Quarterly Report (10-q)

Date : 11/12/2019 @ 9:20PM
Source : Edgar (US Regulatory)
Stock : OHA Investment Corporation (OHAI)
Quote : 1.28  -0.0015 (-0.12%) @ 10:59PM

Quarterly Report (10-q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
 
Commission file number: 814-00672
 
 
 
 
OHA Investment Corporation
 
 
(Exact name of registrant as specified in its charter) 
 
 
 
 
Maryland
 
20-1371499
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1114 Avenue of the Americas,
27th Floor
 
10036
New York, New York
 
(Zip Code)
(Address of principal executive
offices)
 
 
(212) 852-1900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 o
Accelerated filer
 o
Non-accelerated filer
 x
Smaller reporting company
 o
Emerging growth company
 o
 
 
(Do not check if smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common stock, $0.001 par value
 
OHAI
 
Nasdaq Global Select Market
As of November 12, 2019, there were 20,172,392 shares of the registrant’s common stock outstanding.




Table of Contents
 
 




PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
 
OHA INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts) 
 
 
September 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Assets
 
 

 
 

Investments in portfolio securities at fair value
 
 

 
 

Affiliate investments (cost: $26,028 and $26,028, respectively)
 
$
2,422

 
$
2,271

Non-affiliate investments (cost: $80,722 and $85,306, respectively)
 
59,982

 
63,335

Total portfolio investments (cost: $106,750 and $111,334, respectively)
 
62,404

 
65,606

Investments in U.S. Treasury Bills at fair value (cost: $9,999 and $14,989, respectively)
 
9,999

 
14,989

Total investments
 
72,403

 
80,595

Cash and cash equivalents
 
4,497

 
3,124

Accounts receivable and other current assets
 
492

 
499

Interest receivable
 
425

 
224

Other prepaid assets
 
34

 
19

Deferred tax asset
 
158

 
316

Total current assets
 
5,606

 
4,182

Total assets
 
$
78,009

 
$
84,777

 
 
 
 
 
Liabilities
 
 

 
 

Current liabilities
 
 

 
 

Due to broker
 
$
199

 
$
3,251

Distributions payable
 
403

 
403

Accounts payable and accrued expenses
 
1,697

 
683

Due to affiliate (Note 4)
 
122

 
571

Management and incentive fees payable (Note 4)
 
351

 
366

Income taxes payable
 
39

 
39

Repurchase agreement
 
9,800

 
14,689

Short-term debt, net of debt issuance costs
 
29,894

 

Total current liabilities
 
42,505

 
20,002

Long-term debt, net of debt issuance costs
 

 
28,866

Total liabilities
 
42,505

 
48,868

Commitments and contingencies  (Note 6)
 
 

 
 

Net assets
 
 

 
 

Common stock, $.001 par value, 250,000,000 shares authorized; 20,172,392 and 20,172,392 shares issued and outstanding, respectively
 
20

 
20

Paid-in capital in excess of par
 
211,907

 
211,907

Total distributable earnings (loss)
 
(176,423
)
 
(176,018
)
Total net assets
 
35,504

 
35,909

Total liabilities and net assets
 
$
78,009

 
$
84,777

Net asset value per share
 
$
1.76

 
$
1.78

(See accompanying notes to consolidated financial statements)

3



OHA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Investment income:
 
 

 
 

 
 

 
 

Interest income:
 
 

 
 

 
 

 
 

Affiliate investments
 
$

 
$
(209
)
 
$

 
$
43

Payment-in-kind from affiliate investments
 

 
668

 

 
2,722

Non-affiliate investments
 
1,496

 
1,360

 
4,499

 
3,807

Money market interest
 
18

 
50

 
50

 
190

Other income
 
4

 
17

 
18

 
34

Total investment income
 
1,518

 
1,886

 
4,567

 
6,796

Operating expenses:
 
 

 
 

 
 

 
 

Interest expense and bank fees
 
620

 
767

 
1,860

 
2,391

Management fees (Note 4)
 
305

 
397

 
925

 
1,181

Incentive fees (Note 4)
 
(32
)
 
6

 
46

 
6

Costs related to strategic alternatives review
 
754

 

 
1,063

 
75

Professional fees
 
(31
)
 
260

 
406

 
1,120

Allocation of administrative expenses from advisor (Note 4)
 
371

 
298

 
1,113

 
962

Other general and administrative expenses
 
29

 
40

 
161

 
210

Directors' fees
 
62

 
61

 
184

 
184

Total operating expenses
 
2,078

 
1,829

 
5,758

 
6,129

Waived incentive fees (Note 4)
 

 
(6
)
 

 
(6
)
Income tax provision, net
 

 
7

 
15

 
45

Net investment income (loss)
 
(560
)
 
56

 
(1,206
)
 
628

Realized and unrealized gain (loss) on investments:
 
 
 
 
 
 
 
 
Net realized capital gain (loss) on investments
 
 

 
 

 
 

 
 

Control investments
 

 

 
178

 

Non-affiliate investments
 

 

 
451

 
(55,952
)
Provision for taxes
 

 
3

 

 
(39
)
Total net realized capital gain (loss) on investments
 

 
3

 
629

 
(55,991
)
Net unrealized appreciation on investments
 
 

 
 

 
 

 
 

Affiliate investments
 
(110
)
 
(7,812
)
 
151

 
(10,064
)
Non-affiliate investments
 
(429
)
 
1,804

 
1,231

 
62,218

Total net unrealized appreciation (depreciation) on investments
 
(539
)
 
(6,008
)
 
1,382

 
52,154

 
 
 
 
 
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
(1,099
)
 
$
(5,949
)
 
$
805

 
$
(3,209
)
 
 
 
 
 
 
 
 
 
Net increase (decrease) in net assets resulting from operations per common share
 
$
(0.05
)
 
$
(0.29
)
 
$
0.04

 
$
(0.16
)
 
 
 
 
 
 
 
 
 
Distributions declared per common share
 
$
0.02

 
$
0.02

 
$
0.06

 
$
0.06

Weighted average shares outstanding - basic and diluted
 
20,172

 
20,172

 
20,172

 
20,172

 (See accompanying notes to consolidated financial statements)

4



OHA INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(in thousands, except share data)
(unaudited)
 
 
 
Common Stock
 
Paid in Capital in Excess of Par
 
Distributable Earnings (Loss)
 
Total Net Assets
 
 
Shares
 
Par Amount
 
 
 
Balance at December 31, 2018
 
20,172,392

 
$
20

 
$
211,907

 
$
(176,018
)
 
$
35,909

Net investment loss
 

 

 

 
(145
)
 
(145
)
Net realized and unrealized gain
 

 

 

 
1,692

 
1,692

Distributions to common stockholders
 

 

 

 
(404
)
 
(404
)
Balance at March 31, 2019
 
20,172,392

 
20

 
211,907

 
(174,875
)
 
37,052

Net investment loss
 

 

 

 
(501
)
 
(501
)
Net realized and unrealized gain
 

 

 

 
858

 
858

Distributions to common stockholders
 

 

 

 
(403
)
 
(403
)
Balance at June 30, 2019
 
20,172,392

 
20

 
211,907

 
(174,921
)
 
37,006

Net investment loss
 

 

 

 
(560
)
 
(560
)
Net realized and unrealized loss
 

 

 

 
(539
)
 
(539
)
Distributions to common stockholders
 

 

 

 
(403
)
 
(403
)
Balance at September 30, 2019
 
20,172,392

 
$
20

 
$
211,907

 
$
(176,423
)
 
$
35,504

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Paid in Capital in Excess of Par
 
Distributable Earnings (Loss)
 
Total Net Assets
 
 
Shares
 
Par Amount
 
 
 
Balance at December 31, 2017
 
20,172,392

 
$
20

 
$
234,553

 
$
(186,802
)
 
$
47,771

Net investment loss
 

 

 

 
(95
)
 
(95
)
Net realized and unrealized gain
 

 

 

 
1,827

 
1,827

Distributions to common stockholders
 

 

 

 
(404
)
 
(404
)
Balance at March 31, 2018
 
20,172,392

 
20

 
234,553

 
(185,474
)
 
49,099

Net investment income
 

 

 

 
667

 
667

Net realized and unrealized gain
 

 

 

 
340

 
340

Distributions to common stockholders
 

 

 

 
(403
)
 
(403
)
Balance at June 30, 2018
 
20,172,392

 
20

 
234,553

 
(184,870
)
 
49,703

Net investment income
 

 

 

 
56

 
56

Net realized and unrealized loss
 

 

 

 
(6,004
)
 
(6,004
)
Distributions to common stockholders
 

 

 

 
(403
)
 
(403
)
Balance at September 30, 2018
 
20,172,392

 
$
20

 
$
234,553

 
$
(191,221
)
 
$
43,352

 
(See accompanying notes to consolidated financial statements)

5



OHA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
For the nine months ended September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net increase (decrease) in net assets resulting from operations
 
$
805

 
$
(3,209
)
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
 
 
 
 
Payment-in-kind interest
 

 
(3,550
)
Net amortization of premiums, discounts and fees
 
(203
)
 
(371
)
Net realized capital (gain) loss on investments
 
(629
)
 
55,952

Net unrealized depreciation (appreciation) on investments
 
(1,382
)
 
(52,153
)
Purchase of investments in portfolio securities
 
(12,014
)
 
(25,599
)
Proceeds from redemption or sale of investments in portfolio securities
 
15,173

 
20,686

Proceeds from revolving loans, net of draws
 
369

 
16

Purchase of investments in U.S. Treasury Bills
 
(30,000
)
 
(52,000
)
Proceeds from redemption of investments in U.S. Treasury Bills
 
34,990

 
50,001

Proceeds from ATP production payments applied to cost basis
 
1,889

 
860

Amortization of debt issuance costs on Credit Facility
 
103

 
226

Effects of changes in operating assets and liabilities:
 
 
 
 
Accounts receivable and other current assets
 
9

 
(7
)
Interest receivable
 
(201
)
 
227

Prepaid assets
 
(15
)
 
(4
)
Payables and accrued expenses
 
999

 
(477
)
Deferred tax asset
 
158

 
39

Due from broker
 
(3
)
 

Due to broker
 
(3,052
)
 

Due to affiliate
 
(449
)
 
(434
)
Net cash provided by (used in) operating activities
 
6,547

 
(9,797
)
Cash flows from financing activities:
 
 

 
 

Borrowings under credit facilities
 
3,000

 

Borrowings under repurchase agreement
 
29,394

 
50,942

Debt issuance cost paid
 
(75
)
 
(174
)
Repayments on Credit Facility
 
(2,000
)
 
(7,000
)
Repayments on repurchase agreement
 
(34,283
)
 
(48,982
)
Distributions to common stockholders
 
(1,210
)
 
(1,210
)
Net cash used in financing activities
 
(5,174
)
 
(6,424
)
Net change in cash and cash equivalents
 
1,373

 
(16,221
)
Cash and cash equivalents, beginning of period
 
3,124

 
19,939

Cash and cash equivalents, end of period
 
$
4,497

 
$
3,718

 
(See accompanying notes to consolidated financial statements)


6



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2019
(in thousands, except share amounts and percentages)
(unaudited)
Portfolio Company
 
Industry
Segment
 
Investment(1)
 
Acquisition Date(15)
 
Principal
 
Cost
 
Fair Value
 
Affiliate Investments - (5% to 25% owned)
OCI Holdings, LLC
 
Home Health Services
 
Subordinated Note
(1M LIBOR+19.0% PIK with a 1.0% floor), 21.05%, due 2/29/2020
(2)(6)(11)
 
 
 
$
30,187

 
$
23,528

 
$
2,422

OCI Holdings, LLC
 
Home Health Services
 
100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings, LLC(2)(8)
 
 
 
 
 
2,500

 

Subtotal Affiliate Investments - (5% to 25% owned)
 
 
 
 

 
$
26,028

 
$
2,422

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-affiliate Investments - (Less than 5% owned)
Equinox Holdings, Inc.
 
Leisure Goods, Activities, Movies
 
Second Lien Term Loan
(1M LIBOR+7.00% with a 1.0% floor), 9.04%,
due 9/6/2024
(3)
 
3/8/2017
 
$
7,000

 
$
6,962

 
$
7,053

PAE Holding Corporation
 
Aerospace and Defense
 
Second Lien Term Loan
(3M LIBOR+9.50% with a 1.0% floor), 11.60%,
due 10/20/2023
(3)
 
10/20/2016
 
6,888

 
6,766

 
6,802

Ministry Brands, LLC
 
Business Services
 
Second Lien Term Loan
(2M LIBOR+8.00% with a 1.0% floor), 10.09%,
due 6/2/2023
(2)
 
5/30/2018
 
6,000

 
5,953

 
6,000

NAVEX
 
Software
 
Second Lien Term Loan
(3M LIBOR+7.00%), 9.13%,
due 9/5/2026
(3)
 
8/9/2018
 
4,700

 
4,659

 
4,659

PowerSchool
 
Business Services
 
Second Lien Term Loan
(3M LIBOR+6.75%), 8.96%,
due 8/1/2026
(3)
 
6/12/2018
 
3,800

 
3,766

 
3,781

ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC
 
Oil & Natural Gas
Production and Development
 
Limited Term Royalty Interest (notional rate of 13.2%)(2)(7)(11)
 
9/30/2014
 

 
24,561

 
3,672

Sedgwick
 
Insurance
 
Unsecured Term Loan,
9.00%, due 12/31/2026
(3)
 
12/31/2018
 
3,300

 
3,254

 
3,300

DexKo Global, Inc.
 
Automotive
 
Second Lien Term Loan
(3M LIBOR+8.25% with a 1.0% floor), 10.35%,
due 7/24/2025
(3)
 
7/13/2017
 
2,935

 
2,917

 
2,935

WASH Multifamily Acquisition, Inc.
 
Industrials - Laundry Equipment
 
Second Lien Term Loan
(1M LIBOR+7.00% with a 1.0% floor), 9.04%,
due 5/14/2023
(3)
 
5/14/2015
 
2,978

 
2,966

 
2,908

Coinamatic Canada,
Inc.
(5)
 
Industrials - Laundry Equipment
 
Second Lien Term Loan
(1M LIBOR+7.00% with a 1.0% floor), 9.04%,
due 5/14/2023
(3)
 
5/14/2015
 
522

 
520

 
509

Hayward Industries, Inc.
 
Consumer Goods
 
Second Lien Term Loan
(1M LIBOR+8.25%), 10.29%,
due 8/4/2025
(3)
 
7/18/2017
 
2,159

 
2,162

 
2,051



7



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
September 30, 2019
(in thousands, except share amounts and percentages)
(unaudited)
Portfolio Company
 
Industry Segment
 
Investment(1)
 
Acquisition Date(15)
 
Principal
 
Cost
 
Fair Value
 
 
 
 
 
 
 
 
 

 
 

 
 

Non-affiliate Investments - (Less than 5% owned) - Continued
CentralSquare Technologies
 
Software
 
Second Lien Term Loan
(1M LIBOR+7.50%), 9.54%,
due 8/31/2026
(3)
 
8/15/2018
 
$
2,000

 
$
1,953

 
$
1,903

Ensono
 
Telecommunications
 
Second Lien Term Loan
(1M LIBOR+9.25%), 11.29%,
due 6/27/2026
(3)
 
5/3/2018
 
1,700

 
1,639

 
1,677

Blackboard Transact
 
Software
 
Second Lien Term Loan
(3M LIBOR+8.50%), 10.76%,
due 4/30/2027
(2)
 
3/7/2019
 
1,455

 
1,405

 
1,425

Aptean
 
Software
 
Second Lien Term Loan
(3M LIBOR+8.50%), 10.60%,
due 4/23/2027
(2)
 
2/25/2019
 
1,400

 
1,359

 
1,372

MW Industries (Helix Acquisition)
 
Industrials
 
Second Lien Term Loan
(3M LIBOR+8.00%), 10.10%,
due 9/29/2025
(3)
 
9/28/2017
 
1,400

 
1,389

 
1,340

JS Held
 
Business Equipment and Services
 
First Lien Term Loan
(LIBOR+6.00%), 8.31%,
due 7/1/2025
(2)
 
5/16/2019
 
1,248

 
1,218

 
1,235

JS Held
 
Business Equipment and Services
 
Revolver
(Funded: Prime+5.00%, Unfunded: 0.5%), 10.00%,
due 7/1/2025
(2)(12)
 
5/16/2019
 
10

 
7

 
9

JS Held
 
Business Equipment and Services
 
Delayed Draw Term Loan
(Funded: LIBOR+6.00%, Unfunded: 1.0%), 8.31%,
due 7/1/2025
(2)(13)
 
5/16/2019
 

 
(6
)
 
(3
)
PharMerica
 
Healthcare
 
Second Lien Term Loan
(1M LIBOR+8.50% with a 1.0% floor), 10.54%,
due 3/5/2027
(3)
 
2/19/2019
 
1,200

 
1,171

 
1,212

Caliber Collision
 
Automotive
 
Second Lien Term Loan
(1M LIBOR+7.25%), 9.29%,
due 2/5/2027
(3)
 
12/19/2018
 
1,100

 
1,082

 
1,100

Vertafore, Inc.
 
Business Services
 
Second Lien Term Loan
(1M LIBOR+7.25%), 9.29%,
due 7/2/2026
(3)
 
6/4/2018
 
900

 
892

 
888

Imperial Dade
 
Food Services
 
Second Lien Term Loan
(1M LIBOR+8.00%), 10.04%,
due 6/11/2027
(2)
 
5/20/2019
 
833

 
813

 
825

Imperial Dade
 
Food Services
 
Delayed Draw Term Loan
(Funded: LIBOR+8.00%), 10.04%, due 6/11/2027
(2)(14)
 
5/20/2019
 

 
(2
)
 
(2
)
Safe Fleet Holdings, LLC
 
Industrials
 
Second Lien Term Loan
(1M LIBOR+6.75% with a 1.0% floor), 8.79%,
due 2/1/2026
(3)
 
1/23/2018
 
700

 
697

 
679



8



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
September 30, 2019
(in thousands, except share amounts and percentages)
(unaudited)
Portfolio Company
 
Industry Segment
 
Investment(1)
 
Acquisition Date
 
Principal
 
Cost
 
Fair Value
 
 
 
 
 
 
 
 
 

 
 

 
 

Non-affiliate Investments - (Less than 5% owned) - Continued
Ardonagh(5)
 
Insurance
 
Senior Secured Notes
8.63%, due 7/15/2023
(3)
 
11/2/2018
 
$
600

 
$
549

 
$
573

ClearChoice (CC Dental Implants Intermediate)
 
Healthcare
 
First Lien Term Loan (Last Out) (1M LIBOR+6.50% with a 1.0% floor), 8.90%,
due 1/2/2023
(2)(10)
 
3/21/2018
 
500

 
496

 
500

ClearChoice (CC Dental Implants Intermediate)
 
Healthcare
 
First Lien Revolver
(Last Out) (Funded: 1M LIBOR+6.50% with a 1.0% floor, Unfunded: 0.75%), 8.55%,
due 1/2/2023
(2)(9)(10)
 
3/21/2018
 

 
(11
)
 

MedRisk, LLC
 
Healthcare
 
Second Lien Term Loan
(1M LIBOR+6.75%), 8.79%,
due 12/28/2025
(3)
 
1/25/2018
 
500

 
498

 
494

FirstLight Fiber
 
Telecommunications
 
Second Lien Term Loan
(1M LIBOR+7.50%), 9.54%,
due 7/23/2026
(3)
 
6/19/2018
 
400

 
396

 
397

EaglePicher Technologies, LLC
 
Aerospace and Defense
 
Second Lien Term Loan
(1M LIBOR+7.25%), 9.29%
due 3/9/2026
(3)
 
2/23/2018
 
400

 
392

 
388

Edelman Financial Services, LLC
 
Financial Services
 
Second Lien Term Loan
(1M LIBOR+6.75%), 8.81%,
due 7/20/2026
(3)
 
6/26/2018
 
300

 
299

 
300

Subtotal Non-affiliate Investments - (Less than 5% owned)
 
 
 
 

 
$
80,722

 
$
59,982

Subtotal Portfolio Investments (86.2% of total investments)
 
 
 
 

 
$
106,750

 
$
62,404

 
 
 
 
 
 
 
 
 
 
 
 
 
GOVERNMENT SECURITIES
U.S. Treasury Bills (CUSIP 912796SL4)(4)
 
1.66%
 
9/30/2019
 
$
10,000

 
$
9,999

 
$
9,999

Subtotal Government Securities (13.8% of total investments)
 
 
 
 

 
$
9,999

 
$
9,999

 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS
 
$
116,749

 
$
72,403



NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS
 
(1) 
The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act. We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 to Consolidated Financial Statements. The majority of the investments bear interest at a rate that maybe determined by reference to London Interbank Offered Rate ("LIBOR") or Prime and which reset daily, monthly, quarterly, semiannually or annually. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect as of September 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate investments, a spread above a reference rate is not applicable. As of September 30, 2019, the index rates for 1M LIBOR, 2M LIBOR , and 3M LIBOR are 2.02%, 2.07%, and 2.09%, respectively. The actual index rate for each investment listed may not be the applicable index rate outstanding as of September 30, 2019, as the loan may have priced or repriced based on an index rate prior to September 30, 2019. Due dates represent the contractual maturity dates. Common stock and units are non-income producing securities, unless otherwise stated.

9



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
September 30, 2019
(in thousands, except share amounts and percentages)

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
(2) 
The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 7 to the Consolidated Financial Statements.
(3) 
Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 7 to the Consolidated Financial Statements.
(4) 
Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 7 to the Consolidated Financial Statements.
(5) 
We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an ongoing basis. As of September 30, 2019, 1.73% of our investment portfolio was deemed not to be "qualifying assets" under Section 55(a) of the 1940 Act.
(6) 
During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its LIBOR+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter 2016. OCI remains in financial covenant default. During 2017, we executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its LIBOR+12% cash interest during 2017. Through June 30, 2018, we have allowed the company to continue to PIK its 12% cash interest while paying the 2% default interest in cash. In June 2018, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to August 31, 2019. In September 2018, we executed an amendment to our note purchase and security agreement whereby we exchanged $217,625 of cash default interest previously paid to us by the company in 2018 for PIK interest, which was added to the principal outstanding balance of the note, on and as of the date the default interest payment was originally made. This amendment also allows the company to PIK its default interest through December 31, 2018. In 2019, OCI continues to be in default and continues to PIK all of its interest, including default interest. Beginning in the 4th quarter of 2018, OCI subordinated note was placed on non-accrual status. In October 2019, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to February 29, 2020.
(7) 
Effective April 1, 2018, we discontinued income recognition on this investment and it remains on non-accrual status. All production payments received after April 1, 2018 are being applied to our cost basis and considered return of capital. Previously, ATP was on non-accrual status where income was recognized to the extent production payments were received. For more information on ATP, refer to the discussion of the ATP litigation in Note 6 to the Consolidated Financial Statements.
(8) 
Non-income producing equity security.
(9) 
Represents a revolving line of credit of which $1.7 million of the $1.7 million total commitment is unfunded at September 30, 2019. The revolving line of credit includes a 0.75% unused fee applied to the unfunded amount. In February 2019, ClearChoice executed an amendment to the financing agreement which increased the amount committed by OHAI under the revolving line of credit from $1.6 million to $1.7 million and modified certain other loan covenants.
(10) 
Investment is entitled to skim interest which results in a higher interest rate spread of approximately 30 basis points.
(11) 
Investment on non-accrual status and therefore non-income producing.
(12) 
Represents a revolving line of credit of which $133 thousand of the $143 thousand total commitment is unfunded at September 30, 2019. The revolving line of credit includes a 0.5% unused fee.
(13)
Represents a delayed draw term loan with a total commitment of $306 thousand all of which is unfunded at September 30, 2019. The delayed draw term loan includes a 1.0% unused fee.
(14) 
Represents a delayed draw term loan with a total commitment of $167 thousand all of which is unfunded at September 30, 2019.
(15) 
Acquisition date represents the date of initial investment in the portfolio investment.

 (See accompanying notes to consolidated financial statements)

10



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2018
(in thousands, except share amounts and percentages)
Portfolio Company
 
Industry
Segment
 
Investment(1)
 
Acquisition Date(12)
 
Principal
 
Cost
 
Fair Value
 
Affiliate Investments - (5% to 25% owned)
OCI Holdings, LLC
 
Home Health Services
 
Subordinated Note
(1M LIBOR+ 19.0% PIK with a 1.0% floor ), 21.51%, due 8/31/2019
(2)(6)(11)
 
 
 
$
25,711

 
$
23,528

 
$
2,271

OCI Holdings, LLC
 
Home Health Services
 
100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings, LLC(2)(8)
 
 
 
 
 
2,500

 

Subtotal Affiliate Investments - (5% to 25% owned)
 
 
 
 

 
$
26,028

 
$
2,271

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-affiliate Investments - (Less than 5% owned)
Equinox Holdings, Inc.
 
Leisure Goods, Activities, Movies
 
Second Lien Term Loan
(1M LIBOR+7.0% with a 1.0% floor), 9.52%,
due 9/6/2024
(3)
 
3/8/2017
 
$
7,000

 
$
6,957

 
$
7,018

PAE Holding Corporation
 
Aerospace and Defense
 
Second Lien Term Loan
(2M LIBOR+9.50% with a 1.0% floor), 12.12%,
due 10/20/2023
(3)
 
10/20/2016
 
6,888

 
6,749

 
6,785

Ministry Brands, LLC
 
Business Services
 
Second Lien Term Loan
(1M LIBOR+8.0% with a 1.0% floor), 10.52%,
due 6/2/2023
(2)
 
5/30/2018
 
6,000

 
5,945

 
5,880

Avantor Performance Materials, Inc.
 
Chemicals
 
Senior Unsecured Notes,
9.00%, due 10/1/2025
(3)
 
9/22/2017
 
5,000

 
5,000

 
5,000

ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC
 
Oil & Natural Gas
Production and Development
 
Limited Term Royalty Interest (notional rate of 13.2%)(2)(7)(11)
 
9/30/2014
 

 
26,450

 
4,778

CVS Holdings I, LP
(MyEyeDr)
 
Retail
 
Second Lien Term Loan
(1M LIBOR+6.75% with a 1.0% floor), 9.28%, due 2/6/2026
(3)
 
2/1/2018
 
5,000

 
4,977

 
4,725

PowerSchool
 
Business Services
 
Second Lien Term Loan
(1M LIBOR+6.75%), 9.13%, due 8/1/2026
(3)
 
6/12/2018
 
3,800

 
3,763

 
3,762

WASH Multifamily Acquisition, Inc.
 
Industrials - Laundry Equipment
 
Second Lien Term Loan
(1M LIBOR+7.0% with a 1.0% floor), 9.52%, due 5/14/2023
(3)
 
5/14/2015
 
3,404

 
3,388

 
3,293

Sedgwick
 
Insurance
 
Unsecured Term Loan,
9.00%, due 12/31/2026
(3)
 
12/31/2018
 
3,300

 
3,251

 
3,251

DexKo Global, Inc.
 
Automotive
 
Second Lien Term Loan
(3M LIBOR+8.25% with a 1.0% floor), 11.05%, due 7/24/2025
(3)
 
7/13/2017
 
3,000

 
2,979

 
3,000



11



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
December 31, 2018
(in thousands, except share amounts and percentages)
Portfolio Company
 
Industry
Segment
 
Investment(1)
 
Acquisition Date(12)
 
Principal
 
Cost
 
Fair Value
 
 
 
 
 
 
 
 
 

 
 

 
 

Non-affiliate Investments - (Less than 5% owned) - Continued
TIBCO Software, Inc.
 
Software
 
Senior Unsecured Notes,
11.38%, due 12/1/2021
(3)
 
7/7/2015
 
$
2,100

 
$
1,995

 
$
2,200

Hayward Industries, Inc.
 
Consumer Goods
 
Second Lien Term Loan
(1M LIBOR+8.25%), 10.77%, due 8/04/2025
(3)
 
7/18/2017
 
2,159

 
2,163

 
2,127

CentralSquare Technologies
 
Software
 
Second Lien Term Loan
(1M LIBOR+7.50%), 10.02%, due 8/31/2026
(3)
 
8/15/2018
 
2,000

 
1,950

 
2,000

Ensono
 
Telecommunications
 
Second Lien Term Loan
(1M LIBOR+9.25%), 11.77%, due 6/27/2026
(3)
 
5/3/2018
 
1,700

 
1,635

 
1,653

MW Industries (Helix Acquisition)
 
Industrials
 
Second Lien Term Loan
(3M LIBOR+8.0%), 10.80%, due 9/29/2025
(3)
 
9/28/2017
 
1,400

 
1,388

 
1,379

Allied Universal Holdco, LLC
 
Business Services
 
Second Lien Term Loan
(1M LIBOR+8.50% with a 1.0% floor), 11.02%, due 7/28/2023
(3)
 
3/15/2018
 
1,250

 
1,250

 
1,191

Vertafore, Inc.
 
Business Services
 
Second Lien Term Loan
(3M LIBOR+7.25%), 10.05%, due 7/2/2026
(3)
 
6/4/2018
 
900

 
891

 
865

Safe Fleet Holdings, LLC
 
Industrials
 
Second Lien Term Loan
(1M LIBOR+6.75% with a 1.0% floor), 9.13%, due 2/1/2026
(3)
 
1/23/2018
 
700

 
697

 
665

Coinamatic Canada,
Inc.
(5)
 
Industrials - Laundry Equipment
 
Second Lien Term Loan
(1M LIBOR+7.0% with a 1.0% floor), 9.52%, due 5/14/2023
(3)
 
5/14/2015
 
596

 
593

 
577

Ardonagh(5)
 
Insurance
 
Senior Secured Notes,
8.625%, due 7/15/2023
(3)
 
11/2/2018
 
600

 
541

 
513

MedRisk, LLC
 
Healthcare
 
Second Lien Term Loan
(1M LIBOR+6.75%), 9.27%, due 12/28/2025
(3)
 
1/25/2018
 
500

 
498

 
491

ClearChoice (CC Dental Implants Intermediate)
 
Healthcare
 
First Lien Term Loan (Last Out) (1M LIBOR+6.50% with a 1.0% floor), 9.13%, due 1/2/2023(2)(10)
 
3/21/2018
 
500

 
496

 
487

ClearChoice (CC Dental Implants Intermediate)
 
Healthcare
 
First Lien Revolver (Last Out) (Funded: 1M LIBOR+6.50% with a 1.0% floor, Unfunded: 0.75%), 9.29%,
due 1/2/2023
(2)(9)(10)
 
3/21/2018
 
375

 
361

 
336

FirstLight Fiber
 
Telecommunications
 
Second Lien Term Loan
(1M LIBOR+7.50%), 10.02%, due 7/23/2026
(3)
 
6/19/2018
 
400

 
396

 
393


 

12



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
December 31, 2018
(in thousands, except share amounts and percentages)
Portfolio Company
 
Industry
Segment
 
Investment(1)
 
Acquisition Date(12)
 
Principal
 
Cost
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-affiliate Investments - (Less than 5% owned) - Continued
NAVEX
 
Software
 
Second Lien Term Loan
(1M LIBOR+7.00%), 9.53%, due 9/5/2026
(3)
 
8/9/2018
 
$
400

 
$
396

 
$
386

EaglePicher Technologies, LLC
 
Aerospace and Defense
 
Second Lien Term Loan
(1M LIBOR+7.25%), 9.77%, due 3/9/2026
(3)
 
2/23/2018
 
300

 
298

 
294

Edelman Financial Services, LLC
 
Financial Services
 
Second Lien Term Loan
(3M LIBOR+6.75%), 9.19%, due 7/20/2026
(3)
 
6/26/2018
 
300

 
299

 
286

Subtotal Non-affiliate Investments - (Less than 5% owned)
 
$
85,306

 
$
63,335

Subtotal Portfolio Investments (81.4% of total investments)
 
$
111,334

 
$
65,606

 
 
 
 
 
 
 
 
 
 
 
 
 
GOVERNMENT SECURITIES
 
 
 
 
 
 
 
 
U.S. Treasury Bills (CUSIP 912796LC1)(4)
 
2.28%
 
12/21/2018
 
$
15,000

 
$
14,989

 
$
14,989

Subtotal Government Securities (18.6% of total investments)
 
 
 
 
 
$
14,989

 
$
14,989

 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS
 
 
 
 
 
 
 
 
 
$
126,323

 
$
80,595


NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

(1) 
The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act. We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 to Consolidated Financial Statements. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect as of December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate investments, a spread above a reference rate is not applicable. As of December 31, 2018, the index rates for 1M LIBOR, 2M LIBOR , and 3M LIBOR are 2.50%, 2.61%, and 2.81%, respectively . The actual index rate for each investment listed may not be the applicable index rate outstanding as of December 31, 2018, as the loan may have priced or repriced based on an index rate prior to December 31, 2018. Due dates represent the contractual maturity dates. Common stock and units are non-income producing securities, unless otherwise stated.
(2) 
The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 10 to the Consolidated Financial Statements.
(3) 
Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 10 to the Consolidated Financial Statements.
(4) 
Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 10 to the Consolidated Financial Statements.
(5) 
We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an ongoing basis. As of December 31, 2018, 1.4% of our investment portfolio was deemed not to be "qualifying assets" under Section 55(a) of the 1940 Act.


13



OHA INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued
December 31, 2018
(in thousands, except share amounts and percentages)


NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued

(6) 
During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its LIBOR+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter 2016. OCI remains in financial covenant default. During 2017, we executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its LIBOR+12% cash interest during 2017. Through June 30, 2018, we have allowed the company to continue to PIK its 12% cash interest while paying the 2% default interest in cash. In June 2018, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to August 31, 2019. In September 2018, we executed an amendment to our note purchase and security agreement whereby we exchanged $217,625 of cash default interest previously paid to us by the company in 2018 for PIK interest, which was added to the principal outstanding balance of the note, on and as of the date the default interest payment was originally made. This amendment also allows the company to PIK its default interest through December 31, 2018. Beginning in the 4th quarter of 2018, OCI subordinated note was placed on non-accrual status.
(7) 
Effective April 1, 2018, we discontinued income recognition on this investment and it remains on non-accrual status. All production payments received after April 1, 2018 are being applied to our cost basis and considered return of capital. Previously, ATP was on non-accrual status where income was recognized to the extent production payments were received. For more information on ATP, refer to the discussion of the ATP litigation in Note 7 to the Consolidated Financial Statements.
(8) 
Non-income producing equity security.
(9) 
Represents a revolving line of credit of which $1.2 million of the $1.6 million total commitment is unfunded at December 31, 2018. The revolving line of credit includes a 0.75% unused fee applied to the unfunded amount.
(10) 
Investment is entitled to skim interest which results in a higher interest rate spread of approximately 28 basis points.
(11) 
Investment on non-accrual status and therefore non-income producing.
(12) 
Acquisition date represents the date of the initial investment in the portfolio investment.


(See accompanying notes to consolidated financial statements)



14



OHA INVESTMENT CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(unaudited)
 
For the nine months ended September 30,
Per Share Data(1)
2019
 
2018
Net asset value, beginning of period
$
1.78

 
$
2.37

Net investment income (loss), net of tax
(0.06
)
 
0.03

Net realized and unrealized gain (loss) on investments
0.10

 
(0.19
)
Net increase (decrease) in net assets resulting from operations(5)
0.04

 
(0.16
)
Distributions to common stockholders
 
 
 

Distributions from distributable earnings

 
(0.06
)
Return of capital
(0.06
)
 

Net decrease in net assets from distributions(5)
(0.06
)
 
(0.06
)
Net asset value, end of period(5)
$
1.76

 
$
2.15

 
 
 
 
Market value, beginning of period
$
1.01

 
$
1.15

Market value, end of period
$
1.30

 
$
1.53

Market value return(2)(3)
36.6
 %
 
38.0
 %
Net asset value return(3)
4.9
 %
 
(5.7
)%
 
 
 
 
Ratios and Supplemental Data
 

 
 

($ and shares in thousands)
 

 
 

Net assets, end of period
$
35,504

 
$
43,352

Average net assets
$
36,670

 
$
48,462

Common shares outstanding, end of period
20,172

 
20,172

Total operating expenses and taxes/average net assets(4)
21.0
 %
 
17.0
 %
Net investment income (loss)/average net assets(4)
(4.4
)%
 
1.7
 %
Portfolio turnover rate
18.9
 %
 
32.9
 %
 
 
 
 
Expense Ratios (as a percentage of average net assets)(4)
 

 
 

Interest expense and bank fees
6.7
 %
 
6.6
 %
Management fees
3.4
 %
 
3.2
 %
Incentive fees
0.2
 %
 
 %
Costs related to strategic alternatives review
3.9
 %
 
0.2
 %
Other operating expenses, including provision for income taxes
6.8
 %
 
7.0
 %
Total operating expenses, including provision for income taxes
21.0
 %
 
17.0
 %
 
(1) 
Per share data is based on weighted average number of common shares outstanding for the period. Per share data may not total due to rounding.
(2) 
Total return based on market value is calculated as the change in market value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with our dividend reinvestment plan.
(3) 
Not annualized.
(4) 
Annualized.
(5) 
Totals may not sum due to rounding.

(See accompanying notes to consolidated financial statements)

15



OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(unaudited)

Note 1: Organization
These consolidated financial statements present the financial position, results of operations and cash flows of OHA Investment Corporation and its consolidated subsidiaries (collectively “we,” “us,” “our” and “OHAI”). We are a specialty finance company that was organized in July 2004 as a Maryland corporation. Our investment objective is to generate both current income and capital appreciation primarily through debt investments, some of which include equity components. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or a BDC, under the 1940 Act. For federal income tax purposes we operate so as to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. We have several direct and indirect subsidiaries that are single-member limited liability companies and wholly-owned limited partnerships established to hold certain portfolio investments or provide services to us in accordance with specific rules prescribed for a company operating as a RIC. We consolidate the financial results of our wholly-owned subsidiaries for financial reporting purposes, and we do not consolidate the financial results of our portfolio companies.
On September 30, 2014, our stockholders approved the appointment of Oak Hill Advisors, L.P., or OHA, as our investment advisor, replacing NGP Investment Advisor, LP, which had been our investment advisor since our inception. In connection with this change in investment advisor, we changed our name from NGP Capital Resources Company to OHA Investment Corporation. OHA is a registered investment adviser under the Investment Advisers Act of 1940, or the Advisers Act. OHA acts as our investment advisor and administrator pursuant to an investment advisory agreement and an administration agreement, respectively, each dated as of September 30, 2014, which we refer to as the Investment Advisory Agreement and the Administration Agreement, respectively. See Note 4.
On July 31, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Portman Ridge Finance Corporation (“PTMN”), Storm Acquisition Sub Inc. (“Acquisition Sub”), and Sierra Crest Investment Management LLC, the investment adviser to PTMN and an affiliate of BC Partners Advisors L.P. and LibreMax Capital LLC. (“PTMN Adviser”). The transaction is the result of OHAI’s previously announced review of strategic alternatives and has been approved by a unanimous vote of the Special Committee of the Board of Directors of OHAI, the Board of Directors of OHAI (other than directors affiliated with Oak Hill Advisors, L.P., the external adviser to OHAI, who abstained from voting) and the Board of Directors of PTMN.
Under the terms of the proposed transaction, OHAI stockholders will receive a combination of (i) a minimum of $8 million in cash (approximately $0.40 per share) from PTMN (as may be adjusted as described below); (ii) PTMN shares valued at 100% of PTMN’s net asset value per share at the time of closing of the transaction in an aggregate number equal to OHAI’s net asset value at closing minus the $8 million PTMN cash merger consideration (as may be adjusted as described below); and (iii) an additional cash payment from the PTMN Adviser, of $3 million in the aggregate, or approximately $0.15 per share.
If the aggregate number of shares of PTMN stock to be issued in connection with the merger would exceed 19.9% of the issued and outstanding shares of PTMN common stock immediately prior to the transaction closing, then the cash consideration payable by PTMN will be increased to the minimum extent necessary such that the aggregate number of shares of PTMN common stock to be issued in connection with the merger does not exceed such threshold. The exact exchange ratio for the stock component of the merger will be determined by the net asset value of OHAI and PTMN as of the closing, calculated as of 5:00 p.m. New York City time on the day prior to the closing of the transaction. In addition to approval by OHAI’s stockholders, the closing of the merger is subject to customary conditions. The parties currently expect the transaction to be completed in the fourth calendar quarter of 2019.
The Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of PTMN’s and OHAI’s businesses during the period prior to the closing of the Merger. OHAI has agreed to convene and hold a stockholder meeting for the purpose of obtaining the approval for the First Merger by OHAI’s stockholders, and has agreed to recommend that the stockholders approve the proposal.
The Merger Agreement provides that OHAI may not solicit proposals relating to alternative transactions, or, subject to certain exceptions, enter into discussions or negotiations or provide information in connection with any proposal for an alternative transaction. However, the OHAI board of directors (“OHAI Board”) may, subject to certain conditions and payment of a termination fee of approximately $1.3 million, terminate the Merger Agreement and enter into an agreement with respect to a bona fide, unsolicited, written and binding competing proposal that is fully financed or has fully committed financing made by a third party if it determines in good faith, after consultation with its financial advisors and outside legal advisors, and considering all legal, financial, regulatory and other material aspects of, and the identity of the third party making, the competing proposal and such factors as the OHAI Board considers in good faith to be appropriate, (1) is more favorable to stockholders of OHAI from a financial point of view than the transactions contemplated by the Merger Agreement (including any revisions to the terms and conditions of the Merger

16

OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2019
(unaudited)

Agreement proposed by PTMN to OHAI in writing in response to such competing proposal) and (2) is reasonably likely of being completed on the terms proposed on a timely basis (the “Superior Proposal”).
Consummation of the Merger is subject to certain closing conditions, including (1) requisite approval of OHAI stockholders, (2) approval for listing on The Nasdaq Global Select Market of the shares of PTMN common stock to be issued in the Merger, (3) effectiveness of the registration statement on Form N-14, which will include a proxy statement of OHAI and a prospectus of PTMN, (4) the absence of certain legal impediments to the consummation of the First Merger, (5) subject to certain exceptions, the accuracy of the representations and warranties and compliance with the covenants of each party to the Merger Agreement, and (6) a requirement that, as of the Determination Date, each of OHAI and PTMN deliver to each other a calculation of the net asset value as of the day prior to the closing date of OHAI and PTMN, as applicable.
The Merger Agreement also contains certain termination rights in favor of PTMN and OHAI, including if the Merger is not completed on or before January 31, 2020 or if the requisite approval of OHAI’s stockholders are not obtained. The Merger Agreement also provides that, upon the termination of the Merger Agreement under certain circumstances, OHAI may be required to pay PTMN, a termination fee of approximately $1.3 million or, at PTMN’s option, pay PTMN for damages subject to certain caps. Similarly, the Merger Agreements provides that, upon the termination of the Merger Agreement under certain circumstances, PTMN may be required to pay OHAI, a termination fee of approximately $1.3 million or, at OHAI’s option, pay OHAI for damages subject to certain caps. If this Merger Agreement is terminated by OHAI or PTMN under certain circumstances, including when the requisite approval of OHAI’s stockholders are not obtained, and no termination fee is otherwise required to be paid by OHAI in connection therewith, then OHAI will be required to reimburse PTMN and its affiliates for half of their reasonable and documented out-of-pocket fees and expenses incurred and payable by PTMN or Acquisition Sub or on their behalf in connection with or related to the Merger Agreement or the transactions contemplated thereby, subject to a cap of $500,000.
On November 4, 2019, PTMN filed an amended registration statement on Form N-14, which included a joint prospectus and proxy statement of OHAI and PTMN.  The registration statement on Form N-14 was declared effective by the SEC on November 6, 2019.  The special meeting for our stockholders is scheduled for December 12, 2019 to vote on the matters described in the proxy statement as required by the Merger Agreement.

Note 2: Basis of Presentation
These interim unaudited consolidated financial statements include the accounts of OHAI and its consolidated subsidiaries. The effects of all intercompany transactions between OHAI and its subsidiaries have been eliminated in consolidation. We prepare the interim consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). OHAI is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, Financial Services - Investment Company ("ASC 946"). Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and ASC 946, we are precluded from consolidating portfolio company investments, including those in which it has a controlling interest, unless the portfolio company is another investment company. An exception to the general principle occurs if OHAI holds a controlling interest in an operating company that provides all or substantially all of its services directly to us or to our portfolio companies. None of the portfolio investments made by OHAI qualify for this exception. Therefore, our investment portfolio is carried on the Consolidated Balance Sheets at fair value.
We omit certain information and footnote disclosures normally included in audited financial statements prepared in accordance with GAAP pursuant to such rules and regulations. We believe we include all adjustments which are of a normal recurring nature, so that these financial statements fairly present our financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or any other interim period. You should read these unaudited consolidated financial statements in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Preparing interim consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes thereto, including the estimated fair values of our investment portfolio discussed in Note 7. Although we believe our estimates and assumptions are reasonable, actual results could differ materially from these estimates. Certain prior period information has been reclassified to conform to the current period presentation. The reclassification has no effect on the company's consolidated financial position or the consolidated results of operations as previously reported.

17

OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2019
(unaudited)

Cash and Cash Equivalents
Cash and cash equivalents include short-term, liquid investments with an original maturity of three months or less in accounts such as demand deposit accounts, money market accounts, certain overnight investment sweep accounts and money market fund accounts. We record cash and cash equivalents at cost, which approximates fair value. As of September 30, 2019, OHAI held $0.5 million in bank demand deposits and $4.0 million in money market funds.
Payment-in-Kind Interest and Dividends
We have investments in our portfolio that contain payment-in-kind, or PIK, interest provisions. We compute PIK interest income at the contractual rate specified in each investment agreement, and we add that amount to the principal balance of the investment. For investments with PIK interest, we calculate our income accruals on the principal balance plus any PIK amounts. If the portfolio company’s projected cash flows, further supported by estimated total enterprise value, are not sufficient to cover the contractual principal and interest, as applicable, we do not accrue PIK interest income on the investment. To maintain our RIC status, we must pay out this non-cash income to stockholders in the form of distributions, even though we have not yet collected the cash. We did not record any PIK interest income for the three months ended September 30, 2019 and we recorded $0.7 million for the three months ended September 30, 2018 related to our investment in OCI subordinated notes. We did not record any PIK interest income for the for the nine months ended September 30, 2019, and we recorded $2.7 million for the nine months ended September 30, 2018 related to our investment in OCI subordinated notes. Beginning in October 2018, we discontinued recognizing any PIK interest income on our investment in OCI's subordinated notes from a tax and GAAP perspective.
Distributions
We record distributions to stockholders on the ex-dividend date. We have historically made distributions each year in an amount sufficient to maintain our status as a RIC for federal income tax purposes and to eliminate federal excise tax liability. We currently intend to consider making quarterly distributions to stockholders through the closing of the Merger. Each quarter, we estimate our annual taxable earnings. The Board of Directors considers this estimate and determines the distribution amount, if any. We generally declare our distributions each quarter and pay them shortly thereafter. The following table summarizes our recent distribution history:
Declaration Date
 
Per Share
Amount
 
Record Date
 
Payment Date
May 8, 2018
 
$
0.02

 
June 30, 2018
 
July 9, 2018
September 13, 2018
 
0.02

 
September 30, 2018
 
October 9, 2018
December 12, 2018
 
0.02

 
December 31, 2018
 
January 9, 2019
March 13, 2019
 
0.02

 
March 28, 2019
 
April 9, 2019
May 7, 2019
 
0.02

 
June 28, 2019
 
July 9, 2019
September 11, 2019
 
0.02

 
September 30, 2019
 
October 9, 2019

Note 3: Credit Facilities and Borrowings
We are party to a Credit Agreement (the "Credit Facility"), dated September 9, 2016, with MidCap Financial Trust, as administrative agent. The initial size of the Credit Facility was $56.5 million with a maturity date of March 9, 2018, with an option to extend for a six-month period, subject to certain conditions. The initial proceeds of $40.5 million from the Credit Facility were used to pay off the $38.5 million outstanding balance of our previous credit facility with SunTrust Bank, pay transaction expenses and provide balance sheet cash. The remaining $16.0 million consisted of a delayed draw term loan and was committed for one year.
On November 10, 2017, we entered into an amendment to the Credit Facility whereby we agreed to make a voluntary principal prepayment in the amount of $4.5 million, reducing the total principal amount outstanding to $36.0 million, and the lenders agreed not to test certain covenants at certain determination dates.
On February 2, 2018, we exercised the option to extend the Credit Facility through September 9, 2018, as permitted in our existing Credit Agreement.
On September 7, 2018, we entered into an amendment to extend the maturity date of the Credit Facility to September 9, 2019, which can be extended for an additional six-month period at our option. In connection with the extension, we made a repayment of principal of $7.0 million of its Credit Facility, reducing the principal amount outstanding to $29.0 million. The $7.0 million principal repayment was available to us to be re-borrowed as a delayed draw term loan, which is committed until September 9, 2019. In addition, the interest rate for the borrowings under the Credit Facility was reduced to LIBOR plus 4.95% for Eurodollar Loans and prime plus 3.95% for Base Rate Loans. Certain financial covenants were also amended.
On January 7, 2019 we borrowed an additional $3.0 million under the Credit Facility as a delayed draw term loan. On February 11, 2019 we repaid $2.0 million on our delayed draw term loan leaving $4.0 million available to draw.
On August 5, 2019, we exercised our option to extend the credit facility through March 9, 2020, as permitted in our existing Credit Agreement.
As of September 30, 2019, the total amount outstanding under the Credit Facility was $30.0 million. As of December 31, 2018, the total amount outstanding under the Credit Facility was $29.0 million with $7.0 million available to draw. The total amount outstanding on the Credit Facility is shown net of unamortized debt issuance costs of $0.1 million and $0.1 million on our Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018, respectively. Substantially all of our assets, except our investments in U.S. Treasury Bills, are pledged as collateral for the obligations under the Credit Facility. The Credit Facility bears an interest rate of Adjusted LIBOR plus 4.95% for Eurodollar Loans, subject to a 1% LIBOR floor, and Base Rate plus 3.95% for Base Rate Loans. As of September 30, 2019, the interest rate on our outstanding principal balance of $30.0 million was 7.05%.
The Credit Facility contains affirmative and reporting covenants and certain financial ratio and restrictive covenants, including prohibiting us from repurchasing our common stock. We have complied with the covenants from the date of the Credit Agreement through September 30, 2019, and had no existing defaults or events of default under the Credit Facility. The financial covenants, with terms as defined in the Credit Agreement, are:
maintain a Debt to Tangible Net Worth Ratio of not more than 1.00:1.00 as determined on the last day of each calendar month,
maintain at all times a minimum liquidity in the form of Cash or Cash Equivalents of at least $1.0 million,
maintain a Debt to Fair Market Value Ratio of not more than 0.50:1.00 at any time, and
maintain the Fair Market Value of Liquid Portfolio Investments as a percentage of outstanding aggregate principal balance to not be less than 100%.

In connection with the Merger, PTMN will pay off the outstanding principal and accrued interest under the Credit Facility.
At the end of each quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which includes purchasing U.S. Treasury Bills, by utilizing repurchase agreements on a temporary basis. On September 30, 2019, we purchased $10.0 million of U.S. Treasury Bills and contemporaneously entered into a $9.8 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $10.0 million of U.S. Treasury Bills and $0.2 million of cash as collateral was returned to us, under the repurchase agreement. We repaid the $9.8 million borrowed under the repurchase agreement, and the $0.2 million cash collateral was returned to us, net of a $1 thousand financing fee, upon maturity of the U.S. Treasury Bills on October 3, 2019. We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability at September 30, 2019.
On December 21, 2018, we purchased $15.0 million of U.S. Treasury Bills and contemporaneously entered into a $14.7 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $15.0 million of U.S. Treasury Bills and $0.3 million of cash as collateral under the repurchase agreement. We repaid the $14.7 million borrowed under the repurchase agreement, and the $0.3 million cash collateral was returned to us, net of a $14 thousand financing fee, upon maturity of the U.S. Treasury Bills on January 2, 2019. We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability December 31, 2018.

Note 4: Investment Management
Investment Advisory Agreement
On September 30, 2014, we entered into the Investment Advisory Agreement with OHA, an investment adviser registered under the Advisers Act pursuant to which OHA replaced NGP Investment Advisor, LP as our investment advisor. The Investment Advisory Agreement was most recently re-approved by our Board of Directors, a majority of whom are not “interested” persons (as defined in the 1940 Act) of us, on August 6, 2019. Pursuant to the Investment Advisory Agreement, OHA implements our business strategy on a day-to-day basis and performs certain services for us, subject to the supervision of our Board of Directors. Under the Investment Advisory Agreement, we pay OHA a fee consisting of two components — a base management fee and an incentive fee.
Base Management Fee: The base management fee is paid quarterly in arrears, and is calculated by multiplying the average value of our total assets (excluding cash, cash equivalents and U.S. Treasury Bills that are purchased with borrowed funds solely for the purpose of satisfying quarter-end diversification requirements related to our election to be taxed as a RIC under the Code or to

18

OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2019
(unaudited)

preserve future investment flexibility), as of the end of the two immediately prior fiscal quarters, by a rate of 1.75% per annum. For the three months ended September 30, 2019 and 2018, we incurred $0.3 million and $0.4 million, respectively, in base management fees. For the nine months ended September 30, 2019 and 2018, we incurred $0.9 million and $1.2 million, respectively, in base management fees.
Incentive Fee: The incentive fee consists of two parts. The first part, the investment income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the fiscal quarter for which the fee is being calculated. Pre-incentive fee net investment income means interest income, dividend income, royalty payments, net profits interest payments, and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence, monitoring and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Accordingly, we may pay an incentive fee based partly on accrued investment income, the collection of which is uncertain or deferred. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less liabilities at the end of the immediately preceding fiscal quarter) is compared to a “hurdle rate” of 1.75% per quarter (7% annualized). OHA receives no incentive fee for any fiscal quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate. OHA receives an incentive fee equal to 100% of our pre-incentive fee net investment income for any fiscal quarter in which our pre-incentive fee net investment income exceeds the hurdle rate but is less than 2.1875% (8.75% annualized) of net assets (also referred to as the “catch up” provision) plus 20% of our pre-incentive fee net investment income for such fiscal quarter greater than 2.1875% (8.75% annualized) of net assets.
The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each fiscal year (or, upon termination of the Investment Advisory Agreement, as of the termination date). The capital gains incentive fee is equal to 20% of our cumulative aggregate realized capital gains from September 30, 2014 through the end of that fiscal year, computed net of our cumulative aggregate realized capital losses and cumulative aggregate unrealized depreciation on investments for the same time period. The aggregate amount of any previously paid capital gains incentive fees to OHA is subtracted from the capital gains incentive fee calculated. If such amount is negative, then there is no capital gains fee for such year. For the purposes of the capital gains incentive fee, any gains and losses associated with our investment portfolio as of September 30, 2014 shall be excluded from the capital gains incentive fee calculation. For the three months ended September 30, 2019 we reduced our capital gains incentive fee accrual by $32 thousand to $46 thousand and for the three months ended September 30, 2018 we did not accrue any capital gains incentive fees. For the nine months ended September 30, 2019 we accrued $46 thousand in capital gains incentive fees and for the nine months ended September 30, 2018 we did not accrue any capital gains incentive fees.
On November 10, 2017, we entered into an Incentive Fee Waiver Agreement with OHA whereby OHA agreed to waive any incentive fees earned relating to fiscal years 2017 and 2018. Under the Incentive Fee Waiver Agreement, any capitalized gains fees that would have been earned and accrued during 2017 and 2018, which under our Investment Advisory Agreement would not have been paid until 2018 and 2019, respectively, has been waived. The Incentive Fee Waiver Agreement with OHA expired on December 31, 2018.
The Investment Advisory Agreement may be terminated at any time, without the payment of any penalty, by a vote of our Board of Directors or a vote of the holders of at least a majority of our outstanding voting securities (within the meaning of the 1940 Act) on 60 days’ written notice to OHA, and would automatically terminate in the event of its “assignment” (within the meaning of the 1940 Act). OHA may terminate the Investment Advisory Agreement without penalty by providing us at least 60 days’ written notice. Pursuant to the Investment Advisory Agreement, OHA pays the compensation expense of its investment professionals, who provide management and investment advisory services to us. We bear all other costs and expenses of our operations and transactions.
Administration Agreement
Under the Administration Agreement, OHA furnishes us with certain administrative services, personnel and facilities. The Administration Agreement was most recently re-approved by our Board of Directors on August 6, 2019. Payments under the Administration Agreement are equal to our allocable portion of OHA’s overhead in performing its obligations under the Administration Agreement, including all administrative services necessary for our operation and the conduct of our business. The Administration Agreement may be terminated at any time, without penalty, by a vote of our Board of Directors or by OHA upon 60 days’ written notice to the other party.

19

OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2019
(unaudited)

We owed $0.1 million and $0.6 million to OHA under the Administration Agreement as of September 30, 2019 and December 31, 2018, respectively, for expenses incurred on our behalf for the final month of the respective quarterly period. We include these amounts in accounts payable and due to affiliate on our Consolidated Balance Sheets.

Note 5: Federal Income Taxes
We operate so as to qualify, for tax purposes, as a RIC under Subchapter M of Chapter 1 of the Code. As a RIC, we are generally not subject to corporate-level U.S. federal income taxes on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) that we distribute to our stockholders. To qualify as a RIC, we are required, among other things, to distribute to our stockholders each year at least 90% of investment company taxable income, as defined by the Code, and to meet certain asset-diversification requirements.
Certain of our wholly owned subsidiaries, or Taxable Subsidiaries, have elected to be taxed as corporations for federal income tax purposes. The Taxable Subsidiaries hold certain of our portfolio investments and are consolidated for financial reporting purposes, but not for income tax reporting purposes. These Taxable Subsidiaries permit us to hold equity investments in portfolio companies that are “pass through” entities for tax purposes, in order to comply with the “source-of-income” requirements that must be satisfied to maintain our qualification as a RIC. The Taxable Subsidiaries may generate income tax expense or benefit, which is reflected on our Consolidated Statements of Operations.
On December 22, 2017, the U.S. government enacted significant tax legislation commonly referred to as the Tax Act and Job Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent, (2) repealing the Corporate Alternative Minimum Tax (AMT), (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (4) creating a new limitation on deductible interest expense, (5) changing rules related to the use and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 and (6) the requirement to pay a one-time transition tax on all undistributed earnings of foreign subsidiaries.
In connection with our analysis of the impact of the Tax Act, we recorded a net tax expense of approximately $12.2 million in the period ending December 31, 2017 which consisted of a reduction of deferred tax assets previously valued at 34%. This tax expense and reduction in deferred tax assets was fully offset by a simultaneous reduction in our valuation allowance. The reduction in the U.S. federal rate is expected to positively impact our future U.S. after tax earnings.
In addition, due to the Tax Act, we are eligible for a full refund of our AMT credit carryforward. Accordingly, the valuation allowance related to this AMT credit carryforward has been released in the amount of $632,000, or $0.03 per share. The valuation allowance related to other net deferred tax assets remains. Therefore, the associated valuation allowance has been released for the full AMT credit carryforward at this time.
Tax years from 2014 forward remain open to examination by the major taxing jurisdictions to which OHAI is subject; however, net operating losses originating in prior years are subject to examination when utilized. Our Taxable Subsidiaries have federal net operating loss carryforwards of $88.2 million of which $79.7 million expire in various years through 2037 and the remaining $8.5 million may be carried forward indefinitely as per the Tax Act. Federal and state laws impose limitations on the utilization of capital losses and NOLs in the event of an "ownership" change for tax purposes, as defined by Sections 382 and 383 of the Internal Revenue Code. An ownership change at either the RIC entity or Taxable Subsidiary level, if one were to occur, would limit our ability to use pre-ownership change NOLs to offset post-ownership change taxable income. An ownership change would also limit our ability to use pre-ownership change capital losses to offset post-ownership change capital gains.

Note 6: Commitments and Contingencies
As of September 30, 2019, we had investments in 28 active portfolio companies totaling $106.8 million (cost basis). Of these 28 active portfolio companies, OHAI had already funded investments in the amount of $106.8 million. We had $0.2 million due to a broker for unsettled trades in U.S. Treasury Bills. As of September 30, 2019 there were outstanding unfunded commitments of $2.3 million related to our investments in the ClearChoice revolving credit facility, Imperial Dade delayed draw term loan, JS Held delayed draw term loan, and JS Held revolving credit facility. As of December 31, 2018, we had investments in 26 active portfolio companies totaling $111.3 million. Of these 26 active portfolio companies, we had already funded investments in the amount of $108.1 million and there were outstanding unfunded commitments of $1.2 million related to our investment in ClearChoice revolving credit facility, $1.1 million related to an investment we committed to in December of 2018, and $3.3 million due to broker for unsettled trades.

20

OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2019
(unaudited)

We have continuing obligations under the Investment Advisory Agreement and the Administration Agreement with OHA. See Note 4. The agreements provide that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its duties and obligations, OHA and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with OHA will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of services under the agreements or otherwise as our investment advisor or administrator. The agreements also provide that OHA and its affiliates will not be liable to us or any stockholder for any error of judgment, mistake of law, any loss or damage with respect to any of our investments or any action taken or omitted to be taken by OHA in connection with the performance of any of its duties or obligations under the agreements or otherwise as investment advisor or administrator to us, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services.
In the normal course of business, we enter into a variety of undertakings containing a variety of representations that may expose us to some risk of loss. We do not expect significant losses, if any, from such undertakings.
In the quarter ended June 30, 2018, we wrote off our investment in Castex Energy 2005, L.P., or Castex. Previously, Castex filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on October 16, 2017. According to the filing, Castex and its affiliates in bankruptcy entered into a restructuring support agreement with pre-petition lenders holding approximately 86% in principal amount of claims under the pre-petition credit facility. On February 26, 2018, we agreed to a settlement and agreed to withdraw our confirmation objections to the Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy code in exchange for the potential to receive some amount of cash and warrants in the reorganized company. This agreement was approved by the Bankruptcy court on February 27, 2018. At this time we are unable to determine the value of a recovery, if any, resulting from the settlement which will be dependent upon the ultimate pool of unsecured claims.
Legal Proceedings
From time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal proceeding would be material to our business, financial condition or cash flows.
Status of Investment. As of September 30, 2019, our unrecovered investment was $43.5 million, and we had received aggregate royalty payments of $41.0 million since the date of ATP’s bankruptcy filing. As of September 30, 2019, we had incurred legal and consulting fees totaling $6.5 million in connection with the enforcement of our rights under the ORRIs. On various occasions, we have provided notice that such legal expenses will be added to our unrecovered investment balance to the extent they are not reimbursed. To date, we have not received any payments on account of legal expenses aside from our receipt of regular monthly production payments. As a result, we added our legal expenses to the unrecovered investment balance in accordance with our transaction documents. As of September 30, 2019, substantially all of the $6.5 million in legal and consulting fees have been added to, and are thus included in, the unrecovered investment balance under the terms of our transaction documents. Legal expenses of $1.2 million have been added to our unrecovered investment balance during the nine months ended September 30, 2019. Production recommenced on the MC941 and MC 942 wells in April 2018. Previously, these wells ceased production in November 2016 as a result of the Bennu Chapter 7 bankruptcy. In August 2017, the bankruptcy court authorized the sale of certain assets including MC 941 and MC 942 to Equinor, formerly known as StatOil USA E&P, Inc. Equinor recommenced production on these wells in April 2018. Equinor disputes that legal fees are eligible to be included in our unrecovered investment balance, but given that current production is not expected to be sufficient to pay the primary sum and notional interest accruing (which Equinor does not dispute), this legal fee issue is not ripe for debate and efforts are not currently ongoing to resolve it. We note that the fair value of our investment in ATP ORRI is $3.7 million as of September 30, 2019.


21

OHA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2019
(unaudited)

Note 7: Fair Value
Our investments consisted of the following as of September 30, 2019 and December 31, 2018:
 
 
September 30, 2019
 
December 31, 2018
(Dollar amounts in thousands)
 
Cost
 
% of total
 
Fair Value
 
% of total
 
Cost
 
% of total
 
Fair Value
 
% of total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio investments
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

First lien secured debt
 
$
1,714

 
1.5
 %
 
$
1,735

 
2.4
 %
 
$
496

 
0.4
%
 
$
487

 
0.6
%
Revolving loan facilities
 
(4
)
 
 %
 
9

 
 %
 
361

 
0.3
%
 
336

 
0.4
%
Unsecured term loan
 
3,254

 
2.8
 %
 
3,300

 
4.6
 %
 
3,251

 
2.5
%
 
3,251

 
4.0
%
Second lien debt
 
50,656

 
43.4
 %
 
50,698

 
70.0
 %
 
47,212

 
37.4
%
 
46,770

 
58.0
%
Subordinated debt
 
23,528

 
20.2
 %
 
2,422

 
3.4
 %
 
30,523

 
24.2
%
 
9,471

 
11.8
%
Limited term royalties
 
24,561

 
21.0
 %
 
3,672

 
5.0
 %
 
26,450

 
20.9
%
 
4,778

 
6.0
%
Senior secured note
 
549

 
0.4
 %
 
573

 
0.8
 %
 
541

 
0.4
%
 
513

 
0.6
%
Delayed draw term loan
 
(8
)
 
 %
 
(5
)
 
 %
 

 
%
 

 
%
Equity securities
 
2,500

 
2.1
 %