GLADSTONE INVESTMENT CORPORATION\DE (GAIN, GAINI, GAINL, GAINN, GAINZ)

Gladstone Investment Corporation (GAIN) is an externally managed BDC and RIC that invests primarily in debt (75%) and equity (25%) of U.S. lower middle market companies. As of 3/31/25, its $979 million portfolio spanned 25 companies, with top positions in SFEG, Home & Office Furnishings, Aerospac...

Gladstone Investment Corporation (GAIN) 10-K Review: A Deep Dive into Fiscal Year 2025

In May 2025, Gladstone Investment Corporation (Nasdaq: GAIN) released its annual report on Form 10-K for the fiscal year ended March 31, 2025. As a business development company (BDC) and a regulated investment company (RIC), GAIN invests primarily in debt and equity securities of small-to-mid-sized U.S. companies. This article breaks down the most important components of the 10-K, highlights key metrics, and offers an investment score and outlook.

Warren.AI 💰 7.5 / 10


1. Company Profile and Strategy

Incorporated: 2005 in Delaware
Headquarters: McLean, VA
Exchange Listing: Common Stock ($0.001 par) on Nasdaq under GAIN
Business Model
: Externally managed by Gladstone Management
– Closed-end, non-diversified, BDC under the Investment Company Act of 1940
– RIC for tax purposes under Subchapter M of the Internal Revenue Code

Investment Objectives

  1. Current Income: Through secured debt (primarily first and second lien loans).
  2. Capital Appreciation: Through equity investments (preferred/common stock, warrants).

Target Portfolio Mix (at cost): 75% debt / 25% equity
Focus: Lower middle market companies ($4–$15 million EBITDA)

Investment Process

  • Origination Network: Private equity sponsors, commercial banks, investment bankers, referrals from portfolio company executives.
  • Due Diligence: Financial analysis, management and site visits, quality-of-earnings review, industrial research.
  • Structuring: Mix of senior secured loans, mezzanine debt, preferred equity, warrants.
  • Monitoring: Ongoing financial and operational oversight, board seats or observer rights, quarterly valuation reviews.

2. Portfolio Snapshot (3/31/25)

Category Cost ($mm) Fair Value ($mm) % of Portfolio (FV)
Debt Investments
• Secured first-lien debt 584.0 617.9 63.1%
• Secured second-lien debt 104.0 103.6 10.6%
Total Debt 688.0 721.5 73.7%
Equity & Equity-Equivalents
• Preferred equity 201.5 302.2 30.9%
• Common equity & warrants 49.6 59.2 6.0%
Total Equity 251.1 361.4 36.9%
TOTAL INVESTMENTS 939.1 979.3 100.0%

Five Largest Portfolio Positions (FV %)

  1. SFEG Holdings, Inc. (17.4%)
  2. Home & Office Furnishings (16.3%)
  3. Aerospace & Defense (10.9%)
  4. Machinery / Industrial (10.8%)
  5. Leisure, Entertainment (8.0%)

Loan Portfolio: 100% variable-rate first-lien loans with floors
Unrealized Appreciation: $40 million (4.1% of cost)
Non-accrual Loans: $90 million cost basis (13.1% of debt cost basis)


3. Financial Highlights (FY 2025 vs. FY 2024)

Metric FY 2025 FY 2024 Change
Investment Income
• Interest Income $83.6 mm $81.8 mm +2.2%
• Dividend & Success Fee Income $10.1 mm $5.5 mm +82.3%
Total Investment Income $93.7 mm $87.3 mm +7.3%
Operating Expenses (Net of Fee Credits) $65.6 mm $65.5 mm +0.1%
Net Investment Income $28.1 mm $21.8 mm +29.0%
Realized Gains $63.2 mm $30.3 mm +108.8%
Unrealized Gains (Losses) $(25.9) mm $33.3 mm NM
Net Increase in Net Assets $65.3 mm $85.3 mm (23.4)%
Net Asset Value (NAV) per Share $13.55 $13.43 +0.9%
Weighted-Avg. Shares (MM) 36.7 34.5 +6.6%
EPS – Net Investment Income $0.76 $0.63 +20.6%
EPS – Net Gain from Ops $1.78 $2.47 (27.9)%

NAV Growth: NAV per share rose from $13.43 to $13.55, a +0.9% increase
Common Distributions: $0.78/share for Q2 2025 (incl. $0.54 supplemental)
Leverage & Funding: No revolver borrowings • $127.9 mm 5.00% 2026 Notes • $134.6 mm 4.875% 2028 Notes • $74.8 mm 8.00% 2028 Notes • $126.5 mm 7.875% 2030 Notes

Cash Flows

  • Operating: +$16.3 mm (FY25) vs. –$69.9 mm (FY24)
  • Principal repayments / sale proceeds of $199.6 mm vs. $80.2 mm
  • New debt & equity outlays of $221.2 mm vs. $183.9 mm
  • Financing: –$4.4 mm vs. +$69.9 mm
  • $126.5 mm of 7.875% Notes issued in FY25
  • $72.3 mm net from 8.00% Notes and ATM sales in FY24

4. Liquidity & Capital Structure

Equity Capital
– 148.7k shares common sold in FY25 ATM for $2.0 mm
– 3.1 mm shares sold in FY24 ATM for $43.7 mm

Revolving Credit Facility
– $270 mm commitment, accordion to $300 mm
– Expiring October 30, 2026; final maturity October 30, 2028
– Unused-commitment fee: 0.50–1.00% p.a.
– Borrowing rate: 30-day SOFR + spread+margin (3.15–3.65%)

Secured Borrowings
– No revolver advances as of 3/31/25 (FY24 average drawn: $61 mm)
– Compliance with all covenants: minimum net worth, asset coverage, BDC/RIC status

Notes Payable ( unsecured)

Issue Coupon % Amount ($mm) Maturity Nasdaq Ticker
5.00% Notes 5.00 127.9 5/1/2026 GAINN
4.875% Notes 4.875 134.6 11/1/2028 GAINZ
8.00% Notes 8.00 74.8 8/1/2028 GAINL
7.875% Notes 7.875 126.5 2/1/2030 GAINI

5. Risk Factors & Regulatory Considerations

Key Risks

  • Economic & capital markets volatility
  • Rising interest rates & inflation
  • Credit risk & illiquidity of private loans
  • Concentration in 25 companies & top 5 at 41% of assets
  • Dependence on Adviser and management teams
  • BDC/RIC regulatory constraints on leverage & distributions

Regulation

  • Must maintain at least 70% of assets in qualifying securities (loans, debt & equity of private U.S. companies)
  • Asset coverage ratio ≥150% for senior securities issuance
  • Distributions ≥90% of taxable income to maintain RIC status
  • Managerial assistance provision: BDCs must provide “significant managerial assistance”

6. Outlook & Valuation

Yield & Income Growth: Net investment income of $28.1 million (+29%) and a dividend run rate of $0.96 per share (8.0% annualized on $13.55 NAV), with potential for supplemental distributions.
Total Return Potential: FY 2025 total return to net assets of 4.8% (NAV up $0.12 plus $0.96 in dividends = $1.08 on $13.43 NAV).
Portfolio Quality: 81% of debt at first-lien, stable portfolio of 25 companies, albeit a high non-accrual ratio of 13.1%.
Leverage: Prudent use of notes & revolver, maintaining 204% asset coverage.
Valuation: Shares trade at $13.36 (May 2025) vs. NAV $13.55, a 1.4% discount.

Pros

  • Consistent yield strategy in high-rate environment
  • Strong pipeline in lower middle market
  • Active portfolio management & 20-year track record
  • Equity upside via success fees & warrants

Cons

  • Market discount to NAV
  • $90.2 mm of non-accrual loans
  • Concentration risk in top positions & industries
  • Regulatory constraints on leverage & distributions

Verdict:
GAIN delivers a competitive 8% current yield and modest NAV growth, with capital gain pathways in its debt success fees and equity stakes. Regulatory structure, non-accrual loans, and NAV discounts pose challenges.

Investment Score: 7.5 out of 10


Key Takeaways for Investors

  • High current income (8% yield) and potential supplemental payables.
  • NAV growth modest but positive in FY 2025.
  • Success fees & equity participation enhance returns.
  • Operates in a niche market of Lower Middle Market private companies.

Next Steps
Review quarterly updates and portfolio shifts at www.GladstoneInvestment.com and compare competitor BDCs for diversification.

All financial data in thousands, except share and per-share figures.

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