Neostellar Capital (NSLR) risk factors, FY2025 10-K

Other

1. 01Summary of Principal Risk Factors
2. 02The following is a summary of the principal risks that you should carefully consider before investing in our securities and is followed by a more detailed discussion of the material risks related to us and an investment in our securities

Risks Related to Our Investments

1. 03Our investments in the rapidly growing venture capital-backed emerging companies that we target may be extremely risky, and we could lose all or part of our investments
2. 04Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our investments, which could affect the determination of our NAV
3. 05Our investments in publicly traded companies involve a high degree of risk and can be speculative
4. 06We may not realize gains from our investments and, in certain circumstances, we may experience a complete loss on our investments, including in the event of a bankruptcy or liquidation of any of our portfolio companies
5. 07Many of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit
6. 08Our portfolio is concentrated in a limited number of portfolio companies or market sectors, which subjects us to a risk of significant loss if the business or market position of any of these companies deteriorates or any of their market sectors experience a market downturn
7. 09Our financial results could be negatively affected if a portfolio company in which we have a significant investment fails to perform as expected69% rewritten
8. 10Total $ 119,732,518 $ 179,700,317 87.5 %New
9. 11(2) CW Opportunity 2 LP is an SPV for which the Class A Interest is solely invested in the Class A Common Stock of CoreWeave, IncNew
10. 12We may be limited in our ability to make follow-on investments, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
11. 13Because we will generally not hold controlling equity interests in our portfolio companies, we will likely not be in a position to exercise control over our portfolio companies or to prevent decisions by substantial stockholders or management of our portfolio companies that could decrease the value of our investments
12. 14In the event that we make an investment in a sponsor of a SPAC and the SPAC does not consummate a business combination, we will lose the entirety of our investment
13. 15The number of founder shares allocated to us in respect of any investment in a sponsor of a SPAC may be reduced or otherwise subjected to forfeiture/dilution in the event that the sponsor of a SPAC raises additional capital
14. 16Investments in foreign companies may involve significant risks in addition to the risks inherent in U.S. investments
15. 17We may expose ourselves to risks if we engage in hedging transactions
16. 18Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited
17. 19The market structure applicable to derivatives imposed by the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission (“CFTC”) and the SEC may affect our ability to use over-the-counter (“OTC”) derivatives for hedging purposes

Risks Related to Our Business and Structure

1. 20We are subject to certain limitations and restrictions in our operations as a result of the regulations applicable to BDCs, and any failure to comply with such regulations could negatively impact our business or expose us to enforcement actions or the claims of private litigants
2. 21As an internally managed BDC, we are subject to certain restrictions that may adversely affect our business
3. 22Our financial condition and results of operations will depend on our ability to manage our business effectively and achieve our investment objective
4. 23Our business model depends upon the development and maintenance of strong referral relationships with private equity, venture capital funds and investment banking firms
5. 24There are significant potential risks related to investing in securities traded on private secondary marketplaces
6. 25Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that are costly and could adversely affect our business and financial results
7. 26Capital markets may experience periods of disruption and instability, including as recently experienced. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations
8. 27Financial Institution Risk and Distress Events may have a negative impact on our business and operationsNew
9. 28General interest rate fluctuations may have a negative impact on our investments and our investment returns and, accordingly, may have a material adverse effect on our investment objective and our net investment income57% rewritten
10. 29Economic recessions or downturns could impair our portfolio companies and harm our operating results
11. 30Economic sanction laws in the United States and other jurisdictions may prohibit us from transacting with certain countries, individuals and companies
12. 31Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
13. 32We are subject to risks related to corporate social responsibility
14. 33Our business and operations could be negatively affected if we become subject to any securities litigation or stockholder activism, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price
15. 34Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, negatively impact usNew
16. 35We operate in a highly competitive market for direct equity investment opportunities
17. 36Borrowings, such as the 6.00% Notes due 2026 and our 6.50% Convertible Notes due 2029, can magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us
18. 37Our use of borrowed funds to make investments exposes us to risks typically associated with leverage
19. 38If we default under any future borrowing facility we enter into or are unable to amend, repay or refinance any such facility on commercially reasonable terms, or at all, we may suffer material adverse effects on our business, financial condition, results of operations and cash flows
20. 39We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
21. 40Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital, which may expose us to risks, including the typical risks associated with leverage
22. 41We will be subject to U.S. federal income tax imposed at corporate rates if we are profitable and are unable to qualify as a RIC, which could have a material adverse effect on us and our stockholders
23. 42In any year in which we intend to be treated as a RIC, we may be forced to dispose of investments at times when our management team would not otherwise do so or raise additional capital at times when we would not otherwise do so, in each case in order to qualify for the special tax treatment accorded to RICs
24. 43Legislative or regulatory tax changes could adversely affect our business and financial condition
25. 44Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth, and such capital may not be available on favorable terms or at all
26. 45We may continue to choose to pay dividends in our common stock, in which case you may be required to pay tax in excess of the cash you receive
27. 46The SBCAA allows us to incur additional leverage, which could increase the risk of investing in us
28. 47Certain investors are limited in their ability to make significant investments in us
29. 48Ineffective internal controls could impact our business and operating results
30. 49We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings
31. 50Our Board of Directors is authorized to reclassify any unissued shares of stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners
32. 51Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse
33. 52Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock
34. 53We are highly 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 make distributions
35. 54We will likely experience fluctuations in our results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods

Risks Related to our Borrowings

1. 55Our borrowings, including the 6.00% Notes due 2026 and the 6.50% Convertible Notes due 2029 are unsecured and therefore effectively subordinated to any future secured indebtedness we could incur
2. 56The 6.00% Notes due 2026 are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 57The indenture under which the 6.00% Notes due 2026 were issued contains limited protection for holders of the 6.00% Notes due 2026
4. 58In addition, the indenture governing the 6.00% Notes due 2026 does not require us to make an offer to purchase the 6.00% Notes due 2026 in connection with a change of control or any other event
5. 59An active trading market for the 6.00% Notes due 2026 may not develop or be maintained, which could limit a holder’s ability to sell the 6.00% Notes due 2026 and/or adversely impact the market price of the 6.00% Notes due 2026
6. 60If we default on our obligations to pay other indebtedness, we may not be able to make payments on the 6.00% Notes due 2026 or 6.50% Convertible Notes due 2029
7. 61We may choose to redeem the 6.00% Notes due 2026 when prevailing interest rates are relatively low
8. 62A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our securities, if any, could cause the liquidity or market value of the 6.00% Notes due 2026 to decline significantly

Risks Related to an Investment in Our Securities

1. 63Investing in our securities may involve an above average degree of risk
2. 64Our common stock price may be volatile and may decrease substantially
3. 65Shares of our common stock have recently traded, and may in the future trade, at discounts from NAV or at premiums that may prove to be unsustainable
4. 66We have broad discretion over the use of proceeds from our offerings, to the extent they are successful, and will use proceeds in part to satisfy operating expenses
5. 67Global 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 operations60% rewritten
6. 68Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations34% rewritten
7. 69Terrorist attacks, acts of war or natural disasters may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition
8. 70The failure in cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively34% rewritten
9. 71Technological innovations and industry disruptions, including those related to artificial intelligence and machine learning, may negatively impact usNew