NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2020
(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 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 subsidiary that is 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, and, to a lesser extent, second lien loans and 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. On March 1,
2019, Fund II repaid its outstanding SBA debentures and relinquished its SBIC license.
The
Company has formed, and expects to continue to form, certain consolidated taxable subsidiaries (the “Taxable Subsidiaries”),
which are taxed as corporations for U.S. federal 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, and the Taxable Subsidiaries.
The Company’s
financial statements as of June 30, 2020 and December 31, 2019 and for the periods ended June 30, 2020 and 2019 are presented on
a consolidated basis. The effects of all intercompany transactions between the Company and its subsidiaries (Fund II, Fund III,
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, 2019, filed with
the U.S. Securities and Exchange Commission (“SEC”) on March 2, 2020.
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, and
the Taxable Subsidiaries) in its consolidated financial statements. The Company did not consolidate its interest in Capitala Senior
Loan Fund II, LLC (“CSLF II”) during the periods it was in existence because the investment was not considered a substantially
wholly owned investment company subsidiary. Further, CSLF II was a joint venture for which shared power existed relating to the
decisions that most significantly impacted the economic performance of the entity. See Note 4 to the consolidated financial statements
for a description of the Company’s investment in CSLF II.
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.
As a practical expedient,
the Company used net asset value (“NAV”) as the fair value for its equity investment in CSLF II. CSLF II recorded its
underlying investments at fair value on a quarterly basis in accordance with the 1940 Act and ASC 820.
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.
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.
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 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 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 PIK dividend 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.
Guarantees
The Company follows
the guidance of ASC Topic 460 — Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure
requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees
that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered
by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.
General and Administrative Expenses
General and administrative
expenses are accrued 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 June 30, 2020,
the Company had outstanding unfunded commitments related to debt investments in existing portfolio companies of $8.2 million (Bluestem
Brands, Inc.), $6.3 million (Rapid Fire Protection, Inc), $3.5 million (J5 Infrastructure Partners, LLC), $1.0 million (U.S. BioTek
Laboratories, LLC), and $0.5 million (Freedom Electronics, LLC). As of December 31, 2019, the Company had outstanding unfunded
commitments related to debt and equity investments in existing portfolio companies of $11.4 million (CSLF II), $4.5 million
(Rapid Fire Protection, Inc), $3.5 million (J5 Infrastructure Partners, LLC), $2.6 million (BigMouth, Inc.), $1.0 million
(Freedom Electronics, LLC), $1.0 million (U.S. BioTek Laboratories, LLC), and $0.5 million (Jurassic Quest Holdings,
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.
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. The nature of litigation can make it difficult to predict the impact
a particular lawsuit will have on the Company. There are many reasons that the Company cannot make these assessments, including,
among others, one or more of the following: the proceeding is in its early stages; the damages sought are unspecified, unsupportable,
unexplained or uncertain; discovery has not started or is not complete; there are significant facts in dispute; and there are other
parties who may share in any ultimate liability.
In management’s
opinion, no direct losses with respect to litigation contingencies were probable as of June 30, 2020 and December 31, 2019. 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 U.S. federal 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.
In 2017, the Company
elected to amend its tax year end from August 31 to December 31 and filed a tax return for the four months ended December 31, 2017.
The tax periods ended December 31, 2019, December 31, 2018, December 31, 2017, and August 31, 2017 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 six months
ended June 30, 2020 and 2019. 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 June 30, 2020, the aggregate net unrealized depreciation for all securities was $(34.9) million. As of June
30, 2020, gross unrealized appreciation was $5.0 million and gross unrealized depreciation was $(39.9) million. The aggregate cost
of securities for U.S. federal income tax purposes was $322.2 million as of June 30, 2020. For U.S. federal income tax purposes,
as of December 31, 2019, the aggregate net unrealized depreciation for all securities was $(9.2) million. As of December 31, 2019,
gross unrealized appreciation was $7.7 million and gross unrealized depreciation was $(16.9) million. The aggregate cost of securities
for U.S. federal income tax purposes was $371.7 million as of December 31, 2019.
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 June
30, 2020 and December 31, 2019, the Company recorded a net deferred tax asset of $0.0. For the three and six months ended
June 30, 2020, the Company recorded a tax provision of $0.0. For the three and six months ended June 30, 2019, the Company
recorded a tax provision of $(0.7) million and $(0.6) million, respectively. As of June 30, 2020 and December 31, 2019, the
valuation allowance on the Company’s deferred tax asset was $4.0 million and $3.2 million, respectively. During the
three and six months ended June 30, 2020, the Company recognized an increase (decrease) in the valuation allowance of $(27)
thousand and $0.8 million, respectively. During the three and six months ended June 30, 2019, the Company recognized an
increase in the valuation allowance of $2.0 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% (which has been temporarily reduced to 10% for
distributions declared on or after April 1, 2020, and on or before December 31, 2020) 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.
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 June 30, 2020 and December
31, 2019, 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.
The Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and made significant prospective
and retroactive changes to the U.S. federal income tax laws (and certain corresponding state and local conformity measures) including:
1) 5-year net operating loss (“NOL”) carrybacks with no taxable income limitation, 2) relaxation of the limitations
on interest expense deductions, 3) qualified improvement property eligible for bonus depreciation, 4) acceleration of alternative
minimum tax credits and related quick tax refunds, and 6) indirect tax measures, including workplace tax credits and deferral of
social security payroll tax. Management has considered the impact of the CARES Act on the Company, its Taxable Subsidiaries, and
the underlying portfolio companies, and the Company has reflected these potential impacts in the financial statements, related
tax disclosures, and the value of the investments.
Distributions
Distributions to common
stockholders are recorded on the record 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, Liquidity
Risk, and COVID-19 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. The value
of the Company’s investments may also be detrimentally affected to the extent observable primary or secondary market yields
for similar instruments issued by comparable companies increase materially or risk premiums 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.
The Company’s
operating results and portfolio companies may be negatively impacted by the recent outbreak of COVID-19. On March 11, 2020, the
World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, a national emergency was declared in the U.S. The
ongoing spread of COVID-19 has had, and will continue to have, a material adverse impact on the U.S. and global economy as commercial
activity and public perception have been negatively impacted by the outbreak. The ultimate extent to which the COVID-19 crisis
will impact the Company’s financial condition and results of operations will depend on future developments affecting not
only the Company, but also the entire U.S. and global economy, which are inherently uncertain, including, among others, new information
that may emerge concerning the severity and rate of spread of the disease.
Note 3. Recent Accounting Pronouncements
In August 2018, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Disclosure
Framework — Changes to the Disclosure Requirement for Fair Value Measurement. The FASB issued the amendments as part of the
disclosure framework project which is intended to improve the effectiveness of fair value disclosures in the notes to the financial
statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of the
financial statements. The standard is effective for interim and annual reporting periods in fiscal years that begin after December
15, 2019. Management has evaluated the impact of adoption of ASU 2018-13 and determined that these changes did not have a significant
impact on the Company’s consolidated financial statements and disclosures.
In March 2020, the
FASB issued ASU 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying
U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are
met. The standard is effective as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of
the optional guidance on the Company’s consolidated financial statements and disclosures. The Company did not utilize the
optional expedients and exceptions provided by ASU 2020-04 during the quarter ended June 30, 2020.
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. 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, and, to a lesser extent, second lien loans and equity securities issued by lower middle-market companies and traditional
middle-market companies. As of June 30, 2020, our portfolio consisted of investments in 37 portfolio companies with a fair value
of approximately $287.3 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, delayed draw facilities, or revolving
credit 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, bifurcating the loan into a first-out tranche
and last-out tranche. As of June 30, 2020, 14.2% of the fair value of our first lien loans consisted of last-out loans. As of December
31, 2019, 18.1% 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 in some cases, 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 June 30, 2020, the Company made approximately $12.5 million of investments and had approximately $51.1 million in repayments
and sales, resulting in net repayments and sales of approximately $38.6 million for the period. During the three months ended June
30, 2019, the Company made approximately $13.8 million of investments and had approximately $46.6 million in repayments and sales,
resulting in net repayments and sales of approximately $32.8 million for the period.
During the six months
ended June 30, 2020, the Company made approximately $20.8 million of investments and had approximately $58.9 million in repayments
and sales, resulting in net repayments and sales of approximately $38.1 million for the period. During the six months ended June
30, 2019, the Company made approximately $34.9 million of investments and had approximately $58.1 million in repayments and sales,
resulting in net repayments and sales of approximately $23.2 million for the period.
During the three and
six months ended June 30, 2020, the Company funded $1.2 million and $4.5 million, respectively, of previously committed capital
to existing portfolio companies. During the three and six months ended June 30, 2020, the Company funded $11.3 million and $16.3
million, respectively, of investments in portfolio companies for which it was not previously committed to fund. During the three
and six months ended June 30, 2019, the Company funded $2.8 million and $4.9 million, respectively, of previously committed capital
to existing portfolio companies. During the three and six months ended June 30, 2019, the Company funded $11.0 million and $30.0
million, respectively, of investments in portfolio companies for which it was not previously committed to fund. During the three
and six months ended June 30, 2020 and 2019, the Company did not lead any syndicates.
As of June 30, 2020,
the Company’s Board approved the fair value of the Company’s investment portfolio of approximately $287.3 million in
good faith in accordance with the Company’s valuation procedures. The Company’s Board approved the fair value of the
Company’s investment portfolio as of June 30, 2020 with input from a third-party valuation firm and the Investment Advisor
based on information known or knowable as of the valuation date, including trailing and forward looking data. The COVID-19 pandemic
is an unprecedented circumstance that materially impacts the fair value of the Company’s investments. As a result, the fair
value of the Company’s portfolio investments may be further negatively impacted after June 30, 2020 by circumstances and
events that are not yet known.
The COVID-19 pandemic
may also impact the Company’s portfolio companies’ ability to pay their respective contractual obligations, including
principal and interest due to the Company, and some portfolio companies may require interest or principal deferrals in order to
fulfill short-term liquidity needs in response to the COVID-19 pandemic. The Company is working with each of its portfolio companies
to help them access short-term liquidity through interest deferrals, funding on unused lines of credit, and other sources of liquidity.
The composition of
our investments as of June 30, 2020, 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
|
|
$
|
203,187
|
|
|
|
66.6
|
%
|
|
$
|
193,610
|
|
|
|
67.4
|
%
|
Second Lien Debt
|
|
|
42,457
|
|
|
|
13.9
|
|
|
|
38,285
|
|
|
|
13.3
|
|
Equity and Warrants
|
|
|
59,372
|
|
|
|
19.5
|
|
|
|
55,371
|
|
|
|
19.3
|
|
Total
|
|
$
|
305,016
|
|
|
|
100.0
|
%
|
|
$
|
287,266
|
|
|
|
100.0
|
%
|
The composition of
our investments as of December 31, 2019, 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
|
|
$
|
235,646
|
|
|
|
66.6
|
%
|
|
$
|
231,203
|
|
|
|
63.8
|
%
|
Second Lien Debt
|
|
|
54,079
|
|
|
|
15.3
|
|
|
|
53,857
|
|
|
|
14.8
|
|
Equity and Warrants
|
|
|
50,556
|
|
|
|
14.3
|
|
|
|
63,841
|
|
|
|
17.6
|
|
Capitala Senior Loan Fund II, LLC
|
|
|
13,600
|
|
|
|
3.8
|
|
|
|
13,631
|
|
|
|
3.8
|
|
Total
|
|
$
|
353,881
|
|
|
|
100.0
|
%
|
|
$
|
362,532
|
|
|
|
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 June 30, 2020, according to the fair value hierarchy
(dollars in thousands):
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
First Lien Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
193,610
|
|
|
$
|
193,610
|
|
Second Lien Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
38,285
|
|
|
|
38,285
|
|
Equity and Warrants
|
|
|
589
|
|
|
|
—
|
|
|
|
54,782
|
|
|
|
55,371
|
|
Total
|
|
$
|
589
|
|
|
$
|
—
|
|
|
$
|
286,677
|
|
|
$
|
287,266
|
|
The following table
presents fair value measurements of investments, by major class, as of December 31, 2019, according to the fair value hierarchy
(dollars in thousands):
|
|
Fair Value Measurements(1)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
First Lien Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
231,203
|
|
|
$
|
231,203
|
|
Second Lien Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
53,857
|
|
|
|
53,857
|
|
Equity and Warrants
|
|
|
2,273
|
|
|
|
—
|
|
|
|
61,568
|
|
|
|
63,841
|
|
Total
|
|
$
|
2,273
|
|
|
$
|
—
|
|
|
$
|
346,628
|
|
|
$
|
348,901
|
|
(1)
|
Excludes the Company’s $13.6 million investment in CSLF II, measured at NAV.
|
The following table provides a reconciliation
of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2020 (dollars
in thousands):
|
|
First Lien
Debt
|
|
|
Second Lien
Debt
|
|
|
Equity
and Warrants
|
|
|
Total
|
|
Balance as of January 1, 2020
|
|
$
|
231,203
|
|
|
$
|
53,857
|
|
|
$
|
61,568
|
|
|
$
|
346,628
|
|
Reclassifications
|
|
|
(7,141
|
)
|
|
|
—
|
|
|
|
7,141
|
|
|
|
—
|
|
Repayments/sales
|
|
|
(31,513
|
)
|
|
|
(12,000
|
)
|
|
|
(2,259
|
)
|
|
|
(45,772
|
)
|
Purchases
|
|
|
19,230
|
|
|
|
—
|
|
|
|
1,590
|
|
|
|
20,820
|
|
Payment-in-kind interest and dividends accrued
|
|
|
837
|
|
|
|
159
|
|
|
|
86
|
|
|
|
1,082
|
|
Accretion of original issue discount
|
|
|
220
|
|
|
|
218
|
|
|
|
—
|
|
|
|
438
|
|
Realized gain (loss) on investments
|
|
|
(14,092
|
)
|
|
|
—
|
|
|
|
2,259
|
|
|
|
(11,833
|
)
|
Net unrealized depreciation on investments
|
|
|
(5,134
|
)
|
|
|
(3,949
|
)
|
|
|
(15,603
|
)
|
|
|
(24,686
|
)
|
Balance as of June 30, 2020
|
|
$
|
193,610
|
|
|
$
|
38,285
|
|
|
$
|
54,782
|
|
|
$
|
286,677
|
|
The following table
provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months
ended June 30, 2019 (dollars in thousands):
|
|
First Lien
Debt
|
|
|
Second Lien
Debt
|
|
|
Equity
and Warrants
|
|
|
Total (1)
|
|
Balance as of January 1, 2019
|
|
$
|
237,570
|
|
|
$
|
105,608
|
|
|
$
|
92,054
|
|
|
$
|
435,232
|
|
Reclassifications
|
|
|
(2,773
|
)
|
|
|
—
|
|
|
|
2,773
|
|
|
|
—
|
|
Repayments/sales
|
|
|
(26,104
|
)
|
|
|
(21,538
|
)
|
|
|
(10,489
|
)
|
|
|
(58,131
|
)
|
Purchases
|
|
|
29,636
|
|
|
|
3,800
|
|
|
|
1,488
|
|
|
|
34,924
|
|
Payment-in-kind interest and dividends accrued
|
|
|
440
|
|
|
|
741
|
|
|
|
462
|
|
|
|
1,643
|
|
Accretion of original issue discount
|
|
|
99
|
|
|
|
421
|
|
|
|
—
|
|
|
|
520
|
|
Realized gain (loss) on investments
|
|
|
(10,578
|
)
|
|
|
(21,029
|
)
|
|
|
10,683
|
|
|
|
(20,924
|
)
|
Net unrealized appreciation (depreciation) on investments
|
|
|
6,720
|
|
|
|
(420
|
)
|
|
|
(18,203
|
)
|
|
|
(11,903
|
)
|
Transfers out of Level 3 (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,861
|
)
|
|
|
(9,861
|
)
|
Balance as of June 30, 2019
|
|
$
|
235,010
|
|
|
$
|
67,583
|
|
|
$
|
68,907
|
|
|
$
|
371,500
|
|
(1)
|
Excludes the Company’s $13.8 million investment in CSLF II, measured at NAV.
|
(2)
|
The Company’s investment in U.S. Well Services, Inc. is traded on the NASDAQ Capital Market under the ticker “USWS”. Because the Company’s investment is now traded in an active market, the Company has reclassified its investment in U.S. Well Services, Inc. from Level 3 to Level 1 of the fair value hierarchy. Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. The unrealized depreciation on the Company’s investment in U.S. Well Services, Inc. for the six months ended June 30, 2019 was $(4.1) million.
|
The net change in unrealized
depreciation on investments held was ($29.5) million and ($19.4) million for the six months ended June 30, 2020 and 2019, respectively,
and is included in net unrealized appreciation (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 as of June 30, 2020 were as follows:
|
|
Fair Value
(in millions)
|
|
|
Valuation
Approach
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
First lien debt
|
|
$
|
158.2
|
|
|
Income
|
|
Required Rate of Return
|
|
7.0% – 19.5% (12.5%)
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
1.2x – 6.8x (3.4x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
($0.7) million – $103.5 million ($10.3 million)
|
|
|
|
|
|
|
|
|
|
|
|
First lien debt
|
|
$
|
35.4
|
|
|
Enterprise Value Waterfall and Asset(1)
|
|
EBITDA Multiple
|
|
2.0x – 6.3x (4.4x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$0.8 million – $103.5 million ($18.8 million)
|
|
|
|
|
|
|
|
|
Revenue Multiple
|
|
0.9x – 0.9x (0.9x)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$30.5 million – $30.5 million ($30.5 million)
|
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
$
|
35.4
|
|
|
Income
|
|
Required Rate of Return
|
|
12.8% – 15.0% (13.8%)
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
4.3x – 5.2x (4.8x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$12.2 million – $20.3 million ($16.0 million)
|
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
$
|
2.9
|
|
|
Enterprise Value Waterfall and Asset(1)
|
|
EBITDA Multiple
Adjusted EBITDA
|
|
6.0x – 6.0x (6.0x)
$1.8 million – $1.8 million ($1.8 million)
|
|
|
|
|
|
|
|
|
Revenue Multiple
|
|
0.6x – 0.6x (0.6x)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$503.4 million - $503.4 million ($503.4 million)
|
|
|
|
|
|
|
|
|
|
|
|
Equity and warrants
|
|
$
|
54.8
|
|
|
Enterprise Value Waterfall and Asset(1)
|
|
EBITDA Multiple
|
|
5.0x – 10.0x (6.8x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$0.8 million – $19.3 million ($8.4 million)
|
|
|
|
|
|
|
|
|
Revenue Multiple
|
|
0.4x – 3.6x (0.8x)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$12.2 million – $521.3 million ($317.2 million)
|
(1)
|
$14.1 million in first lien debt, $1.5 million in second lien debt, and $4.2 million in equity and warrants were valued using the asset approach.
|
The valuation techniques and significant
unobservable inputs used in recurring Level 3 fair value measurements of assets as of December 31, 2019 were as follows:
|
|
Fair Value(2)
(in millions)
|
|
|
Valuation
Approach
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
First lien debt
|
|
$
|
211.2
|
|
|
Income
|
|
Required Rate of Return
|
|
7.0% – 20.0% (12.0%)
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
1.5x – 7.9x (3.8x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$0.8 million – $114.0 million ($13.6 million)
|
|
|
|
|
|
|
|
|
|
|
|
First lien debt
|
|
$
|
20.0
|
|
|
Enterprise Value Waterfall and Asset (1)
|
|
EBITDA Multiple
|
|
6.0x – 6.0x (6.0x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$2.9 million – $2.9 million ($2.9 million)
|
|
|
|
|
|
|
|
|
Revenue Multiple
|
|
1.0x – 1.1x (1.1x)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$13.3 million – $21.6 million ($19.5 million)
|
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
$
|
53.9
|
|
|
Income and Asset(1)
|
|
Required Rate of Return
|
|
6.0% – 15.0% (13.5%)
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
3.0x – 7.0x (5.3x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$1.8 million – $74.5 million ($32.7 million)
|
|
|
|
|
|
|
|
|
|
|
|
Equity and warrants
|
|
$
|
61.6
|
|
|
Enterprise Value Waterfall and Asset(1)
|
|
EBITDA Multiple
|
|
3.9x – 10.0x (7.3x)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$1.8 million - $25.1 million ($11.7 million)
|
|
|
|
|
|
|
|
|
Revenue Multiple
|
|
0.4x – 4.7x (0.8x)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$17.1 million - $566.2 million ($406.6 million)
|
|
(1)
|
$2.0 million in first lien
debt, $0.7 million in second lien debt, and $4.9 million in equity and warrants were valued using the asset approach.
|
|
(2)
|
Excludes the Company’s
$13.6 million investment in CSLF II, measured at NAV.
|
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.
Capitala Senior Loan Fund II, LLC
On December 20, 2018,
the Company and Trinity Universal Insurance Company (“Trinity”), a subsidiary of Kemper Corporation, entered into a
limited liability company agreement (the “LLC Agreement”) to co-manage CSLF II. The purpose and design of the joint
venture was to invest primarily in senior secured first-out loans. The Company and Trinity committed to provide $25.0 million of
equity to CSLF II, with the Company providing $20.0 million and Trinity providing $5.0 million. The Company and Trinity each appointed
two members to CSLF II’s four-person board of directors and investment committee. All material decisions with respect to
CSLF II, including those involving its investment portfolio, required approval of a member on the board of directors and investment
committee of at least one member representing the Company and Trinity, respectively.
In May 2020, the
Company and Trinity elected to wind-down operations of CSLF II. On June 1, 2020, CSLF II sold its existing assets with the
Company and Trinity each purchasing approximately 50% of CSLF II’s debt investments at their par value. On June 12,
2020, CSLF II declared final distributions and returned all remaining capital of $13.1 million and $3.3 million to the
Company and Trinity, respectively.
As of December 31,
2019, $13.6 million and $3.4 million in equity capital had been contributed by the Company and Trinity, respectively. As of December
31, 2019, the Company and Trinity had $6.4 million and $1.6 million of unfunded equity capital commitments outstanding, respectively.
The Company’s equity investment in CSLF II was not redeemable. On June 12, 2020, the capital commitments for the Company
and Trinity were terminated.
On September 3, 2019,
CSLF II entered into a senior secured revolving credit facility (the “CSLF II Credit Facility”) with KeyBank Specialty
Finance Lending, an affiliate of KeyCorp. The CSLF II Credit Facility provided for borrowings up to $60.0 million, subject to certain
borrowing base restrictions. Borrowings under the CSLF II Credit Facility bore interest at a rate of 1-month LIBOR + 2.25%. During
the quarter ended June 30, 2020, CSLF II incurred unused fees of .35% when utilization of the CSLF II Credit Facility exceeded
50% and .65% when utilization of the CSLF II Credit Facility was less than 50%. On June 5, 2020, CSLF II terminated the CSLF II
Credit Facility and repaid all amounts outstanding.
As of December 31,
2019, $12.7 million was outstanding under the CSLF II Credit Facility. For the three and six months ended June 30, 2020, CSLF II
incurred interest and financing expenses of $1.0 million and $1.1 million, respectively. For the three and six months ended June
30, 2019, CSLF II did not incur interest and financing expenses.
On September 3, 2019,
the Company and Trinity committed to provide $25.0 million of subordinated debt (the “Subordinated Notes”) to CSLF
II, with the Company providing $5.0 million and Trinity providing $20.0 million. The Subordinated Notes were scheduled to mature on September 3, 2024, however, the Subordinated Notes
were terminated on June 12, 2020.
As of December 31,
2019, $0.0 was outstanding on the Subordinated Notes. As of December 31, 2019, the Company and Trinity had $5.0 million and $20.0
million of unfunded commitments related to the Subordinated Notes, respectively. For the three and six months ended June 30, 2020
and 2019, CSLF II did not incur any interest and financing expenses related to the Subordinated Notes.
Below is a summary
of CSLF II’s portfolio as of December 31, 2019 (dollars in thousands):
|
|
December 31, 2019
|
|
First lien loans (1)
|
|
$
|
28,396
|
|
Weighted average current interest rate on first lien loans
|
|
|
6.4
|
%
|
Number of portfolio companies
|
|
|
5
|
|
Largest portfolio company investment (1)
|
|
$
|
7,443
|
|
Total of five largest portfolio company investments (1)
|
|
$
|
28,396
|
|
|
(1)
|
Based on principal amount
outstanding at period end.
|
Below is CSLF II’s
schedule of investments as of December 31, 2019 (dollars in thousands):
Portfolio Company
|
|
Industry
|
|
Type of Investment
|
|
Principal
Amount
|
|
|
Cost
|
|
|
Fair Value
|
|
Investments at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freedom Electronics, LLC
|
|
Electronic Machine Repair
|
|
First Lien Debt (7.0% Cash (1 month LIBOR + 5.0%, 2.0% Floor), Due 12/20/23)
|
|
$
|
5,445
|
|
|
$
|
5,445
|
|
|
$
|
5,445
|
|
Installs, LLC
|
|
Logistics
|
|
First Lien Debt (5.8% Cash (1 month LIBOR + 4.0%, 1.8% Floor), Due 6/20/23)
|
|
|
7,443
|
|
|
|
7,443
|
|
|
|
7,443
|
|
RAM Payment, LLC
|
|
Financial Services
|
|
First Lien Debt (6.7% Cash (1 month LIBOR + 5.0%, 1.5% Floor), Due 1/4/24)
|
|
|
6,653
|
|
|
|
6,653
|
|
|
|
6,653
|
|
Rapid Fire Protection, Inc.(1)
|
|
Security System Services
|
|
First Lien Debt (5.5% Cash (1 month LIBOR + 3.8%, 1.8% Floor), Due 11/22/24)
|
|
|
4,400
|
|
|
|
4,400
|
|
|
|
4,400
|
|
U.S. BioTek Laboratories, LLC
|
|
Testing Laboratories
|
|
First Lien Debt (7.0% Cash (3 month LIBOR + 5.0%, 2.0% Floor), Due 12/14/23)
|
|
|
4,455
|
|
|
|
4,455
|
|
|
|
4,455
|
|
TOTAL INVESTMENTS
|
|
|
|
|
|
$
|
28,396
|
|
|
$
|
28,396
|
|
|
$
|
28,396
|
|
|
(1)
|
The investment had a $3.0
million unfunded commitment.
|
Below are the statements
of assets and liabilities for CSLF II (dollars in thousands):
|
|
As of
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Investments at fair value (amortized cost of $0 and $28,396, respectively)
|
|
$
|
—
|
|
|
$
|
28,396
|
|
Cash and cash equivalents
|
|
|
—
|
|
|
|
704
|
|
Interest receivable
|
|
|
—
|
|
|
|
151
|
|
Other assets
|
|
|
—
|
|
|
|
7
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
29,258
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Credit facility (net of deferred financing costs of $0 and $621, respectively)
|
|
$
|
—
|
|
|
$
|
12,079
|
|
Interest and financing fees payable
|
|
|
—
|
|
|
|
113
|
|
Accounts payable
|
|
|
—
|
|
|
|
27
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
12,219
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Members’ capital
|
|
$
|
—
|
|
|
$
|
17,039
|
|
Total net assets
|
|
$
|
—
|
|
|
$
|
17,039
|
|
Below are the unaudited
statements of operations for CSLF II (dollars in thousands):
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
INVESTMENT INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
229
|
|
|
$
|
320
|
|
|
$
|
650
|
|
|
$
|
632
|
|
Fee income
|
|
|
2
|
|
|
|
2
|
|
|
|
5
|
|
|
|
70
|
|
Total investment income
|
|
$
|
231
|
|
|
$
|
322
|
|
|
$
|
655
|
|
|
$
|
702
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and financing expenses
|
|
|
975
|
|
|
|
—
|
|
|
|
1,135
|
|
|
|
—
|
|
General and administrative expenses
|
|
|
93
|
|
|
|
31
|
|
|
|
164
|
|
|
|
117
|
|
Total expenses
|
|
$
|
1,068
|
|
|
$
|
31
|
|
|
$
|
1,299
|
|
|
$
|
117
|
|
NET INVESTMENT INCOME (LOSS)
|
|
$
|
(837
|
)
|
|
$
|
291
|
|
|
$
|
(644
|
)
|
|
$
|
585
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
(837
|
)
|
|
$
|
291
|
|
|
$
|
(644
|
)
|
|
$
|
585
|
|
Note 5. Transactions With Affiliated Companies
During the six months
ended June 30, 2020, 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, 2019
Fair Value
|
|
|
Gross
Additions (2)
|
|
|
Gross
Reductions (3)
|
|
|
Realized
Gain/(Loss)
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
|
June
30, 2020
Fair Value
|
|
Affiliate
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex
Holdings, LLC
|
|
First
Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)
|
|
$
|
14,135
|
|
|
$
|
858
|
|
|
$
|
14,421
|
|
|
$
|
214
|
|
|
$
|
(500
|
)
|
|
$
|
-
|
|
|
$
|
(119
|
)
|
|
$
|
14,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex
Holdings, LLC
|
|
Common
Stock Class B (1,085,073 shares)
|
|
|
|
|
|
|
-
|
|
|
|
635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(635
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex
Holdings, LLC
|
|
Common
Stock Class A (1,253,198 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
858
|
|
|
|
15,056
|
|
|
|
214
|
|
|
|
(500
|
)
|
|
|
-
|
|
|
|
(754
|
)
|
|
|
14,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City
Gear, LLC
|
|
Membership
Unit Warrants
|
|
|
|
|
|
|
-
|
|
|
|
3,326
|
|
|
|
-
|
|
|
|
(1,341
|
)
|
|
|
1,341
|
|
|
|
(1,516
|
)
|
|
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
3,326
|
|
|
|
-
|
|
|
|
(1,341
|
)
|
|
|
1,341
|
|
|
|
(1,516
|
)
|
|
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport
Holdings, LLC
|
|
Second
Lien Debt (13.5% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 12/29/21)
|
|
|
16,500
|
|
|
|
1,273
|
|
|
|
16,500
|
|
|
|
86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(191
|
)
|
|
|
16,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport
Holdings, LLC
|
|
Membership
Units (22.9% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
17,822
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,277
|
)
|
|
|
15,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,273
|
|
|
|
34,322
|
|
|
|
86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,468
|
)
|
|
|
31,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA
Communications, Inc.
|
|
Series
A-1 Preferred Stock (1,998 shares)
|
|
|
|
|
|
|
-
|
|
|
|
3,761
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
|
|
3,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA
Communications, Inc.
|
|
Series
B-1 Common Stock (200,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
501
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(470
|
)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
4,262
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(323
|
)
|
|
|
3,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LJS
Partners, LLC
|
|
Preferred
Units (175,867 units)
|
|
|
|
|
|
|
-
|
|
|
|
372
|
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LJS
Partners, LLC
|
|
Common
Membership Units (2,593,234 units)
|
|
|
|
|
|
|
-
|
|
|
|
1,509
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
848
|
|
|
|
2,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,881
|
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,035
|
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI
Holdings, LLC
|
|
First
Lien Debt (12.0% Cash, Due 1/31/21)
|
|
|
2,600
|
|
|
|
158
|
|
|
|
2,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI
Holdings, LLC
|
|
Second
Lien Debt (6.0% Cash, Due 1/31/21)
|
|
|
400
|
|
|
|
12
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI
Holdings, LLC (5)
|
|
Preferred
Units (1,000 units, 6.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
1,710
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI
Holdings, LLC
|
|
Common
Membership Units (45 units)
|
|
|
|
|
|
|
-
|
|
|
|
194
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
4,904
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
4,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis
Holdings, Inc.
|
|
First
Lien Debt (9.0% Cash, 2.0% PIK, Due 6/30/23)
|
|
|
11,428
|
|
|
|
553
|
|
|
|
10,100
|
|
|
|
1,507
|
|
|
|
(179
|
)
|
|
|
-
|
|
|
|
(465
|
)
|
|
|
10,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis
Holdings, Inc.
|
|
Class
A Preferred Stock (1,000 shares)
|
|
|
|
|
|
|
25
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis
Holdings, Inc.
|
|
Common
Stock (60,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
464
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(464
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
578
|
|
|
|
11,564
|
|
|
|
1,507
|
|
|
|
(179
|
)
|
|
|
-
|
|
|
|
(970
|
)
|
|
|
11,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nth
Degree Investment Group, LLC
|
|
Membership
Units (6,088,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
6,088
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,088
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
6,088
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,088
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAM
Payment, LLC
|
|
First
Lien Debt (6.5% Cash (1 month LIBOR + 5.0%, 1.5% Floor), Due 1/4/24)
|
|
|
3,029
|
|
|
|
16
|
|
|
|
-
|
|
|
|
3,070
|
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAM
Payment, LLC
|
|
First
Lien Debt (9.8% Cash, Due 1/4/24)
|
|
|
8,212
|
|
|
|
436
|
|
|
|
9,019
|
|
|
|
-
|
|
|
|
(807
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAM
Payment, LLC (5)
|
|
Preferred
Units (86,000 units, 8.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
1,725
|
|
|
|
34
|
|
|
|
-
|
|
|
|
-
|
|
|
|
572
|
|
|
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452
|
|
|
|
10,744
|
|
|
|
3,104
|
|
|
|
(848
|
)
|
|
|
-
|
|
|
|
572
|
|
|
|
13,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sierra
Hamilton Holdings Corporation
|
|
Second
Lien Debt (15.0% PIK, Due 9/12/23)
|
|
|
843
|
|
|
|
5
|
|
|
|
748
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sierra
Hamilton Holdings Corporation
|
|
Common
Stock (15,068,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
5,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,232
|
)
|
|
|
928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5,908
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,233
|
)
|
|
|
1,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V12
Holdings, Inc.
|
|
Second
Lien Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Affiliate investments
|
|
|
|
|
|
|
|
$
|
3,336
|
|
|
$
|
98,763
|
|
|
$
|
5,174
|
|
|
$
|
(2,868
|
)
|
|
$
|
1,341
|
|
|
$
|
(14,731
|
)
|
|
$
|
87,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitala
Senior Loan Fund II, LLC
|
|
Second
Lien Debt (7.0% Cash (1 month LIBOR + 6.0%), Due 9/3/24)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitala
Senior Loan Fund II, LLC
|
|
Membership
Units (80.0% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
13,631
|
|
|
|
-
|
|
|
|
(13,116
|
)
|
|
|
(484
|
)
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
13,631
|
|
|
|
-
|
|
|
|
(13,116
|
)
|
|
|
(484
|
)
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vology,
Inc.
|
|
First
Lien Debt (10.5% Cash (1 month LIBOR + 8.5%, 2.0% Floor), Due 12/31/21)
|
|
|
3,829
|
|
|
|
206
|
|
|
|
3,877
|
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vology,
Inc.
|
|
Class
A Preferred Units (9,041,810 Units)
|
|
|
|
|
|
|
-
|
|
|
|
5,215
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(107
|
)
|
|
|
5,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vology,
Inc.
|
|
Membership
Units (5,363,982 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
|
9,092
|
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
-
|
|
|
|
(107
|
)
|
|
|
8,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Control investments
|
|
|
|
|
|
|
|
$
|
206
|
|
|
$
|
22,723
|
|
|
$
|
-
|
|
|
$
|
(13,164
|
)
|
|
$
|
(484
|
)
|
|
$
|
(138
|
)
|
|
$
|
8,937
|
|
|
(1)
|
Represents the total amount of interest, original issue
discount, fees and 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 investments, follow-on investments, accrued PIK and accretion of original issue discount.
Gross additions also include transfers into Affiliate or Control classification.
|
|
(3)
|
Gross reductions include decreases in the cost basis of
investments resulting from principal repayments and sales. Gross reductions also includes 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.
|
See accompanying notes to consolidated financial statements.
During the year ended December 31, 2019, 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, 2018
Fair Value
|
|
|
Gross
Additions (2)
|
|
|
Gross
Reductions (3)
|
|
|
Realized
Gain/(Loss)
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
|
December 31,
2019
Fair Value
|
|
Affiliate investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
First Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)
|
|
$
|
14,421
|
|
|
$
|
1,837
|
|
|
$
|
14,384
|
|
|
$
|
370
|
|
|
$
|
(750
|
)
|
|
$
|
-
|
|
|
$
|
417
|
|
|
$
|
14,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Common Stock Class B (1,085,073 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62
|
|
|
|
-
|
|
|
|
-
|
|
|
|
573
|
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burgaflex Holdings, LLC
|
|
Common Stock Class A (1,253,198 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837
|
|
|
|
14,384
|
|
|
|
432
|
|
|
|
(750
|
)
|
|
|
-
|
|
|
|
990
|
|
|
|
15,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Gear, LLC
|
|
Membership Unit Warrants
|
|
|
|
|
|
|
-
|
|
|
|
3,184
|
|
|
|
111
|
|
|
|
-
|
|
|
|
(111
|
)
|
|
|
142
|
|
|
|
3,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
3,184
|
|
|
|
111
|
|
|
|
-
|
|
|
|
(111
|
)
|
|
|
142
|
|
|
|
3,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Second Lien Debt (14.9% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 12/29/21)
|
|
|
16,500
|
|
|
|
3,230
|
|
|
|
16,500
|
|
|
|
659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(659
|
)
|
|
|
16,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastport Holdings, LLC
|
|
Membership Units (22.9% ownership)
|
|
|
|
|
|
|
-
|
|
|
|
17,610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212
|
|
|
|
17,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,230
|
|
|
|
34,110
|
|
|
|
659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(447
|
)
|
|
|
34,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA Communications, Inc. (5)
|
|
Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
3,482
|
|
|
|
299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
3,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GA Communications, Inc.
|
|
Series B-1 Common Stock (200,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
1,325
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(824
|
)
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
4,807
|
|
|
|
299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(844
|
)
|
|
|
4,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Second Lien Debt (13.0% Cash, Due 6/16/19)
|
|
|
-
|
|
|
|
485
|
|
|
|
6,210
|
|
|
|
-
|
|
|
|
(5,788
|
)
|
|
|
(618
|
)
|
|
|
196
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Common Stock (8,182 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(818
|
)
|
|
|
818
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J Produce Holdings, Inc.
|
|
Common Stock Warrants (6,369 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485
|
|
|
|
6,210
|
|
|
|
-
|
|
|
|
(5,788
|
)
|
|
|
(1,436
|
)
|
|
|
1,014
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LJS Partners, LLC
|
|
Preferred Units (92,924 units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
293
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LJS Partners, LLC
|
|
Common Membership Units (2,593,234 units)
|
|
|
|
|
|
|
-
|
|
|
|
3,018
|
|
|
|
327
|
|
|
|
(293
|
)
|
|
|
-
|
|
|
|
(1,543
|
)
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
3,018
|
|
|
|
620
|
|
|
|
(293
|
)
|
|
|
-
|
|
|
|
(1,464
|
)
|
|
|
1,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
First Lien Debt (12.0% Cash, Due 1/31/21)
|
|
|
2,600
|
|
|
|
316
|
|
|
|
2,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
Second Lien Debt (6.0% Cash, Due 1/31/21)
|
|
|
400
|
|
|
|
24
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC (5)
|
|
Preferred Units (1,000 units, 6.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
1,612
|
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMI Holdings, LLC
|
|
Common Membership Units (45 units)
|
|
|
|
|
|
|
-
|
|
|
|
185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340
|
|
|
|
4,797
|
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
4,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
First Lien Debt (11.0% Cash, Due 6/30/23)
|
|
|
10,100
|
|
|
|
568
|
|
|
|
-
|
|
|
|
10,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc. (5)
|
|
Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend)
|
|
|
|
|
|
|
50
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
Common Stock (60,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
464
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
|
|
-
|
|
|
|
11,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
464
|
|
|
|
11,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nth Degree Investment Group, LLC
|
|
Membership Units (6,088,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,088
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,088
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAM Payment, LLC
|
|
First Lien Debt (10.0% Cash, Due 1/4/24)
|
|
|
9,019
|
|
|
|
1,212
|
|
|
|
-
|
|
|
|
9,489
|
|
|
|
(470
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
9,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAM Payment, LLC (5)
|
|
Preferred Units (86,000 Units, 8.0% PIK Dividend)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
928
|
|
|
|
-
|
|
|
|
-
|
|
|
|
797
|
|
|
|
1,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,212
|
|
|
|
-
|
|
|
|
10,417
|
|
|
|
(470
|
)
|
|
|
-
|
|
|
|
797
|
|
|
|
10,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sierra Hamilton Holdings Corporation
|
|
Second Lien Debt (15.0% PIK, Due 9/12/23)
|
|
|
782
|
|
|
|
3
|
|
|
|
-
|
|
|
|
748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sierra Hamilton Holdings Corporation
|
|
Common Stock (15,068,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
6,854
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,694
|
)
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
6,854
|
|
|
|
748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,694
|
)
|
|
|
5,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Bath Group, LLC
|
|
First Lien Debt (11.5% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 1/2/23)
|
|
|
-
|
|
|
|
676
|
|
|
|
12,750
|
|
|
|
-
|
|
|
|
(12,750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Bath Group, LLC
|
|
Membership Units (500,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
2,083
|
|
|
|
-
|
|
|
|
(4,323
|
)
|
|
|
3,823
|
|
|
|
(1,583
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
676
|
|
|
|
14,833
|
|
|
|
-
|
|
|
|
(17,073
|
)
|
|
|
3,823
|
|
|
|
(1,583
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V12 Holdings, Inc.
|
|
Second Lien Debt
|
|
|
|
|
|
|
-
|
|
|
|
742
|
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
12
|
|
|
|
(16
|
)
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
742
|
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
12
|
|
|
|
(16
|
)
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Affiliate investments
|
|
|
|
|
|
|
|
$
|
8,401
|
|
|
$
|
92,939
|
|
|
$
|
30,572
|
|
|
$
|
(24,404
|
)
|
|
$
|
2,288
|
|
|
$
|
(2,632
|
)
|
|
$
|
98,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Second Lien Debt (6.0% PIK, Due 8/24/19)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,327
|
|
|
$
|
4,084
|
|
|
$
|
-
|
|
|
$
|
(20,411
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Membership Units (2.2% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAE Acquisition, LLC
|
|
Warrants (58.9% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
16,327
|
|
|
|
4,084
|
|
|
|
-
|
|
|
|
(20,428
|
)
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
First Lien Debt (8.0% Cash, Due 6/30/21)
|
|
|
-
|
|
|
|
72
|
|
|
|
1,708
|
|
|
|
1,842
|
|
|
|
(3,550
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
First Lien Debt (8.0% Cash, Due 6/30/21)
|
|
|
-
|
|
|
|
148
|
|
|
|
8,889
|
|
|
|
-
|
|
|
|
(3,424
|
)
|
|
|
(5,465
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Preferred Units - Series A1 (7,200,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,373
|
|
|
|
-
|
|
|
|
(5,373
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Preferred Units - Series A (4,000,000 units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,354
|
)
|
|
|
2,354
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Common Stock (14.9% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,394
|
)
|
|
|
1,394
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CableOrganizer Acquisition, LLC
|
|
Common Stock Warrants (40.0% fully diluted)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
10,597
|
|
|
|
7,215
|
|
|
|
(6,974
|
)
|
|
|
(14,586
|
)
|
|
|
3,748
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitala Senior Loan Fund II, LLC
|
|
Second Lien Debt (6.7% Cash (1 month LIBOR + 5.0%), Due 9/3/24)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitala Senior Loan Fund II, LLC
|
|
Membership Units (80.0% ownership)
|
|
|
|
|
|
|
1,040
|
|
|
|
13,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(64
|
)
|
|
|
13,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,040
|
|
|
|
13,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(64
|
)
|
|
|
13,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Second Lien Debt (10.0% Cash, Due 3/31/20)
|
|
|
-
|
|
|
|
106
|
|
|
|
1,862
|
|
|
|
-
|
|
|
|
(1,862
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Second Lien Debt (14.0% Cash, 4.0% PIK, Due 3/31/20)
|
|
|
-
|
|
|
|
350
|
|
|
|
4,325
|
|
|
|
88
|
|
|
|
(4,413
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Precision, LLC
|
|
Series A Preferred Units (47 units)
|
|
|
|
|
|
|
814
|
|
|
|
2,817
|
|
|
|
-
|
|
|
|
(1,629
|
)
|
|
|
-
|
|
|
|
(1,188
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,270
|
|
|
|
9,004
|
|
|
|
88
|
|
|
|
(7,904
|
)
|
|
|
-
|
|
|
|
(1,188
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
First Lien Debt (11.0% Cash, Due 6/30/23)
|
|
|
-
|
|
|
|
566
|
|
|
|
7,500
|
|
|
|
-
|
|
|
|
(7,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc. (5)
|
|
Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend)
|
|
|
|
|
|
|
50
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
(1,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navis Holdings, Inc.
|
|
Common Stock (60,000 shares)
|
|
|
|
|
|
|
-
|
|
|
|
4,348
|
|
|
|
-
|
|
|
|
(2,600
|
)
|
|
|
2,599
|
|
|
|
(4,347
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
616
|
|
|
|
12,848
|
|
|
|
-
|
|
|
|
(11,100
|
)
|
|
|
2,599
|
|
|
|
(4,347
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
First Lien Debt (9.0% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 2.0% Ceiling), Due 12/31/22)
|
|
|
-
|
|
|
|
98
|
|
|
|
-
|
|
|
|
3,540
|
|
|
|
(3,540
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
First Lien Debt (9.1% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 5.0% Ceiling), Due 12/31/22)
|
|
|
-
|
|
|
|
107
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
(792
|
)
|
|
|
(3,708
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
Preferred Units (4,350,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
2,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,450
|
)
|
|
|
276
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portrait Studio, LLC
|
|
Membership Units (150,000 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
6,674
|
|
|
|
3,540
|
|
|
|
(4,332
|
)
|
|
|
(6,158
|
)
|
|
|
276
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vology, Inc.
|
|
First Lien Debt (10.5% Cash (1 month LIBOR + 8.5%, 2.0% Floor), Due 12/31/21)
|
|
|
3,877
|
|
|
|
119
|
|
|
|
-
|
|
|
|
3,877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vology, Inc.
|
|
Class A Preferred Units (9,041,810 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,215
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vology, Inc.
|
|
Membership Units (5,363,982 Units)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
-
|
|
|
|
9,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Control investments
|
|
|
|
|
|
|
|
$
|
3,470
|
|
|
$
|
69,145
|
|
|
$
|
24,019
|
|
|
$
|
(30,310
|
)
|
|
$
|
(38,573
|
)
|
|
$
|
(1,558
|
)
|
|
$
|
22,723
|
|
|
(1)
|
Represents the total amount of interest, original issue
discount, fees and 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 investments, follow-on investments, accrued PIK and accretion of original issue discount.
Gross additions also include transfers into Affiliate or Control classification.
|
|
(3)
|
Gross reductions include decreases in the cost basis of
investments resulting from principal repayments and sales. Gross reductions also includes 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.
|
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 a meeting on July 30, 2020. 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,
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 June 30, 2020 and December 31, 2019, the Company had incentive
fees payable to the Investment Advisor of $3.7 million related to fees earned in prior years but deferred under the incentive fee
deferral mechanism.
For the three months
ended June 30, 2020 and 2019, the Company incurred $1.7 million and $2.0 million in base management fees, respectively. The Company
incurred $0.0 and $0.5 million in incentive fees related to pre-incentive fee net investment income for the three months ended
June 30, 2020 and 2019, respectively. For the three months ended June 30, 2020 and 2019, our Investment Advisor waived $0.0 and
$0.3 million, respectively, in incentive fees.
For the six months
ended June 30, 2020 and 2019, the Company incurred $3.4 million and $4.1 million in base management fees, respectively. The Company
incurred $0.0 and $1.5 million in incentive fees related to pre-incentive fee net investment income for the six months ended June
30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, our Investment Advisor waived $0.0 and $0.3 million,
respectively, in incentive fees.
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, 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 30, 2020. 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 six
months ended June 30, 2020, the Company paid the Administrator $0.4 million and $0.7 million, respectively, for the Company’s
allocable portion of the Administrator’s overhead. For the three and six months ended June 30, 2019, the Company paid the
Administrator $0.4 million and $0.7 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 June 30, 2020 and
December 31, 2019, the Company had $3.6 million and $3.7 million, respectively, of management and incentive fees payable to the
Investment Advisor. These amounts are reflected in the accompanying consolidated statements of assets and liabilities under
the caption “Management and incentive fees payable.”
On June 1, 2020, the
Company purchased 50% of the outstanding loans in CSLF II at par as part of the wind-down of the joint venture. The Company paid
$8.3 million for the loans and assumed a $3.0 million unfunded commitment related to Rapid Fire Protection, Inc.’s revolving
credit facility. On June 12, 2020, the Company wound down CSLF II. See Note 4 for details.
Note 8. Borrowings
SBA Debentures
The Company, through
its wholly owned subsidiary Fund III, uses debenture leverage provided through the SBA to fund a portion of its investment portfolio.
As of June 30, 2020 and December 31, 2019, the Company had $150.0 million 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. On March 1, 2019, Fund II repaid its outstanding SBA
debentures and relinquished its SBIC license. SBA-guaranteed debentures are secured by a lien on all assets of Fund III and were
secured by a lien on all assets of Fund II prior to March 1, 2019. As of June 30, 2020, Fund III had total assets of $238.5 million.
As of December 31, 2019, Fund III had total assets of $266.3 million. 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 outstanding balance, and average stated interest
and annual charge rate on the SBA-guaranteed debentures for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Interest expense and annual charges
|
|
$
|
1,331
|
|
|
$
|
1,331
|
|
|
$
|
2,662
|
|
|
$
|
2,764
|
|
Deferred financing costs
|
|
|
125
|
|
|
|
139
|
|
|
|
249
|
|
|
|
424
|
|
Total interest and financing expenses
|
|
$
|
1,456
|
|
|
$
|
1,470
|
|
|
$
|
2,911
|
|
|
$
|
3,188
|
|
Average outstanding balance
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
155,118
|
|
Average stated interest and annual charge rate
|
|
|
3.56
|
%
|
|
|
3.56
|
%
|
|
|
3.56
|
%
|
|
|
3.59
|
%
|
As of June 30, 2020
and December 31, 2019, the Company’s issued and outstanding SBA-guaranteed debentures mature as follows (dollars in thousands):
Fixed Maturity Date
|
|
Interest Rate
|
|
|
SBA Annual
Charge
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
September 1, 2020
|
|
|
3.215
|
%
|
|
|
0.285
|
%
|
|
$
|
19,000
|
|
|
$
|
19,000
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
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.
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 six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Interest expense
|
|
$
|
1,125
|
|
|
$
|
1,125
|
|
|
$
|
2,250
|
|
|
$
|
2,250
|
|
Deferred financing costs
|
|
|
143
|
|
|
|
134
|
|
|
|
283
|
|
|
|
266
|
|
Total interest and financing expenses
|
|
$
|
1,268
|
|
|
$
|
1,259
|
|
|
$
|
2,533
|
|
|
$
|
2,516
|
|
Average outstanding balance
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
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.
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 six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Interest expense
|
|
$
|
749
|
|
|
$
|
749
|
|
|
$
|
1,498
|
|
|
$
|
1,498
|
|
Deferred financing costs
|
|
|
90
|
|
|
|
85
|
|
|
|
179
|
|
|
|
169
|
|
Total interest and financing expenses
|
|
$
|
839
|
|
|
$
|
834
|
|
|
$
|
1,677
|
|
|
$
|
1,667
|
|
Average outstanding balance
|
|
$
|
52,088
|
|
|
$
|
52,088
|
|
|
$
|
52,088
|
|
|
$
|
52,088
|
|
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 (as amended, the “Credit Facility”) with ING Capital,
LLC, as administrative agent, arranger, and bookrunner, and the lenders party thereto. The Credit Facility was set to mature on
April 30, 2022. On June 19, 2020, the Company unilaterally terminated the Credit Facility.
Borrowings under the
Credit Facility bore 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 3.50% 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 were based, provided the Company
with increased flexibility to manage interest rate risks as compared to a borrowing arrangement that did not provide for such optionality.
Once a particular LIBOR had been selected, the interest rate on the applicable amount borrowed reset after the applicable tenor
period and was based on the then applicable selected LIBOR (e.g., borrowings for which the Company elected the one month LIBOR
reset on the one month anniversary of the period based on the then selected LIBOR). For any given borrowing under the Credit Facility,
the Company elected what it believed to be an appropriate LIBOR 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 provided for the ability to step-down the pricing
of the Credit Facility from LIBOR plus 3.50% to LIBOR plus 3.00% when certain conditions were met. The Company also paid an unused
commitment fee at a rate of 0.75% per annum on the unutilized portion of the aggregate commitments under the Credit Facility on
each day when the utilized portion of the aggregate commitments was less than 35% for such day and 0.50% per annum on the unutilized
portion of the aggregate commitments under the Credit Facility when the utilized portion was greater than 35% for such day.
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 six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
307
|
|
|
$
|
—
|
|
|
$
|
523
|
|
Deferred financing costs
|
|
|
1,226
|
|
|
|
122
|
|
|
|
1,379
|
|
|
|
237
|
|
Unused commitment fees
|
|
|
96
|
|
|
|
236
|
|
|
|
211
|
|
|
|
510
|
|
Total interest and financing expenses
|
|
$
|
1,322
|
|
|
$
|
665
|
|
|
$
|
1,590
|
|
|
$
|
1,270
|
|
Average outstanding balance
|
|
$
|
—
|
|
|
$
|
22,252
|
|
|
$
|
—
|
|
|
$
|
18,977
|
|
Average stated interest rate
|
|
|
—
|
%
|
|
|
5.47
|
%
|
|
|
—
|
%
|
|
|
5.50
|
%
|
As of December 31,
2019, the Company had $0.0 outstanding under the Credit Facility. The Credit Facility was secured by investments and cash held
by the Company, exclusive of assets pledged as collateral for the Company’s SBA debentures. Assets pledged to secure the
Credit Facility had a carrying value of $159.8 million at December 31, 2019.
Financial Instruments Disclosed, But
Not Carried, At Fair Value
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 June 30, 2020, 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
|
|
$
|
150,000
|
|
|
$
|
151,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
151,013
|
|
2022 Notes
|
|
|
75,000
|
|
|
|
60,300
|
|
|
|
60,300
|
|
|
|
—
|
|
|
|
—
|
|
2022 Convertible Notes
|
|
|
52,088
|
|
|
|
40,107
|
|
|
|
40,107
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
277,088
|
|
|
$
|
251,420
|
|
|
$
|
100,407
|
|
|
$
|
—
|
|
|
$
|
151,013
|
|
|
(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, 2019, 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
|
|
$
|
150,000
|
|
|
$
|
151,167
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
151,167
|
|
2022 Notes
|
|
|
75,000
|
|
|
|
74,970
|
|
|
|
74,970
|
|
|
|
—
|
|
|
|
—
|
|
2022 Convertible Notes
|
|
|
52,088
|
|
|
|
51,498
|
|
|
|
51,498
|
|
|
|
—
|
|
|
|
—
|
|
Credit Facility
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
277,088
|
|
|
$
|
277,635
|
|
|
$
|
126,468
|
|
|
$
|
—
|
|
|
$
|
151,167
|
|
|
(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 six months ended June 30, 2020, the Company recognized directors’ fees expense of $0.1 million and $0.2 million,
respectively. For the three and six months ended June 30, 2019, the Company recognized directors’ fees expense of $0.1 million
and $0.2 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. Effective April 1, 2020, the Company’s independent
directors have agreed to waive 20% of the fees due to them for the remainder of the fiscal year ending December 31, 2020 due to
the impact of the COVID-19 pandemic.
Note 10. 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 diluted earnings per share. For the
three and six months ended June 30, 2020 and 2019, 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 net increase (decrease) in net assets per share resulting
from operations for the three and six months ended June 30, 2020 and 2019 (dollars in thousands, except share and per share data):
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
3,100
|
|
|
$
|
(29,144
|
)
|
|
$
|
(39,340
|
)
|
|
$
|
(29,295
|
)
|
Weighted average common stock outstanding – basic and diluted
|
|
|
16,266,484
|
|
|
|
16,096,678
|
|
|
|
16,243,538
|
|
|
|
16,079,885
|
|
Net increase (decrease) in net assets per share resulting from operations – basic and diluted
|
|
$
|
0.19
|
|
|
$
|
(1.81
|
)
|
|
$
|
(2.42
|
)
|
|
$
|
(1.82
|
)
|
Note 11. Distributions
The Company’s
distributions are recorded on the record 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.
On April 30, 2020,
the Company’s Board determined not to declare a distribution for the second quarter of 2020 due to the impact of the COVID-19
pandemic on the Company’s expected net investment income. On July 30, 2020, the Company’s Board determined not to declare
a distribution for the third quarter of 2020 due to the impact of the COVID-19 pandemic on the Company’s expected net investment
income.
Tax characteristics
of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the three and six months
ended June 30, 2020, we estimate that total distributions of $0.0 and $4.1 million, respectively, were classified as a return
of capital. Distributions may be subject to reclassification based on future dividends and operating results and will not be determined
until the end of the year.
The following table
summarizes the Company’s distribution declarations for the six months ended June 30, 2020 (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, 2020
|
|
January 24, 2020
|
|
January 30, 2020
|
|
$
|
0.0833
|
|
|
$
|
1,231
|
|
|
|
14,593
|
|
|
$
|
119
|
|
January 2, 2020
|
|
February 20, 2020
|
|
February 27, 2020
|
|
|
0.0833
|
|
|
|
1,228
|
|
|
|
16,556
|
|
|
|
122
|
|
January 2, 2020
|
|
March 23, 2020
|
|
March 30, 2020
|
|
|
0.0833
|
|
|
|
1,259
|
|
|
|
31,566
|
|
|
|
94
|
|
Total Distributions Declared and Distributed
|
|
$
|
0.25
|
|
|
$
|
3,718
|
|
|
|
62,715
|
|
|
$
|
335
|
|
The following table summarizes the Company’s
distribution declarations for the six months ended June 30, 2019 (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, 2019
|
|
January 24, 2019
|
|
January 30, 2019
|
|
$
|
0.0833
|
|
|
$
|
1,256
|
|
|
|
10,270
|
|
|
$
|
81
|
|
January 2, 2019
|
|
February 20, 2019
|
|
February 27, 2019
|
|
|
0.0833
|
|
|
|
1,253
|
|
|
|
10,570
|
|
|
|
85
|
|
January 2, 2019
|
|
March 21, 2019
|
|
March 28, 2019
|
|
|
0.0833
|
|
|
|
1,250
|
|
|
|
11,756
|
|
|
|
89
|
|
April 1, 2019
|
|
April 22, 2019
|
|
April 29, 2019
|
|
|
0.0833
|
|
|
|
1,246
|
|
|
|
11,479
|
|
|
|
94
|
|
April 1, 2019
|
|
May 23, 2019
|
|
May 30, 2019
|
|
|
0.0833
|
|
|
|
1,243
|
|
|
|
11,579
|
|
|
|
97
|
|
April 1, 2019
|
|
June 20, 2019
|
|
June 27, 2019
|
|
|
0.0833
|
|
|
|
1,238
|
|
|
|
11,747
|
|
|
|
104
|
|
Total Distributions Declared and Distributed
|
|
$
|
0.50
|
|
|
$
|
7,486
|
|
|
|
67,401
|
|
|
$
|
550
|
|
Note 12. Financial Highlights
The following is a
schedule of financial highlights for the six months ended June 30, 2020 and 2019 (dollars in thousands, except share and per share
data):
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
9.14
|
|
|
$
|
11.88
|
|
Net investment income (loss)(1)
|
|
|
(0.04
|
)
|
|
|
0.51
|
|
Net realized loss on investments(1)
|
|
|
(0.76
|
)
|
|
|
(1.30
|
)
|
Net unrealized depreciation on investments(1)
|
|
|
(1.63
|
)
|
|
|
(0.99
|
)
|
Tax provision(1)
|
|
|
—
|
|
|
|
(0.04
|
)
|
Distributions – return of capital(2)
|
|
|
(0.25
|
)
|
|
|
—
|
|
Distributions – net investment income(2)
|
|
|
—
|
|
|
|
(0.50
|
)
|
Other(3)
|
|
|
—
|
|
|
|
(0.01
|
)
|
Net asset value at end of period
|
|
$
|
6.46
|
|
|
$
|
9.55
|
|
Net assets at end of period
|
|
$
|
105,055
|
|
|
$
|
153,863
|
|
Shares outstanding at end of period
|
|
|
16,266,484
|
|
|
|
16,118,948
|
|
Per share market value at end of period
|
|
$
|
2.63
|
|
|
$
|
9.45
|
|
Total return based on market value(4)
|
|
|
(68.36
|
)%
|
|
|
40.11
|
%
|
Ratio/Supplemental data:
|
|
|
|
|
|
|
|
|
Ratio of net investment income (loss) to average net assets(5)
|
|
|
(1.06
|
)%
|
|
|
9.98
|
%
|
Ratio of incentive fees, net of incentive fee waiver, to average net assets(6)(7)
|
|
|
—
|
%
|
|
|
0.68
|
%
|
Ratio of interest and financing expenses to average net assets(8)
|
|
|
14.80
|
%
|
|
|
9.84
|
%
|
Ratio of tax provision to average net assets(8)
|
|
|
—
|
%
|
|
|
0.72
|
%
|
Ratio of other operating expenses to average net assets(8)
|
|
|
10.16
|
%
|
|
|
7.13
|
%
|
Ratio of total expenses including tax benefit, to average net assets(5)(6)
|
|
|
24.96
|
%
|
|
|
18.37
|
%
|
Portfolio turnover rate(9)
|
|
|
6.43
|
%
|
|
|
8.09
|
%
|
Average debt outstanding(10)
|
|
$
|
277,088
|
|
|
$
|
301,183
|
|
Average debt outstanding per common share
|
|
$
|
17.03
|
|
|
$
|
18.69
|
|
Asset coverage ratio per unit(11)
|
|
$
|
1,827
|
|
|
$
|
2,165
|
|
|
(1)
|
Based on daily weighted average
balance of shares outstanding during the period.
|
|
(2)
|
Distributions may be subject
to reclassification based on future dividends and operating results and will not be determined until the end of the year.
|
|
(3)
|
Includes the impact of different
share amounts used in calculating 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.
|
|
(4)
|
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.
|
|
(5)
|
Ratios are annualized. Incentive
fees, included within the ratio are not annualized.
|
|
(6)
|
The ratio of waived incentive
fees to average net assets was 0.00% and 0.16%, respectively, for the six months ended June 30, 2020 and 2019.
|
|
(7)
|
Ratio is not annualized.
|
|
(8)
|
Ratios are annualized.
|
|
(9)
|
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.
|
|
(10)
|
Based on the daily weighted
average balance of debt outstanding during the period.
|
|
(11)
|
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 June 30, 2020 and 2019 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 150% 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.
|
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
June 30, 2020.
Portfolio Activity
During July 2020, the
Company received $2.4 million in principal repayments on its first lien debt investment in BigMouth, Inc.
Other
On July 30, 2020,
the Board approved a one-for-six reverse stock split of the Company’s common stock which is expected to be effective at
5:00 p.m. Eastern Standard Time on August 21, 2020 (the "Effective Time"). The Company's common stock is expected
to begin trading on a split-adjusted basis at the market open on August 24, 2020. At the Effective Time, every six (6) issued
and outstanding shares of the Company's common stock will be converted into one (1) share of the Company's common stock.
On July 30, 2020, the
Board approved a bond repurchase program which authorizes the Company to repurchase up to an aggregate of $10.0 million worth of
the Company's outstanding 2022 Notes and/or 2022 Convertible Notes (the "Bond Repurchase Program"). The Bond Repurchase
Program will terminate upon the earlier of (i) July 30, 2021 or (ii) the repurchase of an aggregate of $10.0 million worth of 2022
Notes and/or 2022 Convertible Notes.