In order to continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements. Our shares of common stock, 7. We seek to avoid investments in high-risk, early stage enterprises. We invest by ourselves or tly with other funds or management of the portfolio company, depending on the opportunity.
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Using its assets as collateral, the borrower typically uses senior debt to cover a substantial portion of the funding needs of the business. Additionally, we may receive other yield enhancements, such as success fees, in connection with these senior subordinated secured debt securities.
These junior subordinated debts may be secured by certain assets of the borrower or may be unsecured loans. In order to continue to qualify as a RIC for federal income tax purposes and obtain gladstoen RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements. Additionally, we may receive equity investments derived from restructurings on some of our existing debt investments.
We invest by ourselves or tly with other funds or management of the portfolio company, depending on gladstoje opportunity. If we are participating in an investment with one or more co-investors, our investment is likely to lrivate smaller than if we were investing alone. Investment Concentrations Year over year, our investment concentration as a percentage of fair value and of cost has remained relatively unchanged. Additionally, we may receive other yield enhancements in addition to or in lieu of success fees, such as warrants to buy common and preferred stock or limited liability interests in connection with these junior subordinated debt securities.
Because the majority of the loans in our portfolio consist of term debt in private companies that typically cannot or will not expend the resources to have their debt securities rated by a credit rating agency, we expect that most, if not all, of the debt securities we acquire will be unrated. In many cases, we will own a ificant portion of the equity which may include having voting control of the businesses in which we invest. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, and which may include a yield enhancement such as a success fee or deferred interest provision and are primarily interest only, with all principal and any accrued but unpaid interest due at maturity.
We seek to avoid investments in high-risk, early stage enterprises.
Generally, success fees accrue at a set rate and are contractually due upon a change of control of the business. Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid, together with the principal, at maturity.
Typically, our investments in equity securities mdeling the form of common stock, preferred stock, limited liability company interests, or warrants or options to purchase the foregoing. Our shares of common stock, 7.
We believe this ability to co-invest glarstone continue to enhance our ability to further our investment objectives and strategies. Often, these equity investments occur in connection with our original investment, buyouts and recapitalizations of a business, or refinancing existing debt.
The senior secured debt security usually takes the form of first priority liens on all, or substantially all, of the assets of the business. In addition, many of the debt securities we hold typically do not amortize prior to maturity.
Investments rated below investment grade are often referred to as high yield securities or junk bonds and gladstohe be considered higher risk, as compared to investment-grade debt instruments.