As filed with the Securities and Exchange Commission on April 1, 2015
Securities Act File No. 333-194870
U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
(Check appropriate box or boxes)
|
|
|
|
|
|
|
Pre-Effective Amendment No. 3 |
|
x |
|
|
Post-Effective Amendment No. |
|
¨ |
SOLAR CAPITAL LTD.
(Exact
name of Registrant as specified in charter)
500 Park Avenue
New York, NY 10022
(Address of Principal Executive Offices)
Registrants telephone number, including Area Code: (212) 993-1670
Michael S. Gross
Chief
Executive Officer
Solar Capital Ltd.
500 Park Avenue
New York,
NY 10022
(Name and address of agent for service)
COPIES TO:
Steven
B. Boehm
John J. Mahon
Sutherland Asbill & Brennan LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001
(202)
383-0100
Approximate
date of proposed public offering: From time to time after the effective date of this Registration Statement.
If
any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the
following box. x
It is proposed that this filing will become effective (check
appropriate box):
¨ when declared effective pursuant to
Section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
|
|
|
|
|
|
Title of Securities Being Registered |
|
Proposed Maximum
Aggregate Offering
Price(1) |
|
Amount of
Registration
Fee(1) |
Common Stock, $0.01 par value per share(2)(3) |
|
|
|
|
Preferred Stock, $0.01 par value per share(2) |
|
|
|
|
Warrants(4) |
|
|
|
|
Debt Securities(5) |
|
|
|
|
Total(6) |
|
$1,000,000,000(6) |
|
$128,800(7) |
|
|
(1) |
|
Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely for the purpose of determining the registration fee. The proposed maximum offering price per security will be determined, from time to time,
by the Registrant in connection with the sale by the Registrant of the securities registered under this Registration Statement. |
(2) |
|
Subject to Note 6 below, there is being registered hereunder an indeterminate number of shares of common stock or preferred stock as may be sold, from time to time. |
(3) |
|
Includes such indeterminate number of shares of common stock as may, from time to time, be issued upon conversion or exchange of other securities registered hereunder, to the extent any such securities are, by their
terms, convertible or exchangeable for common stock. |
(4) |
|
Subject to Note 6 below, there is being registered hereunder an indeterminate number of warrants as may be sold, from time to time. |
(5) |
|
Subject to Note 6 below, there is being registered hereunder an indeterminate number of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the
offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $1,000,000,000. |
(6) |
|
In no event will the aggregate offering price of all securities issued from time to time pursuant to this Registration Statement exceed $1,000,000,000. |
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
The purpose of this Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 is solely to file certain exhibits to the
Registration Statement as set forth in Item 25(2) of Part C.
PART C OTHER INFORMATION
ITEM 25. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
The following financial statements of Solar Capital Ltd. (together with its predecessor, Solar Capital LLC., the Registrant or the
Company) are included in Part A Information Required to be in the Prospectus of the Registration Statement.
INDEX TO FINANCIAL STATEMENTS
C-1
2. Exhibits
|
|
|
Exhibit Number |
|
Description |
|
|
a. |
|
Articles of Amendment and Restatement(2) |
|
|
b. |
|
Amended and Restated Bylaws(2) |
|
|
d.1 |
|
Form of Common Stock Certificate(4) |
|
|
d.2 |
|
Form of Indenture(7) |
|
|
d.3 |
|
Form of Supplemental Indenture(11) |
|
|
d.4 |
|
Statement of Eligibility of U.S. Bank National Association on Form T-1(20) |
|
|
d.5 |
|
Indenture, dated as of November 16, 2012, between the Registrant and U.S. Bank National Association as trustee(13) |
|
|
d.6 |
|
First Supplemental Indenture, dated November 16, 2012, relating to the 6.75% Senior Notes due 2042, between the Registrant and U.S. Bank National Association, as trustee(13) |
|
|
d.7 |
|
Form of 6.75% Senior Notes due 2042 (contained in the First Supplemental Indenture filed as Exhibit d.6 hereto)(13) |
|
|
e. |
|
Dividend Reinvestment Plan(2) |
|
|
f.1 |
|
Form of Amended and Restated Senior Secured Revolving Credit Agreement by and between the Registrant, the Lenders and Citibank, N.A., as administrative agent(4) |
|
|
f.2 |
|
Amendment No. 1 to the Senior Secured Revolving Credit Agreement by and between the Registrant, the Lenders and Citibank, N.A., as administrative agent(16) |
|
|
f.3 |
|
Form of Senior Secured Credit Agreement by and between the Registrant, Citibank, N.A., as administrative agent, the lenders party thereto, JPMorgan Chase Bank, N.A., as syndication agent, and SunTrust Bank, as documentation
agent(10) |
|
|
f.4 |
|
Form of Loan and Servicing Agreement by and among the Registrant, Solar Capital Funding II LLC, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Delaware Trust Company, as collateral agent and Wells Fargo Bank,
N.A., as account bank and collateral custodian(6) |
|
|
f.5 |
|
Amendment No. 2 to the Loan and Servicing Agreement by and among Registrant, Solar Capital Funding II LLC, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Delaware Trust Company, as collateral agent, and Wells
Fargo Bank, N.A., as account bank and collateral custodian(8) |
|
|
f.6 |
|
Form of Limited Liability Company Agreement, dated as of September 2, 2014, between Solar Capital Ltd. and Senior Secured Unitranche LLC, a Delaware limited liability company(21) |
|
|
g. |
|
Investment Advisory and Management Agreement by and between Registrant and Solar Capital Partners, LLC(1) |
|
|
h. |
|
Form of Underwriting Agreement(7) |
|
|
j. |
|
Form of Custodian Agreement(18) |
|
|
k.1 |
|
Amended and Restated Administration Agreement by and between Registrant and Solar Capital Management, LLC(17) |
|
|
k.2 |
|
Form of Indemnification Agreement by and between Registrant and each of its directors(2) |
|
|
k.3 |
|
Registration Rights Agreement by and between Registrant, Solar Cayman Limited, Solar Offshore Limited, Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and purchasers in the initial private
placement(1) |
C-2
|
|
|
Exhibit Number |
|
Description |
|
|
k.4 |
|
First Amendment to the Registration Rights Agreement by and between Registrant, Solar Cayman Limited, Solar Offshore Limited, Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and purchasers in the initial private
placement(2) |
|
|
k.5 |
|
Registration Rights Agreement by and between Registrant, Magnetar Capital Fund, LP and Solar Offshore Limited(1) |
|
|
k.6 |
|
Trademark License Agreement by and between Registrant and Solar Capital Partners, LLC(2) |
|
|
k.7 |
|
Form of Share Purchase Agreement by and between Registrant and Solar Capital Investors II, LLC(4) |
|
|
k.8 |
|
Form of Registration Rights Agreement(5) |
|
|
k.9 |
|
Form of Subscription Agreement(5) |
|
|
k.10 |
|
Form of Purchase and Sale Agreement by and between the Registrant and Solar Capital Funding II LLC(6) |
|
|
l.1 |
|
Opinion of Venable LLP(20) |
|
|
l.2 |
|
Opinion of Sutherland Asbill & Brennan LLP(20) |
|
|
n.1 |
|
Consent of Venable LLP (Incorporated by reference to exhibit l.1 hereto)(20) |
|
|
n.2 |
|
Consent of Independent Registered Public Accounting Firm |
|
|
n.3 |
|
Report of Independent Registered Public Accounting Firm(7) |
|
|
n.4 |
|
Consent of Sutherland Asbill & Brennan LLP (Incorporated by reference to exhibit l.2 hereto)(20) |
|
|
n.5 |
|
Report of Independent Registered Public Accounting Firm(10) |
|
|
n.6 |
|
Report of Independent Registered Public Accounting Firm (14) |
|
|
n.7 |
|
Report of Independent Registered Public Accounting Firm (19) |
|
|
n.8 |
|
Report of Independent Registered Public Accounting Firm(22) |
|
|
n.9 |
|
Consent of Independent Registered Public Accounting Firm |
|
|
n.10 |
|
Consent of Independent Registered Public Accounting Firm |
|
|
r. |
|
Amended Code of Ethics(17) |
|
|
99.1 |
|
Amended Code of Business Conduct(17) |
|
|
99.2 |
|
Form of Preliminary Prospectus Supplement For Common Stock Offerings(9) |
|
|
99.3 |
|
Form of Preliminary Prospectus Supplement For Preferred Stock Offerings(9) |
|
|
99.4 |
|
Form of Preliminary Prospectus Supplement For Debt Offerings(9) |
|
|
99.5 |
|
Form of Preliminary Prospectus Supplement For Warrant Offerings(9) |
|
|
99.6 |
|
Form of Preliminary Prospectus Supplement For Unit Offerings(9) |
|
|
99.7 |
|
Crystal Capital Financial Holdings LLC (A Delaware Limited Liability Company) Consolidated Financial Statements Year Ended December 31, 2013 |
|
|
99.8 |
|
Crystal Financial LLC ( A Delaware Limited Liability Company) Consolidated Financial Statements for the years ended December 31, 2014 and December 31, 2013. |
(1) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 (File No. 333-148734) filed on
January 18, 2008. |
(2) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Pre-Effective Amendment No. 7 (File No. 333-148734) filed on January 7, 2010. |
C-3
(3) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Pre-Effective Amendment No. 8 (File No. 333-148734) filed on January 27, 2010. |
(4) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Pre-Effective Amendment No. 9 (File No. 333-148734) filed on February 9, 2010. |
(5) |
Previously filed in connection with Solar Capital Ltd.s report on Form 8-K filed on November 29, 2010. |
(6) |
Previously filed in connection with Solar Capital Ltd.s report on Form 8-K filed on December 22, 2010. |
(7) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Pre-Effective Amendment No. 1 (File No. 333-172968) filed on July 6, 2011.
|
(8) |
Previously filed in connection with Solar Capital Ltd.s report on Form 8-K filed on February 8, 2012. |
(9) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 2 (File No. 333-172968) filed on June 8, 2012. |
(10) |
Previously filed in connection with Solar Capital Ltd.s report on Form 8-K filed on July 6, 2012. |
(11) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 5 (File No. 333-172968) filed on November 8, 2012. |
(12) |
Incorporated by reference to Form T-1 filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939, as amended, on November 8, 2012. |
(13) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 6 (File No. 333-172968) filed on November 16, 2012. |
(14) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 8 (File No. 333-172968) filed on April 29, 2013. |
(15) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 9 (File No. 333-172968) filed on July 19, 2013. |
(16) |
Previously filed in connection with Solar Capitals report on Form 10-Q filed on July 31, 2013. |
(17) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 10 (File No. 333-172968) filed on November 12, 2013. |
(18) |
Previously filed in connection with Solar Capital Ltd.s annual report on Form 10-K filed on February 25, 2014. |
(19) |
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 filed on March 28, 2014. |
(20) |
Previously filed in connection with Solar Capital Ltd.s registration statement on From N-2 Pre-Effective Amendment No. 1 (File No. 333-194870) filed on June 17, 2014. |
(21) |
Previously filed in connection with Solar Capital Ltd.s report on Form 10-Q filed on November 4, 2014. |
(22) |
Previously filed in connection with Solar Capitals registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-194870) filed on March 5, 2015. |
ITEM 26. MARKETING ARRANGEMENTS
The information contained under the heading Underwriting on this Registration Statement is incorporated herein by reference.
C-4
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
|
|
|
|
|
SEC registration fee |
|
$ |
128,800 |
* |
FINRA filing fee |
|
|
150,500 |
** |
NASDAQ Global Select Market Listing Fee |
|
|
130,000 |
|
Printing and postage |
|
|
300,000 |
|
Legal fees and expenses |
|
|
500,000 |
|
Accounting fees and expenses |
|
|
250,000 |
|
Miscellaneous |
|
|
30,000 |
|
|
|
|
|
|
Total |
|
$ |
1,489,300 |
|
|
|
|
|
|
Note: All
listed amounts, except the SEC registration fee and the FINRA filing fee, are estimates.
* |
$81,548.79 of this amount has been offset against filing fees associated with unsold securities registered under a previous registration statement. |
** |
$105,360.19 of this amount has been offset against filing fees associated with unsold securities registered under a previous registration statement. |
ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
We may be deemed to control certain portfolio companies. See Portfolio Companies in the prospectus.
Consolidated Subsidiaries
The following
list sets forth each of our consolidated subsidiaries, the state or country under whose laws the subsidiary is organized, and the percentage of voting securities or membership interests owned by us in such subsidiary:
|
|
|
|
|
Crystal Capital Financial Holdings LLC (Delaware) |
|
|
100 |
% |
SLRC ADI Corp. (Delaware) |
|
|
100 |
% |
Each of our subsidiaries listed above is consolidated for financial reporting purposes.
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders of the Registrants common stock at March 3, 2015:
|
|
|
|
|
Title of Class |
|
Number of Record Holders |
|
Common Stock, par value $0.01 per share |
|
|
20 |
|
ITEM 30. INDEMNIFICATION
Directors and Officers
Reference is made
to Section 2-418 of the Maryland General Corporation Law, Article VII of the Registrants charter and Article XI of the Registrants Amended and Restated Bylaws.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate
C-5
dishonesty established by a final judgment as being material to the cause of action. The Registrants charter contains such a provision which eliminates directors and officers
liability to the maximum extent permitted by Maryland law, subject to the requirements of the Investment Company Act of 1940, as amended (the 1940 Act).
The Registrants charter authorizes the Registrant, to the maximum extent permitted by Maryland law and subject to the requirements of
the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as the Registrants director or officer and at the Registrants request, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur
by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The Registrants bylaws obligate the Registrant, to the maximum extent permitted by Maryland
law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as the Registrants director or officer and at the Registrants request, serves or has served
another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be made, a party to the proceeding by reason
of his or her service in that capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable
expenses in advance of final disposition of a proceeding. The charter and bylaws also permit the Registrant to indemnify and advance expenses to any person who served a predecessor of the Registrant in any of the capacities described above and any
of the Registrants employees or agents or any employees or agents of the Registrants predecessor. In accordance with the 1940 Act, the Registrant will not indemnify any person for any liability to which such person would be subject by
reason of such persons willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter provides otherwise, which the Registrants charter does not) to indemnify a
director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by
reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or
(2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on
the basis that a personal benefit was improperly received unless, in either case, a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer in
advance of final disposition of a proceeding upon the corporations receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
Adviser and Administrator
The Investment
Advisory and Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Solar Capital Partners, LLC (the
Adviser) and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from
C-6
the Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of the
Advisers services under the Investment Advisory and Management Agreement or otherwise as an investment adviser of the Registrant.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by
reason of the reckless disregard of its duties and obligations, Solar Capital Management, LLC and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to
indemnification from the Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of Solar Capital Management, LLCs services
under the Administration Agreement or otherwise as administrator for the Registrant.
The law also provides for comparable indemnification
for corporate officers and agents. Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the Securities Act) may be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant has entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the
Registrants directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Registrant shall indemnify the director who is a party to the agreement (an
Indemnitee), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, other
than a proceeding by or in the right of the Registrant.
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or employment of a substantial nature in which the Adviser, and each
managing director, director or executive officer of the Adviser, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in
Part A of this Registration Statement in the sections entitled Management Board of Directors, Investment Advisory and Management Agreement and Portfolio Management Investment
Personnel. Additional information regarding the Adviser and its officers and directors will be set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-68710), under the Investment Advisers
Act of 1940, as amended, and is incorporated herein by reference.
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by Section 31(a) of the 1940 Act, and the rules thereunder are
maintained at the offices of:
|
(1) |
the Registrant, Solar Capital Ltd., 500 Park Avenue, New York, NY 10022; |
|
(2) |
the Transfer Agent, American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 10038; |
C-7
|
(3) |
the Custodian, The Bank of New York Mellon Corporation, One Wall Street, New York, NY 10286; and |
|
(4) |
the Adviser, Solar Capital Partners, LLC, 500 Park Avenue, New York, NY 10022. |
ITEM 33. MANAGEMENT SERVICES
Not applicable.
ITEM 34. UNDERTAKINGS
(1) Registrant undertakes to suspend the offering of the shares of common stock covered hereby until it amends its prospectus contained
herein if (a) subsequent to the effective date of this Registration Statement, its net asset value per share of common stock declines more than 10% from its net asset value per share of common stock as of the effective date of this Registration
Statement, or (b) its net asset value per share of common stock increases to an amount greater than its net proceeds as stated in the prospectus contained herein.
(2) Not applicable.
(3) Not applicable.
(4) The Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a post-effective amendment to the registration
statement:
(i) to include any prospectus required by Section 10(a)(3) of the 1933 Act;
(ii) to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration statement.
(b) That, for the purpose of
determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of those securities at that time shall be deemed to be
the initial bona fide offering thereof; and
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of the offering; and
(d) That, for the
purpose of determining liability under the 1933 Act to any purchaser, if the Registrant is subject to Rule 430C: Each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the 1933 Act as part of a registration statement relating to an
offering, other than prospectuses filed in reliance on Rule 430A under the 1933 Act, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; Provided, however, that no
statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(e) That, for the purpose of determining liability of the
Registrant under the 1933 Act to any purchaser in the initial distribution of securities, the undersigned Registrant undertakes that in a primary offering of
C-8
securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
(i) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed
pursuant to Rule 497 under the 1933 Act;
(ii) the portion of any advertisement pursuant to Rule 482 under the 1933 Act
relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(iii) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
(f) To file a post-effective amendment to the registration statement, and to suspend any offers or sales pursuant the
registration statement until such post-effective amendment has been declared effective under the 1933 Act, in the event the shares of Registrant are trading below its net asset value and either (i) Registrant receives, or has been advised by its
independent registered accounting firm that it will receive, an audit report reflecting substantial doubt regarding the Registrants ability to continue as a going concern or (ii) Registrant has concluded that a material adverse change has
occurred in its financial position or results of operations that has caused the financial statements and other disclosures on the basis of which the offering would be made to be materially misleading.
(5) Not applicable.
(6) The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery within two business
days of receipt of a written or oral request, any Statement of Additional Information.
C-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Pre-Effective Amendment No. 3
to the Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, in the State of New York, on the 1st day of April,
2015.
|
|
|
SOLAR CAPITAL LTD. |
|
|
By: |
|
/s/ Michael S. Gross |
|
|
Michael S. Gross |
|
|
Chief Executive Officer, President, Chairman of the Board and Director |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 has been signed by the following persons on behalf of the Registrant, and in the capacities indicated, on the 1st day of April, 2015.
|
|
|
Signature |
|
Title |
|
|
/s/ Michael S. Gross |
|
Chief Executive Officer, President, Chairman of the |
Michael S. Gross |
|
Board and Director (Principal Executive Officer) |
|
|
|
|
|
* |
|
Director |
Steven Hochberg |
|
|
|
|
* |
|
Director |
David S. Wachter |
|
|
|
|
* |
|
Director |
Leonard A. Potter |
|
|
|
|
* |
|
Chief Operating Officer and Director |
Bruce Spohler |
|
|
|
|
/s/ Richard L. Peteka |
|
Chief Financial Officer (Principal Financial |
Richard L. Peteka |
|
Officer), Treasurer and Secretary |
* |
Signed by Michael S. Gross pursuant to a power of attorney signed by each individual and filed with this Registration Statement on March 28, 2014. |
C-10
Exhibit n.2
Consent of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Solar Capital Ltd.:
We consent to the use of our reports dated February 25, 2015 with respect to the consolidated financial statements and the effectiveness of internal
control over financial reporting for Solar Capital Ltd. included herein, and to the references to our firm under the heading Selected Financial and Other Data and Independent Registered Public Accounting Firm in the
registration statement.
/s/ KPMG LLP
New York, New York
March 5, 2015
Exhibit n.9
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Pre-Effective Amendment No. 3 to the Registration Statement (No. 333-194870) on Form N-2/A of Solar Capital Ltd. of our
report dated February 11, 2015, relating to our audits of the consolidated financial statements of Crystal Financial LLC, as of and for the years ended December 31, 2014 and 2013.
McGladrey LLP
Boston, Massachusetts
April 1, 2015
Exhibit n.10
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Pre-Effective Amendment No. 3 to the Registration Statement (No. 333-194870) on Form N-2/A of Solar Capital Ltd. of our
report dated February 14, 2014, relating to our audit of the consolidated financial statements of Crystal Capital Financial Holdings, LLC as of and for the year ended December 31, 2013.
McGladrey LLP
Boston, Massachusetts
April 1, 2015
Exhibit 99.7
Crystal Capital Financial
Holdings LLC
(A Delaware
Limited Liability Company)
Consolidated Financial Statements
Year Ended December 31, 2013
Crystal Capital Financial Holdings LLC
(A Delaware Limited Liability)
Index
Year Ended
December 31, 2013
|
|
|
|
|
|
|
Page(s) |
|
Independent Auditors Report |
|
|
1 |
|
Consolidated Financial Statements |
|
|
|
|
Balance Sheet |
|
|
2 |
|
Statement of Operations |
|
|
3 |
|
Statement of Changes in Noncontrolling Interest and Members Equity |
|
|
4 |
|
Statement of Cash Flows |
|
|
5 |
|
Notes to Financial Statements |
|
|
618 |
|
McGladrey LLP
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Members of
Crystal Capital
Financial Holdings LLC
Boston, Massachusetts
Report on
the Financial Statements
We have audited the accompanying consolidated financial statements of Crystal Capital Financial Holdings LLC and its
subsidiaries (the Company) which comprise the balance sheet of as of December 31, 2013, and the related consolidated statements of operations, changes in members equity and noncontrolling interest, and cash flows for the year
then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2013, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
February 14, 2014
Member of the RSM International network
of independent accounting tax and consulting Forms.
Crystal Capital Financial Holdings LLC
Consolidated Balance Sheet
December 31, 2013
|
|
|
|
|
Assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
10,021,273 |
|
Restricted cash |
|
|
16,077,862 |
|
Loan interest and fees receivable |
|
|
5,663,453 |
|
|
|
Loans |
|
|
454,387,509 |
|
Less: Unearned fee income |
|
|
(10,469,185 |
) |
Allowance for loan losses |
|
|
(8,056,417 |
) |
|
|
|
|
|
Total loans, net |
|
|
435,861,907 |
|
Investment in Crystal Financial SBIC LP |
|
|
7,447,745 |
|
Fixed assets, net |
|
|
202,614 |
|
Tradename |
|
|
14,520,000 |
|
Goodwill |
|
|
5,156,542 |
|
Other assets |
|
|
4,102,501 |
|
|
|
|
|
|
Total assets |
|
$ |
499,053,897 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Revolving credit facility |
|
$ |
200,400,000 |
|
Accrued expenses |
|
|
8,111,032 |
|
Dividends payable |
|
|
8,149,131 |
|
Other liabilities |
|
|
1,667,261 |
|
Collateral held for borrower obligations |
|
|
12,409,666 |
|
|
|
|
|
|
Total liabilities |
|
|
230,737,090 |
|
|
|
|
|
|
Commitments and Contingencies (Note 7) |
|
|
|
|
Noncontrolling interest (Note 2): |
|
$ |
5,485,468 |
|
|
|
|
|
|
Members equity: |
|
|
|
|
Class A units |
|
|
273,885,845 |
|
Accumulated deficit |
|
|
(11,054,506 |
) |
|
|
|
|
|
Total members equity |
|
|
262,831,339 |
|
|
|
|
|
|
Total liabilities, noncontrolling interest and members equity |
|
$ |
499,053,897 |
|
|
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial statements.
2
Crystal Capital Financial Holdings LLC
Consolidated Statement of Operations
For the year ended December 31, 2013
|
|
|
|
|
Net interest income: |
|
|
|
|
Interest income |
|
$ |
52,513,931 |
|
Interest expense |
|
|
7,412,174 |
|
|
|
|
|
|
Net interest income |
|
|
45,101,757 |
|
Provision for loan losses |
|
|
2,338,441 |
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
42,763,316 |
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
Other income |
|
|
1,533,307 |
|
|
|
|
|
|
Total noninterest income |
|
|
1,533,307 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
Compensation and benefits |
|
|
11,990,890 |
|
Occupancy and equipment |
|
|
755,010 |
|
General and administrative expenses |
|
|
2,867,835 |
|
|
|
|
|
|
Total operating expenses |
|
|
15,613,735 |
|
|
|
|
|
|
Realized loss from foreign currency transactions, net |
|
|
(1,666,503 |
) |
Realized gain from hedging, net |
|
|
1,424,731 |
|
Unrealized loss from foreign currency translations, net |
|
|
(1,779,351 |
) |
Unrealized gain from hedging, net |
|
|
1,392,183 |
|
|
|
|
|
|
Net income |
|
|
28,053,948 |
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interest |
|
|
499,637 |
|
|
|
|
|
|
Net income attributable to Crystal Capital Financial Holdings LLC |
|
$ |
27,554,311 |
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
Crystal Capital Financial Holdings LLC
Consolidated Statement of Changes in Noncontrolling Interest and Members Equity
For the year ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest |
|
|
Class A Units |
|
|
Accumulated Deficit |
|
|
Total Members Equity |
|
|
Total Noncontrolling Interest and Members Equity |
|
Balance, December 31, 2012 |
|
$ |
3,900,679 |
|
|
$ |
273,885,845 |
|
|
$ |
(6,327,110 |
) |
|
$ |
267,558,735 |
|
|
$ |
271,459,414 |
|
Dividends |
|
|
(581,804 |
) |
|
|
|
|
|
|
(31,750,000 |
) |
|
|
(31,750,000 |
) |
|
|
(32,331,804 |
) |
Net income |
|
|
499,637 |
|
|
|
|
|
|
|
27,554,311 |
|
|
|
27,554,311 |
|
|
|
28,053,948 |
|
Issuance of units to noncontrolling interest |
|
|
1,135,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,135,249 |
|
Adjustment of noncontrolling interest units to redemption value |
|
|
531,707 |
|
|
|
|
|
|
|
(531,707 |
) |
|
|
(531,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
$ |
5,485,468 |
|
|
$ |
273,885,845 |
|
|
$ |
(11,054,506 |
) |
|
$ |
262,831,339 |
|
|
$ |
268,316,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Crystal Capital Financial Holdings LLC
Consolidated Statement of Cash Flows
For the year ended December 31, 2013
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
Net income |
|
$ |
28,053,948 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
Provision for loan losses |
|
|
2,338,441 |
|
Amortization of unearned fee income |
|
|
(2,718,126 |
) |
Accretion of purchase price discount |
|
|
(1,274,832 |
) |
Depreciation and amortization |
|
|
78,743 |
|
PIK interest income |
|
|
(563,710 |
) |
Interest in earnings of unconsolidated subsidiary |
|
|
190,373 |
|
Unrealized loss on foreign currency transactions |
|
|
1,779,351 |
|
Unrealized gain on hedging transactions |
|
|
(1,392,183 |
) |
Increase in loan interest and fees receivable |
|
|
(2,076,421 |
) |
Decrease in other assets |
|
|
2,118,038 |
|
Increase in unearned fees |
|
|
13,000,543 |
|
Increase in accrued expenses |
|
|
7,254,549 |
|
Decrease in other liabilities |
|
|
(12,523,401 |
) |
|
|
|
|
|
Net cash provided by operating activities |
|
|
34,265,313 |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Purchases of fixed assets |
|
|
(206,264 |
) |
Investment in loans |
|
|
(349,228,572 |
) |
Repayment of term loans |
|
|
264,049,358 |
|
Lending on revolving lines of credit, net |
|
|
20,320,825 |
|
Increase in restricted cash |
|
|
(13,352,283 |
) |
Investment in Crystal Financial SBIC LP |
|
|
(7,638,118 |
) |
Increase in collateral held for borrower obligations |
|
|
11,628,511 |
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(74,426,543 |
) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from borrowings on revolving credit facility, net |
|
|
57,650,000 |
|
Payment of dividends |
|
|
(24,182,673 |
) |
Issuance of units to noncontrolling interest holders |
|
|
1,135,249 |
|
Payment of debt issue costs |
|
|
(99,444 |
) |
Payment of capital lease obligations |
|
|
(4,659 |
) |
|
|
|
|
|
Net cash provided by financing activities |
|
|
34,498,473 |
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(5,662,757 |
) |
Cash and cash equivalents at beginning of year |
|
|
15,684,030 |
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
10,021,273 |
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
Cash paid for interest |
|
$ |
7,415,351 |
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
1. Organization
Crystal Capital Financial Holdings LLC (Crystal Financial Holdings or the Company) has a controlling financial interest
in Crystal Financial LLC (Crystal Financial). Crystal Financial, including its wholly owned subsidiary, Crystal Financial SPV LLC (Crystal Financial SPV), is a commercial finance company that primarily originates,
underwrites, and manages secured debt to middle market companies within various industries. The Company was formed in the state of Delaware on March 2, 2010.
On December 17, 2012, the Company entered into a Securities Purchase and Sale Agreement with Solar Capital Ltd. (Solar)
whereby the Company agreed to sell, and Solar agreed to purchase all outstanding equity securities of the Company. The acquisition closed on December 28, 2012 (the Acquisition Date). Effective on the Acquisition Date, Crystal
Financial Holdings became a single-member LLC with Solar having sole ownership of the Company.
As of December 31, 2013, Crystal
Financial Holdings owns approximately 98.2% of the outstanding ownership interest in Crystal Financial LLC. The remaining financial interest is held by various employees of Crystal Financial, through their investment in Crystal Management LP (Note
5). The activities of the Company occur primarily within Crystal Financial and Crystal Financial SPV.
The Company is based in Boston,
Massachusetts with offices and employees in Chicago, Illinois; Atlanta, Georgia; and Los Angeles, California.
2. Reclassification
During 2013, the Company reclassified certain noncontrolling interest units that were previously recorded as a component of members
equity. As all of the Companys noncontrolling interest units are subject to put options, which can be exercised by the unit holders upon the occurrence of events that are outside the control of the Company, the Company determined that the
units should be recorded as temporary equity in the consolidated balance sheet. At December 31, 2012, class A units totaling $2,691,524, as well as the portion of the Companys net loss that was allocated to these units totaling $90,435,
was classified as a component of members equity in the consolidated balance sheet and the statement of changes in members equity. Such amounts have been reclassified to temporary equity in the accompanying consolidated financial
statements as of December 31, 2012.
3. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies adopted by the Company:
Basis of Accounting
The accompanying
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
Principles of Consolidation
The
consolidated financial statements for the period ended December 31, 2013 include the accounts of Crystal Financial Holdings and its subsidiaries, Crystal Financial and Crystal Financial SPV. All inter-company investments, accounts and
transactions have been eliminated in these consolidated financial statements.
6
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates most susceptible to change
include the allowance for loan losses, the valuation of intangible assets as determined during impairment testing and the fair value of the Companys derivative instruments. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company
considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held no cash equivalents at December 31, 2013. Cash includes all deposits held at banks. Deposits in excess
of amounts insured by the Federal Deposit Insurance Corporation (FDIC) are exposed to loss in the event of nonperformance by the institution. The Company has had cash deposits in excess of the FDIC insurance coverage. The Company has not
experienced any losses on such accounts.
Restricted Cash
Restricted cash consists of interest and fees collected on those loans held within Crystal Financial SPV that serve as collateral against the
Companys outstanding line of credit. Upon receipt, these funds are restricted from the Companys access until the fifteenth of the following month. Also included in restricted cash may be funds that serve as collateral against loans
outstanding to certain borrowers as well as funds that serve as collateral to outstanding letters of credit, some of which may be issued by the Company on behalf of certain borrowers.
Loans
The Company typically classifies
all loans as held to maturity. Loans funded by the Company are recorded at the amount of unpaid principal, net of unearned fees, discounts and the allowance for loan losses in the Companys consolidated balance sheet.
Interest income is recorded on the accrual basis in accordance with the terms of the respective loan. Interest is not accrued on loans with
interest or principal payments 90 days or greater past due or on other loans when management believes collection is doubtful. Loans considered impaired, as defined below, are nonaccruing. When a loan is placed on nonaccrual status, all interest
previously accrued, but not collected, is reversed against current interest income and all future proceeds received will generally be applied against principal or interest, in the judgment of management. The interest on these loans is accounted for
on the cash basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to the accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably
assured. At December 31, 2013, there are no past due interest or principal payments and the Company did not have any loans on nonaccrual status.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all
amounts due in accordance with the contractual terms of the loan agreement. All loans are individually evaluated for impairment according to the Companys normal loan review process, including overall credit evaluation, nonaccrual status and
payment experience. Loans identified as impaired are further evaluated to determine the estimated extent of impairment. At December 31, 2013, the Company has not classified any loans as impaired.
7
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
Allowance for Loan Losses
The allowance for loan losses is maintained at the amount estimated to be sufficient to absorb probable losses, net of recoveries, inherent in
the loan portfolio at year end. Internal credit ratings assigned to loans are periodically evaluated and adjusted to reflect the current credit risk of the loan. In accordance with applicable guidance, management assigns a general loan allowance
based on the borrowers overall risk rating for loans not deemed to be impaired. All loans in the Companys portfolio are individually evaluated when determining the overall risk rating. The risk ratings are derived upon consideration of a
number of factors related to both the borrower and the borrowers facility, with those factors related to the borrowers facility being the key determinant of the overall risk rating. Risk factors of the borrower that are considered
include asset and earnings quality, historical and projected financial performance, borrowing liquidity and/or access to capital. Risk factors of the facility that are considered include collateral coverage and the facilitys position within
the overall capital structure. Upon consideration of each of the aforementioned factors, among others, the Company assigns each loan an obligor risk rating and a facility risk rating, which are then collectively used in developing the overall risk
rating. The overall risk rating corresponds with an applicable reserve percentage which is applied to the face value of the loan in order to determine the Companys allowance for loan losses. In establishing the applicable reserve percentages,
the Company considers various factors including historical industry loss experience, the credit profile of the Companys borrowers as well as economic trends and conditions.
Specific allowances for loan losses on impaired loans are typically measured based on a comparison of the recorded carrying value of the loan
to the present value of the loans expected cash flow using the loans effective interest rate, the loans estimated market price or the estimated fair value of the underlying collateral, if the loan is collateral-dependent. A
specific reserve is applied when loans are assigned risk ratings at or above a specific threshold. At December 31, 2013, the Company has not classified any loans as impaired and as such, no specific reserve for impaired loans was required at
December 31, 2013. Loans are charged off against the allowance at the earlier of either the substantial completion of the liquidation of assets securing the loan, or when senior management deems the loan to be permanently impaired.
Depending on the assigned internal risk rating, loans are classified as either Pass or Criticized. Generally, once a loan is classified as
Criticized, a specific reserve analysis is required. At December 31, 2013, no loans were classified as Criticized.
The Company also
maintains an allowance on unused revolver commitments. At December 31, 2013 an allowance of $376,062 was recorded relating to unused revolver commitments. This amount is recorded as a component of other liabilities on the Companys
consolidated balance sheet with changes recorded in the provision for loan losses on the Companys consolidated statement of operations. The methodology for determining the allowance for unused revolver commitments is consistent with the
methodology used for determining the allowance for loan losses.
8
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
The summary of changes in the allowance for loan losses relating to funded commitments for
the year ended December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 |
|
|
|
Revolvers |
|
|
Term Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
657,348 |
|
|
$ |
5,237,829 |
|
|
$ |
5,895,177 |
|
Provision for loan losses- general |
|
|
(358,426 |
) |
|
|
2,519,666 |
|
|
|
2,161,240 |
|
Provision for loan losses- specific |
|
|
|
|
|
|
|
|
|
|
|
|
Charge- offs, net of recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
298,922 |
|
|
$ |
7,757,495 |
|
|
$ |
8,056,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period- general |
|
$ |
298,922 |
|
|
$ |
7,757,495 |
|
|
$ |
8,056,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period- specific |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated with general allowance |
|
$ |
16,211,175 |
|
|
$ |
438,176,334 |
|
|
$ |
454,387,509 |
|
Loans individually evaluated with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
16,211,175 |
|
|
$ |
438,176,334 |
|
|
$ |
454,387,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Financing Fees
Deferred financing fees represent fees and other direct incremental costs incurred in connection with the Companys borrowings against its
revolving credit facility (Note 4). These amounts are amortized using the straight-line method into earnings as interest expense ratably over the contractual term of the facility. Net deferred financing fees totaled $179,544 at December 31,
2013 and are included as a component of other assets on the accompanying consolidated balance sheet.
Tradename Intangible Asset
In connection with the acquisition of the Company, as discussed in Note 1, the purchase price was allocated amongst the fair value of the
assets acquired and liabilities assumed. Identified intangible assets included $14,520,000 related to the Crystal Financial tradename. The tradename has an indefinite life and therefore is not amortized. The Company reviews its intangible assets for
impairment on an annual basis, at the end of the third quarter, or whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. When considering whether or not the tradename is impaired, the Company
utilizes both qualitative and quantitative factors. The qualitative assessment involves determining whether events or circumstances exist that indicate that it is more likely than not that the intangible asset is impaired. If the qualitative
assessment indicates that it is more likely than not that the intangible asset is impaired, or if the Company elects to not perform a qualitative assessment, then a quantitative assessment is performed, in which the Company is required to determine
the fair value of the intangible asset. An intangible asset is considered impaired if the carrying value of the asset exceeds the estimated fair value of the asset. The impairment is then measured as the excess of the carrying value of the asset
over its estimated fair value. The Company estimates the fair value of the tradename using an income approach which incorporates various estimates and judgments. As of December 31, 2013, the Company has not recorded any impairment against its
tradename intangible asset.
Goodwill
In connection with the acquisition of the Company, as discussed in Note 1, the Company recorded goodwill equal to the excess of the purchase
price over the fair value of assets acquired and liabilities assumed. Goodwill
9
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
recognized on the Acquisition Date totaled $5,156,542. The Company assesses the realizability of goodwill annually at the end of the third quarter, or more frequently if events or circumstances
indicate that impairment may exist.
The Company assesses whether goodwill impairment exists using both qualitative and quantitative
assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate that it is more likely than not that the fair value of the reporting unit, which has been determined to be the Company as a whole, is
less than its carrying amount. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or if the Company elects to not perform a qualitative assessment, then
a quantitative assessment, or two-step impairment test, is performed.
As part of the step one testing for goodwill impairment, the fair
value of the reporting unit is estimated by applying weighted percentages to the calculated fair values of the Company derived using both the income and market approaches. Under the income approach, the fair value is determined using a discounted
cash flow analysis, which involves significant estimates and assumptions, including market conditions, discount rates, and projections of future cash flows. Using the market approach, the fair value is estimated by using comparable publicly traded
companies, whose values are known, as a benchmark to establish an estimate of a multiple that is then applied to the Company.
Step two of
the goodwill impairment test, used to measure the amount of impairment loss, if any, compares the implied fair value of the reporting units goodwill with the carrying amount of the goodwill. If the carrying amount of the goodwill exceeds the
implied fair value, an impairment loss is recognized in an amount equal to the excess.
For the year ended December 31, 2013, the
step one testing for goodwill impairment indicated that the fair value of the reporting unit exceeded its carrying value. As such, no impairment was recorded.
Interest
Interest income is recorded on
the accrual basis to the extent that such amounts are expected to be collected. In accordance with the Companys policy, accrued interest is evaluated periodically for collectability. The Company stops accruing interest on loans when it is
determined that interest is no longer collectible. All interest is deemed to be collectible at December 31, 2013.
Fee Income Recognition
It was determined on the Acquisition Date that the fair value of the Companys loan portfolio was at a slight discount to face value. This
discount is being accreted into income and is added to the value of the respective loan over the contractual life of the loan using the effective interest method. Income related to the accretion of the discount is included as a component of interest
income on the consolidated statement of operations.
Nonrefundable loan fees associated with the origination or purchase of loans are
deferred and included in loans, net, in the consolidated balance sheet. These commitment fees, as well as certain other fees charged to borrowers, such as amendment and prepayment fees, are recorded as interest income, after receipt, over the
remaining life of the loan using a method which approximates the interest method. Unused line fees are recorded as interest income when received.
10
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
Property and Equipment
Property and equipment includes furniture and fixtures, computer equipment and software, which are carried at cost. Such items are depreciated
or amortized on a straight-line basis over the following useful lives:
|
|
|
Furniture and fixtures |
|
5-7 years |
Computer equipment |
|
3-5 years |
Computer software |
|
3 years |
Leasehold improvements |
|
shorter of remaining lease term or the assets |
|
|
estimated useful life |
The cost basis of the Companys capital lease, furniture and fixtures, computer equipment, computer
software and leasehold improvements was $8,663, $18,295, $137,066, $28,012, and $82,595 at December 31, 2013. Depreciation expense of $71,258 was recognized during the year ended December 31, 2013 and is included as a component of
occupancy and equipment expenses on the accompanying consolidated statement of operations. Accumulated depreciation at December 31, 2013 totaled $72,017.
Noncontrolling Interest
Ownership units
in Crystal Financial that are held by Crystal Management LP (Note 5), along with net income allocated to these units, net of dividends, are recorded as noncontrolling interest in the accompanying consolidated financial statements.
Units associated with the Companys noncontrolling interest are classified as temporary equity in the accompanying consolidated balance
sheet as the units contain put options which are not legally detachable or separately exercisable and such exercise is not solely within the control of the Company. The noncontrolling interest units are recorded at the greater of their carrying
value or their redemption value, which is determined as the fair value of the unit, as defined in the Crystal Financial Operating Agreement, as of the balance sheet date. Changes in the redemption value of the noncontrolling interest units, after
allocation of net income and dividends paid, are recorded as a component of retained earnings in the accompanying consolidated financial statements.
Foreign Currency
The functional currency
of the Company is the US Dollar. At December 31, 2013, the Company had three foreign currency denominated loans in its portfolio. Gains and losses arising from exchange rate fluctuations on transactions denominated in currencies other than the
US Dollar are included in earnings as incurred. The Company recorded an unrealized loss on foreign currency translations of $1,779,351 during the year ended December 31, 2013.
Derivative Instruments and Hedging Activities
The Company records the fair value of its derivative instruments in the accompanying consolidated balance sheet at their assessed fair values.
The Companys policy is to not designate the hedge transactions that it enters into as effective hedges. As such, changes in the fair value of the instruments are recorded as a component of earnings in the consolidated statement of operations.
The Company is party to three cash flow hedges with Deutsche Bank AG to hedge the risk of foreign exchange fluctuations on the foreign
denominated loans in its portfolio. Two of the three hedges are cross-currency swaps whereby the Company hedges both the foreign denominated principal and interest payments owed from the borrower. The third hedge is a forward contract, which hedges
only the principal to be exchanged
11
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
at the maturity of the loan. These transactions involve the exchange of fixed underlying principal payments and interest payments based off of variable interest rates that correspond with the
respective currency being exchanged. The Company accounts for these derivative transactions until the contract expires or is terminated. Upon either expiration or termination, the gain or loss on the transaction is recorded as a component of
realized gain or loss from derivative transactions.
The following table details the derivative instruments outstanding at
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract |
|
Notional Amount |
|
Balance Sheet Location |
|
Fair Value |
|
|
Change in Unrealized Gain (Loss) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
cross-currency swap |
|
CAD13,000,000 |
|
other assets |
|
$ |
370,435 |
|
|
$ |
847,185 |
|
forward contract |
|
CAD22,500,000 |
|
other assets |
|
|
580,703 |
|
|
|
588,927 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
cross-currency swap |
|
EUR4,410,880 |
|
other liabilities |
|
$ |
(368,439 |
) |
|
$ |
(96,888 |
) |
Income Taxes
Members of Crystal Financial are individually liable for the taxes, if any, on their share of Crystal Financials income and expenses.
Effective December 29, 2012, and in conjunction with the acquisition, Crystal Financial Holdings changed its tax classification from that of a corporation to a disregarded entity. As the Companys sole owner is treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, income taxes have not been provided for on the accompanying consolidated financial statements.
The Company has adopted Financial Accounting Standards Board (FASB) Accounting Standard Codification 740-10 (ASC
740-10), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Accounting Standard Codification 740. ASC 740-10 provides a comprehensive model for the recognition, measurement and disclosure of uncertain income tax
positions. The Company recognizes the tax effect of certain tax positions when it is more likely than not that the tax position will sustain upon examination, based solely on the technical merits of the tax position. As of December 31, 2013,
the Company does not have any uncertain tax positions that meet the recognition or measurement criteria of ASC 740-10.
4. Debt
Obligations and Financings
Revolving Credit Facility
On May 12, 2011, the Company entered into a Loan Financing and Servicing Agreement (the Credit Agreement) with Deutsche Bank
AG (the Lender) under which the Lender committed $150,000,000 to the Company in the form of a revolving credit facility. The Credit Agreement was amended and restated on October 3, 2012. Under the amended and restated Credit
Agreement, the Lenders commitment was increased to $275,000,000. Effective November 15, 2013, the Company executed the sixth amendment to the amended and restated Credit Agreement. Among other things, the amendment provided the Company
with the ability to increase the credit facilitys outstanding commitment from $275,000,000 to $400,000,000, upon the Companys request, subject to Lender approval. On November 18, 2013, via the seventh amendment to the amended and
restated Credit Agreement, the Lender assigned a portion of its commitment to Citibank, N.A. (together with Deutsche Bank AG, the Lenders).
12
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
Prior to any increase in the Lenders respective commitments, the amount available to
borrow under the facility is the lesser of (a) $275,000,000 or (b) the amount calculated and available per the Borrowing Base, as defined in the Credit Agreement. Borrowings under the facility bear interest at a weighted average rate of
3.25% plus the Lenders cost of funds. The Company also pays an undrawn fee on unfunded commitments and an administrative agent fee. As of December 31, 2013, there was $200,400,000 outstanding under the facility. Remaining capacity under
the facility at December 31, 2013, subject to borrowing base constraints, totals $74,600,000. The facility terminates on the earlier of November 15, 2017 or upon the occurrence of a Facility Termination Event, as defined in the Agreement.
Commencing on August 15, 2016 and continuing every three months until the facilitys termination date, the Company may be
required to make principal pay-downs on certain amounts outstanding. The amount to be paid down is contingent upon the future amount outstanding as well as the amount of future non-mandatory prepayments made on the credit facility.
Cash, as well as those of the Companys loans that are held within Crystal Financial SPV, serve as collateral against the facility. At
December 31, 2013 the amount of cash and the face value of loans pledged as collateral were $8,488,605 and $443,884,863, respectively. Under the facility, the Company has made certain customary representations and warranties, and is required to
comply with various covenants, reporting requirements, and other customary requirements for similar credit facilities. The Credit Agreement includes usual and customary events of default for credit facilities of this nature. The Company is in
compliance with all covenants at December 31, 2013.
Operating and Capital Leases
The Company leases office space and equipment under various operating and capital lease agreements. Future minimum lease commitments under
these leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
Capital Leases |
|
2014 |
|
$ |
709,678 |
|
|
$ |
4,796 |
|
2015 |
|
|
719,985 |
|
|
|
|
|
2016 |
|
|
732,310 |
|
|
|
|
|
2017 |
|
|
431,375 |
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,593,348 |
|
|
|
4,796 |
|
|
|
|
|
|
|
|
|
|
Less: Amount representing interest |
|
|
|
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital lease payments including current maturities of $4,610 |
|
|
|
|
|
$ |
4,610 |
|
|
|
|
|
|
|
|
|
|
5. Related Party Activity
Investment in Crystal Financial SBIC LP
On March 15, 2013, Crystal Financial committed $50,750,000 of capital to Crystal Financial SBIC LP (the Fund) in exchange for
a 65.91% limited partner interest. Crystal Financial SBIC LP was established to operate as a small business investment company under the SBIC Act. The managing members of the Funds general partner, Crystal SBIC GP LLC (the General
Partner), are also members of Crystal Financials management
13
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
team and hold ownership interests in Crystal Financial LLC through their investments in Crystal Management LP. Crystal Financial and the General Partner have entered into a Services Agreement
whereby Crystal Financial provides certain administrative services to the General Partner in exchange for a waiver of the quarterly management fee owed by the Funds limited partners to the General Partner. Crystal Financial has also entered
into a Loan Agreement with the Fund in order to meet short term capital needs. The Loan Agreement was executed on August 2, 2013 and expires one year from the date of execution. The Loan Agreement is subject to renewal upon agreement from both
parties. There were no amounts outstanding on the Loan Agreement at December 31, 2013 and interest income earned by Crystal Financial during 2013 totaled $1,158.
The Company accounts for its limited partner interest in the Fund as an equity method investment in the accompanying consolidated financial
statements. Crystal Financial contributed $7,638,118 to the Fund during 2013 and was allocated $190,373 of the Funds 2013 net loss. Crystal Financials investment in the Fund is recorded as Investment in Crystal Financial SBIC LP in the
accompanying consolidated balance sheet.
Crystal Management LP
Crystal Management LP was formed on December 9, 2013 under the laws of the state of Delaware. In accordance with the executed Limited
Partnership Agreement, dated December 31, 2013, the primary purpose of Crystal Management LP is to maintain the ownership interests of Crystal Financial employees. Through Crystal Management LP, these ownership interests are invested in Crystal
Financial. Crystal Financial is the general partner of Crystal Management LP. Despite being the general partner, Crystal Financial holds no economic interest in Crystal Management LP.
6. Members Capital
Crystal Financial has issued one class of limited liability company interests, referred to as units. Each unit entitles its holder to one vote
on all matters submitted to a vote of the members. Units purchased on the Acquisition Date were purchased at a fair value of $1,000 per unit. There were 280,126 units outstanding on December 31, 2013. Of this amount, Solar, through its
investment in Crystal Financial Holdings, owns 275,000 units and Crystal Financial employees, through their investment in Crystal Management LP, own the remaining 5,126 units.
The noncontrolling interest units contain put options which, upon exercise, require Crystal Financial to repurchase the outstanding unit at
the fair value of the unit, as defined in Crystal Financials Operating Agreement, on the date of exercise. As defined, the redemption value of the noncontrolling interest units, which also equals the fair value, as defined, totaled $5,485,468
at December 31, 2013.
7. Commitments and Contingencies
The Company is party to financial instruments with off-balance sheet risk including unused revolver commitments and delayed draw commitments to
certain borrowers. Aggregate commitments under these agreements at December 31, 2013 are $63,698,875. Of this amount, $16,211,175 is outstanding and included as a component of loans receivable on the accompanying consolidated balance sheets for
the respective period. These revolving credit agreements and delayed draw term loans have fixed expiration dates. The revolving credit agreements require payment of a monthly fee equal to a certain percentage times the unused portion of the
revolving line of credit. As the unfunded commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of credit that can be extended under each of the revolving
credit agreements and delayed draw term loan agreements is typically limited to the borrowers available collateral, which is used in calculating the borrowers borrowing base at the
14
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
time of a respective draw. Upon each draw, the Company ensures that the amount outstanding under these agreements does not exceed the available collateral of the borrower.
Effective January 1, 2013, certain employees of Crystal Financial, including members of management, entered into a long term incentive
plan agreement (the LTIP Agreement). In accordance with the terms of the LTIP Agreement, a bonus pool is calculated each calendar year and is based upon the achievement of certain operating results during the year. The bonus pool
calculated and earned for each fiscal year will be paid out two years after the year in which the bonus pool is calculated and earned. The calculated bonus pool is subject to a look-back calculation which could cause the amount that is ultimately
paid out to be less than the amount originally calculated. Fifty percent of the bonus pool paid will be payable in cash, with the remainder to be paid in fully-vested ownership units. The number of units to be granted will be determined based upon
the fair value of the units, as defined in Crystal Financials Operating Agreement, on the date the units are issued. Amounts recorded pursuant to the LTIP Agreement for the year ended December 31, 2013 are included as a component of
accrued expenses on the accompanying consolidated balance sheet and as a component of compensation and benefits expense on the accompanying consolidated statement of operations.
8. Fair Value of Financial Instruments
ASC 820, Fair Value Measurements (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1- inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2- inputs to the valuation methodology include quoted prices for similar assets and liabilities in active 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 3-
inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instruments
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
15
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
The following tables present recorded amounts of financial assets and liabilities measured at
fair value on a recurring basis as of December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Value in Consolidated Balance Sheet |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
$ |
|
|
|
$ |
|
|
|
$ |
370,435 |
|
|
$ |
370,435 |
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
580,703 |
|
|
|
580,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
951,138 |
|
|
$ |
951,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
$ |
|
|
|
$ |
|
|
|
$ |
368,439 |
|
|
$ |
368,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities recorded at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
368,439 |
|
|
$ |
368,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Companys derivative contracts are obtained from a third party and are subject to
review and oversight by management. They were determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, such as the period to maturity of each instrument. They
use observable and unobservable market based inputs, including interest rate curves and implied volatilities. In addition, the Company considered both its own and its counterpartys risk of nonperformance in determining the fair value of its
derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that both the Company and the counterparty were at risk for as of the valuation date. The credit risk of the Company
and its counterparty was factored into the calculation of the estimated fair value of the derivative contracts.
The following table
presents a summary of significant unobservable inputs and valuation techniques of the Companys Level 3 fair value measurements at December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Valuation Techniques |
|
|
Unobservable Input |
|
Range |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross- currency swaps |
|
$ |
370,435 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.13%-7.50% |
|
Forward contracts |
|
|
580,703 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.13%-7.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
951,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Valuation Techniques |
|
|
Unobservable Input |
|
Range |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross- currency swaps |
|
$ |
368,439 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.13%-7.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
368,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
The table below illustrates the change in balance sheet amounts during the year ended
December 31, 2013 for financial instruments measured on a recurring basis and classified by the Company as level 3 in the valuation hierarchy. When a determination is made to classify a financial instrument as level 3, the determination is
based upon the significance of the unobservable parameters to the overall fair value measurement. Level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components. Significant unobservable
inputs used in the valuation of the Companys derivative contracts include the Companys credit valuation adjustment as well as various pricing assumptions.
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
|
Forward contracts |
|
Fair value, December 31, 2012 |
|
$ |
(756,525 |
) |
|
$ |
|
|
Total gains or losses included in earnings: |
|
|
|
|
|
|
|
|
Net realized gain |
|
|
|
|
|
|
|
|
Net change in unrealized gain |
|
|
758,521 |
|
|
|
580,703 |
|
Transfers into Level 3 |
|
|
|
|
|
|
|
|
Transfers out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, December 31, 2013 |
|
$ |
1,996 |
|
|
$ |
580,703 |
|
|
|
|
|
|
|
|
|
|
The Companys financial instruments consist of cash, restricted cash, interest receivable, loans
receivable, its investment in Crystal Financial SBIC LP, derivative instruments and the revolving credit facility. Due to the short-term nature of the Companys cash, restricted cash and interest receivable, the carrying value approximates fair
value.
The Companys loans receivable are recorded at outstanding principal, net of any deferred fees and costs and unamortized
purchase discounts. If the Company elected the fair value option, the estimated fair value of the Companys loans receivable would be derived using among other things, a discounted cash flow methodology, that considers various factors including
the type of loan and related collateral, current market yields for similar debt investments, estimated cash flows, as well as a discount rate that reflects the Companys assessment of risk inherent in the cash flow estimates.
If the Company elected the fair value option, the estimated fair value of the Companys revolving credit facility at December 31,
2013 would approximate the carrying value. The fair value is estimated based on consideration of current market interest rates for similar debt instruments.
The following table presents the carrying amounts and estimated fair values of the Companys long-term financial instruments, at
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
454,387,509 |
|
|
$ |
454,400,000 |
|
Liabilities |
|
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
200,400,000 |
|
|
$ |
200,400,000 |
|
9. Recent Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board (FASB) issued guidance which clarifies that the scope of disclosures
about offsetting assets and liabilities required by Accounting Standards Codification (ASC) 210-20-50 applies to derivatives accounted for in accordance with ASC 815 including bifurcated
17
Crystal Capital Financial Holdings LLC
Notes to Consolidated Financial Statements
December 31, 2013
embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210-20-45
or ASC 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. This guidance was effective for fiscal years beginning on or after January 1, 2013. The adoption of this guidance did not have a material impact on
our consolidated financial statements.
In July 2012, the FASB issued ASU No. 2012-02, IntangiblesGoodwill and Other (Topic
350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than
not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity
is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with
the carrying amount in accordance with Codification Subtopic 350-30, IntangiblesGoodwill and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for
any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are
effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 did not have a material effect on the Companys results from operations or financial position.
10. Subsequent Events
The Company has evaluated subsequent events through February 14, 2014, the date which the financial statements were available to be
issued.
On January 29, 2014, the Company executed the eighth amendment to the amended and restated Credit Agreement (Note 4) which
increased the commitment on the Companys credit facility from $275,000,000 to $300,000,000.
18
Exhibit 99.8
Crystal Financial LLC
(A Delaware Limited Liability Company)
Consolidated Financial Statements
Years Ended December 31, 2014 and
December 31, 2013
Crystal Financial LLC
Consolidated Balance Sheets
December 31, 2014 and December 31, 2013
|
|
|
|
|
|
|
Page(s) |
|
Independent Auditors Report |
|
|
1 |
|
Consolidated Financial Statements |
|
|
|
|
Consolidated Balance Sheets |
|
|
2 |
|
Consolidated Statements of Operations |
|
|
3 |
|
Consolidated Statements of Changes in Redeemable Ownership Units and Members Equity |
|
|
4 |
|
Consolidated Statements of Cash Flows |
|
|
5 |
|
Notes to Consolidated Financial Statements |
|
|
619 |
|
McGladrey LLP
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Members of
Crystal Financial LLC
Boston, Massachusetts
Report on the Financial
Statements
We have audited the accompanying consolidated financial statements of Crystal Financial LLC and its subsidiaries (the Company)
which comprise the consolidated balance sheets of as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in redeemable ownership units and members equity, and cash flows for the years then ended,
and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these co nsolidated financial statements based on our audit. We conducted our audit in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
February 11, 2015
Crystal Financial LLC
Consolidated Balance Sheets
December 31, 2014 and December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25,446,274 |
|
|
$ |
10,004,252 |
|
Restricted cash |
|
|
2,753,732 |
|
|
|
16,077,862 |
|
Loan interest and fees receivable |
|
|
6,319,085 |
|
|
|
5,663,453 |
|
|
|
|
Loans |
|
|
477,151,249 |
|
|
|
454,387,509 |
|
Less: Unearned fee income |
|
|
(8,172,251 |
) |
|
|
(10,469,185 |
) |
Allowance for loan losses |
|
|
(9,170,878 |
) |
|
|
(8,056,417 |
) |
|
|
|
|
|
|
|
|
|
Total loans, net |
|
|
459,808,120 |
|
|
|
435,861,907 |
|
Fixed assets, net |
|
|
237,972 |
|
|
|
202,614 |
|
Tradename |
|
|
14,520,000 |
|
|
|
14,520,000 |
|
Goodwill |
|
|
5,156,542 |
|
|
|
5,156,542 |
|
Investment in Crystal Financial SBIC LP |
|
|
16,103,011 |
|
|
|
7,447,745 |
|
Loan to Crystal Financial SBIC LP |
|
|
6,200,000 |
|
|
|
|
|
Other assets |
|
|
5,707,447 |
|
|
|
4,119,499 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
542,252,183 |
|
|
$ |
499,053,874 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
259,698,167 |
|
|
$ |
200,400,000 |
|
Accrued expenses |
|
|
8,331,112 |
|
|
|
8,111,032 |
|
Distributions payable |
|
|
8,047,266 |
|
|
|
8,149,131 |
|
Other liabilities |
|
|
1,499,000 |
|
|
|
1,667,261 |
|
Collateral held for borrower obligations |
|
|
537,063 |
|
|
|
12,409,666 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
278,112,608 |
|
|
|
230,737,090 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 6) |
|
|
|
|
|
|
|
|
Redeemable ownership units (Note 2) |
|
$ |
5,592,396 |
|
|
$ |
5,484,097 |
|
|
|
|
|
|
|
|
|
|
Members equity: |
|
|
|
|
|
|
|
|
Class A units |
|
|
273,885,845 |
|
|
|
273,885,845 |
|
Accumulated deficit |
|
|
(15,338,666 |
) |
|
|
(11,053,158 |
) |
|
|
|
|
|
|
|
|
|
Total members equity |
|
|
258,547,179 |
|
|
|
262,832,687 |
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable ownership units and members equity |
|
$ |
542,252,183 |
|
|
$ |
499,053,874 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
2
Crystal Financial LLC
Consolidated Statements of Operations
Years Ended December 31, 2014 and December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Net interest income: |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
54,158,996 |
|
|
$ |
52,513,907 |
|
Interest expense |
|
|
7,252,309 |
|
|
|
7,412,174 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
46,906,687 |
|
|
|
45,101,733 |
|
Provision for loan losses |
|
|
7,057,151 |
|
|
|
2,338,441 |
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
39,849,536 |
|
|
|
42,763,292 |
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
Interest in earnings (loss) of equity method investee |
|
|
1,967,818 |
|
|
|
(190,373 |
) |
Other income |
|
|
|
|
|
|
1,723,680 |
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
1,967,818 |
|
|
|
1,533,307 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
10,265,045 |
|
|
|
11,990,890 |
|
Occupancy and equipment |
|
|
756,061 |
|
|
|
755,010 |
|
General and administrative expenses |
|
|
3,271,290 |
|
|
|
2,867,834 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
14,292,396 |
|
|
|
15,613,734 |
|
|
|
|
|
|
|
|
|
|
Realized loss from foreign currency transactions, net |
|
|
(1,500,484 |
) |
|
|
(1,666,503 |
) |
Realized gain from hedging, net |
|
|
677,066 |
|
|
|
1,424,731 |
|
Unrealized loss from foreign currency translations, net |
|
|
(358,993 |
) |
|
|
(1,779,351 |
) |
Unrealized gain from hedging, net |
|
|
854,397 |
|
|
|
1,392,183 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
27,196,944 |
|
|
$ |
28,053,925 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial statements.
3
Crystal Financial LLC
Consolidated Statements of Changes in Redeemable Ownership Units and Members Equity
Years Ended December 31, 2014 and December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Equity |
|
|
Total Redeemable Ownership Units and Members Equity |
|
|
|
Redeemable Ownership Units |
|
|
Class A Units |
|
|
Accumulated Deficit |
|
|
Total Members Equity |
|
|
Balance, December 31, 2012 |
|
$ |
3,991,114 |
|
|
$ |
273,885,845 |
|
|
$ |
(6,417,545 |
) |
|
$ |
267,468,300 |
|
|
$ |
271,459,414 |
|
Distributions |
|
|
|
|
|
|
|
|
|
|
(32,331,804 |
) |
|
|
(32,331,804 |
) |
|
|
(32,331,804 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
28,053,925 |
|
|
|
28,053,925 |
|
|
|
28,053,925 |
|
Issuance of redeemable ownership units |
|
|
1,135,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,135,249 |
|
Adjustment of redeemable ownership units to redemption value |
|
|
357,734 |
|
|
|
|
|
|
|
(357,734 |
) |
|
|
(357,734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
|
5,484,097 |
|
|
|
273,885,845 |
|
|
|
(11,053,158 |
) |
|
|
262,832,687 |
|
|
|
268,316,784 |
|
Distributions |
|
|
|
|
|
|
|
|
|
|
(31,374,153 |
) |
|
|
(31,374,153 |
) |
|
|
(31,374,153 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
27,196,944 |
|
|
|
27,196,944 |
|
|
|
27,196,944 |
|
Adjustment of redeemable ownership units to redemption value |
|
|
108,299 |
|
|
|
|
|
|
|
(108,299 |
) |
|
|
(108,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 |
|
$ |
5,592,396 |
|
|
$ |
273,885,845 |
|
|
$ |
(15,338,666 |
) |
|
$ |
258,547,179 |
|
|
$ |
264,139,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial statements.
4
Crystal Financial LLC
Consolidated Statements of Cash Flows
Years Ended December 31, 2014 and December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
27,196,944 |
|
|
$ |
28,053,925 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
7,057,151 |
|
|
|
2,338,441 |
|
Amortization of unearned fee income |
|
|
(8,190,039 |
) |
|
|
(2,718,126 |
) |
Accretion of purchase price discount |
|
|
(844,184 |
) |
|
|
(1,274,832 |
) |
Depreciation and amortization |
|
|
146,523 |
|
|
|
78,743 |
|
Paid-in-kind interest and fee income |
|
|
(528,251 |
) |
|
|
(563,710 |
) |
Interest in earnings of equity method investee |
|
|
(1,967,818 |
) |
|
|
190,373 |
|
Unrealized loss on foreign currency transactions |
|
|
358,993 |
|
|
|
1,779,351 |
|
Unrealized gain on hedging transactions |
|
|
(854,397 |
) |
|
|
(1,392,183 |
) |
Proceeds received at settlement of hedge contracts |
|
|
591,141 |
|
|
|
1,330,128 |
|
Payments made at settlement of hedge contracts |
|
|
(657,809 |
) |
|
|
(284,510 |
) |
Net change in loan interest and fees receivable |
|
|
(616,169 |
) |
|
|
(2,076,421 |
) |
Net change in other assets |
|
|
(1,555,854 |
) |
|
|
2,101,040 |
|
Net change in unearned fees |
|
|
6,670,279 |
|
|
|
13,000,543 |
|
Net change in accrued expenses |
|
|
220,080 |
|
|
|
7,254,549 |
|
Net change in other liabilities |
|
|
1,059,587 |
|
|
|
(13,569,018 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
28,086,177 |
|
|
|
34,248,293 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of fixed assets |
|
|
(120,263 |
) |
|
|
(206,264 |
) |
Investment in loans |
|
|
(262,402,770 |
) |
|
|
(349,228,572 |
) |
Repayment of term loans |
|
|
232,842,151 |
|
|
|
264,049,358 |
|
Lending on revolving lines of credit, net |
|
|
(1,129,451 |
) |
|
|
20,320,824 |
|
Net change in restricted cash |
|
|
13,323,298 |
|
|
|
(13,352,283 |
) |
Lending on loan to Crystal Financial SBIC LP, net |
|
|
(6,200,000 |
) |
|
|
|
|
Investment in Crystal Financial SBIC LP |
|
|
(6,687,448 |
) |
|
|
(7,638,118 |
) |
Net change in collateral held for borrower obligations |
|
|
(11,872,603 |
) |
|
|
11,628,511 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(42,247,086 |
) |
|
|
(74,426,544 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings on revolving credit facility, net |
|
|
61,209,388 |
|
|
|
57,650,000 |
|
Distributions to members |
|
|
(31,476,018 |
) |
|
|
(24,182,673 |
) |
Issuance of redeemable ownership units |
|
|
|
|
|
|
1,135,249 |
|
Payment of debt issue costs |
|
|
(125,426 |
) |
|
|
(99,444 |
) |
Payment of capital lease obligations |
|
|
(5,013 |
) |
|
|
(4,659 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
29,602,931 |
|
|
|
34,498,473 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
15,442,022 |
|
|
|
(5,679,778 |
) |
Cash and cash equivalents at beginning of year |
|
|
10,004,252 |
|
|
|
15,684,030 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
25,446,274 |
|
|
$ |
10,004,252 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
7,012,923 |
|
|
$ |
7,415,351 |
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
1. Organization
Crystal Financial LLC (Crystal Financial or the Company), along with its wholly owned subsidiary, Crystal Financial SPV
LLC (Crystal Financial SPV), is a commercial finance company that primarily originates, underwrites, and manages secured debt to middle market companies within various industries. The Company was formed in the state of Delaware on
March 18, 2010.
The outstanding ownership units of Crystal Financial are held by two separate entities, Crystal Capital Financial
Holdings LLC (Crystal Financial Holdings) and Crystal Management LP. Crystal Financial Holdings is a single-member LLC with Solar Capital Ltd. (Solar) having sole ownership of the entity. Crystal Management LP is owned by
various employees of Crystal Financial. As of December 31, 2014, Crystal Financial Holdings owns approximately 98.2% of the outstanding ownership interest in Crystal Financial and Crystal Management LP owns the remaining 1.8%.
The Company is based in Boston, Massachusetts with offices and employees in Atlanta, Georgia and Los Angeles, California.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies adopted by the Company:
Basis of Accounting
The accompanying
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
Principles of Consolidation
The
consolidated financial statements include the accounts of Crystal Financial and its wholly-owned subsidiary Crystal Financial SPV. All inter-company investments, accounts and transactions have been eliminated in these consolidated financial
statements.
Use of Estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates most susceptible to change include the allowance for loan losses, the valuation of intangible assets as determined during impairment
testing and the fair value of the Companys derivative instruments. Actual results could differ materially from those estimates.
Reclassification
Certain prior period amounts may have been reclassified to conform to the current period presentation.
Cash and Cash Equivalents
The Company
considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held no cash equivalents at December 31, 2014 or December 31,
6
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
2013. Cash includes all deposits held at banks. Deposits in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC) are exposed to loss in the event of
nonperformance by the institution. The Company has had cash deposits in excess of the FDIC insurance coverage. The Company has not experienced any losses on such accounts.
Restricted Cash
Restricted cash consists
of interest and fees collected on those loans held within Crystal Financial SPV that serve as collateral against the Companys outstanding line of credit. Upon receipt, these funds are restricted from the Companys access until the
fifteenth of the following month. Also included in restricted cash may be funds that serve as collateral against loans outstanding to certain borrowers as well as funds that serve as collateral to outstanding letters of credit, some of which may be
issued by the Company on behalf of certain borrowers.
Loans
The Company typically classifies all loans as held to maturity. Loans funded by the Company are recorded at the amount of unpaid principal, net
of unearned fees, discounts and the allowance for loan losses in the Companys consolidated balance sheets.
Interest income is
recorded on the accrual basis in accordance with the terms of the respective loan. Interest is not accrued on loans with interest or principal payments 90 days or greater past due or on other loans when management believes collection is doubtful.
Loans considered impaired, as defined below, are nonaccruing. When a loan is placed on nonaccrual status, all interest previously accrued, but not collected, is reversed against current interest income and all future proceeds received will generally
be applied against principal or interest, in the judgment of management. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to the accrual status
when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. At December 31, 2014 and December 31, 2013, there are no past due interest or principal payments and the Company
did not have any loans on nonaccrual status.
A loan is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. All loans are individually evaluated for impairment according to the Companys normal loan review process, including
overall credit evaluation, nonaccrual status and payment experience. Loans identified as impaired are further evaluated to determine the estimated extent of impairment. At December 31, 2014 and December 31, 2013, the Company has not
classified any loans as impaired.
Allowance for Loan Losses
The allowance for loan losses is maintained at the amount estimated to be sufficient to absorb probable losses, net of recoveries, inherent in
the loan portfolio at year end. Internal credit ratings assigned to loans are periodically evaluated and adjusted to reflect the current credit risk of the loan. In accordance with applicable guidance, management assigns a general loan allowance
based on the borrowers overall risk rating for loans not deemed to be impaired. All loans in the Companys portfolio are individually evaluated when determining the overall risk rating. The risk ratings are derived upon consideration of a
number of factors related to both the borrower and the borrowers facility, with those factors related to the borrowers facility being the key determinant of the overall risk rating. Risk factors of the borrower that are considered
include asset and earnings quality, historical and projected financial performance, borrowing liquidity and/or access to capital. Risk factors
7
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
of the facility that are considered include collateral coverage and the facilitys position within the overall capital structure. Upon consideration of each of the aforementioned factors,
among others, the Company assigns each loan an obligor risk rating and a facility risk rating, which are then collectively used in developing the overall risk rating. The overall risk rating corresponds with an applicable reserve percentage which is
applied to the face value of the loan in order to determine the Companys allowance for loan losses. In establishing the applicable reserve percentages, the Company considers various factors including historical industry loss experience, the
credit profile of the Companys borrowers as well as economic trends and conditions.
Specific allowances for loan losses on impaired
loans are typically measured based on a comparison of the recorded carrying value of the loan to the present value of the loans expected cash flow using the loans effective interest rate, the loans estimated market price or the
estimated fair value of the underlying collateral, if the loan is collateral-dependent. A specific reserve is applied when loans are assigned risk ratings at or above a specific threshold. Loans are charged off against the allowance at the earlier
of either the substantial completion of the liquidation of assets securing the loan, or when senior management deems the loan to be permanently impaired.
During 2014, the Company applied a specific allowance against a loan that was placed on non-accrual status and considered to be impaired. Upon
determination that the portion of the loan that was specifically reserved for was not collectible, the specific allowance was written off against the loan, thereby reducing the Companys carrying value of the loan. The balance of the loan that
was not written off, totaling $2,143,400 at December 31, 2014, is deemed to be collectible and is recorded as a component of Other assets on the accompanying consolidated balance sheet.
Because the loan that was specifically reserved for during 2014 was charged off prior to year end, at both December 31, 2014 and
December 31, 2013, the Company has not classified any loans as impaired and no specific reserve for impaired loans was required.
Depending on the assigned internal risk rating, loans are classified as either Pass or Criticized. Generally, once a loan is classified as
Criticized, a specific reserve analysis is required. At December 31, 2014 and December 31, 2013, no loans were classified as Criticized.
The Company also maintains an allowance on unused revolver commitments. At December 31, 2014 and December 31, 2013, an allowance of
$386,466 and $376,062, respectively, was recorded relating to unused revolver commitments. This amount is recorded as a component of other liabilities on the Companys consolidated balance sheets with changes recorded in the provision for loan
losses on the Companys consolidated statements of operations. The methodology for determining the allowance for unused revolver commitments is consistent with the methodology used for determining the allowance for loan losses with the
exception that only 40% of the applicable reserve percentage is applied against the unused commitments.
8
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
The summary of changes in the allowance for loan losses relating to funded commitments for
the year ended December 31, 2014 and December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014 |
|
|
|
Revolvers |
|
|
Term Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
298,922 |
|
|
$ |
7,757,495 |
|
|
$ |
8,056,417 |
|
Provision for loan losses- general |
|
|
5,876,611 |
|
|
|
1,170,136 |
|
|
|
7,046,747 |
|
Charge- offs, net of recoveries |
|
|
(5,932,286 |
) |
|
|
|
|
|
|
(5,932,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
243,247 |
|
|
$ |
8,927,631 |
|
|
$ |
9,170,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period- general |
|
$ |
243,247 |
|
|
$ |
8,927,631 |
|
|
$ |
9,170,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated with general allowance |
|
$ |
10,198,355 |
|
|
$ |
466,952,894 |
|
|
$ |
477,151,249 |
|
Loans individually evaluated with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
10,198,355 |
|
|
$ |
466,952,894 |
|
|
$ |
477,151,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 |
|
|
|
Revolvers |
|
|
Term Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
657,348 |
|
|
$ |
5,237,829 |
|
|
$ |
5,895,177 |
|
Provision for loan losses- general |
|
|
(358,426 |
) |
|
|
2,519,666 |
|
|
|
2,161,240 |
|
Charge- offs, net of recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
298,922 |
|
|
$ |
7,757,495 |
|
|
$ |
8,056,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period- general |
|
$ |
298,922 |
|
|
$ |
7,757,495 |
|
|
$ |
8,056,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated with general allowance |
|
$ |
16,211,175 |
|
|
$ |
438,176,334 |
|
|
$ |
454,387,509 |
|
Loans individually evaluated with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
16,211,175 |
|
|
$ |
438,176,334 |
|
|
$ |
454,387,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Financing Fees
Deferred financing fees represent fees and other direct incremental costs incurred in connection with the Companys borrowings against its
revolving credit facility (Note 3). These amounts are amortized using the straight-line method into earnings as interest expense ratably over the contractual term of the facility. Net deferred financing fees totaled $244,096 and $179,544 at
December 31, 2014 and December 31, 2013 and are included as a component of other assets on the accompanying consolidated balance sheets.
Tradename Intangible Asset
The Company
was acquired by the current unit-holders on December 28, 2012 (the Acquisition Date). On the Acquisition Date, identified intangible assets included $14,520,000 related to the Crystal Financial tradename. The tradename has an
indefinite life and therefore is not amortized. The Company reviews its intangible assets for impairment on an annual basis, at the end of the third quarter, or whenever events or changes in circumstances indicate that the book value of the asset
may not be recoverable. When considering whether or not the tradename is impaired, the Company utilizes both qualitative and quantitative factors. The qualitative
9
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
assessment involves determining whether events or circumstances exist that indicate that it is more likely than not that the intangible asset is impaired. If the qualitative assessment indicates
that it is more likely than not that the intangible asset is impaired, or if the Company elects to not perform a qualitative assessment, then a quantitative assessment is performed, in which the Company is required to perform a recoverability test.
An intangible asset is considered impaired if the carrying value of the asset exceeds the sum of the future undiscounted cash flows generated by the asset. The impairment is then measured as the excess of the carrying value of the asset over the
undiscounted future cash flows. This method incorporates various estimates and judgments. As of December 31, 2014 and December 31, 2013, the Company has not recorded any impairment against its tradename intangible asset.
Goodwill
In connection with the
acquisition, the Company recorded goodwill equal to the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Goodwill recognized on the Acquisition Date totaled $5,156,542. The Company assesses the
realizability of goodwill annually at the end of the third quarter, or more frequently if events or circumstances indicate that impairment may exist.
The Company assesses whether goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment
involves determining whether events or circumstances exist that indicate that it is more likely than not that the fair value of the reporting unit, which has been determined to be the Company as a whole, is less than its carrying amount. If the
qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or if the Company elects to not perform a qualitative assessment, then a quantitative assessment, or two-step
impairment test, is performed.
As part of the step one testing for goodwill impairment, the fair value of the reporting unit is estimated
by applying weighted percentages to the calculated fair values of the Company derived using both the income and market approaches. Under the income approach, the fair value is determined using a discounted cash flow analysis, which involves
significant estimates and assumptions, including market conditions, discount rates, and projections of future cash flows. Using the market approach, the fair value is estimated by using comparable publicly traded companies, whose values are known,
as a benchmark to establish an estimate of a multiple that is then applied to the Company.
Step two of the goodwill impairment test, used
to measure the amount of impairment loss, if any, compares the implied fair value of the reporting units goodwill with the carrying amount of the goodwill. If the carrying amount of the goodwill exceeds the implied fair value, an impairment
loss is recognized in an amount equal to the excess.
For the years ended December 31, 2014 and December 31, 2013, the step one
testing for goodwill impairment indicated that the fair value of the reporting unit exceeded its carrying value. As such, no impairment was recorded.
Interest Income
Interest income is
recorded on the accrual basis to the extent that such amounts are expected to be collected. In accordance with the Companys policy, accrued interest is evaluated periodically for collectability. The Company stops accruing interest on loans
when it is determined that interest is no longer collectible. All interest is deemed to be collectible at December 31, 2014 and December 31, 2013.
10
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
Fee Income Recognition
When assessing the fair value of the assets acquired as of the Acquisition Date, the fair value of the Companys loan portfolio was
determined to be at a slight discount to face value. This discount is being accreted into income and is added to the value of the respective loan over the contractual life of the loan using the effective interest method. Income related to the
accretion of the discount is included as a component of interest income on the consolidated statements of operations.
Nonrefundable loan
fees associated with the origination or purchase of loans are deferred and included in loans, net, in the consolidated balance sheets. These commitment fees, as well as certain other fees charged to borrowers, such as amendment and prepayment fees,
are recorded in interest income, after receipt, over the remaining life of the loan using a method which approximates the interest method. Unused line fees are recorded in interest income when received.
Property and Equipment
Property and
equipment includes furniture and fixtures, computer equipment and software, which are carried at cost. Such items are depreciated or amortized on a straight-line basis over the following useful lives:
|
|
|
Furniture and fixtures |
|
5-7 years |
Computer equipment |
|
3-5 years |
Computer software |
|
3 years |
Leasehold improvements |
|
shorter of remaining lease term or the assets estimated useful life |
The cost basis of the Companys capital lease, furniture and fixtures, computer equipment, computer
software and leasehold improvements was $13,675, $26,954, $156,345, $63,967, and $133,955 at December 31, 2014 and $8,663, $18,295, $137,066, $28,012, and $82,595 at December 31, 2013. Depreciation expense of $84,906 and $71,528 was
recognized during the years ended December 31, 2014 and December 31, 2013 and is included as a component of occupancy and equipment expenses on the accompanying consolidated statements of operations. Accumulated depreciation at
December 31, 2014 and December 31, 2013 totaled $156,923 and $72,017, respectively.
Redeemable Ownership Units
Certain of the Companys ownership units contain put options which are not legally detachable or separately exercisable. As the exercise
of these options is not entirely within the control of the Company, the units are recorded as redeemable ownership units within temporary equity, in the accompanying consolidated financial statements.
These units are recorded at the greater of their carrying value or their redemption value, which is determined as the fair value of the units,
as defined in the Crystal Financial Operating Agreement, as of the balance sheet dates. Changes in the redemption value of these units are recorded as a component of redeemable ownership units, with the offset recorded to retained earnings, in the
accompanying consolidated financial statements.
Foreign Currency
The functional currency of the Company is the US Dollar. At December 31, 2014 and December 31, 2013, the Company had three foreign
currency denominated loans in its portfolio. During 2014, the Company began to
11
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
borrow foreign currency denominated funds under its revolving line of credit (Note 3). Gains and losses arising from exchange rate fluctuations on transactions denominated in currencies other
than the US Dollar are included in earnings as incurred. The Company recorded unrealized losses on foreign currency translations of $358,993 and $1,779,351 and realized losses of $1,500,484 and $1,666,503 during the years ended December 31,
2014 and December 31, 2013, respectively.
Derivative Instruments and Hedging Activities
The Company records the fair value of its derivative instruments in the accompanying consolidated balance sheets at their fair values (Note 7).
The Companys policy is to not designate the hedge transactions that it enters into as effective hedges. As such, changes in the fair value of the instruments are recorded as a component of earnings in the consolidated statements of operations.
At December 31, 2014, the Company has one derivative instrument, a forward contract, in place to hedge the risk of foreign exchange
fluctuations on one of the foreign currency denominated loans in its portfolio. The forward contract hedges the principal to be exchanged at maturity of the loan. At December 31, 2013, the Company was party to three cash flow hedges. Two
of the three hedges were cross-currency swaps whereby the Company had hedged both the foreign denominated principal and interest payments owed from the borrower. The third hedge was a forward contract. The counterparty for each of the Companys
derivative instruments is Deutsche Bank AG.
The Company accounts for these derivative transactions until the contract expires or is
terminated. At expiration or termination, the gain or loss on the transaction is recorded as a component of realized gain or loss from hedging.
The following table details the derivative instruments outstanding at December 31, 2014 and December 31, 2013:
December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract |
|
Notional Amount |
|
Balance Sheet Location |
|
Fair Value |
|
|
Change in Unrealized Gain (Loss) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Forward contract |
|
CAD 22,500,000 |
|
Other assets |
|
$ |
2,180,830 |
|
|
$ |
1,600,127 |
|
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract |
|
Notional Amount |
|
Balance Sheet Location |
|
Fair Value |
|
|
Change in Unrealized Gain (Loss) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swap |
|
CAD 13,000,000 |
|
Other assets |
|
$ |
370,435 |
|
|
$ |
847,185 |
|
Forward contract |
|
CAD 22,500,000 |
|
Other assets |
|
|
580,703 |
|
|
|
588,927 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swap |
|
EUR 4,410,880 |
|
Other liabilities |
|
$ |
(368,439 |
) |
|
$ |
(96,888 |
) |
12
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
Distributions
Distributions to members are recorded as of the date of declaration and are approved by the Companys Board of Managers. Distributions
totaling $8,047,266 and $8,149,131 had been declared by the Company at December 31, 2014 and December 31, 2013, respectively, but were not paid until subsequent to year end.
Income Taxes
The members of Crystal
Financial are individually liable for the taxes, if any, on their share of Crystal Financials income and expenses.
The Company has
adopted Financial Accounting Standards Board (FASB) Accounting Standard Codification 740-10 (ASC 740-10), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Accounting Standard Codification 740. ASC
740-10 provides a comprehensive model for the recognition, measurement and disclosure of uncertain income tax positions. The Company recognizes the tax effect of certain tax positions when it is more likely than not that the tax position will
sustain upon examination, based solely on the technical merits of the tax position. As of December 31, 2014 and December 31, 2013, the Company does not have any uncertain tax positions that meet the recognition or measurement criteria of
ASC 740-10.
The Company files U.S. federal and state income tax returns. As of December 31, 2014, all of the Companys returns,
beginning with the initial return filed by the Company for the period ending December 31, 2012, are subject to examination by the Internal Revenue Service and state tax authorities.
3. Debt Obligations and Financings
Revolving Credit Facility
On May 12,
2011, the Company entered into a Loan Financing and Servicing Agreement (the Credit Agreement) with Deutsche Bank AG (the Lender) in the form of a revolving credit facility. In 2013, the Lender assigned a portion of its
commitment to Citibank, N.A. (together with Deutsche Bank AG, the Lenders).
In 2014, the Company amended the Credit
Agreement. Among other things, these amendments increased the commitment on the credit facility from $275,000,000 to $300,000,000 and established a foreign currency sub-facility which provides the Company with the ability to borrow up to the USD
equivalent of $60,000,000 in foreign denominated funds.
The amount available to borrow under the facility is the lesser of
(a) $300,000,000 or (b) the amount calculated and available per the Borrowing Base, as defined in the Credit Agreement. Borrowings under the facility bear interest at a weighted average rate of 3.40% plus the Lenders cost of funds,
as defined in the Credit Agreement. The Company also pays an undrawn fee on unfunded commitments, an administrative agent fee, and a foreign exchange lender fee. At December 31, 2014, the USD equivalent of all borrowings outstanding under the
facility totaled $259,698,167. At December 31, 2013, there was $200,400,000 outstanding under the facility.
13
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
A summary of foreign denominated borrowings at December 31, 2014 is below. There were no
foreign denominated borrowings at December 31, 2013. Amounts are included in the total facility borrowings, as disclosed on the accompanying consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency |
|
Local Currency Amount |
|
|
Initial USD Value |
|
|
Current Value |
|
|
Unrealized Gain (Loss) |
|
Euro |
|
|
15,760,441 |
|
|
$ |
20,160,914 |
|
|
$ |
19,135,697 |
|
|
$ |
1,025,217 |
|
Canadian Dollar |
|
|
CAD 13,000,000 |
|
|
|
11,957,322 |
|
|
|
11,206,000 |
|
|
|
751,322 |
|
Canadian Dollar |
|
|
CAD 4,705,882 |
|
|
|
4,191,153 |
|
|
|
4,056,471 |
|
|
|
134,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,309,389 |
|
|
$ |
34,398,168 |
|
|
$ |
1,911,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining capacity under the facility at December 31, 2014, subject to borrowing base constraints, totals
$40,301,833. The facility terminates on the earlier of November 15, 2017 or upon the occurrence of a Facility Termination Event, as defined in the Credit Agreement.
Commencing on August 15, 2016 and continuing every three months until the facilitys termination date, the Company may be required
to make principal pay-downs on certain amounts outstanding. The amount to be paid down is contingent upon the future amount outstanding as well as the amount of future non-mandatory prepayments made on the credit facility.
Cash, as well as those of the Companys loans that are held within Crystal Financial SPV, serve as collateral against the facility. At
December 31, 2014 and December 31, 2013 the amount of cash and the face value of loans pledged as collateral were $20,241,138 and $467,733,697 and $8,488,605 and $443,884,863, respectively. Under the facility, the Company has made certain
customary representations and warranties, and is required to comply with various covenants, reporting requirements, and other customary requirements for similar credit facilities. The Credit Agreement includes usual and customary events of default
for credit facilities of this nature. The Company was in compliance with all covenants at December 31, 2014 and December 31, 2013.
Operating
and Capital Leases
The Company leases office space and equipment under various operating and capital lease agreements. Future minimum
lease commitments under these leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
Capital Leases |
|
2015 |
|
$ |
719,985 |
|
|
$ |
5,232 |
|
2016 |
|
|
732,310 |
|
|
|
|
|
2017 |
|
|
431,375 |
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,883,670 |
|
|
|
5,232 |
|
|
|
|
|
|
|
|
|
|
Less: Amount representing interest |
|
|
|
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital lease payments Including current maturities of $5,012 |
|
|
|
|
|
$ |
5,012 |
|
|
|
|
|
|
|
|
|
|
14
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
4. Related Party Activity
Investment in Crystal Financial SBIC LP
On March 15, 2013, Crystal Financial committed $50,750,000 of capital to Crystal Financial SBIC LP (the Fund) in exchange for
a 65.91% limited partner interest. Crystal Financial SBIC LP was established to operate as a small business investment company under the Small Business Investment Company (SBIC) Act. The managing members of the Funds general
partner, Crystal SBIC GP LLC (the General Partner), are also members of Crystal Financials management team and hold ownership interests in Crystal Financial LLC through their investments in Crystal Management LP. Crystal Financial
and the General Partner have entered into a Services Agreement whereby Crystal Financial provides certain administrative services to the General Partner in exchange for a waiver of the quarterly management fee owed by the Funds limited
partners to the General Partner. Crystal Financial has also entered into a Loan Agreement with the Fund in order to meet short term capital needs. At December 31, 2014, $6,200,000 remains outstanding on the Loan Agreement. There were no amounts
outstanding on the Loan Agreement at December 31, 2013. Amounts outstanding on the Loan Agreement accrue interest at Libor plus 4.00%, up to a maximum of 5.00%. Interest income earned on this facility by Crystal Financial totaled $81,130 and
$1,158 during 2014 and 2013, respectively. The Loan Agreement expires on June 18, 2015 and is subject to be extended or renewed at the sole discretion of the Company.
The Company accounts for its limited partner interest in the Fund as an equity method investment in the accompanying consolidated financial
statements. Crystal Financial contributed $6,687,448 to the Fund during 2014 and $7,638,118 to the Fund during 2013. In accordance with the equity method of accounting, the Company was allocated net income from the Fund totaling $1,967,818 during
2014 and was allocated $190,373 of the Funds net loss during 2013. These amounts represent the Companys allocation of the Funds net income or net loss in accordance with the Funds Limited Partnership Agreement. Crystal
Financials investment in the Fund is recorded as Investment in Crystal Financial SBIC LP in the accompanying consolidated balance sheets and its share of earnings and losses are recorded as Interest in earnings (loss) of equity method investee
on the consolidated statements of operations.
Crystal Management LP
Crystal Management LP was formed on December 9, 2013 under the laws of the state of Delaware. In accordance with the executed Limited
Partnership Agreement, dated December 31, 2013, the primary purpose of Crystal Management LP is to maintain the ownership interests of Crystal Financial employees. Through Crystal Management LP, these ownership interests are invested in the
Company. Crystal Financial is the general partner of Crystal Management LP. Despite being the general partner, Crystal Financial holds no economic interest in Crystal Management LP.
5. Members Capital
Crystal Financial has issued one class of limited liability company interests, referred to as units. Each unit entitles its holder to one vote
on all matters submitted to a vote of the members. Units purchased on the Acquisition Date were purchased at a fair value of $1,000 per unit. There were 280,126 units outstanding on both December 31, 2014 and December 31, 2013. Of this
amount, Solar, through its investment in Crystal Financial Holdings, owns 275,000 units and Crystal Financial employees, through their investment in Crystal Management LP, own the remaining 5,126 units.
The individual employees ownership units contain put options which, upon exercise, require Crystal Financial to repurchase the
outstanding unit at the fair value of the unit, as defined in Crystal Financials
15
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
Operating Agreement, on the date of exercise. As defined, the redemption value of the redeemable units, which also equals the fair value, as defined, totaled $5,592,396 and $5,484,097 at
December 31, 2014 and December 31, 2013, respectively.
6. Commitments and Contingencies
The Company is party to financial instruments with off-balance sheet risk including unused revolver commitments and delayed draw commitments to
certain borrowers. Aggregate commitments under these agreements at December 31, 2014 and December 31, 2013 total $56,488,627 and $63,698,875. Of these amounts, $10,198,355 and $16,211,175 is outstanding and included as a component of loans
receivable on the accompanying consolidated balance sheets for each respective period. These revolving credit agreements and delayed draw term loans have fixed expiration dates. The revolving credit agreements require payment of a monthly fee equal
to a certain percentage times the unused portion of the revolving line of credit. As the unfunded commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of
credit that can be extended under each of the revolving credit agreements and delayed draw term loan agreements is typically limited to the borrowers available collateral, which is used in calculating the borrowers borrowing base at the
time of a respective draw.
Effective January 1, 2013, certain employees of Crystal Financial, including members of management,
entered into a long term incentive plan agreement (the LTIP Agreement). In accordance with the terms of the LTIP Agreement, a bonus pool is calculated each calendar year and is based upon the achievement of certain operating results
during the year. The bonus pool calculated and earned for each fiscal year will be paid out two years after the year in which the bonus pool is calculated and earned. The calculated bonus pool is subject to a look-back calculation which could
cause the amount that is ultimately paid out to be less than the amount originally calculated. Fifty percent of the bonus pool paid will be payable in cash, with the remainder to be paid in fully-vested ownership units. The number of units to
be granted will be determined based upon the fair value of the units, as defined in Crystal Financials Operating Agreement, on the date the units are issued. Amounts recorded pursuant to the LTIP Agreement during the years ended
December 31, 2014 and December 31, 2013 are included as a component of accrued expenses on the accompanying consolidated balance sheets and as a component of compensation and benefits expense on the accompanying consolidated statements of
operations.
7. Fair Value of Financial Instruments
ASC 820, Fair Value Measurements (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1- inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2- inputs to the valuation methodology include quoted prices for similar assets and liabilities in active 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 3-
inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instruments
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
16
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
The following tables present recorded amounts of financial assets and liabilities measured at
fair value on a recurring basis as of December 31, 2014 and December 31, 2013.
December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total Carrying Value in Consolidated Balance Sheet |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contract |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,180,830 |
|
|
$ |
2,180,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,180,830 |
|
|
$ |
2,180,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total Carrying Value in Consolidated Balance Sheet |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
$ |
|
|
|
$ |
|
|
|
$ |
370,435 |
|
|
$ |
370,435 |
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
580,703 |
|
|
|
580,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
951,138 |
|
|
$ |
951,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
$ |
|
|
|
$ |
|
|
|
$ |
368,439 |
|
|
$ |
368,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities recorded at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
368,439 |
|
|
$ |
368,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Companys derivative contracts are obtained from a third party and are subject to
review and oversight by management. They were determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, such as the period to maturity of each instrument. They
use observable and unobservable market based inputs, including interest rate curves and implied volatilities. In addition, the Company considered both its own and its counterpartys risk of nonperformance in determining the fair value of its
derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that both the Company and the counterparty were at risk for as of the valuation date. The credit risk of the Company
and its counterparty was factored into the calculation of the estimated fair value of the derivative contracts.
The following tables
present a summary of significant unobservable inputs and valuation techniques of the Companys Level 3 fair value measurements at December 31, 2014 and December 31, 2013.
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Valuation Techniques |
|
|
Unobservable Input |
|
Range |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
$ |
2,180,830 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.11%-7.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Valuation Techniques |
|
|
Unobservable Input |
|
Range |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross- currency swaps |
|
$ |
370,435 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.13%-7.50% |
|
Forward contracts |
|
|
580,703 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.13%-7.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
951,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Valuation Techniques |
|
|
Unobservable Input |
|
Range |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross- currency swaps |
|
$ |
368,439 |
|
|
|
Valuation model |
|
|
Crystal Financials cost of debt |
|
|
6.13%-7.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below illustrate the change in balance sheet amounts during the years ended December 31, 2014
and December 31, 2013 for financial instruments measured on a recurring basis and classified by the Company as level 3 in the valuation hierarchy. When a determination is made to classify a financial instrument as level 3, the determination is
based upon the significance of the unobservable parameters to the overall fair value measurement. Level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components. Significant unobservable
inputs used in the valuation of the Companys derivative contracts include the Companys credit valuation adjustment as well as various pricing assumptions.
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
|
Forward contracts |
|
Fair value, December 31, 2012 |
|
$ |
(756,525 |
) |
|
$ |
|
|
Total gains or losses included in earnings: |
|
|
|
|
|
|
|
|
Net realized gain (loss) |
|
|
171,139 |
|
|
|
|
|
Net change in unrealized gain (loss) |
|
|
765,382 |
|
|
|
580,703 |
|
Net proceeds (received) paid at settlement |
|
|
(178,000 |
) |
|
|
|
|
Transfers into Level 3 |
|
|
|
|
|
|
|
|
Transfers out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, December 31, 2013 |
|
$ |
1,996 |
|
|
$ |
580,703 |
|
Total gains or losses included in earnings: |
|
|
|
|
|
|
|
|
Net realized gain (loss) |
|
|
843,017 |
|
|
|
(165,951 |
) |
Net change in unrealized gain (loss) |
|
|
(745,730 |
) |
|
|
1,600,127 |
|
Net proceeds (received) paid at settlement |
|
|
(99,283 |
) |
|
|
165,951 |
|
Transfers into Level 3 |
|
|
|
|
|
|
|
|
Transfers out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, December 31, 2014 |
|
$ |
|
|
|
$ |
2,180,830 |
|
|
|
|
|
|
|
|
|
|
The Companys financial instruments consist of cash, restricted cash, interest receivable, loans
receivable, its investment in Crystal Financial SBIC LP, derivative instruments and the revolving credit facility. Due to the short-term nature of the Companys cash, restricted cash and interest receivable, the carrying value approximates fair
value.
18
Crystal Financial LLC
Notes to Consolidated Financial Statements
Years Ended December 31, 2014 and December 31, 2013
The Companys loans receivable are recorded at outstanding principal, net of any
deferred fees and costs and unamortized purchase discounts. If the Company elected the fair value option, the estimated fair value of the Companys loans receivable would be derived using among other things, a discounted cash flow methodology,
that considers various factors including the type of loan and related collateral, current market yields for similar debt investments, estimated cash flows, as well as a discount rate that reflects the Companys assessment of risk inherent in
the cash flow estimates.
If the Company elected the fair value option, the estimated fair value of the Companys revolving credit
facility at December 31, 2014 and December 31, 2013 would approximate the carrying value. The fair value is estimated based on consideration of current market interest rates for similar debt instruments.
The following table presents the carrying amounts and estimated fair values of the Companys long-term financial instruments, at
December 31, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
477,151,249 |
|
|
$ |
477,200,000 |
|
|
$ |
454,387,509 |
|
|
$ |
454,400,000 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
259,698,168 |
|
|
$ |
259,698,168 |
|
|
$ |
200,400,000 |
|
|
$ |
200,400,000 |
|
8. Subsequent Events
The Company has evaluated subsequent events through February 11, 2015, the date which the financial statements were available to be
issued.
19
SLR Investment (NASDAQ:SLRC)
Historical Stock Chart
From Jun 2024 to Jul 2024
SLR Investment (NASDAQ:SLRC)
Historical Stock Chart
From Jul 2023 to Jul 2024