NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
As of
March 31, 2018
(dollar amounts in thousands, except per share data)
1. ORGANIZATION
TCG BDC, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” “TCG BDC” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. The Company is managed by its investment adviser, Carlyle Global Credit Investment Management L.L.C. (“CGCIM” or “Investment Adviser”), a wholly owned subsidiary of The Carlyle Group L.P. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In addition, the Company has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the “Code”).
The Company’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which the Company defines as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which the Company believes is a useful proxy for cash flow. The Company seeks to achieve its investment objective primarily through direct originations of secured debt, including first lien senior secured loans (which may include stand-alone first lien loans, first lien/last out loans and “unitranche” loans) and second lien senior secured loans (collectively, “Middle Market Senior Loans”), with the balance of its assets invested in higher yielding investments (which may include unsecured debt, mezzanine debt and investments in equities). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, the Company expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans. The Company expects that the composition of its portfolio will change over time given the Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which the Company is operating.
The Company invests primarily in loans to middle market companies whose debt, if rated, is rated below investment grade, and, if not rated, would likely be rated below investment grade if it were rated (that is, below BBB- or Baa3, which is often referred to as “junk”). Exposure to below investment grade instruments involves certain risks, including speculation with respect to the borrower’s capacity to pay interest and repay principal.
On May 2, 2013, the Company completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations. Effective March 15, 2017, the Company changed its name from “Carlyle GMS Finance, Inc.” to “TCG BDC, Inc.” On June 19, 2017, the Company closed its initial public offering (“IPO”), issuing 9,454,200 shares of its common stock (including shares issued pursuant to the exercise of the underwriters’ over-allotment option on July 5, 2017) at a public offering price of $18.50 per share. Net of underwriting costs, the Company received cash proceeds of $169,488. Shares of common stock of TCG BDC began trading on the NASDAQ Global Select Market under the symbol “CGBD” on June 14, 2017.
Until December 31, 2017, the Company was an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012. As of June 30, 2017, the market value of the common stock held by non-affiliates exceeded $700,000. Accordingly, the Company ceased to be an emerging growth company as of December 31, 2017.
The Company is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle Global Credit Administration L.L.C. (the “Administrator”) provides the administrative services necessary for the Company to operate. Both the Investment Adviser and the Administrator are wholly owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. “Carlyle” refers to The Carlyle Group L.P. and its affiliates and its consolidated subsidiaries (other than portfolio companies of its affiliated funds), a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.
TCG BDC SPV LLC (the “SPV”) is a Delaware limited liability company that was formed on January 3, 2013. The SPV invests in first and second lien senior secured loans. The SPV is a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, January 3, 2013. Effective March 15, 2017, the SPV changed its name from “Carlyle GMS Finance SPV LLC” to “TCG BDC SPV LLC”.
On June 9, 2017, pursuant to the Agreement and Plan of Merger, dated May 3, 2017 (the “Agreement”), by and between the Company and NF Investment Corp. (“NFIC”), NFIC merged with and into the Company (the “NFIC Acquisition”), with the Company as the surviving entity. The NFIC Acquisition was accounted for as an asset acquisition. NFIC SPV LLC (the “NFIC SPV” and, together with the SPV, the “SPVs”) is a Delaware limited liability company that was formed on June 18, 2013. Upon the consummation of the NFIC Acquisition, the NFIC SPV became a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the closing date of the NFIC Acquisition, June 9, 2017.
On June 26, 2015, the Company completed a $400,000 term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the 2015-1 Debt Securitization (the “2015-1 Notes”) were issued by Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. Refer to Note 7 for details. The 2015-1 Issuer is consolidated in these consolidated financial statements commencing from the date of its formation, May 8, 2015.
On February 29, 2016, the Company and Credit Partners USA LLC (“Credit Partners”) entered into an amended and restated limited liability company agreement, which was subsequently amended on June 24, 2016 (as amended, the “Limited Liability Company Agreement”) to co-manage Middle Market Credit Fund, LLC (“Credit Fund”). Credit Fund primarily invests in first lien loans of middle market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Refer to Note 5, Middle Market Credit Fund, LLC, for details.
As a BDC, the Company is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).
To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, the Company generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that the Company satisfies those requirements.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company is an investment company for the purposes of accounting and financial reporting in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 946,
Financial Services—Investment Companies
(“ASC 946”)
.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the SPVs and the 2015-1 Issuer. All significant intercompany balances and transactions have been eliminated. US GAAP for an investment company requires investments to be recorded at fair value. The carrying value for all other assets and liabilities approximates their fair value.
The interim financial statements have been prepared in accordance with US GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying the annual consolidated financial statements prepared in accordance with US GAAP are omitted. In the opinion of management, all adjustments considered necessary for the fair presentation of consolidated financial statements for the interim period presented have been included. These adjustments are of a normal, recurring nature. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended
December 31, 2017
. The results of operations for the
three month periods ended
March 31, 2018
are not necessarily indicative of the operating results to be expected for the full year.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that
management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on base management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements. Actual results could differ from these estimates and such differences could be material.
Investments
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the accompanying Consolidated Statements of Operations reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See Note 3 for further information about fair value measurements.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. treasury notes) with original maturities of three months or less. Cash equivalents are carried at amortized cost, which approximates fair value. The Company’s cash and cash equivalents are held with two large financial institutions and cash held in such financial institutions may, at times, exceed the Federal Deposit Insurance Corporation insured limit.
Revenue Recognition
Interest from Investments and Realized Gain/Loss on Investments
Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.
The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity. Such income is included in interest income in the Consolidated Statements of Operations. As of
March 31, 2018
and
December 31, 2017
, the fair value of the loan in the portfolio with PIK provisions was
$13,248
and
$15,451
, respectively, which represents approximately
0.7%
and
0.8%
of total investments at fair value, respectively. For the
three month periods ended
March 31, 2018
and
2017
, the Company earned
$213
and
$0
in PIK income, respectively.
Dividend Income
Dividend income from the investment fund is recorded on the record date for the investment fund to the extent that such amounts are payable by the investment fund and are expected to be collected.
Other Income
Other income may include income such as consent, waiver, amendment, syndication and prepayment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees are amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the accompanying Consolidated Statements of Assets and Liabilities. For the
three month periods ended
March 31, 2018
and
2017
, the Company earned
$895
and
$2,536
, respectively, in other income, primarily from syndication and prepayment fees.
Non-Accrual Income
Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of
March 31, 2018
and
December 31, 2017
, the fair value of the loan in the portfolio on non-accrual status was
$14,955
and
$19,487
, respectively, which represents approximately
0.8%
and
1.0%
of total investments at fair value, respectively. The remaining first and second lien debt investments were performing and current on their interest payments as of
March 31, 2018
and
December 31, 2017
.
SPV Credit Facility, Credit Facility and 2015-1 Notes Related Costs, Expenses and Deferred Financing Costs (See Note 6, Borrowings, and Note 7, 2015-1 Notes)
Interest expense and unused commitment fees on the SPV Credit Facility and Credit Facility are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.
The SPV Credit Facility and Credit Facility are recorded at carrying value, which approximates fair value.
Deferred financing costs include capitalized expenses related to the closing or amendments of the SPV Credit Facility and Credit Facility. Amortization of deferred financing costs for each credit facility is computed on the straight-line basis over the respective term of each credit facility, except for a portion that was accelerated in connection with the amendment of the SPV Credit Facility as described in Note 6. The unamortized balance of such costs is included in deferred financing costs in the accompanying Consolidated Statements of Assets and Liabilities. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.
Debt issuance costs include capitalized expenses including structuring and arrangement fees related to the offering of the 2015-1 Notes. Amortization of debt issuance costs for the 2015-1 Notes is computed on the effective yield method over the term of the 2015-1 Notes. The unamortized balance of such costs is presented as a direct deduction to the carrying amount of the 2015-1 Notes in the accompanying Consolidated Statements of Assets and Liabilities. The amortization of such costs is included in interest expense in the accompanying Consolidated Statements of Operations.
The 2015-1 Notes are recorded at carrying value, which approximates fair value.
Offering Costs
Offering costs consist primarily of fees and expenses incurred in connection with the offering of shares, including legal, underwriting, printing and other costs, as well as costs associated with the preparation and filing of applicable registration statements. Offering costs are charged against equity when incurred. During the
three month period ended
March 31, 2018
,
$30
of offering costs were incurred, 50% of which were paid by the Investment Adviser.
Income Taxes
For federal income tax purposes, the Company has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, the Company must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then the Company is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.
The minimum distribution requirements applicable to RICs require the Company to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
In addition, based on the excise distribution requirements, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For
this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed. The Company intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense. The SPVs and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of the Company. For the
three month periods ended
March 31, 2018
and
2017
, the Company incurred
$10
and
$169
, respectively, in excise tax expense.
Dividends and Distributions to Common Stockholders
To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.
Prior to July 5, 2017, the Company had an “opt in” dividend reinvestment plan. Effective on July 5, 2017, the Company converted the “opt in” dividend reinvestment plan to an “opt out” dividend reinvestment plan that provides for reinvestment of dividends and other distributions on behalf of the stockholders, other than those stockholders who have “opted out” of the plan. As a result of adopting the plan, if the Board of Directors authorizes, and the Company declares, a cash dividend or distribution, the stockholders who have not elected to “opt out” of the dividend reinvestment plan will have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Each registered stockholder may elect to have such stockholder’s dividends and distributions distributed in cash rather than participate in the plan. For any registered stockholder that does not so elect, distributions on such stockholder’s shares will be reinvested by State Street Bank and Trust Company, the Company’s plan administrator, in additional shares. The number of shares to be issued to the stockholder will be determined based on the total dollar amount of the cash distribution payable, net of applicable withholding taxes. The Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share on the relevant valuation date. If the market value per share is less than the net asset value per share on the relevant valuation date, the plan administrator would implement the plan through the purchase of common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.
Functional Currency
The functional currency of the Company is the U.S. Dollar and all transactions were in U.S. Dollars.
Recent Accounting Standards Updates
The FASB issued Accounting Standards Update (“ASU”) 2014-9,
Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-9”) in May 2014 and subsequently issued several amendments to the standard. ASU 2014-9, and related amendments, provide comprehensive guidance for recognizing revenue from contracts with customers. Entities are able to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. The guidance in ASU 2014-9, and the related amendments, was effective for the Company on January 1, 2018. The Company has adopted the ASU on January 1, 2018, which did not have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230) - Restricted Cash
. ASU 2016-18 clarifies the presentation of restricted cash in the statement of cash flows by requiring the amounts described as restricted cash be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. If cash and cash equivalents and restricted cash are presented separately on the statement of financial position, a reconciliation of these separate line items to the total cash amount included in the statement of cash flows are required either in the footnotes or on the face of the statement of cash flows. This guidance was effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017 and early adoption
was permitted. The Company has adopted the ASU on January 1, 2018, which did not have a material impact on the Company’s consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
The Company applies fair value accounting in accordance with the terms of ASC Topic 820,
Fair Value Measurement
(“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e., “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.
Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or the Company’s Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment other than Credit Fund is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.
All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:
|
|
•
|
the nature and realizable value of any collateral;
|
|
|
•
|
call features, put features and other relevant terms of debt;
|
|
|
•
|
the portfolio company’s leverage and ability to make payments;
|
|
|
•
|
the portfolio company’s public or private credit rating;
|
|
|
•
|
the portfolio company’s actual and expected earnings and discounted cash flow;
|
|
|
•
|
prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;
|
|
|
•
|
the markets in which the portfolio company does business and recent economic and/or market events; and
|
|
|
•
|
comparisons to comparable transactions and publicly traded securities.
|
Investment performance data utilized are the most recently available financial statements and compliance certificates received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of
March 31, 2018
and
December 31, 2017
.
US GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.
Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:
|
|
•
|
Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments in Level 1 generally include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
|
|
|
•
|
Level 2—inputs to the valuation methodology are either directly or indirectly observable as of the reporting date and are those other than quoted prices in active markets. The type of financial instruments in this category generally includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.
|
|
|
•
|
Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are in this category generally include investments in privately-held entities, collateralized loan obligations (“CLOs”), and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
|
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. For the
three month periods ended
March 31, 2018
and
2017
, there were
no
transfers between levels.
The following tables summarize the Company’s investments measured at fair value on a recurring basis by the above fair value hierarchy levels as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
First Lien Debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,475,874
|
|
|
$
|
1,475,874
|
|
Second Lien Debt
|
—
|
|
|
—
|
|
|
217,707
|
|
|
217,707
|
|
Equity Investments
|
—
|
|
|
—
|
|
|
18,812
|
|
|
18,812
|
|
Investment Fund
|
|
|
|
|
|
|
|
Mezzanine Loan
|
—
|
|
|
—
|
|
|
107,600
|
|
|
107,600
|
|
Subtotal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,819,993
|
|
|
$
|
1,819,993
|
|
Investments measured at net asset value
(1)
|
|
|
|
|
|
|
93,466
|
|
Total
|
|
|
|
|
|
|
$
|
1,913,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
First Lien Debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,531,276
|
|
|
$
|
1,531,276
|
|
Second Lien Debt
|
—
|
|
|
—
|
|
|
246,233
|
|
|
246,233
|
|
Equity Investments
|
—
|
|
|
—
|
|
|
17,506
|
|
|
17,506
|
|
Investment Fund
|
|
|
|
|
|
|
|
Mezzanine Loan
|
—
|
|
|
—
|
|
|
85,750
|
|
|
85,750
|
|
Subtotal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,880,765
|
|
|
$
|
1,880,765
|
|
Investments measured at net asset value
(1)
|
|
|
|
|
|
|
86,766
|
|
Total
|
|
|
|
|
|
|
$
|
1,967,531
|
|
|
|
(1)
|
Amount represents the Company’s subordinated loan and member’s interest investments in Credit Fund. The fair value of these investments has been estimated using the net asset value of the Company’s ownership interests in Credit Fund.
|
The changes in the Company’s investments at fair value for which the Company has used Level 3 inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level 3 investments still held are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
For the three month period ended March 31, 2018
|
|
First Lien Debt
|
|
Second Lien Debt
|
|
Equity Investments
|
|
Investment Fund - Mezzanine Loan
|
|
Total
|
Balance, beginning of period
|
$
|
1,531,276
|
|
|
$
|
246,233
|
|
|
$
|
17,506
|
|
|
$
|
85,750
|
|
|
$
|
1,880,765
|
|
Purchases
|
66,257
|
|
|
24,994
|
|
|
500
|
|
|
21,850
|
|
|
113,601
|
|
Sales
|
(20,960
|
)
|
|
(3,960
|
)
|
|
—
|
|
|
—
|
|
|
(24,920
|
)
|
Paydowns
|
(97,110
|
)
|
|
(49,992
|
)
|
|
—
|
|
|
—
|
|
|
(147,102
|
)
|
Accretion of discount
|
1,527
|
|
|
863
|
|
|
—
|
|
|
—
|
|
|
2,390
|
|
Net realized gains (losses)
|
(131
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(129
|
)
|
Net change in unrealized appreciation (depreciation)
|
(4,985
|
)
|
|
(433
|
)
|
|
806
|
|
|
—
|
|
|
(4,612
|
)
|
Balance, end of period
|
$
|
1,475,874
|
|
|
$
|
217,707
|
|
|
$
|
18,812
|
|
|
$
|
107,600
|
|
|
$
|
1,819,993
|
|
Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of March 31, 2018 included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations
|
$
|
(4,796
|
)
|
|
$
|
673
|
|
|
$
|
806
|
|
|
$
|
—
|
|
|
$
|
(3,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
For the three month period ended March 31, 2017
|
|
First Lien Debt
|
|
Second Lien Debt
|
|
Structured Finance Obligations
|
|
Equity Investments
|
|
Investment Fund - Mezzanine Loan
|
|
Total
|
Balance, beginning of period
|
$
|
1,139,548
|
|
|
$
|
171,864
|
|
|
$
|
5,216
|
|
|
$
|
6,474
|
|
|
$
|
62,384
|
|
|
$
|
1,385,486
|
|
Purchases
|
92,793
|
|
|
1,782
|
|
|
—
|
|
|
1,500
|
|
|
45,660
|
|
|
141,735
|
|
Sales
|
(24,723
|
)
|
|
(2,978
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,701
|
)
|
Paydowns
|
(120,872
|
)
|
|
(10,000
|
)
|
|
(2,518
|
)
|
|
—
|
|
|
(22,000
|
)
|
|
(155,390
|
)
|
Accretion of discount
|
3,425
|
|
|
151
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,576
|
|
Net realized gains (losses)
|
(7,552
|
)
|
|
(3
|
)
|
|
(139
|
)
|
|
—
|
|
|
—
|
|
|
(7,694
|
)
|
Net change in unrealized appreciation (depreciation)
|
2,935
|
|
|
827
|
|
|
217
|
|
|
477
|
|
|
—
|
|
|
4,456
|
|
Balance, end of period
|
$
|
1,085,554
|
|
|
$
|
161,643
|
|
|
$
|
2,776
|
|
|
$
|
8,451
|
|
|
$
|
86,044
|
|
|
$
|
1,344,468
|
|
Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of March 31, 2017 included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations
|
$
|
(3,472
|
)
|
|
$
|
859
|
|
|
$
|
220
|
|
|
$
|
477
|
|
|
$
|
—
|
|
|
$
|
(1,916
|
)
|
The Company generally uses the following framework when determining the fair value of investments that are categorized as Level 3:
Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.
Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.
Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the security’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies. Investments in debt securities may also be valued using consensus pricing.
Investments in equities are generally valued using a market approach and/or an income approach. The market approach utilizes EBITDA multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The income approach typically uses a discounted cash flow analysis of the portfolio company.
Investments in the subordinated loan and member’s interest of the investment fund are valued using the net asset value of the Company’s ownership interest in the investment fund and investments in the mezzanine loan of the investment fund are valued using discounted cash flow analysis with expected repayment rate of principal and interest.
The following tables summarize the quantitative information related to the significant unobservable inputs for Level 3 instruments which are carried at fair value as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of March 31, 2018
|
|
Valuation Techniques
|
|
Significant Unobservable Inputs
|
|
Range
|
|
|
|
Low
|
|
High
|
|
Weighted Average
|
Investments in First Lien Debt
|
$
|
1,301,906
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
4.40
|
%
|
|
13.46
|
%
|
|
8.22
|
%
|
|
159,013
|
|
|
Consensus Pricing
|
|
Indicative Quotes
|
|
59.90
|
|
|
100.00
|
|
|
96.01
|
|
|
14,955
|
|
|
Income Approach
|
|
Discount Rate
|
|
13.59
|
%
|
|
13.59
|
%
|
|
13.59
|
%
|
|
|
|
Market Approach
|
|
Comparable Multiple
|
|
7.80x
|
|
|
7.80x
|
|
|
7.80x
|
|
Total First Lien Debt
|
1,475,874
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Second Lien Debt
|
191,426
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
7.57
|
%
|
|
14.59
|
%
|
|
9.59
|
%
|
|
26,281
|
|
|
Consensus Pricing
|
|
Indicative Quotes
|
|
100.00
|
|
|
100.75
|
|
|
100.09
|
|
Total Second Lien Debt
|
217,707
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Equity
|
18,812
|
|
|
Income Approach
|
|
Discount Rate
|
|
8.08
|
%
|
|
12.71
|
%
|
|
9.38
|
%
|
|
|
|
Market Approach
|
|
Comparable Multiple
|
|
7.31x
|
|
|
13.92x
|
|
|
10.26x
|
|
Total Equity Investments
|
18,812
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Investment Fund—Mezzanine Loan
|
107,600
|
|
|
Income Approach
|
|
Repayment Rate
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
Total Investment Fund—Mezzanine Loan
|
107,600
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 Investments
|
$
|
1,819,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2017
|
|
Valuation Techniques
|
|
Significant Unobservable Inputs
|
|
Range
|
|
|
|
Low
|
|
High
|
|
Weighted Average
|
Investments in First Lien Debt
|
$
|
1,369,558
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
4.85
|
%
|
|
17.40
|
%
|
|
8.18
|
%
|
|
142,231
|
|
|
Consensus Pricing
|
|
Indicative Quotes
|
|
59.17
|
|
|
100.83
|
|
|
95.93
|
|
|
19,487
|
|
|
Income Approach
|
|
Discount Rate
|
|
9.78
|
%
|
|
9.78
|
%
|
|
9.78
|
%
|
|
|
|
Market Approach
|
|
Comparable Multiple
|
|
8.33x
|
|
|
8.33x
|
|
|
8.33x
|
|
Total First Lien Debt
|
1,531,276
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Second Lien Debt
|
211,365
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
7.61
|
%
|
|
18.26
|
%
|
|
9.43
|
%
|
|
34,868
|
|
|
Consensus Pricing
|
|
Indicative Quotes
|
|
96.83
|
|
|
100.58
|
|
|
99.23
|
|
Total Second Lien Debt
|
246,233
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Equity
|
17,506
|
|
|
Income Approach
|
|
Discount Rate
|
|
7.60
|
%
|
|
10.61
|
%
|
|
8.81
|
%
|
|
|
|
Market Approach
|
|
Comparable Multiple
|
|
7.80x
|
|
|
14.69x
|
|
|
10.41x
|
|
Total Equity Investments
|
17,506
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Investment Fund—Mezzanine Loan
|
85,750
|
|
|
Income Approach
|
|
Repayment Rate
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
Total Investment Fund—Mezzanine Loan
|
85,750
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 Investments
|
$
|
1,880,765
|
|
|
|
|
|
|
|
|
|
|
|
The significant unobservable inputs used in the fair value measurement of the Company’s investments in first and second lien debt securities are discount rates, indicative quotes and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes or comparable EBITDA multiples in isolation may result in a significantly lower fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s investments in equities are discount rates and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower
fair value measurement. Significant decreases in comparable EBITDA multiples would result in a significantly lower fair value measurement.
Financial instruments disclosed but not carried at fair value
The following table presents the carrying value and fair value of the Company’s secured borrowings disclosed but not carried at fair value as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Secured borrowings
|
$
|
527,865
|
|
|
$
|
527,865
|
|
|
$
|
562,893
|
|
|
$
|
562,893
|
|
Total
|
$
|
527,865
|
|
|
$
|
527,865
|
|
|
$
|
562,893
|
|
|
$
|
562,893
|
|
The carrying values of the secured borrowings approximate their respective fair values and are categorized as Level 3 within the hierarchy. Secured borrowings are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.
The following table represents the carrying values (before debt issuance costs) and fair values of the Company’s 2015-1 Notes disclosed but not carried at fair value as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Aaa/AAA Class A-1A Notes
|
$
|
160,000
|
|
|
$
|
160,042
|
|
|
$
|
160,000
|
|
|
$
|
160,064
|
|
Aaa/AAA Class A-1B Notes
|
40,000
|
|
|
40,014
|
|
|
40,000
|
|
|
40,020
|
|
Aaa/AAA Class A-1C Notes
|
27,000
|
|
|
26,997
|
|
|
27,000
|
|
|
27,014
|
|
Aa2 Class A-2 Notes
|
46,000
|
|
|
46,017
|
|
|
46,000
|
|
|
46,027
|
|
Total
|
$
|
273,000
|
|
|
$
|
273,070
|
|
|
$
|
273,000
|
|
|
$
|
273,125
|
|
The fair value determination of the Company’s 2015-1 Notes was based on the market quotation(s) received from broker/dealer(s). These fair value measurements were based on significant inputs not observable and thus represent Level 3 measurements as defined in the accounting guidance for fair value measurement.
The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.
4. RELATED PARTY TRANSACTIONS
Investment Advisory Agreement
On April 3, 2013, the Company’s Board of Directors, including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (the “Independent Directors”), approved an investment advisory agreement (the “Original Investment Advisory Agreement”) between the Company and the Investment Adviser in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act. The Original Investment Advisory Agreement was amended on September 15, 2017 (as amended, the “Investment Advisory Agreement”) after the approval of the Company’s Board of Directors, including a majority of the Independent Directors, at an in-person meeting of the Board of Directors held on May 30, 2017 and the approval of the Company’s stockholders at a special meeting of stockholders held on September 15, 2017. The Investment Advisory Agreement was amended, among other things, to (i) reduce the incentive fee payable by the Company to the Investment Adviser from an annual rate of 20% to an annual rate of 17.5%, (ii) delete the incentive fee payment deferral test described below, and (iii) include in the pre-incentive fee net investment income, in the case of investments with a deferred interest feature, accrued income that the Company has not yet received in cash. The initial term of the Investment Advisory Agreement is two years from September 15, 2017 and, unless terminated earlier, the Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of the Board of Directors and by the vote of a majority of the Independent Directors. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party. Subject to the overall supervision of the Board of Directors, the Investment Adviser provides
investment advisory services to the Company. For providing these services, the Investment Adviser receives fees from the Company consisting of two components—a base management fee and an incentive fee.
Effective September 15, 2017, the base management fee is calculated and payable quarterly in arrears at an annual rate of 1.50% of the average value of the gross assets at the end of the two most recently completed fiscal quarters, except for the first quarter following the IPO, in which case the base management fee is calculated based on the Company’s gross assets as of the end of such fiscal quarter. In each case, the base management fee will be appropriately adjusted for any share issuances or repurchases during such fiscal quarter and the base management fees for any partial month or quarter will be pro-rated. The Company’s gross assets exclude any cash and cash equivalents and include assets acquired through the incurrence of debt from use of the SPV Credit Facility, Credit Facility and 2015-1 Notes (see Note 6, Borrowings, and Note 7, 2015-1 Notes). For purposes of this calculation, cash and cash equivalents include any temporary investments in cash-equivalents, U.S. government securities and other high quality investment grade debt investments that mature in 12 months or less from the date of investment.
Prior to September 15, 2017, under the Original Investment Advisory Agreement, the base management fee was calculated and payable quarterly in arrears at an annual rate of 1.50% of the average daily gross assets of the Company for the period adjusted for share issuances or repurchases. Prior to the IPO, the Investment Adviser waived its right to receive one-third (0.50%) of the 1.50% base management fee. Any waived base management fees are not subject to recoupment by the Investment Adviser. The fee waiver terminated when the IPO had been consummated. As previously disclosed, in connection with the IPO, the Investment Adviser agreed to continue the fee waiver until the completion of the first full quarter after the consummation of the IPO. As a result, beginning October 1, 2017, the base management fee is calculated at an annual rate of 1.50% of the Company’s gross assets.
The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately preceding calendar quarter. The second part is determined and payable in arrears based on capital gains as of the end of each calendar year.
Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the base management fee, expenses payable under the administration agreement, and any interest expense or fees on any credit facilities or outstanding debt 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, accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Effective September 15, 2017, pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 1.50% per quarter (6% annualized) or a “catch-up rate” of 1.82% per quarter (7.28% annualized), as applicable.
Pursuant to the Investment Advisory Agreement, the Company pays its Investment Adviser an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:
|
|
•
|
no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which its pre-incentive fee net investment income does not exceed the hurdle rate of 1.50%;
|
|
|
•
|
100% of 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 rate but is less than 1.82% in any calendar quarter (7.28% annualized). The Company refers to this portion of the pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 1.82%) as the “catch-up.” The “catch-up” is meant to provide the Investment Adviser with approximately 17.5% of the Company’s pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 1.82% in any calendar quarter; and
|
|
|
•
|
17.5% of the amount of pre-incentive fee net investment income, if any, that exceeds 1.82% in any calendar quarter (7.28% annualized) will be payable to the Investment Adviser. This reflects that once the hurdle rate is reached and the catch-up is achieved, 17.5% of all pre-incentive fee investment income thereafter is allocated to the Investment Adviser.
|
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 equals 17.5% of realized capital gains, if any, on a cumulative basis from inception through the date of determination, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid capital gain incentive fees, provided that, the incentive fee determined at the end of the first calendar year of operations may be calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation.
Prior to the September 15, 2017, under the Original Investment Advisory Agreement, pre-incentive fee net investment income, which did not include, in the case of investments with a deferred interest feature, accrued income that the Company has not yet received in cash, and was expressed as a rate of return on the average daily Hurdle Calculation Value (as defined below) throughout the immediately preceding calendar quarter, was compared to a “hurdle rate” of 1.50% per quarter (6% annualized) or a “catch-up” of 1.875% per quarter (7.50% annualized), as applicable. “Hurdle Calculation Value” meant, on any given day, the sum of (x) the value of net assets as of the end of the calendar quarter immediately preceding such day plus (y) the aggregate amount of capital drawn from investors (or reinvested in the Company pursuant to a dividend reinvestment plan) from the beginning of the current quarter to such day minus (z) the aggregate amount of distributions (including share repurchases) made by the Company from the beginning of the current quarter to such day, but only to the extent such distributions were not declared and accounted for on the books and records in a previous quarter. In addition, under the Original Investment Advisory Agreement, the Company deferred payment of any incentive fee otherwise earned by the Investment Adviser if, during the most recent four full calendar quarter periods ending on or prior to the date such payment is to be made, the sum of (a) the aggregate distributions to stockholders and (b) the change in net assets (defined as gross assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 6.0% of net assets (defined as gross assets less indebtedness) at the beginning of such period. These calculations were adjusted for any share issuances or repurchases. Any deferred incentive fees were carried over for payment in subsequent calculation periods.
As previously disclosed, in connection with the IPO, the Investment Adviser agreed to charge 17.5% instead of 20% with respect to the entire calculation of the incentive fee beginning on the first full quarter following the consummation of the IPO until the earlier of (i) October 1, 2017 and (ii) the date that the Company’s stockholders vote on the approval of the amendment to the Original Investment Advisory Agreement. The Company’s stockholders voted to approve the Investment Advisory Agreement on September 15, 2017.
For the
three month periods ended
March 31, 2018
and
2017
, base management fees were
$7,222
and
$3,417
(net of waiver, which terminated on September 30, 2017, of
$1,708
), respectively, incentive fees related to pre-incentive fee net investment income were
$5,330
and
$4,777
, respectively, and there were no incentive fees related to realized capital gains. For the
three month periods ended
March 31, 2018
and
2017
, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) from inception through
March 31, 2018
and
2017
, respectively, as computed in accordance with the Investment Advisory Agreement. The accrual for any capital gains incentive fee under US GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual.
As of
March 31, 2018
and
December 31, 2017
,
$12,552
and
$13,098
, respectively, were included in base management and incentive fees payable in the accompanying Consolidated Statements of Assets and Liabilities.
On April 3, 2013, the Investment Adviser entered into a personnel agreement with The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.
Administration Agreement
On April 3, 2013, the Company’s Board of Directors approved an administration agreement (the “Administration Agreement”) between the Company and the Administrator. Pursuant to the Administration Agreement, the Administrator provides services and receives reimbursements equal to an amount that reimburses the Administrator for its costs and expenses and the Company’s allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Treasurer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and any internal audit staff, to the extent internal audit performs a role in the Company’s Sarbanes-Oxley Act internal control assessment. Reimbursement under the Administration Agreement occurs quarterly in arrears.
The initial term of the Administration Agreement is two years from April 3, 2013 and, unless terminated earlier, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by a majority vote of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On February 26, 2018, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Administration Agreement for a one year period. The Administration Agreement may not be assigned by a party without the consent of the other party and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.
For the
three month periods ended
March 31, 2018
and
2017
, the Company incurred
$186
and
$173
, respectively, in fees under the Administrative Agreement, which were included in administrative service fees in the accompanying Consolidated Statements of Operations. As of
March 31, 2018
and
December 31, 2017
,
$125
and
$95
, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities.
Sub-Administration Agreements
On April 3, 2013, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP (“CELF”) (the “Carlyle Sub-Administration Agreements”). Pursuant to the Carlyle Sub-Administration Agreements, Carlyle Employee Co. and CELF provide the Administrator with access to personnel. The sub-administration agreement between the Administrator and CELF was terminated effective as of February 26, 2018.
On April 3, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (“State Street” and, such agreement, the “State Street Sub-Administration Agreement” and, together with the Carlyle Sub-Administration Agreements, the “Sub-Administration Agreements”). On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved an amendment to the State Street Sub-Administration Agreement. The initial term of the State Street Sub-Administration Agreement ends on April 1, 2017 and, unless terminated earlier, the State Street Sub-Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by the vote of a majority of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On February 26, 2018, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the State Street Sub-Administration Agreement for a one year period. The State Street Sub-Administration Agreement may be terminated upon at least 60 days’ written notice and without penalty by the vote of a majority of the outstanding securities of the Company, or by the vote of the Board of Directors or by either party to the State Street Sub-Administration Agreement.
For the
three month periods ended
March 31, 2018
and
2017
, fees incurred in connection with the State Street Sub-Administration Agreement, which amounted to
$192
and
$160
, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of
March 31, 2018
and
December 31, 2017
,
$389
and
$196
, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.
Board of Directors
The Company’s Board of Directors currently consists of five members, three of whom are Independent Directors. On April 3, 2013, the Board of Directors established an Audit Committee consisting of its Independent Directors. The Board of Directors also established a Nominating and Governance Committee of the Board of Directors and a Compensation Committee of the Board of Directors and may establish additional committees in the future. For the
three month periods ended
March 31, 2018
and
2017
, the Company incurred
$98
and
$103
respectively, in fees and expenses associated with its Independent Directors’ services on the Company’s Board of Directors and the Audit Committee. As of
March 31, 2018
and
December 31, 2017
,
$0
was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.
Transactions with Credit Fund
For the
three month periods ended
March 31, 2018
and
2017
, the Company sold
1
and
3
investments, respectively, to Credit Fund for proceeds of
$14,925
and
$30,743
, respectively, and realized gains of
$0
and
$177
, respectively. See Note 5, Middle Market Credit Fund, LLC, for further information about Credit Fund.
5. MIDDLE MARKET CREDIT FUND, LLC
Overview
On February 29, 2016, the Company and Credit Partners entered into the Limited Liability Company Agreement to co-manage Credit Fund, an unconsolidated Delaware limited liability company. Credit Fund primarily invests in first lien loans of middle market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. Establishing a quorum for Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of the Company’s representatives and two of Credit Partners’ representatives. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Funding of such commitments generally requires the approval of the board of Credit Fund, including the board members appointed by the Company. By virtue of its membership interest, the Company and Credit Partners each indirectly bear an allocable share of all expenses and other obligations of Credit Fund.
Together with Credit Partners, the Company co-invests through Credit Fund. Investment opportunities for Credit Fund are sourced primarily by the Company and its affiliates. Portfolio and investment decisions with respect to Credit Fund must be unanimously approved by a quorum of Credit Fund’s investment committee consisting of an equal number of representatives of the Company and Credit Partners. Therefore, although the Company owns more than 25% of the voting securities of Credit Fund, the Company does not believe that it has control over Credit Fund (other than for purposes of the Investment Company Act). Middle Market Credit Fund SPV, LLC (the “Credit Fund Sub”) and MMCF CLO 2017-1 LLC (the “2017-1 Issuer”), each a Delaware limited liability company, were formed on April 5, 2016 and October 6, 2017, respectively. Credit Fund Sub and the 2017-1 Issuer are wholly owned subsidiaries of Credit Fund and are consolidated in Credit Fund’s consolidated financial statements commencing from the date of their respective formations. Credit Fund Sub and the 2017-1 Issuer primarily invest in first lien loans of middle market companies. Credit Fund and its wholly owned subsidiaries follow the same Internal Risk Rating System as the Company.
Credit Fund, the Company and Credit Partners entered into an administration agreement with Carlyle Global Credit Administration L.L.C., the administrative agent of Credit Fund (in such capacity, the “Administrative Agent”), pursuant to which the Administrative Agent is delegated certain administrative and non-discretionary functions, is authorized to enter into sub-administration agreements at the expense of Credit Fund with the approval of the board of managers of Credit Fund, and is reimbursed by Credit Fund for its costs and expenses and Credit Fund’s allocable portion of overhead incurred by the Administrative Agent in performing its obligations thereunder.
Selected Financial Data
Since inception of Credit Fund and through
March 31, 2018
and
December 31, 2017
, the Company and Credit Partners each made capital contributions of
$1
and
$1
in members’ equity, respectively, and
$92,500
and
$86,500
in subordinated loans, respectively, to Credit Fund. As of
March 31, 2018
and
December 31, 2017
, Credit Fund had borrowings of
$107,600
and
$85,750
, respectively, in mezzanine loans under a revolving credit facility with the Company (the “Credit Fund Facility”). As of
March 31, 2018
and
December 31, 2017
, Credit Fund had total subordinated loans and members’ equity outstanding of
$186,933
and
$173,532
, respectively. As of
March 31, 2018
and
December 31, 2017
, the Company’s ownership interest in such subordinated loans and members’ equity was
$93,466
and
$86,766
, respectively, and in such mezzanine loans was
$107,600
and
$85,750
, respectively.
As of
March 31, 2018
and
December 31, 2017
, Credit Fund held cash and cash equivalents totaling
$21,318
and
$19,502
, respectively.
As of
March 31, 2018
and
December 31, 2017
, Credit Fund had total investments at fair value of
$1,090,348
and
$984,773
, respectively, which comprised of first lien senior secured loans and second lien senior secured loans to
56
and
51
portfolio companies, respectively. As of
March 31, 2018
and
December 31, 2017
,
no
loans in Credit Fund’s portfolio were on non-accrual status or contained PIK provisions. All investments in the portfolio were floating rate debt investments with an interest rate floors. The portfolio companies in Credit Fund are U.S. middle market companies in industries similar to those in which the Company may invest directly. Additionally, as of
March 31, 2018
and
December 31, 2017
, Credit Fund had commitments to fund various undrawn revolving and delayed draw senior secured loans to its portfolio companies totaling
$91,596
and
$72,458
, respectively.
Below is a summary of Credit Fund’s portfolio, followed by a listing of the loans in Credit Fund’s portfolio as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
As of
December 31, 2017
|
Senior secured loans
(1)
|
$
|
1,096,598
|
|
|
$
|
993,380
|
|
Weighted average yields of senior secured loans based on amortized cost
(2)
|
7.09
|
%
|
|
6.80
|
%
|
Weighted average yields of senior secured loans based on fair value
(2)
|
7.06
|
%
|
|
6.79
|
%
|
Number of portfolio companies in Credit Fund
|
56
|
|
|
51
|
|
Average amount per portfolio company
(1)
|
$
|
19,582
|
|
|
$
|
19,478
|
|
|
|
(1)
|
At par/principal amount.
|
|
|
(2)
|
Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of
March 31, 2018
and
December 31, 2017
. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Schedule of Investments as of March 31, 2018
|
Investments
(1)
|
Industry
|
|
Interest Rate
|
|
Maturity Date
|
|
Par/ Principal Amount
|
|
Amortized Cost
(5)
|
|
Fair Value
(6)
|
First Lien Debt (99.44% of fair value)
|
|
|
|
|
|
|
|
|
|
|
|
Acrisure, LLC
(2) (3) (4)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 4.25% (1.00% Floor)
|
|
11/22/2023
|
|
$
|
21,044
|
|
|
$
|
20,997
|
|
|
$
|
21,282
|
|
Advanced Instruments, LLC
(2) (3) (4) (7) (10) (11) (13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.25% (1.00% Floor)
|
|
10/31/2022
|
|
11,880
|
|
|
11,768
|
|
|
11,880
|
|
Alpha Packaging Holdings, Inc.
(2) (3) (4) (13)
|
Containers, Packaging & Glass
|
|
L + 4.25% (1.00% Floor)
|
|
5/12/2020
|
|
16,990
|
|
|
16,948
|
|
|
16,990
|
|
AM Conservation Holding Corporation
(2) (3) (4) (13)
|
Energy: Electricity
|
|
L + 4.50% (1.00% Floor)
|
|
10/31/2022
|
|
38,603
|
|
|
38,336
|
|
|
38,765
|
|
AMS Finco, S.A.R.L. (Alexander Mann Solutions) (United Kingdom)
(2) (3) (4) (11) (13)
|
Business Services
|
|
L + 5.50% (1.00% Floor)
|
|
5/26/2024
|
|
24,813
|
|
|
24,587
|
|
|
24,813
|
|
Anaren, Inc.
(2) (3) (4)
|
Telecommunications
|
|
L + 4.50% (1.00% Floor)
|
|
2/18/2021
|
|
9,967
|
|
|
9,946
|
|
|
9,967
|
|
AQA Acquisition Holding, Inc.
(2) (3) (4) (7) (10) (13)
|
High Tech Industries
|
|
L + 4.25% (1.00% Floor)
|
|
5/24/2023
|
|
27,334
|
|
|
27,216
|
|
|
27,334
|
|
Big Ass Fans, LLC
(2)(3)(4)(13)
|
Capital Equipment
|
|
L + 4.25% (1.00% Floor)
|
|
5/21/2024
|
|
7,980
|
|
|
7,942
|
|
|
7,988
|
|
Borchers, Inc.
(2) (3) (4) (7) (10) (13)
|
Chemicals, Plastics & Rubber
|
|
L + 4.50% (1.00% Floor)
|
|
11/1/2024
|
|
15,708
|
|
|
15,645
|
|
|
15,633
|
|
Brooks Equipment Company, LLC
(2) (3) (4) (13)
|
Construction & Building
|
|
L + 5.00% (1.00% Floor)
|
|
8/29/2020
|
|
6,976
|
|
|
6,962
|
|
|
6,975
|
|
Clearent Newco, LLC
(2)(3)(4)(7)(10)
|
High Tech Industries
|
|
L + 4.00% (1.00% Floor)
|
|
3/20/2024
|
|
21,360
|
|
|
20,918
|
|
|
21,051
|
|
DBI Holding LLC
(2) (3) (4) (7) (10) (11) (13)
|
Transportation: Cargo
|
|
L + 5.25% (1.00% Floor)
|
|
8/1/2021
|
|
32,330
|
|
|
32,044
|
|
|
32,239
|
|
DecoPac, Inc.
(2) (3) (4) (7) (10) (13)
|
Non-durable Consumer Goods
|
|
L + 4.25% (1.00% Floor)
|
|
9/29/2024
|
|
13,029
|
|
|
12,889
|
|
|
13,029
|
|
Dent Wizard International Corporation
(2) (3) (4) (11)
|
Automotive
|
|
L + 4.00% (1.00% Floor)
|
|
4/7/2020
|
|
24,441
|
|
|
24,332
|
|
|
24,411
|
|
DTI Holdco, Inc.
(2) (3) (4) (13)
|
High Tech Industries
|
|
L + 4.75% (1.00% Floor)
|
|
9/30/2023
|
|
19,701
|
|
|
19,532
|
|
|
19,630
|
|
EIP Merger Sub, LLC (Evolve IP)
(2) (3) (9) (11) (13)
|
Telecommunications
|
|
L + 5.75% (1.00% Floor)
|
|
6/7/2022
|
|
1,500
|
|
|
1,464
|
|
|
1,480
|
|
EIP Merger Sub, LLC (Evolve IP)
(2) (3) (4) (8) (11) (13)
|
Telecommunications
|
|
L + 5.75% (1.00% Floor)
|
|
6/7/2022
|
|
22,586
|
|
|
22,076
|
|
|
22,179
|
|
Exactech, Inc.
(2) (3) (4)
|
Healthcare & Pharmaceuticals
|
|
L + 3.75% (1.00% Floor)
|
|
2/14/2025
|
|
13,000
|
|
|
12,937
|
|
|
12,981
|
|
Empower Payments Acquisitions, Inc.
(2) (3) (4) (13)
|
Media: Advertising, Printing & Publishing
|
|
L + 4.50% (1.00% Floor)
|
|
11/30/2023
|
|
17,281
|
|
|
16,982
|
|
|
17,124
|
|
Golden West Packaging Group LLC
(2) (3) (4) (11) (13)
|
Containers, Packaging & Glass
|
|
L + 5.25% (1.00% Floor)
|
|
6/20/2023
|
|
31,815
|
|
|
31,571
|
|
|
31,713
|
|
HMT Holding Inc.
(2) (3) (4) (7) (10) (11) (13)
|
Energy: Oil & Gas
|
|
L + 4.50% (1.00% Floor)
|
|
11/17/2023
|
|
34,978
|
|
|
34,316
|
|
|
34,857
|
|
J.S. Held LLC
(2) (3) (4) (7) (10) (13)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 5.50% (1.00% Floor)
|
|
9/27/2023
|
|
19,097
|
|
|
18,907
|
|
|
19,014
|
|
Jensen Hughes, Inc.
(2) (3) (4) (7) (10) (13)
|
Utilities: Electric
|
|
L + 4.50% (1.00% Floor)
|
|
3/22/2024
|
|
24,948
|
|
|
24,741
|
|
|
24,809
|
|
Kestra Financial, Inc.
(2) (3) (4) (11) (13)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 4.50% (1.00% Floor)
|
|
6/24/2022
|
|
21,901
|
|
|
21,668
|
|
|
21,748
|
|
Mold-Rite Plastics, LLC
(2) (3) (4)
|
Chemicals, Plastics & Rubber
|
|
L + 4.50% (1.00% Floor)
|
|
12/14/2021
|
|
14,963
|
|
|
14,964
|
|
|
14,963
|
|
MSHC, Inc.
(2) (3) (4) (13)
|
Construction & Building
|
|
L + 4.25% (1.00% Floor)
|
|
7/31/2023
|
|
9,975
|
|
|
9,930
|
|
|
9,975
|
|
North American Dental Management, LLC
(2) (3) (4) (7) (10) (13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.00% (1.00% Floor)
|
|
7/7/2023
|
|
25,818
|
|
|
25,098
|
|
|
25,622
|
|
North Haven CA Holdings, Inc. (CoAdvantage)
(2) (3) (4) (7) (10) (13)
|
Business Services
|
|
L + 4.50% (1.00% Floor)
|
|
10/2/2023
|
|
29,583
|
|
|
29,259
|
|
|
29,583
|
|
Odyssey Logistics & Technology Corporation
(2) (3) (4) (11) (13)
|
Transportation: Cargo
|
|
L + 4.25% (1.00% Floor)
|
|
10/12/2024
|
|
19,950
|
|
|
19,855
|
|
|
20,000
|
|
Output Services Group
(2) (3) (4) (7) (10)
|
Media: Advertising, Printing & Publishing
|
|
L + 4.25% (1.00% Floor)
|
|
3/26/2024
|
|
12,436
|
|
|
12,362
|
|
|
12,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Schedule of Investments as of March 31, 2018
|
Investments
(1)
|
Industry
|
|
Interest Rate
|
|
Maturity Date
|
|
Par/ Principal Amount
|
|
Amortized Cost
(5)
|
|
Fair Value
(6)
|
PAI Holdco, Inc. (Parts Authority)
(2) (3) (4) (7) (10) (13)
|
Automotive
|
|
L + 4.25% (1.00% Floor)
|
|
1/5/2025
|
|
$
|
16,564
|
|
|
$
|
16,463
|
|
|
$
|
16,572
|
|
Paradigm Acquisition Corp.
(2) (3) (4) (12) (13)
|
Business Services
|
|
L + 4.25% (1.00% Floor)
|
|
10/12/2024
|
|
23,441
|
|
|
23,385
|
|
|
23,551
|
|
Park Place Technologies, Inc.
(2) (3) (4)
|
High Tech Industries
|
|
L + 4.00% (1.00% Floor)
|
|
3/29/2025
|
|
15,000
|
|
|
14,925
|
|
|
14,976
|
|
Pasternack Enterprises, Inc. (Infinite RF)
(2) (3) (4) (11)
|
Capital Equipment
|
|
L + 5.00% (1.00% Floor)
|
|
5/27/2022
|
|
20,177
|
|
|
20,087
|
|
|
20,119
|
|
Ping Identity Corporation
(2) (3) (4) (11)
|
High Tech Industries
|
|
L + 3.75% (1.00% Floor)
|
|
1/25/2025
|
|
5,000
|
|
|
4,976
|
|
|
4,995
|
|
Premier Senior Marketing, LLC
(2) (3) (4) (11) (13)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 5.00% (1.00% Floor)
|
|
7/1/2022
|
|
11,654
|
|
|
11,588
|
|
|
11,639
|
|
PSI Services LLC
(2) (3) (4) (7) (10) (11) (13)
|
Business Services
|
|
L + 5.00% (1.00% Floor)
|
|
1/20/2023
|
|
30,676
|
|
|
30,156
|
|
|
30,217
|
|
Q Holding Company
(2) (3) (4) (11) (13)
|
Automotive
|
|
L + 5.00% (1.00% Floor)
|
|
12/18/2021
|
|
17,233
|
|
|
17,182
|
|
|
17,233
|
|
QW Holding Corporation (Quala)
(2) (3) (4) (7) (10) (11) (13)
|
Environmental Industries
|
|
L + 6.75% (1.00% Floor)
|
|
8/31/2022
|
|
12,276
|
|
|
11,814
|
|
|
11,783
|
|
Radiology Partners, Inc.
(2) (3) (4) (7) (10)
|
Healthcare & Pharmaceuticals
|
|
L + 5.75% (1.00% Floor)
|
|
12/4/2023
|
|
28,213
|
|
|
27,925
|
|
|
28,186
|
|
Restaurant Technologies, Inc.
(2) (3) (4) (13)
|
Retail
|
|
L + 4.75% (1.00% Floor)
|
|
11/23/2022
|
|
17,325
|
|
|
17,194
|
|
|
17,283
|
|
Situs Group Holdings Corporation
(2) (3) (4) (7)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 4.50% (0.00% Floor)
|
|
2/26/2023
|
|
12,000
|
|
|
11,968
|
|
|
11,981
|
|
Sovos Brands Intermediate, Inc.
(2) (3) (4) (7) (10) (13)
|
Beverage, Food & Tobacco
|
|
L + 4.50% (1.00% Floor)
|
|
7/18/2024
|
|
21,514
|
|
|
21,361
|
|
|
21,504
|
|
Superion, LLC (fka Ramundsen Public Sector, LLC)
(2) (3) (4) (11) (13)
|
Sovereign & Public Finance
|
|
L + 4.25% (1.00% Floor)
|
|
2/1/2024
|
|
3,960
|
|
|
3,943
|
|
|
3,960
|
|
Surgical Information Systems, LLC
(2) (3) (4) (9) (11) (13)
|
High Tech Industries
|
|
L + 4.85% (1.00% Floor)
|
|
4/24/2023
|
|
30,000
|
|
|
29,738
|
|
|
30,087
|
|
Systems Maintenance Services Holding, Inc.
(2) (3) (4) (11) (13)
|
High Tech Industries
|
|
L + 5.00% (1.00% Floor)
|
|
10/28/2023
|
|
24,194
|
|
|
24,065
|
|
|
22,178
|
|
T2 Systems Canada, Inc.
(2) (3) (4)
|
Transportation: Consumer
|
|
L + 6.75% (1.00% Floor)
|
|
9/28/2022
|
|
2,666
|
|
|
2,612
|
|
|
2,669
|
|
T2 Systems, Inc.
(2) (3) (4) (7) (10) (13)
|
Transportation: Consumer
|
|
L + 6.75% (1.00% Floor)
|
|
9/28/2022
|
|
15,890
|
|
|
15,555
|
|
|
15,909
|
|
Teaching Strategies, LLC
(2) (3) (4) (7) (10) (11) (13)
|
Media: Advertising, Printing & Publishing
|
|
L + 4.75% (1.00% Floor)
|
|
2/27/2023
|
|
17,919
|
|
|
17,752
|
|
|
17,919
|
|
The Original Cakerie, Ltd. (Canada)
(2) (3) (4) (7) (10) (11)
|
Beverage, Food & Tobacco
|
|
L + 4.50% (1.00% Floor)
|
|
7/20/2022
|
|
6,739
|
|
|
6,686
|
|
|
6,715
|
|
The Original Cakerie, Co. (Canada)
(2) (3) (4) (11) (13)
|
Beverage, Food & Tobacco
|
|
L + 5.00% (1.00% Floor)
|
|
7/20/2022
|
|
9,087
|
|
|
9,023
|
|
|
9,062
|
|
ThoughtWorks, Inc.
(2) (3) (11) (13)
|
Business Services
|
|
L + 4.50% (1.00% Floor)
|
|
10/12/2024
|
|
8,000
|
|
|
7,981
|
|
|
8,030
|
|
U.S. Acute Care Solutions, LLC
(2) (3) (4) (13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.00% (1.00% Floor)
|
|
5/15/2021
|
|
31,979
|
|
|
31,772
|
|
|
31,467
|
|
U.S. TelePacific Holdings Corp.
(2) (3) (4) (13)
|
Telecommunications
|
|
L + 5.00% (1.00% Floor)
|
|
5/2/2023
|
|
29,775
|
|
|
29,502
|
|
|
28,852
|
|
Upstream Intermediate, LLC
(2) (3) (4) (7) (10)
|
Healthcare & Pharmaceuticals
|
|
L + 4.50% (1.00% Floor)
|
|
1/3/2024
|
|
18,528
|
|
|
18,431
|
|
|
18,519
|
|
Valicor Environmental Services, LLC
(2) (3) (4) (7) (10) (11) (13)
|
Environmental Industries
|
|
L + 5.00% (1.00% Floor)
|
|
6/1/2023
|
|
27,515
|
|
|
27,060
|
|
|
27,446
|
|
WIRB - Copernicus Group, Inc.
(2) (3) (4) (7) (10) (11) (13)
|
Healthcare & Pharmaceuticals
|
|
L + 4.25% (1.00% Floor)
|
|
8/12/2022
|
|
16,600
|
|
|
16,486
|
|
|
16,535
|
|
WRE Holding Corp.
(2) (3) (4) (7) (10) (11) (13)
|
Environmental Industries
|
|
L + 4.75% (1.00% Floor)
|
|
1/3/2023
|
|
6,980
|
|
|
6,899
|
|
|
6,915
|
|
Zywave, Inc.
(2) (3) (4) (7) (10) (13)
|
High Tech Industries
|
|
L + 5.00% (1.00% Floor)
|
|
11/17/2022
|
|
17,656
|
|
|
17,500
|
|
|
17,656
|
|
First Lien Debt Total
|
|
|
|
|
|
|
|
|
$
|
1,080,221
|
|
|
$
|
1,084,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Schedule of Investments as of March 31, 2018
|
Investments
(1)
|
Industry
|
|
Interest Rate
|
|
Maturity Date
|
|
Par/ Principal Amount
|
|
Amortized Cost
(5)
|
|
Fair Value
(6)
|
Second Lien Debt (0.56% of fair value)
|
|
|
|
|
|
|
|
|
|
|
|
Paradigm Acquisition Corp.
(2) (3) (12) (13)
|
Business Services
|
|
L + 8.50% (1.00% Floor)
|
|
10/12/2025
|
|
$
|
4,800
|
|
|
$
|
4,754
|
|
|
$
|
4,809
|
|
Superion, LLC (fka Ramundsen Public Sector, LLC)
(2) (3) (11) (13)
|
Sovereign & Public Finance
|
|
L + 8.50% (1.00% Floor)
|
|
2/1/2025
|
|
200
|
|
|
198
|
|
|
201
|
|
Zywave, Inc.
(2) (3) (13)
|
High Tech Industries
|
|
L + 9.00% (1.00% Floor)
|
|
11/17/2023
|
|
1,050
|
|
|
1,036
|
|
|
1,061
|
|
Second Lien Debt Total
|
|
|
|
|
|
|
|
|
$
|
5,988
|
|
|
$
|
6,071
|
|
Total Investments
|
|
|
|
|
|
|
|
|
$
|
1,086,209
|
|
|
$
|
1,090,348
|
|
|
|
(1)
|
Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of
March 31, 2018
, the geographical composition of investments as a percentage of fair value was
1.45%
in Canada,
2.28%
in the United Kingdom, and
96.27%
in the United States.
|
|
|
(2)
|
Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate (“P”)), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of
March 31, 2018
. As of
March 31, 2018
, all of Credit Fund’s LIBOR loans were indexed to the 90-day LIBOR rate at
2.31%
, except for those loans as indicated in Notes 11 and 12 below.
|
|
|
(3)
|
Loan includes interest rate floor feature.
|
|
|
(4)
|
Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into a revolving credit facility (the “Credit Fund Sub Facility”). The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund or the 2017-1 Issuer.
|
|
|
(5)
|
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
|
|
|
(6)
|
Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, with the fair value of all investments determined using significant unobservable inputs, which is substantially similar to the valuation policy of the Company provided in Note 3, Fair Value Measurements.
|
|
|
(7)
|
Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub or the 2017-1 Issuer.
|
|
|
(8)
|
Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is
1.20%
on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
|
|
|
(9)
|
In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, Credit Fund is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (
3.80%
) and Surgical Information Systems, LLC (
0.91%
). Pursuant to the agreement among lenders in respect of these loans, these investments represent a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
|
|
|
(10)
|
As of
March 31, 2018
, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Debt—unfunded delayed draw and revolving term loans commitments
|
Type
|
|
Unused Fee
|
|
Par/ Principal Amount
|
|
Fair Value
|
Advanced Instruments, LLC
|
Revolver
|
|
0.50
|
%
|
|
$
|
1,333
|
|
|
$
|
—
|
|
AQA Acquisition Holding, Inc.
|
Revolver
|
|
0.50
|
|
|
2,459
|
|
|
—
|
|
Borchers, Inc.
|
Revolver
|
|
0.50
|
|
|
1,935
|
|
|
(8
|
)
|
Clearent Newco, LLC
|
Delayed Draw
|
|
1.00
|
|
|
6,000
|
|
|
(62
|
)
|
Clearent Newco, LLC
|
Revolver
|
|
0.50
|
|
|
2,640
|
|
|
(27
|
)
|
DBI Holding LLC
|
Delayed Draw
|
|
2.63
|
|
|
2,420
|
|
|
(6
|
)
|
DecoPac, Inc.
|
Revolver
|
|
0.50
|
|
|
1,843
|
|
|
—
|
|
HMT Holding Inc.
|
Revolver
|
|
0.50
|
|
|
4,938
|
|
|
(15
|
)
|
Jensen Hughes, Inc.
|
Delayed Draw
|
|
1.00
|
|
|
3,367
|
|
|
(15
|
)
|
Jensen Hughes, Inc.
|
Revolver
|
|
0.50
|
|
|
2,000
|
|
|
(9
|
)
|
J.S. Held LLC
|
Delayed Draw
|
|
1.00
|
|
|
1,314
|
|
|
(5
|
)
|
North American Dental Management, LLC
|
Delayed Draw
|
|
1.00
|
|
|
11,455
|
|
|
(56
|
)
|
North American Dental Management, LLC
|
Revolver
|
|
0.50
|
|
|
2,727
|
|
|
(13
|
)
|
North Haven CA Holdings, Inc. (CoAdvantage)
|
Revolver
|
|
0.50
|
|
|
5,273
|
|
|
—
|
|
Output Services Group
|
Delayed Draw
|
|
—
|
|
|
2,564
|
|
|
(26
|
)
|
PAI Holdco, Inc. (Parts Authority)
|
Delayed Draw
|
|
1.00
|
|
|
3,286
|
|
|
1
|
|
PSI Services LLC
|
Revolver
|
|
0.50
|
|
|
302
|
|
|
(4
|
)
|
QW Holding Corporation (Quala)
|
Delayed Draw
|
|
1.00
|
|
|
7,515
|
|
|
(162
|
)
|
QW Holding Corporation (Quala)
|
Revolver
|
|
0.50
|
|
|
3,024
|
|
|
(65
|
)
|
Radiology Partners, Inc.
|
Revolver
|
|
0.50
|
|
|
1,725
|
|
|
(2
|
)
|
Sovos Brands Intermediate, Inc.
|
Revolver
|
|
0.50
|
|
|
3,378
|
|
|
(1
|
)
|
T2 Systems, Inc.
|
Revolver
|
|
0.50
|
|
|
1,173
|
|
|
1
|
|
Teaching Strategies, LLC
|
Revolver
|
|
0.50
|
|
|
1,900
|
|
|
—
|
|
The Original Cakerie, Ltd. (Canada)
|
Revolver
|
|
0.50
|
|
|
1,399
|
|
|
(4
|
)
|
Upstream Intermediate, LLC
|
Revolver
|
|
0.50
|
|
|
1,473
|
|
|
(1
|
)
|
Valicor Environmental Services, LLC
|
Revolver
|
|
0.50
|
|
|
2,256
|
|
|
(5
|
)
|
WIRB - Copernicus Group, Inc.
|
Delayed Draw
|
|
1.00
|
|
|
7,200
|
|
|
(19
|
)
|
WIRB - Copernicus Group, Inc.
|
Revolver
|
|
0.50
|
|
|
1,000
|
|
|
(3
|
)
|
WRE Holding Corp.
|
Delayed Draw
|
|
1.06
|
|
|
2,123
|
|
|
(14
|
)
|
WRE Holding Corp.
|
Revolver
|
|
0.50
|
|
|
449
|
|
|
(3
|
)
|
Zywave, Inc.
|
Revolver
|
|
0.50
|
|
|
1,125
|
|
|
—
|
|
Total unfunded commitments
|
|
|
|
|
$
|
91,596
|
|
|
$
|
(523
|
)
|
|
|
(11)
|
As of
March 31, 2018
, this LIBOR loan was indexed to the 30-day LIBOR rate at
1.88%
.
|
|
|
(12)
|
As of
March 31, 2018
, this LIBOR loan was indexed to the 180-day LIBOR rate at
2.45%
.
|
|
|
(13)
|
Denotes that all or a portion of the assets are owned by the 2017-1 Issuer and secure the notes issued in connection with a $399,900 term debt securitization completed by Credit Fund on December 19, 2017 (the “2017-1 Debt Securitization”). Accordingly, such assets are not available to creditors of Credit Fund or Credit Fund Sub.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Schedule of Investments as of December 31, 2017
|
Investments
(1)
|
Industry
|
|
Interest Rate
(2)
|
|
Maturity Date
|
|
Par/ Principal Amount
|
|
Amortized Cost
(5)
|
|
Fair Value
(6)
|
First Lien Debt (99.39% of fair value)
|
|
|
|
|
|
|
|
|
|
|
|
Acrisure, LLC
(2)(3)(4)(11)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 4.25% (1.00% Floor)
|
|
11/22/2023
|
|
$
|
21,097
|
|
|
$
|
21,055
|
|
|
$
|
21,291
|
|
Advanced Instruments, LLC
(2)(3)(4)(7)(10)(11)(13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.25% (1.00% Floor)
|
|
10/31/2022
|
|
11,910
|
|
|
11,793
|
|
|
11,910
|
|
Alpha Packaging Holdings, Inc.
(2)(3)(4)(13)
|
Containers, Packaging & Glass
|
|
L + 4.25% (1.00% Floor)
|
|
5/12/2020
|
|
16,860
|
|
|
16,812
|
|
|
16,860
|
|
AM Conservation Holding Corporation
(2)(3)(4)(13)
|
Energy: Electricity
|
|
L + 4.50% (1.00% Floor)
|
|
10/31/2022
|
|
38,700
|
|
|
38,433
|
|
|
38,553
|
|
AMS Finco, S.A.R.L. (Alexander Mann Solutions) (United Kingdom)
(2)(3)(4)(11)(13)
|
Business Services
|
|
L + 5.50% (1.00% Floor)
|
|
5/26/2024
|
|
24,875
|
|
|
24,646
|
|
|
24,875
|
|
Anaren, Inc.
(2)(3)(4)
|
Telecommunications
|
|
L + 4.50% (1.00% Floor)
|
|
2/18/2021
|
|
9,993
|
|
|
9,971
|
|
|
9,993
|
|
AQA Acquisition Holding, Inc.
(2)(3)(4)(7)(10)(13)
|
High Tech Industries
|
|
L + 4.50% (1.00% Floor)
|
|
5/24/2023
|
|
27,403
|
|
|
27,288
|
|
|
27,403
|
|
Big Ass Fans, LLC
(2)(3)(4)(13)
|
Capital Equipment
|
|
L + 4.25% (1.00% Floor)
|
|
5/21/2024
|
|
8,000
|
|
|
7,964
|
|
|
8,010
|
|
Borchers, Inc.
(2)(3)(4)(7)(10)(13)
|
Chemicals, Plastics & Rubber
|
|
L + 4.50% (1.00% Floor)
|
|
11/1/2024
|
|
15,748
|
|
|
15,694
|
|
|
15,665
|
|
Brooks Equipment Company, LLC
(2)(3)(4)(13)
|
Construction & Building
|
|
L + 5.00% (1.00% Floor)
|
|
8/29/2020
|
|
7,061
|
|
|
7,045
|
|
|
7,061
|
|
DBI Holding LLC
(2)(3)(4)(11)(13)
|
Transportation: Cargo
|
|
L + 5.25% (1.00% Floor)
|
|
8/1/2021
|
|
19,800
|
|
|
19,659
|
|
|
19,833
|
|
DecoPac, Inc.
(2)(3)(4)(7)(10)(13)
|
Non-durable Consumer Goods
|
|
L + 4.25% (1.00% Floor)
|
|
9/29/2024
|
|
13,414
|
|
|
13,270
|
|
|
13,415
|
|
Dent Wizard International Corporation
(2)(3)(4)(11)
|
Automotive
|
|
L + 4.75% (1.00% Floor)
|
|
4/7/2020
|
|
24,502
|
|
|
24,382
|
|
|
24,475
|
|
DTI Holdco, Inc.
(2)(3)(4)(11)(13)
|
High Tech Industries
|
|
L + 5.25% (1.00% Floor)
|
|
9/30/2023
|
|
19,750
|
|
|
19,575
|
|
|
19,663
|
|
EIP Merger Sub, LLC (Evolve IP)
(2)(3)(4)(8)(11)(13)
|
Telecommunications
|
|
L + 6.25% (1.00% Floor)
|
|
6/7/2022
|
|
22,663
|
|
|
22,127
|
|
|
22,153
|
|
EIP Merger Sub, LLC (Evolve IP)
(2)(3)(9)(11)(13)
|
Telecommunications
|
|
L + 6.25% (1.00% Floor)
|
|
6/7/2022
|
|
1,500
|
|
|
1,462
|
|
|
1,470
|
|
Empower Payments Acquisitions, Inc.
(2)(3)(4)(13)
|
Media: Advertising, Printing & Publishing
|
|
L + 5.50% (1.00% Floor)
|
|
11/30/2023
|
|
17,325
|
|
|
17,018
|
|
|
17,325
|
|
FCX Holdings Corp.
(2)(3)(4)(11)
|
Capital Equipment
|
|
L + 4.50% (1.00% Floor)
|
|
8/4/2020
|
|
18,491
|
|
|
18,438
|
|
|
18,512
|
|
Golden West Packaging Group LLC
(2)(3)(4)(11)(13)
|
Containers, Packaging & Glass
|
|
L + 5.25% (1.00% Floor)
|
|
6/20/2023
|
|
20,895
|
|
|
20,709
|
|
|
20,895
|
|
HMT Holding Inc.
(2)(3)(4)(7)(10)(13)
|
Energy: Oil & Gas
|
|
L + 4.50% (1.00% Floor)
|
|
11/17/2023
|
|
35,062
|
|
|
34,387
|
|
|
34,709
|
|
J.S. Held LLC
(2)(3)(4)(7)(10)(13)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 5.50% (1.00% Floor)
|
|
9/27/2023
|
|
18,204
|
|
|
18,018
|
|
|
18,144
|
|
Jensen Hughes, Inc.
(2)(3)(4)(7)(10)(11)(13)
|
Utilities: Electric
|
|
L + 5.00% (1.00% Floor)
|
|
12/4/2021
|
|
20,963
|
|
|
20,784
|
|
|
20,963
|
|
Kestra Financial, Inc.
(2)(3)(4)(13)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 5.25% (1.00% Floor)
|
|
6/24/2022
|
|
17,206
|
|
|
17,009
|
|
|
17,203
|
|
Mold-Rite Plastics, LLC
(2)(3)(4)(11)
|
Chemicals, Plastics & Rubber
|
|
L + 4.50% (1.00% Floor)
|
|
12/14/2021
|
|
15,000
|
|
|
14,946
|
|
|
14,993
|
|
MSHC, Inc.
(2)(3)(4)(13)
|
Construction & Building
|
|
L + 4.25% (1.00% Floor)
|
|
7/31/2023
|
|
10,000
|
|
|
9,957
|
|
|
10,032
|
|
North American Dental Management, LLC
(2)(3)(4)(7)(10)(11)(13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.00% (1.00% Floor)
|
|
7/7/2023
|
|
23,978
|
|
|
23,157
|
|
|
23,577
|
|
North Haven CA Holdings, Inc. (CoAdvantage)
(2)(3)(4)(7)(10)(13)
|
Business Services
|
|
L + 4.50% (1.00% Floor)
|
|
10/2/2023
|
|
31,565
|
|
|
31,237
|
|
|
31,436
|
|
Odyssey Logistics & Technology Corporation
(2)(3)(4)(11)(13)
|
Transportation: Cargo
|
|
L + 4.25% (1.00% Floor)
|
|
10/12/2024
|
|
20,000
|
|
|
19,906
|
|
|
19,998
|
|
PAI Holdco, Inc. (Parts Authority)
(2)(3)(4)(7)(10)(11)(13)
|
Automotive
|
|
L + 4.75% (1.00% Floor)
|
|
12/30/2022
|
|
16,564
|
|
|
16,459
|
|
|
16,515
|
|
Paradigm Acquisition Corp.
(2)(3)(4)(13)
|
Business Services
|
|
L + 4.25% (1.00% Floor)
|
|
10/12/2024
|
|
23,500
|
|
|
23,445
|
|
|
23,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Schedule of Investments as of December 31, 2017
|
Investments
(1)
|
Industry
|
|
Interest Rate
(2)
|
|
Maturity Date
|
|
Par/ Principal Amount
|
|
Amortized Cost
(5)
|
|
Fair Value
(6)
|
First Lien Debt (99.39% of fair value)
|
|
|
|
|
|
|
|
|
|
|
|
Pasternack Enterprises, Inc. (Infinite RF)
(2)(3)(4)(11)
|
Capital Equipment
|
|
L + 5.00% (1.00% Floor)
|
|
5/27/2022
|
|
$
|
20,228
|
|
|
20,134
|
|
|
20,174
|
|
Premier Senior Marketing, LLC
(2)(3)(4)(11)(13)
|
Banking, Finance, Insurance & Real Estate
|
|
L + 5.00% (1.00% Floor)
|
|
7/1/2022
|
|
11,675
|
|
|
11,606
|
|
|
11,628
|
|
PSI Services LLC
(2)(3)(4)(7)(10)(11)(13)
|
Business Services
|
|
L + 5.00% (1.00% Floor)
|
|
1/20/2023
|
|
30,676
|
|
|
30,171
|
|
|
30,082
|
|
Q Holding Company
(2)(3)(4)(13)
|
Automotive
|
|
L + 5.00% (1.00% Floor)
|
|
12/18/2021
|
|
17,277
|
|
|
17,227
|
|
|
17,277
|
|
QW Holding Corporation (Quala)
(2)(3)(4)(7)(10)(11)(13)
|
Environmental Industries
|
|
L + 6.75% (1.00% Floor)
|
|
8/31/2022
|
|
11,453
|
|
|
10,879
|
|
|
10,933
|
|
Radiology Partners, Inc.
(2)(3)(4)(7)(10)(12)
|
Healthcare & Pharmaceuticals
|
|
L + 5.75% (1.00% Floor)
|
|
12/4/2023
|
|
25,793
|
|
|
25,494
|
|
|
25,642
|
|
Restaurant Technologies, Inc.
(2)(3)(4)(11)(13)
|
Retail
|
|
L + 4.75% (1.00% Floor)
|
|
11/23/2022
|
|
17,369
|
|
|
17,241
|
|
|
17,219
|
|
Sovos Brands Intermediate, Inc.
(2)(3)(4)(7)(10)(13)
|
Beverage, Food & Tobacco
|
|
L + 4.50% (1.00% Floor)
|
|
7/18/2024
|
|
21,568
|
|
|
21,419
|
|
|
21,633
|
|
Superion (fka Ramundsen Public Sector, LLC)
(2)(3)(4)(13)
|
Sovereign & Public Finance
|
|
L + 4.25% (1.00% Floor)
|
|
2/1/2024
|
|
3,970
|
|
|
3,955
|
|
|
4,000
|
|
Surgical Information Systems, LLC
(2)(3)(4)(9)(11)(13)
|
High Tech Industries
|
|
L + 5.00% (1.00% Floor)
|
|
4/24/2023
|
|
30,000
|
|
|
29,728
|
|
|
30,075
|
|
Systems Maintenance Services Holding, Inc.
(2)(3)(4)(11)(13)
|
High Tech Industries
|
|
L + 5.00% (1.00% Floor)
|
|
10/28/2023
|
|
24,255
|
|
|
24,126
|
|
|
20,617
|
|
T2 Systems Canada, Inc.
(2)(3)(4)
|
Transportation: Consumer
|
|
L + 6.75% (1.00% Floor)
|
|
9/28/2022
|
|
2,673
|
|
|
2,617
|
|
|
2,634
|
|
T2 Systems, Inc.
(2)(3)(4)(7)(10)(13)
|
Transportation: Consumer
|
|
L + 6.75% (1.00% Floor)
|
|
9/28/2022
|
|
15,929
|
|
|
15,577
|
|
|
15,679
|
|
Teaching Strategies, LLC
(2)(3)(4)(7)(10)(11)(13)
|
Media: Advertising, Printing & Publishing
|
|
L + 4.75% (1.00% Floor)
|
|
2/27/2023
|
|
17,964
|
|
|
17,803
|
|
|
17,952
|
|
The Original Cakerie, Ltd. (Canada)
(2)(3)(4)(7)(10)(11)
|
Beverage, Food & Tobacco
|
|
L + 5.00% (1.00% Floor)
|
|
7/20/2021
|
|
6,939
|
|
|
6,879
|
|
|
6,922
|
|
The Original Cakerie, Co. (Canada)
(2)(3)(11)(13)
|
Beverage, Food & Tobacco
|
|
L + 5.50% (1.00% Floor)
|
|
7/20/2021
|
|
3,585
|
|
|
3,572
|
|
|
3,579
|
|
ThoughtWorks, Inc.
(2)(3)(11)(13)
|
Business Services
|
|
L + 4.50% (1.00% Floor)
|
|
10/12/2024
|
|
8,000
|
|
|
7,980
|
|
|
8,032
|
|
U.S. Acute Care Solutions, LLC
(2)(3)(4)(13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.00% (1.00% Floor)
|
|
5/15/2021
|
|
32,030
|
|
|
31,808
|
|
|
31,537
|
|
U.S. TelePacific Holdings Corp.
(2)(3)(4)(13)
|
Telecommunications
|
|
L + 5.00% (1.00% Floor)
|
|
5/2/2023
|
|
29,850
|
|
|
29,566
|
|
|
28,581
|
|
Valicor Environmental Services, LLC
(2)(3)(4)(7)(10)(11)(13)
|
Environmental Industries
|
|
L + 5.00% (1.00% Floor)
|
|
6/1/2023
|
|
27,047
|
|
|
26,576
|
|
|
26,984
|
|
WIRB - Copernicus Group, Inc.
(2)(3)(4)(13)
|
Healthcare & Pharmaceuticals
|
|
L + 5.00% (1.00% Floor)
|
|
8/12/2022
|
|
14,838
|
|
|
14,780
|
|
|
14,838
|
|
WRE Holding Corp.
(2)(3)(4)(7)(10)(11)(13)
|
Environmental Industries
|
|
L + 4.75% (1.00% Floor)
|
|
1/3/2023
|
|
5,367
|
|
|
5,283
|
|
|
5,279
|
|
Zest Holdings, LLC
(2)(3)(4)(11)
|
Durable Consumer Goods
|
|
L + 4.25% (1.00% Floor)
|
|
8/16/2023
|
|
19,152
|
|
|
19,107
|
|
|
19,272
|
|
Zywave, Inc.
(2)(3)(4)(7)(10)(13)
|
High Tech Industries
|
|
L + 5.00% (1.00% Floor)
|
|
11/17/2022
|
|
17,663
|
|
|
17,508
|
|
|
17,663
|
|
First Lien Debt Total
|
|
|
|
|
|
|
|
|
$
|
977,682
|
|
|
$
|
978,718
|
|
Second Lien Debt (0.61% of fair value)
|
|
|
|
|
|
|
|
|
|
|
|
Paradigm Acquisition Corp.
(2)(3)(12)(13)
|
Business Services
|
|
L + 8.50% (1.00% Floor)
|
|
10/12/2025
|
|
$
|
4,800
|
|
|
$
|
4,753
|
|
|
$
|
4,792
|
|
Superion, LLC (fka Ramundsen Public Sector, LLC)
(2)(3)(13)
|
Sovereign & Public Finance
|
|
L + 8.50% (1.00% Floor)
|
|
2/1/2025
|
|
200
|
|
|
198
|
|
|
202
|
|
Zywave, Inc.
(2)(3)(13)
|
High Tech Industries
|
|
L + 9.00% (1.00% Floor)
|
|
11/17/2023
|
|
1,050
|
|
|
1,036
|
|
|
1,061
|
|
Second Lien Debt Total
|
|
|
|
|
|
|
|
|
$
|
5,987
|
|
|
$
|
6,055
|
|
Total Investments
|
|
|
|
|
|
|
|
|
$
|
983,669
|
|
|
$
|
984,773
|
|
|
|
(1)
|
Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of
December 31, 2017
, the geographical composition of investments as a percentage of fair value was
1.07%
in Canada,
2.52%
in the United Kingdom and
96.41%
in the United States.
|
|
|
(2)
|
Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate (“P”)), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of
December 31, 2017
. As of
December 31, 2017
, all of Credit Fund’s LIBOR loans were indexed to the 90-day LIBOR rate at
1.69%
, except for those loans as indicated in Notes 11 and 12 below.
|
|
|
(3)
|
Loan includes interest rate floor feature.
|
|
|
(4)
|
Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into the Credit Fund Sub Facility. The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund or the 2017-1 Issuer.
|
|
|
(5)
|
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
|
|
|
(6)
|
Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, with the fair value of all investments determined using significant unobservable inputs, which is substantially similar to the valuation policy of the Company provided in “—Critical Accounting Policies—Fair Value Measurements.”
|
|
|
(7)
|
Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub or the 2017-1 Issuer.
|
|
|
(8)
|
Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.25% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
|
|
|
(9)
|
In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, Credit Fund is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.97%) and Surgical Information Systems, LLC (1.01%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
|
|
|
(10)
|
As of
December 31, 2017
, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Debt—unfunded delayed draw and revolving term loans commitments
|
Type
|
|
Unused Fee
|
|
Par/ Principal Amount
|
|
Fair Value
|
Advanced Instruments, LLC
|
Revolver
|
|
0.50
|
%
|
|
$
|
1,333
|
|
|
$
|
—
|
|
AQA Acquisition Holding, Inc.
|
Revolver
|
|
0.50
|
%
|
|
2,459
|
|
|
—
|
|
Borchers, Inc.
|
Revolver
|
|
0.50
|
%
|
|
1,935
|
|
|
(9
|
)
|
DecoPac, Inc.
|
Revolver
|
|
0.50
|
%
|
|
1,457
|
|
|
—
|
|
HMT Holding Inc.
|
Revolver
|
|
0.50
|
%
|
|
4,938
|
|
|
(43
|
)
|
Jensen Hughes, Inc.
|
Delayed Draw
|
|
1.00
|
%
|
|
1,180
|
|
|
—
|
|
Jensen Hughes, Inc.
|
Revolver
|
|
0.50
|
%
|
|
2,000
|
|
|
—
|
|
J.S. Held LLC
|
Delayed Draw
|
|
1.00
|
%
|
|
2,253
|
|
|
(7
|
)
|
North American Dental Management, LLC
|
Delayed Draw
|
|
1.00
|
%
|
|
13,354
|
|
|
(134
|
)
|
North American Dental Management, LLC
|
Revolver
|
|
0.50
|
%
|
|
2,727
|
|
|
(27
|
)
|
North Haven CA Holdings, Inc. (CoAdvantage)
|
Revolver
|
|
0.50
|
%
|
|
3,362
|
|
|
(12
|
)
|
PAI Holdco, Inc. (Parts Authority)
|
Delayed Draw
|
|
1.00
|
%
|
|
3,286
|
|
|
(8
|
)
|
PSI Services LLC
|
Revolver
|
|
0.50
|
%
|
|
302
|
|
|
(6
|
)
|
QW Holding Corporation (Quala)
|
Delayed Draw
|
|
1.00
|
%
|
|
7,515
|
|
|
(171
|
)
|
QW Holding Corporation (Quala)
|
Revolver
|
|
0.50
|
%
|
|
3,849
|
|
|
(88
|
)
|
Radiology Partners, Inc.
|
Delayed Draw
|
|
1.00
|
%
|
|
2,483
|
|
|
(12
|
)
|
Radiology Partners, Inc.
|
Revolver
|
|
0.50
|
%
|
|
1,725
|
|
|
(9
|
)
|
Sovos Brands Intermediate, Inc.
|
Revolver
|
|
0.50
|
%
|
|
3,378
|
|
|
9
|
|
T2 Systems, Inc.
|
Revolver
|
|
0.50
|
%
|
|
1,173
|
|
|
(17
|
)
|
Teaching Strategies, LLC
|
Revolver
|
|
0.50
|
%
|
|
1,900
|
|
|
(1
|
)
|
The Original Cakerie, Ltd. (Canada)
|
Revolver
|
|
0.50
|
%
|
|
1,665
|
|
|
(3
|
)
|
Valicor Environmental Services, LLC
|
Revolver
|
|
0.50
|
%
|
|
2,838
|
|
|
(6
|
)
|
WRE Holding Corp.
|
Delayed Draw
|
|
1.04
|
%
|
|
3,435
|
|
|
(32
|
)
|
WRE Holding Corp.
|
Revolver
|
|
0.50
|
%
|
|
748
|
|
|
(7
|
)
|
Zywave, Inc.
|
Revolver
|
|
0.50
|
%
|
|
1,163
|
|
|
—
|
|
Total unfunded commitments
|
|
|
|
|
$
|
72,458
|
|
|
$
|
(583
|
)
|
|
|
(11)
|
As of
December 31, 2017
, this LIBOR loan was indexed to the 30-day LIBOR rate at
1.56%
.
|
|
|
(12)
|
As of
December 31, 2017
, this LIBOR loan was indexed to the 180-day LIBOR rate at
1.84%
.
|
|
|
(13)
|
Denotes that all or a portion of the assets are owned by the 2017-1 Issuer and secure the notes issued in connection with the 2017-1 Debt Securitization. Accordingly, such assets are not available to creditors of Credit Fund or Credit Fund Sub.
|
Below is certain summarized consolidated financial information for Credit Fund as of
March 31, 2018
and
December 31, 2017
, respectively. Credit Fund commenced operations in May 2016.
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
(unaudited)
|
|
|
Selected Consolidated Balance Sheet Information
|
|
|
|
|
ASSETS
|
|
|
|
|
Investments, at fair value (amortized cost of $1,086,209 and $983,669, respectively)
|
|
$
|
1,090,348
|
|
|
$
|
984,773
|
|
Cash and other assets
|
|
32,382
|
|
|
26,441
|
|
Total assets
|
|
$
|
1,122,730
|
|
|
$
|
1,011,214
|
|
LIABILITIES AND MEMBERS’ EQUITY
|
|
|
|
|
Secured borrowings
|
|
$
|
430,616
|
|
|
$
|
377,686
|
|
2017-1 Notes payable, net of unamortized debt issuance costs of $1,999 and $2,051, respectively
|
|
349,019
|
|
|
348,938
|
|
Mezzanine loans
|
|
107,600
|
|
|
85,750
|
|
Other liabilities
|
|
48,562
|
|
|
25,308
|
|
Subordinated loans and members’ equity
|
|
186,933
|
|
|
173,532
|
|
Liabilities and members’ equity
|
|
$
|
1,122,730
|
|
|
$
|
1,011,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three month periods ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
|
|
(unaudited)
|
|
(unaudited)
|
Selected Consolidated Statement of Operations Information:
|
|
|
|
|
Total investment income
|
|
$
|
17,911
|
|
|
$
|
8,182
|
|
Expenses
|
|
|
|
|
Interest and credit facility expenses
|
|
10,656
|
|
|
5,473
|
|
Other expenses
|
|
389
|
|
|
318
|
|
Total expenses
|
|
11,045
|
|
|
5,791
|
|
Net investment income (loss)
|
|
6,866
|
|
|
2,391
|
|
Net realized gain (loss) on investments
|
|
—
|
|
|
—
|
|
Net change in unrealized appreciation (depreciation) on investments
|
|
3,035
|
|
|
737
|
|
Net increase (decrease) resulting from operations
|
|
$
|
9,901
|
|
|
$
|
3,128
|
|
Debt
Credit Fund Facility
On June 24, 2016, Credit Fund entered into the Credit Fund Facility with the Company pursuant to which Credit Fund may from time to time request mezzanine loans from the Company, which was subsequently amended on June 5, 2017, October 2, 2017 and November 3, 2017. The maximum principal amount of the Credit Fund Facility is $175,000. The maturity date of the Credit Fund Facility is June 22, 2018. Amounts borrowed under the Credit Fund Facility bear interest at a rate of LIBOR plus 9.00%.
During the three month periods ended
March 31, 2018
and
2017
, there were mezzanine loan borrowings of
$21,850
and
$45,660
, respectively, and repayments of
$0
and
$22,000
, respectively, under the Credit Fund Facility. As of
March 31, 2018
and
December 31, 2017
, there were
$107,600
and
$85,750
in mezzanine loans outstanding, respectively.
As of
March 31, 2018
and
December 31, 2017
, Credit Fund was in compliance with all covenants and other requirements of the Credit Fund Facility.
Credit Fund Sub Facility
On June 24, 2016, Credit Fund Sub closed on the Credit Fund Sub Facility with lenders, which was subsequently amended on May 31, 2017 and October 27, 2017. The Credit Fund Sub Facility provides for secured borrowings during the applicable revolving period up to an amount equal to $640,000. The facility is secured by a first lien security interest in substantially all of the portfolio investments held by Credit Fund Sub. The maturity date of the Credit Fund Sub Facility is May 22, 2023. Amounts borrowed under the Credit Fund Sub Facility bear interest at a rate of LIBOR plus 2.50%.
During the three month periods ended
March 31, 2018
and
2017
, there were secured borrowings of
$67,965
and
$118,835
, respectively, and repayments of
$15,035
and
$0
, respectively, under the Credit Fund Sub Facility. As of
March 31, 2018
and
December 31, 2017
, there was
$430,616
and
$377,686
in secured borrowings outstanding, respectively.
As of
March 31, 2018
and
December 31, 2017
, Credit Fund Sub was in compliance with all covenants and other requirements of the Credit Fund Sub Facility.
2017-1 Notes
On December 19, 2017, Credit Fund completed the 2017-1 Debt Securitization. The notes offered in the 2017-1 Debt Securitization (the “2017-1 Notes”) were issued by the 2017-1 Issuer, a wholly owned and consolidated subsidiary of Credit Fund, and are secured by a diversified portfolio of the 2017-1 Issuer consisting primarily of first and second lien senior secured loans. The 2017-1 Debt Securitization was executed through a private placement of the 2017-1 Notes, consisting of $231,700 of Aaa/AAA Class A-1 Notes, which bear interest at the three-month LIBOR plus 1.17%; $48,300 of Aa2/AA Class A-2 Notes, which bear interest at the three-month LIBOR plus 1.50%; $15,000 of A2/A Class B-1 Notes, which bear interest at the three-month LIBOR plus 2.25%; $9,000 of A2/A Class B-2 Notes which bear interest at 4.30%; $22,900 of Baa2/BBB Class C Notes which bear interest at the three-month LIBOR plus 3.20%; and $25,100 of Ba2/BB Class D Notes which bear interest at the three-month LIBOR plus 6.38%. The 2017-1 Notes are scheduled to mature on January 15, 2028. Credit Fund received 100% of the preferred interests issued by the 2017-1 Issuer (the “2017-1 Issuer Preferred Interests”) on the closing date of the 2017-1 Debt Securitization in exchange for Credit Fund’s contribution to the 2017-1 Issuer of the initial closing date loan portfolio. The 2017-1 Issuer Preferred Interests do not bear interest and had a nominal value of $47,900 at closing.
6. BORROWINGS
In accordance with the Investment Company Act, the Company is currently only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. See Note 13 for information on recent developments regarding the asset coverage requirements applicable to BDCs in general and the Company. As of
March 31, 2018
and
December 31, 2017
, asset coverage was
241.33%
and
234.86%
, respectively. During the
three month periods ended
March 31, 2018
and
2017
, there were secured borrowings of
$253,050
and
$93,000
, respectively, under the SPV Credit Facility and Credit Facility and repayments of
$288,078
and
$124,277
, respectively, under the SPV Credit Facility and Credit Facility. As of
March 31, 2018
and
December 31, 2017
, there was
$527,865
and
$562,893
, respectively, in secured borrowings outstanding.
SPV Credit Facility
The SPV closed on May 24, 2013 on the SPV Credit Facility, which was subsequently amended on June 30, 2014, June 19, 2015, June 9, 2016 and May 26, 2017. The SPV Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000 (the borrowing base as calculated pursuant to the terms of the SPV Credit Facility) and the amount of net cash proceeds and unpledged capital commitments the Company has received, with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the SPV Credit Facility, including adequate collateral to support such borrowings. The SPV Credit Facility has a revolving period through May 22, 2020 and a maturity date of May 23, 2022. Borrowings under the SPV Credit Facility bear interest initially at the applicable commercial paper rate (if the lender is a conduit lender) or LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 2.00% per year through May 23, 2018, with a pre-determined future interest rate increase of 0.50% during the final two years of the revolving period and pre-determined future interest rate increases of 0.875%-1.75% over the two years following the end of the revolving period. The SPV is also required to pay an undrawn commitment fee of between 0.50% and 0.75% per year depending on the drawings under the SPV Credit Facility. Payments under the SPV Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the SPV.
As part of the SPV Credit Facility, the SPV is subject to limitations as to how borrowed funds may be used and the types of loans that are eligible to be acquired by the SPV including, but not limited to, restrictions on sector and geographic concentrations, loan size, payment frequency, tenor and minimum investment ratings (or estimated ratings). In addition, borrowed funds are intended to be used primarily to purchase first lien loan assets, and the SPV is limited in its ability to purchase certain other assets (including, but not limited to, second lien loans, covenant-lite loans, revolving and delayed draw loans and discount loans) and other assets are not permitted to be purchased (including, but not limited to paid-in-kind loans and structured finance obligations). The SPV Credit Facility has certain requirements relating to interest coverage, collateral quality and portfolio performance, including limitations on delinquencies and charge offs, certain violations of which could
result in the immediate acceleration of the amounts due under the SPV Credit Facility. The SPV Credit Facility is also subject to a borrowing base that applies different advance rates to assets held by the SPV based generally on the fair market value of such assets. Under certain circumstances as set forth in the SPV Credit Facility, the Company could be obliged to repurchase loans from the SPV.
As of
March 31, 2018
and
December 31, 2017
, the SPV was in compliance with all covenants and other requirements of the SPV Credit Facility.
Credit Facility
The Company closed on March 21, 2014 on the Credit Facility, which was subsequently amended on January 8, 2015, May 25, 2016 and March 22, 2017. The maximum principal amount of the Credit Facility is $413,000. subject to availability under the Credit Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that the Company may incur in accordance with the terms of the Credit Facility. Proceeds of the Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Credit Facility may be increased to $550,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Credit Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either LIBOR plus an applicable spread of 2.25%, or an “alternative base rate” (which is the highest of a prime rate, the federal funds effective rate plus 0.50%, or one month LIBOR plus 1.00%) plus an applicable spread of 1.25%. The Company may elect either the LIBOR or the “alternative base rate” at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company also pays a fee of 0.375% on undrawn amounts under the Credit Facility and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin under the Credit Facility while the letter of credit is outstanding. The availability period under the Credit Facility will terminate on March 21, 2021 and the Credit Facility will mature on March 21, 2022. During the period from March 21, 2021 to March 21, 2022, the Company will be obligated to make mandatory prepayments under the Credit Facility out of the proceeds of certain asset sales, other recovery events and equity and debt issuances.
Subject to certain exceptions, the Credit Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company. The Credit Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.
As of
March 31, 2018
and
December 31, 2017
, the Company was in compliance with all covenants and other requirements of the Credit Facility.
Summary of Facilities
The Facilities consisted of the following as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Total Facility
|
|
Borrowings Outstanding
|
|
Unused Portion
(1)
|
|
Amount Available
(2)
|
SPV Credit Facility
|
$
|
400,000
|
|
|
$
|
290,365
|
|
|
$
|
109,635
|
|
|
$
|
2,758
|
|
Credit Facility
|
413,000
|
|
|
237,500
|
|
|
175,500
|
|
|
175,500
|
|
Total
|
$
|
813,000
|
|
|
$
|
527,865
|
|
|
$
|
285,135
|
|
|
$
|
178,258
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Total Facility
|
|
Borrowings Outstanding
|
|
Unused Portion
(1)
|
|
Amount Available
(2)
|
SPV Credit Facility
|
$
|
400,000
|
|
|
$
|
287,393
|
|
|
$
|
112,607
|
|
|
$
|
27,147
|
|
Credit Facility
|
413,000
|
|
|
275,500
|
|
|
137,500
|
|
|
137,500
|
|
Total
|
$
|
813,000
|
|
|
$
|
562,893
|
|
|
$
|
250,107
|
|
|
$
|
164,647
|
|
|
|
(1)
|
The unused portion is the amount upon which commitment fees are based.
|
|
|
(2)
|
Available for borrowing based on the computation of collateral to support the borrowings and subject to compliance with applicable covenants and financial ratios.
|
As of
March 31, 2018
and
December 31, 2017
,
$3,084
and
$3,140
, respectively, of interest expense,
$264
and
$186
, respectively, of unused commitment fees and
$23
and
$23
, respectively, of other fees were included in interest and credit facility fees payable. For the
three month periods ended
March 31, 2018
and
2017
, the weighted average interest rate was
3.78%
and
3.07%
, respectively, and average principal debt outstanding was
$553,656
and
$376,532
, respectively. As of
March 31, 2018
and
December 31, 2017
, the weighted average interest rate was
3.87%
and
3.56%
, respectively, based on floating LIBOR rates.
For the
three month periods ended
March 31, 2018
and
2017
, the components of interest expense and credit facility fees were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the three month periods ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
|
Interest expense
|
$
|
5,235
|
|
|
$
|
2,892
|
|
|
Facility unused commitment fee
|
288
|
|
|
292
|
|
|
Amortization of deferred financing costs
|
202
|
|
|
181
|
|
|
Other fees
|
35
|
|
|
30
|
|
|
Total interest expense and credit facility fees
|
$
|
5,760
|
|
|
$
|
3,395
|
|
|
Cash paid for interest expense
|
$
|
5,291
|
|
|
$
|
2,893
|
|
|
7. 2015-1 Notes
On June 26, 2015, the Company completed the 2015-1 Debt Securitization. The 2015-1 Notes were issued by the 2015-1 Issuer, a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160,000 of Aaa/AAA Class A-1A Notes which bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 1.85%; $40,000 of Aaa/AAA Class A-1B Notes which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27,000 of Aaa/AAA Class A-1C Notes which bear interest at 3.75%; and $46,000 of Aa2 Class A-2 Notes which bear interest at the three month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. The Company received 100% of the preferred interests issued by the 2015-1 Issuer (the “2015-1 Issuer Preferred Interests”) on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the 2015-1 Issuer of the initial closing date loan portfolio. The 2015-1 Preferred Interests do not bear interest and had a nominal value of $125,900 at closing. In connection with the contribution, the Company made customary representations, warranties and covenants to the 2015-1 Issuer in the purchase agreement. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in these consolidated financial statements. The 2015-1 Preferred Interests were eliminated in consolidation.
On the closing date of the 2015-1 Debt Securitization, the 2015-1 Issuer effected a one-time distribution to the Company of a substantial portion of the proceeds of the private placement of the 2015-1 Notes, net of expenses, which distribution was used to repay a portion of certain amounts outstanding under the SPV Credit Facility and the Credit Facility. As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the SPV to the Company pursuant to a distribution and contribution agreement. The Company contributed the loans that comprised the initial closing date loan portfolio (including the loans distributed to the Company from the SPV) to the 2015-1 Issuer pursuant to a contribution agreement. Future loan transfers from the Company to the 2015-1 Issuer will be made pursuant to a sale agreement and are subject to the approval of the Company’s Board of Directors. Assets of the 2015-1 Issuer are not available to the creditors of the SPV or the Company. In connection with the issuance and sale of the 2015-1 Notes, the Company made customary representations, warranties and covenants in the purchase agreement.
During the reinvestment period, pursuant to the indenture governing the 2015-1 Notes, all principal collections received on the underlying collateral may be used by the 2015-1 Issuer to purchase new collateral under the direction of Investment Adviser in its capacity as collateral manager of the 2015-1 Issuer and in accordance with the Company’s investment strategy.
The Investment Adviser serves as collateral manager to the 2015-1 Issuer under a collateral management agreement (the “Collateral Management Agreement”). Pursuant to the Collateral Management Agreement, the 2015-1 Issuer pays management fees (comprised of base management fees, subordinated management fees and incentive management fees) to the Investment
Adviser for rendering collateral management services. As per the Collateral Management Agreement, for the period the Company retains all of the 2015-1 Issuer Preferred Interests, the Investment Adviser does not earn management fees for providing such collateral management services. The Company currently retains all of the 2015-1 Issuer Preferred Interests, thus the Investment Adviser did not earn any management fees from the 2015-1 Issuer for the
three month periods ended
March 31, 2018
and
2017
. Any such waived fees may not be recaptured by the Investment Adviser.
Pursuant to an undertaking by the Company in connection with the 2015-1 Debt Securitization, the Company has agreed to hold on an ongoing basis the 2015-1 Issuer Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remain outstanding. As of
March 31, 2018
, the Company was in compliance with its undertaking.
The 2015-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2015-1 Issuer.
As of
March 31, 2018
, there were
59
first lien and second lien senior secured loans with a total fair value of approximately
$389,761
and cash of
$13,848
securing the 2015-1 Notes. The pool of loans in the securitization must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture governing the 2015-1 Notes.
For the
three month periods ended
March 31, 2018
and
2017
, the effective annualized weighted average interest rate, which includes amortization of debt issuance costs on the 2015-1 Notes, was
3.78%
and
3.18%
, respectively, based on floating LIBOR rates.
For the
three month periods ended
March 31, 2018
and
2017
, the components of interest expense on the 2015-1 Notes were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the three month periods ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
|
Interest expense
|
$
|
2,530
|
|
|
$
|
2,092
|
|
|
Amortization of deferred financing costs
|
50
|
|
|
50
|
|
|
Total interest expense and credit facility fees
|
$
|
2,580
|
|
|
$
|
2,142
|
|
|
Cash paid for interest expense
|
$
|
2,391
|
|
|
$
|
2,059
|
|
|
8. COMMITMENTS AND CONTINGENCIES
A summary of significant contractual payment obligations was as follows as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPV Credit Facility and Credit Facility
|
|
2015-1 Notes
|
Payment Due by Period
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Less than 1 Year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
1-3 Years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
3-5 Years
|
|
527,865
|
|
|
562,893
|
|
|
—
|
|
|
—
|
|
More than 5 Years
|
|
—
|
|
|
—
|
|
|
273,000
|
|
|
273,000
|
|
Total
|
|
$
|
527,865
|
|
|
$
|
562,893
|
|
|
$
|
273,000
|
|
|
$
|
273,000
|
|
In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnification or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of
March 31, 2018
and
December 31, 2017
for any such exposure.
The Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:
|
|
|
|
|
|
|
|
|
|
Par Value as of
|
|
March 31, 2018
|
|
December 31, 2017
|
Unfunded delayed draw commitments
|
$
|
86,813
|
|
|
$
|
78,991
|
|
Unfunded revolving term loan commitments
|
36,321
|
|
|
39,383
|
|
Total unfunded commitments
|
$
|
123,134
|
|
|
$
|
118,374
|
|
9. NET ASSETS
The Company has the authority to issue
200,000,000
shares of common stock,
$0.01
per share par value.
During the
three month period ended
March 31, 2018
, the Company issued
361,048
shares for
$6,629
through the reinvestment of dividends. The following table summarizes capital activity during the
three month period ended
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Offering Costs
|
|
Accumulated Net Investment Income (Loss)
|
|
Accumulated Net Realized Gain (Loss) on Investments
|
|
Accumulated Net Unrealized Appreciation (Depreciation) on Investments
|
|
Total Net Assets
|
|
|
Shares
|
|
Amount
|
|
Balance, beginning of period
|
|
62,207,603
|
|
|
$
|
622
|
|
|
$
|
1,172,807
|
|
|
$
|
(1,618
|
)
|
|
$
|
2,522
|
|
|
$
|
(43,548
|
)
|
|
$
|
(3,481
|
)
|
|
$
|
1,127,304
|
|
Common stock issued
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reinvestment of dividends
|
|
361,048
|
|
|
4
|
|
|
6,625
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,629
|
|
Offering costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Net investment income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,130
|
|
|
—
|
|
|
—
|
|
|
25,130
|
|
Net realized gain (loss) on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(129
|
)
|
|
—
|
|
|
(129
|
)
|
Net change in unrealized appreciation (depreciation) on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,912
|
)
|
|
(3,912
|
)
|
Dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,150
|
)
|
|
—
|
|
|
—
|
|
|
(23,150
|
)
|
Balance, end of period
|
|
62,568,651
|
|
|
$
|
626
|
|
|
$
|
1,179,432
|
|
|
$
|
(1,633
|
)
|
|
$
|
4,502
|
|
|
$
|
(43,677
|
)
|
|
$
|
(7,393
|
)
|
|
$
|
1,131,857
|
|
During the
three month period ended
March 31, 2017
, the Company issued
5,837
shares for
$108
through the reinvestment of dividends. The following table summarizes capital activity during the
three month period ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Offering Costs
|
|
Accumulated Net Investment Income (Loss)
|
|
Accumulated Net Realized Gain (Loss) on Investments
|
|
Accumulated Net Unrealized Appreciation (Depreciation) on Investments
|
|
Total Net Assets
|
|
|
Shares
|
|
Amount
|
|
Balance, beginning of period
|
|
41,702,318
|
|
|
$
|
417
|
|
|
$
|
799,580
|
|
|
$
|
(74
|
)
|
|
$
|
(3,207
|
)
|
|
$
|
(25,357
|
)
|
|
$
|
(7,222
|
)
|
|
$
|
764,137
|
|
Reinvestment of dividends
|
|
5,837
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
108
|
|
Net investment income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,107
|
|
|
—
|
|
|
—
|
|
|
19,107
|
|
Net realized gain (loss) on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,694
|
)
|
|
—
|
|
|
(7,694
|
)
|
Net change in unrealized appreciation (depreciation) on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,760
|
|
|
4,760
|
|
Dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,100
|
)
|
|
—
|
|
|
—
|
|
|
(17,100
|
)
|
Balance, end of period
|
|
41,708,155
|
|
|
$
|
417
|
|
|
$
|
799,688
|
|
|
$
|
(74
|
)
|
|
$
|
(1,200
|
)
|
|
$
|
(33,051
|
)
|
|
$
|
(2,462
|
)
|
|
$
|
763,318
|
|
The following table summarizes total shares issued and proceeds received related to capital activity during the
three month period ended
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Shares Issued
|
|
Proceeds Received
|
January 17, 2018*
|
|
361,048
|
|
|
$
|
6,629
|
|
Total
|
|
361,048
|
|
|
$
|
6,629
|
|
* Represents shares issued upon the reinvestment of dividends
The following table summarizes total shares issued and proceeds received related to capital activity during the
three month period ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Shares Issued
|
|
Proceeds Received
|
January 24, 2017*
|
|
5,837
|
|
|
$
|
108
|
|
Total
|
|
5,837
|
|
|
$
|
108
|
|
* Represents shares issued upon the reinvestment of dividends
The Company computes earnings per common share in accordance with ASC 260,
Earnings Per Share
. Basic earnings per common share were calculated by dividing net increase (decrease) in net assets resulting from operations attributable to the Company by the weighted-average number of common shares outstanding for the period.
Basic and diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the three month periods ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
21,089
|
|
|
$
|
16,173
|
|
Weighted-average common shares outstanding
|
|
62,504,465
|
|
|
41,706,598
|
|
Basic and diluted earnings per common share
|
|
$
|
0.34
|
|
|
$
|
0.39
|
|
The following table summarizes the Company’s dividends declared during the two most recent fiscal years and the current fiscal year to-date:
|
|
|
|
|
|
|
|
|
|
|
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Per Share Amount
|
|
March 10, 2016
|
|
March 14, 2016
|
|
April 22, 2016
|
|
$
|
0.40
|
|
|
June 8, 2016
|
|
June 8, 2016
|
|
July 22, 2016
|
|
$
|
0.40
|
|
|
September 28, 2016
|
|
September 28, 2016
|
|
October 24, 2016
|
|
$
|
0.40
|
|
|
December 29, 2016
|
|
December 29, 2016
|
|
January 24, 2017
|
|
$
|
0.41
|
|
|
December 29, 2016
|
|
December 29, 2016
|
|
January 24, 2017
|
|
$
|
0.07
|
|
(1)
|
March 20, 2017
|
|
March 20, 2017
|
|
April 24, 2017
|
|
$
|
0.41
|
|
|
June 20, 2017
|
|
June 30, 2017
|
|
July 18, 2017
|
|
$
|
0.37
|
|
|
August 7, 2017
|
|
September 29, 2017
|
|
October 18, 2017
|
|
$
|
0.37
|
|
|
November 7, 2017
|
|
December 29, 2017
|
|
January 17, 2018
|
|
$
|
0.37
|
|
|
December 13, 2017
|
|
December 29, 2017
|
|
January 17, 2018
|
|
$
|
0.12
|
|
(1)
|
March 29, 2018
|
|
March 29, 2018
|
|
April 17, 2018
|
|
$
|
0.37
|
|
|
|
|
(1)
|
Represents a special dividend.
|
10. CONSOLIDATED FINANCIAL HIGHLIGHTS
The following is a schedule of consolidated financial highlights for the
three month periods ended
March 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
For the three month periods ended
|
|
March 31, 2018
|
|
March 31, 2017
|
Per Share Data:
|
|
|
|
Net asset value per share, beginning of period
|
$
|
18.12
|
|
|
$
|
18.32
|
|
Net investment income (loss) (1)
|
0.40
|
|
|
0.46
|
|
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments
|
(0.06
|
)
|
|
(0.07
|
)
|
Net increase (decrease) in net assets resulting from operations
|
0.34
|
|
|
0.39
|
|
Dividends declared (2)
|
(0.37
|
)
|
|
(0.41
|
)
|
Net asset value per share, end of period
|
$
|
18.09
|
|
|
$
|
18.30
|
|
Market price per share, end of period
|
$
|
17.90
|
|
|
n/a
|
|
|
|
|
|
Number of shares outstanding, end of period
|
62,568,651
|
|
|
41,708,155
|
|
Total return based on net asset value (3)
|
1.88
|
%
|
|
2.14
|
%
|
Total return based on market price (4)
|
(8.83
|
)%
|
|
n/a
|
|
Net assets, end of period
|
$
|
1,131,857
|
|
|
$
|
763,318
|
|
Ratio to average net assets (5):
|
|
|
|
Expenses net of waiver, before incentive fees
|
1.49
|
%
|
|
1.32
|
%
|
Expenses net of waiver, after incentive fees
|
1.96
|
%
|
|
1.94
|
%
|
Expenses gross of waiver, after incentive fees
|
1.96
|
%
|
|
2.16
|
%
|
Net investment income (loss) (6)
|
2.20
|
%
|
|
2.48
|
%
|
Interest expense and credit facility fees
|
0.73
|
%
|
|
0.72
|
%
|
Ratios/Supplemental Data:
|
|
|
|
Asset coverage, end of period
|
241.33
|
%
|
|
215.03
|
%
|
Portfolio turnover
|
6.17
|
%
|
|
10.20
|
%
|
Weighted-average shares outstanding
|
62,504,465
|
|
|
41,706,598
|
|
|
|
(1)
|
Net investment income (loss) per share was calculated as net investment income (loss) for the period divided by the weighted average number of shares outstanding for the period.
|
|
|
(2)
|
Dividends declared per share was calculated as the sum of dividends declared during the period divided by the number of shares outstanding at each respective quarter-end date (refer to Note 9).
|
|
|
(3)
|
Total return based on net asset value (not annualized) is based on the change in net asset value per share during the period plus the declared dividends, assuming reinvestment of dividends in accordance with the dividend reinvestment plan, divided by the beginning net asset value for the period.
|
|
|
(4)
|
Total return based on market value (not annualized) is calculated as the change in market value per share during the period plus the declared dividends, assuming reinvestment of dividends in accordance with the dividend reinvestment plan, divided by the beginning market price for the period.
|
|
|
(5)
|
These ratios to average net assets have not been annualized.
|
|
|
(6)
|
The net investment income ratio is net of the waiver of base management fees, which terminated on September 30, 2017.
|
11. LITIGATION
The Company may become party to certain lawsuits in the ordinary course of business. The Company does not believe that the outcome of current matters, if any, will materially impact the Company or its consolidated financial statements. As of
March 31, 2018
and
December 31, 2017
, the Company was not subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company.
In addition, portfolio investments of the Company could be the subject of litigation or regulatory investigations in the ordinary course of business. The Company does not believe that the outcome of any current contingent liabilities of its portfolio investments, if any, will materially affect the Company or these consolidated financial statements.
12. TAX
The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740,
Income Taxes,
as of
March 31, 2018
and
December 31, 2017
.
In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. As of
March 31, 2018
and
December 31, 2017
, the Company had filed tax returns and therefore is subject to examination.
The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate. The estimated tax character of dividends declared for
three month periods ended
March 31, 2018
and
2017
was as follows:
|
|
|
|
|
|
|
|
|
|
For the three month periods ended
|
|
March 31, 2018
|
|
March 31, 2017
|
Ordinary income
|
$
|
23,150
|
|
|
$
|
17,100
|
|
Tax return of capital
|
$
|
—
|
|
|
$
|
—
|
|
14. SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date the consolidated financial statements were issued. There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.
Subsequent to
March 31, 2018
, the Company borrowed
$66,500
under the Credit Facility and SPV Credit
Facility to fund investment acquisitions. The Company also voluntarily repaid
$55,000
under the Credit Facility and SPV Credit Facility.
On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio from 200% to 150%, so long as certain approval and disclosure requirements are satisfied. Under the existing 200% minimum asset coverage ratio, the Company is permitted to borrow up to one dollar for investment purposes for every one dollar of investor equity, and under the 150% minimum asset coverage ratio, the Company will be permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a) of the 1940 Act, as amended, permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1 to 1 to a maximum of 2 to 1.
On April 9, 2018, the Board of Directors of the Company, including a “required majority” (as such term is defined in Section 57(o) of the Investment Company Act), approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, and subject to certain additional disclosure requirements, the minimum asset coverage ratio applicable to the Company will be reduced from 200% to 150%, effective as of April 9, 2019. In addition, in order to provide the Company with the maximum financial flexibility at the earliest possible date, the Board of Directors also authorized the submission of a proposal for stockholders to approve the application of the 150% minimum asset coverage ratio to the Company at the Company’s 2018 annual meeting of stockholders (the “2018 Annual Meeting”). If the Company’s stockholders approve such proposal at the 2018 Annual Meeting, the 150% minimum asset coverage ratio will then apply effective as of June 7, 2018, the first day after the 2018 Annual Meeting and, as a result, the Company will be permitted to incur double the maximum amount of leverage that the Company is able to incur currently approximately ten months earlier than if the Company’s stockholders do not vote to approve such proposal.
On May 2, 2018, the Board of Directors declared a quarterly dividend of $0.37 per share, which is payable on July 17, 2018 to stockholders of record as of June 29, 2018.