Notes to Unaudited Consolidated Financial Statements
Note 1. Organization
Harvest Capital Credit Corporation ("HCAP" or the "Company") was incorporated as a Delaware corporation on November 14, 2012, for the purpose of, among other things, acquiring Harvest Capital Credit LLC (“HCC LLC”). HCAP acquired HCC LLC on May 2, 2013, in connection with HCAP's initial public offering. HCAP is an externally managed, closed-end, non-diversified management investment company that has filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, HCAP has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As an investment company, we follow accounting and reporting guidance as set forth in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946,
Financial Services- Investment Companies
.
On July 1, 2016, the Company formed HCAP Equity Holdings, LLC, a Delaware limited liability company, as a wholly owned subsidiary of the Company to hold certain equity investments made by the Company in limited liability companies or other forms of pass-through entities. By investing through HCAP Equity Holdings, LLC, the Company is able to benefit from the tax treatment of this entity and create a tax structure that is advantageous with respect to the Company's status as a RIC. This taxable subsidiary is consolidated for U.S. GAAP financial reporting purposes, and the portfolio investments held by the taxable subsidiary are included in the Company's consolidated financial statements and recorded at fair value in conjunction with the Company's valuation policy.
Unless otherwise noted or the context otherwise indicates, the terms "we", "us", "our", and the "Company" refer to Harvest Capital Credit Corporation and its consolidated subsidiary.
Note 2. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the SEC and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair statement of the Company's consolidated financial statements have been made. Certain prior period amounts have been reclassified to reflect current period classification.
In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Operations for the period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Harvest Capital Credit Corporation and its wholly-owned subsidiary, HCAP Equity Holdings, LLC. The effects of all intercompany transactions between the Company and its subsidiary have been eliminated in consolidation. Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and ASC 946,
Financial Services - Investment Companies
, the Company is precluded from consolidating portfolio company investments, including those in which it has a controlling interest, unless the portfolio company is another investment company.
Change in Accounting Principle
As of January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2015-03,
Simplifying the Presentation of Debt Issuance Costs,
and ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
, which require debt issuance costs to be presented on the balance sheet as a direct deduction from the associated debt liability, except for debt issuance costs associated with line-of-credit arrangements.
Adoption of these standards results in the reclassification of debt issuance costs from deferred offering costs and the presentation of the Company’s unsecured notes net of the associated debt issuance costs in the liabilities section on the Consolidated Statements of Assets and Liabilities. In addition, the comparative Consolidated Statements of Assets and Liabilities as of December 31, 2016 has been adjusted to apply the change in accounting principle retrospectively. Specifically, the presentation of the Company’s deferred offering costs and unsecured notes line items were adjusted by the amount of unamortized debt issuance costs. There is no impact to the Company’s Consolidated Statements of Operations. In addition, there is no change to the presentation of the Credit Facility (defined below) as debt issuance costs are presented separately as an asset on the Consolidated Statements of Assets and Liabilities.
Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing and are amortized over the life of the related debt instrument. In accordance with ASU 2015-03 debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statement of Assets and Liabilities, except for debt issuance costs associated with line-of-credit arrangements. Debt issuance costs, net of accumulated amortization, were $1.0 million and $0.7 million as of
September 30, 2017
and
December 31, 2016
, respectively.
Cash
Cash as presented in the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Cash Flows include cash held in bank checking accounts.
Restricted Cash
Restricted cash of $
2.1 million
and $
3.1 million
as of
September 30, 2017
and
December 31, 2016
respectively, was held at U.S. Bank, National Association in conjunction with the Company's Credit Facility (see Note 3. Borrowings). The Company is restricted from accessing this cash until the monthly settlement date when, after delivering a covenant compliance certificate, the net restricted cash is released to us after paying interest, fees and expenses owed under our Credit Facility.
Investments and Related Investment Revenue and Expense
All investment related revenue and expenses are reflected on the Consolidated Statement of Operations commencing on the settlement date unless otherwise specified by the transaction documents.
The Company accrues interest income if it expects that ultimately it will be able to collect it. Generally, when an interest payment default occurs on a loan in the portfolio, when interest has not been paid for greater than 90 days, or when management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, the Company will place the loan on non-accrual status and will cease accruing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed collectible. However, the Company remains contractually entitled to this interest, and any collections actually received on these non-accrual loans may be recognized as interest income on a cash basis or applied to the principal depending upon management's judgment regarding collectibility. The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection and the amount of collectible interest can be reasonably estimated.
For loans with contractual PIK (payment-in-kind) interest income, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we will not accrue PIK interest if we believe that the PIK interest is no longer collectible, including if the portfolio company valuation indicates that such PIK interest is not collectible. Loan origination fees - net of direct loan origination costs, original issue discounts that initially represent the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and market discounts or premiums - are accreted or amortized using the effective interest method as interest income over the contractual life of the loan. Upon the prepayment of a loan or debt security, any unamortized net loan origination fee will be recorded as interest income. Loan exit fees that are contractually required to be paid at the termination or maturity of the loan will be accreted to interest income over the contractual term of the loan. We suspend the accretion of interest income for any loans or debt securities placed on non-accrual status. We may also collect other prepayment premiums on loans. These prepayment premiums are recorded as other income as earned. Dividend income, if any, will be recognized on the ex-dividend date.
Certain expenses related to legal and tax consultation, due diligence, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. To the extent that such costs are not classified as direct loan origination costs, these expenses are recognized in the Consolidated Statements of Operations as they are incurred.
Investment Date
The Company records investment purchases and sales based on the trade date. For instances when the trade date and funding date differ, the Company captures the open trades in the receivable for securities sold or payable for securities purchased on the Consolidated Statements of Assets and Liabilities.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Realized gains and losses on investments are calculated using the specific identification method. We measure realized gains or losses on equity investments as the difference between the net proceeds from the sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. We measure realized gains or losses on debt investments as the difference between the net proceeds from the repayment or sale and the contractual amount owed to us on the investment, without regard to unrealized appreciation or depreciation previously recognized or unamortized deferred fees. The acceleration of unamortized deferred fees is recognized as interest income and the collection of prepayment and other fees is recognized as other income. We recognized
$(8.3) million
in realized losses on our investments during the three months ended
September 30, 2017
and
$0.7 million
in realized gains on our investments during the three months ended
September 30, 2016
. We recognized
$(8.1) million
in realized losses on our investments during the nine months ended
September 30, 2017
and
$(0.5) million
in realized losses on our investments during the nine months ended
September 30, 2016
.
Net changes in unrealized appreciation or depreciation measure changes in the fair value of our investments relative to changes in their amortized cost. We recognized
$6.4 million
in net change in unrealized appreciation during the three months ended
September 30, 2017
and
$(1.3) million
in net change in unrealized depreciation during the three months ended
September 30, 2016
. We recognized
$1.9 million
in net change in unrealized depreciation during the nine months ended
September 30, 2017
and
$(3.9) million
in net change in unrealized depreciation during the nine months ended
September 30, 2016
.
Classification of Investments
We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual owns beneficially more than 25% of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through beneficial ownership of at least 5% but not more than 25% of the outstanding voting securities of another person. See table below for a breakdown of the Company's investments by classification at September 30, 2017 and December 31, 2016, respectively.
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Number of portfolio company investments by classification
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September 30, 2017
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December 31, 2016
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Non-Control/Non-Affiliated
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24
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26
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Affiliated
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7
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3
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Control
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2
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2
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Total
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33
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31
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Valuation of Investments
Valuation analyses of the Company’s investments are performed on a quarterly basis pursuant to ASC 820,
Fair Value Measurement
. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with applicable accounting guidance and expands disclosure of fair value measurements.
Pursuant to ASC 820, the valuation standard used to measure the value of each investment is fair value defined as, “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Investments are recorded at their fair value at each quarter end (the measurement date).
Fair Value Investment Hierarchy
Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
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Level 1
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Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.
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Level 2
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Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
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Level 3
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Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.
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Valuation Process
Investments are measured at fair value as determined in good faith by our management team, reviewed by the audit committee of the board of directors (independent directors), and ultimately approved by our board of directors, based on, among other factors, consistently applied valuation procedures on each measurement date.
The board of directors undertakes a multi-step valuation process at each measurement date.
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Our valuation process generally begins with each investment initially being valued by the Company's management or the investment professionals of our investment adviser, and/or, if applicable, by an independent valuation firm.
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Preliminary valuation conclusions are documented and discussed with our senior management.
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The audit committee of our board of directors reviews and discusses the preliminary valuations.
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•
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The board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith, based upon the input of our senior management, the independent valuation firm report (if reviewed in such quarter), and the audit committee.
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The nature of the materials and input that the Company’s board of directors receives in the valuation process varies depending on the nature of the investment and the other facts and circumstances. For example, in the case of investments that are Level 1 or 2 assets, a formal report by the Company’s management or the investment professionals of its investment adviser, called a portfolio monitoring report, or “PMR,” is not generally prepared, and no independent external valuation firm is engaged due to the availability of quotes in markets for such investments or similar assets.
In the case of investments that are Level 3 assets, however, the Company’s board of directors generally receives a report on material Level 3 investments on a quarterly basis (i) from the Company’s management or the investment professionals of its investment adviser in the form of a PMR, (ii) from a third-party valuation firm, or (iii) in some cases, both. In the case of investments that are Level 3 assets and have an investment rating of 1 (performing above expectations), the Company generally engages an independent external valuation firm to review all such material investments at least annually. In quarters where an external valuation is not prepared for such investments, the Company’s management or the investment professionals of our investment adviser generally prepare a PMR. In the case of investments that are Level 3 assets and have an investment rating of 2 through 5 (with performance ranging from within expectations to substantially below expectations), the Company generally engages an independent external valuation firm to review such material investments quarterly (and may receive a PMR in addition to the review of the independent external valuation firm where the Level 3 assets have an investment rating of 3 through 5). However, in certain cases for Level 3 assets, the Company may determine that it is more appropriate for the Company to prepare a PMR instead of engaging an independent external valuation firm on a quarterly basis, because a third-party valuation is not cost effective or the nature of the investment does not warrant a quarterly third-party valuation. In addition, under certain unique circumstances, the Company may determine that a formal valuation report is not likely to be informative, and neither a third-party valuation report nor a report from the Company’s management or the investment professionals of its investment adviser is prepared. Such circumstances might include, for example, an instance in which the investment has paid off after the period end date but before the board of directors meets to discuss the valuations.
Further, Level 3 debt investments that have closed within six months of the measurement date are valued at cost unless unique circumstances dictate otherwise.
Valuation Methodology
The following section describes the valuation methods and techniques used to measure the fair value of the investments.
Fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of our management, are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which our management has deemed there to be enough breadth (number of quotes) and depth to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arms-length transaction, (iii) the market approach (enterprise value), (iv) the income approach (discounted cash flow analysis) or (v) the bond yield approach.
The valuation methods selected for a particular investment are based on the circumstances and on the level of sufficient data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.
The determination of fair value using the selected methodologies takes into consideration a range of factors including, but not limited to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower.
In most cases we use the bond yield approach for valuing our Level 3 debt investments, as long as we deem this method appropriate. This approach entails analyzing the interest rate spreads for recently completed financing transactions which are similar in nature to ours, in order to assess what the range of effective market interest rates would be for our investment if it were being made on or near the valuation date. Then all of the remaining expected cash flows of the investment are discounted using this range of interest rates to determine a range of fair values for the debt investment. If, in our judgment, the bond yield approach is not appropriate, we may use the market approach, or, in certain cases, an alternative methodology potentially including an asset liquidation or expected recovery model.
The fair value of equity securities, including warrants, in portfolio companies oftentimes considers the market approach, which applies market valuation multiples of publicly-traded firms or recently acquired private firms engaged in businesses similar to those of the portfolio companies. This approach to determining the fair value of a portfolio company’s equity security will typically involve: (1) applying to the portfolio company’s trailing twelve month EBITDA (earnings before interest, taxes, depreciation and amortization) a range of enterprise value to EBITDA multiples that are derived from an analysis of comparable companies, in order to arrive at a range of enterprise values for the portfolio company; then (2) subtracting from the range of enterprise values balances of any debt or equity securities that rank senior to our equity securities; and (3) multiplying the range of equity values by the Company’s ownership share of such equity to determine a range of fair values for the Company’s equity investment.
We also use the income approach, which discounts a portfolio company’s expected future cash flows to determine its net present enterprise value. The discount rate used is based upon the company’s weighted average cost of capital, which is determined by blending the cost of the portfolio company’s various debt instruments and its estimated cost of equity capital. The cost of equity capital is estimated based upon our market knowledge and discussions with private equity sponsors.
These valuation methodologies involve a significant degree of judgment. As it relates to investments that do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. In some cases, fair value of such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined.
Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of our management, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application
from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.
Capital Gains Incentive Fee
Under GAAP, the Company calculates the capital gains incentive fee as if the Company had realized all investments at their fair values as of the reporting date. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional incentive fee is subject to the performance of investments until there is a realization event, the amount of provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive fee that is ultimately paid and the differences could be material.
Deferred Offering Costs
Deferred offering costs are made up of offering costs related to the Company's shelf registration statement on Form N-2. They consist of underwriting fees, legal fees and other direct costs incurred by the Company in conjunction with preparation and filing of the Company's shelf registration statement on Form N-2, as well as planned offerings of securities under the shelf registration statement, and are recognized as assets and are amortized as deferred offering expense over the term of the applicable offering. The balance of deferred offering costs as of
September 30, 2017
and
December 31, 2016
was $0.1 million and $0.1 million, respectively.
Deferred Financing Costs
Deferred financing costs are made up of debt issuance costs associated with the Company's revolving line of credit. The deferred financing costs consist of fees and other direct costs incurred by the Company in obtaining debt financing from its lenders and are recognized as assets and are amortized as interest expense over the term of the applicable credit facility. The balance of deferred financing costs as of
September 30, 2017
and
December 31, 2016
was $0.5 million and $0.5 million, respectively. The amortization expense relating to deferred debt financing costs during the three months ended
September 30, 2017
and
September 30, 2016
was
$52,872
and
$71,785
, respectively. The amortization expense relating to deferred debt financing costs during the nine months ended
September 30, 2017
and
September 30, 2016
was
$180,592
and
$204,777
, respectively.
Dividends and Distributions
Dividends and distributions to common stockholders are recorded on the ex-dividend date. Distributions to shareholders which exceed tax distributable income (tax net investment income and realized gains, if any) are reported as distributions of paid-in capital (i.e., return of capital). The determination of the tax attributes of our distributions is made at the end of the year based upon our taxable income for the full year and the distributions paid during the full year. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. The Company adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if the board of directors authorizes, and we declare, a cash dividend or other distribution, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.
During both three month periods ended
September 30, 2017
and
September 30, 2016
, the Company declared distributions totaling $0.34 per share. During both nine month periods ended
September 30, 2017
and
September 30, 2016
, the Company declared distributions totaling $1.02 per share.
Income Taxes
Beginning with its first taxable year ending December 31, 2013, the Company elected to be treated, and intends to qualify annually as a RIC under Subchapter M of the Code. To receive RIC tax treatment, the Company is required to meet certain income and asset diversification tests in addition to distributing at least 90% of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. As a RIC, the Company will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of its capital gain net income for the 1-year period ending October 31 in that calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which the Company paid no U.S. federal income tax.
The Company’s tax returns are subject to examination by federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date by the respective taxing authorities. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Penalties or interest that may be assessed related to any income taxes would be classified as other operating expenses in the financial statements. Based on an analysis of our tax position, there are no uncertain tax positions that met the recognition or measurement criteria and the Company has no amounts accrued for interest or penalties as of
September 30, 2017
. Neither HCC LLC nor the Company is currently undergoing any tax examinations. The Company does not anticipate any significant increase or decrease in unrecognized tax benefits for the next twelve months. The federal tax years 2014-2016 for HCC LLC and the Company remain subject to examination by the IRS. The state tax years 2013-2016 for HCC LLC and the Company remain subject to examination by the state taxing authorities.
The Company has a taxable subsidiary, HCAP Equity Holdings LLC, which is designed to hold certain portfolio investments in an effort to comply with source-income type requirements contained in the RIC tax provisions of the Code. This taxable subsidiary is consolidated for U.S. GAAP financial reporting purposes and the portfolio investments held by it are included in the Company’s consolidated financial statements, and recorded at fair value. This taxable subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of its ownership of certain portfolio investments. Any income generated by this taxable subsidiary would be taxed at normal corporate tax rates based on its taxable income.
Note 3. Borrowings
On October 29, 2013, the Company entered into a Loan and Security Agreement with CapitalSource Bank (now Pacific Western Bank), as agent and a lender, and each of the lenders from time to time party thereto, including City National Bank, to provide the Company with a $55.0 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is secured by all of the Company’s assets, including the Company's equity interest in HCAP Equity Holdings, LLC, and has an accordion feature that allows the size of the facility to increase up to $85.0 million. On April 28, 2017, we amended our Credit Facility to, among other things, (i) extend the expiration of the revolving period from April 30, 2017 to October 30, 2018; (ii) extend the maturity date from October 29, 2018 to
the earlier of (x) April
30, 2020, or (y) the date that is six (6) months prior to the maturity of any of the Company's outstanding unsecured longer-term indebtedness, which, based on the Company's outstanding 2022 Notes that mature on September 15, 2022, the maturity date under the facility would be April 30, 2020; and (iii) subject to certain conditions, provide limited borrowing base credit for the Company's loans to (x) certain portfolio companies in which the Company or HCAP Equity Holdings, LLC owns in excess of ten percent of the portfolio company's equity interests and (y) certain special purpose entity portfolio companies formed to hold specified assets, which loans previously did not receive borrowing base credit.
Advances under the Credit Facility, following amendments in September 2015, bear interest at a rate per annum equal to the lesser of (i) the applicable LIBOR rate plus 3.25% (with a 0.50% LIBOR floor) and (ii) the maximum rate permitted under applicable law.
In addition, the Credit Facility requires payment of a fee for unused amounts during the revolving period, which fee varies depending on the obligations outstanding as follows: (i) 0.75% per annum, if the average daily principal balance of the obligations outstanding for the prior month are less than fifty percent of the maximum loan amount; and (ii) 0.50% per annum, if such obligations outstanding are equal to or greater than fifty percent of the maximum loan amount. In each case, the fee is calculated based on the difference between (i) the maximum loan amount under the Credit Facility and (ii) the average daily principal balance of the obligations outstanding during the prior calendar month.
The Credit Facility also contains customary terms and conditions, including, without limitation, affirmative and negative covenants, including, without limitation, information reporting requirements, a minimum tangible net worth, a minimum debt service coverage ratio, a minimum liquidity of 4% of the maximum loan amount, a maximum leverage ratio of 1.00 to 1.00, and maintenance of RIC and business development company status. In addition, the Credit Facility contains a covenant that limits the amount of our unsecured longer-term indebtedness (as defined in the Credit Facility), which includes our unsecured notes, to 50% of the maximum borrowing amount under the Credit Facility. The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change of control, and the occurrence of a material adverse effect. In
addition, the Credit Facility provides that, upon the occurrence and during the continuation of such an event of default, the Company’s administration agreement could be terminated and a backup administrator could be substituted by the agent.
Availability under the Credit Facility is determined by advance rates against eligible loans in the borrowing base up to a maximum aggregate availability of $55.0 million. Advance rates against individual investments range from 40% to 65% depending on the seniority of the investment in the borrowing base.
As of
September 30, 2017
, the outstanding balance on the Credit Facility was
$4.8 million
. As of
December 31, 2016
, the outstanding balance on the Credit Facility was $
26.9 million
. As of
September 30, 2017
and
December 31, 2016
, the Company was in compliance with its debt covenants.
On January 27, 2015, the Company closed the public offering of $25.0 million in aggregate principal amount of its 7.00% Notes due 2020 (the "2020 Notes"). On February 4, 2015, the Company closed on an additional $2.5 million in aggregate principal amount of 2020 Notes to cover the over-allotment option exercised by the underwriters. In total, the Company issued 1,100,000 2020 Notes at a price of $25.00 per Note. The total net proceeds to the Company from the 2020 Notes, after deducting underwriting discounts of $0.8 million and offering expenses of $0.2 million, were $26.5 million. The 2020 Notes were redeemable in whole or in part at anytime at the Company's option after January 16, 2017 at a price equal to 100% of the outstanding principal amount of the 2020 Notes plus accrued and unpaid interest. The 2020 Notes were redeemed on September 23, 2017. As a result of the redemption, the Company recorded a loss on extinguishment of debt for the amount of the unamortized debt issuance costs. The loss on extinguishment of debt recorded for the three months and nine months ended September 30, 2017 was $0.6 million. The Company did not record a loss on extinguishment of debt in the three and nine months ended September 30, 2016. The loss on extinguishment of debt is classified as a component of net investment income in the Company’s Consolidated Statement of Operations. The 2020 Notes were listed on the NASDAQ Global Market under the trading symbol “HCAPL.”
On August 24, 2017, the Company closed the public offering of $25.0 million in aggregate principal amount of its 6.125% Notes due 2022 (the "2022 Notes"). On September 1, 2017, the Company closed on an additional $3.75 million in aggregate principal amount of 2022 Notes to cover the over-allotment option exercised by the underwriters. In total, the Company issued 1,150,000 of the 2022 Notes at a price of $25.00 per Note. The total net proceeds to the Company from the 2022 Notes, after deducting underwriting discounts of $0.9 million and offering expenses of $0.2 million, were $27.7 million. As of
September 30, 2017
, the outstanding principal balance of the 2022 Notes was $28.8 million and the debt issuance costs balance was $1.0 million. The Company used the proceeds of the 2022 Notes to redeem the 2020 Notes in full on September 23, 2017.
The 2022 Notes mature on September 15, 2022 and bear interest at a rate of 6.125%. They are redeemable in whole or in part at anytime at the Company's option after September 15, 2019 at a price equal to 100% of the outstanding principal amount of the 2022 Notes plus accrued and unpaid interest. The 2022 Notes are unsecured obligations of the Company and rank pari passu with any future unsecured indebtedness; senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2022 Notes; effectively subordinated to all of the existing and future secured indebtedness of the Company, to the extent of the value of the assets securing such indebtedness, including borrowings under the Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any subsidiaries, financing vehicles, or similar facilities the Company may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities. Interest on the 2022 Notes is payable quarterly on March 15, June 15, September 15, and December 15 of each year. The 2022 Notes are listed on the NASDAQ Global Market under the trading symbol “HCAPZ.” The Company may from time to time repurchase 2022 Notes in accordance with the 1940 Act and the rules promulgated thereunder.
The indenture governing the 2022 Notes (the "2022 Notes Indenture”) contains certain covenants, including covenants (i) requiring the Company’s compliance with the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, whether or not the Company continues to be subject to such provisions of the 1940 Act; (ii) requiring the Company’s compliance, under certain circumstances, with a modified version of the requirements set forth in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act, whether or not the Company continues to be subject to such provisions of the 1940 Act, prohibiting the declaration of any cash dividend or distribution upon any class of the Company’s capital stock (except to the extent necessary for the Company to maintain its status as a RIC under Subchapter M of the Code), or purchasing any such capital stock, if the Company’s asset coverage, as defined in the 1940 Act, were below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution, or purchase; and (iii) requiring the Company to provide financial information to the holders of the 2022 Notes and the custodian if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the 2022 Notes Indenture. As of
September 30, 2017
, the Company was in compliance with its debt covenants.
Note 4. Concentrations of Credit Risk
The Company’s investment portfolio consists primarily of loans to privately-held small to mid-size companies. Many of these companies may experience variation in operating results. Many of these companies do business in regulated industries and could be affected by changes in government regulations.
The largest debt investments may vary from year to year as new debt investments are recorded and repaid. The Company’s five largest debt investments represented approximately 40.4% and 36.4% of total debt investments outstanding as of
September 30, 2017
and
December 31, 2016
, respectively. Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of large loans. Interest income from the five largest debt investments accounted for approximately 29.8% and 34.3% of total loan interest and fee income for the three months ended
September 30, 2017
and
September 30, 2016
, respectively. Interest income from the five largest debt investments accounted for approximately 29.1% and 33.6% of total loan interest and fee income for the nine months ended
September 30, 2017
and
September 30, 2016
, respectively.
Note 5. Shareholders’ Equity
The following tables summarize the total shares issued and proceeds received for shares of the Company’s common stock net of any underwriting discounts and offering costs for the three and nine month periods ended
September 30, 2017
and
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
Shares
|
Dollars
|
|
Shares
|
Dollars
|
|
Shares
|
Dollars
|
|
Shares
|
Dollars
|
|
Shares issued
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
109,774
|
|
1,485,047
|
|
|
—
|
|
—
|
|
|
Shares repurchased
|
—
|
|
—
|
|
|
(20,176
|
)
|
(252,023
|
)
|
|
—
|
—
|
|
|
(25,676
|
)
|
(320,934
|
)
|
|
Dividends reinvested
|
7,651
|
|
98,898
|
|
|
10,613
|
|
126,859
|
|
|
22,550
|
|
292,228
|
|
|
34,242
|
|
391,625
|
|
|
Total
|
7,651
|
|
$
|
98,898
|
|
|
(9,563
|
)
|
$
|
(125,164
|
)
|
|
132,324
|
|
$
|
1,777,275
|
|
|
8,566
|
|
$
|
70,691
|
|
As of
September 30, 2017
and 2016, the Company had no dilutive securities outstanding.
On January 27, 2017, we entered into an equity distribution agreement with JMP Securities LLC relating to up to 1,000,000 shares of our common stock that we may offer and sell from time to time at prices related to the prevailing market prices or at negotiated prices. The Company sold 109,774 shares of stock in the first quarter of 2017 under this agreement at an average gross price of $14.22 per share.
On September 29, 2017, the Company entered into a new equity distribution agreement with JMP Securities to sell up to 1,000,000 shares of our common stock from time to time at prevailing market prices or at negotiated prices. During the three months ended
September 30, 2017
, we did not sell any shares through this agreement.
On March 8, 2016, our board of directors authorized a $3.0 million open market stock repurchase program. Pursuant to our program, we were authorized to repurchase up to $3.0 million in the aggregate of our outstanding stock in the open market. The repurchase program expired on December 31, 2016. On June 13, 2017, our board of directors authorized another $3.0 million open market stock repurchase program. Pursuant to our program, we are authorized to repurchase up to $3.0 million in the aggregate of our outstanding stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by our management at its discretion, and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless amended by our board of directors, the repurchase program will expire on the earlier of June 30, 2018 or the repurchase of $3.0 million of our outstanding shares of common stock.
During the three months ended
September 30, 2016
, the Company repurchased 20,176 shares of its common stock at an average price of $12.49 per share, and a total cost of $252,023. During the nine months ended
September 30, 2016
, the
Company repurchased 25,676 shares of its common stock at an average price of $12.50 per share, and a total cost of $320,934. During the three and nine months ended
September 30, 2017
, the Company did not repurchase any of its shares.
We have adopted an “opt out” dividend reinvestment plan, or “DRIP,” for our common stockholders. As a result, if we make cash distributions, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.
Note 6. Fair Value Measurements
As described in Note 2, the Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.
Unsecured notes:
The 2022 Notes are a Level 2 financial instrument with readily observable market inputs from other comparable unsecured notes in the marketplace. The 2022 Notes trade under the ticker HCAPZ and as of
September 30, 2017
the fair value of $29.2 million was based on the closing price of the 2022 Notes on that day.
Off-balance sheet financial instruments:
The fair value of unfunded commitments is estimated based on the fair value of the funded portion of the corresponding debt investment.
As of
September 30, 2017
and
December 31, 2016
, unfunded commitments totaled
$3.0 million
and
$2.1 million
, respectively, and if funded, their estimated fair values on such dates were
$2.9 million
and
$2.1 million
, respectively.
There were no assets or liabilities measured at fair value on a nonrecurring basis as of
September 30, 2017
or
December 31, 2016
.
There were no transfers between levels of the fair value hierarchy during the three months or nine months ended
September 30, 2017
or the three months or nine months ended
September 30, 2016
.
The following table details the financial instruments that are carried at fair value and measured at fair value on a recurring basis as of
September 30, 2017
and
December 31, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values as of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Senior Secured (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,141,028
|
|
|
$
|
59,141,028
|
|
|
Junior Secured
|
—
|
|
|
1,717,188
|
|
|
46,222,778
|
|
|
47,939,966
|
|
|
CLO Equity
|
—
|
|
|
|
|
28,532
|
|
|
28,532
|
|
|
Equity and Equity Related Securities
|
—
|
|
|
|
|
5,886,574
|
|
|
5,886,574
|
|
|
Revenue Linked Security
|
—
|
|
|
|
|
525,838
|
|
|
525,838
|
|
|
|
$
|
—
|
|
|
$
|
1,717,188
|
|
|
$
|
111,804,750
|
|
|
$
|
113,521,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Senior Secured (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
76,221,062
|
|
|
$
|
76,221,062
|
|
|
Junior Secured
|
—
|
|
|
8,098,791
|
|
|
44,442,975
|
|
|
52,541,766
|
|
|
CLO Equity
|
—
|
|
|
—
|
|
|
138,730
|
|
|
138,730
|
|
|
Equity and Equity Related Securities
|
—
|
|
|
—
|
|
|
4,207,964
|
|
|
4,207,964
|
|
|
Revenue Linked Security
|
—
|
|
|
—
|
|
|
992,012
|
|
|
992,012
|
|
|
|
$
|
—
|
|
|
$
|
8,098,791
|
|
|
$
|
126,002,743
|
|
|
$
|
134,101,534
|
|
|
|
|
|
|
|
(1)
|
Senior secured category includes both first out and last out term loans. The Company's last out senior secured loans are identified on the Consolidated Schedule of Investments.
|
The following table provides quantitative information related to the significant unobservable inputs used to fair value the Company's Level 3 investments as of
September 30, 2017
and
December 31, 2016
, respectively, and indicates the valuation techniques utilized by the Company to determine the fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Fair Value at
September 30, 2017
|
|
Valuation Technique (1)
|
|
Significant Unobservable
Input
|
|
Range
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured (2)
|
|
$
|
59,141,028
|
|
|
Bond Yield
|
|
Risk adjusted discount factor
|
|
6.0% - 22.7%
|
|
10.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
EBITDA multiple
|
|
4.0x - 11.9x
|
|
6.9x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Weighted average cost of capital
|
|
10.0% - 25.1%
|
|
15.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Secured
|
|
$
|
46,222,778
|
|
|
Bond Yield
|
|
Risk adjusted discount factor
|
|
4.2% - 17.5%
|
|
8.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
EBITDA multiple
|
|
0.7x - 8.9x
|
|
7.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Weighted average cost of capital
|
|
9.0% - 18.2%
|
|
14.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Equity Related Securities
|
|
$
|
5,886,574
|
|
|
Market
|
|
EBITDA multiple
|
|
4.0x - 11.9x
|
|
5.4x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Weighted average cost of capital
|
|
10.0% - 25.0%
|
|
22.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO Equity
|
|
$
|
28,532
|
|
|
Estimated Liquidation Value
|
|
Discount applied to loans
|
|
25.0%
|
|
25.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Linked Security
|
|
$
|
525,838
|
|
|
Income
|
|
Weighted average cost of capital
|
|
37.6%
|
|
37.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Fair Value at
December 31, 2016
|
|
Valuation Technique (1)
|
|
Significant Unobservable
Input
|
|
Range
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured (2)
|
|
$
|
76,221,062
|
|
|
Bond Yield
|
|
Risk adjusted discount factor
|
|
6.1% - 30.0%
|
|
13.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
EBITDA multiple
|
|
0.8x - 9.7x
|
|
5.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Weighted average cost of capital
|
|
10.0% - 23.0%
|
|
17.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Secured
|
|
$
|
44,442,975
|
|
|
Bond Yield
|
|
Risk adjusted discount factor
|
|
4.2% - 26.0%
|
|
13.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
EBITDA multiple
|
|
5.9x - 8.7x
|
|
7.3x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Weighted average cost of capital
|
|
13.0% - 25.0%
|
|
17.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Equity Related Securities
|
|
$
|
4,207,964
|
|
|
Market
|
|
EBITDA multiple
|
|
4.1x - 9.7x
|
|
6.4x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Weighted average cost of capital
|
|
10.0% - 23.0%
|
|
18.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO Equity
|
|
$
|
138,730
|
|
|
Estimated Liquidation Value
|
|
Discount applied to loans
|
|
50%
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Linked Security
|
|
$
|
992,012
|
|
|
Income
|
|
Weighted average cost of capital
|
|
50%
|
|
50%
|
|
|
|
|
|
|
(1)
|
When estimating the fair value of its debt investments, the Company typically utilizes the bond yield technique. The significant unobservable inputs used in the fair value measurement under this technique are risk adjusted discount factors. However, the Company also takes into consideration the market technique and income technique in order to determine whether the fair value of the debt investment is within the estimated enterprise value of the portfolio company. The significant unobservable inputs used under these techniques are EBITDA multiples and weighted average cost of capital. Under the bond yield technique, significant increases (decreases) in the risk adjusted discount factors would result in a significantly lower (higher) fair value measurement.
When estimating the fair value of its equity investments, the Company utilizes the (i) market technique and (ii) income technique. The significant unobservable inputs used in the fair value measurement of the Company’s equity investments are EBITDA multiples and weighted average cost of capital (“WACC”). Significant increases (decreases) in EBITDA multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in WACC inputs in isolation would result in a significantly lower (higher) fair value measurement.
When estimating the value of its CLO equity investment, the Company historically utilized the bond yield technique. The significant unobservable inputs used in the fair value measurement under this technique were risk adjusted discount factors. The Company also utilized the performance and covenant compliance information as provided by the independent trustee along with other risk factors including default risk, prepayment rates, interest rate risk and credit spread risk when valuing this investment. As of September 30, 2017, the CLO had been called and was almost entirely liquidated. The fair value of the investment at September 30, 2017 was based on the estimated liquidation value of the loans remaining in the CLO as of this date.
When estimating the fair value of its revenue-linked security, the Company utilizes the income technique and the specific provisions contained in the royalty security agreement. The determination of the fair value utilizing the specific provisions contained in the royalty security agreement is not a significant component of the Company’s valuation process.
|
|
(2)
|
Senior secured category includes both first out and last out loans. The Company's last out senior secured loans are identified on the Consolidated Schedule of Investments.
|
The following table shows a reconciliation of the beginning and ending balances for Level 3 assets. Transfers between investment type and level, if any, are recognized at fair value at the end of the quarter in which the transfers occur :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
Senior Secured (1)
|
Junior Secured
|
CLO Equity
|
Equity Securities
|
Revenue Linked Security
|
Total Level 3 Assets
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, beginning of period
|
$
|
76,221,062
|
|
$
|
44,442,975
|
|
$
|
138,730
|
|
$
|
4,207,964
|
|
$
|
992,012
|
|
$
|
126,002,743
|
|
|
New investments
|
20,843,388
|
|
17,952,425
|
|
—
|
|
3,593,641
|
|
—
|
|
42,389,454
|
|
|
Principal payments received
|
(42,118,264
|
)
|
(7,604,413
|
)
|
(76,947
|
)
|
(619,577
|
)
|
(230,905
|
)
|
(50,650,106
|
)
|
|
Loan origination fees received
|
(1,716,950
|
)
|
(332,872
|
)
|
—
|
|
(4,096
|
)
|
—
|
|
(2,053,918
|
)
|
|
Payment in kind interest earned
|
816,761
|
|
612,282
|
|
—
|
|
—
|
|
—
|
|
1,429,043
|
|
|
Accretion of deferred loan origination fees/discounts
|
1,887,472
|
|
210,930
|
|
—
|
|
—
|
|
—
|
|
2,098,402
|
|
|
Transfer (to) from investment type (1)
|
4,485,000
|
|
(4,485,000
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Net realized (losses) gains on investments
|
(1,995,421
|
)
|
(6,293,866
|
)
|
(33,251
|
)
|
260,097
|
|
—
|
|
(8,062,441
|
)
|
|
Change in unrealized depreciation on investments
|
717,980
|
|
1,720,317
|
|
—
|
|
(1,551,455
|
)
|
(235,269
|
)
|
651,573
|
|
|
Fair value of portfolio, end of period
|
$
|
59,141,028
|
|
$
|
46,222,778
|
|
$
|
28,532
|
|
$
|
5,886,574
|
|
$
|
525,838
|
|
$
|
111,804,750
|
|
|
Net unrealized depreciation relating to Level 3 assets still held at September 30, 2017.
|
$
|
(452,813
|
)
|
$
|
(135,170
|
)
|
$
|
—
|
|
$
|
(1,456,864
|
)
|
$
|
(235,269
|
)
|
$
|
(2,280,116
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
Senior secured category includes both first out and last out loans. The Company's last out senior secured loans are identified on the Consolidated Schedule of Investments in Unaffiliated Issuers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
Senior Secured
(1)
|
Junior Secured
|
CLO Equity
|
Equity Securities
|
Revenue- Linked Security
|
Total Level 3 Assets
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, beginning of period
|
$
|
80,220,519
|
|
$
|
43,593,371
|
|
$
|
1,567,860
|
|
$
|
1,824,777
|
|
$
|
—
|
|
$
|
127,206,527
|
|
|
New/Add-on investments
|
16,594,084
|
|
10,800,000
|
|
—
|
|
4,125,000
|
|
895,962
|
|
32,415,046
|
|
|
Principal payments received
|
(29,875,918
|
)
|
(137,500
|
)
|
(1,359,227
|
)
|
(810,578
|
)
|
—
|
|
(32,183,223
|
)
|
|
Loan origination fees received
|
(1,096,399
|
)
|
(251,000
|
)
|
—
|
|
—
|
|
—
|
|
(1,347,399
|
)
|
|
Payment in kind interest earned
|
523,371
|
|
836,219
|
|
—
|
|
35,978
|
|
103,165
|
|
1,498,733
|
|
|
Accretion of deferred loan origination fees/discounts
|
883,413
|
|
817,971
|
|
—
|
|
—
|
|
—
|
|
1,701,384
|
|
|
Transfer (to) from level 3
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Transfer (to) from investment type
|
10,722,000
|
|
(10,722,000
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Net realized losses on investments
|
(700,465
|
)
|
—
|
|
(69,903
|
)
|
182,559
|
|
—
|
|
(587,809
|
)
|
|
Change in unrealized appreciation (depreciation) on investments
|
(1,049,543
|
)
|
(494,086
|
)
|
—
|
|
(1,149,772
|
)
|
(7,115
|
)
|
(2,700,516
|
)
|
|
Fair value of portfolio, end of period
|
$
|
76,221,062
|
|
$
|
44,442,975
|
|
$
|
138,730
|
|
$
|
4,207,964
|
|
$
|
992,012
|
|
$
|
126,002,743
|
|
|
Net unrealized depreciation relating to Level 3 assets still held at December 31, 2016.
|
$
|
(1,689,509
|
)
|
$
|
(494,084
|
)
|
$
|
—
|
|
$
|
(1,239,932
|
)
|
$
|
(7,115
|
)
|
$
|
(3,430,640
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
Senior secured category includes both first out and last out loans. The Company's last out senior secured loans are identified on the Consolidated Schedule of Investments.
|
The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a portion of the Company’s assets and liabilities.
Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
Note 7. Related Party Transactions
We were founded in September 2011 by certain members of our investment adviser and JMP Group Inc. (now JMP Group LLC) ("JMP Group"), a full-service investment banking and asset management firm. JMP Group currently holds an equity interest in us and our investment adviser. JMP Group conducts its primary business activities through three wholly-owned subsidiaries:
(i) Harvest Capital Strategies, LLC ("HCS"), an SEC registered investment adviser that focuses on long-short equity hedge funds, middle-market lending and private equity, (ii) JMP Securities LLC, a full-service investment bank that provides equity research, institutional brokerage and investment banking services to growth companies and their investors, and (iii) JMP Credit Advisors LLC ("JMP Credit Advisors"), which manages approximately $0.8 billion in credit assets of collateralized loan obligation funds and a total return swap.
In conjunction with our initial public offering in May 2013, HCAP entered into an investment advisory and management agreement with HCAP Advisors LLC ("HCAP Advisors"), which is a majority owned subsidiary of JMP Group. Under the investment advisory and management agreement, the base management fee is calculated based on our gross assets (which includes assets acquired with the use of leverage and excludes cash and cash equivalents) at an annual rate of 2.0% on gross assets up to and including $350 million, 1.75% on gross assets above $350 million and up to and including $1 billion, and 1.5% on gross assets above $1 billion. The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of our pre-incentive fee net investment income that exceeds a 2% quarterly (8% annualized) hurdle rate, subject to a catch-up provision measured at the end of each fiscal quarter. The second part is calculated and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and management agreement, as of the termination date) and equals 20% of our realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.
The incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of our pre-incentive fee net investment income is payable except to the extent 20% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative income and capital gains incentive fees accrued and/or paid for the 11 preceding quarters. As a result, even in the event that our pre-incentive fee net investment income exceeds the hurdle rate, no incentive fee will be payable to the extent that we have generated cumulative net decreases in assets resulting from operations over the trailing 12 quarters due to unrealized or realized net losses on our investments.
Incentive fee expense for the three months ended
September 30, 2017
and 2016, totaled
$0.0 million
and $
0.2 million
, respectively. Incentive fee expense for the nine months ended
September 30, 2017
and 2016, totaled
$0.1 million
and
$1.2 million
, respectively.
The capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such cumulative realized capital gains exceed cumulative realized and unrealized capital losses through the end of such fiscal year (less the aggregate amount of any previously paid capital gain incentive fee). The Company also records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser when (i) the cumulative realized and unrealized gains on its investments exceed all cumulative realized and unrealized capital losses on its investments and (ii) the capital gains incentive fee that would be payable exceeds the aggregate amount of any previously paid capital gain incentive fee given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. Any decrease in unrealized appreciation in subsequent periods will result in the reversal of some or all of such previously recorded expense accrual. The actual incentive fee payable to the Company's investment adviser related to capital gains is determined and payable in arrears at the end of each fiscal year and is only based on cumulative realized capital gains, including realized capital gains for such period, but not unrealized capital gains.
Total base management fees and incentive management fees expense was $0.6 million and $1.0 million for the three months ended
September 30, 2017
and
September 30, 2016
, respectively. Total base management fees and incentive management fees expense was $2.1 million and $3.4 million for the nine months ended
September 30, 2017
and
September 30, 2016
, respectively. Accrued base management fees and incentive management fees were $0.6 million and $0.9 million as of
September 30, 2017
and
December 31, 2016
, respectively.
In conjunction with our initial public offering in May 2013, HCAP entered into an administration agreement with JMP Credit Advisors pursuant to which JMP Credit Advisors provides administrative services to HCAP and furnishes us with office facilities, equipment, and clerical, bookkeeping, and record keeping services. Payments under the administration agreement are equal to an amount based upon our allocable portion of the administrator's overhead in performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs and administrative services provided to the Company by our chief executive officer and other officers, except that payments required to be made by HCAP to JMP Credit Advisors under the agreement were capped such that amounts payable to JMP Credit Advisors would not exceed $275,000 during the first year of the term of the administration agreement. In connection with the expiration of the $275,000 cap on April 29, 2014, the Company negotiated a cap with JMP
Credit Advisors of $150,000 for each of the quarters ending June 30, September 30, and December 31, 2014. On March 5, 2015, the Company negotiated a cap with JMP Credit Advisors on amounts payable by the Company under the administration agreement during the 2015 fiscal and calendar year. The 2015 cap set the maximum amount that was payable by the Company on both a quarterly and annual basis. The cap for each quarter was as follows: (i) for the quarter ended March 31, 2015, the cap was $150,000; (ii) for the quarter ended June 30, 2015, the cap was equal to the sum of (a) $150,000 plus (b) 0.25% of the increase in the Company’s portfolio assets from December 31, 2014, to March 31, 2015; (iii) for the quarter ended September 30, 2015, the cap was equal to the sum of (a) $150,000 plus (b) 0.25% of the increase in the Company’s portfolio assets from December 31, 2014 to June 30, 2015; and (iv) for the quarter ended December 31, 2015, the cap was equal to the sum of (a) $150,000 plus (b) 0.25% of the increase in the Company’s portfolio assets from December 31, 2014, to September 30, 2015. The overall cap for the year was $800,000, so notwithstanding any given quarterly cap, the amounts payable for all four quarters would not exceed $800,000. In connection with the expiration of the 2015 cap, the Company entered into an annual cap for 2016 such that the maximum amount that would be payable by the Company for 2016 was the lesser of 0.60% of the average of the Company's total investments over the year ended December 31, 2016 or $917,000. On January 4, 2017, our board of directors approved an increase in the cap to the extent necessary to reimburse JMP Credit Advisors for the cost of administrative services provided to the Company by Chief Executive Officer Richard P. Buckanavage and Vice President Ryan T. Magee in the fourth quarter of 2016, in an amount up to $75,000. In connection with the expiration of the 2016 cap, the Company negotiated a new cap with JMP Credit Advisors on amounts payable during the 2017 fiscal and calendar year. The 2017 cap set the maximum amount payable for the year at $1,200,000.
On October 27, 2017, our compensation committee and board of directors approved an increase in the cap on amounts payable by the Company under the administration agreement to cover increased costs associated with moving the administrative functions of the Company from Alpharetta, Georgia to its headquarters in New York, New York. For the 2017 fiscal year, the Company and JMP Credit Advisors had agreed to a cap that set the maximum amount that would be payable by the Company for services under the administration agreement in 2017 at $1.2 million. Our compensation committee and board of directors approved an increase in this cap to the extent necessary to reimburse JMP Credit Advisors for costs and expenses payable by the Company under the administration agreement for fiscal year 2017 in excess of the existing cap, up to an additional $0.2 million, for a total cap on all amounts to be paid by the Company under the administration agreement for fiscal year 2017 of $1.4 million. The additional $0.2 million was expensed in the three months ended September 30, 2017.
Total administrative services expense was
$0.5 million
and
$0.2 million
for the three months ended
September 30, 2017
and the three months ended
September 30, 2016
, respectively. Total administrative services expense was
$1.1 million
and
$0.6 million
for the nine months ended
September 30, 2017
and
September 30, 2016
, respectively. Accrued administrative services fees were
$0.5 million
and
$0.3 million
as of
September 30, 2017
and
December 31, 2016
, respectively.
In connection with the Company’s offering of its 2020 Notes in January 2015, JMP Securities LLC was one of the co-managing underwriters and received approximately $20,000 of compensation for its services. In the future, JMP Securities LLC or its affiliates may provide the Company with various financial advisory and investment banking services, for which they would receive customary compensation.
On January 27, 2017, we entered into an equity distribution agreement with JMP Securities LLC relating to up to 1,000,000 shares of our common stock that we may offer and sell from time to time at prices related to the prevailing market prices or at negotiated prices. During the nine months ended
September 30, 2017
, we sold 109,774 shares at an average gross price of $14.22 per share.
On September 29, 2017, the Company entered into a new equity distribution agreement with JMP Securities to sell up to 1,000,000 shares of our common stock from time to time at prevailing market prices or at negotiated prices. During the three months ended
September 30, 2017
, we did not sell any shares through this agreement.
Note 8. Commitments and Contingencies
At
September 30, 2017
, the Company had a total of $3.0 million in unfunded commitments (at par) comprised entirely of unfunded revolving line of credit commitments on five of the Company’s debt investments. At
December 31, 2016
, the Company had a total of
$2.1 million
in unfunded commitments comprised entirely of unfunded revolving line of credit commitments on five of the Company’s debt investments. The following table summarizes the Company's unfunded commitments and extended fair value of the unfunded commitments as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
As of December 31, 2016
|
|
|
Unfunded commitment
|
|
Extended fair value of unfunded commitment
|
|
Unfunded commitment
|
|
Extended fair value of unfunded commitment
|
|
Chemical Information Services, LLC
|
$
|
285,000
|
|
|
$
|
285,000
|
|
|
$
|
285,000
|
|
|
$
|
285,000
|
|
|
DirectMed Parts & Services, LLC
|
1,000,000
|
|
|
983,368
|
|
|
—
|
|
|
—
|
|
|
Infinite Care, LLC
|
—
|
|
|
—
|
|
|
800,000
|
|
|
789,235
|
|
|
Instant Sales Solutions, Inc.
|
300,000
|
|
|
296,956
|
|
|
—
|
|
|
—
|
|
|
King Engineering Associates, Inc.
|
300,000
|
|
|
295,493
|
|
|
—
|
|
|
—
|
|
|
Lanco Acquisition, LLC
(*)
|
—
|
|
|
—
|
|
|
450,000
|
|
|
450,000
|
|
|
Northeast Metal Works LLC `
|
—
|
|
|
—
|
|
|
310,761
|
|
|
310,761
|
|
|
V-Tek, Inc.
|
1,113,903
|
|
|
1,088,732
|
|
|
—
|
|
|
—
|
|
|
Workwell, LLC
(**)
|
—
|
|
|
—
|
|
|
300,000
|
|
|
296,378
|
|
|
Total
|
$
|
2,998,903
|
|
|
$
|
2,949,549
|
|
|
$
|
2,145,761
|
|
|
$
|
2,131,374
|
|
* The revolver commitment to Lanco Acquisition, LLC was paid off on August 27, 2017.
** The revolver commitment to Workwell, LLC terminated in April 2017.
Legal Proceedings
We are a party to certain legal proceedings incidental to the normal course of our business, including where third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect on our financial condition or results of operations.
Note 9. Net Change in Net Assets Resulting from Operations per Common Share
In accordance with the provision of ASC 260, “
Earnings per Share,
” basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. There were no potentially dilutive common shares issued as of
September 30, 2017
or
September 30, 2016
because there were no dilutive securities outstanding.
The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net increase in net assets resulting from operations
|
$
|
(333,151
|
)
|
|
$
|
2,370,050
|
|
|
$
|
140,563
|
|
|
$
|
3,229,716
|
|
|
Weighted average shares outstanding (basic and diluted)
|
6,415,099
|
|
|
6,286,216
|
|
|
6,391,134
|
|
|
6,282,371
|
|
|
Net increase in net assets resulting from operations per share
|
|
($0.05
|
)
|
|
$
|
0.38
|
|
|
|
$0.02
|
|
|
|
$0.51
|
|
Note 10. Income Tax
To receive RIC tax treatment, we must, among other things, distribute annually at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income. We may, in the future, make actual distributions to our stockholders of our net capital gains. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the
terms of any of our borrowings.
The Company has a taxable subsidiary, HCAP Equity Holdings LLC, which is designed to hold certain portfolio investments in an effort to comply with source-income type requirements contained in the RIC tax provisions of the Code. This taxable subsidiary is consolidated for U.S. GAAP financial reporting purposes and the portfolio investments held by it are included in the Company’s consolidated financial statements, and recorded at fair value. This taxable subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of its ownership of certain portfolio investments. Any income generated by this taxable subsidiary would be taxed at normal corporate tax rates based on its taxable income. There was no income tax liability accrued as of
September 30, 2017
.
Note 11. Financial Highlights
The following is a schedule of financial highlights for the three and nine months ended
September 30, 2017
, and
September 30, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
|
$13.25
|
|
|
|
$13.71
|
|
|
|
$13.86
|
|
|
|
$14.26
|
|
|
Net investment income (1)
|
|
0.24
|
|
|
0.47
|
|
|
0.99
|
|
|
1.21
|
|
|
Realized gains (losses) on investments (1)
|
|
(1.29
|
)
|
|
0.11
|
|
|
(1.26
|
)
|
|
(0.07
|
)
|
|
Net change in unrealized depreciation on investments (1)
|
|
1.00
|
|
|
(0.20
|
)
|
|
0.29
|
|
|
(0.63
|
)
|
|
Net increase in net assets from operations
|
|
(0.05
|
)
|
|
0.38
|
|
|
0.02
|
|
|
0.51
|
|
|
Distributions to stockholders (2)
|
|
(0.34
|
)
|
|
(0.34
|
)
|
|
(1.02
|
)
|
|
(1.02
|
)
|
|
Net asset value at end of period
|
|
|
$12.86
|
|
|
|
$13.75
|
|
|
|
$12.86
|
|
|
|
$13.75
|
|
|
Net assets at end of period
|
|
82,565,983
|
|
|
86,353,362
|
|
|
82,565,983
|
|
|
86,353,362
|
|
|
Shares outstanding at end of period
|
|
6,419,820
|
|
|
6,278,235
|
|
|
6,419,820
|
|
|
6,278,235
|
|
|
Weighted average shares outstanding (basic and diluted)
|
|
6,415,099
|
|
6,286,216
|
|
|
6,391,134
|
|
6,282,371
|
|
|
Per share closing price at end of period
|
|
$13.36
|
|
$12.17
|
|
$13.36
|
|
$12.17
|
|
|
|
|
|
|
|
|
|
|
|
Ratios and Supplemental data:
|
|
|
|
|
|
|
|
|
|
Total return based on change in NAV (not annualized) (3)
|
|
(0.39
|
)%
|
|
3.15
|
%
|
|
0.28
|
%
|
|
5.34
|
%
|
|
Total investment return (not annualized) (4)
|
|
4.59
|
%
|
|
(3.64
|
)%
|
|
5.02
|
%
|
|
13.35
|
%
|
|
Average Net Assets
|
|
$83,765,582
|
|
$86,292,203
|
|
$85,894,269
|
|
$87,321,370
|
|
Ratio of expenses to average net assets (annualized)
|
|
15.54
|
%
|
|
11.66
|
%
|
|
12.81
|
%
|
|
12.33
|
%
|
|
Ratio of net investment income to average net assets (annualized)
|
|
7.45
|
%
|
|
13.81
|
%
|
|
9.80
|
%
|
|
11.63
|
%
|
|
|
|
|
|
|
(1)
|
Based on weighted average number of common shares outstanding for the period.
|
|
(2)
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Distributions were in excess of net investment income by $604,972 and $161,817 for the three months and nine months ended September 30, 2017, respectively. Net investment income exceeded distributions by $856,097 and $1,258,241 for the three and nine months ended September 30, 2016, respectively. See Dividends and Distributions Policy in Note 2.
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(3)
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This measure of total investment return measures the changes in net asset value over the period indicated, taking into account dividends as reinvested. The return is calculated by taking the difference between the net asset value per share at the end of the period (plus assumed reinvestment of dividends and distributions at prices obtained under the Company's dividend reinvestment plan) and the net asset value per share at the beginning of the period, and dividing that difference by the net asset value per share at the beginning of the period. This return primarily differs from the total investment return in that it does not take into account changes in the market price of the Company's stock.
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(4)
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This measure of total investment return measures the changes in market value over the period indicated, taking into account dividends as reinvested. The return is calculated based on an assumed purchase of stock at the market price on the first day of the period (plus assumed reinvestment of dividends and distributions at prices obtained under the Company’s dividend reinvestment plan) and an assumed sale at the market price on the last day of the period. The difference between the sale and purchases is then divided by the purchase prices. The total investment return does not reflect any sales load that may be paid by investors.
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Note 12. Subsequent Events
On September 29, 2017, the Company entered into an equity distribution agreement with JMP Securities to sell up to 1.0 million shares of our common stock from time to time at prevailing market prices or at negotiated prices. Since then the Company has sold 63,000 shares at an average sales price, after sales commission, of $13.43 per share. Net proceeds to the Company were $0.8 million.
On various dates in October 2017, the Company made additional senior secured debt investments in existing portfolio company, Infinite Care, LLC ("ICC"), totaling $0.5 million. ICC is in default under the terms of its credit agreement, and in October 2017, the Company designated and directed HCAP ICC, LLC, a wholly owned subsidiary of the Company, to exercise its proxy rights under a stock pledge of ICC. Pursuant to this designation and direction, HCAP ICC, LLC removed the existing sole manager of ICC and HCAP ICC, LLC was appointed as sole manager of ICC.
On October 18, 2017, the Company made an additional $3.2 million senior secured debt investment and a $0.5 million equity investment in existing portfolio company, King Engineering Associates, Inc.
On October 25, 2017, the Company received a full repayment at par on its $0.8 million senior secured debt investment in Flight Engine Leasing V, LLC. The Company generated a gross internal rate of return ("IRR") of 15.5% on this investment. IRR is the rate of return that makes the net present value of all cash flows into or from the investment equal to zero, and is calculated based on the amount of each cash flow received or invested by the Company and the day it was invested or received. The Company retained its equity investment in the borrower’s parent Flight Lease XIII, LLC.
On October 27, 2017, the Company declared distributions of $0.1125 per share payable on each of November 30, 2017, December 29, 2017 and January 26, 2018.
On October 27, 2017, our compensation committee and board of directors approved an increase in the cap on amounts payable by the Company under the administration agreement. For the 2017 fiscal year, the Company and JMP Credit Advisors had agreed to a cap that set the maximum amount that would be payable by the Company for services under the administration agreement in 2017 at $1.2 million. Our compensation committee and board of directors approved an increase in this cap to the extent necessary to reimburse JMP Credit Advisors for costs and expenses payable by the Company under the administration agreement for fiscal year 2017 in excess of the existing cap, up to an additional $0.2 million, for a total cap on all amounts to be paid by the Company under the administration agreement for fiscal year 2017 of $1.4 million. The additional $0.2 million was expensed in the three months ended September 30, 2017.
On October 31, 2017, the Company received a full repayment at par on its $0.1 million senior secured debt investment in Flight Engine Leasing III LLC. The Company generated an IRR of 16.6% on this investment. The Company retained its equity investment in the borrower's parent, Flight Lease XI, LLC.
Harvest Capital Credit Corporation
Schedule of Investments in and Advances to Affiliates
Year Ended December 31, 2016
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Portfolio Company
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Investment
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Amount of Interest and Fees
Credited to Income (1)
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December 31, 2015
Value
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Gross Additions (2)
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Gross Reductions (3)
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December 31, 2016
Value
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Non-Majority Owned Control Investments
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Flight Engine Leasing III, LLC
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Senior Secured Term Loan, due 12/13/2018
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$
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13,474
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—
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$
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1,832,999
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(25,000
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)
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$
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1,807,999
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(13.00%; the greater of 13.00% or LIBOR + 7.50%)
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400 Common Equity Units
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—
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—
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200,000
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—
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200,000
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(33.33% of fully diluted common equity)
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Flight Lease VII, LLC
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1,800 Common Equity Units
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157,269
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—
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935,978
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(12,031
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)
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923,947
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46.15% on a fully diluted basis
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Total Non-Majority Owned Control Investments
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$
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170,743
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$
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—
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$
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2,968,977
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$
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(37,031
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)
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$
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2,931,946
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Non-Control Affiliate Investments
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Infinite Care, LLC
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Senior Secured Term Loan, due 02/28/2019
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655,623
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—
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5,920,025
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(3,455
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)
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5,916,570
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(12.62%; LIBOR+12.00% with 0.42% LIBOR floor)
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Revolving Line of Credit, due 02/28/2019
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1,683
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—
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200,000
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—
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200,000
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(12.62%; LIBOR+12.00% with 0.42% LIBOR floor)
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3,000,000 Class A Common Equity Units
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—
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—
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3,000,000
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(1,733,500
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)
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1,266,500
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(27.00% on a fully diluted basis)
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Peekay Acquisition, LLC
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Senior Secured Term Loan (Last Out), due 2/15/16
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(26,776
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)
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1,442,394
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12,224
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(1,416,659
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)
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37,959
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(17.00 PIK)
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35,775 Shares of Common Equity Stock (Peekay Boutiques, Inc.)
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—
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—
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—
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—
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—
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(5.95% of fully diluted common shares)
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WorkWell, LLC
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Senior Secured Term Loan, due 10/21/2020
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598,565
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4,625,099
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39,651
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(118,750
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)
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4,546,000
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(12.43%; LIBOR + 11.50% with a 0.50% LIBOR floor)
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Revolving Line of Credit, due 10/21/2020
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—
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—
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—
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—
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—
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(12.43%; LIBOR + 11.50% with a 0.50% LIBOR floor)
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250,000 Preferred Equity Units
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—
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250,000
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—
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(80,000
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)
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170,000
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(6.16% of fully diluted common equity)
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250,000 Common Equity Units
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—
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—
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523
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—
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523
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(0.12% of fully diluted common equity)
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Total Affiliate Investments
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$
|
1,229,095
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$
|
6,317,493
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$
|
9,172,423
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$
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(3,352,364
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)
|
|
$
|
12,137,552
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(1)
|
Represents the total amount of interest and fees credited to income for the portion of the year an investment was included in Affiliate categories.
|
|
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(2)
|
Gross additions include increase in the cost basis of investments resulting from new portfolio investment and accrued PIK interest. Gross Additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation.
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(3)
|
Gross reductions include decreases in the total cost basis of investments resulting from principal or PIK repayments or sales. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation.
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