The aggregate fair value of non-controlled, affiliated investments at December 31, 2016 represents 18.3% of the Companys net assets.
The aggregate fair value of controlled investments at December 31, 2016 represents 51.9% of the Companys net assets.
Notes to Consolidated Financial Statements (Unaudited)
1. Organization
BlackRock Capital
Investment Corporation (together with its subsidiaries, the Company), was organized as a Delaware corporation on April 13, 2005 and was initially funded on July 25, 2005. The Company has elected to be regulated as a business
development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). In addition, for tax purposes the Company has qualified and has elected to be treated as a regulated investment company (RIC)
under the Internal Revenue Code of 1986 (the Code).
The Companys investment objective is to generate both current
income and capital appreciation through debt and equity investments. The Company invests primarily in middle-market companies in the form of senior and junior secured and unsecured debt securities and loans, each of which may include an equity
component, and by making direct preferred, common and other equity investments in such companies.
2. Significant accounting policies
Unaudited Interim Consolidated Financial Statements
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP). The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 946,
Financial Services-Investment Company
(ASC 946).
Certain financial information that is normally included in annual
financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read
in conjunction with the Companys consolidated financial statements and notes related thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange
Commission (SEC) on March 8, 2017.
The interim financial information at June 30, 2017 and for the three and six
months ended June 30, 2017 and 2016 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Companys results for the periods
presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
Basis of Presentation
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual results to differ and such differences could be material.
The
accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, which were established to hold certain investments of the Company. The Company owns 100% of each subsidiary and, as such, the subsidiaries are
consolidated into the Companys consolidated financial statements. The subsidiaries hold investments which are treated as pass through entities for tax purposes. By investing through these 100% owned subsidiaries, the Company is able to benefit
from corporate tax treatment for these entities and thereby create a tax structure that is more advantageous with respect to the RIC status of the Company. Transactions between the Company and subsidiaries, to the extent they occur, are eliminated
in consolidation.
Expenses are recorded on an accrual basis.
23
Investments
Security transactions are accounted for on the trade date unless there are substantial conditions to the purchase. Realized gains or losses
are measured by the difference between the net proceeds from the repayment or sale and the amortized cost of the investment. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded
unrealized gains or losses when gains or losses are realized. Realized gains or losses on the disposition of investments are calculated using the specific identification method.
Investments for which market quotations are readily available are valued at such market quotations unless they are deemed not to represent fair
value. The Company obtains market quotations, when available, from an independent pricing service or one or more broker-dealers or market makers and utilizes the average of the range of bid and ask quotations. Debt and equity securities for which
market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by or under the direction of the Companys Board of Directors.
Because the Company expects that there will not be a readily available market for substantially all of the investments in its portfolio, the
Company expects to value substantially all of its portfolio investments at fair value as determined in good faith by or under the direction of the Board of Directors using a consistently applied valuation process in accordance with a documented
valuation policy that has been reviewed and approved by the Board of Directors. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of the
Companys investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that the Company may ultimately realize.
In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of the
Companys investments than on the fair values of the Companys investments for which market quotations are not readily available. Market quotations may be deemed not to represent fair value in certain circumstances where BlackRock
Advisors, LLC, the Companys investment advisor (the Advisor), believes that facts and circumstances applicable to an issuer, a seller or purchaser or the market for a particular security cause current market quotations to not
reflect the fair value of the security. Examples of these events could include cases where a security trades infrequently causing a quoted purchase or sale price to become stale, where there is a forced sale by a distressed seller, where
market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid-ask spread.
With respect to the Companys investments for which market quotations are not readily available or for which market quotations are deemed
not to represent fair value, the Board of Directors has approved a multi-step valuation process applied each quarter, as described below:
(i) The quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment
professionals of the Advisor responsible for the portfolio investment;
(ii) The investment professionals provide recent portfolio company
financial statements and other reporting materials to independent valuation firms engaged by the Board of Directors, such firms conduct independent appraisals each quarter and their preliminary valuation conclusions are documented and discussed with
senior management of the Advisor;
(iii) The Audit Committee of the Board of Directors reviews the preliminary valuations prepared by the
independent valuation firms; and
(iv) The Board of Directors discusses valuations and determines the fair value of each investment in the
portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the Audit Committee.
24
Those investments for which market quotations are not readily available or for which market
quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. 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 techniques 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 the Company may take into account in determining the fair value of its investments include, as relevant
and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the
nature and realizable value of any collateral, the portfolio companys ability to make payments, (e.g. non-performance risk), 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, the Companys principal market (as the reporting entity) and enterprise values.
Until the end of the second calendar quarter following its acquisition, each unquoted investment in a new portfolio company generally is held
at amortized cost, which the Advisor believes approximates fair value under the circumstances. As of that date, an independent valuation firm conducts an initial independent appraisal of the investment.
ASC 820-10,
Fair Value Measurements and Disclosures
(ASC 820-10), issued by the FASB, defines fair value, establishes a
framework for measuring fair value and requires disclosures about fair value measurements. See Note 10 for further details.
Cash
and Cash Equivalents
Cash equivalents include short-term liquid overnight investments with original maturities of three months or
less and may not be insured by the FDIC or may exceed federally insured limits.
Revenue recognition
Interest income is recorded on an accrual basis and includes amortization of discounts and accretion of premiums. Discounts and premiums to
par value on securities purchased are amortized/accreted into interest income over the life of the respective security. Discounts and premiums are determined based on the cash flows expected to be received for a particular investment upon maturity.
Dividend income is recorded on the ex-dividend date and is adjusted to the extent that the Company expects to collect such amounts. For
loans and securities with payment-in-kind (PIK) income, which represents contractual interest or dividends accrued and added to the principal balance and generally due at maturity, such income is accrued only to the extent that the
Advisor believes that the PIK income is likely to be collected. To maintain the Companys status as a RIC, this non-cash source of income must be paid out to stockholders in the form of distributions, even though the Company has not yet
collected the cash.
Fee income, such as structuring fees, origination, closing, commitment and other upfront fees are generally
non-recurring and are recognized as revenue when earned. In instances where the Company does not perform significant services in connection with the related investment, fees paid to the Company may be deferred and amortized over the estimated life
of the investment. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.
U.S. Federal income taxes
The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to continue to qualify for the
tax treatment applicable to RICs.
25
In order to qualify for favorable tax treatment as a RIC, the Company is required to distribute
annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, we must distribute annually at least 98% of our ordinary income and 98.2% of net capital gains from the
current year and any undistributed ordinary income and net capital gains from the preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay regular federal income taxes or a 4%
excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed
taxable income as required.
Distributions from net investment income and distributions from net realized capital gains are determined in
accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they
are charged or credited to paid-in-capital or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of
certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Companys annual RIC tax return.
Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are reclassified among the
Companys capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.
The final tax characterization of distributions is determined after the fiscal year and is reported on Form 1099 and in the Companys
annual report to shareholders. Distributions can be characterized as ordinary income, capital gains and/or return of capital. To the extent that distributions exceed the Companys current and accumulated earnings and profits, the excess may be
treated as a non-taxable return of capital. Distributions that exceed a Companys taxable income but do not exceed the Companys current and accumulated earnings and profits, may be classified as ordinary income which is taxable to
shareholders.
ASC 740-10,
Income Taxes
(ASC 740-10) clarifies the accounting for income taxes by prescribing the
minimum recognition threshold an uncertain tax position is required to meet before tax benefits associated with such uncertain tax position are recognized in the consolidated financial statements. Based on its analysis of its tax position, the
Company has concluded that it does not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10.
The Company files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of
limitations on the Companys U.S. federal income tax returns remains open for each of the four years ended December 31, 2016. The statute of limitations on the Companys state and local tax returns may remain open for an additional
year depending upon the jurisdiction.
At December 31, 2016, the Company had a net capital loss carryforward of $123,978,507, which
can be used to offset future capital gains. If not utilized against future gains, $32,937,589 of this amount is due to expire on December 31, 2018.
Distributions to Common Stockholders
Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the
Board of Directors. Net realized capital gains, if any, generally are distributed at least annually, although the Company may decide to retain such capital gains for investment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of distributions on behalf of stockholders, unless a
stockholder elects to receive cash. As a result, if the Board of Directors authorizes, and the Company declares, a cash distribution, then stockholders who have not opted out of the dividend reinvestment plan will have their cash
dividends automatically reinvested in additional shares of Common Stock, rather than receiving the cash distributions.
26
Foreign Currency
Foreign currency amounts are translated into United States dollars on the following basis:
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(i)
|
market value of investment securities, other assets and liabilitiesat the spot exchange rate on the last business day of the period; and
|
|
(ii)
|
purchases and sales of investment securities, income and expensesat the rates of exchange prevailing on the respective dates of such transactions, income or expenses.
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Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does 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 fair values of investments held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Investments denominated in foreign currencies and foreign currency transactions may involve
certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.
Debt Issuance Costs
Debt issuance costs are amortized over the term of the related debt using the straight line method, which approximates the effective interest
rate method.
Equity Offering Expenses
The Company records registration expenses related to its shelf registration statement and related SEC filings as prepaid assets. These
expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946.
Non-Accrual Loans
Loans or debt securities are placed on non-accrual status, as a general matter, when principal or interest payments are past due 30 days or
more or when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt
securities may be recognized as income or applied to principal depending upon managements judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in managements
judgment, are likely to remain current. The Company may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09), which outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an
entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the effect on its consolidated financial statements.
27
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash
Payments
(ASU 2016-15), which amends and clarifies the current guidance to reduce diversity in practice of the classification of certain cash receipts and payments in the statement of cash flows. The Company is currently evaluating
the impact of adopting ASU 2016-15, which is effective for the Company on January 1, 2018 with early adoption permitted. The Company must apply the guidance retrospectively to all periods presented. The Company is currently evaluating the
effect on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08,
Receivables Nonrefundable Fees and
Other Costs
(ASU 2017-08). The amendments in this update require premiums on purchased callable debt securities to be amortized to the securitys earliest call date. Prior to this ASU, premiums and discounts on purchased
callable debt securities were generally required to be amortized to the securitys maturity date. The amendments do not require an accounting change for securities held at a discount. The amendments are effective on January 1, 2019, with
early adoption permitted. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. The Company is currently evaluating
the effect on its consolidated financial statements, however, we do not expect ASU 2017-08 to have a material impact on the consolidated financial statements.
3. Agreements and related party transactions
Investment management agreement
At a Special Meeting of the Companys Stockholders, held on February 18, 2015, the Companys stockholders approved a new
investment management agreement (Management Agreement) between the Company and BlackRock Advisors, LLC to permit the Advisor to serve as the Companys investment adviser following the completion of the sale of certain assets related
to managing the Company from the Companys previous investment adviser, 52
nd
Street Capital Advisors LLC, formerly BlackRock Kelso Capital Advisors LLC (the Previous Advisor,
BKCA or 52
nd
Street), to the Advisor (the Transaction). The Transaction was completed on March 6, 2015 and, pursuant to the new investment management
agreement, dated as of March 6, 2015, the Companys investment activities are currently managed by the Advisor. Prior to the consummation of the Transaction, the Company had entered into an investment management agreement with the
Companys previous adviser, which is referred to as the Previous Agreement. The Companys current investment management agreement had the same management and incentive fee terms as the Previous Agreement until March 6,
2017 and thereafter has different management and incentive fees terms.
Base Management Fee
Under the current investment management agreement, the Advisor, subject to the overall supervision of the Board of Directors, manages the
day-to-day operations and provides the Company with investment advisory services. For providing these services, the Advisor received, until March 6, 2017, a base management fee at an annual rate of 2.0% of total assets, including any assets
acquired with the proceeds of leverage, payable quarterly in arrears. After March 6, 2017, the Advisor receives a base management fee at an annual rate of 1.75% of total assets (excluding cash), including any assets acquired with the proceeds
of leverage, payable quarterly in arrears based on the asset valuation as of the end of the prior quarter, and prorated for any period of less than a quarter.
The investment management agreement became effective on March 6, 2015. Unless earlier terminated, the investment management agreement will
remain in effect for a period of two years from the date it first became effective and will remain in effect from year-to-year thereafter if approved annually by the Board of Directors or by the affirmative vote of the holders of a majority of
outstanding voting securities, including, in either case, approval by a majority of the directors who are not interested persons.
For the
three and six months ended June 30, 2017, the Advisor earned $4,139,347 and $8,663,204, respectively, in base management fees under the investment management agreement. For the three and six
28
months ended June 30, 2016, the Advisor earned $5,721,689 and $11,412,179, respectively, in base management fees under the investment management agreement.
Incentive Management Fee Until March 6, 2017
The current investment management agreement provides that the Advisor or its affiliates may be entitled to an incentive management fee (the
Incentive Fee) as described below under certain circumstances until March 6, 2017. The Incentive Fee was calculated in the same manner as the Incentive Fee in the previous investment management agreement. The determination of the
Incentive Fee, as described in more detail below, will result in the Advisor or its affiliates receiving no Incentive Fee payments if returns to stockholders do not meet an 8.0% annualized rate of return during the applicable fee measurement period,
and will result in the Advisor or its affiliates receiving less than the full amount of the Incentive Fee percentage until returns to stockholders exceed an approximate 13.3% annualized rate of return during such period. Annualized rate of return in
this context is computed by reference to net asset value and does not take into account changes in the market price of the common stock.
The Advisor will be entitled to receive the Incentive Fee if the performance exceeds a hurdle rate during different measurement
periods: trailing four quarters periods (which apply only to the portion of the Incentive Fee based on income) and annual periods (which apply only to the portion of the Incentive Fee based on capital gains). The trailing four
quarters periods for purposes of determining the income portion of the Incentive Fee payable for the three months ended June 30, 2017 and 2016 was determined by reference to the four quarter periods ended on June 30, 2017 and
2016, respectively, however, the periods utilized different incentive management fee calculations, both of which are described in more detail below. The term annual period means the period beginning on July 1 of each calendar year
and ending on June 30 of the next calendar year.
The hurdle rate for each measurement period is 2.0% multiplied by net asset values
at the beginning of each calendar quarter during the measurement period, calculated after giving effect to any distributions that occurred during the measurement period. A portion of the Incentive Fee is based on income and a portion is based on
capital gains. Each portion of the Incentive Fee is described below.
Quarterly Incentive Fee Based on Income Until March 6,
2017
For each trailing four quarters period, the Company will pay the Advisor an Incentive Fee based on the amount by which
(A) aggregate distributions and amounts distributable out of taxable net income (excluding any capital gain and loss), during the period less the amount, if any, by which net unrealized capital depreciation exceeds net realized capital gains /
losses during the period, is in excess of (B) the hurdle rate for the period. The amount of the excess of (A) over (B) described in this paragraph for each period is referred to as the excess income amount.
It should be noted that net realized capital gains / losses during the period are calculated as the proceeds received upon disposition less the
fair market value as of the beginning of the measurement period. Since this calculation is not cumulative, but rather performed on a trailing four quarters period, fluctuations in fair market values are captured in net unrealized appreciation and
depreciation of prior measurement periods.
The portion of the Incentive Fee based on income for each period will equal 50% of the
periods excess income amount, until the cumulative Incentive Fee payments for the period equal 20% of the periods income amount distributed or distributable to stockholders as described in clause (A) of the preceding paragraph.
Thereafter, the portion of the Incentive Fee based on income for the period will equal 20% of the periods amount distributed or distributable to stockholders.
For the three months ended June 30, 2016, the Advisor earned zero in Incentive Fees based on income from the Company.
29
Annual Incentive Fee Based on Capital Gains Until March 6, 2017
The portion of the Incentive Fee based on capital gains is calculated and paid on an annual basis beginning on July 1 of each annual
period and ending on June 30 of the next calendar year. The portion of Incentive Fee based on capital gains is calculated in the same manner as such portion of the Incentive Fee in the prior investment management agreement. For each annual
period, the Company pays the Advisor an Incentive Fee on capital gains based on the amount by which (A) net realized capital gains, if any, exceeds gross unrealized capital depreciation, if any, occurring during the period in excess of
(B) the amount, if any, by which the periods hurdle rate exceeds the amount of income used in the determination of the Incentive Fee based on income for the period. The amount of the excess of (A) over (B) described in this
paragraph is referred to as the excess gain amount.
It should be noted that net realized capital gains during the period are calculated as
the proceeds received upon disposition in excess of the lower of each securitys amortized cost or the fair market value as of the beginning of the measurement period. Since this calculation is not cumulative, but rather performed on an annual
period commencing each July 1, any unrealized depreciation on a security, if any, will be captured in the gross unrealized depreciation of a prior period.
The portion of the Incentive Fee based on capital gains for each period will equal 50% of the periods excess gain amount, until such
payments equal 20% of the periods capital gain amount distributed or distributable to stockholders. Thereafter, the portion of the Incentive Fee based on capital gains for the period equals an amount such that the portion of the Incentive Fee
payments to the Advisor based on capital gains for the period equals 20% of the periods capital gain amount distributed or distributable to stockholders. The result of this formula is that, if the portion of the Incentive Fee based on income
for the period exceeds the periods hurdle, then the portion of the Incentive Fee based on capital gains will be capped at 20% of the capital gain amount.
In calculating whether the portion of the Incentive Fee based on capital gains is payable with respect to any period, we account for assets on
a security-by-security basis. In addition, the Company uses the period-to-period method pursuant to which the portion of the Incentive Fee based on capital gains for any period is based on realized capital gains for the period reduced by
realized capital losses and gross unrealized capital depreciation for the period. Based on current interpretations of Section 205(b)(3) of the Investment Advisers Act of 1940 by the SEC and its staff, the calculation of unrealized depreciation
for each portfolio security over a period is based on the fair value of the security at the end of the period compared to the fair value at the beginning of the period. Incentive Fees earned in any of the periods described above are not subject to
modification or repayment based upon performance in a subsequent period.
The Company is required under GAAP to accrue a hypothetical
capital gains Incentive Fee based upon net realized capital gains and unrealized capital appreciation and depreciation on investments held at the end of each period. The accrual of this hypothetical capital gains incentive fee assumes all unrealized
capital appreciation and depreciation is realized in order to reflect a hypothetical capital gains Incentive Fee that would be payable at each measurement date. If such amount is positive at the end of the period, then we record a capital gains
incentive fee equal to 20% of such amount, less the amount of capital gains related Incentive Fees already accrued in prior periods. If the resulting amount is negative, the accrual for GAAP in a given period may result in the reduction of an
expense. There can be no assurance that such unrealized capital appreciation will be realized in the future. However, it should be noted that a fee so calculated and accrued would not be payable under the Advisers Act or the investment management
agreement. Amounts actually paid will be consistent with the Advisers Act which specifically excludes consideration of unrealized capital appreciation.
The capital gains Incentive Fee due to the Advisor as calculated under the investment management agreement as described above, at June 30,
2017 and 2016 was zero. In accordance with GAAP, the hypothetical liquidation for the three months ended June 30, 2017 and 2016, resulted in a capital gains incentive fee accrual/(reversal) of zero. The total cumulative accrued balances at
June 30, 2017 and 2016 were zero.
30
Quarterly Incentive Fee Based on Income After March 6, 2017
After March 6, 2017, the investment management agreement provides that the Advisor or its affiliates may be entitled to an incentive
management fee under certain circumstances. The Incentive Fee has two parts. The first portion is based on income other than capital gains and is calculated separately for each calendar quarter and will be paid on a quarterly basis. The Company will
pay the Advisor the portion of the Incentive Fee based on income for each period as follows:
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(i)
|
No Incentive Fee based on income other than capital gains for any calendar quarter in which the Pre-Incentive Fee Net Investment Income does not exceed 1.75% (7.00% annualized) of net assets attributable to common stock
at the beginning of such quarter.
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(ii)
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100% of the Pre-Incentive Fee Net Investment Income in any calendar quarter with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, for such calendar quarter, that exceeds 1.75% (7.00%
annualized) of net assets attributable to common stock at the beginning of such quarter but is less than 2.1875% (8.75% annualized).
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|
(iii)
|
20% of the Pre-Incentive Fee Net Investment Income, if any, for any calendar quarter that exceeds 2.1875% (8.75% annualized) of net assets attributable to common stock at the beginning of such quarter.
|
The calculations described above will be appropriately prorated for any period of less than a quarter and adjusted for the
net proceeds from any common stock issuances and the cost of any common stock repurchases during such quarter.
The payment of any such
Incentive Fee based on income otherwise earned by the Advisor will be deferred if, for the most recent four full calendar quarter period ending on or prior to the date such payment is to be made, the Annualized Rate of Return is less than 7.0% of
net assets attributable to common stock at the beginning of such four quarter period as adjusted for the net proceeds from any common stock issuances and the cost of any common stock repurchases during such four full calendar quarter period, with
any deferred Incentive Fees to be carried over for payment in subsequent quarterly calculation periods to the extent such payment can then be made in accordance with the investment management agreement.
For the three months ended June 30, 2017, the Advisor earned $2,773,859 in Incentive Fees based on income from the Company. For the period
after March 6, 2017 to June 30, 2017, the Advisor earned $3,583,042 in Incentive Fees based on income from the Company.
On
March 7, 2017, the Companys investment advisor, in consultation with the Companys Board of Directors, agreed to waive incentive fees based on income after March 6, 2017 to December 31, 2018 or approximately 21 months. The
start date of the fee waiver coincides with the change to the fee calculation mentioned above. The waivers for incentive fees based on income for the three months ended June 30, 2017 and the period after March 6, 2017 to June 30, 2017
are also $2,773,859 and $3,583,042, respectively, resulting in zero net Incentive Fees based on income earned by the Company.
Annual Incentive Fee Based on Capital Gains After March 6, 2017
The second portion of the Incentive Fee is based on capital gains and is calculated separately for each Annual Period. The Advisor will be
entitled to receive an Incentive Fee based on capital gains for each Annual Period in an amount equal to 20% of the amount by which (1) net realized capital gains occurring during the period, if any, exceeds (2) gross unrealized capital
depreciation, if any, occurring during the period. In calculating the portion of the Incentive Fee based on capital gains payable for any period, investments are accounted for on a security-by-security basis. In addition, the portion of the
Incentive Fee based on capital gains is determined using the period-to-period method pursuant to which the portion of the Incentive Fee based on capital gains for any period will be based on realized capital gains for the period reduced
by realized capital losses for the period and unrealized capital depreciation for the period.
31
For purposes of calculating the Incentive Fee, (i) Annual Period means the
period beginning on July 1 of each calendar year, including the calendar year prior to the year in which the investment management agreement became effective, and ending on June 30 of the next calendar year; (ii) Annualized Rate
of Return is computed by reference to the sum of (i) the aggregate distributions to common stockholders for the period in question and (ii) the change in net assets attributable to common stock (before taking into account any
Incentive Fees otherwise payable during such period); (iii) net assets attributable to common stock means total assets less indebtedness and preferred stock; and (iv) Pre-Incentive Fee Net Investment Income means
net investment income (as determined in accordance with United States generally accepted accounting principles) accrued by the Company during the calendar quarter excluding any accruals for or payments in respect of the Incentive Fee.
Advisor Reimbursements
The investment management agreement provides that the Company will reimburse the Advisor for costs and expenses incurred by the Advisor for
administrative or operating services, office space rental, office equipment and utilities allocable to the Advisor under the investment management agreement, as well as any costs and expenses incurred by the Advisor relating to any non-investment
advisory, administrative or operating services provided by the Advisor to us. For the three and six months ended June 30, 2017, the Company incurred $87,501 and $175,001, respectively, for such investment advisor expenses under the Management
Agreement. For the three and six months ended June 30, 2016, the Company incurred $87,500 and $175,000, respectively, for such investment advisor expenses under the Management Agreement.
From time to time, the Advisor may pay amounts owed by the Company to third party providers of goods or services. The Company will subsequently
reimburse the Advisor for such amounts paid on its behalf. Reimbursements to the Advisor for such purposes during the three and six months ended June 30, 2017 were zero and zero, respectively. Reimbursements to the Advisor for such purposes
during the three and six months ended June 30, 2016 were zero and $5,921 respectively.
No person who is an officer, director or
employee of the Advisor and who serves as a director of the Company receives any compensation from the Company for such services. Directors who are not affiliated with the Advisor receive compensation for their services and reimbursement of expenses
incurred to attend meetings.
Administration
The Company also has entered into an administration agreement with BlackRock Financial Management, Inc. (the Administrator) under
which the Administrator provides certain administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Companys allocable portion of overhead and other expenses
incurred by the Administrator in performing its obligations under the administration agreement, including rent and the Companys allocable portion of the cost of certain of the Companys officers and their respective staffs. For the three
and six months ended June 30, 2017, the Company incurred $303,782 and $631,459, respectively, for administrative services expenses payable to the Administrator under the administration agreement. For the three and six months ended June 30,
2016, the Company incurred $285,940 and $755,940, respectively, for administrative services expenses payable to the Administrator under the administration agreement.
Advisor Stock Transactions
Effective upon completion of the Transaction, BlackRock Advisors, LLC assumed the role as investment adviser to the Company. BlackRock
Advisors, LLC does not own any shares of the Company at June 30, 2017 and December 31, 2016.
At June 30, 2017 and
December 31, 2016, other entities affiliated with the Administrator and Advisor beneficially owned approximately 471,000 and 490,000 shares, respectively, of the Companys common stock, representing approximately 0.6% and 0.7%,
respectively, of the total shares outstanding. An entity affiliated with the Administrator had ownership and financial interests in the Previous Advisor.
32
4. Earnings (Loss) per share
The following information sets forth the computation of basic and diluted net increase (decrease) in net assets from operations per share
(earnings (loss) per share) for the three and six months ended June 30, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30,
2017
|
|
|
Three months
ended
June 30,
2016
|
|
|
Six months
ended
June 30,
2017
|
|
|
Six months
ended
June 30,
2016
|
|
Earnings (Loss) per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
16,975,375
|
|
|
$
|
(9,554,087
|
)
|
|
$
|
31,305,658
|
|
|
$
|
(47,728,856
|
)
|
Weighted-average shares outstanding basic
|
|
|
72,929,346
|
|
|
|
72,700,685
|
|
|
|
72,867,332
|
|
|
|
72,903,681
|
|
Earnings (Loss) per share basic:
|
|
$
|
0.23
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.43
|
|
|
$
|
(0.65
|
)
|
Earnings (Loss) per share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations, before adjustments
|
|
$
|
16,975,375
|
|
|
$
|
(9,554,087
|
)
|
|
$
|
31,305,658
|
|
|
$
|
(47,728,856
|
)
|
Adjustments for interest on unsecured convertible senior notes
|
|
|
2,246,666
|
|
|
|
|
|
|
|
4,078,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations, as adjusted
|
|
$
|
19,222,041
|
|
|
$
|
(9,554,087
|
)
|
|
$
|
35,384,067
|
|
|
$
|
(47,728,856
|
)
|
Weighted-average shares outstanding diluted(1)
|
|
|
86,187,472
|
|
|
|
72,700,685
|
|
|
|
84,454,044
|
|
|
|
72,903,681
|
|
Earnings (Loss) per share diluted:
|
|
$
|
0.22
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.42
|
|
|
$
|
(0.65
|
)
|
(1)
|
Due to a net decrease in net assets from operations for the 2016 periods, zero incremental shares are included because the effect would be antidilutive.
|
5. Investments
Purchases of
investments, including PIK, for the three and six months ended June 30, 2017 totaled $22,750,749 and $145,077,933, respectively. Purchases of investments, including PIK, for the three and six months ended June 30, 2016 totaled $76,302,523
and $173,826,420, respectively. Proceeds from sales, repayments and other exits of investments for the three and six months ended June 30, 2017 totaled $71,978,563 and $186,347,401, respectively. Proceeds from sales, repayments and other exits
of investments for the three and six months ended June 30, 2016 totaled $161,396,378 and $194,302,048, respectively.
At
June 30, 2017, investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
Senior secured notes
|
|
$
|
63,550,115
|
|
|
$
|
64,389,329
|
|
Unsecured debt
|
|
|
143,389,221
|
|
|
|
120,255,833
|
|
Subordinated debt
|
|
|
29,600,000
|
|
|
|
29,600,000
|
|
Senior secured loans:
|
|
|
|
|
|
|
|
|
First lien
|
|
|
271,098,322
|
|
|
|
270,082,773
|
|
Second/other priority lien
|
|
|
245,690,193
|
|
|
|
237,477,469
|
|
|
|
|
|
|
Total senior secured loans
|
|
|
516,788,515
|
|
|
|
507,560,242
|
|
|
|
|
|
|
Preferred stock
|
|
|
53,636,687
|
|
|
|
56,484,414
|
|
Common stock
|
|
|
24,784,399
|
|
|
|
18,462,588
|
|
Limited partnership/limited liability company interests
|
|
|
97,021,716
|
|
|
|
96,511,515
|
|
Equity warrants/options
|
|
|
694,450
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
929,465,103
|
|
|
$
|
893,263,921
|
|
|
|
|
|
|
33
At December 31, 2016, investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
Senior secured notes
|
|
$
|
76,916,677
|
|
|
$
|
63,609,625
|
|
Unsecured debt
|
|
|
147,170,031
|
|
|
|
127,317,932
|
|
Subordinated debt
|
|
|
28,800,000
|
|
|
|
28,800,000
|
|
Senior secured loans:
|
|
|
|
|
|
|
|
|
First lien
|
|
|
295,899,093
|
|
|
|
289,982,154
|
|
Second/other priority lien
|
|
|
294,051,311
|
|
|
|
258,533,161
|
|
|
|
|
|
|
Total senior secured loans
|
|
|
589,950,404
|
|
|
|
548,515,315
|
|
|
|
|
|
|
Preferred stock
|
|
|
58,544,859
|
|
|
|
57,873,127
|
|
Common stock
|
|
|
41,220,333
|
|
|
|
37,632,386
|
|
Limited partnership/limited liability company interests
|
|
|
77,102,335
|
|
|
|
67,257,747
|
|
Equity warrants/options
|
|
|
1,880,588
|
|
|
|
117,358
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,021,585,227
|
|
|
$
|
931,123,490
|
|
|
|
|
|
|
Industry Composition
The industry composition of the portfolio at fair value at June 30, 2017 and December 31, 2016 was as follows:
|
|
|
|
|
|
|
|
|
Industry
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Finance
|
|
|
23.0
|
%
|
|
|
21.1
|
%
|
Chemicals, Plastics, & Rubber
|
|
|
13.2
|
|
|
|
12.3
|
|
Services: Business
|
|
|
10.6
|
|
|
|
11.4
|
|
Consumer Goods: Durable
|
|
|
7.5
|
|
|
|
7.4
|
|
Environmental Industries
|
|
|
6.3
|
|
|
|
6.0
|
|
Energy: Oil & Gas
|
|
|
6.0
|
|
|
|
4.7
|
|
Insurance
|
|
|
5.3
|
|
|
|
5.1
|
|
Aerospace & Defense
|
|
|
5.0
|
|
|
|
4.7
|
|
Retail
|
|
|
4.9
|
|
|
|
4.8
|
|
Media: Advertising, Printing & Publishing
|
|
|
3.6
|
|
|
|
3.5
|
|
Services: Consumer
|
|
|
3.6
|
|
|
|
3.4
|
|
Metals & Mining
|
|
|
2.9
|
|
|
|
2.8
|
|
Healthcare & Pharmaceuticals
|
|
|
2.8
|
|
|
|
6.9
|
|
Construction & Building
|
|
|
2.2
|
|
|
|
3.0
|
|
Containers, Packaging, & Glass
|
|
|
2.2
|
|
|
|
2.1
|
|
Capital Equipment
|
|
|
0.6
|
|
|
|
0.5
|
|
High Tech Industries
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
34
The geographic composition of the portfolio at fair value at June 30, 2017 was United States
94.3%, Bermuda 3.9%, Canada 1.5% and the Cayman Islands 0.3%, and at December 31, 2016 was United States 94.4%, Bermuda 3.8%, Canada 1.5% and the Cayman Islands 0.3%. The geographic composition is determined by several factors including the
location of the corporate headquarters of the portfolio company.
Market and Credit Risk
In the normal course of business, the Company invests in securities and enters into transactions where risks exist due to fluctuations in the
market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Company may decline in response to certain events, including those directly involving the issuers whose
securities are owned by the Company; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer
credit risk, the Company may be exposed to counterparty credit risk, or the risk that an entity with which the Company has unsettled or open transactions may fail to or be unable to perform on its commitments. The Company manages counterparty risk
by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the
Company to market, issuer and counterparty credit risks, consist principally of investments in portfolio companies. The extent of the Companys exposure to market, issuer and counterparty credit risks with respect to these financial assets is
generally approximated by their value recorded in the consolidated statements of assets and liabilities. The Company is also exposed to credit risk related to maintaining all of its cash at a major financial institution.
The Company has investments in lower rated and comparable quality unrated senior and junior secured, unsecured and subordinated debt securities
and loans, which are subject to a greater degree of credit risk than more highly rated investments. The risk of loss due to default by the issuer is significantly greater for holders of such securities and loans, particularly in cases where the
investment is unsecured or subordinated to other creditors of the issuer.
BCIC Senior Loan Partners, LLC
On June 23, 2016, the Company and Windward Investments LLC (Windward) entered into an agreement to create BCIC Senior Loan
Partners, LLC (Senior Loan Partners), a joint venture. Senior Loan Partners is structured as an unconsolidated Delaware limited liability company, and is expected to make loans to and other investments in portfolio companies. All
portfolio and other material decisions regarding Senior Loan Partners must be submitted to its board of directors, which is comprised of four members, two of whom were selected by the Company and two of whom were selected by Windward, and must be
approved by at least one member appointed by the Company and one appointed by Windward. In addition, certain matters may be approved by Senior Loan Partners investment committee, which is comprised of one member appointed by the Company and
one member appointed by Windward.
The Company does not consolidate its non-controlling interests in Senior Loan Partners because the
entity is not considered a substantially wholly owned investment company subsidiary, as provided under ASC 946. Senior Loan Partners is a joint venture for which shared power exists relating to the decisions that most significantly impact the
economic performance of the entity.
The Company and Windward have committed to provide an aggregate of $100.0 million of equity to
Senior Loan Partners, with the Company providing $85.0 million and Windward providing $15.0 million. As of June 30, 2017, Senior Loan Partners had called and received $66.1 million of combined equity capital, of which the Company
funded $56.2 million and Windward funded $9.9 million. As of June 30, 2017, Senior Loan Partners had received $0.2 million and $1.3 million of contributions in advance from the Company and Windward, respectively, which is
recorded as a liability in Senior Loan Partners Consolidated Statements of Assets and Liabilities, as shown in the selected balance sheet information below. As a result, remaining
35
commitments from the Company and Windward as of June 30, 2017 were $28.6 million and $3.8 million, respectively. Capital contributions have been used to make investments and to
fund certain start-up expenses of Senior Loan Partners.
On June 24, 2016, Senior Loan Partners as Seller and Collateral Manager, and
BCIC Senior Loan Funding, LLC (Senior Loan Funding), a newly formed Delaware limited liability company consolidated by Senior Loan Partners, as Borrower, entered into a $200.0 million Loan and Security Agreement (the LSA
or the Senior Facility) with Citibank, N.A. (Citi) acting as Administrative Agent and The Bank of New York Mellon Trust Company (BoNY) as Collateral Agent. The Senior Facility is scheduled to mature on
June 24, 2021. Senior Loan Partners and Senior Loan Funding, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including collateral maintenance, reporting requirements,
usual and customary events of default and other customary requirements for similar facilities. Senior Loan Partners and Senior Loan Funding were not in default with any covenants or requirements thereunder as of June 30, 2017.
As of June 30, 2017, $106.6 million was drawn on the Senior Facility, and subject to compliance with applicable covenants and
borrowing base limitations, the remaining amount available was $93.4 million. The average outstanding debt balance during the three and six months ended June 30, 2017 was $79.7 million and $49.4 million, respectively. The maximum
amount borrowed during the three and six months ended June 30, 2017 was $106.6 million and $106.6 million, respectively. During the three and six months ended June 30, 2017, $0.7 million and $1.4 million, respectively, of
interest expense and other debt related expenses were incurred under the Senior Facility.
As of June 30, 2017, Senior Loan Partners
had total investments at fair value of $169.3 million, comprised of senior secured first lien loans, delayed draw term loans and two undrawn revolving loans to a total of 17 borrowers. As of June 30, 2017, none of these loans were on
non-accrual status. Proceeds from investment sales, prepayments or exits for the three and six months ended June 30, 2017 were $0.5 million and $1.3 million, respectively. Additionally, Senior Loan Partners had unfunded commitments to
three borrowers totaling $6.7 million. The aggregate fair value of the unfunded commitments at June 30, 2017 was $6.7 million. The weighted average yield of the portfolio at its current cost basis as of June 30, 2017 was 6.53%.
Below is a summary of Senior Loan Partners portfolio as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
Interest
Rate(1)
|
|
Maturity
|
|
Principal
Amount
|
|
|
Cost
|
|
|
Fair
Value(2)
|
|
Senior Secured Term & Delayed Draw Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska Communications Systems Holdings, Inc., Term Loan A-1, First Lien
|
|
Telecommunications
|
|
6.23%
(L + 500,
1.00% Floor)
|
|
3/13/22
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
$
|
2,962,500
|
|
Alaska Communications Systems Holdings, Inc., Term Loan A-2, First Lien
|
|
Telecommunications
|
|
8.23%
(L + 700,
1.00% Floor)
|
|
3/13/23
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
4,912,500
|
|
AP Exhaust Acquisition, LLC, First Lien
|
|
Automotive
|
|
6.00%
(L + 500,
1.00% Floor)
|
|
5/10/24
|
|
|
13,750,000
|
|
|
|
13,480,485
|
|
|
|
13,480,485
|
|
AP Gaming I, LLC, First Lien
|
|
Hotel,
Gaming, & Leisure
|
|
6.58%
(L + 550,
1.00% Floor)
|
|
2/15/24
|
|
|
10,000,000
|
|
|
|
9,975,185
|
|
|
|
9,975,185
|
|
AP Plastics Group, LLC, Term Loan B, First Lien
|
|
Chemicals,
Plastics, & Rubber
|
|
7.32%
(L + 625,
1.00% Floor)
|
|
8/1/22
|
|
|
10,517,105
|
|
|
|
10,430,099
|
|
|
|
10,517,105
|
|
Digital Room LLC, First Lien
|
|
Media:
Advertising,
Printing &
Publishing
|
|
7.23%
(L + 600,
1.00% Floor)
|
|
11/21/22
|
|
|
9,750,000
|
|
|
|
9,570,009
|
|
|
|
9,652,500
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
Interest
Rate(1)
|
|
Maturity
|
|
|
Principal
Amount
|
|
|
Cost
|
|
|
Fair
Value(2)
|
|
Dunn Paper, Inc., First Lien
|
|
Containers,
Packaging & Glass
|
|
5.79%
(L + 475,
1.00% Floor)
|
|
|
8/26/22
|
|
|
$
|
8,334,783
|
|
|
$
|
8,255,923
|
|
|
$
|
8,334,783
|
|
Edgewood Partners Insurance Center, First Lien
|
|
Insurance
|
|
6.23%
(L + 500,
1.00% Floor)
|
|
|
3/16/23
|
|
|
|
10,000,000
|
|
|
|
9,975,597
|
|
|
|
9,975,597
|
|
ENC Holding Corporation, First Lien
|
|
Transportation:
Cargo
|
|
7.73%
(L + 650,
1.00% Floor)
|
|
|
2/8/23
|
|
|
|
9,975,000
|
|
|
|
9,880,489
|
|
|
|
9,875,250
|
|
Entertainment Partners, LLC, First Lien
|
|
Media: Diversified
& Production
|
|
6.81%
(L + 575,
1.00% Floor)
|
|
|
5/8/23
|
|
|
|
11,500,000
|
|
|
|
11,500,000
|
|
|
|
11,500,000
|
|
Highline Aftermarket Acquisition, LLC, First Lien
|
|
Automotive
|
|
5.56%
(L + 425,
1.00% Floor)
|
|
|
3/24/24
|
|
|
|
9,975,000
|
|
|
|
9,926,656
|
|
|
|
9,926,656
|
|
MHE Intermediate Holdings, LLC, Delayed Draw
|
|
Services: Business
|
|
6.30%
(L + 500,
1.00% Floor)
|
|
|
3/10/24
|
|
|
|
488,092
|
|
|
|
483,365
|
|
|
|
483,211
|
|
MHE Intermediate Holdings, LLC, First Lien
|
|
Services: Business
|
|
6.30%
(L + 500,
1.00% Floor)
|
|
|
3/10/24
|
|
|
|
6,365,121
|
|
|
|
6,303,938
|
|
|
|
6,301,470
|
|
National Spine and Pain Centers, LLC, First Lien
|
|
Healthcare &
Pharmaceuticals
|
|
5.56%
(L + 450,
1.00% Floor)
|
|
|
6/2/24
|
|
|
|
10,000,000
|
|
|
|
9,950,431
|
|
|
|
9,950,431
|
|
NSM Sub Holdings Corp., Delayed Draw
|
|
Healthcare &
Pharmaceuticals
|
|
6.23%
(L + 500,
1.00% Floor)
|
|
|
10/3/22
|
|
|
|
623,229
|
|
|
|
623,229
|
|
|
|
623,229
|
|
NSM Sub Holdings Corp., First Lien
|
|
Healthcare &
Pharmaceuticals
|
|
6.29%
(L + 500,
1.00% Floor)
|
|
|
10/3/22
|
|
|
|
7,300,315
|
|
|
|
7,236,074
|
|
|
|
7,300,315
|
|
O2 Partners, LLC, First Lien
|
|
Consumer Goods:
Non-Durable
|
|
6.23%
(L + 500,
1.00% Floor)
|
|
|
10/7/22
|
|
|
|
9,925,000
|
|
|
|
9,836,859
|
|
|
|
9,925,000
|
|
Pasternack Enterprises, Inc., First Lien
|
|
Wholesale
|
|
6.23%
(L + 500,
1.00% Floor)
|
|
|
5/27/22
|
|
|
|
11,411,177
|
|
|
|
11,370,558
|
|
|
|
11,382,650
|
|
Pretium Packaging, LLC, First Lien
|
|
Containers,
Packaging & Glass
|
|
6.93%
(L + 575,
1.00% Floor)
|
|
|
11/14/22
|
|
|
|
12,500,000
|
|
|
|
12,379,776
|
|
|
|
12,379,776
|
|
Q Holding Company, Term Loan B, First Lien
|
|
Chemicals, Plastics,
& Rubber
|
|
6.30%
(L + 500,
1.00% Floor)
|
|
|
12/18/21
|
|
|
|
9,923,664
|
|
|
|
9,833,199
|
|
|
|
9,824,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Senior Secured Term & Delayed Draw Loans
|
|
|
|
|
|
|
|
|
|
$
|
169,011,872
|
|
|
$
|
169,283,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
100% of the senior secured loans in BCIC Senior Loan Partners portfolio bear interest at a floating rate that may be determined by reference to the London Interbank Offered Rate (LIBOR) or other base rate
(commonly the Federal Funds Rate or the Prime Rate), at the borrowers option. In addition, 100% of such senior secured loans have floors of 1.00%. The borrower under a senior secured loan generally has the option to select from interest reset
periods of one, two, three or six months and may alter that selection at the end of any reset period. The stated interest rate represents the weighted average interest rate at June 30, 2017 of all contracts within the specified loan facility.
|
(2)
|
Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of directors valuation process described elsewhere herein.
|
37
Below is certain summarized financial information for Senior Loan Partners as of June 30,
2017 and December 31, 2016, respectively, and for the three and six months then ended:
Selected Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
($s in thousands)
|
|
|
|
|
|
|
|
|
Investments, at fair value (cost $169,012 and $53,099)
|
|
$
|
169,283
|
|
|
$
|
53,162
|
|
Cash and cash equivalents
|
|
|
2,928
|
|
|
|
2,029
|
|
Other assets
|
|
|
2,693
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
174,904
|
|
|
$
|
57,599
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
106,610
|
|
|
|
7,020
|
|
Interest and credit facility fees payable
|
|
|
271
|
|
|
|
85
|
|
Contributions received in advance
|
|
|
1,500
|
|
|
|
1,195
|
|
Distribution payable
|
|
|
682
|
|
|
|
|
|
Other accrued expenses and payables
|
|
|
243
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
109,306
|
|
|
$
|
8,449
|
|
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
65,598
|
|
|
|
49,150
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
174,904
|
|
|
$
|
57,599
|
|
|
|
|
|
|
|
|
|
|
Selected Statement of Operations Information
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30,
2017
|
|
|
Six months
ended
June 30,
2017
|
|
($s in thousands)
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
2,243
|
|
|
$
|
3,357
|
|
Fee income
|
|
|
300
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
$
|
2,543
|
|
|
$
|
3,782
|
|
|
|
|
|
|
|
|
|
|
Interest and credit facility fees
|
|
|
732
|
|
|
|
1,449
|
|
Other fees and expenses
|
|
|
132
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
864
|
|
|
$
|
1,743
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
1,678
|
|
|
|
2,038
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation)
|
|
|
(44
|
)
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in members capital
|
|
$
|
1,634
|
|
|
$
|
2,310
|
|
|
|
|
|
|
|
|
|
|
Amounts may not foot due to rounding
For the three and six months ended June 30, 2017, the Companys share of investment income from Senior Loan Partners was $1.4 million
and $0.2 million, respectively, which amounts are included in dividend income from controlled investments on the Companys Consolidated Statements of Operations. As of June 30, 2017 and December 31, 2016, $0.6 million and zero,
respectively, was included in interest, dividends and fees receivable on the Companys Consolidated Statements of Assets and Liabilities.
38
6. Derivatives
Foreign Currency
The Company may enter into forward foreign currency contracts from time to time to facilitate settlement of purchases and sales of investments
denominated in foreign currencies or to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Companys investments denominated in foreign currencies. A forward foreign currency contract is a
commitment to purchase or sell a foreign currency at a future date (usually the security transaction settlement date) at a negotiated forward rate. 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. The Companys forward foreign currency contracts generally have terms of approximately three months. The
volume of open contracts at the end of each reporting period is reflective of the typical volume of transactions during each calendar quarter. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their
contracts. The Company attempts to limit this risk by dealing with only creditworthy counterparties. There were no open forward foreign currency contracts at June 30, 2017 and December 31, 2016.
Warrants and Options
The Company holds warrants and options in certain portfolio companies in an effort to achieve additional investment return. In purchasing
warrants and options, the Company bears the risk of an unfavorable change in the value of the underlying equity interest. The aggregate fair value of warrants and options as of June 30, 2017 and December 31, 2016 represents zero and 0.02%,
respectively, of the Companys net assets.
The Company may enter into other derivative instruments and incur other exposures with
other counterparties in the future. The derivative instruments held as of June 30, 2017 and December 31, 2016 reflect the volume of derivative activity throughout the periods presented.
7. Debt
In accordance with the 1940
Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, calculated pursuant to the 1940 Act, is at least 200% after such borrowing. As of June 30, 2017, the Companys asset coverage
was 300%.
On February 19, 2016, the Company entered into an Amended and Restated Senior Secured Revolving Credit Facility (the
Credit Facility) which has an initial aggregate principal amount of up to $440,000,000, a stated commitment termination date of February 19, 2020, and a stated maturity date of February 19, 2021. The interest rate applicable to
Eurocurrency borrowings thereunder is generally LIBOR plus an applicable margin of either 1.75% or 2.00% based on a pricing grid using the borrowing base as a multiple of the combined debt amount. The interest rate applicable to ABR borrowings
thereunder is generally the prime rate in effect plus an applicable margin of either 0.75% or 1.00% based on a pricing grid using the borrowing base as a multiple of the combined debt amount. The Credit Facilitys commitment may increase in
size, under certain circumstances, up to a total of $750,000,000. From the commitment termination date to the stated maturity date, the Company is required to repay outstanding principal amounts under the Credit Facility on a monthly basis in an
amount equal to 1/12
th
of the outstanding amount at the commitment termination date. On June 5, 2017, the Company entered into a Second Amendment to the Second Amended and Restated Senior
Secured Revolving Credit Facility which extends the maturity date on the Credit Facility from February 19, 2021 to June 5, 2022.
On February 19, 2016, the Company entered into an Amended and Restated Senior Secured Term Loan Credit Agreement (the Term
Loan) which has a principal amount of $15,000,000. The Term Loan has a stated maturity date of March 27, 2019. The interest rate applicable to borrowings thereunder is generally LIBOR plus an applicable margin of 3.25%. On June 22,
2017, the Company repaid the aggregate $15,000,000 principal amount of the Term Loan, plus accrued and unpaid interest, as well as a $192,005 make-whole premium, using proceeds from the Credit Facility.
39
On January 18, 2011, the Company closed a private placement issuance of $158,000,000 in
aggregate principal amount of five-year, senior secured notes with a fixed interest rate of 6.50% and a maturity date of January 18, 2016 and $17,000,000 in aggregate principal amount of seven-year, senior secured notes with a fixed interest
rate of 6.60% and a maturity date of January 18, 2018 (collectively, the Senior Secured Notes). The $158,000,000 five-year, senior secured notes matured on January 18, 2016 and were repaid using proceeds from the Companys
Credit Facility. On April 17, 2017, the Company redeemed the $17,000,000 aggregate principal amount of 6.60% senior secured notes due 2018, using proceeds from the Credit Facility. The notes were prepaid at 100% of the principal amount, plus
accrued and unpaid interest through the prepayment date, as well as $651,472 make-whole premium.
The Senior Secured Notes were sold to
certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on January 18 and July 18, commencing on
July 18, 2011.
On February 19, 2013, the Company closed a private offering of $100,000,000 in aggregate principal amount of
5.50% unsecured convertible senior notes due 2018 (the Convertible Notes). The initial purchasers of the Convertible Notes fully exercised their overallotment option and purchased an additional $15,000,000 in aggregate principal amount
of the Convertible Notes. The closing of the overallotment option took place on March 4, 2013. With the exercise of the overallotment option, a total of $115,000,000 in aggregate principal amount of the Convertible Notes was sold. Net proceeds
to the Company from the offering, including the exercise of the overallotment option, were approximately $111,300,000. The Convertible Notes were only offered to qualified institutional buyers as defined in the Securities Act of 1933, as amended
(the Securities Act) pursuant to Rule 144A under the Securities Act.
The Convertible Notes are unsecured and bear interest at
a rate of 5.50% per year, payable semi-annually in arrears. In certain circumstances and during certain periods, the Convertible Notes are convertible into cash, shares of BlackRock Capital Investment Corporations common stock or a
combination of cash and shares of the Companys common stock, at the Companys election, at an initial conversion rate of 86.0585 shares of common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an
initial conversion price of approximately $11.62 per share of the Companys common stock, subject to defined anti-dilution adjustments. The Company does not have the right to redeem the Convertible Notes prior to maturity. The Convertible Notes
mature on February 15, 2018, unless repurchased or converted in accordance with their terms prior to such date.
On June 13,
2017, the Company issued $143,750,000 in aggregate principal amount ($125,000,000 of the initial offering and $18,750,000 of the underwriters exercise of the overallotment option) of 5.00% Convertible Notes due 2022 (the 2022 Convertible
Notes) under an indenture, dated as of June 13, 2017. Net proceeds to the Company from the offering, including the exercise of the overallotment option, were approximately $139,800,000. The 2022 Convertible Notes will mature on
June 15, 2022, unless previously converted, repurchased or redeemed in accordance with their terms. The interest rate on the notes is 5.00% per year, payable semiannually in arrears on June 15 and December 15 of each year,
commencing on December 15, 2017. Holders may convert their notes at their option prior to the close of business on the business day immediately preceding December 15, 2021, in integral multiples of $1,000 principal amount, only under
certain circumstances. Upon conversion of a note, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election at an initial conversion rate of 118.2173 shares
of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $8.46 per share of the Companys common stock. On or after December 23, 2021, the Company may redeem the 2022
Convertible Notes for cash, in whole or from time to time in part, at its option in accordance with their terms.
The 2022 Convertible
Notes are accounted for in accordance with ASC 470-20,
Debt Debt with Conversion and Other Options
(ASC 470-20). The Company has determined that the embedded conversion options in the 2022 Convertible Notes are not required
to be separately accounted for as a derivative under U.S. GAAP. In accounting for the 2022 Convertible Notes, at the time of issuance the Company estimated separate
40
debt and equity components, and an original issue discount equal to the equity component was recorded in additional paid in capital in the accompanying Consolidated Balance Sheet.
The Companys outstanding debt as of June 30, 2017 and December 31, 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Total
Aggregate
Principal
Amount
Available(1)
|
|
|
Principal
Amount
Outstanding
|
|
|
Carrying Value
|
|
|
Total
Aggregate
Principal
Amount
Available(1)
|
|
|
Principal
Amount
Outstanding
|
|
|
Carrying Value
|
|
Credit Facility
|
|
$
|
440,000,000
|
(2)
|
|
$
|
46,000,000
|
|
|
$
|
46,000,000
|
|
|
$
|
440,000,000
|
(2)
|
|
$
|
190,000,000
|
|
|
$
|
190,000,000
|
|
Senior Secured Notes
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
17,000,000
|
|
|
|
17,000,000
|
|
|
|
16,973,708
|
(5)
|
Convertible Notes
|
|
|
115,000,000
|
|
|
|
115,000,000
|
|
|
|
114,359,852
|
(3)
|
|
|
115,000,000
|
|
|
|
115,000,000
|
|
|
|
113,856,080
|
(4)
|
2022 Convertible Notes
|
|
|
143,750,000
|
|
|
|
143,750,000
|
|
|
|
135,129,021
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
|
|
14,838,118
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
698,750,000
|
|
|
$
|
304,750,000
|
|
|
$
|
295,488,873
|
|
|
$
|
587,000,000
|
|
|
$
|
337,000,000
|
|
|
$
|
335,667,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Subject to borrowing base and leverage restrictions.
|
(2)
|
Provides for a feature that allows the Company, under certain circumstances, up to a total of $750,000,000.
|
(3)
|
Represents the aggregate principal amount outstanding of the Convertible Notes less an unaccreted discount initially recorded upon issuance and unamortized debt issuance costs of $155,474 and $484,674, respectively, as
of June 30, 2017.
|
(4)
|
Represents the aggregate principal amount outstanding of the Convertible Notes less an unaccreted discount initially recorded upon issuance and unamortized debt issuance costs of $277,828 and $866,092, respectively, as
of December 31, 2016.
|
(5)
|
Represents the aggregate principal amount outstanding of the Senior Secured Notes less unamortized debt issuance costs of $26,292 at December 31, 2016. No longer outstanding at June 30, 2017.
|
(6)
|
Represents the aggregate principal amount outstanding of the Term Loan less unamortized debt issuance costs of $161,882 at December 31, 2016. No longer outstanding at June 30, 2017.
|
(7)
|
Represents the aggregate principal amount outstanding of the 2022 Convertible Notes less an unaccreted discount initially recorded upon issuance and unamortized debt issuance costs of $4,302,284 and $4,318,695,
respectively, as of June 30, 2017.
|
At June 30, 2017, the Company had $46,000,000 drawn on the Credit Facility
versus $190,000,000 at December 31, 2016. Subject to compliance with applicable covenants and borrowing base limitations, the remaining amount available under the Credit Facility was $394,000,000 at June 30, 2017 and $250,000,000 at
December 31, 2016. The Companys average outstanding debt balance during the three and six months ended June 30, 2017 was $334,668,593 and $329,257,489, respectively, and during the three and six months ended June 30, 2016 was
$408,391,544 and $399,816,998, respectively. The maximum amounts borrowed during the three and six months ended June 30, 2017 were $412,247,365 and $412,247,365, respectively, and during the three and six months ended June 30, 2016 were
$452,539,653 and $452,539,653, respectively.
Amortization of $575,102 and $967,138 related to debt issuance costs are included in interest
expense within the consolidated statements of operations for the three and six months ended June 30, 2017. Amortization of $406,646 and $839,161 related to debt issuance costs are included in interest expense within the consolidated statements
of operations for the three and six months ended June 30, 2016.
The weighted average annual interest cost for the three and six
months ended June 30, 2017 was 6.01% and 5.36%, respectively, exclusive of commitment fees of $250,031 and $497,063, respectively. The weighted average annual interest cost for the three and six months ended June 30, 2016 was 3.91% and
4.23%,
41
respectively, exclusive of commitment fees of $168,896 and $359,167, respectively. With respect to any unused portion of the commitments under the Credit Facility, the Company incurs an annual
commitment fee of 0.375%.
Under the Credit Facility, the Company is required to comply with various affirmative and restrictive covenants,
reporting requirements and other customary requirements for similar debt facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain
investments, (c) limitations on distributions and certain other restricted payments, (d) certain restrictions on subsidiaries and fundamental changes thereto, (e) maintaining a certain minimum shareholders equity,
(f) maintaining an asset coverage ratio of not less than 2.0:1.0, (g) limitations on certain transactions with affiliates, (h) limitations on pledging certain unencumbered assets, and (i) limitations on the creation or existence
of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. These covenants are subject to important limitations and exceptions that are described in the governing documents. Further, amounts available to
borrow under the Credit Facility (and the incurrence of certain other permitted debt) are also subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Companys portfolio that are
pledged as collateral. The Credit Facility is secured by a lien on substantially all of the assets of the Company and its subsidiaries.
The Convertible Notes and 2022 Convertible Notes contain certain covenants, including covenants requiring the Company to reserve shares of
common stock for the purpose of satisfying all obligations to issue the underlying securities upon conversion of the securities and to furnish to holders of the securities upon request, any information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
At June 30, 2017, the Company was in compliance with all covenants required under the Credit
Facility, Convertible Notes and 2022 Convertible Notes.
8. Capital stock
During April 2016, the Board of Directors approved an increase to the remaining amount of shares authorized to be repurchased to a total of
2,500,000 shares, and an extension to the plan until the earlier of June 30, 2017 or such time that all of the authorized shares have been repurchased. During May 2017, the Board of Directors approved an increase to the remaining amount of
shares authorized to be repurchased, effective July 1, 2017, to a total of 2,500,000 shares, and an extension to the plan until the earlier of June 30, 2018 or such time that all of the authorized shares have been repurchased. During the
three and six months ended June 30, 2016, the Company purchased a total of 541,851 and 1,904,064 shares, respectively, of its common stock on the open market for $4,083,719 and $16,093,205, respectively, including brokerage commissions. No such
shares were purchased for the three and six months ended June 30, 2017. Since inception of the repurchase plan through June 30, 2017, the Company has purchased 4,551,965 shares of its common stock on the open market for $36,302,821,
including brokerage commissions. At June 30, 2017, the total number of remaining shares authorized for repurchase was 1,958,149. The Company currently holds the shares it repurchased in treasury.
9. Guarantees, commitments and contingencies
In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the
Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. There were no such guarantees outstanding at June 30, 2017 and December 31, 2016. In addition,
from time to time, the Company may provide for a commitment to a portfolio company for investment in an existing or new security. At June 30, 2017 and December 31, 2016, the Company was obligated to existing portfolio companies for
unfunded commitments of $35.2 million and $43.5 million, respectively. Of the $35.2 million and $43.5 million total unfunded commitments at June 30, 2017 and December 31, 2016, respectively, $28.6 million and $42.5 million was on our
aggregate $85.0 million equity commitment to BCIC Senior Loan Partners, LLC (See Note 5). The aggregate fair value of unfunded commitments at June 30, 2017 and December 31, 2016 was $35.2 million and $42.6 million, respectively.
We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.
42
In the normal course of business, the Company enters into contractual agreements that provide
general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Companys
individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on managements experience, the Company expects the risk of
loss to be remote.
From time to time, we and the Advisor may be a party to certain legal proceedings incidental to the normal course of
our business, including the enforcement of our rights under contracts with our portfolio companies. Further, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we cannot
predict the outcome of these legal proceedings with certainty, we do not expect that these proceedings will have a material effect on our consolidated financial statements.
10. Fair value of financial instruments
Fair Value Measurements and Disclosure
ASC 820-10 defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. ASC
820-10 defines fair value as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. ASC
820-10 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability,
including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that reflect the Companys assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the
circumstances.
Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access.
Level 2 Valuations based on unadjusted quoted prices in
markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3
Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation.
Transfers between levels, if any, represent the value as of the beginning of the period of any investment where a change in the pricing level
occurred from the beginning to the end of the period.
The Companys valuation policy and fair value disclosures are consistent with
ASC 820-10. The Company evaluates the source of inputs, including any markets in which its investments are trading, in determining fair value and categorizes each investment within the fair value hierarchy pursuant to ASC 820-10.
Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio
companys outstanding voting securities as investments in affiliated companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio companys
outstanding voting securities as investments in controlled companies. Detailed information with respect to the Companys non-controlled non-affiliated, non-controlled affiliated and controlled investments is contained in the
accompanying consolidated schedules of investments and consolidated financial statements. The information in the tables below is presented on an aggregate portfolio basis, without segregating the non-controlled non-affiliated, non-controlled
affiliated and controlled investment categories.
43
The carrying values of the Companys financial instruments approximate fair value. The
carrying values of receivables, other assets, accounts payable and accrued expenses approximate fair value due to their short maturities. The fair value of the Companys Credit Facility, Senior Secured Notes, Convertible Notes, 2022 Convertible
Notes and Term Loan is derived by taking the average of the high and low quotes as obtained from a broker. The fair value of the Credit Facility, Senior Secured Notes, Convertible Notes, 2022 Convertible Notes and Term Loan would be classified as
Level 2 with respect to the fair value hierarchy.
The carrying and fair values of the Companys outstanding debt as of June 30,
2017 and December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Credit Facility
|
|
$
|
46,000,000
|
|
|
$
|
43,470,000
|
|
|
$
|
190,000,000
|
|
|
$
|
179,550,000
|
|
Senior Secured Notes
|
|
|
|
|
|
|
|
|
|
|
16,973,708
|
|
|
|
17,752,420
|
|
Convertible Notes
|
|
|
114,359,852
|
|
|
|
117,428,528
|
|
|
|
113,856,080
|
|
|
|
118,163,837
|
|
2022 Convertible Notes
|
|
|
135,129,021
|
|
|
|
142,846,754
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
|
|
|
|
|
|
|
|
|
14,838,118
|
|
|
|
15,093,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
295,488,873
|
|
|
$
|
303,745,282
|
|
|
$
|
335,667,906
|
|
|
$
|
330,560,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the fair values of the Companys investments and cash and cash equivalents
based on the inputs used at June 30, 2017 and December 31, 2016 in determining such fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Inputs at June 30, 2017
|
|
|
|
Fair Value
at June 30,
2017
|
|
|
Price
Quotations
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Senior secured notes
|
|
$
|
64,389,329
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
64,389,329
|
|
Unsecured debt
|
|
|
120,255,833
|
|
|
|
|
|
|
|
|
|
|
|
120,255,833
|
|
Subordinated debt
|
|
|
29,600,000
|
|
|
|
|
|
|
|
|
|
|
|
29,600,000
|
|
Senior secured loans
|
|
|
507,560,242
|
|
|
|
|
|
|
|
|
|
|
|
507,560,242
|
|
Preferred stock
|
|
|
56,484,414
|
|
|
|
|
|
|
|
|
|
|
|
56,484,414
|
|
Common stock
|
|
|
18,462,588
|
|
|
|
|
|
|
|
|
|
|
|
18,462,588
|
|
Limited partnership/limited liability company interests
|
|
|
96,511,515
|
|
|
|
|
|
|
|
|
|
|
|
96,511,515
|
|
Equity warrants/options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
893,263,921
|
|
|
|
|
|
|
|
|
|
|
|
893,263,921
|
|
Cash and cash equivalents
|
|
|
15,700,798
|
|
|
|
15,700,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
908,964,719
|
|
|
$
|
15,700,798
|
|
|
$
|
|
|
|
$
|
893,263,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Inputs at December 31, 2016
|
|
|
|
Fair Value
at December 31,
2016
|
|
|
Price
Quotations
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Senior secured notes
|
|
$
|
63,609,625
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,609,625
|
|
Unsecured debt
|
|
|
127,317,932
|
|
|
|
|
|
|
|
|
|
|
|
127,317,932
|
|
Subordinated debt
|
|
|
28,800,000
|
|
|
|
|
|
|
|
|
|
|
|
28,800,000
|
|
Senior secured loans
|
|
|
548,515,315
|
|
|
|
|
|
|
|
|
|
|
|
548,515,315
|
|
Preferred stock
|
|
|
57,873,127
|
|
|
|
|
|
|
|
|
|
|
|
57,873,127
|
|
Common stock
|
|
|
37,632,386
|
|
|
|
|
|
|
|
|
|
|
|
37,632,386
|
|
Limited partnership/limited liability company interests
|
|
|
67,257,747
|
|
|
|
|
|
|
|
|
|
|
|
67,257,747
|
|
Equity warrants/options
|
|
|
117,358
|
|
|
|
|
|
|
|
|
|
|
|
117,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
931,123,490
|
|
|
|
|
|
|
|
|
|
|
|
931,123,490
|
|
Cash and cash equivalents
|
|
|
10,707,834
|
|
|
|
10,707,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
941,831,324
|
|
|
$
|
10,707,834
|
|
|
$
|
|
|
|
$
|
931,123,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation techniques used at June 30, 2017 and December 31, 2016 in determining the fair values
of the Companys investments for which significant unobservable inputs were used were the market approach, income approach or both using third party valuation firms or broker quotes for identical or similar assets. The total fair market value
using the market or income approach or both using third party valuation firms was $893,263,921 and $931,123,490 as of June 30, 2017 and December 31, 2016, respectively. Any remaining balance was determined using broker quotes for identical
or similar assets.
The following is a reconciliation for the three months ended June 30, 2017 of investments for which Level 3
inputs were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
March 31,
2017
|
|
|
Amortization
of Premium/
Discount - Net
|
|
|
Net
Realized
Gain (Loss)
|
|
|
Net Change in
Unrealized
Appreciation or
Depreciation
|
|
|
Purchases
|
|
|
Sales or
Repayments
|
|
|
Net Transfers
in and/or
out of
Level 3
|
|
|
Fair Value at
June 30,
2017
|
|
Senior secured notes
|
|
$
|
65,033,438
|
|
|
$
|
77,379
|
|
|
$
|
|
|
|
$
|
(883,639
|
)
|
|
$
|
162,151
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
64,389,329
|
|
Unsecured debt
|
|
|
127,754,735
|
|
|
|
|
|
|
|
|
|
|
|
(1,817,049
|
)
|
|
|
7,377,776
|
|
|
|
(13,059,629
|
)
|
|
|
|
|
|
|
120,255,833
|
|
Subordinated debt
|
|
|
28,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
29,600,000
|
|
Senior secured loans
|
|
|
564,090,631
|
|
|
|
471,190
|
|
|
|
|
|
|
|
(1,295,898
|
)
|
|
|
3,213,253
|
|
|
|
(58,918,934
|
)
|
|
|
|
|
|
|
507,560,242
|
|
Preferred stock
|
|
|
52,459,434
|
|
|
|
|
|
|
|
|
|
|
|
3,747,862
|
|
|
|
277,118
|
|
|
|
|
|
|
|
|
|
|
|
56,484,414
|
|
Common stock
|
|
|
18,614,930
|
|
|
|
|
|
|
|
|
|
|
|
(297,618
|
)
|
|
|
145,276
|
|
|
|
|
|
|
|
|
|
|
|
18,462,588
|
|
Limited partnership/LLC Interest
|
|
|
82,092,281
|
|
|
|
|
|
|
|
|
|
|
|
3,498,783
|
|
|
|
10,920,451
|
|
|
|
|
|
|
|
|
|
|
|
96,511,515
|
|
Equity warrants/options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
938,845,449
|
|
|
$
|
548,569
|
|
|
$
|
|
|
|
$
|
2,952,441
|
|
|
$
|
22,896,025
|
|
|
$
|
(71,978,563
|
)
|
|
$
|
|
|
|
$
|
893,263,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
The following is a reconciliation for the six months ended June 30, 2017 of investments for
which Level 3 inputs were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
December 31,
2016
|
|
|
Amortization
of Premium/
Discount - Net
|
|
|
Net
Realized
Gain (Loss)
|
|
|
Net Change in
Unrealized
Appreciation or
Depreciation
|
|
|
Purchases
|
|
|
Sales or
Repayments
|
|
|
Net Transfers
in and/or
out of
Level 3
|
|
|
Fair Value at
June 30,
2017
|
|
Senior secured notes
|
|
$
|
63,609,625
|
|
|
$
|
153,909
|
|
|
$
|
(13,682,622
|
)
|
|
$
|
14,146,266
|
|
|
$
|
5,162,151
|
|
|
$
|
(5,000,000
|
)
|
|
$
|
|
|
|
$
|
64,389,329
|
|
Unsecured debt
|
|
|
127,317,932
|
|
|
|
|
|
|
|
|
|
|
|
(3,281,289
|
)
|
|
|
12,808,448
|
|
|
|
(16,589,258
|
)
|
|
|
|
|
|
|
120,255,833
|
|
Subordinated debt
|
|
|
28,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
29,600,000
|
|
Senior secured loans
|
|
|
548,515,315
|
|
|
|
1,274,613
|
|
|
|
(34,071,371
|
)
|
|
|
32,206,815
|
|
|
|
95,344,104
|
|
|
|
(135,709,234
|
)
|
|
|
|
|
|
|
507,560,242
|
|
Preferred stock
|
|
|
57,873,127
|
|
|
|
|
|
|
|
2,449,618
|
|
|
|
3,519,460
|
|
|
|
466,145
|
|
|
|
(7,823,936
|
)
|
|
|
|
|
|
|
56,484,414
|
|
Common stock
|
|
|
37,632,386
|
|
|
|
|
|
|
|
3,369,690
|
|
|
|
(2,733,864
|
)
|
|
|
218,571
|
|
|
|
(20,024,195
|
)
|
|
|
|
|
|
|
18,462,588
|
|
Limited partnership/LLC Interest
|
|
|
67,257,747
|
|
|
|
|
|
|
|
(9,638,439
|
)
|
|
|
9,334,387
|
|
|
|
30,497,089
|
|
|
|
(939,269
|
)
|
|
|
|
|
|
|
96,511,515
|
|
Equity warrants/options
|
|
|
117,358
|
|
|
|
|
|
|
|
(994,155
|
)
|
|
|
1,068,780
|
|
|
|
|
|
|
|
(191,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
931,123,490
|
|
|
$
|
1,428,522
|
|
|
$
|
(52,567,279
|
)
|
|
$
|
54,260,555
|
|
|
$
|
145,296,508
|
|
|
$
|
(186,277,875
|
)
|
|
$
|
|
|
|
$
|
893,263,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation for the three months ended June 30, 2016 of investments for which
Level 3 inputs were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
March 31,
2016
|
|
|
Amortization
of Premium/
Discount - Net
|
|
|
Net
Realized
Gain (Loss)
|
|
|
Net Change in
Unrealized
Appreciation or
Depreciation
|
|
|
Purchases
|
|
|
Sales or
Repayments
|
|
|
Net Transfers
in and/or
out of
Level 3
|
|
|
Fair Value at
June 30,
2016
|
|
Senior secured notes
|
|
$
|
104,407,930
|
|
|
$
|
138,557
|
|
|
$
|
|
|
|
$
|
(1,133,862
|
)
|
|
$
|
|
|
|
$
|
(1,050,000
|
)
|
|
$
|
|
|
|
$
|
102,362,625
|
|
Unsecured debt
|
|
|
137,619,123
|
|
|
|
1
|
|
|
|
|
|
|
|
(6,260,313
|
)
|
|
|
14,806,639
|
|
|
|
(29,882,962
|
)
|
|
|
|
|
|
|
116,282,488
|
|
Subordinated debt
|
|
|
19,848,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,160,000
|
|
|
|
|
|
|
|
|
|
|
|
26,008,119
|
|
Senior secured loans
|
|
|
742,739,952
|
|
|
|
1,682,460
|
|
|
|
(30,844,001
|
)
|
|
|
15,430,294
|
|
|
|
28,358,832
|
|
|
|
(128,447,614
|
)
|
|
|
|
|
|
|
628,919,923
|
|
Preferred stock
|
|
|
50,718,415
|
|
|
|
(1
|
)
|
|
|
241,027
|
|
|
|
(3,185,857
|
)
|
|
|
16,402,184
|
|
|
|
(241,027
|
)
|
|
|
|
|
|
|
63,934,741
|
|
Common stock
|
|
|
41,998,485
|
|
|
|
(1
|
)
|
|
|
(744,450
|
)
|
|
|
132,923
|
|
|
|
7,500,000
|
|
|
|
(21,500
|
)
|
|
|
|
|
|
|
48,865,457
|
|
Limited partnership/LLC Interest
|
|
|
27,469,567
|
|
|
|
|
|
|
|
(75,907
|
)
|
|
|
(4,602,762
|
)
|
|
|
3,074,868
|
|
|
|
(1,307,271
|
)
|
|
|
|
|
|
|
24,558,495
|
|
Equity warrants/options
|
|
|
1,555,539
|
|
|
|
|
|
|
|
448,886
|
|
|
|
(559,127
|
)
|
|
|
|
|
|
|
(453,886
|
)
|
|
|
|
|
|
|
991,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,126,357,130
|
|
|
$
|
1,821,016
|
|
|
$
|
(30,974,445
|
)
|
|
$
|
(178,704
|
)
|
|
$
|
76,302,523
|
|
|
$
|
(161,404,260
|
)
|
|
$
|
|
|
|
$
|
1,011,923,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation for the six months ended June 30, 2016 of investments for which Level 3
inputs were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
December 31,
2015
|
|
|
Amortization
of Premium/
Discount - Net
|
|
|
Net
Realized
Gain (Loss)
|
|
|
Net Change in
Unrealized
Appreciation or
Depreciation
|
|
|
Purchases
|
|
|
Sales or
Repayments
|
|
|
Net Transfers
in and/or
out of
Level 3
|
|
|
Fair Value at
June 30,
2016
|
|
Senior secured notes
|
|
$
|
69,875,250
|
|
|
$
|
388,851
|
|
|
$
|
|
|
|
$
|
(3,601,476
|
)
|
|
$
|
36,750,000
|
|
|
$
|
(1,050,000
|
)
|
|
$
|
|
|
|
$
|
102,362,625
|
|
Unsecured debt
|
|
|
126,476,842
|
|
|
|
|
|
|
|
|
|
|
|
(11,108,961
|
)
|
|
|
30,797,569
|
|
|
|
(29,882,962
|
)
|
|
|
|
|
|
|
116,282,488
|
|
Subordinated debt
|
|
|
42,608,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,400,000
|
|
|
|
(25,000,000
|
)
|
|
|
|
|
|
|
26,008,119
|
|
Senior secured loans
|
|
|
756,394,823
|
|
|
|
2,200,365
|
|
|
|
(30,844,001
|
)
|
|
|
(30,404,934
|
)
|
|
|
67,892,070
|
|
|
|
(136,318,400
|
)
|
|
|
|
|
|
|
628,919,923
|
|
Preferred stock
|
|
|
43,533,360
|
|
|
|
(1
|
)
|
|
|
241,027
|
|
|
|
3,251,551
|
|
|
|
17,149,831
|
|
|
|
(241,027
|
)
|
|
|
|
|
|
|
63,934,741
|
|
Common stock
|
|
|
46,629,914
|
|
|
|
(1
|
)
|
|
|
(744,450
|
)
|
|
|
(4,941,603
|
)
|
|
|
7,943,097
|
|
|
|
(21,500
|
)
|
|
|
|
|
|
|
48,865,457
|
|
Limited partnership/ LLC Interest
|
|
|
28,553,438
|
|
|
|
|
|
|
|
(41,023
|
)
|
|
|
(7,948,715
|
)
|
|
|
5,336,950
|
|
|
|
(1,342,155
|
)
|
|
|
|
|
|
|
24,558,495
|
|
Equity warrants/options
|
|
|
2,924,818
|
|
|
|
|
|
|
|
448,886
|
|
|
|
(1,928,406
|
)
|
|
|
|
|
|
|
(453,886
|
)
|
|
|
|
|
|
|
991,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,116,996,564
|
|
|
$
|
2,589,214
|
|
|
$
|
(30,939,561
|
)
|
|
$
|
(56,682,544
|
)
|
|
$
|
174,269,517
|
|
|
$
|
(194,309,930
|
)
|
|
$
|
|
|
|
$
|
1,011,923,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Levels during the three and six months ended June 30, 2017 and 2016. All
realized and unrealized gains and losses are included in earnings (changes in net assets) and are reported as separate line items within the Companys consolidated statements of operations.
46
Net change in unrealized appreciation (depreciation) for the six months ended June 30, 2017
and 2016 on investments still held by the Company at the respective period ends, for which Level 3 inputs were used in determining fair value was $2,512,245 and ($62,007,486), respectively.
The significant unobservable inputs used in the market approach of fair value measurement of the Companys investments are the market
multiples of earnings before income tax, depreciation and amortization (EBITDA) of the comparable guideline public companies. The independent valuation firms select a population of public companies for each investment with similar
operations and attributes of the subject company. Using these guideline public companies data, a range of multiples of enterprise value to EBITDA is calculated. The independent valuation firms select percentages from the range of multiples for
purposes of determining the subject companys estimated enterprise value based on said multiple and generally the latest twelve months EBITDA of the subject company (or other meaningful measure). Significant increases or decreases in the
multiple will result in an increase or decrease in enterprise value, resulting in an increase or decrease in the fair value estimate of the investment.
The significant unobservable input used in the income approach of fair value measurement of the Companys investments is the discount
rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. Significant increases or decreases in the discount rate or
market yield would result in a decrease or increase in the fair value measurement. Included in the consideration and selection of discount rates or market yields are the following factors: risk of default, rating of the investment and comparable
company investments, and call provisions.
The ranges of significant unobservable inputs used in the fair value measurement of the
Companys Level 3 investments as of June 30, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
Weighted Average
|
|
|
|
|
EBITDA Multiples:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
|
4.00x
|
|
|
|
5.00x
|
|
|
|
4.64x
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
6.56x
|
|
|
|
7.50x
|
|
|
|
7.03x
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Senior secured loans
|
|
|
6.65x
|
|
|
|
8.34x
|
|
|
|
7.50x
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
7.00x
|
|
|
|
7.73x
|
|
|
|
7.36x
|
|
|
|
|
|
|
|
Common stock
|
|
|
7.00x
|
|
|
|
7.50x
|
|
|
|
7.25x
|
|
|
|
|
|
|
|
Limited partnerships/LLC interest
|
|
|
7.18x
|
|
|
|
8.20x
|
|
|
|
7.68x
|
|
|
|
|
|
|
|
Equity warrants/options
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
Market Yields:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
|
10.18%
|
|
|
|
11.23%
|
|
|
|
10.96%
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Senior secured loans
|
|
|
10.28%
|
|
|
|
11.12%
|
|
|
|
10.78%
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Common stock
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Limited partnerships/LLC interest
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Equity warrants/options
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
Weighted Average
|
|
|
|
|
Book Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
1.05x
|
|
|
|
1.15x
|
|
|
|
1.10x
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
0.95x
|
|
|
|
1.05x
|
|
|
|
1.00x
|
|
|
|
|
|
|
|
Senior secured loans
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1.09x
|
|
|
|
1.21x
|
|
|
|
1.15x
|
|
|
|
|
|
|
|
Common stock
|
|
|
1.05x
|
|
|
|
1.15x
|
|
|
|
1.10x
|
|
|
|
|
|
|
|
Limited partnerships/LLC interests
|
|
|
0.95x
|
|
|
|
1.05x
|
|
|
|
1.00x
|
|
|
|
|
|
|
|
Equity warrants/options
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Senior secured loans
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Common stock
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Limited partnerships/LLC interests
|
|
|
0.90x
|
|
|
|
1.10x
|
|
|
|
1.00x
|
|
|
|
|
|
|
|
Equity warrants/options
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
The ranges of significant unobservable inputs used in the fair value measurement of the Companys
Level 3 investments as of December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
Weighted Average
|
|
|
|
|
EBITDA Multiples:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
|
4.00x
|
|
|
|
5.00x
|
|
|
|
4.38x
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
6.75x
|
|
|
|
7.75x
|
|
|
|
7.25x
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Senior secured loans
|
|
|
6.16x
|
|
|
|
7.41x
|
|
|
|
6.82x
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
7.00x
|
|
|
|
7.65x
|
|
|
|
7.32x
|
|
|
|
|
|
|
|
Common stock
|
|
|
9.17x
|
|
|
|
10.04x
|
|
|
|
9.88x
|
|
|
|
|
|
|
|
Limited partnerships/LLC interests
|
|
|
8.04x
|
|
|
|
8.91x
|
|
|
|
8.27x
|
|
|
|
|
|
|
|
Equity warrants/options
|
|
|
10.00x
|
|
|
|
11.00x
|
|
|
|
10.88x
|
|
|
|
|
|
|
|
|
|
|
Market Yields:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
|
11.20%
|
|
|
|
11.88%
|
|
|
|
11.65%
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
24.25%
|
|
|
|
24.75%
|
|
|
|
24.50%
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Senior secured loans
|
|
|
10.41%
|
|
|
|
11.24%
|
|
|
|
10.81%
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Common stock
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Limited partnerships/LLC interests
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Equity warrants/options
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
High
|
|
Weighted Average
|
|
|
|
Book Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Unsecured debt
|
|
1.03x
|
|
1.13x
|
|
1.08x
|
|
|
|
|
|
|
Subordinated debt
|
|
0.95x
|
|
1.05x
|
|
1.00x
|
|
|
|
|
|
|
Senior secured loans
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Preferred stock
|
|
1.06x
|
|
1.17x
|
|
1.12x
|
|
|
|
|
|
|
Common stock
|
|
1.03x
|
|
1.13x
|
|
1.08x
|
|
|
|
|
|
|
Limited partnerships/LLC interests
|
|
0.95x
|
|
1.05x
|
|
1.00x
|
|
|
|
|
|
|
Equity warrants/options
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
|
|
|
Net Asset Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Unsecured debt
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Subordinated debt
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Senior secured loans
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Preferred stock
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Common stock
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
Limited partnerships/LLC interests
|
|
0.90x
|
|
1.10x
|
|
1.00x
|
|
|
|
|
|
|
Equity warrants/options
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
11. Financial highlights
The following per share data and ratios have been derived from information provided in the consolidated financial statements. The following is
a schedule of financial highlights for a common share outstanding during the six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30, 2017
|
|
|
Six months
ended
June 30, 2016
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
8.21
|
|
|
$
|
10.17
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.39
|
|
|
|
0.54
|
|
Net realized and unrealized gain (loss)
|
|
|
0.04
|
|
|
|
(1.19
|
)
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
0.43
|
|
|
|
(0.65
|
)
|
Distributions to stockholders from net investment income
|
|
|
(0.36
|
)
|
|
|
(0.42
|
)
|
Purchases of treasury stock at prices below net asset value
|
|
|
|
|
|
|
0.04
|
|
Issuance of convertible notes
|
|
|
0.06
|
|
|
|
|
|
Issuance/reinvestment of stock at prices (below) above net asset value
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets
|
|
|
0.13
|
|
|
|
(1.04
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
8.33
|
|
|
$
|
9.13
|
|
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
$
|
7.49
|
|
|
$
|
7.78
|
|
|
|
|
|
|
|
|
|
|
Total return(1)(2)
|
|
|
13.72%
|
|
|
|
(13.29)%
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30, 2017
|
|
|
Six months
ended
June 30, 2016
|
|
Ratios / Supplemental Data:
|
|
|
|
|
|
|
|
|
Ratio of operating expenses to average net assets(3)(4)
|
|
|
5.41%
|
|
|
|
4.35%
|
|
Ratio of interest and other debt related expenses to average net assets(3)
|
|
|
3.11%
|
|
|
|
2.49%
|
|
|
|
|
|
|
|
|
|
|
Ratio of total expenses to average net assets(3)(5)
|
|
|
8.52%
|
|
|
|
6.84%
|
|
Ratio of net investment income to average net assets(3)
|
|
|
9.57%
|
|
|
|
11.06%
|
|
Net assets, end of period
|
|
$
|
607,513,218
|
|
|
$
|
661,442,436
|
|
Average debt outstanding
|
|
$
|
329,257,489
|
|
|
$
|
399,816,998
|
|
Weighted average shares outstanding
|
|
|
72,867,332
|
|
|
|
72,903,681
|
|
Average debt per share(6)
|
|
$
|
4.52
|
|
|
$
|
5.48
|
|
Portfolio turnover(2)
|
|
|
16%
|
|
|
|
16%
|
|
Figures
may not foot due to rounding
(1)
|
Total return is based on the change in market price per share during the respective periods. Total return calculations take into account distributions, if any, reinvested in accordance with the Companys dividend
reinvestment plan and do not reflect brokerage commissions.
|
(4)
|
Ratio excluding incentive fees based on income for the six months ended June 30, 2017 and 2016 is 4.20% and 4.35%, respectively.
|
(5)
|
Ratio excluding incentive fees based on income for the six months ended June 30, 2017 and 2016 is 7.32% and 6.84%, respectively.
|
(6)
|
Average debt per share is calculated as average debt outstanding divided by the weighted average shares outstanding during the applicable period.
|
12. Subsequent events
On August 1,
2017, the Companys Board of Directors declared a distribution of $0.18 per share, payable on October 2, 2017 to stockholders of record at the close of business on September 18, 2017.
The Company has reviewed subsequent events occurring through the date that these consolidated financial statements were available to be
issued, and determined that no subsequent events occurred requiring accrual or disclosure, except as disclosed above and elsewhere in these notes to consolidated financial statements.
50