Gladstone Capital (GLAD) risk factors, FY2024 10-K

Risks Related to the Economy

1. 01Market conditions could negatively impact our business, results of operations, cash flows and financial condition
2. 02Volatility in the capital markets could make it more difficult to raise capital and may adversely affect the valuations of our investments
3. 03We may experience fluctuations in our quarterly and annual results based on the impact of inflation in the U.S

Risks Related to Interest Rates

1. 04Market interest rates may have an effect on the value of our securities
2. 05Changes in interest rates may negatively impact our investments and have an adverse effect on our business, financial condition, results of operations, and cash flows
3. 06A change in interest rates may adversely affect our profitability and any hedging strategy we adopt may expose us to additional risks
4. 07As of September 30, 2024, based on the total principal balance of debt outstanding, our portfolio consisted of approximately 93.9% of loans at variable rates with floors and approximately 6.1% at fixed rates

Risks Related to Our Investments

1. 08We operate in a highly competitive market for investment opportunities
2. 09Our investments in lower middle market companies are extremely risky and could cause you to lose all or a part of your investment
3. 10leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used
4. 11Because the majority of the loans we make and equity securities we receive when we make loans are not publicly traded, there is uncertainty regarding the value of our privately held securities
5. 12The valuation process for certain of our portfolio holdings creates a conflict of interest
6. 13The lack of liquidity of our privately held investments may adversely affect our business
7. 14When we are a debt or minority equity investor in a portfolio company, which we expect will generally be the case, we may not be in a position to control the entity, and its management may make decisions that could decrease the value of our investment
8. 15We often invest in transactions involving acquisitions, buyouts and recapitalizations of companies, which will subject us to the risks associated with change in control transactions
9. 16Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and/or we could be subject to lender liability claims
10. 17Prepayments of our investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
11. 18Our portfolio is concentrated in a limited number of companies and industries, which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns
12. 19Investments in securities of foreign portfolio companies, if any, may involve significant risks in addition to the risks inherent in U.S. investments
13. 20We invest in equity securities, which involves a substantial degree of risk
14. 21The disposition of our investments may result in contingent liabilities
15. 22Portfolio company litigation or other litigation or claims against us or our personnel could result in additional costs and the diversion of management time and resources
16. 23Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution

Risks Related to Our External Financing

1. 24Any inability to renew, extend or replace our Credit Facility on terms favorable to us, or at all, could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders
2. 25Our business plan is dependent upon external financing, which is constrained by the limitations of the 1940 Act
3. 26We financed certain of our investments with borrowed money and capital from the issuance of senior securities, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us

Risks Related to Our Regulation and Structure

1. 27We will be subject to corporate-level tax if we are unable to satisfy Code requirements for RIC qualification
2. 28As a BDC, we may not acquire any assets other than qualifying assets unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets, exclusive of Operating Assets, are qualifying assets, as defined in Section 55(a) of the 1940 Act
3. 29We are subject to restrictions that may discourage a change of control. Certain provisions contained in our articles of incorporation and Maryland law may prohibit or restrict a change of control and adversely impact the price of our common stock
4. 30We may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy the asset coverage tests under the provisions of the 1940 Act that apply to BDCs

Risks Related to Our External Management

1. 31We are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone, Terry Lee Brubaker and Robert L. Marcotte, and on the continued operations of the Adviser, for our future success
2. 32Our success depends on the Adviser’s ability to attract and retain qualified personnel in a competitive environment
3. 33The Adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
4. 34The Adviser's liability is limited under the Advisory Agreement, and we are required to indemnify our investment 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
5. 35Our incentive fee may induce the Adviser to make certain investments, including speculative investments
6. 36We may be obligated to pay the Adviser incentive compensation even if we incur a loss
7. 37We may be required to pay the Adviser incentive compensation on income accrued, but not yet received in cash
8. 38The Adviser’s failure to identify and invest in securities that meet our investment criteria or perform its responsibilities under the Advisory Agreement would likely adversely affect our ability for future growth
9. 39There are significant potential conflicts of interest, including with the Adviser, which could impact our investment returns
10. 40The Adviser is not obligated to provide a credit of the base management fee or incentive fee, which could negatively impact our earnings and our ability to maintain our current level of distributions to our stockholders
11. 41Our business model is dependent upon developing and sustaining strong referral relationships with investment bankers, business brokers and other intermediaries and any change in our referral relationships may impact our business plan
12. 42Our base management fee may induce the Adviser to incur leverage

Risks Related to an Investment in Our Securities

1. 43There is a risk that you may not receive distributions or that distributions may not grow over time
2. 44Investing in our securities may involve an above average degree of risk
3. 45Distributions to our stockholders have included and may in the future include a return of capital
4. 46Common shares of closed-end investment companies frequently trade at a discount to NAV

Risks Related to the 2026 Notes, 2027 Notes, and 2028 Notes (collectively, the “Notes”)

1. 47The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future and rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by us and our general liabilities (total liabilities, less debt)
2. 48The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 49The indentures under which the Notes were issued contain limited protection for holders of the Notes
4. 50We cannot assure you an active trading market for the Notes will develop or be maintained
5. 51If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes
6. 52We may choose to redeem the Notes when prevailing interest rates are relatively low
7. 53We may not be able to repurchase the 2026 Notes or 2027 Notes upon a Change of Control Repurchase Event
8. 54A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes or change in the debt markets could cause the liquidity or market value of the Notes to decline significantly

Risks Related to our Preferred Stock

1. 55There will be no public market for the Series A Preferred Stock as we do not intend to apply for listing on a national securities exchange unless the Share Repurchase Program is terminated
2. 56Dividend payments on the Series A Preferred Stock are not guaranteed
3. 57The Series A Preferred Stock will bear a risk of redemption by us
4. 58Your option to request that your shares of Series A Preferred Stock be repurchased is subject to a 5% quarterly limitation, the continuation of the share repurchase program and our availability of funds, and may also be limited by law
5. 59Our ability to pay dividends on and/or repurchase shares of Series A Preferred Stock may be limited by Maryland law, the 1940 Act and the terms of our debt facilities as well as future agreements we may enter
6. 60The cash distributions you receive may be less frequent or lower in amount than you expect
7. 61If you elect to participate in the Share Repurchase Program, the cash payment that you receive as a result of your optional repurchase request may be a substantial discount to the price that you paid for the shares of Series A Preferred Stock
8. 62Holders of the Series A Preferred Stock will be subject to inflation risk
9. 63An investment in the Series A Preferred Stock bears interest rate risk
10. 64Holders of the Series A Preferred Stock will bear reinvestment risk
11. 65We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends
12. 66We are subject to risks associated with artificial intelligence and machine learning technology
13. 67Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations governing our operations may adversely affect our business
14. 68We are subject to risks related to corporate social responsibility
15. 69We and/or our portfolio companies may be subject to risks related to global climate change
16. 70We may experience fluctuations in our quarterly and annual operating results
17. 71Public health threats may adversely impact the businesses in which we invest and affect our business, operating results and financial condition