NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2017
(in
thousands, except share amounts)
Note 1. Organization
Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with
initial capital of $1,200,000 of which 47.04% was funded by affiliated parties.
Immediately prior to our initial public offering, through
a series of transactions, Solar Capital Ltd. merged with Solar Capital LLC, leaving Solar Capital Ltd. as the surviving entity (the Merger). Solar Capital Ltd. issued an aggregate of approximately 26.65 million shares of common
stock and $125,000 in senior unsecured notes to the existing Solar Capital LLC unit holders in connection with the Merger. Solar Capital Ltd. had no assets or operations prior to completion of the Merger and as a result, the historical books and
records of Solar Capital LLC have become the books and records of the surviving entity. The number of shares used to calculate weighted average shares for use in computations on a per share basis have been decreased retroactively by a factor of
approximately 0.4022 for all periods prior to February 9, 2010. This factor represents the effective impact of the reduction in shares resulting from the Merger.
Solar Capital Ltd. (Solar Capital, the Company, we, us or our), a Maryland
corporation formed in November 2007, is a
closed-end,
externally managed,
non-diversified
management investment company that has elected to be regulated as a business
development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). Furthermore, as the Company is an investment company, it continues to apply the guidance in FASB Accounting Standards Codification
(ASC) Topic 946. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code).
On February 9, 2010, Solar Capital priced its initial public offering, selling 5.68 million shares, including the underwriters
over-allotment, at a price of $18.50 per share. Concurrent with this offering, the Companys senior management purchased an additional 600,000 shares through a private placement, also at $18.50 per share.
The Companys investment objective is to maximize both current income and capital appreciation through debt and equity investments. The
Company invests primarily in leveraged middle market companies in the form of senior secured loans, unitranche loans, mezzanine loans and equity securities. From time to time, we may also invest in public companies that are thinly traded.
Note 2. Significant Accounting Policies
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally
accepted accounting principles (GAAP), and include the accounts of the Company and its wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management,
are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been
reclassified to conform to the current period presentation.
Interim consolidated financial statements are prepared in accordance with
GAAP for interim financial information and pursuant to the requirements for reporting on Form
10-Q
and Regulation
S-X,
as appropriate. Accordingly, they may not include
all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial
statements and the reported amounts of income and
15
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ
materially.
In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair
presentation of financial statements, have been included.
The significant accounting policies consistently followed by the Company are:
|
(a)
|
Investment transactions are accounted for on the trade date;
|
|
(b)
|
Under procedures established by our board of directors (the Board), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60
days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a
principal market maker or a primary market dealer or other independent pricing service). We utilize
mid-market
pricing as a practical expedient for fair value unless a different point within the range is more
representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third-party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step
valuation process as described below. In each case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60
days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of Solar Capital Partners, LLC (the Investment Adviser),
does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily
available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates.
|
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent
fair value, our Board has approved a multi-step valuation process each quarter, as described below:
|
(1)
|
our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment;
|
|
(2)
|
preliminary valuation conclusions are then documented and discussed with senior management of the Investment Adviser;
|
|
(3)
|
independent valuation firms engaged by our Board conduct independent appraisals and review the Investment Advisers preliminary valuations and make their own independent assessment for all material assets;
|
|
(4)
|
the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm to
reflect any comments; and
|
|
(5)
|
the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the audit
committee.
|
16
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Investments in all asset classes are valued utilizing a market approach, an income approach,
or both approaches, as appropriate. However, in accordance with ASC
820-10,
certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a
practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation
approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these
approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market
yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio companys ability to make payments, its earnings and discounted cash flows, the markets in which the
portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When available, broker quotations
and/or quotations provided by pricing services are considered as an input in the valuation process. For the six months ended June 30, 2017, there has been no change to the Companys valuation approaches or techniques and the nature of the
related inputs considered in the valuation process.
ASC Topic 820 classifies the inputs used to measure these fair values into the
following hierarchy:
Level
1
: Quoted prices in active markets for identical assets or liabilities, accessible
by the Company at the measurement date.
Level
2
: Quoted prices for similar assets or liabilities in active
markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level
3
: Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the
lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The
exercise of judgment is based in part on our knowledge of the asset class and our prior experience.
|
(c)
|
Gains or losses on investments are calculated by using the specific identification method.
|
|
(d)
|
The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized
and we amortize such amounts into income using the effective interest method or on a straight-line basis, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums
received on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other
non-recurring
fee income as well as management fee and other fee
income for services rendered, if any, are recorded as other income when earned.
|
|
(e)
|
The Company intends to comply with the applicable provisions of the Internal Revenue Code pertaining to regulated
investment companies to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry
|
17
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
|
forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate.
|
|
(f)
|
Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Companys capital accounts annually. In addition, the character
of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.
|
|
(g)
|
Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed
distributed at least annually.
|
|
(h)
|
In accordance with Regulation
S-X
and ASC Topic 810
Consolidation
, the Company consolidates its interest in investment company subsidiaries, financing subsidiaries and
certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to
the Company.
|
|
(i)
|
The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Companys investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange
restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can
significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company.
|
|
(j)
|
The Company has made an irrevocable election to apply the fair value option of accounting to its senior secured credit facility (the Credit Facility) and its unsecured senior notes due 2022 (the 2022
Unsecured Notes) (see note 6 and 8), in accordance with ASC
825-10.
The Company uses an independent third-party valuation firm to assist in measuring their fair value.
|
|
(k)
|
In accordance with ASC
835-30,
the Company records origination and other expenses related to certain debt issuances as a direct deduction from the carrying amount of the debt
liability. These expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and when it approximates the effective
yield method.
|
|
(l)
|
The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are
marked-to-market
by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.
|
|
(m)
|
The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization, in
accordance with ASC
946-20-25.
Certain subsequent costs are expensed per the AICPA Audit & Accounting Guide for Investment Companies.
|
|
(n)
|
Investments that are expected to pay regularly scheduled interest in cash are generally placed on
non-accrual
status when principal or interest cash payments are past due 30 days or more and/or when
|
18
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
|
it is no longer probable that principal or interest cash payments will be collected. Such
non-accrual
investments are restored to accrual status if past
due principal and interest are paid in cash, and in managements judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on investments may be recognized as income
or applied to principal depending on managements judgment.
|
|
(o)
|
The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in
interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt
securities would qualify as cash equivalents.
|
Recent Accounting Pronouncements
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, final rules) interned
to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation
S-X
and require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation
S-X
was August 1, 2017. The Company has evaluated the impact that the adoption of
the amendments to Regulation
S-X
on its consolidated financial statements and disclosures and determined that the adoption of the amendments to Regulation
S-X
has not
had a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the
beginning-of-period
and
end-of-period
total amounts shown on the
statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments
are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU
2016-18
on its consolidated financial statements and disclosures.
In December 2016, the FASB issued ASU
2016-19,
Technical Corrections and Improvements. As part of this guidance, ASU
2016-19
amends FASB ASC 820 to clarify the difference between a valuation approach and a
valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU
2016-19
is effective on a
prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. The Company has evaluated the impact of ASU
2016-19
on its consolidated financial statements and disclosures and determined that the adoption of ASU
2016-19
has not had a material impact on its consolidated financial
statements.
In March 2017, the FASB issued ASU
2017-08,
Premium Amortization on Purchased Callable
Debt Securities, which will amend FASB ASC
310-20.
The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be
amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption
in an interim period. The Company is evaluating the impact of ASU
2017-08
on its consolidated financial statements and disclosures.
19
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Note 3. Agreements
Solar Capital has an Advisory Agreement with the Investment Adviser, under which the Investment Adviser will manage the
day-to-day
operations of, and provide investment advisory services to, Solar Capital. For providing these services, the Investment Adviser receives a fee from Solar Capital,
consisting of two componentsa base management fee and an incentive fee. The base management fee is determined by taking the average value of Solar Capitals gross assets at the end of the two most recently completed calendar quarters
calculated at an annual rate of 2.00%. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter.
Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.
The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Solar Capitals
pre-incentive
fee net investment income for the immediately preceding calendar quarter. For this purpose,
pre-incentive
fee net investment income means interest income,
dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies)
accrued during the calendar quarter, minus Solar Capitals operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and distributions paid on any
issued and outstanding preferred stock, but excluding the incentive fee).
Pre-incentive
fee net investment income does not include any realized capital gains or losses, or unrealized capital appreciation or
depreciation.
Pre-incentive
fee net investment income, expressed as a rate of return on the value of Solar Capitals net assets at the end of the immediately preceding calendar quarter, is compared to the
hurdle rate of 1.75% per quarter (7% annualized). Solar Capital pays the Investment Adviser an incentive fee with respect to Solar Capitals
pre-incentive
fee net investment income in each calendar
quarter as follows: (1) no incentive fee in any calendar quarter in which Solar Capitals
pre-incentive
fee net investment income does not exceed the hurdle rate; (2) 100% of Solar
Capitals
pre-incentive
fee net investment income with respect to that portion of such
pre-incentive
fee net investment income, if any, that exceeds the hurdle rate
but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of Solar Capitals
pre-incentive
fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These
calculations are appropriately
pro-rated
for any period of less than three months.
The second
part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), and will equal 20% of Solar Capitals cumulative realized capital
gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross
investment-by-investment
basis at the end of each
calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the incentive fee is accrued based
upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three and six months ended June 30, 2017 and 2016.
For the three and six months ended June 30, 2017, the Company recognized $6,567 and $13,286, respectively, in base management fees and
$3,983 and $8,066, respectively, in performance-based incentive fees. For the three and six months ended June 30, 2016, the Company recognized $7,179 and $13,927, respectively, in base management fees and $5,877 and $9,112, respectively, in
performance-based incentive fees.
Solar Capital has also entered into an Administration Agreement with Solar Capital Management, LLC (the
Administrator) under which the Administrator provides administrative services to Solar Capital. For providing
20
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
these services, facilities and personnel, Solar Capital reimburses the Administrator for Solar Capitals allocable portion of overhead and other expenses incurred by the Administrator in
performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Capitals behalf, managerial assistance to those portfolio companies to which Solar Capital is required to provide such
assistance. The Company typically reimburses the Administrator on a quarterly basis.
For the three and six months ended June 30,
2017, the Company recognized expenses under the Administration Agreement of $1,313 and $2,648, respectively. For the three and six months ended June 30, 2016, the Company recognized expenses under the Administration Agreement of $1,481 and
$2,800, respectively. No managerial assistance fees were accrued or collected for the three and six months ended June 30, 2017 and 2016.
Note
4. Net Asset Value Per Share
At June 30, 2017, the Companys total net assets and net asset value per share were
$920,924 and $21.79, respectively. This compares to total net assets and net asset value per share at December 31, 2016 of $918,507 and $21.74, respectively.
Note 5. Earnings Per Share
The
following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC
260-10,
for the three and six months ended June 30, 2017 and
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Earnings per share (basic & diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numeratornet increase in net assets resulting from operations:
|
|
$
|
18,783
|
|
|
$
|
35,175
|
|
|
$
|
35,941
|
|
|
$
|
63,352
|
|
Denominatorweighted average shares:
|
|
|
42,260,420
|
|
|
|
42,248,525
|
|
|
|
42,254,506
|
|
|
|
42,267,866
|
|
Earnings per share:
|
|
$
|
0.44
|
|
|
$
|
0.83
|
|
|
$
|
0.85
|
|
|
$
|
1.50
|
|
Note 6. Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuations used to measure
fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy
are as follows:
Level
1.
Financial assets and liabilities whose values are based on unadjusted quoted
prices for identical assets or liabilities in an active market that the Company has the ability to access.
Level
2.
Financial assets and liabilities whose values are based on quoted prices in markets that are not
active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
|
a)
|
Quoted prices for similar assets or liabilities in active markets;
|
|
b)
|
Quoted prices for identical or similar assets or liabilities in
non-active
markets;
|
|
c)
|
Pricing models whose inputs are observable for substantially the full term of the asset or liability; and
|
21
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
|
d)
|
Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
|
Level
3.
Financial assets and liabilities whose values are based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect managements and, if applicable, an independent third-party valuation firms own assumptions about the assumptions a market
participant would use in pricing the asset or liability.
When the inputs used to measure fair value fall within different levels of the
hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs
that are observable (Levels 1 and 2) and unobservable (Level 3).
Gains and losses for assets and liabilities categorized
within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may
result in a reclassification for certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of the quarter in which the reclassifications occur.
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of June 30, 2017 and
December 31, 2016:
Fair Value Measurements
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Measured
at Net
Asset
Value*
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Debt/Senior Secured Loans
|
|
$
|
|
|
|
$
|
25,729
|
|
|
$
|
702,912
|
|
|
$
|
|
|
|
$
|
728,641
|
|
Preferred Equity
|
|
|
|
|
|
|
|
|
|
|
14,136
|
|
|
|
|
|
|
|
14,136
|
|
Common Equity/Equity Interests/Warrants
|
|
|
705
|
|
|
|
|
|
|
|
322,038
|
|
|
|
153,848
|
|
|
|
476,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
705
|
|
|
$
|
25,729
|
|
|
$
|
1,039,086
|
|
|
$
|
153,848
|
|
|
$
|
1,219,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility and 2022 Unsecured Notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
200,000
|
|
|
$
|
|
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
In accordance with ASC
820-10,
certain investments that are measured
using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair
value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. The two portfolio investments in this category are Senior Secured Unitranche Loan Program, LLC (SSLP) and Senior Secured Unitranche Loan
Program II, LLC (SSLP II). See Note 13 & 14, respectively, for more
|
22
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
|
information on these investments, including their investment strategies and the Companys unfunded equity commitments to SSLP and SSLP II. Neither of these investments is redeemable by the
Company absent an election by the members of the entities to liquidate all investments and distribute the proceeds to the members.
|
Fair Value Measurements
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Measured
at Net
Asset
Value*
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Debt/Senior Secured Loans
|
|
$
|
|
|
|
$
|
28,744
|
|
|
$
|
759,510
|
|
|
$
|
|
|
|
$
|
788,254
|
|
Subordinated Debt/Corporate Notes
|
|
|
|
|
|
|
|
|
|
|
28,059
|
|
|
|
|
|
|
|
28,059
|
|
Preferred Equity
|
|
|
|
|
|
|
|
|
|
|
14,906
|
|
|
|
|
|
|
|
14,906
|
|
Common Equity/Equity Interests/Warrants
|
|
|
701
|
|
|
|
|
|
|
|
324,842
|
|
|
|
148,016
|
|
|
|
473,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
701
|
|
|
$
|
28,744
|
|
|
$
|
1,127,317
|
|
|
$
|
148,016
|
|
|
$
|
1,304,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility, Senior Secured Notes and 2022 Unsecured Notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
290,200
|
|
|
$
|
|
|
|
$
|
290,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
In accordance with ASC
820-10,
certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been
classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.
|
23
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
The following tables provide a summary of the changes in fair value of Level 3 assets
and liabilities for the six months ended June 30, 2017 and the year ended December 31, 2016 as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities
still held at June 30, 2017 and December 31, 2016:
Fair Value Measurements Using Level 3 Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Debt/
Senior Secured
Loans
|
|
|
Subordinated Debt/
Corporate Notes
|
|
|
Preferred Equity
|
|
|
Common Equity/
Equity
Interests/
Warrants
|
|
Fair value, December
31, 2016
|
|
$
|
759,510
|
|
|
$
|
28,059
|
|
|
$
|
14,906
|
|
|
$
|
324,842
|
|
Total gains or losses included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss)
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain (loss)
|
|
|
4,807
|
|
|
|
(122
|
)
|
|
|
(83
|
)
|
|
|
(2,962
|
)
|
Purchase of investment securities
|
|
|
118,668
|
|
|
|
36
|
|
|
|
|
|
|
|
158
|
|
Proceeds from dispositions of investment securities
|
|
|
(180,469
|
)
|
|
|
(27,973
|
)
|
|
|
(687
|
)
|
|
|
|
|
Transfers in/out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, June
30, 2017
|
|
$
|
702,912
|
|
|
$
|
|
|
|
$
|
14,136
|
|
|
$
|
322,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) for the period relating to those Level 3 assets that were still
held by the Company at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain (loss)
|
|
$
|
4,960
|
|
|
$
|
|
|
|
$
|
(83
|
)
|
|
$
|
(2,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2017, there were no transfers in and out of Levels 1 and 2.
The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant
unobservable inputs (Level 3) for the six months ended June 30, 2017:
|
|
|
|
|
Credit Facility, Senior Secured Notes and 2022 Unsecured Notes
|
|
For the six
months
ended
June 30,
2017
|
|
Beginning fair value
|
|
$
|
290,200
|
|
Net realized (gain) loss
|
|
|
|
|
Net change in unrealized (gain) loss
|
|
|
|
|
Borrowings
|
|
|
324,200
|
|
Repayments
|
|
|
(414,400
|
)
|
Transfers in/out of Level 3
|
|
|
|
|
|
|
|
|
|
Ending fair value
|
|
$
|
200,000
|
|
|
|
|
|
|
24
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
The Company has made an irrevocable election to apply the fair value option of accounting to
the Credit Facility and the 2022 Unsecured Notes, in accordance with ASC
825-10.
On June 30, 2017, there were borrowings of $50,000 and $150,000, respectively, on the Credit Facility and the 2022
Unsecured Notes. The Company used an independent third-party valuation firm to assist in measuring the fair value of the Credit Facility and the 2022 Unsecured Notes.
Fair Value Measurements Using Level 3 Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Debt/
Senior Secured
Loans
|
|
|
Subordinated Debt/
Corporate Notes
|
|
|
Preferred Equity
|
|
|
Common Equity/
Equity
Interests/
Warrants
|
|
Fair value, December
31, 2015
|
|
$
|
800,291
|
|
|
$
|
67,314
|
|
|
$
|
17,948
|
|
|
$
|
310,239
|
|
Total gains or losses included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss)
|
|
|
702
|
|
|
|
77
|
|
|
|
|
|
|
|
(144
|
)
|
Net change in unrealized gain (loss)
|
|
|
10,613
|
|
|
|
8,479
|
|
|
|
(452
|
)
|
|
|
8,360
|
|
Purchase of investment securities
|
|
|
317,268
|
|
|
|
189
|
|
|
|
|
|
|
|
6,387
|
|
Proceeds from dispositions of investment securities
|
|
|
(369,364
|
)
|
|
|
(48,000
|
)
|
|
|
(2,590
|
)
|
|
|
|
|
Transfers in/out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, December
31, 2016
|
|
$
|
759,510
|
|
|
$
|
28,059
|
|
|
$
|
14,906
|
|
|
$
|
324,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) for the period relating to those Level 3 assets that were still
held by the Company at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain (loss)
|
|
$
|
6,943
|
|
|
$
|
602
|
|
|
$
|
(452
|
)
|
|
$
|
8,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2016, there were no transfers in and out of Levels 1 and 2.
The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant
unobservable inputs (Level 3) for the year ended December 31, 2016:
|
|
|
|
|
Credit Facility, Senior Secured Notes and 2022 Unsecured Notes
|
|
For the year
ended
December 31,
2016
|
|
Beginning fair value
|
|
$
|
332,900
|
|
Net realized (gain) loss
|
|
|
|
|
Net change in unrealized (gain) loss
|
|
|
|
|
Borrowings
|
|
|
728,500
|
|
Repayments
|
|
|
(771,200
|
)
|
Transfers in/out of Level 3
|
|
|
|
|
|
|
|
|
|
Ending fair value
|
|
$
|
290,200
|
|
|
|
|
|
|
The Company has made an irrevocable election to apply the fair value option of accounting to the Credit
Facility, the Senior Secured Notes and the 2022 Unsecured Notes, in accordance with ASC
825-10.
On
25
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
December 31, 2016, there were borrowings of $165,200, $75,000 and $50,000, respectively, on the Credit Facility, the Senior Secured Notes and the 2022 Unsecured Notes. The Company used an
independent third-party valuation firm to assist in measuring the fair value of the Credit Facility, the Senior Secured Notes and the 2022 Unsecured Notes.
Quantitative Information about Level 3 Fair Value Measurements
The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is
ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms
and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our
investment within each portfolio company.
Significant unobservable quantitative inputs typically used in the fair value measurement of
the Companys Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as
enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (EBITDA) multiples of similar companies, and comparable market transactions for equity securities.
Quantitative information about the Companys Level 3 asset and liability fair value measurements as of June 30, 2017 is
summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset or
Liability
|
|
Fair Value at
June 30, 2017
|
|
|
Principal Valuation
Technique/Methodology
|
|
Unobservable Input
|
|
Range (Weighted
Average)
|
Bank Debt/Senior Secured Loans
|
|
Asset
|
|
$
|
702,912
|
|
|
Yield Analysis
|
|
Market Yield
|
|
7.2% 18.9% (11.4%)
|
Preferred Equity
|
|
Asset
|
|
$
|
14,136
|
|
|
Yield Analysis
|
|
Market Yield
|
|
7.1% 14.0% (11.5%)
|
Common Equity/Equity Interests/Warrants
|
|
Asset
|
|
$
$
|
17,038
305,000
|
|
|
Enterprise Value
Enterprise Value
|
|
EBITDA Multiple
Return on Equity
|
|
5.5x 6.5x (6.3x)
1.6% 13.4% (13.4%)
|
Credit Facility
|
|
Liability
|
|
$
|
50,000
|
|
|
Yield Analysis
|
|
Market Yield
|
|
L+1.4% L+4.8%
(L+2.0%)
|
2022 Unsecured Notes
|
|
Liability
|
|
$
|
150,000
|
|
|
Yield Analysis
|
|
Market Yield
|
|
4.5% 4.7% (4.5%)
|
26
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Quantitative information about the Companys Level 3 asset and liability fair value
measurements as of December 31, 2016 is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset or
Liability
|
|
Fair Value at
December 31, 2016
|
|
|
Principal Valuation
Technique/Methodology
|
|
Unobservable Input
|
|
Range (Weighted
Average)
|
Bank Debt/Senior Secured Loans
|
|
Asset
|
|
$
$
|
758,733
777
|
|
|
Yield Analysis
Enterprise Value
|
|
Market Yield
EBITDA Multiple
|
|
8.2% 51.6% (11.5%)
4.0x 5.0x (4.5x)
|
Subordinated Debt/Corporate Note
|
|
Asset
|
|
$
|
28,059
|
|
|
Yield Analysis
|
|
Market Yield
|
|
14.9% 14.9% (14.9%)
|
Preferred Equity
|
|
Asset
|
|
$
|
14,906
|
|
|
Yield Analysis
|
|
Market Yield
|
|
8.0% 11.3% (10.0%)
|
Common Equity/Equity Interests/Warrants
|
|
Asset
|
|
$
$
|
19,842
305,000
|
|
|
Enterprise Value
Enterprise Value
|
|
EBITDA Multiple
Return on Equity
|
|
5.5x 6.5x (6.3x)
7.7% 12.5% (11.9%)
|
Credit Facility
|
|
Liability
|
|
$
|
165,200
|
|
|
Yield Analysis
|
|
Market Yield
|
|
L+1.4% L+4.8%
(L+2.0%)
|
Senior Secured Notes
|
|
Liability
|
|
$
|
75,000
|
|
|
Yield Analysis
|
|
Market Yield
|
|
5.6% 6.1% (5.9%)
|
2022 Unsecured Notes
|
|
Liability
|
|
$
|
50,000
|
|
|
Yield Analysis
|
|
Market Yield
|
|
4.4% 4.7% (4.4%)
|
Significant increases or decreases in any of the above unobservable inputs in isolation, including
unobservable inputs used in deriving
bid-ask
spreads, if applicable, could result in significantly lower or higher fair value measurements for such assets and liabilities.
Note 7. Derivatives
The Company is
exposed to foreign exchange risk through its investments denominated in foreign currencies. The Company may mitigate this risk through the use of foreign currency forward contracts, borrowing in local currency under its Credit Facility, or similar.
As an investment company, all changes in the fair value of assets, including changes caused by foreign currency fluctuation, flow through current earnings.
As of June 30, 2017 and December 31, 2016, there were no open forward foreign currency contracts outstanding. The Company also had
no derivatives designated as hedging instruments at June 30, 2017 and December 31, 2016.
Note 8. Debt
Unsecured Senior Notes
On
November 16, 2012, the Company and U.S. Bank National Association entered into an Indenture and a First Supplemental Indenture relating to the Companys issuance, offer and sale of $100,000 aggregate principal amount of its 6.75% Unsecured
Senior Notes due 2042 (the 2042 Unsecured Notes). The 2042 Unsecured Notes will mature on November 15, 2042 and may be redeemed in whole or in part at the Companys option at any time or from time to time on or after
November 15, 2017 at a redemption price of $25 per security plus accrued and unpaid interest. The 2042 Unsecured Notes bear interest at a rate of 6.75% per year payable quarterly on February 15, May 15, August 15 and
November 15 of each year. The 2042 Unsecured Notes are direct senior unsecured obligations of the Company.
27
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
On November 8, 2016, the Company closed a private offering of $50,000 of the 2022
Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement
only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
On February 15, 2017, the
Company closed a private offering of $100,000 of additional 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and
November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
Revolving and Term Loan Facility
On
September 30, 2016, the Company entered into a second Credit Facility amendment. Post amendment, the Credit Facility was composed of $505,000 of revolving credit and $50,000 of term loans. Borrowings generally bear interest at a rate per annum
equal to the base rate plus a range of
2.00-2.25%
or the alternate base rate plus
1.00%-1.25%.
The Credit Facility has no LIBOR floor requirement. The Credit Facility
matures in September 2021 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800,000 with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain
customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholders equity and a minimum
asset coverage ratio. The Company also pays issuers of funded term loans quarterly in arrears a commitment fee at the rate of 0.25% per annum on the average daily outstanding balance. On February 23, 2017, the Company prepaid its
non-extending
lenders and terminated their commitments, reducing total outstanding revolving credit commitments by $110,000 to $395,000. At June 30, 2017, outstanding USD equivalent borrowings under the Credit
Facility totaled $50,000, comprised solely of outstanding term loans.
Senior Secured Notes
On May 10, 2012, the Company closed a private offering of $75,000 of Senior Secured Notes with a fixed interest rate of 5.875% and a
maturity date of May 10, 2017. Interest on the Senior Secured Notes was due semi-annually on May 10 and November 10. The Senior Secured Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, as amended. On May 10, 2017, the Senior Secured Notes matured and were repaid in full by the Company.
Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance
additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code.
The Company has made an irrevocable election to apply the fair value option of accounting to its Credit Facility and 2022 Unsecured Notes, in
accordance with ASC
825-10.
We believe accounting for the Credit Facility and 2022 Unsecured Notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate
certain earnings volatility. ASC
825-10
requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statement of Assets and Liabilities and changes in
fair value of the Credit Facility and the 2022 Unsecured Notes are reported in the Consolidated Statement of Operations.
The average
annualized interest cost for all borrowings for the six months ended June 30, 2017 and the year ended December 31, 2016 was 5.07% and 4.11%, respectively. These costs are exclusive of other credit facility
28
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
expenses such as unused fees, agency fees and other prepaid expenses related to establishing and/or amending the Credit Facility, the 2022 Unsecured Notes and the 2042 Unsecured Notes
(collectively the Credit Facilities), if any. During the six months ended June 30, 2017, the Company expensed $591 in conjunction with the February issue of 2022 Unsecured Notes. During the year ended December 31, 2016, the
Company expensed $2,781 in conjunction with the September 2016 amendment to the Credit Facility and $280 in conjunction with the November issue of the 2022 Unsecured Notes. The maximum amounts borrowed on the Credit Facilities during the six months
ended June 30, 2017 and the year ended December 31, 2016 were $399,200 and $610,900, respectively.
Note 9. Financial Highlights and Senior
Securities Table
The following is a schedule of financial highlights for the six months ended June 30, 2017 and for the year
ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30, 2017
(unaudited)
|
|
|
Year ended
December 31,
2016
|
|
Per Share Data:
(a)
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
21.74
|
|
|
$
|
20.79
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.77
|
|
|
|
1.68
|
|
Net realized and unrealized gain
|
|
|
0.08
|
|
|
|
0.84
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
0.85
|
|
|
|
2.52
|
|
Distributions to stockholders:
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.80
|
)
|
|
|
(1.60
|
)
|
Anti-dilution
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
21.79
|
|
|
$
|
21.74
|
|
|
|
|
|
|
|
|
|
|
Per share market value, end of period
|
|
$
|
21.87
|
|
|
$
|
20.82
|
|
Total Return
(b)
|
|
|
8.85
|
%
|
|
|
37.49
|
%
|
Net assets, end of period
|
|
$
|
920,924
|
|
|
$
|
918,507
|
|
Shares outstanding, end of period
|
|
|
42,260,826
|
|
|
|
42,248,525
|
|
Ratios to average net assets
(c)
:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
3.53
|
%
|
|
|
7.91
|
%
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2.75
|
%
|
|
|
6.25
|
%
|
Interest and other credit facility expenses*
|
|
|
1.15
|
%
|
|
|
2.73
|
%
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3.90
|
%
|
|
|
8.98
|
%
|
|
|
|
|
|
|
|
|
|
Average debt outstanding
|
|
$
|
364,330
|
|
|
$
|
495,795
|
|
Portfolio turnover ratio
|
|
|
9.4
|
%
|
|
|
31.0
|
%
|
(a)
|
Calculated using the average shares outstanding method.
|
(b)
|
Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. Total return does not include a
sales load.
|
(c)
|
Not annualized for periods less than one year.
|
*
|
Ratios shown without the
non-recurring
costs associated with the amendment of the Credit Facility and establishment of the 2022 Unsecured Notes would be 1.09% and 2.39%,
respectively for the periods shown.
|
29
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Information about our senior securities is shown in the following table as of each year ended
December 31 since the Company commenced operations, unless otherwise noted. The indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class and Year
|
|
Total
Amount
Outstanding
(1)
|
|
|
Asset
Coverage
Per Unit
(2)
|
|
|
Involuntary
Liquidating
Preference
Per Unit
(3)
|
|
|
Average
Market Value
Per Unit
(4)
|
|
Revolving Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 (through June 30, 2017)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2016
|
|
|
115,200
|
|
|
|
990
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2015
|
|
|
207,900
|
|
|
|
1,459
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2012
|
|
|
264,452
|
|
|
|
1,510
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2011
|
|
|
201,355
|
|
|
|
3,757
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2010
|
|
|
400,000
|
|
|
|
2,668
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2009
|
|
|
88,114
|
|
|
|
8,920
|
|
|
|
|
|
|
|
N/A
|
|
2022 Unsecured Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 (through June 30, 2017)
|
|
$
|
150,000
|
|
|
$
|
2,035
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2016
|
|
|
50,000
|
|
|
|
430
|
|
|
|
|
|
|
|
N/A
|
|
2042 Unsecured Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 (through June 30, 2017)
|
|
$
|
100,000
|
|
|
$
|
1,357
|
|
|
|
|
|
|
$
|
1,013
|
|
Fiscal 2016
|
|
|
100,000
|
|
|
|
859
|
|
|
|
|
|
|
|
1,002
|
|
Fiscal 2015
|
|
|
100,000
|
|
|
|
702
|
|
|
|
|
|
|
|
982
|
|
Fiscal 2014
|
|
|
100,000
|
|
|
|
2,294
|
|
|
|
|
|
|
|
943
|
|
Fiscal 2013
|
|
|
100,000
|
|
|
|
2,411
|
|
|
|
|
|
|
|
934
|
|
Fiscal 2012
|
|
|
100,000
|
|
|
|
571
|
|
|
|
|
|
|
|
923
|
|
Senior Secured Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 (through June 30, 2017)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2016
|
|
|
75,000
|
|
|
|
645
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2015
|
|
|
75,000
|
|
|
|
527
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2014
|
|
|
75,000
|
|
|
|
1,721
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2013
|
|
|
75,000
|
|
|
|
1,808
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2012
|
|
|
75,000
|
|
|
|
428
|
|
|
|
|
|
|
|
N/A
|
|
Term Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 (through June 30, 2017)
|
|
$
|
50,000
|
|
|
$
|
678
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2016
|
|
|
50,000
|
|
|
|
430
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2015
|
|
|
50,000
|
|
|
|
351
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2014
|
|
|
50,000
|
|
|
|
1,147
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2013
|
|
|
50,000
|
|
|
|
1,206
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2012
|
|
|
50,000
|
|
|
|
285
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2011
|
|
|
35,000
|
|
|
|
653
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2010
|
|
|
35,000
|
|
|
|
233
|
|
|
|
|
|
|
|
N/A
|
|
30
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class and Year
|
|
Total
Amount
Outstanding
(1)
|
|
|
Asset
Coverage
Per Unit
(2)
|
|
|
Involuntary
Liquidating
Preference
Per Unit
(3)
|
|
|
Average
Market Value
Per Unit
(4)
|
|
Total Senior Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 (through June 30, 2017)
|
|
$
|
300,000
|
|
|
$
|
4,070
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2016
|
|
|
390,200
|
|
|
|
3,354
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2015
|
|
|
432,900
|
|
|
|
3,039
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2014
|
|
|
225,000
|
|
|
|
5,162
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2013
|
|
|
225,000
|
|
|
|
5,425
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2012
|
|
|
489,452
|
|
|
|
2,794
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2011
|
|
|
236,355
|
|
|
|
4,410
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2010
|
|
|
435,000
|
|
|
|
2,901
|
|
|
|
|
|
|
|
N/A
|
|
Fiscal 2009
|
|
|
88,114
|
|
|
|
8,920
|
|
|
|
|
|
|
|
N/A
|
|
(1)
|
Total amount of each class of senior securities outstanding at the end of the period presented.
|
(2)
|
The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by
all senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset
Coverage Per Unit is allocated based on the amount outstanding in each class of debt at the end of the period. As of June 30, 2017, asset coverage was 407.0%.
|
(3)
|
The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.
|
(4)
|
Not applicable except for the 2042 Unsecured Notes which are publicly traded. The Average Market Value Per Unit is calculated by taking the daily average closing price during the period and dividing it by twenty-five
dollars per share and multiplying the result by one thousand to determine a unit price per thousand consistent with Asset Coverage Per Unit. The average market value for the fiscal 2017, 2016, 2015, 2014, 2013 and 2012 periods was $101,286,
$100,175, $98,196, $94,301, $93,392, and $92,302, respectively.
|
Note 10. Crystal Financial LLC
On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (Crystal Financial), a commercial
finance company focused on providing asset-based and other secured financing solutions (the Crystal Acquisition). We invested $275,000 in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the
outstanding ownership interest in Crystal Financial LLC. The remaining financial interest was held by various employees of Crystal Financial LLC, through their investment in Crystal Management LP. Crystal Financial LLC had a diversified portfolio of
23 loans having a total par value of approximately $400,000 at November 30, 2012 and a $275,000 committed revolving credit facility. On January 27, 2014, the revolving credit facility was expanded to $300,000. On March 31, 2014, we
exchanged $137,500 of our equity interest in Crystal Financial in exchange for $137,500 in floating rate senior secured notes in Crystal Financial bearing interest at LIBOR plus 9.50%, maturing on March 31, 2019. On May 18, 2015, the
revolving credit facility was expanded to $350,000. Our financial statements, including our schedule of investments, reflected our investments in Crystal Financial on a consolidated basis. On July 28, 2016, the Company purchased Crystal
Management LPs approximately 2% equity interest in Crystal Financial LLC for approximately $5,737. Upon the closing of this transaction, the Company holds 100% of the equity interest in Crystal Financial LLC. On September 30, 2016,
Crystal Capital Financial Holdings LLC was dissolved.
31
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
As of June 30, 2017 Crystal Financial LLC had 26 funded commitments to 24 different
issuers with a total par value of approximately $373,199 on total assets of $460,641. As of December 31, 2016, Crystal Financial LLC had 26 funded commitments to 25 different issuers with a total par value of approximately $368,784 on total
assets of $459,732. As of June 30, 2017 and December 31, 2016, the largest loan outstanding totaled $38,511 and $36,255, respectively. For the same periods, the average exposure per issuer was $15,550 and $14,751,
respectively. Crystal Financial LLCs credit facility, which is
non-recourse
to Solar Capital, had approximately $177,597 and $175,422 of borrowings outstanding at June 30, 2017 and
December 31, 2016, respectively. For the three months ended June 30, 2017 and 2016, Crystal Financial LLC had net income of $8,031 and $8,465, respectively, on gross income of $15,777 and $17,852, respectively. For the six months
ended June 30, 2017 and 2016, Crystal Financial LLC had net income of $15,871 and $17,664, respectively, on gross income of $28,039 and $33,063, respectively. Due to timing and
non-cash
items, there
may be material differences between GAAP net income and cash available for distributions.
Note 11. Stock Repurchase Programs
On July 31, 2013, the Board authorized a program for the purpose of repurchasing up to $100,000 of the Companys common stock. Under
the repurchase program, the Company could have, but was not obligated to, repurchase its outstanding common stock in the open market from time to time provided that the Company complied with the prohibitions under its Insider Trading Policies and
Procedures and the guidelines specified in Rules
10b-18
and
10b-5
under the Securities Exchange Act of 1934, as amended, including certain price, market volume and
timing constraints. On December 5, 2013, the Board extended the repurchase program to be in place until the earlier of July 31, 2014 or until $100,000 of the Companys outstanding shares of common stock had been repurchased. On
July 31, 2014, the Companys stock repurchase program expired. During the fiscal year ended December 31, 2014, the Company repurchased 1,779,033 shares at an average price of approximately $21.97 per share, inclusive of commissions.
The total dollar amount of shares repurchased in that period was $39,078. During the year ended December 31, 2013, the Company repurchased 796,418 shares at an average price of approximately $21.98 per share, inclusive of commissions, for a
total dollar amount of $17,508.
On October 7, 2015, the Board authorized a new share repurchase program to purchase common stock in
the open market in an amount up to $30,000. Under the repurchase program, the Company may, but is not obligated to, repurchase its outstanding common stock in the open market from time to time provided that the Company complies with the prohibitions
under its Insider Trading Policies and Procedures and the guidelines specified in Rules
10b-18
and
10b-5
under the Securities Exchange Act of 1934, as amended, including
certain price, market volume and timing constraints. During the year ended December 31, 2016, the Company repurchased 216,237 shares at an average price of $15.76 per share, inclusive of commissions. The total dollar amount of shares
repurchased for the year ended December 31, 2016 was $3,408. On October 7, 2016, the Companys stock repurchase program expired.
32
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Note 12. Commitments and Contingencies
The Company had unfunded debt and equity commitments to various delayed draw loans as well as to Crystal Financial LLC. The total amount of
these unfunded commitments as of June 30, 2017 and December 31, 2016 is $52,113 and $64,013, respectively, comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Crystal Financial LLC
|
|
$
|
44,263
|
|
|
$
|
44,263
|
|
MRI Software LLC
|
|
|
2,951
|
|
|
|
|
|
aTyr Pharma, Inc.
|
|
|
2,500
|
|
|
|
5,000
|
|
CardioFocus, Inc.
|
|
|
2,000
|
|
|
|
|
|
Island Medical Management Holdings, LLC
|
|
|
399
|
|
|
|
|
|
Vapotherm, Inc.
|
|
|
|
|
|
|
10,000
|
|
SentreHeart, Inc.
|
|
|
|
|
|
|
2,500
|
|
Conventus Orthopaedics, Inc.
|
|
|
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
Total Commitments*
|
|
$
|
52,113
|
|
|
$
|
64,013
|
|
|
|
|
|
|
|
|
|
|
*
|
The Company controls the funding of the Crystal Financial LLC commitment and may cancel it at its discretion.
|
As of June 30, 2017 and December 31, 2016, the Company had sufficient cash available and/or liquid securities available to fund its
commitments as well as the commitments to Senior Secured Unitranche Loan Program LLC (SSLP) disclosed in Note 13, Senior Secured Unitranche Loan Program II LLC (SSLP II) disclosed in Note 14 and Solar Life Science Program LLC
(LSJV) disclosed in Note 15.
Note 13. Senior Secured Unitranche Loan Program LLC
On September 2, 2014, the Company entered into a limited liability company agreement with an affiliate (the Investor) of a
fund managed by Pacific Investment Management Company LLC (PIMCO) to
co-invest
in middle market senior secured unitranche loans sourced by the same origination platform used by the Company. Initial
funding commitments to the unitranche strategy total $600,000, consisting of direct equity investments and
co-investment
commitments as described below. The joint venture vehicle known as the SSLP is
structured as an unconsolidated Delaware limited liability company. The Company and the Investor initially made equity commitments to the SSLP of $300,000 and $43,250, respectively. All portfolio decisions and generally all other decisions in
respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and PIMCO (with approval from a representative of each required).
On October 15, 2015, the Company entered into an amended and restated limited liability company agreement for its SSLP to add Voya
Investment Management LLC (Voya), part of Voya Financial, Inc. (NYSE: VOYA), as a partner in SSLP in place of the investor that was previously the Companys partner in SSLP, though this investor may still
co-invest
up to $300,000 of equity in unitranche loans alongside SSLP. This joint venture is expected to invest primarily in senior secured loans, including unitranche loans, primarily to middle market companies
predominantly owned by private equity sponsors or entrepreneurs, consistent with the Companys core origination and underwriting mandate. In addition to the Companys prior equity commitment of $300,000 to SSLP, Voya has made an initial
equity commitment of $25,000 to SSLP, with the ability to upsize.
33
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
On November 2, 2015, the Company assigned $125,000 of its $300,000 commitment to SSLP to
Senior Secured Unitranche Loan Program II LLC (SSLP II), a Delaware limited liability company.
On November 25, 2015, SSLP
commenced operations. On June 30, 2016, SSLP as transferor and SSLP
2016-1,
LLC, a newly formed wholly owned subsidiary of SSLP, as borrower entered into a $200,000 senior secured revolving credit
facility (the SSLP Facility) with Wells Fargo Bank, NA acting as administrative agent. Solar Capital Ltd. acts as servicer under the SSLP Facility. The SSLP Facility is scheduled to mature on June 30, 2021. The SSLP Facility
generally bears interest at a rate of LIBOR plus 2.50%. SSLP and SSLP
2016-1,
LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants,
including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. There were $57,748
and $67,148 of borrowings outstanding as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017 and December 31, 2016, the Company and Voya had contributed combined equity capital in the amount of $116,433 and
$116,433, respectively. Of the $116,433 of contributed equity capital at June 30, 2017, the Company contributed $29,884 in the form of investments and $71,995 in the form of cash and Voya contributed $14,554 in the form of cash. As of
June 30, 2017, the Company and Voyas remaining commitments to SSLP totaled $73,121 and $10,446, respectively. The Company, along with Voya, controls the funding of SSLP and SSLP may not call the unfunded commitments without approval of
both the Company and Voya.
As of June 30, 2017 and December 31, 2016, SSLP had total assets of $177,270 and $184,816,
respectively. For the same periods, SSLPs portfolio consisted of floating rate senior secured loans to 10 and 11 different borrowers, respectively. For the three months ended June 30, 2017, SSLP invested $1,537 in 2 portfolio companies.
For the three months ended June 30, 2016, SSLP invested $41,548 in 4 portfolio companies. Investments prepaid totaled $33,474 for the three months ended June 30, 2017 and $250 for the three months ended June 30, 2016. At June 30,
2017 and December 31, 2016, the weighted average yield of SSLPs portfolio was 7.7% and 7.4%, respectively, measured at fair value and 7.8% and 7.5%, respectively, measured at cost.
34
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
SSLP Portfolio as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Industry
|
|
|
Spread
Above
Index
(1)
|
|
|
LIBOR
Floor
|
|
|
Interest
Rate
(2)
|
|
|
Maturity
Date
|
|
|
Par
Amount
|
|
|
Cost
|
|
|
Fair
Value
(3)
|
|
AccentCare, Inc.
|
|
|
Health Care Providers
& Services
|
|
|
|
L+575
|
|
|
|
1.00
|
%
|
|
|
7.05
|
%
|
|
|
9/3/21
|
|
|
$
|
12,732
|
|
|
$
|
12,694
|
|
|
$
|
12,701
|
|
Alera Group Intermediate Holdings, Inc.
|
|
|
Insurance
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.55
|
%
|
|
|
12/30/22
|
|
|
|
14,371
|
|
|
|
14,237
|
|
|
|
14,299
|
|
Associated Pathologists, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+500
|
|
|
|
1.00
|
%
|
|
|
6.16
|
%
|
|
|
8/1/21
|
|
|
|
3,208
|
|
|
|
3,182
|
|
|
|
3,200
|
|
Empower Payments Acquisition, Inc. (RevSpring)
|
|
|
Professional Services
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.80
|
%
|
|
|
11/30/23
|
|
|
|
13,806
|
|
|
|
13,547
|
|
|
|
13,667
|
|
Falmouth Group Holdings Corp.
(AMPAC)
(4)
|
|
|
Chemicals
|
|
|
|
L+675
|
|
|
|
1.00
|
%
|
|
|
8.05
|
%
|
|
|
12/14/21
|
|
|
|
34,475
|
|
|
|
34,065
|
|
|
|
34,475
|
|
Island Medical Management Holdings,
LLC
(4)
|
|
|
Health Care
Providers & Services
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.68
|
%
|
|
|
9/1/22
|
|
|
|
13,778
|
|
|
|
13,643
|
|
|
|
13,640
|
|
Pet Holdings ULC & Pet Supermarket, Inc.
|
|
|
Specialty Retail
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.60
|
%
|
|
|
7/5/22
|
|
|
|
21,931
|
|
|
|
21,645
|
|
|
|
21,712
|
|
PPT Management Holdings, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.30
|
%
|
|
|
12/16/22
|
|
|
|
11,940
|
|
|
|
11,829
|
|
|
|
11,821
|
|
PSKW, LLC & PDR, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+425
|
|
|
|
1.00
|
%
|
|
|
5.55
|
%
|
|
|
11/25/21
|
|
|
|
1,925
|
|
|
|
1,910
|
|
|
|
1,925
|
|
PSKW, LLC & PDR, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+829
|
|
|
|
1.00
|
%
|
|
|
9.59
|
%
|
|
|
11/25/21
|
|
|
|
22,250
|
|
|
|
21,897
|
|
|
|
21,888
|
|
VetCor Professional Practices LLC
|
|
|
Health Care Facilities
|
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.55
|
%
|
|
|
4/20/21
|
|
|
|
23,666
|
|
|
|
23,511
|
|
|
|
23,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172,160
|
|
|
$
|
172,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
|
(2)
|
Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or
P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of June 30, 2017.
|
(3)
|
Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Boards valuation process described elsewhere herein.
|
(4)
|
The Company also holds this security on its Consolidated Statements of Assets and Liabilities.
|
35
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
SSLP Portfolio as of December 31, 2016 (audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Industry
|
|
|
Spread
Above
Index
(1)
|
|
|
LIBOR
Floor
|
|
|
Interest
Rate
(2)
|
|
|
Maturity
Date
|
|
|
Par
Amount
|
|
|
Cost
|
|
|
Fair
Value
(3)
|
|
AccentCare, Inc.
|
|
|
Health Care Providers
& Services
|
|
|
|
L+575
|
|
|
|
1.00
|
%
|
|
|
6.75
|
%
|
|
|
9/3/21
|
|
|
$
|
4,875
|
|
|
$
|
4,875
|
|
|
$
|
4,875
|
|
Alera Group Intermediate Holdings, Inc.
|
|
|
Insurance
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.50
|
%
|
|
|
12/30/22
|
|
|
|
13,824
|
|
|
|
13,686
|
|
|
|
13,686
|
|
Associated Pathologists, LLC
|
|
|
Health Care Providers
& Services
|
|
|
|
L+500
|
|
|
|
1.00
|
%
|
|
|
6.00
|
%
|
|
|
8/1/21
|
|
|
|
3,292
|
|
|
|
3,261
|
|
|
|
3,275
|
|
CIBT Holdings, Inc.
|
|
|
Professional Services
|
|
|
|
L+525
|
|
|
|
1.00
|
%
|
|
|
6.25
|
%
|
|
|
6/28/22
|
|
|
|
13,102
|
|
|
|
12,979
|
|
|
|
12,971
|
|
Empower Payments Acquisition, Inc. (RevSpring)
|
|
|
Professional Services
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.50
|
%
|
|
|
11/30/23
|
|
|
|
13,875
|
|
|
|
13,600
|
|
|
|
13,597
|
|
Falmouth Group Holdings Corp. (AMPAC)
(4)
|
|
|
Chemicals
|
|
|
|
L+675
|
|
|
|
1.00
|
%
|
|
|
7.75
|
%
|
|
|
12/14/21
|
|
|
|
34,650
|
|
|
|
34,202
|
|
|
|
34,650
|
|
Pet Holdings ULC & Pet Supermarket, Inc.
|
|
|
Specialty Retail
|
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.50
|
%
|
|
|
7/5/22
|
|
|
|
20,625
|
|
|
|
20,336
|
|
|
|
20,367
|
|
PPT Management Holdings, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.00
|
%
|
|
|
12/16/22
|
|
|
|
12,000
|
|
|
|
11,881
|
|
|
|
11,880
|
|
PSKW, LLC & PDR, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+425
|
|
|
|
1.00
|
%
|
|
|
5.25
|
%
|
|
|
11/25/21
|
|
|
|
2,475
|
|
|
|
2,454
|
|
|
|
2,475
|
|
PSKW, LLC & PDR, LLC
|
|
|
Health Care
Providers & Services
|
|
|
|
L+839
|
|
|
|
1.00
|
%
|
|
|
9.39
|
%
|
|
|
11/25/21
|
|
|
|
22,250
|
|
|
|
21,866
|
|
|
|
21,861
|
|
U.S. Anesthesia Partners Inc.
|
|
|
Health Care
Providers & Services
|
|
|
|
L+500
|
|
|
|
1.00
|
%
|
|
|
6.00
|
%
|
|
|
12/31/19
|
|
|
|
19,557
|
|
|
|
19,407
|
|
|
|
19,362
|
|
VetCor Professional Practices LLC
|
|
|
Health Care Facilities
|
|
|
|
L+625
|
|
|
|
1.00
|
%
|
|
|
7.25
|
%
|
|
|
4/20/21
|
|
|
|
21,818
|
|
|
|
21,686
|
|
|
|
21,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180,233
|
|
|
$
|
180,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
|
(2)
|
Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or
P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2016.
|
(3)
|
Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Boards valuation process described elsewhere herein.
|
(4)
|
The Company also holds this security on its Consolidated Statements of Assets and Liabilities.
|
36
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Below is certain summarized financial information for SSLP as of June 30, 2017 and
December 31, 2016 and for the three and six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31,
2016 (audited)
|
|
Selected Balance Sheet Information for SSLP:
|
|
|
|
|
|
|
|
|
Investments at fair value (cost $172,160 and $180,233, respectively)
|
|
$
|
172,639
|
|
|
$
|
180,490
|
|
Cash and other assets
|
|
|
4,631
|
|
|
|
4,326
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
177,270
|
|
|
$
|
184,816
|
|
|
|
|
|
|
|
|
|
|
Debt outstanding
|
|
$
|
57,748
|
|
|
$
|
67,148
|
|
Distributions payable
|
|
|
2,427
|
|
|
|
1,688
|
|
Interest payable and other credit facility related expenses
|
|
|
905
|
|
|
|
660
|
|
Accrued expenses and other payables
|
|
|
249
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
61,329
|
|
|
$
|
69,783
|
|
|
|
|
|
|
|
|
|
|
Members equity
|
|
$
|
115,941
|
|
|
$
|
115,033
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
177,270
|
|
|
$
|
184,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2017
|
|
|
Three months ended
June 30, 2016
|
|
|
Six months ended
June 30, 2017
|
|
|
Six months ended
June 30, 2016
|
|
Selected Income Statement Information for SSLP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
3,788
|
|
|
$
|
1,913
|
|
|
$
|
7,235
|
|
|
$
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees*
|
|
$
|
30
|
|
|
$
|
20
|
|
|
$
|
61
|
|
|
$
|
35
|
|
Interest and other credit facility expenses
|
|
|
905
|
|
|
|
2,651
|
**
|
|
|
1,686
|
|
|
|
2,651
|
**
|
Other general and administrative expenses
|
|
|
38
|
|
|
|
30
|
|
|
|
75
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
973
|
|
|
|
2,701
|
|
|
|
1,822
|
|
|
|
2,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
2,815
|
|
|
$
|
(788
|
)
|
|
$
|
5,413
|
|
|
$
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on investments
|
|
|
127
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
Net change in unrealized gain (loss) on investments
|
|
|
248
|
|
|
|
625
|
|
|
|
222
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) on investments
|
|
|
375
|
|
|
|
625
|
|
|
|
349
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,190
|
|
|
$
|
(163
|
)
|
|
$
|
5,762
|
|
|
$
|
916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Service fees are included within the Companys Consolidated Statements of Operations as other income.
|
37
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
**
|
SSLP made an irrevocable election to apply the fair value option of accounting to the SSLP Facility, in accordance with ASC
825-10.
As such, all expenses related to the
establishment of the SSLP Facility were expensed during the periods shown. For the three and six months ended June 30, 2016, these amounts totaled $2,649 and $2,649, respectively.
|
Note 14. Senior Secured Unitranche Loan Program II LLC
On November 2, 2015, the Company assigned $125,000 of its $300,000 commitment to SSLP to SSLP II, a Delaware limited liability
company. On August 5, 2016, the Company entered into an amended and restated limited liability company agreement with WFI Loanco, LLC (WFI) and SSLP II commenced operations. SSLP II is expected to invest primarily in senior
secured loans, including unitranche loans, primarily to middle market companies predominantly owned by private equity sponsors or entrepreneurs, consistent with the Companys core origination and underwriting mandate. Also on August 5,
2016, the Company assigned $49,977 of its $125,000 commitment to SSLP II to Senior Secured Unitranche Loan Program III LLC (SSLP III), a newly formed Delaware limited liability company. SSLP III, which has not commenced operations, is
currently wholly owned by Solar Capital Ltd. but may bring in unaffiliated investors at a later date. The Company and WFIs equity commitments to SSLP II now total $75,023 and $18,000, respectively.
On November 15, 2016, SSLP II as transferor and SSLP II
2016-1,
LLC, a newly formed wholly owned
subsidiary of SSLP II, as borrower entered into a $100,000 senior secured revolving credit facility (the SSLP II Facility) with Wells Fargo Bank, NA acting as administrative agent. Solar Capital Ltd. acts as servicer under the SSLP II
Facility. The SSLP II Facility is scheduled to mature on November 15, 2021. The SSLP II Facility generally bears interest at a rate of LIBOR plus 2.50%. SSLP II and SSLP II
2016-1,
LLC, as applicable,
have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP II
Facility also includes usual and customary events of default for credit facilities of this nature. There were $48,250 and $32,950 of borrowings outstanding as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017
and December 31, 2016, the Company and WFI contributed combined equity capital in the amount of $63,731 and $58,231, respectively. Of the $63,731 of contributed equity capital at June 30, 2017, the Company contributed $43,498 in the form
of investments and $7,901 in the form of cash and WFI contributed $12,332 in the form of cash. As of June 30, 2017, the Company and WFIs remaining commitments to SSLP II totaled $23,624 and $5,668, respectively. The Company, along with
WFI, controls the funding of SSLP II and SSLP II may not call the unfunded commitments without approval of both the Company and WFI.
As
of June 30, 2017 and December 31, 2016, SSLP II had total assets of $115,454 and $93,467, respectively. For the same periods, SSLP IIs portfolio consisted of floating rate senior secured loans to 15 and 12 different borrowers,
respectively. For the three months ended June 30, 2017, SSLP II invested $12,265 in 5 portfolio companies. Investments prepaid totaled $11,173 for the same period. At June 30, 2017 and December 31, 2016, the weighted average yield of
SSLP IIs portfolio was 7.5% and 7.6%, respectively, measured at fair value and 8.0% and 7.9%, respectively, measured at cost.
38
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
SSLP II Portfolio as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Industry
|
|
Spread
Above
Index
(1)
|
|
|
LIBOR
Floor
|
|
|
Interest
Rate
(2)
|
|
|
Maturity
Date
|
|
|
Par
Amount
|
|
|
Cost
|
|
|
Fair
Value
(3)
|
|
AccentCare, Inc.
|
|
Health Care Providers & Services
|
|
|
L+575
|
|
|
|
1.00
|
%
|
|
|
7.05
|
%
|
|
|
9/3/21
|
|
|
$
|
6,956
|
|
|
$
|
6,923
|
|
|
$
|
6,939
|
|
Alera Group Intermediate Holdings, Inc.
|
|
Insurance
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.55
|
%
|
|
|
12/30/22
|
|
|
|
5,389
|
|
|
|
5,339
|
|
|
|
5,362
|
|
American Teleconferencing Services, Ltd. (PGI)
(4)
|
|
Communications Equipment
|
|
|
L+650
|
|
|
|
1.00
|
%
|
|
|
7.72
|
%
|
|
|
12/8/21
|
|
|
|
14,239
|
|
|
|
13,006
|
|
|
|
14,239
|
|
Associated Pathologists, LLC
|
|
Health Care Providers & Services
|
|
|
L+500
|
|
|
|
1.00
|
%
|
|
|
6.16
|
%
|
|
|
8/1/21
|
|
|
|
1,604
|
|
|
|
1,591
|
|
|
|
1,600
|
|
Empower Payments Acquisition, Inc. (RevSpring)
|
|
Professional Services
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.80
|
%
|
|
|
11/30/23
|
|
|
|
6,903
|
|
|
|
6,774
|
|
|
|
6,834
|
|
Falmouth Group Holdings Corp. (AMPAC)
(4)
|
|
Chemicals
|
|
|
L+675
|
|
|
|
1.00
|
%
|
|
|
8.05
|
%
|
|
|
12/14/21
|
|
|
|
10,889
|
|
|
|
10,889
|
|
|
|
10,889
|
|
Global Holdings LLC & Payment Concepts LLC
|
|
Consumer Finance
|
|
|
L+650
|
|
|
|
1.00
|
%
|
|
|
7.71
|
%
|
|
|
5/5/22
|
|
|
|
8,750
|
|
|
|
8,579
|
|
|
|
8,619
|
|
Island Medical Management Holdings, LLC
(4)
|
|
Health Care Providers & Services
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.68
|
%
|
|
|
9/1/22
|
|
|
|
6,889
|
|
|
|
6,821
|
|
|
|
6,820
|
|
Pet Holdings ULC & Pet Supermarket, Inc.
|
|
Specialty Retail
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.60
|
%
|
|
|
7/5/22
|
|
|
|
9,650
|
|
|
|
9,523
|
|
|
|
9,553
|
|
PetVet Care Centers, LLC
|
|
Health Care Facilities
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.22
|
%
|
|
|
6/8/23
|
|
|
|
2,400
|
|
|
|
2,376
|
|
|
|
2,376
|
|
Polycom, Inc.
|
|
Communications Equipment
|
|
|
L+525
|
|
|
|
1.00
|
%
|
|
|
6.41
|
%
|
|
|
9/27/23
|
|
|
|
10,639
|
|
|
|
10,253
|
|
|
|
10,639
|
|
PPT Management Holdings, LLC
|
|
Health Care Providers & Services
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.30
|
%
|
|
|
12/16/22
|
|
|
|
9,950
|
|
|
|
9,858
|
|
|
|
9,851
|
|
Professional DataSolutions, Inc.
|
|
Software
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.73
|
%
|
|
|
5/20/22
|
|
|
|
5,000
|
|
|
|
4,928
|
|
|
|
4,950
|
|
PSKW, LLC & PDR, LLC
|
|
Health Care Providers & Services
|
|
|
L+425
|
|
|
|
1.00
|
%
|
|
|
5.55
|
%
|
|
|
11/25/21
|
|
|
|
770
|
|
|
|
770
|
|
|
|
770
|
|
PSKW, LLC & PDR, LLC
|
|
Health Care Providers & Services
|
|
|
L+829
|
|
|
|
1.00
|
%
|
|
|
9.59
|
%
|
|
|
11/25/21
|
|
|
|
8,900
|
|
|
|
8,761
|
|
|
|
8,755
|
|
VetCor Professional Practices LLC
|
|
Health Care Facilities
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.55
|
%
|
|
|
4/20/21
|
|
|
|
4,588
|
|
|
|
4,508
|
|
|
|
4,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$110,899
|
|
|
$112,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
|
(2)
|
Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or
P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of June 30, 2017.
|
(3)
|
Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Boards valuation process described elsewhere herein.
|
(4)
|
The Company also holds this security on its Consolidated Statements of Assets and Liabilities.
|
39
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
SSLP II Portfolio as of December 31, 2016 (audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Industry
|
|
Spread
Above
Index
(1)
|
|
|
LIBOR
Floor
|
|
|
Interest
Rate
(2)
|
|
|
Maturity
Date
|
|
|
Par
Amount
|
|
|
Cost
|
|
|
Fair
Value
(3)
|
|
Alera Group Intermediate Holdings, Inc.
|
|
Insurance
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.50
|
%
|
|
|
12/30/22
|
|
|
$
|
5,184
|
|
|
$
|
5,132
|
|
|
$
|
5,132
|
|
American Teleconferencing Services, Ltd. (PGI)
(4)
|
|
Communications Equipment
|
|
|
L+650
|
|
|
|
1.00
|
%
|
|
|
7.50
|
%
|
|
|
12/8/21
|
|
|
|
14,619
|
|
|
|
13,244
|
|
|
|
14,217
|
|
Associated Pathologists, LLC
|
|
Health Care Providers & Services
|
|
|
L+500
|
|
|
|
1.00
|
%
|
|
|
6.00
|
%
|
|
|
8/1/21
|
|
|
|
1,646
|
|
|
|
1,631
|
|
|
|
1,638
|
|
CIBT Holdings, Inc.
|
|
Professional Services
|
|
|
L+525
|
|
|
|
1.00
|
%
|
|
|
6.25
|
%
|
|
|
6/28/22
|
|
|
|
5,241
|
|
|
|
5,191
|
|
|
|
5,188
|
|
Empower Payments Acquisition, Inc. (RevSpring)
|
|
Professional Services
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.50
|
%
|
|
|
11/30/23
|
|
|
|
6,938
|
|
|
|
6,800
|
|
|
|
6,799
|
|
Falmouth Group Holdings Corp. (AMPAC)
(4)
|
|
Chemicals
|
|
|
L+675
|
|
|
|
1.00
|
%
|
|
|
7.75
|
%
|
|
|
12/14/21
|
|
|
|
10,945
|
|
|
|
10,945
|
|
|
|
10,945
|
|
Pet Holdings ULC & Pet Supermarket, Inc.
|
|
Specialty Retail
|
|
|
L+550
|
|
|
|
1.00
|
%
|
|
|
6.50
|
%
|
|
|
7/5/22
|
|
|
|
9,075
|
|
|
|
8,947
|
|
|
|
8,962
|
|
Polycom, Inc.
|
|
Communications Equipment
|
|
|
L+650
|
|
|
|
1.00
|
%
|
|
|
7.50
|
%
|
|
|
9/27/23
|
|
|
|
11,605
|
|
|
|
11,152
|
|
|
|
11,547
|
|
PPT Management Holdings, LLC
|
|
Health Care Providers & Services
|
|
|
L+600
|
|
|
|
1.00
|
%
|
|
|
7.00
|
%
|
|
|
12/16/22
|
|
|
|
10,000
|
|
|
|
9,901
|
|
|
|
9,900
|
|
PSKW, LLC & PDR, LLC
|
|
Health Care Providers & Services
|
|
|
L+425
|
|
|
|
1.00
|
%
|
|
|
5.25
|
%
|
|
|
11/25/21
|
|
|
|
990
|
|
|
|
990
|
|
|
|
990
|
|
PSKW, LLC & PDR, LLC
|
|
Health Care Providers & Services
|
|
|
L+839
|
|
|
|
1.00
|
%
|
|
|
9.39
|
%
|
|
|
11/25/21
|
|
|
|
8,900
|
|
|
|
8,748
|
|
|
|
8,744
|
|
U.S. Anesthesia Partners Inc.
|
|
Health Care Providers & Services
|
|
|
L+500
|
|
|
|
1.00
|
%
|
|
|
6.00
|
%
|
|
|
12/31/19
|
|
|
|
4,988
|
|
|
|
4,938
|
|
|
|
4,938
|
|
VetCor Professional Practices LLC
|
|
Health Care Facilities
|
|
|
L+625
|
|
|
|
1.00
|
%
|
|
|
7.25
|
%
|
|
|
4/20/21
|
|
|
|
2,840
|
|
|
|
2,787
|
|
|
|
2,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$90,406
|
|
|
$91,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
|
(2)
|
Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or
P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2016.
|
(3)
|
Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Boards valuation process described elsewhere herein.
|
(4)
|
The Company also holds this security on its Consolidated Statements of Assets and Liabilities.
|
40
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Below is certain summarized financial information for SSLP II as of June 30, 2017 and
December 31, 2016 and for the three and six months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016 (audited)
|
|
Selected Balance Sheet Information for SSLP II:
|
|
|
|
|
|
|
|
|
Investments at fair value (cost $110,899 and $90,406, respectively)
|
|
$
|
112,715
|
|
|
$
|
91,797
|
|
Cash and other assets
|
|
|
2,739
|
|
|
|
1,670
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
115,454
|
|
|
$
|
93,467
|
|
|
|
|
|
|
|
|
|
|
Debt outstanding
|
|
$
|
48,250
|
|
|
$
|
32,950
|
|
Distributions payable
|
|
|
1,461
|
|
|
|
1,460
|
|
Interest payable and other credit facility related expenses
|
|
|
535
|
|
|
|
147
|
|
Accrued expenses and other payables
|
|
|
236
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
50,482
|
|
|
$
|
34,740
|
|
|
|
|
|
|
|
|
|
|
Members equity
|
|
$
|
64,972
|
|
|
$
|
58,727
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
115,454
|
|
|
$
|
93,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30, 2017
|
|
|
Six months ended
June 30, 2017
|
|
Selected Income Statement Information for SSLP II:
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
2,162
|
|
|
$
|
4,253
|
|
|
|
|
|
|
|
|
|
|
Service fees*
|
|
$
|
28
|
|
|
$
|
52
|
|
Interest and other credit facility expenses
|
|
|
520
|
|
|
|
938
|
|
Other general and administrative expenses
|
|
|
40
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
588
|
|
|
$
|
1,055
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
1,574
|
|
|
$
|
3,198
|
|
|
|
|
|
|
|
|
|
|
Realized gain on investments
|
|
|
46
|
|
|
|
46
|
|
Net change in unrealized gain on investments
|
|
|
122
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain on investments
|
|
|
168
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,742
|
|
|
$
|
3,669
|
|
|
|
|
|
|
|
|
|
|
*
|
Service fees are included within the Companys Consolidated Statements of Operations as other income.
|
Note 15. Solar Life Science Program LLC
On February 22, 2017, the Company, through its commitment to SSLP III, and Solar Senior Capital Ltd. formed LSJV with an affiliate of
Deerfield Management. SSLP III committed approximately $49,977 to LSJV. On March 10, 2017, SSLP III was dissolved. As of June 30, 2017, LSJV has not commenced operations.
41
SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
June 30, 2017
(in
thousands, except share amounts)
Note 16. Capital Share Transactions
As of June 30, 2017 and December 31, 2016, 200,000,000 shares of $0.01 par value capital stock were authorized.
Transactions in capital stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Six months ended
June 30, 2017
|
|
|
Year ended
December 31, 2016
|
|
|
Six months ended
June 30, 2017
|
|
|
Year ended
December 31, 2016
|
|
Repurchases of common stock
|
|
|
|
|
|
|
216,237
|
|
|
$
|
|
|
|
$
|
3,408
|
|
Shares issued in reinvestment of distributions
|
|
|
12,301
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
12,301
|
|
|
|
216,237
|
|
|
$
|
280
|
|
|
$
|
3,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17. Subsequent Events
The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated
financial statements were issued.
On July 31, 2017, the Company completed the acquisition of NEF Holdings, LLC (NEF),
which conducts its business through its wholly-owned subsidiary Nations Equipment Finance LLC. NEF is an independent equipment finance company that provides senior secured financings to U.S. based companies.
On August 1, 2017, our Board declared a quarterly distribution of $0.40 per share payable on October 3, 2017 to holders of record as
of September 21, 2017.
42