Gladstone Capital's Portfolio Grows, Healthcare Investments Surge

Ticker: GLAD · Form: 10-K · Filed: Nov 17, 2025 · CIK: 1143513

Gladstone Capital Corp 10-K Filing Summary
FieldDetail
CompanyGladstone Capital Corp (GLAD)
Form Type10-K
Filed DateNov 17, 2025
Risk Levelmedium
Pages15
Reading Time18 min
Key Dollar Amounts$0.001, $27.46, $3 million, $25 million, $8 million
Sentimentmixed

Sentiment: mixed

Topics: BDC, Lower Middle Market, Debt Investments, Healthcare Sector, Co-Investment Order, High Yield Debt, Financial Services

Related Tickers: GLAD, GAIN, GOOD, LAND

TL;DR

**GLAD's portfolio is growing and its pivot to healthcare is a smart defensive play, making it a solid hold for income-focused investors.**

AI Summary

Gladstone Capital Corporation (GLAD) reported a total investment portfolio fair value of $859.1 million as of September 30, 2025, an increase from $796.3 million in the prior fiscal year. The company's investment strategy remains focused on lower middle market companies with EBITDA between $3 million and $25 million, maintaining approximately 90.9% in debt investments and 9.1% in equity investments at cost. Secured first lien debt constituted 72.4% of the fair value, totaling $622.4 million, while secured second lien debt was 17.5% at $150.5 million. A significant shift in industry concentration occurred, with Healthcare, Education, and Childcare investments surging to $273.3 million (31.8% of the portfolio) from $101.7 million (12.8%) in 2024. The company also received a new, more flexible Co-Investment Order from the SEC in September 2025, enhancing its ability to co-invest with affiliates. The 1-for-2 reverse stock split, effective April 4, 2024, retroactively adjusted common stock figures.

Why It Matters

Gladstone Capital's strategic shift towards the Healthcare, Education, and Childcare sector, now representing 31.8% of its portfolio, signals a targeted growth area for investors seeking exposure to defensive industries. The new, more flexible SEC Co-Investment Order could enhance GLAD's deal flow and investment efficiency, potentially leading to better returns and competitive positioning against other BDCs. This focus on lower middle market companies, often overlooked by larger lenders, provides crucial capital to businesses that drive local economies, impacting job creation and innovation. For employees, GLAD's continued investment in these companies supports stability and growth, while customers benefit from the expansion and improved services of these portfolio companies.

Risk Assessment

Risk Level: medium — The company's investment portfolio consists primarily of unrated, below 'investment grade' quality debt securities, often referred to as high yield or junk bonds, which inherently carry higher risk compared to investment-grade instruments. As of September 30, 2025, 90.9% of its portfolio at cost is in debt investments, many of which may not amortize prior to maturity, increasing principal repayment risk. Furthermore, the five largest investments constitute 22.9% of the total investment portfolio at fair value, indicating a concentration risk.

Analyst Insight

Investors should monitor GLAD's performance in the Healthcare, Education, and Childcare sector, given its significant increase to 31.8% of the portfolio. The new Co-Investment Order could be a catalyst for future growth, so assess how this impacts deal volume and investment quality. Given the high-yield nature of its debt investments, income-focused investors should evaluate the stability of distributions against the inherent risks of lower middle market lending.

Key Numbers

  • $859.1M — Total Investment Portfolio Fair Value (Increased from $796.3 million in 2024)
  • 90.9% — Debt Investments at Cost (Represents the primary investment focus)
  • 9.1% — Equity Investments at Cost (Complements debt investments for capital appreciation)
  • $273.3M — Healthcare, Education, and Childcare Investments Fair Value (Increased significantly from $101.7 million in 2024, now 31.8% of portfolio)
  • $622.4M — Secured First Lien Debt Fair Value (Comprises 72.4% of the total investment portfolio)
  • $150.5M — Secured Second Lien Debt Fair Value (Comprises 17.5% of the total investment portfolio)
  • $3M-$25M — Target EBITDA for Portfolio Companies (Defines the lower middle market focus)
  • 22.9% — Percentage of Portfolio in Five Largest Investments (Indicates concentration risk)
  • 55 — Number of Portfolio Companies (Diversification across companies)
  • 1-for-2 — Reverse Stock Split Ratio (Effected on April 4, 2024)

Key Players & Entities

  • GLADSTONE CAPITAL CORPORATION (company) — registrant
  • David Gladstone (person) — chairman and chief executive officer
  • Robert L. Marcotte (person) — executive officer
  • Gladstone Management Corporation (company) — investment adviser
  • Gladstone Administration, LLC (company) — administrator
  • SEC (regulator) — granted Co-Investment Order
  • Nasdaq Global Select Market (company) — stock exchange for GLAD
  • Gladstone Investment Corporation (company) — affiliate and co-investor
  • Gladstone Alternative Income Fund (company) — affiliate and co-investor
  • Maryland General Corporation Law (regulator) — incorporation jurisdiction

FAQ

What is Gladstone Capital Corporation's primary investment strategy?

Gladstone Capital Corporation's primary investment strategy is to invest in debt and equity securities of established lower middle market companies in the U.S., generally with annual EBITDA of $3 million to $25 million. As of September 30, 2025, its portfolio was approximately 90.9% debt and 9.1% equity at cost.

How has Gladstone Capital's investment portfolio composition changed by industry?

As of September 30, 2025, Gladstone Capital's investment in Healthcare, Education, and Childcare significantly increased to $273.3 million, representing 31.8% of the total portfolio fair value, up from $101.7 million (12.8%) in 2024. Diversified/Conglomerate Manufacturing also grew to $202.5 million (23.6%).

What is the significance of the new Co-Investment Order for Gladstone Capital?

The SEC granted Gladstone Capital a new Co-Investment Order in September 2025, which provides a more flexible requirement for allocations to be 'fair and equitable' and minimizes certain board approval requirements. This order enhances the company's ability to co-invest with affiliates like Gladstone Investment and Gladstone Alternative, potentially improving deal flow and investment opportunities.

What types of debt securities does Gladstone Capital typically invest in?

Gladstone Capital primarily invests in secured first lien debt securities (72.4% of fair value as of September 30, 2025) and secured second lien debt securities (17.5% of fair value). These debt instruments generally have terms of no more than seven years, accrue interest at variable rates, and often include success fees or deferred interest provisions.

What is the risk level associated with Gladstone Capital's investments?

Gladstone Capital's investments are considered medium risk because most of its debt securities are unrated and below 'investment grade' quality, often referred to as high yield or junk bonds. These carry higher risk, and many do not amortize prior to maturity. Additionally, the five largest investments account for 22.9% of the portfolio, indicating concentration risk.

Who manages Gladstone Capital Corporation?

Gladstone Capital Corporation is externally managed by Gladstone Management Corporation, an SEC-registered investment adviser and an affiliate. Administrative services are provided by Gladstone Administration, LLC, also an affiliate. Both are indirectly owned by David Gladstone, the company's chairman and CEO.

What was the impact of the reverse stock split on Gladstone Capital's common stock?

Gladstone Capital effected a 1-for-2 reverse stock split on April 4, 2024 (effective April 5, 2024 for trading purposes). All outstanding shares and per share amounts in the 10-K report have been retroactively adjusted for this split for activity prior to that date.

How does Gladstone Capital aim to achieve its investment objectives?

Gladstone Capital aims to achieve its objectives by generating current income through debt securities and long-term capital appreciation from equity securities. It lends to borrowers for growth capital, acquisitions, or to recapitalize existing debt, avoiding high-risk, early-stage enterprises.

What are the key financial figures for Gladstone Capital's investment portfolio as of September 30, 2025?

As of September 30, 2025, Gladstone Capital's total investment portfolio had a fair value of $859.1 million. This included $773.2 million in debt investments (90.0% of fair value) and $85.9 million in equity investments (10.0% of fair value).

What are the potential conflicts of interest mentioned in Gladstone Capital's filing?

The filing mentions potential conflicts of interest with Gladstone Management Corporation, its investment adviser, and its affiliates. David Gladstone, the chairman and CEO, indirectly owns the Adviser and Administrator, which also provide services to other Affiliated Public Funds, creating potential for conflicts in investment allocation and management.

Risk Factors

  • Economic Downturn Impact [high — market]: A significant portion of GLAD's investments are in the lower middle market, which can be more susceptible to economic downturns. A prolonged recession could lead to increased defaults and reduced investment income.
  • Interest Rate Sensitivity [medium — financial]: As a BDC, GLAD's profitability is sensitive to interest rate fluctuations. Rising interest rates can increase borrowing costs for the company and its portfolio companies, potentially impacting repayment capabilities and investment returns.
  • Credit Risk of Portfolio Investments [high — financial]: The company's investment portfolio consists of debt and equity securities, which carry inherent credit risk. Defaults or underperformance by portfolio companies can lead to significant investment losses.
  • Reliance on Investment Adviser [medium — operational]: GLAD is externally managed by Gladstone Advisers, LLC. Any disruption in the services provided by the Adviser or its affiliates could negatively impact the company's operations and investment strategy.
  • Industry Concentration Risk [medium — market]: The significant increase in concentration within the Healthcare, Education, and Childcare sectors (31.8% of the portfolio) exposes GLAD to heightened risk if these specific industries face adverse conditions.
  • Regulatory Compliance [low — regulatory]: As a BDC, GLAD is subject to regulatory oversight under the Investment Company Act of 1940. Non-compliance with these regulations could result in fines or other penalties.

Industry Context

Gladstone Capital operates in the lower middle market, providing debt and equity financing to established private businesses in the U.S. The company targets businesses with EBITDA between $3 million and $25 million. The competitive landscape for BDCs involves navigating various economic cycles and regulatory environments while seeking attractive risk-adjusted returns.

Regulatory Implications

As a Business Development Company (BDC) and a Regulated Investment Company (RIC), GLAD is subject to the Investment Company Act of 1940 and specific tax regulations. The recent SEC Co-Investment Order provides greater operational flexibility but requires continued adherence to regulatory frameworks.

What Investors Should Do

  1. Monitor industry concentration shifts.
  2. Assess impact of interest rate environment.
  3. Evaluate co-investment strategy effectiveness.
  4. Review portfolio company performance and credit quality.

Key Dates

  • 2024-04-04: 1-for-2 reverse stock split effected — Adjusted common stock figures retroactively, impacting per-share data and potentially market perception.
  • 2025-09-30: Fiscal year end — Reporting period for the 10-K, showing a total investment portfolio fair value of $859.1 million.
  • 2025-09: Received new Co-Investment Order from SEC — Enhances GLAD's flexibility to co-invest with affiliates, potentially leading to larger or more diversified deals.

Glossary

BDC
Business Development Company, a type of closed-end investment company that invests in small and medium-sized businesses. (GLAD is registered and operates as a BDC, subject to specific regulations.)
RIC
Regulated Investment Company, a tax designation that allows a company to avoid corporate income tax if it distributes at least 90% of its taxable income to shareholders. (GLAD has elected to be treated as a RIC for tax purposes, impacting its tax obligations.)
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance. (GLAD targets companies with EBITDA between $3 million and $25 million, defining its lower middle market focus.)
First Lien Debt
Debt that has the highest priority in terms of repayment in the event of a borrower's bankruptcy or liquidation. (Represents the largest portion (72.4%) of GLAD's debt investments, indicating a focus on secured, senior lending.)
Second Lien Debt
Debt that ranks below first lien debt in priority of repayment. (Constitutes 17.5% of GLAD's debt investments, offering a higher yield but with increased risk compared to first lien debt.)

Year-Over-Year Comparison

The total investment portfolio fair value increased to $859.1 million from $796.3 million in the prior fiscal year, indicating portfolio growth. A notable shift occurred in industry concentration, with Healthcare, Education, and Childcare investments rising significantly, suggesting a strategic pivot or opportunistic deployment in these sectors. The company also obtained a more flexible Co-Investment Order, which may influence future investment strategies and deal structures.

Filing Stats: 4,506 words · 18 min read · ~15 pages · Grade level 13.1 · Accepted 2025-11-17 16:03:01

Key Financial Figures

  • $0.001 — nge on which registered Common Stock, $0.001 par value per share GLAD The Nasdaq Sto
  • $27.46 — ed on the closing price on that date of $27.46 per share on the Nasdaq Global Select M
  • $3 million — eciation and amortization ("EBITDA") of $3 million to $25 million) in the U.S. that we bel
  • $25 million — mortization ("EBITDA") of $3 million to $25 million) in the U.S. that we believe will provi
  • $8 million — each investment generally ranging from $8 million to $40 million, although investment siz
  • $40 m — nt generally ranging from $8 million to $40 million, although investment size may var

Filing Documents

Business

Business 3 ITEM 1A

Risk Factors

Risk Factors 21 ITEM 1B Unresolved Staff Comments 48 ITEM 1 C Cybersecurity 48 ITEM 2

Properties

Properties 50 ITEM 3

Legal Proceedings

Legal Proceedings 50 ITEM 4 Mine Safety Disclosures 50 PART II ITEM 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 51 ITEM 6 Reserved 59 ITEM 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 59 ITEM 7A

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 75 ITEM 8

Financial Statements and Supplementary Data

Financial Statements and Supplementary Data 77 ITEM 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 130 ITEM 9A

Controls and Procedures

Controls and Procedures 130 ITEM 9B Other Information 130

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 130

ITEM 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 130 PART III ITEM 10 Directors, Executive Officers and Corporate Governance 131 ITEM 11

Executive Compensation

Executive Compensation 131 ITEM 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 131 ITEM 13 Certain Relationships and Related Transactions, and Director Independence 131 ITEM 14 Principal Accountant Fees and Services 131 PART IV ITEM 15 Exhibits and Financial Statement Schedules 132 ITEM 16 Form 10-K Summary 135

SIGNATURES

SIGNATURES 136 1 Table of Contents

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS All statements contained herein, other than historical facts, may constitute "forward-looking statements." These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation (the "Adviser"), our investment adviser, and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as "estimate," "may," "might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "project," "intend," "expect," "should," "would," "if," "seek," "possible," "potential," "likely" or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include: (1) changes in the economy and the capital markets, including stock price volatility, inflation, changing interest rates, tariffs and trade wars and risks of recession; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone or Robert L. Marcotte; (4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates or the general economy; (7) our business prospects and the prospects of our portfolio companies;

BUSINESS

ITEM 1. BUSINESS Overview Organization Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30, 2001. We are an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. In addition, we have elected to be treated for tax purposes as a RIC under the Code. We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States ("U.S."). Shares of our common stock trade on the Nasdaq Global Select Market ("Nasdaq") under the trading symbol "GLAD". Our 6.25% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock"), our 3.75% notes due 2027 (the "2027 Notes"), and our 5.875% Convertible Notes due 2030 (the "2030 Convertible Notes") are not listed or traded on any exchange or automated quotation system. The outstanding shares and per share amounts of the Company's common stock in this Annual Report have been retroactively adjusted for the 1-for-2 reverse stock split (the "Reverse Stock Split") effected on April 4, 2024 (effective April 5, 2024 for trading purposes) for all activity prior to that date, unless stated otherwise. Investment Adviser and Administrator We are externally managed by the Adviser, an investment adviser registered with the SEC and an affiliate of ours, pursuant to an investment advisory and management agreement (as amended and/or restated from time to time, the "Advisory Agreement"). We have also entered into an administration agreement with Gladstone Administration, LLC (the "Administrator"), an affiliate of ours and the Adviser, whereby we pay separately for administrative services (the "Administration Agreement"). Each of the Adviser and the Administrator are privately-held companies that are indirectly owned by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of directors of

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