(3) All debt investments are income producing, unless otherwise
noted. Equity and warrant investments are non-income producing, unless otherwise noted.
(4) Percentages are based on net assets of $203,596 as of September
30, 2018.
(6) The cash rate equals the approximate current yield on our
last-out portion of the unitranche facility.
(8) Indicates assets that the Company believes do not represent
“qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent
at least 70% of the Company's total assets at the time of acquisition of any additional non-qualifying assets. As of September
30, 2018, 5.1% of the Company's total assets were non-qualifying assets.
(12) The investment has been exited. The residual value reflects
estimated escrow to be settled post-closing.
(14) The investment has been exited. The residual value reflects
estimated escrow and earnout to be settled post-closing.
(3) All debt investments are income producing, unless otherwise
noted. Equity and warrant investments are non-income producing, unless otherwise noted.
(4) Percentages are based on net assets of $221,887 as of December
31, 2017.
(6) The cash rate equals the approximate current yield on our
last-out portion of the unitranche facility.
(11) Indicates assets that the Company believes do not represent
“qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent
at least 70% of the Company's total assets at the time of acquisition of any additional non-qualifying assets. As of December 31,
2017, 5.0% of the Company's total assets were non-qualifying assets.
(13) In addition to the stated rate, the Company is charging
3% default interest on the investment.
(14) The investment has been exited. The residual value reflects
estimated escrow to be settled post-closing.
(16) The Company has written a call option that enables CapitalSouth
Partners Florida Sidecar Fund II, L.P. to purchase up to 31.25% of the Company's interest at a strike price of $1.5 million. As
of December 31, 2017, the fair value of the written call option is approximately $6.8 million. See Note 4 to the consolidated financial
statements for further detail on the written call option transaction.
(19) The investment has been exited. The residual value reflects
estimated escrow and earnout to be settled post-closing.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)
Note 1. Organization
Capitala Finance Corp.
(the “Company”, “we”, “us”, and “our”) is an externally managed non-diversified
closed-end management investment company incorporated in Maryland that has elected to be regulated as a business development company
(“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is an “emerging
growth company” within the meaning of the Jumpstart Our Business Startups Act of 2012, and as such, is subject to reduced
public company reporting requirements. The Company commenced operations on May 24, 2013 and completed its initial public offering
(“IPO”) on September 30, 2013. The Company is managed by Capitala Investment Advisors, LLC (the “Investment Advisor”),
an investment adviser that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and Capitala
Advisors Corp. (the “Administrator”) provides the administrative services necessary for the Company to operate. For
United States (“U.S.”) federal income tax purposes, the Company has elected to be treated, and intends to comply with
the requirements to continue to qualify annually, as a regulated investment company (“RIC”) under subchapter M of the
Internal Revenue Code of 1986, as amended (the “Code”).
The Company’s
investment objective is to generate both current income and capital appreciation through debt and equity investments. Both directly
and through our subsidiaries that are licensed by the U.S. Small Business Administration (“SBA”) under the Small Business
Investment Company (“SBIC”) Act, the Company offers customized financing to business owners, management teams and financial
sponsors for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives.
The Company invests in first lien loans, second lien loans, subordinated loans, and, to a lesser extent, equity securities issued
by lower middle-market companies and traditional middle-market companies.
The Company was formed
for the purpose of: (i) acquiring, through a series of transactions, an investment portfolio from the following entities: CapitalSouth
Partners Fund I Limited Partnership (“Fund I”); CapitalSouth Partners Fund II Limited Partnership (“Fund II”);
CapitalSouth Partners Fund III, L.P. (“Fund III Parent”); CapitalSouth Partners SBIC Fund III, L.P. (“Fund III”)
and CapitalSouth Partners Florida Sidecar Fund I, L.P. (“Florida Sidecar” and, collectively with Fund I, Fund II, Fund
III and Fund III Parent, the “Legacy Funds”); (ii) raising capital in the IPO and (iii) continuing and expanding the
business of the Legacy Funds by making additional debt and equity investments in lower middle-market and traditional middle-market
companies.
On September 24, 2013,
the Company acquired 100% of the limited partnership interests in Fund II, Fund III and Florida Sidecar and each of their respective
general partners, as well as certain assets from Fund I and Fund III Parent, in exchange for an aggregate of 8,974,420 shares of
the Company’s common stock (the “Formation Transactions”). Fund II, Fund III and Florida Sidecar became the Company’s
wholly owned subsidiaries. Fund II and Fund III retained their SBIC licenses, continued to hold their existing investments at the
time of the IPO and have continued to make new investments. The IPO consisted of the sale of 4,000,000 shares of the Company’s
common stock at a price of $20.00 per share, resulting in net proceeds to the Company of $74.25 million, after deducting underwriting
fees and commissions totaling $4.0 million and offering expenses totaling $1.75 million. The other costs of the IPO were borne
by the limited partners of the Legacy Funds. During the fourth quarter of 2017, Florida Sidecar transferred all of its assets to
the Company and was legally dissolved as a standalone partnership.
The Company has formed
and expects to continue to form certain consolidated taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed
as corporations for income tax purposes. The Taxable Subsidiaries allow the Company to make equity investments in companies organized
as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company is considered
an investment company as defined in Accounting Standards Codification (“ASC”) Topic 946 —
Financial Services
— Investment Companies
(“ASC 946”)
.
The accompanying unaudited consolidated financial statements have
been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“U.S.
GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 6 and Article
10 of Regulation S-X. Accordingly, certain disclosures accompanying our annual consolidated financial statements prepared in accordance
with U.S. GAAP have been omitted. The consolidated financial statements of the Company include the accounts of the Company and
its wholly owned subsidiaries, including Fund II, Fund III, Florida Sidecar, and the Taxable Subsidiaries.
The Company’s
financial statements as of September 30, 2018 and December 31, 2017 are presented on a consolidated basis. The effects of all intercompany
transactions between the Company and its subsidiaries (Fund II, Fund III, Florida Sidecar, and the Taxable Subsidiaries) have been
eliminated in consolidation. All financial data and information included in these consolidated financial statements have been presented
on the basis described above. In the opinion of management, the consolidated financial statements reflect all adjustments that
are necessary for the fair presentation of financial results as of and for the periods presented.
The current period’s
results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Additionally, the
unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements
and notes thereto appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with
the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2018.
Use of Estimates in the Preparation of Financial Statements
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates
under different assumptions and conditions. The most significant estimates in the preparation of the consolidated financial statements
are investment valuation, revenue recognition, and income taxes.
Consolidation
As provided under ASC
946, the Company will generally not consolidate its investment in a company other than a substantially wholly owned investment
company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly,
the Company consolidated the results of the Company’s wholly owned investment company subsidiaries (Fund II, Fund III, Florida
Sidecar, and the Taxable Subsidiaries) in its consolidated financial statements.
Segments
In accordance with
ASC Topic 280 —
Segment Reporting
(“ASC 280”), the Company has determined that it has a single reporting
segment and operating unit structure. While the Company invests in several industries and geographic locations, all investments
share similar business and economic risks. As such, all investment activities have been aggregated into a single segment.
Cash and Cash Equivalents
The Company considers
cash equivalents to be highly liquid investments with original maturities of three months or less at the date of purchase. The
Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance
Corporation insurance limits.
Investment Classification
In accordance with
the provisions of the 1940 Act, the Company classifies its investments by level of control. As defined in the 1940 Act, “Control
Investments” are investments in those companies that the Company is deemed to “Control.” “Affiliate Investments”
are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, other
than Control Investments. “Non-Control/Non-Affiliate Investments” are those investments that are neither Control Investments
nor Affiliate Investments. Generally under the 1940 Act, the Company is deemed to control a company in which it has invested if
the Company owns more than 25% of the voting securities of such company and/or has greater than 50% representation on its board
or has the power to exercise control over management or policies of such portfolio company. The Company is deemed to be an affiliate
of a company in which the Company has invested if it owns between 5% and 25% of the voting securities of such company.
Valuation of Investments
The Company applies
fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 —
Fair Value
Measurements and Disclosures
(“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair
value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial
instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy, as
discussed in Note 4.
In determining fair
value, the Company’s board of directors (the “Board”) uses various valuation approaches, and engages a third-party
valuation firm, which provides an independent valuation of certain investments it reviews. In accordance with U.S. GAAP, a fair
value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are
those that market participants would use in pricing the asset or liability based on market data obtained from sources independent
of the Board. Unobservable inputs reflect the Board’s assumptions about the inputs market participants would use in pricing
the asset or liability developed based upon the best information available in the circumstances.
The availability of
valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including
the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular
to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may
be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent
uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had
a market for the securities existed. Accordingly, the degree of judgment exercised by the Board in determining fair value is greatest
for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value
measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be
reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
In estimating the fair
value of portfolio investments, the Company starts with the cost basis of the investment, which includes original issue discount
and payment-in-kind (“PIK”) income, if any. The transaction price is typically the best estimate of fair value at inception.
When evidence supports a subsequent change to the carrying value from the original transaction price, adjustments are made to reflect
the expected fair values.
The valuation methodologies
summarized below are utilized by the Company in estimating fair value.
Enterprise Value Waterfall Approach
The enterprise value
waterfall approach determines an enterprise value based on earnings before interest, tax, depreciation and amortization (“EBITDA”)
multiples of publicly traded companies that are considered similar to the subject portfolio company. The Company considers a variety
of items in determining a reasonable pricing multiple, including, but not limited to, operating results, budgeted projections,
growth, size, risk, profitability, leverage, management depth, diversification, market position, supplier or customer dependence,
asset utilization, liquidity metrics, and access to capital markets. EBITDA of the portfolio company is adjusted for non-recurring
items in order to reflect a normalized level of earnings that is representative of future earnings. In certain instances, the Company
may also utilize revenue multiples to determine enterprise value. When available, the Company may assign a pricing multiple or
value its investments based on the value of recent investment transactions in the subject portfolio company or offers to purchase
the portfolio company. The enterprise value is adjusted for financial instruments with seniority to the Company’s ownership
and for the effect of any instrument which may dilute the Company’s investment in the portfolio company. The adjusted enterprise
value is then apportioned based on the seniority and privileges of the Company’s investments within the portfolio company.
The enterprise value
waterfall approach is primarily utilized to value the Company’s equity securities, including warrants. However, the Company
may utilize the enterprise value waterfall approach to value certain debt securities.
Income Approach
The income approach
utilizes a discounted cash flow methodology in which the Company estimates fair value based on the present value of expected cash
flows discounted at a market rate of interest. The determination of a discount rate, or required rate of return, takes into account
the portfolio company’s fundamentals and perceived credit risk. Because the majority of the Company’s portfolio companies
do not have a public credit rating, determining a discount rate often involves assigning an implied credit rating based on the
portfolio company’s operating metrics compared to average metrics of similar publicly rated debt. Operating metrics include,
but are not limited to, EBITDA, interest coverage, leverage ratios, return on capital, and debt to equity ratios. The implied credit
rating is used to assign a base discount rate range based on publicly available yields on similarly rated debt securities. The
Company may apply a premium to the discount rate utilized in determining fair value when performance metrics and other qualitative
information indicate that there is an additional level of uncertainty about collectability of cash flows.
Asset Approach
The asset approach
values an investment based on the value of the underlying collateral securing the investment. This approach is used when the Company
has reason to believe that it will not collect all principal and interest in accordance with the contractual terms of the debt
agreement.
Revenue Recognition
The Company’s
revenue recognition policies are as follows:
Interest income
and paid-in-kind interest income:
Interest income is recorded on the accrual basis to the extent that such amounts are expected
to be collected. The Company has loans in the portfolio that contain a payment-in-kind interest (“PIK interest”) provision.
The PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at maturity,
is recorded on an accrual basis to the extent that such amounts are expected to be collected. PIK interest is not accrued if the
Company does not expect the issuer to be able to pay all principal and interest when due.
Non-accrual investments:
Management reviews all loans that become 90 days or more past due, or when there is reasonable doubt that principal or interest
will be collected, for possible placement on non-accrual status. When the Company otherwise does not expect the borrower to be
able to service its debt and other obligations, the Company will place the loan on non-accrual status, and will generally cease
recognizing interest income and PIK interest on that loan for financial reporting purposes. Interest payments received on non-accrual
loans may be recognized as income or applied to principal depending upon management’s judgment. The Company writes off any
previously accrued and uncollected interest when it is determined that interest is no longer considered collectible. The Company
may elect to cease accruing PIK interest and continue accruing interest income in cases where a loan is currently paying its interest
income but, in management’s judgment, there is a reasonable likelihood of principal loss on the loan. Non-accrual loans are
returned to accrual status when the borrower’s financial condition improves such that management believes current interest
and principal payments are expected to be collected.
Gains and losses
on investment sales and paydowns:
Realized gains and losses on investments are recognized using the specific identification
method.
Dividend income
and paid-in-kind dividends:
Dividend income is recognized on the date dividends are declared. The Company holds preferred equity
investments in the portfolio that contain a payment-in-kind dividend (“PIK dividends”) provision. PIK dividends, which
represent contractually deferred dividends added to the equity balance, are recorded on the accrual basis to the extent that such
amounts are expected to be collected. The Company will typically cease accrual of PIK dividends when the fair value of the equity
investment is less than the cost basis of the investment or when it is otherwise determined by management that PIK dividends are
unlikely to be collected. If management determines that a decline in fair value is temporary in nature and the PIK dividends are
more likely than not to be collected, management may elect to continue accruing PIK dividends.
Original issue discount:
Discounts received to par on loans purchased are capitalized and accreted into income over the life of the loan. Any remaining
discount is accreted into income upon prepayment of the loan.
Other income:
Origination
fees (to the extent services are performed to earn such income), amendment fees, consent fees, and other fees associated with investments
in portfolio companies are recognized as income when the investment transaction closes. Prepayment penalties received by the Company
for debt instruments repaid prior to maturity date are recorded as income upon receipt.
Loan Sales
The Company follows
the guidance in ASC Topic 860 —
Transfers and Servicing
(“ASC 860”) when accounting for loan participations
and partial loan sales as it relates to concluding on sales accounting treatment for such transactions. Based on the Company’s
analysis of all loan participations and partial sales completed, the Company believes that all such transactions meet the criterion
required by ASC 860 to qualify for sales accounting treatment.
General and Administrative Expenses
General and administrative
expenses are paid as incurred. The Company’s administrative expenses include personnel and overhead expenses allocable to
the Company paid by and reimbursed to the Administrator under an administration agreement between the Company and the Administrator
(the “Administration Agreement”). Other operating expenses such as legal and audit fees, director fees, and director
and officer insurance are generally paid directly by the Company.
Deferred Financing Fees
Costs incurred to issue
the Company’s debt obligations are capitalized and are amortized over the term of the debt agreements under the effective
interest method.
Earnings per share
The Company’s
earnings per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock
outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from operations by
the weighted average number of shares of common stock outstanding during the period of computation. Diluted EPS is computed by
dividing net increase (decrease) in net assets resulting from operations, adjusted for the change in net assets resulting from
the exercise of the dilutive shares, by the weighted average number of shares of common stock assuming all potentially dilutive
shares had been issued. Diluted EPS reflects the potential dilution, using the as-if-converted method for convertible debt, which
could occur if all potentially dilutive securities were exercised.
Commitments and Contingencies
As of September 30,
2018, the Company had outstanding unfunded commitments related to debt investments in existing portfolio companies of $2.4 million
(Portrait Studio, LLC), $1.1 million (MC Sign Lessor Corp), $0.7 million (U.S. Well Services, LLC) and $0.3 million (CableOrganizer
Acquisition, LLC). As of December 31, 2017, the Company had outstanding unfunded commitments related to debt investments in existing
portfolio companies of $3.1 million (Portrait Studio, LLC), $2.0 million (CIS Secure Computing, Inc.), $1.0 million (Kelle’s
Transport Service, LLC), and $0.7 million (U.S. Well Services, LLC).
In the ordinary course
of business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could
occur that could lead to the execution of these provisions against the Company. Based on its history and experience, management
believes that the likelihood of such an event is remote.
On December 28, 2017,
an alleged stockholder filed a putative class action lawsuit complaint, Paskowitz v. Capitala Finance Corp., et al., in the United
States District Court for the Central District of California (case number 2:17-cv-09251-MWF-AS) (the “Paskowitz Action”),
against the Company and certain of its current officers on behalf of all persons who purchased or otherwise acquired the Company’s
common stock between January 4, 2016 and August 7, 2017. On January 3, 2018, another alleged stockholder filed a putative class
action complaint, Sandifer v. Capitala Finance Corp., et al., in the United States District Court for the Central District of California
(case number 2:18-cv-00052-MWF-AS) (the “Sandifer Action”), asserting substantially similar claims on behalf of the
same putative class and against the same defendants. On February 2, 2018, the Sandifer Action was transferred, on stipulation of
the parties, to the United States District Court for the Western District of North Carolina. The Sandifer Action was voluntarily
dismissed on February 28, 2018. On March 1, 2018, the Paskowitz Action was transferred, on stipulation of the parties, to the United
States District Court for the Western District of North Carolina (case number 3:18-cv-00096-RJC-DSC). On June 19, 2018, the plaintiffs
in the Paskowitz Action filed their amended complaint. The complaint, as currently amended, alleges certain violations of the securities
laws, including,
inter alia
, that the defendants made certain materially false and misleading statements and omissions regarding
the Company’s business, operations, and prospects between January 4, 2016 and August 7, 2017. The plaintiffs in the Paskowitz
Action seek compensatory damages and attorneys’ fees and costs, among other relief, but did not specify the amount of damages
being sought. Defendants have moved to dismiss the amended complaint. While the Company intends to vigorously defend
itself in this litigation, the outcome of these legal proceedings cannot be predicted with certainty.
Estimating an amount
or range of possible losses resulting from litigation proceedings is inherently difficult and requires an extensive degree of judgment,
particularly where the matters involve indeterminate claims for monetary damages, are in the early stages of the proceedings, and
are subject to appeal. In addition, because most legal proceedings are resolved over extended periods of time, potential losses
are subject to change due to, among other things, new developments, changes in legal strategy, the outcome of intermediate procedural
and substantive rulings and other parties’ settlement posture and their evaluation of the strength or weakness of their case
against us. For these reasons, we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate the
possible losses or a range of possible losses resulting from, the matters described above. Based on information currently available,
the Company does not believe that any reasonably possible losses arising from the currently pending legal matters described above
will be material to the Company’s results of operations or financial condition. However, in light of the inherent uncertainties
involved in such matters, an adverse outcome in this litigation could materially and adversely affect the Company’s financial
condition, results of operations or cash flows in any particular reporting period.
In the ordinary course
of business, the Company may directly or indirectly be a defendant or plaintiff in legal actions with respect to bankruptcy, insolvency
or other types of proceedings. Such lawsuits may involve claims that could adversely affect the value of certain financial instruments
owned by the Company or result in direct losses to the Company. In management’s opinion, no direct losses with respect to
litigation contingencies were probable as of September 30, 2018 and December 31, 2017. Management is of the opinion that the ultimate
resolution of such claims, if any, will not materially affect the Company’s business, financial position, results of operations
or liquidity. Furthermore, in management’s opinion, it is not possible to estimate a range of reasonably possible losses
with respect to litigation contingencies.
Income Taxes
The Company has elected
to be treated for U.S. federal income tax purposes, and intends to comply with the requirements to qualify annually as a RIC under
subchapter M of the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve
the Company from U.S. federal income taxes.
In order to qualify
as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90.0% of its investment
company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal
excise tax of 4.0% on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year
and 98.2% of its capital gain net income for each one-year period ending on October 31.
Depending on the level
of taxable income earned in an excise tax year, the Company may choose to carry forward taxable income in excess of current year
dividend distributions into the next excise tax year and pay a 4.0% excise tax on such income, as required. To the extent that
the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend
distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income
is earned. Since the Company’s IPO, the Company has not accrued or paid excise tax.
The Company elected
to amend its tax year end from August 31 to December 31 and has filed a tax return for the four months ended December 31, 2017.
The election to change the tax year end is not expected to have a material impact on the Company’s consolidated statements
of operations, the Company’s tax status as a RIC, or the nature of distributions paid to our stockholders. The tax years
ended December 31, 2017, August 31, 2017, August 31, 2016 and August 31, 2015 remain subject to examination by U.S. federal, state,
and local tax authorities. No interest expense or penalties have been assessed for the three and nine months ended September 30,
2018 and September 30, 2017. If the Company was required to recognize interest and penalties, if any, related to unrecognized tax
benefits this would be recognized as income tax expense in the consolidated statements of operations.
For U.S. federal income
tax purposes, as of September 30, 2018, the aggregate net unrealized appreciation for all securities was $27.4 million. As of September
30, 2018, gross unrealized appreciation was $63.7 million and gross unrealized depreciation was $36.3 million. The aggregate cost
of securities for U.S. federal income tax purposes was $412.0 million as of September 30, 2018. For U.S. federal income tax purposes,
as of December 31, 2017, the aggregate net unrealized appreciation for all securities was $34.9 million. As of December 31, 2017,
gross unrealized appreciation was $81.4 million and gross unrealized depreciation was $46.5 million. The aggregate cost of securities
for U.S. federal income tax purposes was $465.0 million as of December 31, 2017.
The Company’s
Taxable Subsidiaries record deferred tax assets or liabilities related to temporary book versus tax differences on the income or
loss generated by the underlying equity investments held by the Taxable Subsidiaries. As of September 30, 2018 and December 31,
2017, the Company recorded a net deferred tax liability of $0.1 million and $1.3 million, respectively. For the three months ended
September 30, 2018, the Company recorded a tax provision of $(0.1) million. For the nine months ended September 30, 2018, the Company
recorded a tax benefit of $1.2 million. For the three and nine months ended September 30, 2017, the Company recorded a tax provision
of $(2.7) million.
In accordance with
certain applicable U.S. Treasury regulations and guidance issued by the Internal Revenue Service, a RIC may treat a distribution
of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive its entire distribution
in either cash or stock of the RIC, subject to a limitation on the aggregate amount of cash to be distributed to all stockholders,
which limitation must be at least 20.0% of the aggregate declared distribution. If too many stockholders elect to receive cash,
the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the
distribution paid in stock). In no event will any stockholder, electing to receive cash, receive the lesser of (a) the portion
of the distribution such stockholder has elected to receive in cash or (b) an amount equal to his or her entire distribution times
the percentage limitation on cash available for distribution. If these and certain other requirements are met, for U.S. federal
income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received
instead of stock. For income tax purposes, the Company has paid distributions on its common stock from ordinary income in the amount
of $6.1 million, $25.2 million, $24.5 million, and $25.1 million during the tax years ended December 31, 2017, August 31, 2017,
August 31, 2016 and August 31, 2015, respectively.
ASC Topic 740 —
Income Taxes
(“ASC 740”), provides guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken
in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not”
to be sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would
be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to
unrecognized tax benefits as income tax expense in the consolidated statements of operations. As of September 30, 2018 and December
31, 2017, there were no uncertain tax positions.
The Company is required
to determine whether a tax position of the Company is more likely-than-not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.
The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording
a tax liability that could negatively impact the Company’s net assets.
U.S. GAAP provides
guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition that is intended to provide better financial statement comparability among different entities.
On December
22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes
the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a move from a worldwide tax
system to a territorial system, as well as other changes. The Taxable Subsidiaries’ provisional tax is based on the new
lower blended federal and state corporate tax rate of 25%. This estimate incorporates assumptions made based on the
Taxable Subsidiaries’ current interpretation of the Tax Cut and Jobs Act and may change, possibly materially, as we
complete our analysis and receive additional clarification and implementation guidance.
Distributions
Distributions to common
stockholders are recorded as payable on the declaration date. The amount to be paid out as a dividend is determined by the Board.
Net capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for
reinvestment.
The Company has adopted
an “opt out” dividend reinvestment plan (“DRIP”) for the Company’s common stockholders. As a result,
if the Company declares a distribution, then stockholders’ cash distributions will be automatically reinvested in additional
shares of the Company’s common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder
opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our
common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders
participating in the Company’s DRIP will not receive any corresponding cash distributions with which to pay any such applicable
taxes.
Company Investment Risk, Concentration of Credit Risk, and
Liquidity Risk
The Investment Advisor
has broad discretion in making investments for the Company. Investments will generally consist of debt and equity instruments that
may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors
that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly
affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s
portfolio may fluctuate as the general level of interest rates fluctuate.
The value of the Company’s
investments may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there
is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable
secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums
required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase
materially.
The Investment Advisor
may attempt to minimize this risk by maintaining low debt-to-liquidation values with each debt investment and the collateral underlying
the debt investment.
The Company’s
assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded,
making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore,
the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any
such investments accurately.
Note 3. Recent Accounting
Pronouncements
In October 2018, the
SEC adopted amendments (the “Amendments”) to certain disclosure requirements that have become redundant, duplicative,
overlapping, outdated, or superseded, in light of other SEC disclosure requirements, U.S. GAAP requirements, or changes in the
information environment. In part, the Amendments require an investment company to present distributable earnings in total, rather
than showing the three components of distributable earnings. The compliance date for the Amendments is for all filings on or after
November 5, 2018. Management has adopted the Amendments and included the required disclosures in the Company’s consolidated
financial statements.
In May 2014, the FASB
issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC Topic 606) (“ASU 2014-09”).
ASU 2014-09 supersedes the revenue recognition requirements under ASC Topic 605, Revenue Recognition, and most industry-specific
guidance throughout the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled
in exchange for those goods or services. The new guidance significantly enhances comparability of revenue recognition practices
across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to
the nature, amount, timing and uncertainty of revenue that is recognized. The new guidance became effective for the annual reporting
period beginning January 1, 2018, including interim periods within that reporting period. The Company completed its assessment
in evaluating the potential impact on its consolidated financial statements and based on its assessment, determined that its financial
contracts are excluded from the scope of ASU 2014-09. As a result of the scope exception for financial contracts, the Company’s
management has determined that there will be no material changes to the recognition timing and classification of revenues and expenses;
additionally, the Company’s management determined that the adoption of ASU 2014-09 does not have a significant impact on
its consolidated financial statement disclosures.
Note 4. Investments and Fair Value Measurements
The Company’s
investment objective is to generate both current income and capital appreciation through debt and equity investments. Both directly
and through the Company’s subsidiaries that are licensed by the SBA under the SBIC Act, the Company offers customized financing
to business owners, management teams and financial sponsors for change of ownership transactions, recapitalizations, strategic
acquisitions, business expansion and other growth initiatives. The Company invests in first lien loans, second lien loans, and
subordinated loans. Most of the Company’s debt investments are coupled with equity interests, whether in the form of detachable
“penny” warrants or equity co-investments made pari-passu with our borrowers’ financial sponsors. As of September
30, 2018, our portfolio consisted of investments in 42 portfolio companies with a fair value of approximately $439.4 million.
Most of the Company’s
debt investments are structured as first lien loans. First lien loans may contain some minimum amount of principal amortization,
excess cash flow sweep feature, prepayment penalties, or any combination of the foregoing. First lien loans are secured by a first
priority lien in existing and future assets of the borrower and may take the form of term loans or delayed draw facilities. Unitranche
debt, a form of first lien loan, typically involves issuing one debt security that blends the risk and return profiles of both
senior secured and subordinated debt in one debt security, bifurcating the loan into a first-out tranche and last-out tranche.
As of September 30, 2018, 9.8% of the fair value of our first lien loans consisted of last-out loans. As of December 31, 2017,
13.7% of the fair value of our first lien loans consisted of last-out loans. In some cases, first lien loans may be subordinated,
solely with respect to the payment of cash interest, to an asset based revolving credit facility.
The Company also invests
in debt instruments structured as second lien loans. Second lien loans are loans which have a second priority security interest
in all or substantially all of the borrower’s assets, and which are not subject to the blockage of cash interest payments
to the Company at the first lien lender’s discretion.
In addition to first
and second lien loans, the Company may also invest in subordinated loans. Subordinated loans typically have a second lien on all
or substantially all of the borrower’s assets, and unlike second lien loans, may be subject to the interruption of cash interest
payments upon certain events of default, at the discretion of the first lien lender.
During the three months
ended September 30, 2018, the Company made approximately $19.9 million of investments and had approximately $42.6 million in repayments
and sales, resulting in net repayments and sales of approximately $22.7 million for the period. During the three months ended September
30, 2017, the Company made approximately $11.4 million of investments and had approximately $22.4 million in repayments and sales,
resulting in net repayments and sales of approximately $11.0 million for the period.
During the nine months
ended September 30, 2018, the Company made approximately $58.9 million of investments and had approximately $96.3 million in repayments
and sales, resulting in net repayments and sales of approximately $37.4 million for the period. During the nine months ended September
30, 2017, the Company made approximately $39.7 million of investments and had approximately $104.7 million in repayments and sales,
resulting in net repayments and sales of approximately $65.0 million for the period.
During the three and
nine months ended September 30, 2018, the Company funded $1.1 million and $6.3 million, respectively, of previously committed capital
to existing portfolio companies. During the three and nine months ended September 30, 2018, the Company funded $18.8 million and
$52.6 million, respectively, of investments in portfolio companies for which it was not previously committed to fund. During the
three and nine months ended September 30, 2017, the Company funded $0.4 million and $0.7 million, respectively, of previously committed
capital to existing portfolio companies. During the three and nine months ended September 30, 2017, the Company funded $11.0 million
and $21.7 million, respectively, of investments in portfolio companies for which it was not previously committed to fund. In addition
to investing directly in portfolio companies, the Company may assist portfolio companies in securing financing from other sources
by introducing portfolio companies to sponsors or by leading a syndicate of investors to provide the portfolio companies with financing.
During the three and nine months ended September 30, 2018, and September 30, 2017, the Company did not lead any syndicates and
did not assist any portfolio companies in obtaining indirect financing.
On August 31, 2016,
the Company sold a portion of 14 securities across 10 portfolio companies to CapitalSouth Partners Florida Sidecar Fund II, L.P.
(“FSC II”), including granting an option to acquire a portion of the Company’s equity investment in Eastport
Holdings, LLC (the “Written Call Option”), in exchange for 100% of the partnership interests in FSC II. Concurrent
with the sale of these assets to FSC II, the Company received cash consideration of $47.6 million from an affiliated third-party
purchaser in exchange for 100% of the partnership interests of FSC II. These assets were sold to FSC II at their June 30, 2016
fair market values, resulting in a net realized gain of $0.1 million. The Company’s Board pre-approved this transaction pursuant
to Section 57(f) of the 1940 Act.
The Company collected
and will periodically collect principal and interest payments related to certain of the securities purchased by FSC II. Such principal
and interest payments will be remitted timely to FSC II based on its proportionate share of the security. FSC II does not have
any recourse to the Company related to the non-payment of principal or interest by the underlying issuers of the securities.
The Written Call Option
granted FSC II the right to purchase up to 31.25% of the Company’s equity investment in Eastport Holdings, LLC. The Written
Call Option had a strike price of $1.5 million and a termination date of August 31, 2018. On August 27, 2018, FSC II exercised
its option at a strike price of $1.5 million. The fair value of the Written Call Option, which has been treated as a derivative
liability and is recorded in the financial statement line item Written Call Option at fair value in the Company’s consolidated
statements of assets and liabilities, was approximately $0.0 million and $6.8 million as of September 30, 2018 and December 31,
2017, respectively. For purposes of determining the fair value of the Written Call Option, the Company calculated the difference
in the fair value of the underlying equity investment in Eastport Holdings, LLC and the strike price of the Written Call Option,
or intrinsic value. The Written Call Option was classified as a Level 3 financial instrument.
The composition of
our investments as of September 30, 2018, at amortized cost and fair value was as follows (dollars in thousands):
|
|
Investments
at
Amortized Cost
|
|
|
Amortized Cost
Percentage of
Total Portfolio
|
|
|
Investments
at
Fair Value
|
|
|
Fair Value
Percentage of
Total Portfolio
|
|
First Lien Debt
|
|
$
|
244,792
|
|
|
|
59.5
|
%
|
|
$
|
224,703
|
|
|
|
51.1
|
%
|
Second Lien Debt
|
|
|
33,017
|
|
|
|
8.0
|
|
|
|
32,148
|
|
|
|
7.3
|
|
Subordinated Debt
|
|
|
79,966
|
|
|
|
19.4
|
|
|
|
80,339
|
|
|
|
18.3
|
|
Equity and Warrants
|
|
|
53,882
|
|
|
|
13.1
|
|
|
|
102,231
|
|
|
|
23.3
|
|
Total
|
|
$
|
411,657
|
|
|
|
100.0
|
%
|
|
$
|
439,421
|
|
|
|
100.0
|
%
|
The composition of
our investments as of December 31, 2017, at amortized cost and fair value was as follows (dollars in thousands):
|
|
Investments
at
Amortized Cost
|
|
|
Amortized Cost
Percentage of
Total Portfolio
|
|
|
Investments
at
Fair Value
|
|
|
Fair Value
Percentage of
Total Portfolio
|
|
First Lien Debt
|
|
$
|
257,147
|
|
|
|
55.3
|
%
|
|
$
|
243,489
|
|
|
|
48.7
|
%
|
Second Lien Debt
|
|
|
32,465
|
|
|
|
7.0
|
|
|
|
30,794
|
|
|
|
6.1
|
|
Subordinated Debt
|
|
|
120,235
|
|
|
|
25.8
|
|
|
|
103,385
|
|
|
|
20.7
|
|
Equity and Warrants
|
|
|
55,180
|
|
|
|
11.9
|
|
|
|
122,271
|
|
|
|
24.5
|
|
Total
|
|
$
|
465,027
|
|
|
|
100.0
|
%
|
|
$
|
499,939
|
|
|
|
100.0
|
%
|
As noted above, the
Company values all investments in accordance with ASC 820. ASC 820 requires enhanced disclosures about assets and liabilities that
are measured and reported at fair value. As defined in ASC 820, fair value is 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.
ASC 820
establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used
in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment
and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree
of judgment used in measuring fair value.
Based on the observability
of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according
to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments
carried at fair value are classified and disclosed in one of the following three categories:
|
·
|
Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
|
·
|
Level 2 — Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.
|
|
·
|
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
In addition to using
the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the Board that is consistent
with ASC 820 (see Note 2). Consistent with the Company’s valuation policy, the Company evaluates the source of inputs, including
any markets in which its investments are trading, in determining fair value.
In estimating fair
value of portfolio investments, the Company starts with the cost basis of the investment, which includes amortized original issue
discount and PIK income, if any. The transaction price is typically the best estimate of fair value at inception. When evidence
supports a subsequent change to the carrying value from the original transaction price, adjustments are made to reflect the expected
fair values.
The following table
presents the fair value measurements of investments, by major class, as of September 30, 2018 (dollars in thousands), according
to the fair value hierarchy:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
First Lien Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
224,703
|
|
|
$
|
224,703
|
|
Second Lien Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
32,148
|
|
|
|
32,148
|
|
Subordinated Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
80,339
|
|
|
|
80,339
|
|
Equity and Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
102,231
|
|
|
|
102,231
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
439,421
|
|
|
$
|
439,421
|
|
The following table presents fair value
measurements of investments, by major class, as of December 31, 2017 (dollars in thousands), according to the fair value hierarchy:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
First Lien Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,489
|
|
|
$
|
243,489
|
|
Second Lien Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
30,794
|
|
|
|
30,794
|
|
Subordinated Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
103,385
|
|
|
|
103,385
|
|
Equity and Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
122,271
|
|
|
|
122,271
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
499,939
|
|
|
$
|
499,939
|
|
The following table presents fair
value measurements of the Written Call Option as of December 31, 2017 (dollars in thousands), according to the fair value hierarchy:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Written Call Option
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,815
|
)
|
|
$
|
(6,815
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,815
|
)
|
|
$
|
(6,815
|
)
|
The following
table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine
months ended September 30, 2018 (dollars in thousands):
|
|
First Lien
Debt
|
|
|
Second Lien
Debt
|
|
|
Subordinated
Debt
|
|
|
Equity
and Warrants
|
|
|
Total
|
|
Balance as of January 1, 2018
|
|
$
|
243,489
|
|
|
$
|
30,794
|
|
|
$
|
103,385
|
|
|
$
|
122,271
|
|
|
$
|
499,939
|
|
Reclassifications
|
|
|
17,494
|
|
|
|
—
|
|
|
|
(20,806
|
)
|
|
|
3,312
|
|
|
|
—
|
|
Repayments/sales
|
|
|
(79,550
|
)
|
|
|
—
|
|
|
|
(232
|
)
|
|
|
(16,478
|
)
|
|
|
(96,260
|
)
|
Purchases
|
|
|
57,814
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,093
|
|
|
|
58,907
|
|
Payment in-kind interest and dividends accrued
|
|
|
1,521
|
|
|
|
481
|
|
|
|
700
|
|
|
|
613
|
|
|
|
3,315
|
|
Accretion of original issue discount
|
|
|
212
|
|
|
|
69
|
|
|
|
566
|
|
|
|
—
|
|
|
|
847
|
|
Realized gain (loss) on investments
|
|
|
(9,844
|
)
|
|
|
—
|
|
|
|
(20,499
|
)
|
|
|
10,164
|
|
|
|
(20,179
|
)
|
Net unrealized appreciation (depreciation) on investments
|
|
|
(6,433
|
)
|
|
|
804
|
|
|
|
17,225
|
|
|
|
(18,744
|
)
|
|
|
(7,148
|
)
|
Balance as of September 30, 2018
|
|
$
|
224,703
|
|
|
$
|
32,148
|
|
|
$
|
80,339
|
|
|
$
|
102,231
|
|
|
$
|
439,421
|
|
The following table
provides a reconciliation of the beginning and ending balances for the Written Call Option that uses Level 3 inputs for the
nine months ended September 30, 2018 (dollars in thousands):
|
|
Written
Call Option
|
|
Balance as of January 1, 2018
|
|
$
|
(6,815
|
)
|
Payment from Written Call Option
|
|
|
20
|
|
Net unrealized appreciation on Written Call Option
|
|
|
6,795
|
|
Balance as of September 30, 2018
|
|
$
|
—
|
|
The following table
provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months
ended September 30, 2017 (dollars in thousands):
|
|
First Lien
Debt
|
|
|
Second Lien
Debt
|
|
|
Subordinated
Debt
|
|
|
Equity
and Warrants
|
|
|
Total
|
|
Balance as of January 1, 2017
|
|
$
|
226,578
|
|
|
$
|
71,483
|
|
|
$
|
150,232
|
|
|
$
|
93,346
|
|
|
$
|
541,639
|
|
Reclassifications
|
|
|
(4,659
|
)
|
|
|
—
|
|
|
|
(9,000
|
)
|
|
|
13,659
|
|
|
|
—
|
|
Repayments/sales
|
|
|
(21,798
|
)
|
|
|
(45,804
|
)
|
|
|
(22,092
|
)
|
|
|
(15,015
|
)
|
|
|
(104,709
|
)
|
Purchases
|
|
|
31,308
|
|
|
|
4,000
|
|
|
|
1,182
|
|
|
|
3,200
|
|
|
|
39,690
|
|
Payment in-kind interest and dividends accrued
|
|
|
3,609
|
|
|
|
688
|
|
|
|
651
|
|
|
|
690
|
|
|
|
5,638
|
|
Accretion of original issue discount
|
|
|
199
|
|
|
|
299
|
|
|
|
570
|
|
|
|
—
|
|
|
|
1,068
|
|
Realized gain (loss) on investments
|
|
|
(7,119
|
)
|
|
|
(1,456
|
)
|
|
|
—
|
|
|
|
7,826
|
|
|
|
(749
|
)
|
Net unrealized appreciation (depreciation) on investments
|
|
|
(6,913
|
)
|
|
|
1,564
|
|
|
|
(15,524
|
)
|
|
|
9,402
|
|
|
|
(11,471
|
)
|
Balance as of September 30, 2017
|
|
$
|
221,205
|
|
|
$
|
30,774
|
|
|
$
|
106,019
|
|
|
$
|
113,108
|
|
|
$
|
471,106
|
|
The following table
provides a reconciliation of the beginning and ending balances for the Written Call Option that uses Level 3 inputs for the
nine months ended September 30, 2017 (dollars in thousands):
|
|
Written Call Option
|
|
Balance as of January 1, 2017
|
|
$
|
(2,736
|
)
|
Net unrealized depreciation on Written Call Option
|
|
|
(2,819
|
)
|
Balance as of September 30, 2017
|
|
$
|
(5,555
|
)
|
The net change in unrealized
depreciation on investments held as of September 30, 2018 and September 30, 2017, was $(28.9) million and $(14.0) million, respectively,
and is included in net unrealized depreciation on investments in the consolidated statements of operations.
The valuation techniques
and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and (liabilities) as of September
30, 2018 were as follows:
|
|
Fair Value
(in millions)
|
|
|
Valuation
Approach
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
First lien debt
|
|
$
|
186.9
|
|
|
Income
|
|
Required Rate of Return
Leverage Ratio
Adjusted EBITDA
|
|
9.3% – 16.0% (12.4%)
1.2x – 8.5x (4.0x)
$1.8 million – $117.2 million ($24.3 million)
|
First lien debt
|
|
$
|
37.8
|
|
|
Enterprise Value Waterfall and Asset
(1)
|
|
EBITDA Multiple
Adjusted EBITDA
Revenue Multiple
Revenue
|
|
5.3x – 6.8x (5.9x)
$0.3 million – $2.7 million ($1.5 million)
1.0x – 1.0x (1.0x)
$12.8 million – $12.8 million ($12.8 million)
|
Second lien debt
|
|
$
|
15.8
|
|
|
Income
|
|
Required Rate of Return
Leverage Ratio
Adjusted EBITDA
|
|
12.5% – 18.1% (16.3%)
4.5x – 5.1x (4.7x)
$67.6 million – $80.9 million ($76.8 million)
|
Second lien debt
|
|
$
|
16.3
|
|
|
Enterprise Value Waterfall and Asset
|
|
EBITDA Multiple
Adjusted EBITDA
|
|
6.0x – 6.0x (6.0x)
$8.4 million – $8.4 million ($8.4 million)
|
Subordinated debt
|
|
$
|
56.5
|
|
|
Income
|
|
Required Rate of Return
Leverage Ratio
Adjusted EBITDA
|
|
11.5% – 20.0% (14.3%)
3.1x – 8.8x (5.5x)
$1.7 million – $16.4 million ($11.3 million)
|
Subordinated debt
|
|
$
|
23.8
|
|
|
Enterprise Value Waterfall and Asset
(1)
|
|
EBITDA Multiple
Adjusted EBITDA
Revenue Multiple
Revenue
|
|
5.8x – 6.0x (5.8x)
$1.8 million – $2.7 million ($2.6 million)
0.4x – 0.4x (0.4x)
$553.5 million – $553.5 million ($553.5 million)
|
Equity and warrants
|
|
$
|
102.2
|
|
|
Enterprise Value Waterfall
|
|
EBITDA Multiple
Adjusted EBITDA
Revenue Multiple
Revenue
|
|
3.3x – 15.0x (6.7x)
$0.3 million – $117.2 million ($28.6 million)
0.4x – 0.5x (0.4x)
$164.9 million – $553.5 million ($431.2 million)
|
|
(1)
|
$0.7 million in subordinated debt and $6.0 million in first lien debt were valued using the asset approach.
|
The valuation techniques
and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and (liabilities) as of December
31, 2017 were as follows:
|
|
Fair Value
(in millions)
|
|
|
Valuation
Approach
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
First lien debt
|
|
$
|
211.2
|
|
|
Income
|
|
Required Rate of Return
Leverage Ratio
Adjusted EBITDA
|
|
8.6% – 21.2% (13.5%)
1.7x – 7.0x (3.6x)
$1.8 million – $131.2 million
($21.1 million)
|
First lien debt
|
|
$
|
32.3
|
|
|
Enterprise Value Waterfall and Asset
(1)
|
|
EBITDA Multiple
Adjusted EBITDA
|
|
4.0x – 7.0x (5.5x)
$2.1 million – $3.1 million
($2.6 million)
|
Second lien debt
|
|
$
|
30.8
|
|
|
Income
|
|
Required Rate of Return
Leverage Ratio
Adjusted EBITDA
|
|
11.6% – 17.6% (14.4%)
4.9x – 7.0x (6.0x)
$7.3 million – $78.5 million
($41.1 million)
|
Subordinated debt
|
|
$
|
64.4
|
|
|
Income
|
|
Required Rate of Return
Leverage Ratio
Adjusted EBITDA
|
|
11.5% – 19.0% (14.2%)
3.2x – 8.1x (5.6x)
$3.2 million – $15.1 million ($9.7 million)
|
Subordinated debt
|
|
$
|
39.0
|
|
|
Enterprise Value Waterfall and Asset
(1)
|
|
EBITDA Multiple
Adjusted EBITDA
Revenue Multiple
Revenue
|
|
6.0x – 7.5x (7.2x)
$1.8 million – $30.1 million ($21.2 million)
0.2x – 0.2x (0.2x)
$150.7 million – $150.7 million ($150.7 million)
|
Equity and warrants
|
|
$
|
122.3
|
|
|
Enterprise Value Waterfall
|
|
EBITDA Multiple
Adjusted EBITDA
|
|
3.5x – 14.5x (7.9x)
$1.8 million – $77.6 million ($24.3 million)
|
Written Call Option
|
|
$
|
(6.8
|
)
|
|
Enterprise Value Waterfall
|
|
EBITDA Multiple
Adjusted EBITDA
|
|
7.25x – 7.25x (7.25x)
$30.1 million – $30.1 million ($30.1 million)
|
|
(1)
|
$1.0 million in subordinated debt and $1.9 million in first lien debt were valued using the asset approach.
|
The significant unobservable inputs used
in the valuation of the Company’s investments are required rate of return, adjusted EBITDA, EBITDA multiples, revenue, revenue
multiples, and leverage ratios. Changes in any of these unobservable inputs could have a significant impact on the Company’s
estimate of fair value. An increase (decrease) in the required rate of return or leverage will result in a lower (higher) estimate
of fair value while an increase (decrease) in adjusted EBITDA, EBITDA multiples, revenue, or revenue multiples will result in a
higher (lower) estimate of fair value.
Note 5. Transactions With Affiliated Companies
During the nine months ended September 30,
2018, the Company had investments in portfolio companies designated as affiliates under the 1940 Act. Transactions with affiliates
were as follows (dollars in thousands):
Company
(4)
|
|
Type
of Investment
|
|
Principal
Amount
|
|
|
Amount
of
Interest, Fees or
Dividends
Credited to
Income
(1)
|
|
|
December
31,
2017 Fair Value
|
|
|
Gross
Additions
(2)
|
|
|
Gross
Reductions
(3)
|
|
|
Realized
Gain/(Loss)
|
|
|
Unrealized
Gain/(Loss)
|
|
|
September
30,
2018 Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Second Lien Debt (8.0% Cash, 4.0% PIK, Due 8/24/19)
|
|
|
|
|
|
$
|
639
|
|
|
$
|
15,603
|
|
|
$
|
-
|
|
|
$
|
(15,845
|
)
|
|
$
|
-
|
|
|
$
|
242
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Membership Units (2.2% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Warrants (37.8% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
639
|
|
|
|
15,603
|
|
|
|
-
|
|
|
|
(15,862
|
)
|
|
|
-
|
|
|
|
259
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
First Lien Debt (12.0% Cash, 1.0% PIK, Due 3/23/21)
|
|
|
14,764
|
|
|
|
937
|
|
|
|
-
|
|
|
|
14,764
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(310
|
)
|
|
|
14,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Subordinated Debt (14.0% Cash, Due 8/9/19)
|
|
|
|
|
|
|
116
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
(3,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Subordinated Debt (12.0% Cash, Due 8/9/19)
|
|
|
|
|
|
|
199
|
|
|
|
5,828
|
|
|
|
-
|
|
|
|
(5,828
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Common Stock Class A (1,253,198 shares)
|
|
|
|
|
|
|
-
|
|
|
|
457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(457
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Common Stock Class B (900,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,252
|
|
|
|
9,285
|
|
|
|
15,064
|
|
|
|
(8,828
|
)
|
|
|
-
|
|
|
|
(1,067
|
)
|
|
|
14,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chef'n Corporation
|
|
Series A Preferred Stock (1,000,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(644
|
)
|
|
|
644
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(644
|
)
|
|
|
644
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
|
|
Subordinated Debt (13.0% Cash, Due 10/20/19)
|
|
|
8,231
|
|
|
|
811
|
|
|
|
8,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
(5)
|
|
Preferred Membership Units (2.8% fully diluted, 9.0% Cash Dividend)
|
|
|
|
|
|
|
87
|
|
|
|
1,269
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
|
|
Membership Unit Warrants (11.4% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
8,248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,438
|
)
|
|
|
5,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
898
|
|
|
|
17,748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,438
|
)
|
|
|
15,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Subordinated Debt (15.3% Cash (3 month LIBOR + 13.0%, 0.5% Floor),
Due 4/29/20)
|
|
|
16,500
|
|
|
|
318
|
|
|
|
-
|
|
|
|
15,305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,195
|
|
|
|
16,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Membership Units (22.9% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,733
|
|
|
|
(1,470
|
)
|
|
|
-
|
|
|
|
14,920
|
|
|
|
18,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
-
|
|
|
|
20,038
|
|
|
|
(1,470
|
)
|
|
|
-
|
|
|
|
16,115
|
|
|
|
34,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA Communications, Inc.
(5)
|
|
Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
3,225
|
|
|
|
203
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA Communications, Inc.
|
|
Series B-1 Common Stock (200,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
1,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(418
|
)
|
|
|
1,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
5,157
|
|
|
|
203
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(430
|
)
|
|
|
4,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Subordinated Debt (13.0% Cash, Due 6/16/19)
|
|
|
6,406
|
|
|
|
593
|
|
|
|
6,170
|
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
6,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Common Stock (8,182 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Common Stock Warrants (6,369 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
593
|
|
|
|
6,170
|
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
6,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LJS Partners, LLC
|
|
Common Stock (1,587,848 shares)
|
|
|
|
|
|
|
-
|
|
|
|
7,650
|
|
|
|
293
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,588
|
)
|
|
|
4,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
7,650
|
|
|
|
293
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,588
|
)
|
|
|
4,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
First Lien Debt (12.0% Cash, Due 1/31/19)
|
|
|
2,600
|
|
|
|
238
|
|
|
|
2,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
Subordinated Debt (6.0% Cash, Due 1/31/19)
|
|
|
400
|
|
|
|
18
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
(5)
|
|
Preferred Units (1,000 units, 6.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
1,520
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
Common Membership Units (45 units)
|
|
|
|
|
|
|
-
|
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
|
|
4,713
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
4,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MTI Holdings, LLC
|
|
Membership Units (2,000,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
(139
|
)
|
|
|
139
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
(139
|
)
|
|
|
139
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sierra Hamilton Holdings Corporation
|
|
Common Stock (15,068,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
8,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(181
|
)
|
|
|
8,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
8,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(181
|
)
|
|
|
8,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source Capital Penray, LLC
|
|
Membership Units (11.3% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STX Healthcare Management Services, Inc.
|
|
Common Stock (1,200,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
93
|
|
|
|
-
|
|
|
|
(80
|
)
|
|
|
80
|
|
|
|
(93
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
93
|
|
|
|
-
|
|
|
|
(80
|
)
|
|
|
80
|
|
|
|
(93
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Bath Group, LLC
|
|
First Lien Debt (11.1% Cash (1 month LIBOR + 9.0%, 1.0% Floor),
Due 1/2/23)
|
|
|
13,063
|
|
|
|
1,428
|
|
|
|
-
|
|
|
|
15,000
|
|
|
|
(1,937
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Bath Group, LLC
|
|
Membership Units (500,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,526
|
|
|
|
2,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,428
|
|
|
|
-
|
|
|
|
15,500
|
|
|
|
(1,937
|
)
|
|
|
-
|
|
|
|
1,526
|
|
|
|
15,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
First Lien Debt (8.1% Cash (1 month LIBOR + 6.0%, 1.0% Floor), Due
2/2/22)
|
|
|
2,299
|
|
|
|
136
|
|
|
|
2,299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
First Lien Debt (13.1% PIK (1 month LIBOR + 11.0%, 1.0% Floor),
Due 2/2/22)
|
|
|
9,731
|
|
|
|
437
|
|
|
|
9,516
|
|
|
|
409
|
|
|
|
(194
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
9,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
Class A Units (5,680,688 Units)
|
|
|
|
|
|
|
-
|
|
|
|
15,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,849
|
)
|
|
|
11,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
Class B Units (2,076,298 Units)
|
|
|
|
|
|
|
-
|
|
|
|
955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(183
|
)
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
27,774
|
|
|
|
409
|
|
|
|
(194
|
)
|
|
|
-
|
|
|
|
(4,032
|
)
|
|
|
23,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V12 Holdings, Inc.
|
|
Subordinated Debt
|
|
|
|
|
|
|
-
|
|
|
|
1,035
|
|
|
|
-
|
|
|
|
(232
|
)
|
|
|
93
|
|
|
|
(153
|
)
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,035
|
|
|
|
-
|
|
|
|
(232
|
)
|
|
|
93
|
|
|
|
(153
|
)
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Affiliate investments
|
|
|
|
|
|
|
|
$
|
5,957
|
|
|
$
|
103,957
|
|
|
$
|
51,614
|
|
|
$
|
(29,386
|
)
|
|
$
|
956
|
|
|
$
|
5,727
|
|
|
$
|
132,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Second Lien Debt (8.0% Cash, 4.0% PIK, Due 8/24/19)
|
|
$
|
16,327
|
|
|
$
|
324
|
|
|
$
|
-
|
|
|
$
|
16,327
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Membership Units (2.2% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Warrants (37.8% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324
|
|
|
|
-
|
|
|
|
16,344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
16,327
|
|
Company
(4)
|
|
Type
of Investment
|
|
Principal
Amount
|
|
|
Amount
of
Interest, Fees or
Dividends
Credited to
Income
(1)
|
|
|
December
31,
2017 Fair Value
|
|
|
Gross
Additions
(2)
|
|
|
Gross
Reductions
(3)
|
|
|
Realized
Gain/(Loss)
|
|
|
Unrealized
Gain/(Loss)
|
|
|
September
30,
2018 Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
First Lien Debt (10.0% Cash, Due 5/24/19)
|
|
|
1,708
|
|
|
|
77
|
|
|
|
-
|
|
|
|
1,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
First Lien Debt (12.0% Cash, 4.0% PIK, Due 6/30/19)
|
|
|
8,798
|
|
|
|
901
|
|
|
|
12,373
|
|
|
|
425
|
|
|
|
(2,354
|
)
|
|
|
(1,646
|
)
|
|
|
-
|
|
|
|
8,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Preferred Units (4,000,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,354
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,451
|
)
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Common Stock (21.3% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
118
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(118
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Common Stock Warrants (10.0% fully diluted
)
|
|
|
|
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
978
|
|
|
|
12,551
|
|
|
|
4,487
|
|
|
|
(2,354
|
)
|
|
|
(1,646
|
)
|
|
|
(1,629
|
)
|
|
|
11,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Subordinated Debt (15.3% Cash (3 month LIBOR + 13.0%, 0.5% Floor),
Due 4/29/20)
|
|
|
|
|
|
|
2,146
|
|
|
|
16,500
|
|
|
|
-
|
|
|
|
(14,738
|
)
|
|
|
-
|
|
|
|
(1,762
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Membership Units (22.9% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
26,449
|
|
|
|
-
|
|
|
|
(4,733
|
)
|
|
|
-
|
|
|
|
(21,716
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146
|
|
|
|
42,949
|
|
|
|
-
|
|
|
|
(19,471
|
)
|
|
|
-
|
|
|
|
(23,478
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelle's Transport Service, LLC
|
|
First Lien Debt (4.0% Cash, Due 2/15/20)
|
|
|
|
|
|
|
82
|
|
|
|
2,000
|
|
|
|
1,300
|
|
|
|
(3,300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelle's Transport Service, LLC
|
|
First Lien Debt (2.2% Cash, Due 2/15/20)
|
|
|
|
|
|
|
126
|
|
|
|
9,560
|
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
|
(3,669
|
)
|
|
|
4,109
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelle's Transport Service, LLC
|
|
Membership Units (27.5% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
11,560
|
|
|
|
1,300
|
|
|
|
(13,300
|
)
|
|
|
(3,669
|
)
|
|
|
4,109
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Subordinated Debt (10.0% Cash, Due 1/1/19)
|
|
|
1,862
|
|
|
|
140
|
|
|
|
1,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Subordinated Debt (14.0% Cash, 4.0% PIK, Due 1/1/19)
|
|
|
4,282
|
|
|
|
447
|
|
|
|
4,154
|
|
|
|
128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Series A Preferred Units (47 units)
|
|
|
|
|
|
|
-
|
|
|
|
1,629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,147
|
|
|
|
2,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
587
|
|
|
|
7,645
|
|
|
|
128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,147
|
|
|
|
8,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
First Lien Debt (15.0% Cash, Due 10/30/20)
|
|
|
7,500
|
|
|
|
861
|
|
|
|
6,500
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
(5)
|
|
Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend)
|
|
|
|
|
|
|
75
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
Common Stock (300,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
5,005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
4,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936
|
|
|
|
12,505
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
13,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
(6)
|
|
First Lien Debt (18.0% Cash, Due 12/19/18)
|
|
|
16,316
|
|
|
|
30
|
|
|
|
-
|
|
|
|
11,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,020
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Subordinated Debt (18.0% Cash, Due 12/19/18)
|
|
|
|
|
|
|
-
|
|
|
|
11,588
|
|
|
|
-
|
|
|
|
(11,020
|
)
|
|
|
-
|
|
|
|
(568
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Series A Preferred Stock (32,782 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Series B Preferred Stock (23,648 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Common Stock (33,058 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
11,588
|
|
|
|
11,020
|
|
|
|
(11,020
|
)
|
|
|
-
|
|
|
|
(11,588
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
First Lien Debt (9.0% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 2.0%
Ceiling), Due 12/31/22)
|
|
|
2,580
|
|
|
|
123
|
|
|
|
1,860
|
|
|
|
2,160
|
|
|
|
(1,440
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
First Lien Debt (9.1% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 5.0%
Ceiling), Due 12/31/22)
|
|
|
4,500
|
|
|
|
328
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
Preferred Units (4,350,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
2,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
|
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
Membership Units (150,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451
|
|
|
|
8,810
|
|
|
|
2,160
|
|
|
|
(1,440
|
)
|
|
|
-
|
|
|
|
34
|
|
|
|
9,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Control investments
|
|
|
|
|
|
|
|
$
|
5,660
|
|
|
$
|
107,608
|
|
|
$
|
36,439
|
|
|
$
|
(47,585
|
)
|
|
$
|
(5,315
|
)
|
|
$
|
(31,722
|
)
|
|
$
|
59,425
|
|
(1) Represents the total amount of interest, original issue
discount, fees or dividends credited to income for the portion of the year an investment was included in Affiliate or Control categories,
respectively.
(2) Gross additions include increases in the cost basis of investments
resulting from new portfolio investment, follow-on investments, accrued PIK and accretion of OID. Gross additions also include
transfers into Affiliate or Control classification.
(3) Gross reductions include decreases in the total cost basis
of investments resulting from principal repayments and sales. Gross reductions also include transfers out of Affiliate or
Control classification.
(4) All debt investments are income producing. Equity and warrant
investments are non-income producing, unless otherwise noted.
(5) The equity investment is income producing, based on rate
disclosed.
(6) Non-accrual investment.
During the year ended
December 31, 2017, the Company had investments in portfolio companies designated as affiliates under the 1940 Act. Transactions
with affiliates were as follows (dollars in thousands):
Company
(4)
|
|
Type
of Investment
|
|
Principal
Amount
|
|
|
Amount
of
Interest, Fees or
Dividends
Credited to
Income
(1)
|
|
|
December
31,
2016
Fair Value
|
|
|
Gross
Additions
(2)
|
|
|
Gross
Reductions
(3)
|
|
|
Realized
Gain/(Loss)
|
|
|
Unrealized
Gain/(Loss)
|
|
|
December
31,
2017
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Second Lien Debt (8.0% Cash, 4.0% PIK, Due 8/24/19)
|
|
$
|
15,846
|
|
|
$
|
757
|
|
|
$
|
-
|
|
|
$
|
15,846
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(243
|
)
|
|
$
|
15,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Membership Units (2.2% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Warrants (37.8% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757
|
|
|
|
-
|
|
|
|
15,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(259
|
)
|
|
|
15,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Subordinated Debt (14.0% Cash, Due 8/9/19)
|
|
|
3,000
|
|
|
|
515
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Subordinated Debt (12.0% Cash, Due 8/9/19)
|
|
|
5,828
|
|
|
|
886
|
|
|
|
5,828
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Common Stock (1,253,198 shares)
|
|
|
|
|
|
|
-
|
|
|
|
1,248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(791
|
)
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401
|
|
|
|
10,076
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(791
|
)
|
|
|
9,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
|
|
Subordinated Debt (13.0% Cash, Due 10/20/19)
|
|
|
8,231
|
|
|
|
1,085
|
|
|
|
8,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
(5)
|
|
Preferred Membership Units (2.8% fully diluted, 9.0% Cash Dividend)
|
|
|
|
|
|
|
115
|
|
|
|
1,269
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
|
|
Membership Unit Warrants (11.4% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
9,736
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,488
|
)
|
|
|
8,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
|
|
19,236
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,488
|
)
|
|
|
17,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA Communications, Inc.
(5)
|
|
Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
2,864
|
|
|
|
255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
|
3,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA Communications, Inc.
|
|
Series B-1 Common Stock (200,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
1,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
886
|
|
|
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
3,910
|
|
|
|
255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
992
|
|
|
|
5,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Subordinated Debt (6.0% Cash, 7.0% PIK, Due 6/16/19)
|
|
|
6,368
|
|
|
|
632
|
|
|
|
6,182
|
|
|
|
186
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(198
|
)
|
|
|
6,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Common Stock (8,182 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Common Stock Warrants (6,369 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
|
|
6,182
|
|
|
|
186
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(198
|
)
|
|
|
6,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LJS Partners, LLC
|
|
Common Stock (1,500,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
8,497
|
|
|
|
-
|
|
|
|
(630
|
)
|
|
|
-
|
|
|
|
(217
|
)
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
8,497
|
|
|
|
-
|
|
|
|
(630
|
)
|
|
|
-
|
|
|
|
(217
|
)
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MJC Holdings, LLC
|
|
Series A Preferred Units (2,000,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
5,011
|
|
|
|
-
|
|
|
|
(5,473
|
)
|
|
|
4,473
|
|
|
|
(4,011
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
5,011
|
|
|
|
-
|
|
|
|
(5,473
|
)
|
|
|
4,473
|
|
|
|
(4,011
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
First Lien Debt (12.0% Cash, Due 1/31/19)
|
|
|
2,600
|
|
|
|
317
|
|
|
|
2,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
Subordinated Debt (6.0% Cash, Due 1/31/19)
|
|
|
400
|
|
|
|
24
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
(5)
|
|
Preferred Units (1,000 units, 6.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
1,433
|
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
Common Membership Units (45 units)
|
|
|
|
|
|
|
-
|
|
|
|
228
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341
|
|
|
|
4,661
|
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(33
|
)
|
|
|
4,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MTI Holdings, LLC
|
|
Membership Units (2,000,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
537
|
|
|
|
-
|
|
|
|
(437
|
)
|
|
|
437
|
|
|
|
(437
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
537
|
|
|
|
-
|
|
|
|
(437
|
)
|
|
|
437
|
|
|
|
(437
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sierra Hamilton Holdings Corporation
|
|
Common Stock (15,068,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,958
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,570
|
|
|
|
8,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,958
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,570
|
|
|
|
8,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source Capital Penray, LLC
|
|
Subordinated Debt (13.0% Cash, Due 4/8/19)
|
|
|
|
|
|
|
78
|
|
|
|
1,425
|
|
|
|
-
|
|
|
|
(1,425
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source Capital Penray, LLC
|
|
Membership Units (11.3% ownership)
|
|
|
|
|
|
|
526
|
|
|
|
805
|
|
|
|
-
|
|
|
|
(750
|
)
|
|
|
-
|
|
|
|
46
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604
|
|
|
|
2,230
|
|
|
|
-
|
|
|
|
(2,175
|
)
|
|
|
-
|
|
|
|
46
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STX Healthcare Management Services, Inc.
|
|
Common Stock (1,200,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
109
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
16
|
|
|
|
(16
|
)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
109
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
16
|
|
|
|
(16
|
)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
First Lien Debt (7.4% Cash (1 month LIBOR + 6.0%, 1.0% Floor), Due
2/2/22)
|
|
|
2,299
|
|
|
|
132
|
|
|
|
-
|
|
|
|
2,299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
First Lien Debt (12.4% PIK (1 month LIBOR + 11.0%, 1.0% Floor),
Due 2/2/22)
|
|
|
9,516
|
|
|
|
83
|
|
|
|
-
|
|
|
|
9,516
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
Class A Units (5,680,688 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,744
|
|
|
|
15,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Well Services, LLC
|
|
Class B Units (2,076,298 Units)
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
441
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
514
|
|
|
$
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
-
|
|
|
|
18,516
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,258
|
|
|
|
27,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V12 Holdings, Inc.
|
|
Subordinated Debt
|
|
|
|
|
|
|
-
|
|
|
|
1,015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Affiliate investments
|
|
|
|
|
|
|
|
$
|
5,150
|
|
|
$
|
61,464
|
|
|
$
|
41,862
|
|
|
$
|
(8,731
|
)
|
|
$
|
4,926
|
|
|
$
|
4,436
|
|
|
$
|
103,957
|
|
Company
(4)
|
|
Type
of Investment
|
|
Principal
Amount
|
|
|
Amount
of
Interest, Fees or
Dividends
Credited to
Income
(1)
|
|
|
December
31,
2016
Fair Value
|
|
|
Gross
Additions
(2)
|
|
|
Gross
Reductions
(3)
|
|
|
Realized
Gain/(Loss)
|
|
|
Unrealized
Gain/(Loss)
|
|
|
December
31,
2017
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
First Lien Debt (12.0% Cash, 4.0% PIK, Due 5/24/18)
|
|
$
|
12,373
|
|
|
$
|
1,473
|
|
|
$
|
11,882
|
|
|
$
|
491
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Common Stock (21.3% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(82
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Common Stock Warrants (10.0% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,473
|
|
|
|
12,183
|
|
|
|
491
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(123
|
)
|
|
|
12,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitala Senior Liquid Loan Fund I, LLC
|
|
Common Stock (80.0% Ownership)
|
|
|
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Subordinated Debt (14.5% Cash (3 month LIBOR + 13.0%, 0.5% Floor),
Due 4/29/20)
|
|
|
16,500
|
|
|
|
3,138
|
|
|
|
16,500
|
|
|
|
757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(757
|
)
|
|
|
16,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Membership Units (33.3% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
13,395
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,054
|
|
|
|
26,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,138
|
|
|
|
29,895
|
|
|
|
757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,297
|
|
|
|
42,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelle's Transport Service, LLC
|
|
First Lien Debt (4.0% Cash, Due 2/15/20)
|
|
|
2,000
|
|
|
|
22
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelle's Transport Service, LLC
|
|
First Lien Debt (1.5% Cash, Due 2/15/20)
|
|
|
13,674
|
|
|
|
77
|
|
|
|
-
|
|
|
|
13,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,109
|
)
|
|
|
9,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelle's Transport Service, LLC
|
|
Membership Units (27.5% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
-
|
|
|
|
15,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,109
|
)
|
|
|
11,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Subordinated Debt (10.0% Cash, Due 9/15/18)
|
|
|
1,862
|
|
|
|
186
|
|
|
|
1,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Subordinated Debt (14.0% Cash, 4.0% PIK, Due 9/15/18)
|
|
|
4,154
|
|
|
|
577
|
|
|
|
3,989
|
|
|
|
165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Series A Preferred Units (47 units)
|
|
|
|
|
|
|
-
|
|
|
|
2,523
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(894
|
)
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
763
|
|
|
|
8,374
|
|
|
|
165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(894
|
)
|
|
|
7,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
First Lien Debt (15.0% Cash, Due 10/30/20)
|
|
|
6,500
|
|
|
|
989
|
|
|
|
6,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
(5)
|
|
Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend)
|
|
|
|
|
|
|
100
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
Common Stock (300,000 shares)
|
|
|
|
|
|
|
250
|
|
|
|
5,634
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(629
|
)
|
|
|
5,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,339
|
|
|
|
13,134
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(629
|
)
|
|
|
12,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Subordinated Debt (18.0% Cash, Due 12/19/18) (6)
|
|
|
14,072
|
|
|
|
-
|
|
|
|
10,303
|
|
|
|
1,182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103
|
|
|
|
11,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Series A Preferred Stock (32,782 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Series B Preferred Stock (23,648 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Fuel Service, Inc.
|
|
Common Stock (33,058 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
10,303
|
|
|
|
1,182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103
|
|
|
|
11,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
First Lien Debt (8.6% Cash (1 month LIBOR + 7.0%, 2.0% Ceiling),
Due 12/31/22)
|
|
|
1,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
First Lien Debt (8.6% Cash (1 month LIBOR + 7.0%, 5.0% Ceiling),
Due 12/31/22)
|
|
|
4,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
Preferred Units (4,350,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
Membership Units (150,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print Direction, Inc.
|
|
First Lien Debt (10.0% Cash 2.0% PIK, due 2/24/19)
|
|
|
|
|
|
|
434
|
|
|
|
12,761
|
|
|
|
2,087
|
|
|
|
-
|
|
|
|
(19,403
|
)
|
|
|
4,555
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print Direction, Inc.
|
|
Common Stock (18,543 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
(3,030
|
)
|
|
|
2,990
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print Direction, Inc.
|
|
Common Stock Warrants (820 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
|
|
12,761
|
|
|
|
2,127
|
|
|
|
-
|
|
|
|
(22,433
|
)
|
|
|
7,545
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Control investments
|
|
|
|
|
|
|
|
$
|
7,251
|
|
|
$
|
86,650
|
|
|
$
|
29,201
|
|
|
$
|
-
|
|
|
$
|
(22,433
|
)
|
|
$
|
14,190
|
|
|
$
|
107,608
|
|
(1) Represents the total amount of interest, fees or dividends
credited to income for the portion of the year an investment was included in Control or Affiliate categories, respectively.
(2) Gross additions include increases in the cost basis of investments
resulting from new portfolio investments, follow-on investments and accrued PIK interest. Gross additions also include transfers
into an affiliate or control classification.
(3) Gross reductions include decreases in the total cost basis
of investments resulting from principal or PIK repayments and sales.
(4) All debt investments are income producing. Equity and warrant
investments are non-income producing, unless otherwise noted.
(5) The equity investment is income producing, based on rate
disclosed.
(6) Non-accrual investment.
Note 6. Agreements
On September 24, 2013,
the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with our Investment
Advisor, which was initially approved by the Board on June 10, 2013. Unless earlier terminated in accordance with its terms, the
Investment Advisory Agreement will remain in effect if approved annually by the Board or by a majority of our outstanding voting
securities, including, in either case, by a majority of our non-interested directors. The Investment Advisory Agreement was most
recently re-approved by the Board, including a majority of our non-interested directors, at an in-person meeting on July 26, 2018.
Subject to the overall supervision of the Board, the Investment Advisor manages our day-to-day operations, and provides investment
advisory and management services to us. Under the terms of the Investment Advisory Agreement, the Investment Advisor:
·
determines
the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
·
identifies,
evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio
companies);
·
closes
and monitors the investments we make; and
·
provides
us with other investment advisory, research and related services as we may from time to time require.
The Investment Advisor’s
services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities
so long as its services to us are not impaired.
The Investment Advisory
Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the
reckless disregard of its duties and obligations, the Investment Advisor and its officers, managers, partners, agents, employees,
controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company
for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement)
arising from the rendering of our Investment Advisor’s services under the Investment Advisory Agreement or otherwise as Investment
Advisor for the Company.
Pursuant to the Investment
Advisory Agreement, the Company has agreed to pay the Investment Advisor a fee for investment advisory and management services
consisting of two components — a base management fee and an incentive fee.
The base management
fee is calculated at an annual rate of 1.75% of the gross assets, which are the total assets reflected on the consolidated statements
of assets and liabilities and includes any borrowings for investment purposes. Although the Company does not anticipate making
significant investments in derivative financial instruments, the fair value of any such investments, which will not necessarily
equal their notional value, will be included in the calculation of gross assets. For services rendered under the Investment Advisory
Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average
value of the gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share
issuances or repurchases during the current calendar quarter.
The incentive fee consists
of the following two parts:
The first part of the
incentive fee is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately
preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and
any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination,
structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar
quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration
Agreement to our Administrator, and any interest expense and dividends paid on any issued and outstanding preferred stock, but
excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest
feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we
have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, computed net
of all realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed
as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle
of 2.0% per quarter (8.0% annualized). The net investment income used to calculate this part of the incentive fee is also included
in the amount of the gross assets used to calculate the 1.75% base management fee. The Company pays the Investment Advisor an incentive
fee with respect to the pre-incentive fee net investment income in each calendar quarter as follows:
·
no
incentive fee in any calendar quarter in which the pre-incentive fee net investment income does not exceed the hurdle of 2.0%;
·
100%
of the pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if
any, that exceeds the hurdle but is less than 2.5% in any calendar quarter (10.0% annualized). The Company refers to this portion
of the pre-incentive fee net investment income (which exceeds the hurdle but is less than 2.5%) as the “catch-up.”
The “catch-up” is meant to provide the Investment Advisor with 20% of the pre-incentive fee net investment income as
if a hurdle did not apply if this net investment income exceeds 2.5% in any calendar quarter; and
·
20%
of the amount of the pre-incentive fee net investment income, if any, that exceeds 2.5% in any calendar quarter (10.0% annualized)
is payable to the Investment Advisor (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment
income thereafter is allocated to the Investment Advisor).
The Investment Advisor
has voluntarily agreed to waive all or such portion of the quarterly incentive fees earned by the Investment Advisor that would
otherwise cause the Company’s quarterly net investment income to be less than the distribution payments declared by the Board.
Quarterly incentive fees are earned by the Investment Advisor pursuant to the Investment Advisory Agreement. Incentive fees subject
to the waiver cannot exceed the amount of incentive fees earned during the period, as calculated on a quarterly basis. The Investment
Advisor will not be entitled to recoup any amount of incentive fees that it waives. The waiver was effective in the fourth quarter
of 2015 and will continue unless otherwise publicly disclosed by the Company.
The second part of
the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment
Advisory Agreement, as of the termination date), and will equal 20% of our realized capital gains, if any, 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 with respect to each of the
investments in our portfolio.
The Company will defer
cash payment of the portion of any incentive fee otherwise earned by the Investment Advisor that would, when taken together with
all other incentive fees paid to the Investment Advisor during the most recent 12 full calendar month period ending on or prior
to the date such payment is to be made, exceed 20% of the sum of (a) the pre-incentive fee net investment income during such period,
(b) the net unrealized appreciation or depreciation during such period and (c) the net realized capital gains or losses during
such period. Any deferred incentive fees will be carried over for payment in subsequent calculation periods to the extent such
payment is payable under the Investment Advisory Agreement. As of September 30, 2018 and December 31, 2017, the Company had incentive
fees payable to the Investment Advisor of $2.5 million and $2.2 million, respectively.
For the three months
ended September 30, 2018 and 2017, the Company incurred $2.3 million and $2.4 million in base management fees, respectively. The
Company incurred $0.0 million and $0.0 million in incentive fees related to pre-incentive fee net investment income for the three
months ended September 30, 2018 and 2017, respectively. For the three months ended September 30, 2018 and 2017, our Investment
Advisor waived incentive fees of $0.0 million and $0.0 million, respectively.
For the nine months
ended September 30, 2018 and 2017, the Company incurred $6.9 million and $7.4 million in base management fees, respectively. The
Company incurred $0.2 million and $1.3 million in incentive fees related to pre-incentive fee net investment income for the nine
months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, our Investment Advisor
waived incentive fees of $0.0 million and $1.0 million, respectively.
On September 24, 2013,
the Company entered into the Administration Agreement, pursuant to which the Administrator has agreed to furnish the Company with
office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. The Administrator also performs,
or oversees the performance of the required administrative services, which include, among other things, being responsible for the
financial records that the Company is required to maintain and preparing reports to our stockholders. In addition, the Administrator
assists in determining and publishing the net asset value, oversees the preparation and filing of the tax returns and the printing
and dissemination of reports to the stockholders, and generally oversees the payment of the expenses and the performance of administrative
and professional services rendered to the Company by others.
Payments under the
Administration Agreement are equal to an amount based upon the allocable portion of the Administrator’s overhead in performing
its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance
functions and the allocable portion of the compensation of the chief financial officer and the chief compliance officer, and their
respective administrative support staff. Under the Administration Agreement, the Administrator will also provide, on the Company’s
behalf, managerial assistance to those portfolio companies that request such assistance. Unless terminated earlier in accordance
with its terms, the Administration Agreement will remain in effect if approved annually by the Board. The Board most recently approved
the renewal of the Administration Agreement on July 26, 2018. To the extent that the Administrator outsources any of its functions,
the Company will pay the fees associated with such functions on a direct basis without any incremental profit to our Administrator.
Stockholder approval is not required to amend the Administration Agreement.
For the three and nine
months ended September 30, 2018, the Company paid the Administrator $0.4 million and $1.1 million, respectively, for the Company’s
allocable portion of the Administrator’s overhead. For the three and nine months ended September 30, 2017, the Company paid
the Administrator $0.3 million and $0.8 million, respectively, for the Company’s allocable portion of the Administrator’s
overhead.
The Administration
Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the
reckless disregard of its duties and obligations, our Administrator and its officers, managers, partners, agents, employees, controlling
persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company for any damages,
liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising
from the rendering of our Administrator’s services under the Administration Agreement or otherwise as Administrator for the
Company.
Note 7. Related Party Transactions
At September 30, 2018
and December 31, 2017, the Company had the following receivables from (payables to) related parties relating to certain management
fees, incentive fees, reimbursable expenses, and other payments owed to related parties (dollars in thousands):
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
CapitalSouth Corporation
|
|
$
|
—
|
|
|
$
|
74
|
|
CapitalSouth Partners Florida Sidecar Fund II, L.P.
|
|
|
—
|
|
|
|
21
|
|
Capitala Investment Advisors, LLC
|
|
|
(2,509
|
)
|
|
|
(2,172
|
)
|
Total
|
|
$
|
(2,509
|
)
|
|
$
|
(2,077
|
)
|
These amounts are reflected
in the accompanying consolidated statements of assets and liabilities under the captions, “Due from related parties”
and “Management and incentive fees payable.”
On August 31, 2016,
the Company sold assets to FSC II in exchange for 100% of the partnership interests in FSC II. Concurrent with the sale of these
assets to FSC II, the Company received cash consideration of $47.6 million from an affiliated third-party purchaser in exchange
for 100% of the partnership interests of FSC II. The Company’s Board pre-approved this transaction pursuant to Section 57(f)
of the 1940 Act. The Administrator also serves as the administrator to FSC II. See Note 4 for a further description of this transaction.
Note 8. Borrowings
SBA Debentures
The Company, through
its two wholly owned subsidiaries, uses debenture leverage provided through the SBA to fund a portion of its investment portfolio.
As of September 30, 2018 and December 31, 2017, the Company had $165.7 million and $170.7 million, respectively, of SBA-guaranteed
debentures outstanding. The Company has issued all SBA-guaranteed debentures that were permitted under each of the Legacy Funds’
respective SBIC licenses (as applicable), and there are no unused SBA debenture commitments remaining. SBA-guaranteed debentures
are secured by a lien on all assets of Fund II and Fund III. As of September 30, 2018 and December 31, 2017, Fund II and Fund III
had total assets of approximately $331.8 million and $341.5 million, respectively. On June 10, 2014, the Company received an exemptive
order from the SEC exempting the Company, Fund II, and Fund III from certain provisions of the 1940 Act (including an exemptive
order granting relief from the asset coverage requirements for certain indebtedness issued by Fund II and Fund III as SBICs) and
from certain reporting requirements mandated by the Securities Exchange Act of 1934, as amended, with respect to Fund II and Fund
III. The Company intends to comply with the conditions of the order.
The following table
summarizes the interest expense and annual charges, deferred financing costs, average balance outstanding, and average stated interest
and annual charge rate on the SBA-guaranteed debentures for the three and nine months ended September 30, 2018 and 2017 (dollars
in thousands):
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Interest expense and annual charges
|
|
$
|
1,574
|
|
|
$
|
1,597
|
|
|
$
|
4,716
|
|
|
$
|
4,739
|
|
Deferred financing costs
|
|
|
153
|
|
|
|
153
|
|
|
|
458
|
|
|
|
456
|
|
Total interest and financing expenses
|
|
$
|
1,727
|
|
|
$
|
1,750
|
|
|
$
|
5,174
|
|
|
$
|
5,195
|
|
Average outstanding balance
|
|
$
|
169,069
|
|
|
$
|
170,700
|
|
|
$
|
170,151
|
|
|
$
|
170,700
|
|
Average stated interest and annual charge rate
|
|
|
3.69
|
%
|
|
|
3.71
|
%
|
|
|
3.71
|
%
|
|
|
3.71
|
%
|
As of September 30,
2018 and December 31, 2017, the Company’s issued and outstanding SBA-guaranteed debentures mature as follows (dollars in
thousands):
Fixed Maturity Date
|
|
Interest Rate
|
|
|
SBA Annual
Charge
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
March 1, 2019
|
|
|
4.620
|
%
|
|
|
0.941
|
%
|
|
$
|
—
|
|
|
$
|
5,000
|
|
September 1, 2020
|
|
|
3.215
|
%
|
|
|
0.285
|
%
|
|
|
19,000
|
|
|
|
19,000
|
|
March 1, 2021
|
|
|
4.084
|
%
|
|
|
0.515
|
%
|
|
|
15,700
|
|
|
|
15,700
|
|
March 1, 2021
|
|
|
4.084
|
%
|
|
|
0.285
|
%
|
|
|
46,000
|
|
|
|
46,000
|
|
March 1, 2022
|
|
|
2.766
|
%
|
|
|
0.285
|
%
|
|
|
10,000
|
|
|
|
10,000
|
|
March 1, 2022
|
|
|
2.766
|
%
|
|
|
0.515
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
March 1, 2023
|
|
|
2.351
|
%
|
|
|
0.515
|
%
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
165,700
|
|
|
$
|
170,700
|
|
2021 Notes
On June 16, 2014, the
Company issued $113.4 million in aggregate principal amount of 7.125% fixed-rate notes due 2021 (the “2021 Notes”).
On May 26, 2017, the Company caused notices to be issued to the holders of its 2021 Notes regarding the Company’s exercise
of its option to redeem all of the issued and outstanding 2021 Notes. The Company redeemed all $113.4 million in aggregate principal
amount of the 2021 Notes on June 25, 2017. The Notes were redeemed at 100% of their principal amount ($25 per Note), plus the accrued
and unpaid interest thereon from June 16, 2017, through, but excluding, June 25, 2017. As a result of the redemption, the Company
recognized a loss on the extinguishment of debt of $0.0 million and $2.7 million, respectively, for the three and nine months ended
September 30, 2017, due to the amortization of the deferred financing costs remaining on the 2021 Notes.
The following table
summarizes the interest expense, deferred financing costs, average outstanding balance and average stated interest rate on the
2021 Notes for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,908
|
|
Deferred financing costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
293
|
|
Total interest and financing expenses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,201
|
|
Average outstanding balance
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71,885
|
|
Average stated interest rate
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
7.125
|
%
|
2022 Notes
On May 16, 2017, the
Company issued $70.0 million in aggregate principal amount of 6.0% fixed-rate notes due May 31, 2022 (the “2022 Notes”).
On May 25, 2017, the Company issued an additional $5.0 million in aggregate principal amount of the 2022 Notes pursuant to a partial
exercise of the underwriters’ overallotment option. The 2022 Notes will mature on May 31, 2022, and may be redeemed in whole
or in part at any time or from time to time at the Company’s option on or after May 31, 2019 at a redemption price equal
to 100% of the outstanding principal, plus accrued and unpaid interest. Interest was payable quarterly beginning August 31, 2017.
The following table
summarizes the interest expense, deferred financing costs, average outstanding balance and average stated interest rate on the
2022 Notes for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Interest expense
|
|
$
|
1,125
|
|
|
$
|
1,132
|
|
|
$
|
3,375
|
|
|
$
|
1,687
|
|
Deferred financing costs
|
|
|
128
|
|
|
|
121
|
|
|
|
379
|
|
|
|
181
|
|
Total interest and financing expenses
|
|
$
|
1,253
|
|
|
$
|
1,253
|
|
|
$
|
3,754
|
|
|
$
|
1,868
|
|
Average outstanding balance
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
37,747
|
|
Average stated interest rate
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
2022 Convertible Notes
On May 26, 2017, the
Company issued $50.0 million in aggregate principal amount of 5.75% fixed-rate convertible notes due May 31, 2022 (the “2022
Convertible Notes”). On June 26, 2017, the Company issued an additional $2.1 million in aggregate principal amount of the
2022 Convertible Notes pursuant to a partial exercise of the underwriters’ overallotment option. Interest was payable quarterly
beginning August 31, 2017.
The 2022 Convertible
Notes are convertible, at the holder’s option, into shares of the Company’s common stock at any time on or prior to
the close of business on the business day immediately preceding the maturity date. The conversion rate for the 2022 Convertible
Notes is initially 1.5913 shares per $25.00 principal amount of 2022 Convertible Notes (equivalent to an initial conversion price
of approximately $15.71 per share of common stock). The initial conversion premium is approximately 14.0%. Upon conversion, the
Company will deliver shares of its common stock (and cash in lieu of fractional shares). The conversion rate is subject to adjustment
if certain events occur as outlined in the supplemental indenture relating to the 2022 Convertible Notes. The Company has determined
that the embedded conversion option in the 2022 Convertible Notes is not required to be separately accounted for as a derivative
under U.S. GAAP.
In addition, pursuant
to a “fundamental change”, as defined in the supplemental indenture relating to the 2022 Convertible Notes, holders
of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase
price equal to 100.0% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest
through, but excluding, the repurchase date. The 2022 Convertible Notes are not redeemable prior to maturity and no “sinking
fund” is provided for the 2022 Convertible Notes.
The following table
summarizes the interest expense, deferred financing costs, average outstanding balance, and average stated interest rate on the
2022 Convertible Notes for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Interest expense
|
|
$
|
749
|
|
|
$
|
759
|
|
|
$
|
2,247
|
|
|
$
|
1,040
|
|
Deferred financing costs
|
|
|
82
|
|
|
|
77
|
|
|
|
241
|
|
|
|
102
|
|
Total interest and financing expenses
|
|
$
|
831
|
|
|
$
|
836
|
|
|
$
|
2,488
|
|
|
$
|
1,142
|
|
Average outstanding balance
|
|
$
|
52,088
|
|
|
$
|
52,088
|
|
|
$
|
52,088
|
|
|
$
|
24,185
|
|
Average stated interest rate
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Credit Facility
On October 17, 2014,
the Company entered into a senior secured revolving credit agreement (the “Credit Facility”) with ING Capital, LLC,
as administrative agent, arranger, and bookrunner, and the lenders party thereto. The Credit Facility was amended on May 22, 2015,
June 16, 2017, and July 19, 2018 (the “Amendments”). The Amendments were affected, among other things, in order to
increase the total borrowings allowed under the Credit Facility, allow for stock repurchases, extend the maturity date, and to
reduce the minimum required interest coverage ratio. The Credit Facility currently provides for borrowings up to $114.5 million
and may be increased up to $200.0 million pursuant to its “accordion” feature. The Credit Facility matures on June
16, 2021.
Borrowings under the
Credit Facility bear interest, at the Company’s election, at a rate per annum equal to (i) the one, two, three or six month
LIBOR, as applicable, plus 3.00% or (ii) 2.00% plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5% and (C)
three month LIBOR plus 1.0%. The Company’s ability to elect LIBOR indices with various tenors (e.g., one, two, three or six
month LIBOR) on which the interest rates for borrowings under the Credit Facility are based, provides the company with increased
flexibility to manage interest rate risks as compared to a borrowing arrangement that does not provide for such optionality. Once
a particular LIBOR rate has been selected, the interest rate on the applicable amount borrowed will reset after the applicable
tenor period and be based on the then applicable selected LIBOR rate (e.g., borrowings for which the Company has elected the one
month LIBOR rate will reset on the one month anniversary of the period based on the then selected LIBOR rate). For any given borrowing
under the Credit Facility, the Company intends to elect what it believes to be an appropriate LIBOR rate taking into account the
Company’s needs at the time as well as the Company’s view of future interest rate movements. The Credit Facility provides
for the ability to step-down the pricing of the Credit Facility from LIBOR plus 3.00% to LIBOR plus 2.75% when certain conditions
are met. The Company will also pay an unused commitment fee at a rate of 2.50% per annum on the amount (if positive) by which 40%
of the aggregate commitments under the Credit Facility exceeds the outstanding amount of loans under the Credit Facility and 0.50%
per annum on any remaining unused portion of the Credit Facility.
The following table
summarizes the interest expense, deferred financing costs, unused commitment fees, average outstanding balance, and average stated
interest rate on the Credit Facility for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Interest expense
|
|
$
|
31
|
|
|
$
|
59
|
|
|
$
|
291
|
|
|
$
|
874
|
|
Deferred financing costs
|
|
|
113
|
|
|
|
341
|
|
|
|
328
|
|
|
|
834
|
|
Unused commitment fees
|
|
|
365
|
|
|
|
346
|
|
|
|
980
|
|
|
|
612
|
|
Total interest and financing expenses
|
|
$
|
509
|
|
|
$
|
746
|
|
|
$
|
1,599
|
|
|
$
|
2,320
|
|
Average outstanding balance
|
|
$
|
2,391
|
|
|
$
|
5,435
|
|
|
$
|
8,098
|
|
|
$
|
29,055
|
|
Average stated interest rate
|
|
|
5.13
|
%
|
|
|
4.25
|
%
|
|
|
4.85
|
%
|
|
|
4.02
|
%
|
As of September 30,
2018 and December 31, 2017, the Company had $0.0 million and $9.0 million, respectively, outstanding under the Credit Facility.
The Credit Facility is secured by investments and cash held by the Company, exclusive of assets held at our two SBIC subsidiaries.
Assets pledged to secure the Credit Facility had a carrying value of $161.9 million and $192.4 million, respectively, at September
30, 2018 and December 31, 2017. As part of the terms of the Credit Facility, the Company may not make cash distributions with respect
to any taxable year that exceed 110% (125% if the Company is not in default and our covered debt does not exceed 85% of the borrowing
base) of the amounts required to be distributed to maintain eligibility as a RIC and to reduce our tax liability to zero for taxes
imposed on our investment company taxable income and net capital gains.
The following table
presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value
as of September 30, 2018, and the level of each financial liability within the fair value hierarchy (dollars in thousands):
|
|
Carrying
Value
(1)
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
SBA debentures
|
|
$
|
165,700
|
|
|
$
|
165,120
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
165,120
|
|
2022 Notes
|
|
|
75,000
|
|
|
|
74,820
|
|
|
|
74,820
|
|
|
|
—
|
|
|
|
—
|
|
2022 Convertible Notes
|
|
|
52,088
|
|
|
|
51,504
|
|
|
|
51,504
|
|
|
|
—
|
|
|
|
—
|
|
Credit Facility
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
292,788
|
|
|
$
|
291,444
|
|
|
$
|
126,324
|
|
|
$
|
—
|
|
|
$
|
165,120
|
|
|
(1)
|
Carrying value equals the gross principal outstanding at period end.
|
The following table
presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value
as of December 31, 2017, and the level of each financial liability within the fair value hierarchy (dollars in thousands):
|
|
Carrying
Value
(1)
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
SBA debentures
|
|
$
|
170,700
|
|
|
$
|
173,373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
173,373
|
|
2022 Notes
|
|
|
75,000
|
|
|
|
75,600
|
|
|
|
75,600
|
|
|
|
—
|
|
|
|
—
|
|
2022 Convertible Notes
|
|
|
52,088
|
|
|
|
51,775
|
|
|
|
51,775
|
|
|
|
—
|
|
|
|
—
|
|
Credit Facility
|
|
|
9,000
|
|
|
|
9,038
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,038
|
|
Total
|
|
$
|
306,788
|
|
|
$
|
309,786
|
|
|
$
|
127,375
|
|
|
$
|
—
|
|
|
$
|
182,411
|
|
|
(1)
|
Carrying value equals the gross principal outstanding at period end.
|
The estimated fair
value of the Company’s SBA debentures was based on future contractual cash payments discounted at market interest rates to
borrow from the SBA as of the measurement date.
The estimated fair
value of the 2022 Notes and 2022 Convertible Notes was based on their respective closing prices as of the measurement date as they
are traded on the NASDAQ Global Select Market under the ticker “CPTAL” (2022 Notes) and on the NASDAQ Capital Market
under the ticker “CPTAG” (2022 Convertible Notes).
The estimated fair
value of the Credit Facility was based on future contractual cash payments discounted at estimated market interest rates for similar
debt.
Note 9. Directors’
Fees
Our independent directors
receive an annual fee of $50,000. They also receive $5,000 plus reimbursement of reasonable out-of-pocket expenses incurred in
connection with attending each board meeting and $5,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection
with attending each committee meeting. In addition, the chairman of the audit committee receives an annual fee of $10,000 and each
chairman of any other committee receives an annual fee of $5,000 for their additional services, if any, in these capacities. For
the three and nine months ended September 30, 2018, the Company recognized directors’ fees expense of $0.1 million and $0.3
million, respectively. For the three and nine months ended September 30, 2017, the Company recognized directors’ fees expense
of $0.1 million and $0.3 million, respectively. No compensation is expected to be paid to directors who are “interested persons”
of the Company, as such term is defined in Section 2(a)(19) of the 1940 Act.
Note 10. Summarized Financial
Information of Our Unconsolidated Subsidiaries
The Company holds a
control interest, as defined by the 1940 Act, in three portfolio companies that are considered significant subsidiaries under the
guidance in Regulation S-X, but are not consolidated in the Company’s consolidated financial statements. Below is a brief
description of each such portfolio company, along with summarized financial information as of September 30, 2018 and December 31,
2017, and for the nine months ended September 30, 2018 and September 30, 2017, respectively.
AAE Acquisition, LLC
AAE Acquisition, LLC,
formed on May 21, 2004 as a Delaware limited liability company, is an aerial equipment rental and services business primarily serving
the Gulf Coast region. The income the Company generated from AAE Acquisition, LLC, which includes all interest, dividends, PIK
interest and PIK dividends, fees, and unrealized appreciation (depreciation), was $1.7 million and $1.1 million for the nine months
ended September 30, 2018 and September 30, 2017, respectively.
CableOrganizer Acquisition, LLC
CableOrganizer Acquisition,
LLC, a Delaware limited liability company that began operations on April 23, 2013, is a leading online provider of cable and wire
management products. The income (loss) the Company generated from CableOrganizer Acquisition, LLC, which includes all interest,
dividends, PIK interest and PIK dividends, fees, and unrealized appreciation (depreciation), was $(0.2) million and $1.3 million
for the nine months ended September 30, 2018 and September 30, 2017, respectively.
Micro Precision, LLC
Micro Precision, LLC,
formed on August 5, 2011 as a Delaware limited liability company, is a prime contractor supplying critical parts and mechanical
assemblies to the U.S. Department of Defense as well as designer and manufacturer of locomotive air horns. The income (loss) the
Company generated from Micro Precision, LLC, which includes all interest, dividends, PIK interest and PIK dividends, fees, and
unrealized appreciation (depreciation), was $1.9 million and $(0.2) million for the nine months ended September 30, 2018 and September
30, 2017, respectively.
The summarized unaudited
financial information of our unconsolidated subsidiaries was as follows (dollars in thousands):
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Balance Sheet – AAE Acquisition, LLC
|
|
2018
|
|
|
2017
|
|
Current assets
|
|
$
|
7,190
|
|
|
$
|
6,712
|
|
Noncurrent assets
|
|
|
24,838
|
|
|
|
27,668
|
|
Total assets
|
|
$
|
32,028
|
|
|
$
|
34,380
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
53,009
|
|
|
$
|
2,897
|
|
Noncurrent liabilities
|
|
|
3,001
|
|
|
|
51,428
|
|
Total liabilities
|
|
$
|
56,010
|
|
|
$
|
54,325
|
|
|
|
|
|
|
|
|
|
|
Total deficit
|
|
$
|
(23,982
|
)
|
|
$
|
(19,945
|
)
|
|
|
For the nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Statement of Operations – AAE Acquisition, LLC
|
|
2018
|
|
|
2017
|
|
Net sales
|
|
$
|
19,777
|
|
|
$
|
19,925
|
|
Cost of goods sold
|
|
|
14,386
|
|
|
|
15,242
|
|
Gross profit
|
|
$
|
5,391
|
|
|
$
|
4,683
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
$
|
9,327
|
|
|
$
|
8,840
|
|
Loss before income taxes
|
|
|
(3,936
|
)
|
|
|
(4,157
|
)
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(3,936
|
)
|
|
$
|
(4,157
|
)
|
|
|
As of
|
|
Balance Sheet – CableOrganizer Acquisition, LLC
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Current assets
|
|
$
|
3,307
|
|
|
$
|
5,182
|
|
Noncurrent assets
|
|
|
8,534
|
|
|
|
8,354
|
|
Total assets
|
|
$
|
11,841
|
|
|
$
|
13,536
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
12,726
|
|
|
$
|
5,205
|
|
Noncurrent liabilities
|
|
|
—
|
|
|
|
12,346
|
|
Total liabilities
|
|
$
|
12,726
|
|
|
$
|
17,551
|
|
|
|
|
|
|
|
|
|
|
Total deficit
|
|
$
|
(885
|
)
|
|
$
|
(4,015
|
)
|
|
|
For the nine months ended
|
|
Statements of Operations – CableOrganizer Acquisition, LLC
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Net sales
|
|
$
|
14,348
|
|
|
$
|
21,926
|
|
Cost of goods sold
|
|
|
9,601
|
|
|
|
15,558
|
|
Gross profit
|
|
$
|
4,747
|
|
|
$
|
6,368
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
$
|
6,022
|
|
|
$
|
7,767
|
|
Loss before income taxes
|
|
|
(1,275
|
)
|
|
|
(1,399
|
)
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(1,275
|
)
|
|
$
|
(1,399
|
)
|
|
|
As of
|
|
Balance Sheet – Micro Precision, LLC
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Current assets
|
|
$
|
6,054
|
|
|
$
|
6,187
|
|
Noncurrent assets
|
|
|
19,494
|
|
|
|
15,864
|
|
Total assets
|
|
$
|
25,548
|
|
|
$
|
22,051
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
8,127
|
|
|
$
|
6,511
|
|
Noncurrent liabilities
|
|
|
13,958
|
|
|
|
15,790
|
|
Total liabilities
|
|
$
|
22,085
|
|
|
$
|
22,301
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
$
|
3,463
|
|
|
$
|
(250
|
)
|
|
|
For the nine months ended
|
|
Statements of Operations – Micro Precision, LLC
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Net sales
|
|
$
|
8,479
|
|
|
$
|
8,198
|
|
Cost of goods sold
|
|
|
4,565
|
|
|
|
4,251
|
|
Gross profit
|
|
$
|
3,914
|
|
|
$
|
3,947
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
$
|
4,167
|
|
|
$
|
3,586
|
|
Income (loss) before income taxes
|
|
|
(253
|
)
|
|
|
361
|
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
(253
|
)
|
|
$
|
361
|
|
Note 11. Earnings Per Share
In accordance with
the provisions of ASC Topic 260 -
Earnings per Share
(“ASC 260”), basic earnings per share is computed by dividing
earnings available to common stockholders 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.
For the three and nine months ended September 30, 2018 and September 30, 2017, 3.3 million in convertible shares related to the
2022 Convertible Notes were considered anti-dilutive.
The following information
sets forth the computation of the weighted average basic and diluted decrease in net assets from operations per share
for the three and nine months ended September 30, 2018 and September 30, 2017 (dollars in thousands, except share and per share
data):
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
Basic and diluted
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Net decrease in net assets from operations
|
|
$
|
(11,916
|
)
|
|
$
|
(5,753)
|
|
|
$
|
(6,827
|
)
|
|
$
|
(6,395
|
)
|
Weighted average common stock outstanding – basic and diluted
|
|
|
16,001,919
|
|
|
|
15,911,160
|
|
|
|
15,981,154
|
|
|
|
15,891,636
|
|
Net decrease in net assets per share from operations – basic and diluted
|
|
$
|
(0.74
|
)
|
|
$
|
(0.36)
|
|
|
$
|
(0.43
|
)
|
|
$
|
(0.40
|
)
|
Note 12. Distributions
The Company’s
distributions are recorded as payable on the declaration date. Stockholders have the option to receive payment of the distribution
in cash, shares of common stock, or a combination of cash and common stock.
The following table
summarizes the Company’s distribution declarations for the nine months ended September 30, 2018 (dollars in thousands, except
share and per share data):
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount
Per Share
|
|
|
Cash
Distribution
|
|
|
DRIP
Shares
Issued
|
|
|
DRIP
Share
Value
|
|
January 2, 2018
|
|
January 22, 2018
|
|
January 30, 2018
|
|
$
|
0.0833
|
|
|
$
|
1,275
|
|
|
|
7,280
|
|
|
$
|
54
|
|
January 2, 2018
|
|
February 20, 2018
|
|
February 27, 2018
|
|
|
0.0833
|
|
|
|
1,275
|
|
|
|
8,076
|
|
|
|
54
|
|
January 2, 2018
|
|
March 23, 2018
|
|
March 29, 2018
|
|
|
0.0833
|
|
|
|
1,274
|
|
|
|
7,631
|
|
|
|
56
|
|
April 2, 2018
|
|
April 19, 2018
|
|
April 27, 2018
|
|
|
0.0833
|
|
|
|
1,278
|
|
|
|
7,006
|
|
|
|
53
|
|
April 2, 2018
|
|
May 22, 2018
|
|
May 30, 2018
|
|
|
0.0833
|
|
|
|
1,277
|
|
|
|
6,875
|
|
|
|
54
|
|
April 2, 2018
|
|
June 20, 2018
|
|
June 28, 2018
|
|
|
0.0833
|
|
|
|
1,280
|
|
|
|
6,591
|
|
|
|
52
|
|
July 2, 2018
|
|
July 23, 2018
|
|
July 30, 2018
|
|
|
0.0833
|
|
|
|
1,279
|
|
|
|
6,515
|
|
|
|
53
|
|
July 2, 2018
|
|
August 23, 2018
|
|
August 30, 2018
|
|
|
0.0833
|
|
|
|
1,277
|
|
|
|
6,699
|
|
|
|
56
|
|
July 2, 2018
|
|
September 20, 2018
|
|
September 27, 2018
|
|
|
0.0833
|
|
|
|
1,249
|
|
|
|
10,066
|
|
|
|
84
|
|
Total Distributions Declared and Distributed
|
|
|
|
$
|
0.75
|
|
|
$
|
11,464
|
|
|
|
66,739
|
|
|
$
|
516
|
|
The following table
summarizes the Company’s distribution declarations for the nine months ended September 30, 2017 (dollars in thousands, except
share and per share data):
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount
Per Share
|
|
|
Cash
Distribution
|
|
|
DRIP
Shares
Issued
|
|
|
DRIP
Share
Value
|
|
January 3, 2017
|
|
January 20, 2017
|
|
January 30, 2017
|
|
$
|
0.13
|
|
|
$
|
1,993
|
|
|
|
5,304
|
|
|
$
|
70
|
|
January 3, 2017
|
|
February 20, 2017
|
|
February 27, 2017
|
|
|
0.13
|
|
|
|
1,993
|
|
|
|
5,195
|
|
|
|
70
|
|
January 3, 2017
|
|
March 23, 2017
|
|
March 30, 2017
|
|
|
0.13
|
|
|
|
1,998
|
|
|
|
4,948
|
|
|
|
67
|
|
April 3, 2017
|
|
April 19, 2017
|
|
April 27, 2017
|
|
|
0.13
|
|
|
|
1,996
|
|
|
|
5,164
|
|
|
|
69
|
|
April 3, 2017
|
|
May 23, 2017
|
|
May 29, 2017
|
|
|
0.13
|
|
|
|
1,990
|
|
|
|
5,880
|
|
|
|
76
|
|
April 3, 2017
|
|
June 21, 2017
|
|
June 29, 2017
|
|
|
0.13
|
|
|
|
1,969
|
|
|
|
7,959
|
|
|
|
97
|
|
July 3, 2017
|
|
July 21, 2017
|
|
July 28, 2017
|
|
|
0.13
|
|
|
|
1,995
|
|
|
|
5,889
|
|
|
|
73
|
|
July 3, 2017
|
|
August 23, 2017
|
|
August 30, 2017
|
|
|
0.13
|
|
|
|
1,957
|
|
|
|
13,162
|
|
|
|
111
|
|
July 3, 2017
|
|
September 20, 2017
|
|
September 28, 2017
|
|
|
0.13
|
|
|
|
1,989
|
|
|
|
9,085
|
|
|
|
80
|
|
Total Distributions Declared and Distributed
|
|
|
|
$
|
1.17
|
|
|
$
|
17,880
|
|
|
|
62,586
|
|
|
$
|
713
|
|
Note 13. Financial Highlights
The following is a
schedule of financial highlights for the nine months ended September 30, 2018 and 2017 (dollars in thousands, except share and
per share data):
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
13.91
|
|
|
$
|
15.79
|
|
Net investment income
(1)
|
|
|
0.78
|
|
|
|
0.71
|
|
Net realized loss on investments
(1)
|
|
|
(1.26
|
)
|
|
|
(0.05
|
)
|
Net unrealized depreciation on investments
(1)
|
|
|
(0.45
|
)
|
|
|
(0.72
|
)
|
Net unrealized appreciation (depreciation) on Written Call Option
(1)
|
|
|
0.43
|
|
|
|
(0.18
|
)
|
Tax benefit (provision)
(1)
|
|
|
0.07
|
|
|
|
(0.17
|
)
|
Distributions declared from net investment income
|
|
|
(0.75
|
)
|
|
|
(1.17
|
)
|
Other
(7)
|
|
|
(0.02
|
)
|
|
|
—
|
|
Net asset value at end of period
|
|
$
|
12.71
|
|
|
$
|
14.21
|
|
Net assets at end of period
|
|
$
|
203,596
|
|
|
$
|
226,307
|
|
Shares outstanding at end of period
|
|
|
16,017,970
|
|
|
|
15,930,631
|
|
Per share market value at end of period
|
|
$
|
8.71
|
|
|
$
|
9.54
|
|
Total return based on market value
(2)
|
|
|
31.81
|
%
|
|
|
(18.50
|
)%
|
Ratio/Supplemental data:
|
|
|
|
|
|
|
|
|
Ratio of net investment income to average net assets
(9)
|
|
|
7.80
|
%
|
|
|
6.70
|
%
|
Ratio of incentive fee, net of incentive fee waiver, to average net assets
(6)(10)
|
|
|
0.11
|
%
|
|
|
0.15
|
%
|
Ratio of interest and financing expenses to average net assets
(8)
|
|
|
8.06
|
%
|
|
|
8.17
|
%
|
Ratio of loss on extinguishment of debt to average net assets
(10)
|
|
|
—
|
%
|
|
|
1.13
|
%
|
Ratio of tax (benefit) provision to average net assets
(8)
|
|
|
(0.73
|
)%
|
|
|
1.48
|
%
|
Ratio of other operating expenses to average net assets
(8)
|
|
|
6.32
|
%
|
|
|
5.75
|
%
|
Ratio of total expenses including tax benefit, net of fee waivers, to average net assets
(6)(9)
|
|
|
13.76
|
%
|
|
|
16.68
|
%
|
Portfolio turnover rate
(3)
|
|
|
12.23
|
%
|
|
|
7.81
|
%
|
Average debt outstanding
(4)
|
|
$
|
305,337
|
|
|
$
|
333,572
|
|
Average debt outstanding per common share
|
|
$
|
19.06
|
|
|
$
|
20.94
|
|
Asset coverage ratio per unit
(5)
|
|
$
|
2,602
|
|
|
$
|
2,781
|
|
|
(1)
|
Based on daily weighted average balance of shares outstanding during the period.
|
|
(2)
|
Total investment return is calculated assuming a purchase of common shares at the current market value on the first day and a sale at the current market value on the last day of the period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s DRIP. Total investment return does not reflect brokerage commissions. Total investment returns covering less than a full period are not annualized.
|
|
(3)
|
Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value. Portfolio turnover rates that cover less than a full period are not annualized.
|
|
(4)
|
Based on daily weighted average balance of debt outstanding during the period.
|
|
(5)
|
Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. We have excluded our SBA-guaranteed debentures from the asset coverage calculation as of September 30, 2018 and September 30, 2017 pursuant to the exemptive relief granted by the SEC in June 2014 that permits us to exclude such debentures from the definition of senior securities in the 200% asset coverage ratio we are required to maintain under the 1940 Act. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.
|
|
(6)
|
The ratio of waived incentive fees to average net assets was 0.00% and 0.40%, for the nine months ended September 30, 2018 and September 30, 2017.
|
|
(7)
|
Includes the impact of different share amounts used in calculating per share data as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of a period end or transaction date.
|
|
(8)
|
Ratios are annualized.
|
|
(9)
|
Ratios are annualized. Incentive fees, net of incentive fees waiver and loss on extinguishment of debt included within the ratio are not annualized.
|
|
(10)
|
Ratio is not annualized.
|
Note 14. Subsequent Events
Management has evaluated
subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent
events that occurred during such period that would be required to be recognized in the consolidated financial statements as of
September 30, 2018.
Distributions
On October 1, 2018,
the Company’s Board declared normal monthly distributions for October, November, and December of 2018 as set forth below:
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Distributions per Share
|
|
October 1, 2018
|
|
October 23, 2018
|
|
October 30, 2018
|
|
$
|
0.0833
|
|
October 1, 2018
|
|
November 21, 2018
|
|
November 29, 2018
|
|
$
|
0.0833
|
|
October 1, 2018
|
|
December 20, 2018
|
|
December 28, 2018
|
|
$
|
0.0833
|
|
Reduced Asset Coverage Ratio
On November 1, 2018, the Board, including
a ‘‘required majority’’ (as such term is defined in Section 57(o) of the 1940 Act) approved the application
of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit
Availability Act. As a result, our asset coverage requirements for senior securities will be changed from
200% to 150%, effective November 1, 2019.