Kayne Anderson BDC (KBDC) risk factors, FY2024 10-K

Other

1. 01Summary of Principal Risk Factors
2. 02Principal Risks Relating to Our Business and Structure
3. 03Principal Risks Relating to Our Investments

Risks Relating to Our Business and Structure

1. 04We have a limited operating history and may not replicate the historical results achieved by other entities managed by members of the Advisor’s investment committee, the Advisor or its affiliates
2. 05We use leverage pursuant to borrowings under credit facilities and issuances of senior unsecured notes to finance our investments and changes in interest rates will affect our cost of capital and net investment income
3. 06Downgrades of the U.S. credit rating, impending automatic spending cuts or government shutdowns could negatively impact our liquidity, financial condition and earnings
4. 07Our financial condition, results of operations and cash flows depend on our ability to manage our business and future growth effectively
5. 08The Advisor may frequently be required to make investment analyses and decisions on an expedited basis in order to take advantage of investment opportunities, and our Advisor may not have knowledge of all circumstances that could impact an investment by the Company
6. 09As a result of our arrangements with the Advisor and its affiliates and the Advisor’s investment committee, there may be times when the Advisor or such persons have interests that differ from those of our stockholders, giving rise to a conflict of interest
7. 10The Advisor’s investment committee, the Advisor or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion
8. 11The Investment Advisory Agreement and the Administration Agreement were not negotiated on an arm’s-length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party
9. 12We, along with our Advisor and certain of its affiliates, have obtained exemptive relief from the SEC to permit us to invest alongside certain entities and accounts advised by the Advisor and its affiliates subject to certain conditions
10. 13We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses
11. 14We will be subject to corporate-level income tax if we are unable to continue to qualify as a RIC
12. 15We may be subject to risks that may arise in connection with the rules under ERISA related to investment by ERISA Plans
13. 16We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income
14. 17Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital exposes us to risks, including the typical risks associated with leverage
15. 18We finance our investments with borrowings under credit facilities and issuances of senior unsecured notes, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us
16. 19Adverse developments in the credit markets may impair our ability to enter into new credit facilities or our ability to issue senior unsecured notes
17. 20As 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 are qualifying assets
18. 21The majority of our portfolio investments are recorded at fair value as determined in good faith by our Advisor and, as a result, there may be uncertainty as to the value of our portfolio investments
19. 22New or modified laws or regulations governing our operations and government intervention in the credit markets generally may adversely affect our business
20. 23Our Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval, and we may temporarily deviate from our regular investment strategy
21. 24The Advisor 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
22. 25We incur significant costs as a result of being registered under the Exchange Act
23. 26Efforts to comply with the Exchange Act and the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance will adversely affect us and the value of our shares of common stock
24. 27We are highly dependent on information systems, and cybersecurity risks and cyber incidents may adversely affect our business or the business of our portfolio companies, which may, in turn, negatively affect the value of our shares of common stock and our ability to pay distributions
25. 28Purchases of shares of our common stock by us under our open market repurchase program, including the Company Rule 10b5-1 Plan, may result in the price of shares of our common stock being higher than the price that otherwise might exist in the open market and are subject to our ability to finance such repurchases
26. 29There may be trademark risk, as we do not own the Kayne Anderson name

Risks Relating to Our Investments

1. 30We are subject to risks associated with the current interest rate environment, and rising interest rates could affect the value of our investments and make it more difficult for portfolio companies to make periodic payments on their loans
2. 31Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us
3. 32Limitations of investment due diligence expose us to investment risk
4. 33We invest in highly leveraged companies, which could cause us to lose all or a part of our investment in those companies
5. 34We are subject to risks associated with our investments in unitranche secured loans and securities, including the potential loss of all or part of such investments
6. 35Our investments in securities that are rated below investment grade (i.e. “junk bonds”) may be risky and we could lose all or part of our investments
7. 36Below investment grade securities frequently have redemption features that permit an issuer to repurchase the security from us before it matures. If the issuer redeems below investment grade securities, we may have to invest the proceeds in securities with lower yields and may lose income
8. 37Defaults by our portfolio companies, including defaults relating to collateral, will harm our operating results
9. 38The lack of liquidity and price decline in our investments may adversely affect our business, including by reducing our NAV through increased net unrealized depreciation
10. 39In certain cases, we may also be prohibited by contract from selling an investment for a period of time or otherwise be restricted from disposing of the investment. Furthermore, certain types of investments expected to be made may require a substantial length of time to realize a return or fully liquidate
11. 40Our portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields
12. 41Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity
13. 42Our investments in portfolio companies may expose us to environmental risks
14. 43We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer
15. 44Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry
16. 45Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
17. 46Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to us
18. 47The disposition of our investments may result in contingent liabilities
19. 48The Advisor’s and Administrator’s liability is limited, and we have agreed to indemnify each against certain liabilities, which may lead them to act in a riskier manner on our behalf than it would when acting for its own account
20. 49We are subject to risks under hedging transactions and our ability to enter into transactions involving derivatives and financial commitment transactions may be limited
21. 50We may not realize gains from our equity investments
22. 51We are subject to risks associated with our investment and trading of liquid credit (i.e., broadly syndicated loans)
23. 52Our investments in the Trading Companies & Distributors industry face considerable uncertainties including significant regulatory challenges

Risks Relating to Our Common Stock

1. 53Sales of substantial amounts of our shares of common stock in the public market may have an adverse effect on the market price of our shares of common stock
2. 54Upon completion of the IPO, we had 71,116,459 shares of common stock outstanding. The shares of common stock sold in the IPO are freely tradable without restriction or limitation under the Securities Act
3. 55In addition, shares owned by certain of our stockholders are subject to lock-up restrictions
4. 56Trading and liquidity in our shares may be limited and our shares may trade below our NAV
5. 57Certain provisions of the DGCL, our certificate of incorporation, bylaws, and actions of our Board could deter takeover attempts and have an adverse impact on the value of common stock
6. 58During extended periods of capital market disruption and instability, there is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital
7. 59Investing in our Common Stock may involve an above average degree of risk
8. 60A stockholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us
9. 61We may be subject to risks that arise from newly enacted federal tax legislation and our stockholders may receive our shares of Common Stock as dividends, which could result in adverse tax consequences to them
10. 62We may in the future determine to issue preferred stock, which could adversely affect the value of shares of Common Stock
11. 63Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations
12. 64Political, social and economic uncertainty creates and exacerbates risks
13. 65We are subject to risks related to corporate responsibility