GAINI

GLADSTONE INVESTMENT CORPORATIONDE

NASDAQ

25.18

+0.13 +0.52%

USD · close Oct 30

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MKT CAP $1BP/E —DIV YIELD 3.81%FCF YIELD —REV TTM —NET INCOME $165.1M +107.4%NET DEBT $566.7M52W 25.01 – 25.85SEC XBRL · TTM TO Invalid Date

How GAINI rewrote its risk factors

10-K ITEM 1A · FY2025 → FY2026

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New in FY2026

These factors include, among other things: • changes in interest rates and credit spreads and the effects of inflation on us and our portfolio companies; • the availability of credit, including the price, terms and conditions under which it can be obtained; • the quality, pricing, and availability of suitable investments and credit losses with respect to our investments; • the ability to obtain accurate market-based valuations; • investment values relative to the value of the underlying assets; • default rates on the loans underlying our investments and the amount of related losses; • prepayment rates, delinquency rates and the timing and amount of servicer advances; • competition; • the actual and perceived state of the economy and capital markets generally; • amendments or repeals of legislation, or changes in regulations or regulatory interpretations thereof, and transitions of government, including uncertainty regarding any of the foregoing; • the national and global political environment, including government shutdowns, war, armed conflicts, foreign relations and trading policies; • the impact of potential changes to the Code; and • the attractiveness of other types of investments relative to investments in Lower Middle Market companies generally.
We may have difficulty accessing debt and equity capital, and a severe disruption in U.S. or global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
An inability to raise capital, and any required sale of our investments for liquidity purposes or failure of our portfolio companies to realize liquidity events, could have a material adverse impact on our business, financial condition, results of operations, or cash flows.
Among other effects, tariffs or threat of tariffs could increase the cost of production for certain of our portfolio companies or reduce demand for their products or create uncertainty about either of the foregoing, which could affect their results of operations.
Any decreases in the fair value of our investments could result in future realized or unrealized losses and therefore reduce our net assets resulting from operations.
In addition, higher interest rates increase our borrowing costs.
As a result, higher market interest rates could cause the market price of our securities to decrease.
As of March 31, 2026, all of our debt investments have variable interest rates that reset periodically and are generally based on SOFR.
As of March 31, 2026, our portfolio consisted of 100.0% of loans at variable rates with floors.
As of March 31, 2026, we did not have any hedging arrangements, such as interest rate hedges, in place.
As of March 31, 2026, loans to three portfolio companies were on non-accrual status with an aggregate debt cost basis of $40.3 million, or 5.4% of the cost basis of all debt investments in our portfolio.
While we intend to continue to target stable companies with proven track records, we may invest in newly established companies that meet our other investment criteria.
Our NAV would be adversely affected if the fair value of our investments is higher than the values that we ultimately realize upon the disposal of such securities.
This could cause us to miss important investment opportunities to the extent we do not have other sources of capital available.
Our five largest investments represented 44.5% and 41.0% of the fair value of our total portfolio as of March 31, 2026 and 2025, respectively.
As of March 31, 2026, we had investments in 29 portfolio companies, the five largest of which included SFEG, E3, Schylling, Brunswick and Detroit Defense and comprised $582.6 million, or 44.5%, of our total investment portfolio, at fair value.
As of March 31, 2026, our largest industry concentration was in Machinery (Non-Agriculture, Non-Construction, and Non-Electronic), representing 19.8 % of our total investments, at fair value.
Our portfolio includes companies related to the oil and gas industry with the fair value of these investments representing approximately $125.6 million, or 9.6% of our total portfolio at fair value, as of March 31, 2026.
These businesses provide services to oil and gas companies and are indirectly impacted by the prices of, and demand for, oil and natural gas, which have from time to time experienced volatility, including recent rapid and significant changes in prices resulting from geopolitical conflict in the Middle East, and such volatility could continue or increase in the future.
Since we generally make five year term loans and hold our loans and equity positions until the loans mature and/or we exit the investment, investors should not expect realization events, if any, to occur over the near term following the making of a new investment.
As of March 31, 2026, we, through our wholly-owned subsidiary, Business Investment, had $23.9 million outstanding under our Credit Facility, which provides for maximum borrowings of $300.0 million, with a revolving period end date of October 30, 2026 (the “Revolving Period End Date”).
Additionally, our Credit Facility contains a performance guarantee that requires the Company to maintain (i) a minimum net worth of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $476.6 million as of March 31, 2026; (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.
As of March 31, 2026, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $1.2 billion, asset coverage on our senior securities representing indebtedness of 213.8%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.
As of March 31, 2026, we were in compliance with all covenants under our Credit Facility; however, our continued compliance depends on many factors, some of which are beyond our control.
We may acquire such additional capital from the following sources: • Senior Securities : We have in the past, and may in the future issue "senior securities representing indebtedness" (including borrowings under our Credit Facility, our 4.875% 2028 Notes, our 6.875% 2028 Notes, our 7.875% 2030 Notes and our 7.125% 2031 Notes) and "senior securities that are stock", up to the maximum amount permitted by the 1940 Act.
Pursuant to Section 61(a)(3) of the 1940 Act, we are permitted, under specified conditions, to issue multiple classes of "senior securities representing indebtedness." However, pursuant to Section 18(c) of the 1940 Act, we are permitted to issue only one class of "senior securities that are stock." • Common and Convertible Preferred Stock : Because we are constrained in our ability to issue debt or senior securities for the reasons given above, we may at times be dependent on the issuance of equity as a financing source.
This imposes constraints on our ability to raise capital when our common stock is trading below NAV per common share.
As noted above, the 1940 Act prohibits the issuance of multiple classes of "senior securities that are stock." We 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.
We have incurred leverage in the past and currently incur leverage through the Credit Facility, the 4.875% 2028 Notes, 6.875% 2028 Notes, 7.875% 2030 Notes and 7.125% 2031 Notes and, from time to time, may incur additional leverage to the extent permitted under the 1940 Act.
Assumed Return on Our Portfolio (Net of Expenses) (10)% (5)% 0% 5% 10% Corresponding return to common stockholder (A) ( 25.16 )% ( 15.26 )% ( 5.36 )% 4.53 % 14.43 % (A) The hypothetical return to common stockholders is calculated by multiplying our total assets as of March 31, 2026 by the assumed rates of return and subtracting all interest on our debt expected to be paid during the twelve months following March 31, 2026, and then dividing the resulting difference by our total net assets attributable to common stock as of March 31, 2026.
Based on $1.3 billion in total assets, $23.9 million of borrowings outstanding on our Credit Facility, $ 127.9 million of 5.00% 2026 Notes, at cost, $134.6 million of 4.875% 2028 Notes, at cost, $ 60.0 million of 6.875% 2028 Notes, at cost, $ 126.5 million of 7.875% 2030 Notes, at cost, and $ 100.0 million of 7.125% 2031 Notes, at cost, and $668.2 million in net assets as of March 31, 2026.
Based on an aggregate outstanding indebtedness of $572.9 million, at cost, as of March 31, 2026, the effective annual cash interest rate of 6.3 % as of that date, our investment portfolio at fair value would have to produce an annual return of at least 3.0 % to cover annual interest payments on the outstanding debt.
As of March 31, 2026, we did not have investments with OID or a PIK feature.
Risks Related to Our External Management We are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Dullum, Erika Highland and Christopher Lee, and on the continued operations of the Adviser, for our future success.
Our chief executive officer, chief operating officer, chief financial officer and treasurer, chief valuation officer, chief investment officer and the officers and employees of the Adviser do not spend all of their time managing our activities and our investment portfolio.
We are particularly dependent upon David Dullum and Erika Highland for their experience, skills, and networks.
In addition, the Adviser will receive a capital gains incentive fee based, in part, upon net capital gains realized on our investments.
Unlike the portion of the incentive fee based on income, there is no hurdle rate applicable to the incentive fee based on capital gains.
As a result, the Adviser may seek to invest more capital in investments that are likely to result in capital gains as compared to income producing securities.
This practice could result in us investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

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Gone since FY2025

These factors include, among other things: • changes in interest rates and credit spreads and the effects of inflation on us and our portfolio companies; • the availability of credit, including the price, terms and conditions under which it can be obtained; • the quality, pricing, and availability of suitable investments and credit losses with respect to our investments; • the ability to obtain accurate market-based valuations; • investment values relative to the value of the underlying assets; • default rates on the loans underlying our investments and the amount of related losses; • prepayment rates, delinquency rates and the timing and amount of servicer advances; • competition; • the actual and perceived state of the economy and capital markets generally; • amendments or repeals of legislation, or changes in regulations or regulatory interpretations thereof, and transitions of government, including uncertainty regarding any of the foregoing; • the national and global political environment, including war, armed conflicts, foreign relations and trading policies; • the impact of potential changes to the Code; and • the attractiveness of other types of investments relative to investments in Lower Middle Market companies generally.
We may in the future have difficulty accessing debt and equity capital, and a severe disruption in U.S. or global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition, results of operations, or cash flows.
Among other effects, tariffs could increase the cost of production for certain of our portfolio companies or reduce demand for their products, which could affect their results of operations.
Any decreases in the fair value of our investments could result in future unrealized losses and therefore reduce our net assets resulting from operations.
In addition, higher interest rates have increased our borrowing costs.
As a result, higher market interest rates could to cause the market price of our securities to decrease.
A substantial portion of our debt investments have variable interest rates that reset periodically and are generally based on SOFR.
As of March 31, 2025, based on the total principal balance of debt investments outstanding, our portfolio consisted of 100.0% of loans at variable rates with floors.
As of March 31, 2025, we did not have any hedging arrangements, such as interest rate hedges, in place.
As of March 31, 2025, loans to four portfolio companies were on non-accrual status with an aggregate debt cost basis of $90.2 million, or 13.1% of the cost basis of all debt investments in our portfolio.
While we intend to continue to target stable companies with proven track records, we may invest in new companies that meet our other investment criteria.
Our NAV would be adversely affected if the fair value of our investments are higher than the values that we ultimately realize upon the disposal of such securities.
This could cause us to miss important investment opportunities.
Our five largest investments represented 41.0% and 42.7% of the fair value of our total portfolio as of March 31, 2025 and 2024, respectively.
As of March 31, 2025, we had investments in 25 portfolio companies, the five largest of which included SFEG, Ricardo, Brunswick, Nielsen-Kellerman and E3 and comprised $401.7 million, or 41.0%, of our total investment portfolio, at fair value.
As of March 31, 2025, our largest industry concentration was in Diversified/Conglomerate Services, representing 17.4 % of our total investments, at fair value.
Our portfolio includes companies related to the oil and gas industry with the fair value of these investments representing approximately $69.6 million, or 7.1% of our total portfolio at fair value, as of March 31, 2025.
These businesses provide services to oil and gas companies and are indirectly impacted by the prices of, and demand for, oil and natural gas, which have from time to time experienced volatility, including rapid and significant changes in prices, and such volatility could continue or increase in the future.
Since we generally make five year term loans and hold our loans and equity positions until the loans mature and/or we exit the investment, investors should not expect realization events, if any, to occur over the near term.
As of March 31, 2025, we, through our wholly-owned subsidiary, Business Investment, had no borrowings outstanding under our Credit Facility, which provides for maximum borrowings of $270.0 million, with a revolving period end date of October 30, 2026 (the “Revolving Period End Date”).
Additionally, our Credit Facility contains a performance guarantee that requires the Company to maintain (i) a minimum net worth of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $412.9 million as of March 31, 2025; (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.
As of March 31, 2025, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $953.3 million, asset coverage on our senior securities representing indebtedness of 204.4%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.
As of March 31, 2025, we were in compliance with all covenants under our Credit Facility; however, our continued compliance depends on many factors, some of which are beyond our control.
Subject to certain terms and conditions, our Credit Facility may be expanded to a total of $300.0 million through additional commitments of existing or new lenders.
However, if such lenders are unwilling to provide additional commitments under the terms of our Credit Facility, we will be unable to expand our Credit Facility and thus will continue to have limited availability to finance new investments under our Credit Facility.
We may acquire such additional capital from the following sources: • Senior Securities : We may issue "senior securities representing indebtedness" (including borrowings under our Credit Facility, our 5.00% 2026 Notes, our 4.875% 2028 Notes, our 8.00% 2028 Notes and our 7.875% 2030 Notes) and "senior securities that are stock", up to the maximum amount permitted by the 1940 Act.
Pursuant to Section 61(a)(3) of the 1940 Act, we are permitted, under specified conditions, to issue multiple classes of "senior securities representing indebtedness".
However, pursuant to Section 18(c) of the 1940 Act, we are permitted to issue only one class of "senior securities that are stock". • Common and Convertible Preferred Stock : Because we are constrained in our ability to issue debt or senior securities for the reasons given above, we may at times be dependent on the issuance of equity as a financing source.
This imposes constraints on our ability to raise capital when our common stock is trading below NAV per common share, as it generally has for the last several years.
As noted above, the 1940 Act prohibits the issuance of multiple classes of "senior securities that are stock".
We 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.
We have incurred leverage in the past and currently incur leverage through the Credit Facility, the 5.00% 2026 Notes, the 4.875% 2028 Notes, the 8.00% 2028 Notes and 7.875% 2030 Notes and, from time to time, may incur additional leverage to the extent permitted under the 1940 Act.
Assumed Return on Our Portfolio (Net of Expenses) (10)% (5)% 0% 5% 10% Corresponding return to common stockholder (A) ( 25.96 )% ( 15.87 )% ( 5.79 )% 4.29 % 14.37 % (A) The hypothetical return to common stockholders is calculated by multiplying our total assets as of March 31, 2025 by the assumed rates of return and subtracting all interest on our debt expected to be paid during the twelve months following March 31, 2025, and then dividing the resulting difference by our total net assets attributable to common stock as of March 31, 2025.
Based on $1.0 billion in total assets, no borrowings outstanding on our Credit Facility, $127.9 million of 5.00% 2026 Notes, at cost, $134.6 million of 4.875% 2028 Notes, at cost, $74.8 million of 8.00% 2028 Notes, at cost, $126.5 million of 7.875% 2030 Notes, at cost, and $499.1 million in net assets as of March 31, 2025.
Based on an aggregate outstanding indebtedness of $463.7 million, at cost, as of March 31, 2025, the effective annual cash interest rate of 6.2 % as of that date, our investment portfolio at fair value would have to produce an annual return of at least 3.0 % to cover annual interest payments on the outstanding debt.
As of March 31, 2025, we did not have investments with OID or a PIK feature.
Risks Related to Our External Management We are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone and David Dullum, and on the continued operations of the Adviser, for our future success.
Our chief executive officer, chief operating officer, chief financial officer and treasurer, chief valuation officer, and the employees of the Adviser do not spend all of their time managing our activities and our investment portfolio.
We are particularly dependent upon David Gladstone and David Dullum for their experience, skills, and networks.

and 13 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2025 ↗, FY2026 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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