • | information
with respect to book-entry procedures, if any; |
| • | the
terms of the securities issuable upon exercise of the subscription rights; |
| • | the
material terms of any standby underwriting, backstop or other purchase arrangement that we
may enter into in connection with the subscription rights offering; |
| • | if
applicable, a discussion of certain U.S. federal income tax considerations applicable to
the issuance or exercise of such subscription rights; and |
| • | any
other terms of such subscription rights, including exercise, settlement and other procedures
and limitations relating to the transfer and exercise of such subscription rights. |
Each subscription right
will entitle the holder of the subscription right to purchase for cash or other consideration such amount of shares of common stock at
such subscription price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating
to the subscription rights offered thereby. Subscription rights may be exercised as set forth in the prospectus supplement beginning
on the date specified therein and continuing until the close of business on the expiration date for such subscription rights set forth
in the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights will become void.
Upon receipt of payment
and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription rights
agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the shares of common stock
purchasable upon such exercise. If less than all of the rights represented by such subscription rights certificate are exercised, a new
subscription certificate will be issued for the remaining rights. Prior to exercising their subscription rights, holders of subscription
rights will not have any of the rights of holders of the securities purchasable upon such exercise. To the extent permissible under applicable
law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents,
underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.
DESCRIPTION OF OUR DEBT
SECURITIES
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:
| • | the
designation or title of the series of debt securities; |
| • | the
total principal amount of the series of debt securities; |
| • | the
percentage of the principal amount at which the series of debt securities will be offered; |
| • | the
date or dates on which principal will be payable; |
| • | the
rate or rates (which may be either fixed or variable) and/or the method of determining such
rate or rates of interest, if any; |
| • | the
date or dates from which any interest will accrue, or the method of determining such date
or dates, and the date or dates on which any interest will be payable; |
| • | the
terms for redemption, extension or early repayment, if any; |
| • | the
currencies in which the series of debt securities are issued and payable; |
| • | whether
the amount of payments of principal, premium or interest, if any, on a series of debt securities
will be determined with reference to an index, formula or other method (which could be based
on one or more currencies, commodities, equity indices or other indices) and how these amounts
will be determined; |
| • | the
place or places, if any, other than or in addition to the City of New York, of payment, transfer,
conversion and/or exchange of the debt securities; |
| • | the
denominations in which the offered debt securities will be issued; |
| • | the
provision for any sinking fund; |
| • | any
restrictive covenants; |
| • | any
Events of Default (as described below); |
| • | whether
the series of debt securities are issuable in certificated form; |
| • | any
provisions for defeasance or covenant defeasance; |
| • | if
applicable, a discussion of U.S. federal income tax considerations; |
| • | whether
and under what circumstances we will pay additional amounts in respect of any tax, assessment
or governmental charge and, if so, whether we will have the option to redeem the debt securities
rather than pay the additional amounts (and the terms of this option); |
| • | any
provisions for convertibility or exchangeability of the debt securities into or for any other
securities; |
| • | whether
the debt securities are subject to subordination and the terms of such subordination; |
| • | the
listing, if any, on a securities exchange; and |
Unless the prospectus supplement
states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.
For purposes of this prospectus,
any reference to the payment of principal of or premium or interest, if any, on debt securities will include additional amounts if required
by the terms of the debt securities.
While any indebtedness and
other senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase
of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may
also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For
a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to Our Business and Structure
— Regulations governing our operation as a registered closed-end management investment company affect our ability to raise additional
capital and the way in which we do so. The raising of debt capital may expose us to risks, including the typical risks associated with
leverage.”
General
The indenture provides that
any debt securities proposed to be sold under this prospectus and an attached prospectus supplement, or “offered debt securities,”
and any debt securities issuable upon the upon conversion or exchange of other offered securities, or “underlying debt securities,”
may be issued under the indenture in one or more series.
The indenture does not limit
the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single
trustee is acting for all debt securities issued under the indenture, are called the “indenture securities.” The indenture
also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities.
See “— Resignation of Trustee” section below. At a time when two or more trustees are acting under the
indenture, each with respect to only certain series, the term “indenture securities” means the one or more series of debt
securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture,
the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture
securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each
trustee is acting would be treated as if issued under separate indentures.
We refer you to the applicable
prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or our
covenants that are described below, including any addition of a covenant or other provision providing event risk or similar protection.
We expect that we will usually
issue debt securities in book-entry only form represented by global securities.
Additional Debt Securities
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):
| • | We
do not pay the principal of, or any premium on, a debt security of the series when due and
payable, and such default is not cured within five days. |
| • | We
do not pay interest on a debt security of the series when due, and such default is not cured
within 30 days. |
| • | We
do not deposit any sinking fund payment in respect of debt securities of the series on its
due date, and do not cure this default within five days. |
| • | We
remain in breach of any other covenant with respect to debt securities of the series for
60 days after we receive a written notice of default stating we are in breach. The notice
must be sent by either the trustee or holders of at least 25% of the principal amount of
debt securities of the series. |
| • | We
file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur
and in the case of certain orders or decrees entered against us under any bankruptcy law,
such order or decree remains undischarged or unstayed for a period of 90 days. |
| • | On
the last business day of each of twenty-four consecutive calendar months, all series of our
debt securities issued under the indenture together have an asset coverage, as defined in
the 1940 Act, of less than 100% after giving effect to exemptive relief, if any, granted
to us by the SEC. |
| • | Any
other Event of Default in respect of debt securities of the series described in the applicable
prospectus supplement occurs. |
An Event of Default for
a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued
under the same or any other indenture. The trustee may withhold notice to the holders of the debt securities of any default, except in
the payment of principal or interest, if it in good faith considers the withholding of notice to be in the best interests of the holders.
Remedies if an Event of Default Occurs
If an Event of Default has
occurred and is continuing (unless the prospectus supplement relating to such debt security states otherwise), the following remedies
are available. The trustee or the holders of not less than 25% in principal amount of the debt securities of the affected series may
declare the entire principal amount of all of the debt securities of that series to be due and immediately payable. This is called a
declaration of acceleration of maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the holders
of a majority in principal amount of the debt securities of the affected series if (1) we have deposited with the trustee all amounts
due and owing with respect to the debt securities of that series (other than principal that has become due solely by reason of such acceleration)
and certain other amounts, and (2) any other Events of Default with respect to that series have been cured or waived.
The trustee is not required
to take any action under the indenture at the request of any holders unless the holders offer the trustee protection from expenses and
liability reasonably satisfactory to it (called an “indemnity”). If indemnity reasonably satisfactory to the trustee is provided,
the holders of a majority in principal amount of the outstanding debt of the relevant series may direct the time, method and place of
conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those
directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right,
remedy or Event of Default.
Before you are allowed to
bypass the trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must occur:
| • | you
must give the applicable trustee written notice that an Event of Default has occurred and
remains uncured; |
| • | the
holders of at least 25% in principal amount of all outstanding debt securities of the relevant
series must make a written request that the trustee take action because of the default and
must offer the trustee reasonable indemnity, security or both against the cost and other
liabilities of taking that action; |
| • | the
trustee must not have taken action for 60 days after receipt of the above notice and offer
of indemnity and/or security; and |
| • | the
holders of a majority in principal amount of debt securities of the relevant series must
not have given the trustee a direction inconsistent with the above notice during that 60-day
period. |
However, you are entitled
at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.
Book-entry and other
indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the
trustee and how to declare or cancel an acceleration of maturity.
Each year, we will furnish
to the trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the Indenture
and the debt securities, or else specifying any default.
Waiver of Default
The holders of a majority
in principal amount of the debt securities of the affected series may waive any past defaults other than a default:
| • | in
the payment of principal or interest; or |
| • | in
respect of a covenant that cannot be modified or amended without the consent of each holder. |
Merger or Consolidation
Under the terms of the indenture,
we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our
assets to another entity. However, we may not take any of these actions unless all the following conditions are met:
| • | where
we merge out of existence or convey or transfer all of our assets, the resulting entity must
agree to be legally responsible for our obligations under the debt securities; |
| • | immediately
after the transaction, no default or Event of Default will have happened and be continuing; |
| • | we
must deliver certain certificates and documents to the trustee; and |
| • | we
must satisfy any other requirements specified in the prospectus supplement relating to a
particular series of debt securities. |
Modification or Waiver
There are three types of
changes we can make to the indenture and the debt securities issued thereunder.
Changes Requiring Your Approval
First, there are changes
that we cannot make to debt securities without specific approval of all of the holders. The following is a list of those types of changes:
| • | change
the stated maturity of the principal of or interest on a debt security; |
| • | change
the terms of any sinking fund with respect to any debt security; |
| • | reduce
any amounts due on a debt security; |
| • | reduce
the amount of principal payable upon acceleration of the maturity of a debt security following
a default; |
| • | adversely
affect any right of repayment at the holder’s option; |
| • | change
the place or currency of payment on a debt security; |
| • | impair
your right to sue for payment following the date on which such amount is due and payable; |
| • | adversely
affect any right to convert or exchange a debt security in accordance with its terms; |
| • | reduce
the percentage in principal amount of holders of debt securities whose consent is needed
to modify or amend the indenture; |
| • | 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 |
| • | 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:
| • | if
the change affects only one series of debt securities, it must be approved by the holders
of a majority in principal amount of that series; and |
| • | if
the change affects more than one series of debt securities issued under the same indenture,
it must be approved by the holders of a majority in principal amount of all of the series
affected by the change, with all affected series voting together as one class for this purpose. |
In each case, the required approval must be given by written
consent.
The holders of a majority
in principal amount of all of the series of debt securities issued under the indenture, voting together as one class for this purpose,
may waive our compliance with some of our covenants in the indenture. However, we cannot obtain a waiver of a payment default or of any
of the matters covered by the bullet points included above under “— Changes Requiring Your Approval.”
Further Details Concerning Voting
When taking a vote, we will
use the following rules to decide how much principal to attribute to the Notes and any future indebtedness:
| • | for
original issue discount securities, we will use the principal amount that would be due and
payable on the voting date if the maturity of these debt securities were accelerated to that
date because of a default; |
| • | for
debt securities whose principal amount is not known (for example, because it is based on
an index), we will use a special rule for that debt security described in the prospectus
supplement; and |
| • | for
debt securities denominated in one or more foreign currencies, we will use the U.S. dollar
equivalent. |
Debt securities will not
be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or
redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described later under “—
Defeasance — Full Defeasance.”
We will generally be entitled
to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote
or take other action under the indenture. However, the record date may not be more than 30 days before the date of the first solicitation
of holders to vote on or take such action. If we set a record date for a vote or other action to be taken by holders of one or more series,
that vote or action may be taken only by persons who are holders of outstanding indenture securities on the record date and must be taken
within eleven months following the record date.
Book-entry and other
indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change
the indenture or debt securities or request a waiver.
Satisfaction and Discharge; Defeasance
We may satisfy and discharge
our obligations under the indenture by delivering to the trustee for cancellation all outstanding debt securities and by depositing with
the trustee after the debt securities have become due and payable, or otherwise, moneys sufficient to pay all of the outstanding debt
securities and paying all other sums payable under the indenture by us. Such discharge is subject to terms contained in the Indenture.
Defeasance
The following defeasance
provisions will be applicable to each series of debt securities (unless the prospectus supplement relating to such debt security states
otherwise). “Defeasance” means that, by depositing with the trustee an amount of cash and/or government securities sufficient
to pay all principal and interest, if any, on the debt securities when due and satisfying any additional conditions noted below, we will
be deemed to have been discharged from our obligations under the debt securities. In the event of a “covenant defeasance,”
upon depositing such funds and satisfying similar conditions discussed below we would be released from certain covenants under the indenture
relating to the applicable debt securities. The consequences to the holders of such securities would be that, while they would no longer
benefit from certain covenants under the indenture, and while such securities could not be accelerated for any reason, the holders of
applicable debt securities nonetheless would be guaranteed to receive the principal and interest owed to them.
Covenant Defeasance
Under current U.S. federal
income tax law and the indenture, we can make the deposit described below and be released from some of the restrictive covenants in the
indenture under which the particular series was issued. This is called “covenant defeasance.” In that event, you would lose
the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust
to repay your debt securities. In order to achieve covenant defeasance, the following must occur:
| • | if
the debt securities of a particular series are denominated in U.S. dollars, we must deposit
in trust for the benefit of all holders of such securities a combination of cash and U.S
. government or U.S. government agency notes or bonds that will generate enough cash to make
interest, principal and any other payments on the debt securities on their various due dates; |
| • | we
must deliver to the trustee a legal opinion of our counsel confirming that, under current
U.S. federal income tax law, we may make the above deposit without causing you to be taxed
on the debt securities any differently than if we did not make the deposit and just repaid
the debt securities ourselves at maturity; |
| • | we
must deliver to the trustee a legal opinion and officers’ certificate stating that
all conditions precedent to covenant defeasance have been complied with; |
| • | defeasance
must not result in a breach or violation of, or result in a default under, of the indenture
or any of our other material agreements or instruments; and |
| • | no
default or Event of Default with respect to the applicable series shall have occurred and
be continuing and no defaults or Events of Default related to bankruptcy, insolvency or reorganization
shall occur during the next 90 days. |
If we accomplish covenant
defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the trustee
is prevented from making payment. In fact, if one of the remaining Events of Default occurred (such as our bankruptcy) and the debt securities
became immediately due and payable, there might be a shortfall. Depending on the event causing the default, you may not be able to obtain
payment of the shortfall.
Full Defeasance
If there is a change in
U.S. federal income tax law, as described below, we can legally release ourselves from all payment and other obligations on the debt
securities of a particular series (called “full defeasance”) if we put in place the following other arrangements for you
to be repaid:
| • | if
the debt securities of a particular series are denominated in U.S. dollars, we must deposit
in trust for the benefit of all holders of such securities a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate enough cash to make
interest, principal and any other payments on such securities on their various due dates; |
| • | we
must deliver to the trustee a legal opinion confirming that there has been a change in current
U.S. federal income tax law or an IRS ruling that allows us to make the above deposit without
causing you to be taxed on the debt securities any differently than if we did not make the
deposit. Under current U.S. federal income tax law the deposit and our legal release from
the debt securities would be treated as though we paid you your share of the cash and notes
or bonds at the time the cash and notes or bonds were deposited in trust in exchange for
your debt securities and you would recognize gain or loss on the debt securities at the time
of the deposit; |
| • | we
must deliver to the trustee a legal opinion and officers’ certificate stating that
all conditions precedent to defeasance have been complied with; |
| • | defeasance
must not result in a breach or violation of, or constitute a default under, of the Indenture
or any of our other material agreements or instruments; and |
| • | no
default or Event of Default with respect to the applicable series shall have occurred and
be continuing and no defaults or Events of Default related to bankruptcy, insolvency or reorganization
shall occur during the next 90 days. |
If we ever did accomplish
full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could
not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from
claims of our lenders and other creditors if we ever became bankrupt or insolvent. If your debt securities were effectively subordinated,
such subordination would not prevent the trustee under the indenture from applying the funds available to it from the deposit referred
to in the first bullet of the preceding paragraph to the payment of amounts due in respect of 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:
| • | 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. |
| • | 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. |
| • | 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.” |
| • | 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%). |
| • | 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:
| • | 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. |
| • | 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. |
| • | 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.” |
| • | 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%). |
| • | 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:
| • | 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. |
| • | 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. |
| • | 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.” |
| • | 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%). |
| • | 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:
| (1) | We
may not borrow money, except as permitted by (i) the 1940 Act, or interpretations or modifications
by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority with appropriate
jurisdiction; |
| (2) | We
may not engage in the business of underwriting securities issued by others, except to the
extent that we may be deemed to be an underwriter in connection with the disposition of portfolio
securities; |
| (3) | We
may not purchase or sell physical commodities or contracts for the purchase or sale of physical
commodities. Physical commodities do not include futures contracts with respect to securities,
securities indices, currency or other financial instruments; |
| (4) | We
may not purchase or sell real estate, which term does not include securities of companies
which deal in real estate or mortgages or investments secured by real estate or interests
therein, except that we reserve freedom of action to hold and to sell real estate acquired
as a result of our ownership of securities; |
| (5) | We
may not make loans, except to the extent permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction,
or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority
with appropriate jurisdiction. For purposes of this investment restriction, the purchase
of debt obligations (including acquisitions of loans, loan participations or other forms
of debt instruments) shall not constitute loans by us; |
| (6) | We
may not issue senior securities, except to the extent permitted by (i) the 1940 Act,
or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff
or other authority with appropriate jurisdiction; |
| (7) | We
may not invest in any security if as a result of such investment, 25% or more of the value
of our total assets, taken at market value at the time of each investment, are in the securities
of issuers in any particular industry 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 |
| (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
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.
Shares
Eagle Point Credit Company Inc.
% Series F Term Preferred Stock Due 2029
PRELIMINARY PROSPECTUS SUPPLEMENT
,
2024
Joint Book-Running Managers
Ladenburg Thalmann | |
B. Riley Securities | |
Piper Sandler |
Lead Managers
InspereX | |
Wedbush Securities |
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