PORTMAN RIDGE FINANCE CORP Management Report and Analysis of Financial Position and Results of Operations (Form 10-Q)

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The following discussion and analysis should be read in conjunction with our
condensed and consolidated financial statements and related notes included in
this Quarterly Report on Form 10-Q. This discussion contains forward-looking
statements and involves numerous risks and uncertainties, including but not
limited to those described in Part I, Item 1A of our annual report on Form 10-K
for the year ended December 31, 2020 and Part II, Item 1A of this Form 10-Q of
this Quarterly Report. Our actual results could differ materially from those
anticipated by such forward-looking statements due to factors discussed under
the "Risk Factors" section included in our SEC filings and "Note About
Forward-Looking Statements" appearing elsewhere in this Form 10-Q.

GENERAL

We are an externally managed, non-diversified closed-end investment company that
has elected to be regulated as a business development company ("BDC") under the
Investment Company Act of 1940 (the "1940 Act"). Sierra Crest Investment
Management LLC (the "Adviser") is an affiliate of BC Partners LLP ("BC
Partners"). Subject to the overall supervision of the Board, the Adviser is
responsible for managing our business and activities, including sourcing
investment opportunities, conducting research, performing diligence on potential
investments, structuring our investments, and monitoring our portfolio companies
on an ongoing basis through a team of investment professionals.

We originate, structure, and invest in secured term loans, bonds or notes and
mezzanine debt primarily in privately-held middle market companies but may also
invest in other investments such as loans to publicly-traded companies,
high-yield bonds, and distressed debt securities (collectively the "Debt
Securities Portfolio"). We also invest in joint ventures and debt and
subordinated securities issued by collateralized loan obligation funds ("CLO
Fund Securities"). In addition, from time to time we may invest in the equity
securities of privately held middle market companies and may also receive
warrants or options to purchase common stock in connection with our debt
investments.

In our Debt Securities Portfolio, our investment objective is to generate
current income and, to a lesser extent, capital appreciation from the
investments in senior secured term loans, mezzanine debt and selected equity
investments in privately-held middle market companies. We define the middle
market as comprising companies with EBITDA of $10 million to $50 million and/or
total debt of $25 million to $150 million. We primarily invest in first and
second lien term loans which, because of their priority in a company's capital
structure, we expect will have lower default rates and higher rates of recovery
of principal if there is a default and which we expect will create a stable
stream of interest income. The first lien term loans may include traditional
first lien senior secured loans or unitranche loans. Unitranche loans combine
characteristics of traditional first lien senior secured loans as well as second
lien and/or mezzanine debt ("Junior Debt"). Unitranche loans will expose us to
the risks associated with first lien loans and Junior Debt. While there is no
specific collateral associated with senior unsecured debt, such positions are
senior in payment priority over subordinated debt investments. The investments
in our Debt Securities Portfolio are all or predominantly below investment
grade, and have speculative characteristics with respect to the issuer's
capacity to pay interest and repay principal.

Our investments in CLO Fund Securities are primarily managed by our formerly
wholly-owned asset management subsidiaries Trimaran Advisors and Trimaran
Advisors Management, L.L.C. From time-to-time we have also made investments in
CLO Fund Securities managed by other asset managers. Our collateralized loan
obligation funds ("CLO Funds") typically invest in broadly syndicated loans,
high-yield bonds and other credit instruments.

Our portfolio may include "covenant-lite" loans which generally refer to loans
that do not have a complete set of financial maintenance covenants. 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 we invest in "covenant-lite" loans, we 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.

We have elected to be treated for U.S. federal income tax purposes as a RIC
under the Code and intend to operate in a manner to maintain our RIC status. As
a RIC, we intend to distribute to our stockholders substantially all of our net
ordinary taxable income and the excess of realized net short-term capital gains
over realized net long-term capital losses, if any, for each year. To qualify as
a RIC, we must, among other things, meet certain source-of-income and asset
diversification requirements. Pursuant to this election, we generally will not
have to pay corporate-level U.S. federal income taxes on any income that we
timely distribute to our stockholders. Depending on the duration of the novel
coronavirus (also known as "COVID-19") pandemic and the extent of its impact on
our portfolio companies' operations and our net investment income, any future
distributions to our stockholders may be for amounts less than our historical
distributions, may be made less frequently than historical practices, and may be
made in part cash and part stock, subject to a limitation that the aggregate
amount of cash to be distributed to all stockholders must be at least 20% of the
aggregate declared distribution.

From time to time, we may seek to retire, repurchase, or exchange debt
securities in open market purchases or by other means dependent on market
conditions, liquidity, contractual obligations, and other matters. In addition,
we evaluate strategic opportunities available to us, including mergers,
divestures, spin-offs, joint ventures and other similar transactions from time
to time.

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During the fourth quarter of 2020, LibreMax sold its minority stake in the
Adviser to a wholly-owned subsidiary of Mount Logan. An affiliate of BC Partners
serves as administrator to Mount Logan, and certain officers and directors of
the Company serve in similar capacities for Mount Logan. In addition, Mount
Logan owns a minority equity stake in the Advisor, and Mount Logan owns a
minority equity stake in the Company.

Externalization

On April 1, 2019 (the "Closing"), we became externally managed (the
"Externalization") by the Adviser, pursuant to a stock purchase and transaction
agreement (the "Externalization Agreement") with BC Partners Advisors L.P.
("BCP"), an affiliate of BC Partners. In connection with the Externalization,
our stockholders approved an investment advisory agreement (the "Advisory
Agreement") with the Adviser. See "-Advisory Agreement" below.

Pursuant to the Externalization Agreement with BCP, the Adviser became our
investment adviser in exchange for a cash payment from BCP, or its affiliate, of
$25 million, or $0.669672 per share of our common stock, directly to our
stockholders. In addition, the Adviser (or its affiliate) will use up to $10
million of the incentive fee actually paid to the Adviser prior to the second
anniversary of the Closing to buy newly issued shares of our common stock at the
most recently determined net asset value per share of our common stock at the
time of such purchase. In November 2020, the Adviser purchased approximately
$570 thousand newly issued shares of our common stock in connection therewith,
and in May 2021, the Adviser purchased approximately $4.0 million of newly
issued shares of our common stock in connection therewith. In both cases, the
shares were issued at the most recently determined net asset value per share of
our common stock. The obligations of the Advisor to use incentive fees to
purchase shares expired on April 1, 2021. For the period of one year from the
first day of the first quarter following the quarter in which the Closing
occurred, the Adviser will permanently forego up to the full amount of the
incentive fees earned by the Adviser without recourse against or reimbursement
by us, to the extent necessary in order to achieve aggregate net investment
income per share of common stock for such one-year period to be at least equal
to $0.40 per share, subject to certain adjustments. BCP and the Adviser's total
financial commitment to the transactions contemplated by the Externalization
Agreement was $35.0 million.

OHAI Transaction

On December 18, 2019, we completed our acquisition of OHA Investment Corporation
("OHAI"). In accordance with the terms of the merger agreement, each share of
common stock, par value $0.001 per share, of OHAI (the "OHAI Common Stock")
issued and outstanding was converted into the right to receive (i) an amount in
cash, without interest, equal to approximately $0.42, and (ii) 0.3688 shares of
common stock, par value $0.01 per share, of the Company (plus any applicable
cash in lieu of fractional shares). Each share of OHAI Common Stock issued and
outstanding received, as additional consideration funded by the Adviser, an
amount in cash, without interest, equal to approximately $0.15.



GARS transaction

On June 24, 2020, we entered into an Agreement and Plan of Merger (the "GARS
Merger Agreement") with Garrison Capital Inc., a publicly traded BDC ("GARS"),
the Adviser and a wholly-owned merger subsidiary of the Company (such
transaction, the "GARS Acquisition"), and on October 28, 2020 we completed the
GARS Acquisition. To effect the acquisition, our wholly owned merger subsidiary
merged with and into GARS, with GARS surviving the merger as our wholly owned
subsidiary. Immediately thereafter and as a single integrated transaction, GARS
consummated a second merger, whereby GARS merged with and into us, with the
Company surviving the merger.

In accordance with the terms of the GARS Merger Agreement, each share of common
stock, par value $0.001 per share, of GARS (the "GARS Common Stock") issued and
outstanding was converted into the right to receive (i) an amount in cash,
without interest, equal to approximately $1.19 and (ii) approximately 1.917
shares of common stock, par value $0.01 per share, of the Company (plus any
applicable cash in lieu of fractional shares). Each share of GARS Common Stock
issued and outstanding received, as additional consideration funded by the
Adviser, an amount in cash, without interest, equal to approximately $0.31. In
connection with the closing of the GARS Acquisition, the Board approved an
increase in the size of the Board from seven members to nine members, and
appointed each of Matthew Westwood and Joseph Morea to serve on the Board.



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Acquisition and Repossession and Redemption of HCAP Tickets by HCAP

On December 23, 2020, we entered into an Agreement and Plan of Merger (the "HCAP
Merger Agreement") with Harvest Capital Credit Corporation, a publicly traded
BDC ("HCAP"), the Adviser and a wholly-owned merger subsidiary (the "Acquisition
Sub") of the Company (such transaction, the "HCAP Acquisition").

On June 9, 2021 the Company completed the HCAP Acquisition, pursuant to the
terms and conditions of the HCAP Merger Agreement. To effect the acquisition,
the Acquisition Sub merged with and into HCAP, with HCAP surviving the merger as
the Company's wholly owned subsidiary. Immediately thereafter and as a single
integrated transaction, HCAP consummated a second merger, whereby HCAP merged
with and into the Company, with the Company surviving the merger. As a result
of, and as of the effective time of, the second merger, HCAP's separate
corporate existence ceased.

Under the terms of the HCAP Merger Agreement, HCAP stockholders as of
immediately prior to the effective time of the first merger (other than shares
held by a subsidiary of HCAP or held, directly or indirectly, by the Company or
Acquisition Sub, and all treasury shares (collectively, "Cancelled Shares"))
received a combination of (i) $18.54 million in cash paid by the Company, (ii)
15,252,453 validly issued, fully paid and non-assessable shares of the Company's
common stock, par value $0.01 per share, and (iii) an additional cash payment
from the Adviser of $2.15 million in the aggregate.

With respect to the merger consideration from PTMN, HCAP stockholders as of
immediately prior to the effective time of the first merger (other than
Cancelled Shares) were entitled, with respect to all or any portion of the
shares of HCAP common stock they held as of the effective time of the first
merger, to elect to receive the merger consideration in the form of cash (an
"Election") or in the form of PTMN common stock, subject to certain conditions
and limitations in the merger agreement. Any HCAP stockholder who did not
validly make an Election was deemed to have elected to receive shares of the
Company's common stock with respect to the merger consideration as payment for
their shares of HCAP common stock. Each share of HCAP common stock (other than
Cancelled Shares) with respect to which an Election was made was treated as an
"Electing Share" and each share of HCAP Common Stock (other than Cancelled
Shares) with respect to which an Election was not made or that was transferred
after the election deadline on June 2, 2021 was treated as a "Non-Electing
Share."



Pursuant to the conditions of and adjustment mechanisms in the HCAP Merger
Agreement, 475,806 Electing Shares were converted to Non-Electing Shares for
purposes of calculating the total mix of consideration to be paid to each
Electing Share in order to ensure that the value of the aggregate cash
consideration paid to holders of the Electing Shares equaled the aggregate cash
consideration that HCAP received from the Company under the terms of the HCAP
Merger Agreement. Accordingly, as a result of the Elections received from HCAP
stockholders and any resulting adjustment under the terms of the HCAP Merger
Agreement, each Electing Share received, in aggregate, approximately $7.43 in
cash and 0.74 shares of PTMN common stock, while each Non-Electing Share
received, in aggregate, approximately 3.86 shares of PTMN common stock.



On June 9, 2021, the Company entered into a third supplemental indenture (the
"HCAP Third Supplemental Indenture") by and between the Company and U.S. Bank
National Association, as trustee (the "Trustee"), effective as of the closing of
the HCAP Acquisition. The HCAP Third Supplemental Indenture relates to the
Company's assumption of $28.75 million in aggregate principal amount of HCAP's
6.125% Notes due September 15, 2022 (the "HCAP Notes").

Pursuant to the HCAP Third Supplemental Indenture, the Company expressly assumed
the due and punctual payment of the principal of (and premium, if any) and
interest, if any, on the HCAP Notes and the performance of HCAP's covenants
under the base indenture, dated as of January 27, 2015, by and between HCAP and
the Trustee, as supplemented by the second supplemental indenture, dated as of
August 24, 2017, by and between HCAP and the Trustee. No change of control offer
was required to be made in respect of the HCAP Notes in connection with the
consummation of the HCAP Acquisition.

The HCAP Notes could be redeemed by the Company at any time at par value plus
accrued and unpaid interest. On July 23, 2021, the Company redeemed the entire
notional amount of $28.75 million of the HCAP Notes.



Reverse stock split

On August 23, 2021, the Company filed a Certificate of Amendment (the "Reverse
Stock Split Certificate of Amendment") to the Company's Certificate of
Incorporation with the Secretary of State of the State of Delaware to effect a
1-for-10 reverse stock split of the issued and outstanding (or held in treasury)
shares of the Company's common stock, par value $0.01 per share (the "Reverse
Stock Split"). The Reverse Stock Split became effective as of 12:01 a.m.
(Eastern Time) on August 26, 2021.

As a result of the Reverse Stock Split, every ten shares of issued and
outstanding common stock were automatically combined into one issued and
outstanding share of common stock, without any change in the par value per
share. No fractional shares were issued as a result of the Reverse Stock Split.
Instead, any stockholder who would have been entitled to receive a fractional
share as a result of

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the Reverse Stock Split received cash payments in lieu of such fractional shares
(without interest and subject to backup withholding and applicable withholding
taxes).


On August 23, 2021, the Company filed a Certificate of Amendment to decrease the
number of authorized shares of common stock by one half of the reverse stock
split ratio (the "Decrease Shares Certificate of Amendment") with the Secretary
of State of the State of Delaware. The Decrease Shares Certificate of Amendment
became effective as of 12:05 a.m. (Eastern Time) on August 26, 2021. Following
the effectiveness of the Decrease Shares Certificate of Amendment, the number of
authorized shares of common stock under the Company's Certificate of
Incorporation was reduced from 100 million shares to 20 million shares.

The reverse stock split amendment certificate and the stock decrease amendment certificate were approved by the shareholders of the Company at its annual meeting held on June 7, 2021 and were approved by the Board on August 4, 2021.

PORTFOLIO AND INVESTMENT ACTIVITY

Our primary investments are lending to and investing in middle-market businesses
through investments in senior secured loans, junior secured loans,
subordinated/mezzanine debt investments, and other equity investments, which may
include warrants, investments in joint ventures, and investments in CLO Fund
Securities.

Total portfolio investment activity (excluding investment securities activity) for the nine months ended September 30, 2021 (unaudited) and for the year ended December 31, 2020 was as follows:

                                                                                 Asset
                           Debt            CLO Fund           Equity            Manager             Joint                              Total
                        Securities        Securities        Securities     

Affiliates Ventures Derivatives Portfolio Fair value at
December 31, 2019

2020 activity: 186 802 908 31 968 202 9 864 419

               -        45,087,967          (33,437 )      273,690,061
Purchases /
originations /
draws                    380,765,492                 -        4,937,711                   -        14,098,055                -        399,801,258
Pay-downs /
pay-offs / sales        (198,364,694 )      (4,432,200 )     (1,515,936 )                 -        (7,760,136 )       (976,968 )     (213,049,934 )
Net accretion of
interest                   8,228,390         3,541,296                -                   -                 -                -         11,769,686
Net realized gains
(losses)                   7,616,860                 -         (989,131 )                 -                 -          976,968          7,604,697
Increase (decrease)
in fair value             19,811,899       (11,494,743 )      1,647,812                   -        (2,076,723 )     (1,075,182 )        6,813,063
Fair Value at
December 31, 2020
  2021 Activity
(unaudited):             404,860,855        19,582,555       13,944,875                   -        49,349,163       (1,108,619 )      486,628,831
Purchases /
originations /
draws                    236,503,017                 -        8,755,376                   -        26,400,886                -        271,659,279
Pay-downs /
pay-offs / sales        (197,531,424 )      (6,440,089 )     (4,480,709 )                 -       (10,774,967 )       (880,000 )     (220,107,189 )
Net accretion of
interest                  25,673,012                 -             (208 )                 -                 -                -         25,672,804
Net realized gains
(losses)                  (7,132,262 )      (5,323,484 )        173,666                   -                 -          880,000        (11,402,080 )
Increase (decrease)
in fair value             (7,293,322 )       9,354,652        3,905,759                   -         2,654,032         (873,472 )        7,747,649
Fair Value at
September 30, 2021    $  455,079,876     $  17,173,634     $ 22,298,759     $             -     $  67,629,114     $ (1,982,091 )   $  560,199,292






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The level of investment activity for investments funded and principal repayments
for our investments can vary substantially from period to period depending on
the number and size of investments that we invest in or divest of, and many
other factors, including the amount and competition for the debt and equity
securities available to middle market companies, the level of merger and
acquisition activity for such companies and the general economic environment.

The following table shows the Company’s portfolio by type of securities to be September 30, 2021 and December 31, 2020:




                                September 30, 2021
                                    (Unaudited)                                    December 31, 2020
                    Cost/Amortized                                   

Cost / Amortization

Security Type            Cost            Fair Value         %¹             Cost            Fair Value         %¹
Senior Secured
Loan                    367,212,162       380,960,592         68          304,539,184       328,845,612         68
Junior Secured
Loan                     82,973,411        74,076,080         13           87,977,057        75,807,477         16
Senior Unsecured
Bond                        416,171            43,204          0              416,170           207,766          0
CLO Fund
Securities               33,964,238        17,173,634          3           45,727,813        19,582,555          4
Equity
Securities               29,041,687        22,298,759          4           24,593,639        13,944,876          3
Asset Manager
Affiliates2              17,791,230                 -          -           17,791,230                 -          -
Joint Ventures           70,558,377        67,629,114         12           54,932,458        49,349,163         10
Derivatives                  30,609        (1,982,091 )        -               30,609        (1,108,618 )        -
Total              $    601,987,885     $ 560,199,292        100 %   $    536,008,160     $ 486,628,831        100 %

¹ Represents the percentage of the total portfolio at fair value.

² Represents the equity investment in companies affiliated with the asset manager.

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Sectoral concentrations, based on the fair value of the Company’s investment portfolio at September 30, 2021 and December 31, 2020, were the following:

                                           September 30, 2021
                                              (Unaudited)                                    December 31, 2020
                               Cost/Amortized                                    Cost/Amortized
Industry Classification             Cost            Fair Value        %¹              Cost            Fair Value        %¹

Aeronautics and Defense $ 11,814,083 $ 11,738,812 2

     $     11,342,227     $  11,218,193         2
Asset Management Company 2          17,791,230                 -         -            17,791,230                 -         -
Automotive                          10,890,444        11,481,530         2            10,840,171        11,651,714         2
Banking, Finance, Insurance
& Real Estate                       39,155,006        41,403,610         7            30,074,875        31,121,723         6
Beverage, Food and Tobacco           5,317,124         5,437,500         1             9,196,359         9,100,107         2
Capital Equipment                   19,596,337        18,296,975         3            10,276,249         8,204,690         2
Chemicals, Plastics &
Rubber                               6,347,714         6,711,605         1             6,608,887         7,230,131         1
CLO Fund Securities                 33,964,238        17,173,634         3            45,727,813        19,582,555         4
Construction & Building              8,860,985         7,481,916         1             9,802,754        10,946,643         2
Consumer goods: Durable             19,681,262        21,500,071         4            32,435,115        34,858,844         7
Consumer goods: Non-durable          5,663,236         6,284,237         1             1,837,151         2,102,176         0
Containers, Packaging and
Glass                                2,786,954         2,591,064         0             2,806,740         2,502,994         1
Electronics                         17,964,277        19,901,030         4            28,389,620        31,564,533         6
Energy: Oil & Gas                    9,370,825         3,633,657         1            13,501,691         6,878,115         1
Environmental Industries             7,283,447         7,502,505         1             3,939,764         3,585,669         1
Finance                             10,936,537        10,936,000         2                     -                 -         -
Forest Products & Paper              1,581,127         1,358,240         0             1,576,633         1,270,880         0
Healthcare, Education and
Childcare                            9,797,292         9,765,443         2            14,059,921        13,791,048         3
Healthcare &
Pharmaceuticals                     68,913,038        62,299,025        11            83,481,401        78,823,040        16
High Tech Industries                60,348,479        61,537,690        11            32,949,892        35,052,389         7
Hotel, Gaming & Leisure              9,804,159         9,800,000         2                     -                 -         -
Joint Ventures                      70,558,377        67,629,114        12            54,932,458        49,349,163        10
Machinery
(Non-Agrclt/Constr/Electr)           7,880,124         8,754,282         2             6,712,460         7,227,441         1
Media: Advertising,
Printing & Publishing                3,027,661         3,510,461         1             2,830,592         3,170,254         1
Media: Broadcasting &
Subscription                         4,029,968         4,021,034         1             3,955,772         3,901,188         1
Media: Diversified &
Production                          10,325,089        10,438,340         2             2,658,914         2,612,250         1
Metals & Mining                     13,129,929        13,682,518         2             1,219,188         1,326,500         0
Retail                               5,975,549         6,773,201         1             5,790,208         6,597,338         1
Services: Business                  78,816,384        80,129,332        14            58,027,464        60,119,401        12
Services: Consumer                   3,837,036         3,840,200         1             4,241,127         4,198,243         1
Telecommunications                   6,313,276         5,619,837         1             8,930,322         9,023,109         2
Textiles and Leather                12,418,665        11,118,299         2            12,415,194        10,860,696         2
Transportation: Cargo                        -                 -         -             7,655,970         8,757,804         2
Transportation: Consumer             7,808,033         7,848,130         1                     -                 -         -
Total                         $    601,987,885     $ 560,199,292       100 %    $    536,008,160     $ 486,628,831       100 %



1 Calculated as a percentage of the total portfolio at fair value.

2 Represents the equity investment in affiliates of the asset manager.

Debt securities portfolio

At September 30, 2021 and December 31, 2020, the weighted average contractual
interest rate on our loans and debt securities was approximately 8.2% and 7.8%,
respectively. At September 30, 2021 and December 31, 2020, the weighted average
contractual interest rate on our loans and debt securities, excluding
non-accrual and partial non-accrual investments, and excluding CLO Fund
Securities and Joint Ventures, was approximately 7.9% and 7.7%, respectively.

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The investment portfolio (excluding our investments in the CLO Funds, Joint
Ventures and short-term investments) at September 30, 2021 was spread across 30
different industries and 184 different entities with an average par balance per
entity of approximately $3.3 million. As of September 30, 2021, six of our
investments were on non-accrual status. As of December 31, 2020, eight of our
investments were on non-accrual status.

We may invest up to 30% of our investment portfolio in "non-qualifying"
opportunistic investments such as high-yield bonds, debt and equity securities
of CLO Funds, foreign investments, joint ventures, managed funds, partnerships
and distressed debt or equity securities of large cap public companies. At
September 30, 2021 and December 31, 2020, the total amount of non-qualifying
assets to total assets was approximately 15.6% and 13.8% of total assets,
respectively. The majority of non-qualifying assets were the Company's
investments in joint ventures, in the aggregate representing approximately 10.8%
and 8.2%, of the total assets as of September 30, 2021 and December 31, 2020,
and our total assets including our investments in CLO Funds, which are typically
domiciled outside the U.S. and represented approximately 2.7% and 3.3% of total
assets on such dates, respectively.

Our portfolio may include "covenant-lite" loans which generally refer to loans
that do not have a complete set of financial maintenance covenants. 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 we invest in "covenant-lite" loans, we 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.

Asset Manager Affiliates

The Disposed Manager Affiliates manage CLO Funds that invest in broadly
syndicated loans, high yield bonds and other credit instruments. The CLO funds
managed by the Disposed Asset Manager Affiliates consist primarily of credit
instruments issued by corporations. In connection with the LibreMax Transaction,
on December 31, 2018, our wholly-owned subsidiary Commodore Holdings, LLC sold
the Disposed Manager Affiliates, which represented substantially all of our
investment in the Asset Manager Affiliates, to LibreMax for a cash purchase
price of approximately $37.9 million. Accordingly, certain CLO fund investments
were reclassified from CLO funds managed by affiliates to CLO funds managed by
non-affiliates on December 31, 2018. Effective April 1, 2019, as a result of the
Externalization and related transactions, CLO Fund investments managed by
LibreMax were assigned to CLO Funds managed by affiliates. In the fourth quarter
of 2020, Libremax disposed of its equity interest in the Adviser and as a
result, CLO funds managed by Libremax or its affiliates were reclassified to CLO
funds managed by non-affiliates. As of September 30, 2021, our Asset Manager
Affiliates had approximately $300 million of par value of assets under
management, for which management fees were waived and thus were deemed to have
no value.

In connection with the Externalization, during the first quarter of 2019, KCAP
Management agreed to waive management fees it is otherwise entitled to receive
for managing the Fund. In addition, the Joint Venture was restructured such that
we are now entitled to receive a preferred distribution in an amount equal to
the fees waived by KCAP Management. The impact of these transactions was a
reduction in the fair value of the Asset Manager Affiliates (realized loss) and
increase the fair value of our investment in the Joint Venture (unrealized gain)
during the first quarter of 2019.

Although the investment in the Asset Manager Affiliates is deemed to have no
value at September 30, 2021 and December 31, 2020, certain of these subsidiaries
continue to exist as a legal matter and until such entities are formally
dissolved, the Company will continue to report the cost basis of its investment
in the Asset Manager Affiliates in its financial statements. Upon the final
disposition of these entities, the Company expects to write off any remaining
cost basis, which will result in a reclassification in the statement of
operations between realized and unrealized gains and losses.

CLO fund securities

We have made minority investments in the subordinated securities or preferred
shares of CLO Funds managed by the Disposed Manager Affiliates and may
selectively invest in securities issued by CLO Funds managed by other asset
management companies. As of September 30, 2021 and December 31, 2020, we had
approximately $17.2 million and $19.6 million, respectively, invested in CLO
Fund Securities, issued primarily by CLO Funds managed by the Disposed Manager
Affiliates.

The CLO Funds invest primarily in heavily syndicated non-investment grade loans, high yield bonds and other credit instruments of private issuers. The underlying assets of each of the CLO fund securities in which we have an investment are generally diversified corporate debts, guaranteed or not.

The structure of CLO Funds, which are highly levered, is extremely complicated.
Since we primarily invest in securities representing the residual interests of
CLO Funds, our investments are much riskier than the risk profile of the loans
by which such CLO Funds are collateralized. Our investments in CLO Funds may be
riskier and less transparent to us and our stockholders than direct investments
in the underlying loans. The CLO Funds in which we invest have debt that ranks
senior to our investment. Our CLO Fund investments are generally thinly traded
or have only a limited trading market. CLO Funds are typically privately offered
and sold, even in the secondary market. As a result, investments in CLO Funds
may be characterized as illiquid securities. In addition to the general risks
associated with investing in debt securities, CLO Funds carry additional risks,
including, but not limited to: (i) the

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possibility that distributions from collateral securities will not be adequate
to make interest or other payments; (ii) the quality of the collateral may
decline in value or default; (iii) the fact that the Company's investments in
CLO tranches will likely be subordinate to other senior classes of note tranches
thereof; and (iv) the complex structure of the security may not be fully
understood at the time of investment and may produce disputes with the CLO Fund
or unexpected investment results. The Company's net asset value may also decline
over time if the Company's principal recovery with respect to CLO subordinated
note investments is less than the price that the Company paid for those
investments. For a more detailed discussion of the risks related to our
investments in CLO Funds, please see "Risk Factors - Risks Related to Our
Investments - Our investments may be risky, and you could lose all or part of
your investment." in Part I, "Item 1A. Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2020.

Our CLO Fund Securities as of September 30, 2021 and December 31, 2020 are as
follows:



                                                               September 30, 2021                December 31, 2020 2
                                                           Amortized                         Amortized
CLO Fund Securities           Investment       %1             Cost          Fair Value          Cost          Fair Value
Catamaran CLO 2013- 1 Ltd.   Subordinated
                             Notes               23.3        5,695,115        3,404,930        6,219,310        2,611,423
Catamaran CLO 2014-1 Ltd.    Subordinated
                             Notes               22.2        9,619,786        5,218,279        9,998,258        3,835,632
Dryden 30 Senior Loan Fund   Subordinated
                             Notes                6.8        1,099,276        1,365,000        1,272,501        1,322,100
Catamaran CLO 2014-2 Ltd.    Subordinated
                             Notes               24.9        6,065,598                -        6,065,598                -

Catamaran CLO 2015-1 Ltd. Subordinate

                             Notes                9.9        2,660,968          162,426        4,141,981        1,609,400
Catamaran CLO 2016-1 Ltd.    Subordinated
                             Notes               24.9                -                -        8,872,484        3,549,000
Catamaran CLO 2018-1 Ltd.    Subordinated
                             Notes               24.8        8,823,494        7,023,000        9,157,681        6,655,000
Total                                                     $ 33,964,237     $ 17,173,635     $ 45,727,813     $ 19,582,555

1 Represents the percentage of the class held September 30, 2021.

2 As of December 31, 2020, the CLO Funds managed by Libremax have been allocated to the CLO Funds managed by non-affiliates.



As a result of the severe economic consequences resulting from the COVID 19
pandemic, during the second quarter of 2020, the Company was notified that four
of the Catamaran CLO Funds breached certain covenants contained in their
respective indentures, and as a result, available cash within the CLO Fund will
be diverted away from the subordinated notes owned by the Company and will be
applied to more senior noteholders in the capital structure of the CLO Fund. It
is also possible, based upon the severe economic consequences resulting from the
COVID 19 pandemic, that additional CLO Fund Securities owned by the Company, and
including the subordinated securities issued by Great Lakes KCAP F3C Senior LLC
CLO, which are owned by the KCAP Freedom 3 Joint Venture, could also cease
making distributions to the Company. As of September 30, 2021, three of the four
CLO funds whose distributions to the Company had been temporarily interrupted in
2020 have resumed making distributions to the Company. The estimated timing and
amount of future distributions, if any, from such other CLO Fund Securities is
uncertain.



Investment in Joint Ventures

KCAP Freedom 3 LLC

During the third quarter of 2017, we and Freedom 3 Opportunities LLC ("Freedom 3
Opportunities"), an affiliate of Freedom 3 Capital LLC, entered into an
agreement to create KCAP Freedom 3 LLC (the "Joint Venture"). We contributed
approximately $37 million and Freedom 3 Opportunities contributed approximately
$25 million, in assets to the Joint Venture, which in turn used the assets to
capitalize a new fund, Great Lakes KCAP F3C Senior Funding L.L.C. (formerly
known as KCAP F3C Senior Funding, L.L.C.) (the "Fund") managed by KCAP
Management, LLC, one of the Asset Manager Affiliates. In addition, the Fund used
cash on hand and borrowings under a credit facility to purchase approximately
$184 million of primarily middle-market loans from us and we used the proceeds
from such sale to redeem approximately $147 million in debt issued by KCAP
Senior Funding I, LLC ("KCAP Senior Funding"). The Fund invests primarily in
middle-market loans and the Joint Venture partners may source middle-market
loans from time-to-time for the Fund.

During the fourth quarter of 2017, the Fund was refinanced through the issuance
of senior and subordinated notes. The Joint Venture purchased 100% of the
subordinated notes issued by the Fund. In connection with the refinancing, the
Joint Venture made a cash distribution to us of approximately $12.6 million.
$11.8 million of this distribution was a return of capital, reducing the cost
basis of our investment in the Joint Venture by that amount. The final
determination of the tax attributes of distributions from the Joint Venture is
made on an annual (full calendar year) basis at the end of the year, therefore,
any estimate of tax attributes of distributions made on an interim basis may not
be representative of the actual tax attributes of distributions for the full
year.

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In connection with the Externalization, during the first quarter of 2019, KCAP
Management agreed to waive management fees it is otherwise entitled to receive
for managing the Fund. In addition, the Joint Venture was restructured such that
we are now entitled to receive a preferred distribution in an amount equal to
the fees waived by KCAP Management. The impact of these transactions was a
reduction in the fair value of the Asset Manager Affiliates (realized loss) and
increase the fair value of our investment in the Joint Venture (unrealized gain)
during the first quarter of 2019.

During the second quarter of 2021, the Company contributed an additional $2.5
million cash investment to the Joint Venture, increasing its equity ownership
interest to 62.83% in the Joint Venture. While we own a 62.83% interest in the
Joint Venture, the Joint Venture is structured as an unconsolidated Delaware
limited liability company. All portfolio and other material decisions regarding
the Joint Venture must be submitted to its board of managers, which is comprised
of four members, two of whom were selected by us and two of whom were selected
by Freedom 3 Opportunities, and must be approved by at least one member
appointed by us and one appointed by Freedom 3 Opportunities. In addition,
certain matters may be approved by the Joint Venture's investment committee,
which is comprised of one member appointed by us and one member appointed by
Freedom 3 Opportunities.

We have determined that the Joint Venture is an investment company under
Accounting Standards Codification ("ASC"), Financial Services - Investment
Companies ("ASC 946"), however, in accordance with such guidance, we will
generally not consolidate our investment in a company other than a wholly owned
investment company subsidiary or a controlled operating company whose business
consists of providing services to us. We do not consolidate its interest in the
Joint Venture because we do not control the Joint Venture due to allocation of
the voting rights among the Joint Venture partners.

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