The Company invests predominantly in floating rate investments
however, it does have material exposure to fixed rate investments, which are subject to interest rate risk through movements in their market price when interest rates change. In preparation for the transition from LIBOR to new reference rates, credit spread adjustments had been worked out well ahead of the transition, so the Company does not believe there to be any material valuation risk as a result of the shift to a new reference rate (e.g., SOFR in the US and SONIA in the UK). The concept of a credit spread adjustment is, by design, intended to equalize the total coupon on loans before and after the transition to ensure that no party (borrower or lender) benefits simply from the conversion. Another way to state this is that without a spread adjustment, there would be some value transfer (likely from lenders to borrowers / issuers) upon transition from LIBOR to SOFR- and SONIA-based rates. The spread adjustment is only intended to be used for legacy debt maturing after LIBOR is no longer used. New issues that use a SOFR- or SONIA-based rate do not require a spread adjustment, since the margin over the reference rate can be set at the appropriate level at issuance. Moreover, the Company has documented the LIBOR-related contract language for securities it holds that reference LIBOR.