Before you start
Non-accruals at cost and fair value: read the exposure and the mark, BDC NAV and market discounts: separate the valuation from the trading price, BDC leverage and asset coverage: a descriptive ratio is not a compliance test
- Reconstruct ending common net assets and NAV per share.
- Distinguish a current-period mark from a loss measured against cost.
- Quantify issuance effects using net proceeds and the new denominator.
Define the opening equity and the period bridge
Assume an invented annual opening common net-asset balance of 1,000 and 50 million shares, giving NAV of 20 per share. During the year, NII is 120, common distributions are 115, net realized losses are 20 and the net unrealized change is a loss of 75. There are no other liabilities, capital movements or attribution changes in this simplified common-equity bridge. Treat the realized and unrealized amounts as the period's net statement amounts, already including any required reversals. Before calculating, write the perimeter and confirm that distributions and operations refer to the same common-share base.
Reconcile the total before discussing the per-share result
The change in common net assets is 120 − 115 − 20 − 75 = −90, so closing equity is 910 and closing NAV is 18.20 per share with shares unchanged. Positive accounting distribution coverage can therefore coexist with declining net assets. Do not add a market-price decline as another deduction from the BDC's accounting NAV; a traded share price is a separate measurement. Likewise, a realized loss already included in operations is not a distribution of cash to common shareholders. Reconcile classifications first, then explain what the bridge says about income, credit marks and capital preservation.
Do not recognize the same old loss twice
Consider a separate illustrative position that cost 100, was already marked at 60 at the opening date and is sold for 62. Its loss measured from cost is 38, but the current-period improvement relative to the opening carrying value is 2. In a simplified statement bridge, a realized loss of 38 and reversal of the prior unrealized loss of 40 combine to a net positive 2. Do not deduct both the old 40 markdown and the new cost-based 38 from the current opening NAV. For a real filing, inspect the actual classification and reversal policy; the workshop's separate position is not an additional item to add to the 910 total.
Add financing transactions with their full denominator
After the first bridge, assume 10 million new shares are issued. At a gross price of 18 with total issuance expenses of 2 million, net proceeds are 178, equity becomes 1,088 and shares become 60 million, producing NAV of 18.133333. At a gross price of 20 with the same expenses, net proceeds are 198 and NAV becomes 1,108/60 = 18.466667. These are separate transaction scenarios, not two offerings to combine. The first is dilutive to the pre-issue 18.20 and the second accretive. Neither result estimates returns on subsequent deployment or determines whether the offering is legally permitted.
Synthetic: income coverage and NAV preservation diverge
Reported NII coverage is 120/115 = 1.043478×, yet ending NAV falls from 20 to 18.20 before any issuance because net realized and unrealized losses exceed the 5 retained income. The reduction is 1.80 per share or 9% of opening NAV. This is not a market total-return calculation: the holder also received distributions and the share's market price can differ from NAV. For the separate old-loss example, 62 − 60 = 2 must agree with −38 + 40 = 2. That control total prevents the previous period's mark from being counted again.
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| Synthetic common-equity bridge | USD million or million shares | Result |
|---|---|---|
| Opening net assets / shares | 1,000 / 50 | NAV 20.00 |
| Period NII minus distributions | 120 − 115 | +5 |
| Net realized / net unrealized change | −20 / −75 | −95 |
| Closing equity / unchanged shares | 910 / 50 | NAV 18.20 |
| Separate issue at 18, expenses 2 | 910 + 178; 60 shares | NAV 18.133333 |
| Separate issue at 20, expenses 2 | 910 + 198; 60 shares | NAV 18.466667 |
Test your reasoning
Keep closing pre-issue equity at 910 and issue 5 million shares at 19 with issuance expenses of 1 million. What is post-issue NAV?
Reveal the worked answer
Gross proceeds are 95 and net proceeds 94. Equity becomes 1,004 and shares 55 million. NAV is 1,004/55 = 18.254545, slightly above 18.20. The calculation assumes no other changes.
Check your understanding
A common mistake
Double-counting a prior unrealized loss on sale, adding a market-price decline to NAV or calling total-equity growth per-share accretion.
What to check in the disclosures
- Reconcile opening equity to operations, distributions and capital transactions.
- Identify reversal of old marks within the period's realized/unrealized presentation.
- Use net issuance proceeds and the post-issue share count.
- Separate NAV return, market total return and accounting income coverage.
Sources & scope
US BDC education. Examples are hypothetical unless expressly attributed. Filing dates, contractual definitions and tax rules matter. An issuer source describes that issuer; it is not evidence that every BDC uses the same policy.
- Horizon Technology Finance 2025 financial highlights: tax/GAAP and spillover explanation, footnote 1 ↗
- Ares Capital original 2025 Form 10-K: historical definitions, not current issuer data; check amendments and later filings ↗
Educational material, not a recommendation or personalized investment advice. Source and correction policy.