Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2025

5.	Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes valuation techniques that maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Investment Adviser classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1: Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments in Level 1 include listed equities and listed derivatives. The Company does not adjust the quoted price for these investments, even in situations where the Company may hold a large position and a sale could reasonably impact the quoted price.

Level 2: Pricing inputs are other than quoted prices in active markets of comparable instruments, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments in this category generally include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives.

Level 3: Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation. Investments in this category generally include equity and debt positions in private companies.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of September 30, 2025, the Company’s investments were categorized as follows in the fair value hierarchy:


	As of September 30, 2025
	Fair Value		Level 1		Level 2		Level 3
Senior Secured First Lien Term Loan	$	580,680	$	—	$	—	$	580,680
Senior Secured Term Loan		231,519		—		—		231,519
Delayed Draw Term Loan		32,536		—		—		32,536
Revolver		9,519		—		—		9,519
Convertible Promissory Note		42		—		—		42
Common Units		5,099		—		—		5,099
Preferred Units		7,945		—		—		7,945
Warrants		79		—		—		79
Total Investments		867,419		—		—		867,419
Cash Equivalents		308		308		—		—
Total Investments and cash equivalents	$	867,727	$	308	$	—	$	867,419

As of December 31, 2024, the Company’s investments were categorized as follows in the fair value hierarchy:


	As of December 31, 2024
Description	Fair Value		Level 1		Level 2		Level 3
Senior Secured First Lien Term Loan	$	479,581	$	—	$	—	$	479,581
Senior Secured Term Loan		240,610		—		—		240,610
Delayed Draw Term Loan		27,378		—		—		27,378
Revolver		14,337		—		—		14,337
Preferred Units		9,663		—		—		9,663
Common Units		4,603		—		—		4,603
Warrants		17		—		—		17
Total Investments		776,189		—		—		776,189
Cash Equivalents		1,906		1,906		—		—
Total investments and cash equivalents	$	778,095	$	1,906	$	—	$	776,189

The following is a reconciliation for the nine months ended September 30, 2025, of investments for which significant unobservable inputs (Level 3) were used in determining fair value:


	For the nine months ended September 30, 2025
	Senior		Senior
	Secured		Secured		Delayed										Convertible
	First Lien		Term		Draw				Common		Preferred				Promissory
	Term Loan		Loan		Term Loan		Revolver		Units		Units		Warrants		Note		Total
Fair value at beginning of period	$	479,581	$	240,610	$	27,378	$	14,337	$	4,603	$	9,663	$	17	$	—	$	776,189
Purchases		136,854		8,000		8,364		6,830		100		250		—		42		160,440
Accretion of discount (amortization of premium)		2,183		1,249		291		144		—		—		—		—		3,867
Sales, repayments and paydowns		(32,540)		(15,085)		(1,532)		(4,107)		—		—		—		—		(53,264)
Unrealized gain (loss)		(6,000)		(3,255)		(1,973)		(7,685)		396		(1,968)		62		—		(20,423)
Paid in-kind interest		602		—		8		—		—		—		—		—		610
Net transfers in or out of Level 3		—		—		—		—		—		—		—		—		—
Fair value at end of period	$	580,680	$	231,519	$	32,536	$	9,519	$	5,099	$	7,945	$	79	$	42	$	867,419
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	(6,000)	$	(3,255)	$	(1,973)	$	(7,685)	$	396	$	(1,968)	$	62	$	—	$	(20,423)

There were no transfers of investments into or out of Level 1, 2, or 3 in the fair value hierarchy during the three and nine months ended September 30, 2025.

The following is a reconciliation for the nine months ended September 30, 2024, of investments for which significant unobservable inputs (Level 3) were used in determining fair value:


	For the Nine Months Ended September 30, 2024
	Senior
	Secured		Senior
	First		Secured		Delayed
	Lien Term		Term		Draw				Common		Preferred
	Loan		Loan		Term Loan		Revolver		Units		Units		Warrants		Total
Fair value at beginning of period	$	323,088	$	209,893	$	21,072	$	3,642	$	1,106	$	4,000	$	145	$	562,946
Purchases		140,228		54,586		7,761		13,782		3,005		1,000		—		220,362
Accretion of discount (amortization of premium)		1,797		1,204		220		158		—		—		—		3,379
Sales, repayments and paydowns		(28,898)		(8,904)		(2,426)		(5,403)		—		—		—		(45,631)
Unrealized gain (loss)		(2,356)		(387)		38		(183)		922		444		(132)		(1,654)
Paid in-kind interest		47		333		—		39		—		—		—		419
Net transfers in or out of Level 3		—		—		—		—		—		—		—		—
Fair value at end of period	$	433,906	$	256,725	$	26,665	$	12,035	$	5,033	$	5,444	$	13	$	739,821
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	(2,356)	$	(387)	$	38	$	(183)	$	922	$	444	$	(132)	$	(1,654)

There were no transfers of investments into or out of Level 1, 2, or 3 in the fair value hierarchy during the three and nine months ended September 30, 2024.

The valuation techniques and significant unobservable inputs used in Level 3 fair value measurements as of September 30, 2025, were as follows:


Type of Investment	Fair Value		Valuation Technique	Unobservable Inputs *	Range (Weighted Average) **
Debt investments	$	764,928	Discounted Cash Flows	Discount Rate	7.30% - 21.62% (10.53%)
	$	20,510	Enterprise Value	Revenue Multiple	0.13x - 7.50x (2.09x)
	$	28,091	Public Quoted	Broker Quote	N/A
Equity investments	$	13,044	Enterprise Value	EBITDA Multiple	1.90x - 13.00x (7.94x)
Warrants	$	79	Enterprise Value	EBITDA Multiple	0.13x - 9.25x (8.00x)

In determining certain of these inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company-specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments. EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization.

Unobservable inputs were weighted by the relative fair value of the instruments.

Certain of the Fund’s Level 3 investments have been valued using unadjusted inputs that have not been internally developed by the Company, including recent acquisitions, third-party transactions, or quotations. As a result, fair value assets of approximately $40,767 have been excluded from the preceding table.

The valuation techniques and significant unobservable inputs used in Level 3 fair value measurements as of December 31, 2024, were as follows:


Type of Investment	Fair Value		Valuation Technique	Unobservable Inputs *	Range (Weighted Average) **
Debt investments	$	663,262	Discounted Cash Flows	Discount Rate	7.80% - 18.66% (11.14%)
	$	6,460	Enterprise Value	Revenue Multiple	1.00x – 1.20x (1.10x)
	$	29,021	Public Quoted	Broker Quote	N/A
Equity investments	$	9,761	Enterprise Value	EBITDA Multiple	2.25x – 12.50x (8.65x)
Warrants	$	17	Enterprise Value	EBITDA Multiple	8.00x – 9.00x (8.50x)

Unobservable inputs were weighted by the relative fair value of the instruments.

Certain of the Fund’s Level 3 investments have been valued using unadjusted inputs that have not been internally developed by the Company, including recent acquisitions, third-party transactions, or quotations. As a result, fair value assets of approximately $67,668 have been excluded from the preceding table.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details

Brightwood Capital Corp I 10-Q