NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
NOTE 1. ORGANIZATION
Gladstone Investment Corporation (Gladstone Investment) was incorporated under the General Corporation Law of the State of
Delaware on February 18, 2005, and completed an initial public offering on June 22, 2005. The terms the Company, we, our and us all refer to Gladstone Investment and its consolidated
subsidiaries. We are an externally advised, closed-end, non-diversified management investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the
1940 Act). In addition, we have elected to be treated for tax purposes as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (the Code). We were established for the purpose of
investing in debt and equity securities of established private businesses in the United States (U.S.). Debt investments primarily come in the form of three types of loans: senior term loans, senior subordinated loans and junior
subordinated debt. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. To a much lesser extent, we also invest in
senior and subordinated syndicated loans. Our investment objectives are (a) to achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses,
make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and (b) to provide our stockholders with long-term capital appreciation in the value of our assets by investing in
equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. We aim to maintain a portfolio consisting of approximately 80% debt investments and 20% equity investments,
at cost.
Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of ours, was established on
August 11, 2006 for the sole purpose of owning our portfolio of investments in connection with our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment.
We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours and a Securities and Exchange Commission
(SEC) registered investment adviser, pursuant to an investment advisory agreement and management agreement.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements and Basis of Presentation
We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (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, we have omitted certain disclosures accompanying annual financial statements prepared in accordance with GAAP. The accompanying condensed consolidated
financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Under Article 6 of Regulation S-X, and the authoritative accounting guidance provided by
the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are not permitted to consolidate any portfolio company investments, including those in which we have a controlling interest. In our
opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three months ended June 30, 2013,
are not necessarily indicative of results that ultimately may be achieved for the year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our annual report on
Form 10-K for the fiscal year ended March 31, 2013, as filed with the SEC on May 14, 2013.
Our fiscal year-end
Condensed
Consolidated Statement of Assets and Liabilities
presented in this Form 10-Q was derived from audited financial statements, but does not include all disclosures required by GAAP.
Investment Valuation Policy
We carry our investments at fair value to the extent that
market quotations are readily available and reliable and otherwise at fair value as determined in good faith by our board of directors (the Board of Directors). In determining the fair value of our investments, the Adviser has
established an investment valuation policy (the Policy). The Policy has been approved by our Board of Directors, and each quarter, our Board of Directors reviews the Policy to determine if changes thereto are advisable and also reviews
whether the Adviser has applied the Policy consistently and votes whether to accept the recommended valuation of our investment portfolio. Such determination of fair values may involve subjective judgments and estimates.
13
The Adviser uses generally accepted valuation techniques to value our portfolio unless it has specific
information about the value of an investment to determine otherwise. From time to time, the Adviser may accept an appraisal of a business in which we hold securities. These appraisals are expensive and occur infrequently but provide a third-party
valuation opinion that may differ in results, techniques and scope used to value our investments. When the Adviser obtains these specific, third-party appraisals, the Adviser uses estimates of value provided by such appraisals and its own
assumptions, including estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date, to value our investments.
The Policy, summarized below, applies to publicly-traded securities, securities for which a limited market exists and securities for which no market exists.
Publicly-traded securities:
The Adviser determines the value of publicly-traded securities based on the closing price for the security on the
exchange or securities market on which it is listed and primarily traded on the valuation date. To the extent that we own restricted securities that are not freely tradable, but for which a public market otherwise exists, the Adviser will use the
market value of that security, adjusted for any decrease in value resulting from the restrictive feature. As of June 30 and March 31, 2013, we did not have any investments in publicly traded securities.
Securities for which a limited market exists:
The Adviser values securities that are not traded on an established secondary securities market but
for which a limited market for the security exists, such as certain participations in, or assignments of, syndicated loans, at the quoted bid price, which are non-binding. In valuing these assets, the Adviser assesses trading activity in an asset
class and evaluates variances in prices and other market insights to determine if any available quoted prices are reliable. In general, if the Adviser concludes that quotes based on active markets or trading activity may be relied upon, firm bid
prices are requested; however, if firm bid prices are unavailable, the Adviser bases the value of the security upon the indicative bid price (IBP) offered by the respective originating syndication agents trading desk, or secondary
desk, on or near the valuation date. To the extent that the Adviser uses the IBP as a basis for valuing the security, the Adviser may take further steps to consider additional information to validate that price in accordance with the Policy,
including but not limited to reviewing a range of indicative bids to the extent it has ready access to such qualified information.
In the
event these limited markets become illiquid such that market prices are no longer readily available, the Adviser will value our syndicated loans using alternative methods, such as estimated net present values of the future cash flows, or discounted
cash flows (DCF). The use of a DCF methodology follows that prescribed by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and
Disclosures, which provides guidance on the use of a reporting entitys own assumptions about future cash flows and risk-adjusted discount rates when relevant, observable inputs, such as quotes in active markets, are not available. When
relevant, observable market data does not exist, an alternative outlined in ASC 820 is the valuation of investments based on DCF. For the purposes of using DCF to provide fair value estimates, the Adviser considers multiple inputs, such as a
risk-adjusted discount rate that incorporates adjustments that market participants would make, both for nonperformance and liquidity risks. As such, the Adviser develops a modified discount rate approach that incorporates risk premiums including,
among other things, increased probability of default, higher loss given default or increased liquidity risk. The DCF valuations applied to the syndicated loans provide an estimate of what the Adviser believes a market participant would pay to
purchase a syndicated loan in an active market, thereby establishing a fair value. The Adviser applies the DCF methodology in illiquid markets until quoted prices are available or are deemed reliable based on trading activity. As of June 30 and
March 31, 2013, we had no securities for which a limited market exits.
Securities for which no market exists:
The valuation
methodology for securities for which no market exists falls into four categories: (A) portfolio investments comprised solely of debt securities; (B) portfolio investments in controlled companies comprised of a bundle of securities, which
can include debt and equity securities; (C) portfolio investments in non-controlled companies comprised of a bundle of investments, which can include debt and equity securities; and (D) portfolio investments comprised of non-publicly
traded, non-control equity securities of other funds.
(A)
|
Portfolio investments comprised solely of debt securities:
Debt securities that are not publicly traded on an established securities market, or for which a
market does not exist (Non-Public Debt Securities), and that are issued by portfolio companies in which we have no equity or equity-like securities, are fair valued utilizing opinions of value submitted to us by Standard &
Poors Securities Evaluations, Inc. (SPSE). The Adviser may also submit paid-in-kind (PIK) interest to SPSE for its evaluation when it is determined that PIK interest is likely to be received.
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(B)
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Portfolio investments in controlled companies comprised of a bundle of investments, which can include debt and equity securities:
The fair value
of these investments is determined based on the total enterprise value (TEV) of the portfolio company, or issuer, utilizing a liquidity waterfall approach under ASC 820 for our Non-Public Debt Securities and equity or equity-like
securities (e.g., preferred equity, common equity or other equity-like securities) that are purchased together as part of a package where we have control or could gain control through an option or warrant security; both the debt and equity
securities of the portfolio investment would exit in the mergers and acquisitions market as the principal market, generally through a sale or recapitalization of the portfolio company. We generally exit the debt and equity securities of an issuer at
the same time. Applying
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14
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the liquidity waterfall approach to all of our investments in an issuer, the Adviser first calculates the TEV of the issuer by incorporating some or all of the following factors:
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the issuers ability to make payments;
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the earnings of the issuer;
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recent sales to third parties of similar securities;
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the comparison to publicly-traded securities; and
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DCF or other pertinent factors.
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In gathering the sales to third parties of similar securities, the Adviser generally references industry statistics and may use outside experts. TEV is only an estimate of value and may not be the value
received in an actual sale. Once the Adviser has estimated the TEV of the issuer, it will subtract the value of all the debt securities of the issuer, which are valued at the contractual principal balance. Fair values of these debt securities are
discounted for any shortfall of TEV over the total debt outstanding for the issuer. Once the values for all outstanding senior securities, which include all the debt securities, have been subtracted from the TEV of the issuer, the remaining amount,
if any, is used to determine the value of the issuers equity or equity-like securities. If, in the Advisers judgment, the liquidity waterfall approach does not accurately reflect the value of the debt component, the Adviser may recommend
that we use a valuation by SPSE, or, if that is unavailable, a DCF valuation technique.
(C)
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Portfolio investments in non-controlled companies comprised of a bundle of investments, which can include debt and equity securities:
The Adviser values
Non-Public Debt Securities that are purchased together with equity or equity-like securities from the same portfolio company, or issuer, for which we do not control or cannot gain control as of the measurement date, using a hypothetical, secondary
market as our principal market. In accordance with ASC 820 (as amended by the FASBs Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS), (ASU 2011-04)), the Adviser has defined our unit of account at the investment level (either debt or equity) and, as such,
determines our fair value of these non-control investments assuming the sale of an individual security using the standalone premise of value. As such, the Adviser estimates the fair value of the debt component using estimates of value provided by
SPSE and its own assumptions in the absence of observable market data, including synthetic credit ratings, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. For equity or
equity-like securities of investments for which we do not control or cannot gain control as of the measurement date, the Adviser estimates the fair value of the equity based on factors such as the overall value of the issuer, the relative fair value
of other units of account, including debt, or other relative value approaches. Consideration is also given to capital structure and other contractual obligations that may impact the fair value of the equity. Furthermore, the Adviser may utilize
comparable values of similar companies, recent investments and indices with similar structures and risk characteristics or DCF valuation techniques and, in the absence of other observable market data, its own assumptions.
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(D)
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Portfolio investments comprised of non-publicly traded, non-control equity securities of other funds:
The Adviser generally values any uninvested capital of the
non-control fund at par value and values any invested capital at the value provided by the non-control fund. As of June 30 and March 31, 2013, we had no non-control equity securities of other funds.
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Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly and materially from the values that would
have been obtained had a ready market for the securities existed. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments
to be different than the valuations currently assigned. There is no single standard for determining fair value in good faith, as fair value depends upon circumstances of each individual case. In general, fair value is the amount that the Adviser
might reasonably expect us to receive upon the current sale of the security in an orderly transaction between market participants at the measurement date.
Refer to Note 3
Investments
for additional information regarding fair value measurements and our application of ASC 820.
Interest Income Recognition
Interest
income, adjusted for amortization of premiums and acquisition costs, the accretion of discounts and the amortization of amendment fees, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a
loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan
until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost
basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid, and, in managements judgment, are likely to remain current, or, due to a
restructuring, the interest income is deemed to be collectible. As of June 30, 2013, loans to two portfolio companies, ASH Holdings Corp. (ASH) and Tread Corp. (Tread) were on non-accrual. These non-accrual loans had an
aggregate cost basis of $25.7 million, or 9.7% of the cost basis of debt investments in our portfolio, and an aggregate fair value of $0. As of March 31, 2013, ASH and Tread were also on non-accrual and had an aggregate cost basis of $24.9
million, or 10.4% of the cost basis of debt investments in our portfolio, and an aggregate fair value of $0.
15
During the three months ended June 30, 2013, we recorded PIK income of $10. PIK interest, computed at
the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain our status as a RIC, this non-cash source of income must be included in our calculation of distributable
income for purposes of complying with our distribution requirements, even though we have not yet collected the cash.
Other Income
Recognition
We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be
collected and if we have the option to collect such amounts in cash or other consideration. We did not record any dividend income during the three months ended June 30, 2013 and 2012.
We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company. We recorded $0.2 million and $0.4 million of success fees during
the three months ended June 30, 2013 and 2012, respectively, representing prepayments received from Mathey Investments, Inc. (Mathey).
Both dividends and success fees are recorded in Other income in our accompanying
Condensed Consolidated Statements of Operations
.
Recent Accounting Pronouncements
In June 2013, the FASB issued ASU 2013-08,
Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, which amends the criteria that define an investment company and clarifies the measurement guidance and
requires new disclosures for investment companies. Under ASU 2013-08, an entity already regulated under the 1940 Act is automatically an investment company under the new GAAP definition, so we anticipate no impact from adopting this standard on our
financial position or results of operations. We are currently assessing whether additional disclosure requirements will be necessary. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after
December 15, 2013.
NOTE 3. INVESTMENTS
ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities
measured at fair value. ASC 820 provides a consistent definition of fair value that focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. ASC also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
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Level 1
inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
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Level 2
inputs to the valuation methodology include quoted prices for similar assets and liabilities in active or inactive markets
and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not
current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and
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Level 3
inputs to the valuation methodology are unobservable and reflect assumptions that market participants would use when
pricing the asset or liability. Level 3 inputs can include the Advisers own assumptions based upon the best available information.
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As of June 30 and March 31, 2013, all of our investments were valued using Level 3 inputs. We transfer investments in and out of Level 1, 2 and 3 securities as of the beginning balance sheet
date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the three months ended June 30, 2013 and 2012, there were no transfers in or out of Level 1, 2 and 3.
The following table presents the financial assets carried at fair value as of June 30 and March 31, 2013, by caption on our accompanying
Condensed Consolidated Statements of Assets and Liabilities
and by security type for each of the three applicable levels of hierarchy established by ASC 820 that we used to value our financial assets:
16
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June 30, 2013
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March 31, 2013
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Level 1
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Level 3
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Total Recurring Fair
Value
Measurement
Reported in
Condensed
Consolidated
Statements
of Assets and Liabilities
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Level 1
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Level 3
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Total Recurring Fair
Value
Measurement
Reported in
Condensed
Consolidated
Statements
of Assets and Liabilities
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Control Investments
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Senior debt
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$
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$
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93,160
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$
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93,160
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$
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$
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73,391
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$
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73,391
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Senior subordinated debt
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79,647
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79,647
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79,748
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79,748
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Preferred equity
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76,645
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76,645
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77,032
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77,032
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Common equity/equivalents
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11,027
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11,027
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13,632
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13,632
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Total Control Investments
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260,479
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260,479
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243,803
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243,803
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Affiliate Investments
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Senior debt
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22,620
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|
22,620
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24,471
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24,471
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Senior subordinated debt
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6,821
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6,821
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7,063
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7,063
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Preferred equity
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6,646
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6,646
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5,125
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5,125
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Total Affiliate Investments
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36,087
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36,087
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36,659
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36,659
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Non-Control/Non-Affiliate Investments
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Senior debt
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3,010
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3,010
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6,020
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6,020
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Senior subordinated debt
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7,501
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7,501
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Preferred equity
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1,250
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1,250
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Total Non-Control/Non-Affiliate Investments
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11,761
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11,761
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6,020
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6,020
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Total Investments at fair value
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$
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$
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308,327
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$
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308,327
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$
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$
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286,482
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$
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286,482
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Cash Equivalents
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30,000
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30,000
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|
65,000
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|
65,000
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Total Investments and Cash Equivalents
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$
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30,000
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|
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$
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308,327
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$
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338,327
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$
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65,000
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|
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$
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286,482
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$
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351,482
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In accordance with ASU 2011-04, the following table provides quantitative information about our Level 3 fair value
measurements of our investments as of June 30 and March 31, 2013. In addition to the techniques and inputs noted in the table below, according to our valuation policy, the Adviser may also use other valuation techniques and methodologies
when determining our fair value measurements. The below table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in
the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations for the particular input.
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Quantitative Information about Level 3 Fair Value Measurements
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Fair Value
as of June
30, 2013
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Fair Value
as
March
31, 2013
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Valuation
Technique/
Methodology
|
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Unobservable
Input
|
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Range /
Weighted
Average as
June
30,
2013
|
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Range / Weighted
Average as March
31,
2013
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Senior debt
|
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$118,790
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|
$
|
103,882
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TEV
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EBITDA multiples
(B)
|
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3.7x 7.0x /5.2x
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4.6x 7.3x /5.6x
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EBITDA
(B)
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($233) $5,912/
$3,644
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($997) $6,640/$3,752
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SPSE
(A)
|
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EBITDA
(B)
|
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$335 - $3,249 /
$1,370
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$29 -$3,225 /$1,248
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Risk Ratings
(C)
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3.77.9/4.8
|
|
3.7 6.9/5.1
|
Senior subordinated debt
|
|
93,969
|
|
|
86,811
|
|
|
TEV
|
|
EBITDA multiples
(B)
|
|
4.3x 9.7x /6.4x
|
|
4.5x 9.7x / 6.5x
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(B)
|
|
($2,739) $8,238/
$4,442
|
|
($2,866) $8,695/$4,400
|
|
|
|
|
|
|
|
|
SPSE
(A)
|
|
EBITDA
(B)
|
|
$5,231 - $6,543
/ $5,878
|
|
$5,169 - $6,026 /
$5, 738
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings
(C)
|
|
4.9 6.2/5.4
|
|
4.1 - 6.2 / 4.8
|
Preferred equity
|
|
84,541
|
|
|
82,157
|
|
|
TEV
|
|
EBITDA multiples
(B)
|
|
3.7x 9.7x /5.6x
|
|
4.2x 9.7x / 5.9x
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(B)
|
|
($2,739) -$8,238 /
$4,347
|
|
($2,866) - $8,695 /
$4,344
|
Common equity/equivalents
|
|
11,027
|
|
|
13,632
|
|
|
TEV
|
|
EBITDA multiples
(B)
|
|
3.6x 7.5x /5.9x
|
|
3.7x 7.8x /6.2x
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(B)
|
|
($2,739) -$6,655 /
$2,064
|
|
($2,866) -$6,026 /
$1,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$308,327
|
|
$
|
286,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
(A)
|
SPSE makes an independent assessment of the data the Adviser submits to them (which includes the financial and operational performance, as well as the
Advisers internally assessed risk ratings of the portfolio companies see footnote (C) below) and its own independent data to form an opinion as to what they consider to be the market values for our securities. With regard to its
work, SPSE has stated that the data submitted to us is proprietary in nature.
|
(B)
|
Adjusted earnings before interest expense, taxes, depreciation and amortization (EBITDA) is an unobservable input, which is generally based
on the most recently available trailing twelve month financial statements submitted to the Adviser from the portfolio companies. EBITDA multiples, generally indexed, represent the Advisers estimate of where market participants might price
these investments. For our bundled debt and equity investments, the EBITDA and EBITDA multiple inputs are used in the TEV fair value determination, and the issuers debt, equity, and/or equity-like securities are valued in accordance with the
Advisers liquidity waterfall approach. In limited cases, the revenue from the most recently available trailing twelve month financial statements submitted to the Adviser from the portfolio companies and the related revenue multiples, generally
indexed, are used to provide a TEV fair value determination of our bundled debt and equity investments.
|
(C)
|
As part of the Advisers valuation procedures, it risk rates all of our investments in debt securities. The Adviser uses a proprietary risk rating
system for all debt securities. The Advisers risk rating system uses a scale of 0 to 10, with 10 being the lowest probability of default. The risk rating system covers both qualitative and quantitative aspects of the portfolio company business
and the securities we hold.
|
A portfolio companys EBITDA and EBITDA multiples are the significant unobservable inputs
generally included in the Advisers internally-assessed TEV models used to value our proprietary debt and equity investments. Holding all other factors constant, increases (decreases) in the EBITDA and/or the EBITDA multiples inputs would
result in a higher (lower) fair value measurement. Per our valuation policy, the Adviser generally uses an indexed EBITDA multiple. EBITDA and EBITDA multiple inputs do not necessarily directionally correlate since EBITDA is a company performance
metric and EBITDA multiples can be influenced by market, industry, size and other factors.
Changes in Level 3 Fair Value Measurements of
Investments
The following tables provide the changes in fair value, broken out by security type, during the three month periods ended
June 30, 2013 and 2012 for all investments for which we determine fair value using unobservable (Level 3) factors. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, such determination is
based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (that is, components that
are actively quoted and can be validated to external sources). In these cases, we categorize the fair value measurement in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire
measurement. Accordingly, the gains and losses in the tables below include changes in fair value, due in part to observable factors that are part of the valuation methodology.
Fair Value Measurements of Investments Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Debt
|
|
|
Senior
Subordinated
Debt
|
|
|
Preferred
Equity
|
|
|
Common
Equity/
Equivalents
|
|
|
Total
|
|
Three months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of March 31, 2013
|
|
$
|
103,882
|
|
|
$
|
86,811
|
|
|
$
|
82,157
|
|
|
$
|
13,632
|
|
|
$
|
286,482
|
|
Total (losses) gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (depreciation) appreciation
(B)
|
|
|
(3,842
|
)
|
|
|
(943
|
)
|
|
|
(3,922
|
)
|
|
|
(2,699
|
)
|
|
|
(11,406
|
)
|
New investments, repayments and settlements
(C)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances / Originations
|
|
|
20,690
|
|
|
|
8,501
|
|
|
|
6,306
|
|
|
|
94
|
|
|
|
35,591
|
|
Settlements / Repayments
|
|
|
(1,940
|
)
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of June 30, 2013
|
|
$
|
118,790
|
|
|
$
|
93,969
|
|
|
$
|
84,541
|
|
|
$
|
11,027
|
|
|
$
|
308,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Debt
|
|
|
Senior
Subordinated
Debt
|
|
|
Preferred
Equity
|
|
|
Common
Equity/
Equivalents
|
|
|
Total
|
|
Three months ended June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of March 31, 2012
|
|
$
|
94,886
|
|
|
$
|
70,661
|
|
|
$
|
46,669
|
|
|
$
|
13,436
|
|
|
$
|
225,652
|
|
Total (losses) gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized losses
(A)(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
(46
|
)
|
Net unrealized (depreciation) appreciation
(B)
|
|
|
(4,990
|
)
|
|
|
2,587
|
|
|
|
(4,956
|
)
|
|
|
1,642
|
|
|
|
(5,717
|
)
|
New investments, repayments and settlements
(C)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances / Originations
|
|
|
950
|
|
|
|
9,315
|
|
|
|
2,479
|
|
|
|
21
|
|
|
|
12,765
|
|
Settlements / Repayments
|
|
|
(765
|
)
|
|
|
(2,165
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,930
|
)
|
Sales
(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of June 30, 2012
|
|
$
|
90,081
|
|
|
$
|
80,398
|
|
|
$
|
44,192
|
|
|
$
|
15,099
|
|
|
$
|
229,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
(A)
|
Included in Net realized (loss)
gain on our accompanying
Condensed Consolidated Statements of Operations
for the periods ended June 30, 2013 and 2012.
|
(B)
|
Included in Net unrealized
(depreciation) appreciation on our accompanying
Condensed Consolidated Statements of Operations
for the periods ended June 30, 2013 and 2012.
|
(C)
|
Includes increases in the cost
basis of investments resulting from new portfolio investments, the amortization of discounts, PIK and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or
sales, the amortization of premiums and acquisition costs, and other cost-basis adjustments.
|
(D)
|
Included in Net realized (losses)
gains and Sales are post-closing adjustments recorded in the current period related to exits from prior periods.
|
Investment Activity
During the three
months ended June 30, 2013, the following significant transactions occurred:
|
|
|
In April 2013, we invested $17.7 million in a new Control investment, Jackrabbit, Inc. (Jackrabbit), through a combination of debt and
equity. Jackrabbit, headquartered in Ripon, California, is a manufacturer of nut harvesting equipment.
|
|
|
|
In May 2013, we invested $8.8 million in a new Non-Control/Non-Affiliate investment, Funko, LLC (Funko), through a combination of debt and
equity. Funko, headquartered in Lynnwood, Washington, is a designer, importer and marketer of pop-culture collectibles. This was our first co-investment with our affiliate fund, Gladstone Capital Corporation, pursuant to an exemptive order granted
by the SEC in July 2012.
|
|
|
|
In June 2013, we invested $9.0 million in a new Control investment, Star Seed, Inc. (Star Seed), through a combination of debt and equity.
Based in Osborne, Kansas, Star Seed provides its customers with a variety of specialty seeds and related products.
|
Investment Concentrations
As of
June 30, 2013, our investment portfolio consisted of investments in 24 portfolio companies located in 15 states across 14 different industries with an aggregate fair value of $308.3 million, of which Venyu Solutions, Inc. (Venyu),
Acme Cryogenics, Inc. (Acme) and SOG Specialty K&T, LLC (SOG), collectively, comprised approximately $96.2 million, or 31.2%, of our total investment portfolio at fair value. The following table outlines our investments
by security type at June 30 and March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Senior debt
|
|
$
|
154,495
|
|
|
|
43.0
|
%
|
|
$
|
118,790
|
|
|
|
38.5
|
%
|
|
$
|
135,745
|
|
|
|
41.6
|
%
|
|
$
|
103,882
|
|
|
|
36.3
|
%
|
Senior subordinated debt
|
|
|
111,648
|
|
|
|
31.0
|
|
|
|
93,969
|
|
|
|
30.5
|
|
|
|
103,547
|
|
|
|
31.7
|
|
|
|
86,811
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
266,143
|
|
|
|
74.0
|
|
|
|
212,759
|
|
|
|
69.0
|
|
|
|
239,292
|
|
|
|
73.3
|
|
|
|
190,693
|
|
|
|
66.6
|
|
Preferred equity
|
|
|
88,016
|
|
|
|
24.5
|
|
|
|
84,541
|
|
|
|
27.4
|
|
|
|
81,710
|
|
|
|
25.0
|
|
|
|
82,157
|
|
|
|
28.7
|
|
Common equity/equivalents
|
|
|
5,513
|
|
|
|
1.5
|
|
|
|
11,027
|
|
|
|
3.6
|
|
|
|
5,419
|
|
|
|
1.7
|
|
|
|
13,632
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity/equivalents
|
|
|
93,529
|
|
|
|
26.0
|
|
|
|
95,568
|
|
|
|
31.0
|
|
|
|
87,129
|
|
|
|
26.7
|
|
|
|
95,789
|
|
|
|
33.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
359,672
|
|
|
|
100.0
|
%
|
|
$
|
308,327
|
|
|
|
100.0
|
%
|
|
$
|
326,421
|
|
|
|
100.0
|
%
|
|
$
|
286,482
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value consisted of the following industry classifications at June 30 and March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
|
|
Fair Value
|
|
|
Percentage of
Total
Investments
|
|
|
Fair Value
|
|
|
Percentage of
Total
Investments
|
|
Chemicals, Plastics, and Rubber
|
|
$
|
56,644
|
|
|
|
18.4
|
%
|
|
$
|
59,170
|
|
|
|
20.7
|
%
|
Electronics
|
|
|
42,374
|
|
|
|
13.7
|
|
|
|
43,970
|
|
|
|
15.3
|
|
Machinery
|
|
|
32,008
|
|
|
|
10.4
|
|
|
|
32,662
|
|
|
|
11.4
|
|
Diversified/Conglomerate Manufacturing
|
|
|
29,784
|
|
|
|
9.7
|
|
|
|
32,698
|
|
|
|
11.4
|
|
Leisure, Amusement, Motion Pictures, Entertainment
|
|
|
26,899
|
|
|
|
8.7
|
|
|
|
29,822
|
|
|
|
10.4
|
|
Farming and Agriculture
|
|
|
25,150
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
|
24,135
|
|
|
|
7.8
|
|
|
|
20,876
|
|
|
|
7.3
|
|
Containers, Packaging, and Glass
|
|
|
23,922
|
|
|
|
7.8
|
|
|
|
23,019
|
|
|
|
8.0
|
|
Home and Office Furnishings, Housewares, and Durable Consumer Products
|
|
|
21,418
|
|
|
|
6.9
|
|
|
|
23,512
|
|
|
|
8.2
|
|
Personal and Non-Durable Consumer Products
|
|
|
8,751
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
7,486
|
|
|
|
2.4
|
|
|
|
7,467
|
|
|
|
2.6
|
|
Cargo Transport
|
|
|
6,437
|
|
|
|
2.1
|
|
|
|
6,897
|
|
|
|
2.4
|
|
Buildings and Real Estate
|
|
|
3,010
|
|
|
|
1.0
|
|
|
|
6,020
|
|
|
|
2.2
|
|
Beverage, Food, and Tobacco
|
|
|
309
|
|
|
|
0.1
|
|
|
|
369
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
308,327
|
|
|
|
100.0
|
%
|
|
$
|
286,482
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The investments, at fair value, were included in the following geographic regions of the U.S. as of
June 30 and March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
|
|
Fair Value
|
|
|
Percentage of
Total
Investments
|
|
|
Fair Value
|
|
|
Percentage of
Total
Investments
|
|
South
|
|
$
|
117,223
|
|
|
|
38.0
|
%
|
|
$
|
125,518
|
|
|
|
43.8
|
%
|
West
|
|
|
101,849
|
|
|
|
33.0
|
|
|
|
81,400
|
|
|
|
28.4
|
|
Northeast
|
|
|
55,810
|
|
|
|
18.1
|
|
|
|
58,319
|
|
|
|
20.4
|
|
Midwest
|
|
|
33,445
|
|
|
|
10.9
|
|
|
|
21,245
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
308,327
|
|
|
|
100.0
|
%
|
|
$
|
286,482
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The geographic region indicates the location of the headquarters for our portfolio companies. A portfolio company may
have additional business locations in other geographic regions.
Investment Principal Repayments
The following table summarizes the contractual principal repayments and maturity of our investment portfolio by fiscal year, assuming no voluntary
prepayments, as of June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
For the remaining nine months ending March 31:
|
|
2014
|
|
$
|
9,133
|
|
For the fiscal year ending March 31:
|
|
2015
|
|
|
76,384
|
|
|
|
2016
|
|
|
42,164
|
|
|
|
2017
|
|
|
60,735
|
|
|
|
2018
|
|
|
51,982
|
|
|
|
Thereafter
|
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
Total contractual repayments
|
|
$
|
266,398
|
|
|
|
Investments in equity securities
|
|
|
93,529
|
|
|
|
Adjustments to cost basis on debt securities
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
Total cost basis of investments held at
June 30, 2013:
|
|
$
|
359,672
|
|
|
|
|
|
|
|
|
Receivables from Portfolio Companies
Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies and are included in other assets on our accompanying
Condensed Consolidated
Statements of Assets and Liabilities
. We maintain an allowance for uncollectible receivables from portfolio companies, which is determined based on historical experience and managements expectations of future losses. We charge the accounts
receivable to the established provision when collection efforts have been exhausted and the receivables are deemed uncollectible. As of June 30 and March 31, 2013, we had gross receivables from portfolio companies of $0.7 million and $1.2
million, respectively. The allowance for uncollectible receivables was $129 and $44 as of June 30 and March 31, 2013, respectively.
NOTE 4. RELATED PARTY TRANSACTIONS
Investment Advisory and Management Agreement
We entered into an investment advisory and management agreement with the Adviser (the Advisory Agreement). The Adviser is controlled by our chairman and chief executive officer. In accordance
with the Advisory Agreement, we pay the Adviser certain fees as compensation for its services, such fees consisting of a base management fee and an incentive fee. On July 9, 2013, our Board of Directors approved the renewal of the Advisory
Agreement through August 31, 2014.
The following table summarizes the management fees, incentive fees and associated credits reflected
in our accompanying
Condensed Consolidated Statements of Operations
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Average gross assets subject to base management fee
(A)
|
|
$
|
309,800
|
|
|
$
|
238,200
|
|
Multiplied by prorated annual base management fee of 2%
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
Base management fee
(B)
|
|
|
1,549
|
|
|
|
1,191
|
|
Credit for fees received by Adviser from the portfolio companies
(B)
|
|
|
(511
|
)
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
Net base management fee
|
|
$
|
1,038
|
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
Incentive fee
(B)
|
|
$
|
165
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Average gross assets subject to the
base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective
periods and adjusted appropriately for any share issuances or repurchases during the periods.
|
(B)
|
Reflected as a line item on our
accompanying
Condensed Consolidated Statement of Operations
.
|
20
Base Management Fee
The base management fee is computed and payable quarterly and is assessed at an annual rate of 2.0%. It is computed on the basis of the value of our average gross assets at the end of the two most
recently completed quarters, which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings. As a BDC, we make available significant managerial assistance to our
portfolio companies and provide other services to such portfolio companies. Although neither we nor our Adviser receive fees in connection with managerial assistance, the Adviser provides other services to our portfolio companies and receives fees
for these other services. 50% of certain of these fees and 100% of others are credited against the base management fee that we would otherwise be required to pay to our Adviser.
Incentive Fee
The incentive fee consists of two parts: an income-based incentive fee and a
capital gains-based incentive fee. The income-based incentive fee rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets (the hurdle rate). We will pay the
Adviser an income-based incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:
|
|
|
no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate (7.0% annualized);
|
|
|
|
100% of our 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 2.1875% in any calendar quarter (8.75% annualized); and
|
|
|
|
20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
|
Our Board of Directors accepted an unconditional and irrevocable voluntary waiver from the Adviser to reduce the
income-based incentive fee to the extent net investment income did not 100% cover distributions to common stockholders for the three months ended June 30, 2013.
The second part of the incentive fee is a capital gains-based incentive fee that will be determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement,
as of the termination date) and equals 20% of our realized capital gains as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the Adviser, we will calculate the cumulative aggregate realized capital gains
and cumulative aggregate realized capital losses since our inception, and the aggregate net unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in our portfolio. For this purpose,
cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital
losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since our inception. Aggregate net unrealized capital depreciation equals the sum of the difference,
if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for our calculation of the
capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate net unrealized capital depreciation, with respect to our portfolio of investments. If this
number is positive at the end of such year, then the capital gains-based incentive fee for such year equals 20% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years.
No capital gains-based incentive fee has been recorded since our inception through June 30, 2013, as cumulative net unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.
Additionally, in accordance with GAAP, a capital gains-based incentive fee accrual is calculated using the aggregate cumulative realized
capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains-based incentive fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the
end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is negative, then there
is no accrual for such year. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such
unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based incentive fee has been recorded since our inception through
June 30, 2013.
21
Administration Agreement
We have entered into an administration agreement (the Administration Agreement) with Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser,
whereby we pay separately for administrative services. The Administration Agreement provides for payments equal to our allocable portion of the Administrators overhead expenses in performing its obligations under the Administration Agreement,
including, but not limited to, rent and the salaries and benefits expenses of our chief financial officer and treasurer, chief compliance officer, internal counsel and their respective staffs. Our allocable portion of administrative expenses is
generally derived by multiplying the Administrators total allocable expenses by the percentage of our total assets at the beginning of the quarter in comparison to the total assets at the beginning of the quarter of all companies managed by
the Adviser under similar agreements. On July 9, 2013, our Board of Directors approved the renewal of the Administration Agreement through August 31, 2014.
Related Party Fees Due
Amounts due to related parties on our accompanying
Condensed Consolidated Statements of Assets and Liabilities
were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Base management fee due to Adviser
|
|
$
|
262
|
|
|
$
|
625
|
|
Incentive fee due to Adviser
|
|
|
165
|
|
|
|
1,454
|
|
Other due to (from) Adviser
|
|
|
20
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Total fees due to Adviser
|
|
$
|
447
|
|
|
$
|
2,067
|
|
|
|
|
|
|
|
|
|
|
Fee due to Administrator
|
|
$
|
243
|
|
|
$
|
221
|
|
|
|
|
|
|
|
|
|
|
Total related party fees due
|
|
$
|
690
|
|
|
$
|
2,288
|
|
|
|
|
|
|
|
|
|
|
NOTE 5. BORROWINGS
Line of Credit
On
April 30, 2013, through our wholly-owned subsidiary, Business Investment, we entered into a fifth amended and restated credit agreement to increase the commitment amount of the revolving line of credit (the Credit Facility) from
$60.0 million to $70.0 million and to extend the maturity date as described below. The Credit Facility was arranged by Key Equipment Finance Inc. (KEF) as administrative agent, lead arranger and a lender, with Branch Banking and Trust
Company (BB&T) as a lender. The maturity date was extended to April 30, 2016 (the Maturity Date) and, if not renewed or extended by the Maturity Date, all principal and interest will be due and payable on or before
April 30, 2017 (one year after the Maturity Date). In addition, there are two one-year extension options to be agreed upon by all parties, which may be exercised on or before April 30, 2014 and 2015, respectively. Subject to certain terms
and conditions, the Credit Facility may be expanded up to a total of $200.0 million through the addition of other lenders to the facility. Advances under the Credit Facility generally bear interest at 30-day LIBOR, plus 3.75% per annum, with an
unused fee of 0.50% on undrawn amounts. We incurred fees of approximately $0.3 million in connection with this amendment.
On June 12,
2013, we further increased the borrowing capacity under the Credit Agreement from $70.0 million to $105.0 million by entering into Joinder Agreements pursuant to the Credit Agreement, by and among Business Investment, the administrative agent, the
servicer and each of Alostar Bank of Commerce and Everbank Commercial Finance, Inc.
The following tables summarize noteworthy information
related to our Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Commitment amount
|
|
$
|
105,000
|
|
|
$
|
60,000
|
|
Borrowings outstanding at cost
|
|
|
49,000
|
|
|
|
31,000
|
|
Availability
|
|
|
52,088
|
|
|
|
29,000
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Weighted average borrowings outstanding
|
|
$
|
32,654
|
|
|
$
|
791
|
|
Effective interest rate
(A)
|
|
|
4.6
|
%
|
|
|
41.9
|
%
(B)
|
Commitment (unused) fees incurred
|
|
$
|
52
|
|
|
$
|
75
|
|
(A)
|
Excludes the impact of deferred
financing fees.
|
(B)
|
Due to limited borrowings
outstanding, the commitment (unused) fees significantly increase the effective interest rate. The stated interest rate on advances bore interest at 30-day LIBOR plus 3.75% per annum.
|
22
Interest is payable monthly during the term of the Credit Facility. Available borrowings are subject to
various constraints imposed under the Credit Facility, based on the aggregate loan balance pledged by Business Investment, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually
required.
The administrative agent also requires that any interest or principal payments on pledged loans be remitted directly by the
borrower into a lockbox account with The Bank of New York Mellon Trust Company, N.A as custodian. KEF is also the trustee of the account and remits the collected funds to us once a month.
Generally, our Credit Facility contains covenants that require Business Investment to, among other things, maintain its status as a separate legal entity, prohibit certain significant corporate
transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and collection policies without the lenders consent. Our Credit Facility also limits payments on distributions to
the aggregate net investment income for each of the twelve month periods ending March 31, 2014, 2015, 2016 and 2017. Business Investment is also subject to certain limitations on the type of loan investments it can apply toward availability
credit in the borrowing base, including restrictions on geographic concentrations, sector concentrations, loan size, dividend payout, payment frequency and status, average life and lien property. Our Credit Facility further requires Business
Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors required in the
borrowing base of the credit agreement. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our mandatory redeemable term preferred stock) of
$170.0 million plus 50% of all equity and subordinated debt raised after April 30, 2013, (ii) asset coverage with respect to senior securities representing indebtedness of at least 200%, in accordance with
Section 18 of the 1940 Act and (iii) its status as a BDC under the 1940 Act and as a RIC under the Code. As of June 30, 2013, and as defined in the performance guaranty of our Credit Facility, we had a minimum net worth of $270.5
million, an asset coverage of 283% and an active status as a BDC and RIC. Our Credit Facility requires a minimum of 12 obligors in the borrowing base and, as of June 30, 2013, Business Investment had 19 obligors. As of June 30, 2013, we
were in compliance with all covenants.
Short-Term Loan
Similar to previous quarter ends, to maintain our status as a RIC, we purchased $30.0 million of short-term U.S. Treasury Bills (T-Bills) through Jefferies & Company, Inc.
(Jefferies) on June 27, 2013. As these T-Bills have a maturity of less than three months, we consider them to be cash equivalents and include them in cash and cash equivalents on our accompanying
Condensed Consolidated Statement
of Assets and Liabilities
as of June 30, 2013. The T-Bills were purchased on margin using $4.0 million in cash and the proceeds from a $26.0 million short-term loan from Jefferies with an effective annual interest rate of approximately
1.56%. On July 5, 2013, when the T-Bills matured, we repaid the $26.0 million loan from Jefferies and we received back the $4.0 million margin payment sent to Jefferies to complete the transaction.
Secured Borrowing
In August
2012, we entered into a participation agreement with a third-party related to $5.0 million of our senior subordinated term debt investment in Ginsey Home Solutions, Inc. (Ginsey). We evaluated whether the transaction should be accounted
for as a sale or a financing-type transaction under the applicable guidance of ASC 860. Based on the terms of the participation agreement, we are required to treat the participation as a financing-type transaction. Specifically, the third-party has
a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual rate established at origination. Therefore, our accompanying
Condensed Consolidated Statements of Assists and Liabilities
reflects the entire senior subordinated term debt investment in Ginsey and a corresponding $5.0 million secured borrowing liability. The secured borrowing has a stated interest rate
of 7% and a maturity date of January 3, 2018.
Fair Value
We elected to apply ASC 825, Financial Instruments, specifically for our Credit Facility and short-term loan, which was consistent with the application of ASC 820 to our investments.
Generally, we estimate the fair value of our Credit Facility using estimates of value provided by an independent third party and our own assumptions in the absence of observable market data, including estimated remaining life, counterparty credit
risk, current market yield and interest rate spreads of similar securities as of the measurement date. During the three months ended June 30, 2013, due to the closing of a new three-year line of credit, increase in the commitment size from
$60.0 million to $105.0 million and the addition of two new lenders, cost was deemed to approximate fair value. Additionally, due to the nine-day duration of the short-term loan, cost was deemed to approximate fair value. At each of June 30 and
March 31, 2013, all of our borrowings were valued using Level 3 inputs. The following tables present the short-term loan and Credit Facility carried at fair value as of June 30 and March 31, 2013, by caption on our accompanying
Condensed Consolidated Statements of Assets and Liabilities
for Level 3 of the hierarchy established by ASC 820 and a roll-forward of the changes in fair value during the three months ended June 30, 2013 and 2012:
23
|
|
|
|
|
|
|
|
|
|
|
Level 3 Borrowings
|
|
|
|
Total Recurring Fair Value Measurement
Reported in
Condensed Consolidated
Statements of Assets and Liabilities
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Short-Term Loan
|
|
$
|
26,009
|
|
|
$
|
58,016
|
|
Credit Facility
|
|
|
49,000
|
|
|
|
31,854
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,009
|
|
|
$
|
89,870
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Loan
|
|
|
Credit
Facility
|
|
|
Total
|
|
Three months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at March 31, 2013
|
|
$
|
58,016
|
|
|
$
|
31,854
|
|
|
$
|
89,870
|
|
Borrowings
|
|
|
26,009
|
|
|
|
28,500
|
|
|
|
54,509
|
|
Repayments
|
|
|
(58,016
|
)
|
|
|
(10,500
|
)
|
|
|
(68,516
|
)
|
Net unrealized depreciation
(A)
|
|
|
|
|
|
|
(854
|
)
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at June 30, 2013
|
|
$
|
26,009
|
|
|
$
|
49,000
|
|
|
$
|
75,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Loan
|
|
|
Credit
Facility
|
|
|
Total
|
|
Three months ended June, 30 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at March 31, 2012
|
|
$
|
76,005
|
|
|
$
|
|
|
|
$
|
76,005
|
|
Borrowings
|
|
|
76,010
|
|
|
|
31,000
|
|
|
|
107,010
|
|
Repayments
|
|
|
(76,005
|
)
|
|
|
|
|
|
|
(76,005
|
)
|
Net unrealized appreciation
(A)
|
|
|
|
|
|
|
492
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at June 30, 2012
|
|
$
|
76,010
|
|
|
$
|
31,492
|
|
|
$
|
107,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Included in net unrealized
(depreciation) appreciation on our accompanying
Condensed Consolidated Statement of Operations
for periods ended June 30, 2013 and 2012.
|
The fair value of the collateral under our Credit Facility was approximately $303.1 million and $263.7 million at June 30 and March 31, 2013, respectively. The fair value of the collateral under
the short-term loan was approximately $30.0 million and $65.0 million at June 30 and March 31, 2013, respectively.
NOTE 6. INTEREST RATE CAP AGREEMENTS
We have entered into an interest rate cap agreement with BB&T that effectively limits the interest rate on a portion of our
borrowings under the line of credit pursuant to the terms of our Credit Facility. The agreement provide that the interest rate on a portion of our borrowings is capped at a certain interest rate when 30-day LIBOR is in excess of that certain
interest rate. The fair value of the interest rate cap agreement is recorded in other assets on our accompanying
Condensed Consolidated Statements of Assets and Liabilities
. We record changes in the fair value of the interest rate cap
agreement quarterly based on the current market valuation at quarter end as net unrealized appreciation (depreciation) of other on our accompanying
Condensed Consolidated Statements of Operations
. Generally, we will estimate the fair value of
our interest rate cap using estimates of value provided by the counterparty and our own assumptions in the absence of observable market data, including estimated remaining life, counterparty credit risk, current market yield and interest rate
spreads of similar securities as of the measurement date. At both June 30 and March 31, 2013, our interest rate cap agreement was valued using Level 3 inputs. The following table summarizes the key terms of the interest rate cap agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Interest
Rate Cap
(A)
|
|
Notional
Amount
|
|
|
LIBOR
Cap
|
|
|
Effective
Date
|
|
Maturity
Date
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
December 2011
|
|
$
|
50,000
|
|
|
|
6.0
|
%
|
|
May 2012
|
|
October 2013
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
29
|
|
|
$
|
|
|
(A)
|
Indicates date we entered into the interest rate cap agreement with BB&T.
|
The use of a cap agreement involves risks that are different from those associated with ordinary portfolio securities transactions. Cap agreements may be
considered to be illiquid. Although we will not enter into any such agreements unless we believe that the other party to the transaction is creditworthy, we bear the risk of loss of the amount expected to be received under such agreements in the
event of default or bankruptcy of the agreement counterparty.
In July 2013, we entered into a forward interest rate cap agreement. See Note
13
Subsequent Events
for further discussion.
24
NOTE 7. MANDATORILY REDEEMABLE PREFERRED STOCK
In March 2012, we completed a public offering of 1,600,000 shares of 7.125% Series A Cumulative Term Preferred Stock (our Term
Preferred Stock) at a public offering price of $25.00 per share. Gross proceeds totaled $40.0 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $38.0 million. We incurred $2.0 million in
total offering costs related to these transactions, which have been recorded as deferred financing costs on our accompanying
Condensed Consolidated Statements of Assets and Liabilities
and will be amortized over the redemption period ending
February 28, 2017.
The shares have a redemption date of February 28, 2017, and are traded under the ticker symbol GAINP on the
NASDAQ Global Select Market. The Term Preferred Stock is not convertible into our common stock or any other security. The Term Preferred Stock provides for a fixed dividend equal to 7.125% per year, payable monthly. We are required to redeem
all of the outstanding Term Preferred Stock on February 28, 2017, for cash at a redemption price equal to $25.00 per share, plus an amount equal to accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. In
addition, there are three other potential redemption triggers: 1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of the outstanding Term Preferred Stock, 2) if we fail to
maintain an asset coverage ratio of at least 200%, we are required to redeem a portion of the outstanding Term Preferred Stock or otherwise cure the ratio redemption trigger and 3) at our sole option, at any time on or after February 28, 2016,
we may redeem some or all of the Term Preferred Stock.
Our Board of Directors declared and paid the following monthly distributions to
preferred stockholders for the three months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year
|
|
Time Period
|
|
Declaration
Date
|
|
Record Date
|
|
Payment Date
|
|
Distribution per
Term
Preferred Share
|
|
2014
|
|
April 1 30
|
|
April 9, 2013
|
|
April 22, 2013
|
|
April 30, 2013
|
|
$
|
0.1484375
|
|
|
|
May 1 31
|
|
April 9, 2013
|
|
May 20, 2013
|
|
May 31, 2013
|
|
|
0.1484375
|
|
|
|
June 1 30
|
|
April 9, 2013
|
|
June 19, 2013
|
|
June 28, 2013
|
|
|
0.1484375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2013:
|
|
$
|
0.4453125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
April 1 30
|
|
April 11, 2012
|
|
April 20, 2012
|
|
April 30, 2012
|
|
$
|
0.1484375
|
|
|
|
May 1 31
|
|
April 11, 2012
|
|
May 18, 2012
|
|
May 31, 2012
|
|
|
0.1484375
|
|
|
|
June 1 30
|
|
April 11, 2012
|
|
June 20, 2012
|
|
June 29, 2012
|
|
|
0.1484375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2012:
|
|
$
|
0.4453125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with ASC 480, Distinguishing Liabilities from Equity, mandatorily redeemable financial
instruments should be classified as liabilities on the balance sheet and, therefore, the related dividend payments are treated as dividend expense on our accompanying
Condensed Consolidated Statements of Operations
at the ex-dividend date.
The fair value of the Term Preferred Stock based on the last reported closing price as of June 30 and March 31, 2013, was approximately $42.2 million and $42.7 million, respectively.
Aggregate Term Preferred Stock distributions declared and paid for the three months ended June 30, 2013, were approximately $0.7 million. The tax
character of distributions paid by us to preferred stockholders is from ordinary income.
NOTE 8. COMMON STOCK
We filed a registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed
a Pre-effective Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective on July 26, 2012. On June 7, 2013, we filed Post-Effective Amendment No. 2 to the registration statement, which
the SEC declared effective on July 26, 2013. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights,
debt securities and warrants to purchase common stock, including through a combined offering of two or more of such securities.
On
October 5, 2012, we completed a public offering of 4.0 million shares of our common stock at a public offering price of $7.50 per share, which was below our then current net asset value (NAV) per share. Gross proceeds totaled
$30.0 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $28.3 million, which was used to repay borrowings under our Credit Facility. In connection with the offering, the underwriters exercised
their option to purchase an additional 395,825 shares at the public offering price to cover over-allotments, which resulted in gross proceeds of $3.0 million and net proceeds, after deducting underwriting discounts, of $2.8 million.
25
NOTE 9. NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net decrease in net assets resulting from operations per weighted
average common share for the three months ended June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Numerator for basic and diluted net decrease in net assets resulting from operations per common share
|
|
$
|
(6,519
|
)
|
|
$
|
(3,017
|
)
|
Denominator for basic and diluted weighted average common shares
|
|
|
26,475,958
|
|
|
|
22,080,133
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net decrease in net assets resulting from operations per common share
|
|
$
|
(0.25
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
NOTE 10. DISTRIBUTIONS TO COMMON STOCKHOLDERS
To qualify to be taxed as a RIC under Subtitle A, Chapter 1 of Subchapter M of the Code, we are required to distribute to our
stockholders 90% of our investment company taxable income, which is generally our net ordinary income plus the excess of our net short-term capital gains over net long-term capital losses. The amount to be paid out as a distribution is
determined by our Board of Directors each quarter and is based on our estimated taxable income by management. Based on that estimate, three monthly distributions are declared each quarter.
Our Board of Directors declared the following monthly distributions to common stockholders for the three months ended June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Distribution
per Common
Share
|
|
2014
|
|
April 9, 2013
|
|
April 22, 2013
|
|
April 30, 2013
|
|
$
|
0.05
|
|
|
|
April 9, 2013
|
|
May 14, 2013
|
|
May 31, 2013
|
|
|
0.05
|
|
|
|
April 9, 2013
|
|
June 19, 2013
|
|
June 28, 2013
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2013:
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
April 11, 2012
|
|
April 20, 2012
|
|
April 30, 2012
|
|
$
|
0.05
|
|
|
|
April 11, 2012
|
|
May 18, 2012
|
|
May 31, 2012
|
|
|
0.05
|
|
|
|
April 11, 2012
|
|
June 20, 2012
|
|
June 29, 2012
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2012:
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate common distributions declared quarterly and paid for the three months ended June 30, 2013 and 2012 were
approximately $4.0 million and $3.3 million, respectively, which were declared based on estimates of net investment income for the respective fiscal years. The tax characterization of the common distributions declared and paid for the fiscal year
ended March 31, 2014, will be determined at fiscal year end and cannot be determined at this time. For the fiscal year ended March 31, 2013, taxable income available for common distributions exceeded distributions declared and paid, and,
in accordance with Section 855(a) of the Code, we elected to treat $3.1 million of the common distributions paid in fiscal year 2014 as having been paid in the prior year.
NOTE 11. COMMITMENTS AND CONTINGENCIES
As of June 30, 2013, we have lines of credit commitments to certain of our portfolio companies that have not been fully drawn.
Since these lines of credit have expiration dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements.
In addition to the lines of credit to certain portfolio companies, we have also extended certain guarantees on behalf of some of our portfolio companies.
As of June 30, 2013, we have not been required to make any payments on the guarantees discussed below, and we consider the credit risk to be remote and the fair values of the guarantees to be minimal.
|
|
|
In October 2008, we executed a guarantee of a vehicle finance facility agreement (the Finance Facility) between Ford Motor Credit
Company (Ford) and ASH. The Finance Facility provides ASH with a line of credit of up to $0.5 million for component Ford parts used by ASH to build truck bodies under a separate contract. Ford retains title and ownership of the parts.
The guarantee of the Finance Facility will expire upon termination of the separate parts supply contract with Ford or upon replacement of us as guarantor.
|
|
|
|
In February 2010, we executed a guarantee of a wholesale financing facility agreement (the Floor Plan Facility) between Agricredit
Acceptance, LLC (Agricredit) and CCE. The Floor Plan Facility provides CCE with financing of up to $2.0 million to bridge the time and cash flow gap between the order and delivery of golf carts to customers. The guarantee was renewed in
February 2011, 2012 and 2013 and expires in February 2014, unless it is renewed again by us, CCE and Agricredit. In connection with this guarantee and its subsequent renewals, we recorded aggregate premiums of $0.4 million from CCE.
|
26
|
|
|
In April 2010, we executed a guarantee of vendor recourse for up to $2.0 million in individual customer transactions (the Recourse
Facility) between Wells Fargo Financial Leasing, Inc. and CCE. The Recourse Facility provides CCE with the ability to provide vendor recourse up to a limit of $2.0 million on transactions with long-time customers who lack the financial history
to qualify for third-party financing. The terms to maturity of these individual transactions range from October 2014 to October 2016. In connection with this guarantee, we received aggregate premiums of $0.1 million from CCE.
|
The following table summarizes the dollar balance of unused line of credit commitments and guarantees as of June 30
and March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Unused line of credit commitments
|
|
$
|
2,784
|
|
|
$
|
1,584
|
|
Guarantees
|
|
|
3,769
|
|
|
|
3,870
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,553
|
|
|
$
|
5,454
|
|
|
|
|
|
|
|
|
|
|
Escrow Holdbacks
From time to time, we will enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as
stipulated in the sales agreements. We record escrow amounts in restricted cash on our accompanying
Condensed Consolidated Statements of Assets and Liabilities
. We establish a contingent liability against the escrow amounts if we determine
that it is probable and estimable that a portion of the escrow amounts will not be ultimately received at the end of the escrow period. The aggregate contingent liability recorded against the escrow amounts was $43 as of June 30 and
March 31, 2013.
NOTE 12. FINANCIAL HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Per Common Share Data
|
|
|
|
|
|
|
|
|
NAV at beginning of period
(A)
|
|
$
|
9.10
|
|
|
$
|
9.38
|
|
Net investment income
(B)
|
|
|
0.15
|
|
|
|
0.15
|
|
Net unrealized (depreciation) appreciation of investments and other
(B)
|
|
|
(0.40
|
)
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
Total from investment operations
(B)
|
|
|
(0.25
|
)
|
|
|
(0.13
|
)
|
Cash distributions from net investment income
(B)(C)
|
|
|
(0.15
|
)
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
NAV at end of period
(A)
|
|
$
|
8.70
|
|
|
$
|
9.10
|
|
|
|
|
|
|
|
|
|
|
Per common share market value at beginning of period
|
|
$
|
7.31
|
|
|
$
|
7.57
|
|
Per common share market value at end of period
|
|
|
7.35
|
|
|
|
7.39
|
|
Total return
(D)
|
|
|
2.61
|
%
|
|
|
(0.38
|
)%
|
Common stock outstanding at end of period
|
|
|
26,475,958
|
|
|
|
22,080,133
|
|
|
|
|
Statement of Assets and Liabilities Data
:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
230,472
|
|
|
$
|
200,887
|
|
Average net assets
(E)
|
|
|
237,146
|
|
|
|
204,858
|
|
|
|
|
Senior Securities Data
(F)
:
|
|
|
|
|
|
|
|
|
Total borrowings at cost
|
|
$
|
80,009
|
|
|
$
|
107,010
|
|
Mandatorily redeemable preferred stock
|
|
|
40,000
|
|
|
|
40,000
|
|
Asset coverage ratio
(G)
|
|
|
283
|
%
|
|
|
230
|
%
|
Average coverage per unit
(H)
|
|
$
|
2,829
|
|
|
$
|
2,300
|
|
|
|
|
Ratios/Supplemental Data
:
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets
(I)(J)
|
|
|
6.54
|
%
|
|
|
5.57
|
%
|
Ratio of net expenses to average net assets
(I)(K)
|
|
|
5.68
|
|
|
|
5.21
|
|
Ratio of net investment income to average net assets
(I)
|
|
|
6.80
|
|
|
|
6.32
|
|
(A)
|
Based on actual common shares outstanding at the end of the corresponding period.
|
(B)
|
Based on weighted average per basic common share data.
|
(C)
|
Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined
under GAAP.
|
27
(D)
|
Total return equals the change in the market value of our common stock from the beginning of the period, taking into account dividends reinvested in
accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common
stockholders, please refer to Note 10
Distributions to Common Stockholders
.
|
(E)
|
Calculated using the average balance of net assets at the end of each month of the reporting period.
|
(F)
|
The 1940 Act currently permits BDCs to issue senior securities representing indebtedness and senior securities that are stock, to which we refer as
senior securities.
|
(G)
|
As a BDC, we are generally required to maintain an asset coverage ratio (as defined in Section 18(h) of the 1940 Act) of at least 200% on our senior
securities representing indebtedness and our senior securities that are stock. Our mandatorily redeemable preferred stock is a senior security that is stock.
|
(H)
|
Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.
|
(I)
|
Amounts are annualized.
|
(J)
|
Ratio of expenses to average net assets is computed using expenses before credits from the Adviser.
|
(K)
|
Ratio of net expenses to average net assets is computed using total expenses net of any credits received from the Adviser.
|
NOTE 13. SUBSEQUENT EVENTS
Registration Statement
We filed a registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed a Pre-effective
Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective on July 26, 2012. On June 7, 2013, we filed Post-Effective Amendment No. 2 to the registration statement, which the SEC
declared effective on July 26, 2013. The registration statement will permit us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights,
debt securities and warrants to purchase common stock, including through a combined offering of such securities.
Short-Term Loan
On June 27, 2013, we purchased $30.0 million of T-Bills through Jefferies. The T-Bills were purchased on margin using $4.0 million in
cash and the proceeds from a $26.0 million short-term loan from Jefferies with an effective annual interest rate of approximately 1.56%. On July 5, 2013, when the T-Bills matured, we repaid the $26.0 million loan from Jefferies and received the
$4.0 million margin payment sent to Jefferies to complete the transaction.
Distributions
On July 9, 2013, our Board of Directors declared the following monthly cash distributions to common and preferred stockholders:
|
|
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payment Date
|
|
Distribution per
Common
Share
|
|
|
Distribution per
Term
Preferred Share
|
|
July 19, 2013
|
|
July 31, 2013
|
|
$
|
0.05
|
|
|
$
|
0.1484375
|
|
August 21, 2013
|
|
August 30, 2013
|
|
|
0.05
|
|
|
|
0.1484375
|
|
September 18, 2013
|
|
September 30, 2013
|
|
|
0.05
|
|
|
|
0.1484375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for the Quarter:
|
|
$
|
0.15
|
|
|
$
|
0.4453125
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Cap Agreement
In July 2013, through Business Investment, we entered into a forward interest rate cap agreement with Keybank National Association, effective October 31, 2013 and expiring April 30, 2016, for a
notional amount of $45.0 million that effectively limits the interest rate on a portion of our borrowings pursuant to the terms of our Credit Facility. We incurred a premium fee of $75 in conjunction with this agreement.
28