Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period           to

 

Commission File No. 814-00663

 

ARES CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Maryland

 

33-1089684

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

245 Park Avenue, 44th Floor, New York, NY 10167

(Address of principal executive office)   (Zip Code)

 

(212) 750-7300

(Registrant’s telephone number, including area code)

 


 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at October 28, 2016

Common stock, $0.001 par value

 

313,954,008

 

 

 



Table of Contents

 

ARES CAPITAL CORPORATION

 

INDEX

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheet as of September 30, 2016 (unaudited) and December 31, 2015

3

 

 

 

 

Consolidated Statement of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)

4

 

 

 

 

Consolidated Schedule of Investments as of September 30, 2016 (unaudited) and December 31, 2015

6

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2016 (unaudited)

56

 

 

 

 

Consolidated Statement of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

57

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

58

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

94

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

125

 

 

 

Item 4.

Controls and Procedures

126

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

126

 

 

 

Item 1A.

Risk Factors

126

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

126

 

 

 

Item 3.

Defaults Upon Senior Securities

128

 

 

 

Item 4.

Mine Safety Disclosures

128

 

 

 

Item 5.

Other Information

128

 

 

 

Item 6.

Exhibits

128

 



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in thousands, except per share data)

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

$

5,981,144

 

$

6,481,333

 

Non-controlled affiliate company investments

 

175,473

 

195,074

 

Controlled affiliate company investments

 

2,648,034

 

2,379,089

 

Total investments at fair value (amortized cost of $8,927,999 and $9,147,646, respectively)

 

8,804,651

 

9,055,496

 

Cash and cash equivalents

 

125,089

 

257,056

 

Interest receivable

 

120,665

 

137,968

 

Receivable for open trades

 

21,664

 

 

Other assets

 

63,789

 

56,292

 

Total assets

 

$

9,135,858

 

$

9,506,812

 

LIABILITIES

 

 

 

 

 

Debt

 

$

3,720,916

 

$

4,113,935

 

Base management fees payable

 

33,923

 

34,125

 

Income based fees payable

 

33,052

 

31,234

 

Capital gains incentive fees payable

 

50,963

 

42,265

 

Accounts payable and other liabilities

 

51,730

 

60,587

 

Interest and facility fees payable

 

32,170

 

51,007

 

Payable for open trades

 

4,125

 

327

 

Total liabilities

 

3,926,879

 

4,333,480

 

Commitments and contingencies (Note 7)

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $0.001 per share, 500,000 common shares authorized; 313,954 and 314,347 common shares issued and outstanding, respectively

 

314

 

314

 

Capital in excess of par value

 

5,312,800

 

5,318,277

 

Accumulated overdistributed net investment income

 

(3,262

)

(894

)

Accumulated net realized gains (losses) on investments, foreign currency transactions, extinguishment of debt and other assets

 

25,523

 

(53,013

)

Net unrealized losses on investments, foreign currency and other transactions

 

(126,396

)

(91,352

)

Total stockholders’ equity

 

5,208,979

 

5,173,332

 

Total liabilities and stockholders’ equity

 

$

9,135,858

 

$

9,506,812

 

NET ASSETS PER SHARE

 

$

16.59

 

$

16.46

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

From non-controlled/non-affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

$

134,098

 

$

128,814

 

$

411,856

 

$

376,257

 

Capital structuring service fees

 

33,786

 

27,883

 

60,440

 

49,410

 

Dividend income

 

6,226

 

4,045

 

23,215

 

11,957

 

Other income

 

3,203

 

2,583

 

9,708

 

8,683

 

Total investment income from non-controlled/non-affiliate company investments

 

177,313

 

163,325

 

505,219

 

446,307

 

From non-controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

4,211

 

3,629

 

12,155

 

10,948

 

Capital structuring service fees

 

 

 

 

2,205

 

Dividend income

 

 

38

 

40

 

1,407

 

Other income

 

49

 

66

 

275

 

196

 

Total investment income from non-controlled affiliate company investments

 

4,260

 

3,733

 

12,470

 

14,756

 

From controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

61,525

 

75,494

 

186,968

 

220,660

 

Capital structuring service fees

 

1,249

 

1,885

 

2,425

 

21,416

 

Dividend income

 

10,000

 

10,000

 

30,250

 

40,099

 

Management and other fees

 

3,879

 

6,148

 

13,506

 

18,421

 

Other income

 

444

 

363

 

1,144

 

2,015

 

Total investment income from controlled affiliate company investments

 

77,097

 

93,890

 

234,293

 

302,611

 

Total investment income

 

258,670

 

260,948

 

751,982

 

763,674

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Interest and credit facility fees

 

43,300

 

56,618

 

138,877

 

171,614

 

Base management fees

 

33,923

 

33,284

 

103,126

 

100,221

 

Income based fees

 

33,052

 

31,842

 

91,097

 

90,156

 

Capital gain incentive fees

 

(5,491

)

(2,628

)

8,698

 

834

 

Administrative fees

 

3,433

 

3,545

 

10,198

 

10,515

 

Professional fees and other costs related to the American Capital Acquisition

 

2,699

 

 

10,710

 

 

Other general and administrative

 

6,488

 

6,926

 

20,814

 

22,652

 

Total expenses

 

117,404

 

129,587

 

383,520

 

395,992

 

NET INVESTMENT INCOME BEFORE INCOME TAXES

 

141,266

 

131,361

 

368,462

 

367,682

 

Income tax expense, including excise tax

 

3,570

 

884

 

12,772

 

7,025

 

NET INVESTMENT INCOME

 

137,696

 

130,477

 

355,690

 

360,657

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, FOREIGN CURRENCY AND OTHER TRANSACTIONS:

 

 

 

 

 

 

 

 

 

Net realized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

3,601

 

19,378

 

55,114

 

71,182

 

Non-controlled affiliate company investments

 

12,223

 

25,897

 

13,097

 

26,230

 

 

4



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Controlled affiliate company investments

 

5,048

 

 

11,378

 

 

Foreign currency transactions

 

(310

)

2,462

 

(1,053

)

6,327

 

Net realized gains

 

20,562

 

47,737

 

78,536

 

103,739

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

(57,484

)

(23,322

)

(91,240

)

(47,050

)

Non-controlled affiliate company investments

 

(10,043

)

(29,859

)

11,724

 

(13,463

)

Controlled affiliate company investments

 

23,506

 

(7,920

)

48,490

 

(34,535

)

Foreign currency and other transactions

 

(3,996

)

(254

)

(4,018

)

(1,552

)

Net unrealized losses

 

(48,017

)

(61,355

)

(35,044

)

(96,600

)

Net realized and unrealized gains (losses) from investments, foreign currency and other transactions

 

(27,455

)

(13,618

)

43,492

 

7,139

 

REALIZED LOSSES ON EXTINGUISHMENT OF DEBT

 

 

 

 

(3,839

)

NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS

 

$

110,241

 

$

116,859

 

$

399,182

 

$

363,957

 

BASIC AND DILUTED EARNINGS PER COMMON SHARE (see Note 10)

 

$

0.35

 

$

0.37

 

$

1.27

 

$

1.16

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING (see Note 10)

 

313,954

 

314,469

 

314,067

 

314,350

 

 

See accompanying notes to consolidated financial statements.

 

5



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covestia Capital Partners, LP (10)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

$

487

 

$

1,770

(2)

 

 

HCI Equity, LLC (8)(9)(10)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

 

128

 

 

 

Imperial Capital Private Opportunities, LP (10)(26)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

4,054

 

17,131

(2)

 

 

Partnership Capital Growth Fund I, L.P. (10)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

 

194

(2)

 

 

Partnership Capital Growth Investors III, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

2,655

 

3,039

(2)

 

 

PCG-Ares Sidecar Investment II, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (100.00% interest)

 

 

 

10/31/2014

 

7,456

 

11,430

(2)

 

 

PCG-Ares Sidecar Investment, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (100.00% interest)

 

 

 

5/22/2014

 

3,355

 

2,796

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

1,664

 

1,491

 

 

 

Senior Direct Lending Program, LLC (8)(10)(28)

 

Co-investment vehicle

 

Subordinated certificates ($195,338 par due 12/2036)

 

8.86% (Libor + 8.00%/M)(22)

 

7/27/2016

 

195,338

 

195,338

 

 

 

 

 

 

 

Member interest (87.50% interest)

 

 

 

7/27/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

195,338

 

195,338

 

 

 

Senior Secured Loan Fund LLC (8)(11)(27)

 

Co-investment vehicle

 

Subordinated certificates ($2,003,959 par due 12/2024)

 

8.86% (Libor + 8.00%/M)(21)

 

10/30/2009

 

1,938,446

 

1,899,754

 

 

 

 

 

 

 

Member interest (87.50% interest)

 

 

 

10/30/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,938,446

 

1,899,754

 

 

 

VSC Investors LLC (10)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

299

 

1,124

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,153,754

 

2,134,195

 

40.97

%

Healthcare Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Absolute Dental Management LLC and ADM Equity, LLC

 

Dental services provider

 

First lien senior secured loan ($18,750 par due 1/2022)

 

9.06% (Libor + 8.06%/Q)

 

1/5/2016

 

18,750

 

18,188

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 1/2022)

 

9.06% (Libor + 8.06%/Q)

 

1/5/2016

 

5,000

 

4,850

(4)(20)

 

 

 

 

 

 

Class A preferred units (4,000,000 units)

 

 

 

1/5/2016

 

4,000

 

1,901

(2)

 

 

 

 

 

 

Class A common units (4,000,000 units)

 

 

 

1/5/2016

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

27,750

 

24,939

 

 

 

ADCS Billings Intermediate Holdings, LLC (25)

 

Dermatology practice

 

First lien senior secured revolving loan ($1,375 par due 5/2022)

 

8.25%(Base Rate + 4.75%/Q)

 

5/18/2016

 

1,375

 

1,375

(2)(20)(24)

 

 

ADG, LLC and RC IV GEDC Investor LLC (25)

 

Dental services provider

 

First lien senior secured revolving loan ($2,117 par due 9/2022)

 

5.75% (Libor + 4.75%/Q)

 

9/28/2016

 

2,117

 

2,117

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($33,388 par due 9/2023)

 

5.75% (Libor + 4.75%/Q)

 

9/28/2016

 

33,387

 

33,387

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($87,500 par due 3/2024)

 

10.00% (Libor + 9.00%/Q)

 

9/28/2016

 

87,500

 

87,500

(2)(20)

 

 

 

 

 

 

Membership units (3,000,000 units)

 

 

 

9/28/2016

 

3,000

 

3,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

126,004

 

126,004

 

 

 

Alegeus Technologies Holdings Corp.

 

Benefits administration and transaction processing provider

 

Preferred stock (2,997 shares)

 

 

 

12/13/2013

 

3,087

 

1,793

 

 

 

 

 

 

 

Common stock (3 shares)

 

 

 

12/13/2013

 

3

 

 

 

 

 

6



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

3,090

 

1,793

 

 

 

Argon Medical Devices, Inc.

 

Manufacturer and marketer of single-use specialty medical devices

 

Second lien senior secured loan ($9,000 par due 6/2022)

 

10.50% (Libor + 9.50%/Q)

 

12/23/2015

 

8,758

 

9,000

(2)(20)

 

 

AwarePoint Corporation

 

Healthcare technology platform developer

 

First lien senior secured loan ($8,772 par due 6/2018)

 

10.50% (Libor + 9.50%/M)

 

9/5/2014

 

8,548

 

8,772

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 3,213,367 shares of Series 1 preferred stock (expires 9/2024)

 

 

 

11/14/2014

 

 

609

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,548

 

9,381

 

 

 

CCS Intermediate Holdings, LLC and CCS Group Holdings, LLC (25)

 

Correctional facility healthcare operator

 

First lien senior secured revolving loan ($3,750 par due 7/2019)

 

5.00% (Libor + 4.00%/Q)

 

7/23/2014

 

3,750

 

3,188

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured revolving loan ($1,620 par due 7/2019)

 

6.50%(Base Rate + 3.00%/Q)

 

7/23/2014

 

1,620

 

1,377

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured loan ($6,601 par due 7/2021)

 

5.00% (Libor + 4.00%/Q)

 

7/23/2014

 

6,579

 

5,611

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($135,000 par due 7/2022)

 

9.38% (Libor + 8.38%/Q)

 

7/23/2014

 

134,017

 

101,250

(2)(20)

 

 

 

 

 

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

 

215

(2)

 

 

 

 

 

 

 

 

 

 

 

 

145,966

 

111,641

 

 

 

Correctional Medical Group Companies, Inc.

 

Correctional facility healthcare operator

 

First lien senior secured loan ($3,088 par due 9/2021)

 

9.39% (Libor + 8.39%/Q)

 

9/29/2015

 

3,088

 

3,026

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($4,093 par due 9/2021)

 

9.39% (Libor + 8.39%/Q)

 

9/29/2015

 

4,093

 

4,011

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($44,707 par due 9/2021)

 

9.39% (Libor + 8.39%/Q)

 

9/29/2015

 

44,707

 

43,813

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

51,888

 

50,850

 

 

 

DCA Investment Holding, LLC (25)

 

Multi-branded dental practice management

 

First lien senior secured revolving loan ($5,774 par due 7/2021)

 

7.75%(Base Rate + 4.25%/Q)

 

7/2/2015

 

5,774

 

5,659

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured loan ($18,945 par due 7/2021)

 

6.25% (Libor + 5.25%/Q)

 

7/2/2015

 

18,831

 

18,566

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

24,605

 

24,225

 

 

 

DNAnexus, Inc.

 

Bioinformatics company

 

First lien senior secured loan ($10,075 par due 10/2018)

 

9.25% (Libor + 8.25%/M)

 

3/21/2014

 

9,861

 

10,075

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 909,092 units of Series C preferred stock (expires 3/2024)

 

 

 

3/21/2014

 

 

121

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,861

 

10,196

 

 

 

Global Healthcare Exchange, LLC and GHX Ultimate Parent Corp.

 

On-demand supply chain automation solutions provider

 

Second lien senior secured loan ($47,500 par due 8/2023)

 

9.75% (Libor + 8.75%/Q)

 

8/18/2016

 

46,787

 

47,500

(2)(20)

 

 

 

 

 

 

Class A common stock (1,788 shares)

 

 

 

3/11/2014

 

1,788

 

1,788

(2)

 

 

 

 

 

 

Class B common stock (980 shares)

 

 

 

3/11/2014

 

30

 

5,244

(2)

 

 

 

 

 

 

 

 

 

 

 

 

48,605

 

54,532

 

 

 

Greenphire, Inc. and RMCF III CIV XXIX, L.P (25)

 

Software provider for clinical trial management

 

First lien senior secured loan ($1,500 par due 12/2018)

 

9.00% (Libor + 8.00%/M)

 

12/19/2014

 

1,500

 

1,500

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,800 par due 12/2018)

 

9.00% (Libor + 8.00%/M)

 

12/19/2014

 

3,800

 

3,800

(2)(20)

 

 

 

 

 

 

Limited partnership interest (99.90% interest)

 

 

 

12/19/2014

 

999

 

1,590

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,299

 

6,890

 

 

 

Hygiena Borrower LLC (25)

 

Adenosine triphosphate testing technology provider

 

Second lien senior secured loan ($10,000 par due 8/2023)

 

10.00% (Libor + 9.00%/Q)

 

8/26/2016

 

10,000

 

10,000

(2)(20)

 

 

INC Research Mezzanine Co-Invest, LLC

 

Pharmaceutical and biotechnology consulting services

 

Common units (1,410,000 units)

 

 

 

9/27/2010

 

 

738

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Second lien senior secured loan ($112,000 par due 6/2020)

 

9.25% (Libor + 8.25%/Q)

 

12/27/2012

 

112,000

 

107,520

(2)(20)

 

 

Island Medical Management Holdings, LLC (25)

 

Provider of physician management services

 

First lien senior secured revolving loan ($250 par due 9/2021)

 

6.00% (Libor + 5.00%/Q)

 

9/1/2016

 

250

 

250

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($382 par due 9/2022)

 

6.00% (Libor + 5.00%/Q)

 

9/1/2016

 

382

 

382

(2)(20)

 

 

 

7



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($6,228 par due 9/2022)

 

6.00% (Libor + 5.00%/Q)

 

9/1/2016

 

6,228

 

6,228

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

6,860

 

6,860

 

 

 

MC Acquisition Holdings I, LLC

 

Healthcare professional provider

 

Class A units (1,338,314 shares)

 

 

 

1/17/2014

 

1,338

 

1,170

(2)

 

 

MW Dental Holding Corp. (25)

 

Dental services provider

 

First lien senior secured revolving loan ($1,000 par due 4/2018)

 

8.50% (Libor + 7.00%/Q)

 

4/12/2011

 

1,000

 

1,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($44,972 par due 4/2018)

 

8.50% (Libor + 7.00%/Q)

 

4/12/2011

 

44,972

 

44,972

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($47,373 par due 4/2018)

 

8.50% (Libor + 7.00%/Q)

 

4/12/2011

 

47,373

 

47,373

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($19,591 par due 4/2018)

 

8.50% (Libor + 7.00%/Q)

 

4/12/2011

 

19,591

 

19,591

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

112,936

 

112,936

 

 

 

My Health Direct, Inc. (25)

 

Healthcare scheduling exchange software solution provider

 

First lien senior secured loan ($1,600 par due 1/2018)

 

10.75%

 

9/18/2014

 

1,581

 

1,600

(2)

 

 

 

 

 

 

Warrant to purchase up to 4,548 shares of Series D preferred stock (expires 9/2024)

 

 

 

9/18/2014

 

39

 

40

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,620

 

1,640

 

 

 

New Trident Holdcorp, Inc.

 

Outsourced mobile diagnostic healthcare service provider

 

Second lien senior secured loan ($80,000 par due 7/2020)

 

10.25% (Libor + 9.00%/Q)

 

8/6/2013

 

79,085

 

76,000

(2)(20)

 

 

NMSC Holdings, Inc. and ASP NAPA Holdings, LLC

 

Anesthesia management services provider

 

Second lien senior secured loan ($72,796 par due 10/2023)

 

11.00% (Libor + 10.00%/Q)

 

4/19/2016

 

72,796

 

72,796

(2)(20)

 

 

 

 

 

 

Class A units (25,277 units)

 

 

 

4/19/2016

 

2,528

 

2,488

(2)

 

 

 

 

 

 

 

 

 

 

 

 

75,324

 

75,284

 

 

 

Nodality, Inc.

 

Biotechnology company

 

First lien senior secured loan ($2,743 par due 8/2016)

 

 

 

11/12/2015

 

2,533

 

2,585

(2)(19)

 

 

 

 

 

 

First lien senior secured loan ($10,885 par due 8/2016)

 

 

 

4/25/2014

 

9,694

 

773

(2)(19)

 

 

 

 

 

 

Common stock (3,736,255 shares)

 

 

 

5/1/2016

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,227

 

3,358

 

 

 

nThrive, Inc. (fka Precyse Acquisition Corp.)

 

Provider of healthcare information management technology and services

 

Second lien senior secured loan ($10,000 par due 4/2023)

 

10.75% (Libor + 9.75%/Q)

 

4/20/2016

 

9,624

 

10,000

(2)(20)

 

 

OmniSYS Acquisition Corporation, OmniSYS, LLC, and OSYS Holdings, LLC (25)

 

Provider of technology-enabled solutions to pharmacies

 

First lien senior secured loan ($5,899 par due 11/2018)

 

8.50% (Libor + 7.50%/Q)

 

11/21/2013

 

5,899

 

5,899

(4)(20)

 

 

 

 

 

 

Limited liability company membership interest (1.57%)

 

 

 

11/21/2013

 

1,000

 

679

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,899

 

6,578

 

 

 

Patterson Medical Supply, Inc.

 

Distributor of rehabilitation supplies and equipment

 

Second lien senior secured loan ($78,000 par due 8/2023)

 

9.50% (Libor + 8.50%/Q)

 

9/2/2015

 

76,070

 

78,000

(2)(20)

 

 

PerfectServe, Inc. (25)

 

Communications software platform provider for hospitals and physician practices

 

First lien senior secured loan ($9,000 par due 3/2020)

 

9.00% (Libor + 8.00%/M)

 

9/15/2015

 

8,714

 

9,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($2,000 par due 6/2020)

 

9.00% (Libor + 8.00%/M)

 

9/15/2015

 

1,965

 

2,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,000 par due 6/2021)

 

9.00% (Libor + 8.00%/M)

 

9/15/2015

 

2,960

 

3,000

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 28,428 shares of Series C preferred stock (expires 9/2025)

 

 

 

9/15/2015

 

180

 

256

(2)

 

 

 

 

 

 

Warrant to purchase up to 34,113 units of Series C preferred stock (expires 12/2023)

 

 

 

12/26/2013

 

 

307

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,819

 

14,563

 

 

 

PhyMED Management LLC

 

Provider of anesthesia services

 

Second lien senior secured loan ($47,239 par due 5/2021)

 

9.75% (Libor + 8.75%/Q)

 

12/18/2015

 

46,616

 

45,821

(2)(20)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

Warrant to purchase up to 99,094 shares of Series C preferred stock (expires 6/2022)

 

 

 

6/28/2012

 

38

 

28

(2)

 

 

 

8



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Sarnova HC, LLC, Tri-Anim Health Services, Inc., and BEMS Holdings, LLC

 

Distributor of emergency medical service and respiratory products

 

Second lien senior secured loan ($54,000 par due 7/2022)

 

10.50% (Libor + 9.50%/Q)

 

1/29/2016

 

54,000

 

54,000

(2)(20)

 

 

Transaction Data Systems, Inc.

 

Pharmacy management software provider

 

Second lien senior secured loan ($27,500 par due 6/2022)

 

10.00% (Libor + 9.00%/Q)

 

6/15/2015

 

27,500

 

27,500

(2)(20)

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

Second lien senior secured loan ($23,500 par due 9/2020)

 

10.25% (Libor + 9.25%/Q)

 

12/14/2015

 

23,500

 

23,500

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 9/2020)

 

10.25% (Libor + 9.25%/Q)

 

9/24/2014

 

50,000

 

50,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

73,500

 

73,500

 

 

 

Urgent Cares of America Holdings I, LLC and FastMed Holdings I, LLC (25)

 

Operator of urgent care clinics

 

First lien senior secured loan ($13,895 par due 12/2022)

 

7.00% (Libor + 6.00%/Q)

 

12/1/2015

 

13,895

 

12,644

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($54,314 par due 12/2022)

 

7.00% (Libor + 6.00%/Q)

 

12/1/2015

 

54,313

 

49,426

(2)(20)

 

 

 

 

 

 

Preferred units (7,696,613 units)

 

 

 

6/11/2015

 

7,697

 

8,616

 

 

 

 

 

 

 

Series A common units (2,000,000 units)

 

 

 

6/11/2015

 

2,000

 

522

 

 

 

 

 

 

 

Series C common units (1,026,866 units)

 

 

 

6/11/2015

 

 

219

 

 

 

 

 

 

 

 

 

 

 

 

 

77,905

 

71,427

 

 

 

VistaPharm, Inc. and Vertice Pharma UK Parent Limited

 

Manufacturer and distributor of generic pharmaceutical products

 

Preferred shares (40,662 shares)

 

 

 

12/21/2015

 

407

 

407

(9)

 

 

Young Innovations, Inc.

 

Dental supplies and equipment manufacturer

 

Second lien senior secured loan ($45,000 par due 7/2019)

 

9.00% (Libor + 8.00%/Q)

 

5/30/2014

 

45,000

 

45,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

1,305,517

 

1,253,156

 

24.06

%

Other Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Residential Services L.L.C.

 

Heating, ventilation and air conditioning services provider

 

Second lien senior secured loan ($67,000 par due 12/2021)

 

9.00% (Libor + 8.00%/Q)

 

6/30/2014

 

66,657

 

67,000

(2)(20)

 

 

Community Education Centers, Inc. and CEC Parent Holdings LLC (8)

 

Offender re-entry and in-prison treatment services provider

 

First lien senior secured loan ($13,579 par due 12/2017)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

13,579

 

13,579

(2)(13)(20)

 

 

 

 

 

 

First lien senior secured loan ($707 par due 12/2017)

 

7.75%(Base Rate + 4.25%/Q)

 

12/10/2010

 

707

 

707

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($21,895 par due 6/2018)

 

15.75% (Libor + 15.00%/Q)

 

12/10/2010

 

21,895

 

21,895

(2)

 

 

 

 

 

 

Class A senior preferred units (7,846 units)

 

 

 

3/27/2015

 

9,384

 

10,918

(2)

 

 

 

 

 

 

Class A junior preferred units (26,154 units)

 

 

 

3/27/2015

 

20,168

 

18,850

(2)

 

 

 

 

 

 

Class A common units (134 units)

 

 

 

3/27/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

65,733

 

65,949

 

 

 

Competitor Group, Inc., Calera XVI, LLC and Champion Parent Corporation (8)(25)

 

Endurance sports media and event operator

 

First lien senior secured revolving loan ($4,602 par due 11/2018)

 

5.00% (Libor + 3.75%/Q)

 

11/30/2012

 

4,473

 

4,602

(2)(20)

 

 

 

 

 

 

First lien senior secured revolving loan ($600 par due 11/2018)

 

5.00% (Libor + 3.75%/Q)

 

9/29/2016

 

600

 

600

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($39,098 par due 11/2018)

 

5.00% (Libor + 3.75%/Q)

 

11/30/2012

 

37,993

 

39,098

(2)(20)

 

 

 

 

 

 

Preferred shares (18,875 shares)

 

 

 

3/25/2016

 

15,966

 

1,245

(2)

 

 

 

 

 

 

Membership units (2,522,512 units)

 

 

 

11/30/2012

 

2,523

 

(2)

 

 

 

 

 

 

Common shares (114,000 shares)

 

 

 

3/25/2016

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

61,555

 

45,545

 

 

 

Crown Health Care Laundry Services, Inc. and Crown Laundry Holdings, LLC (7)(25)

 

Provider of outsourced healthcare linen management solutions

 

First lien senior secured revolving loan ($3,800 par due 3/2019)

 

7.25% (Libor + 6.00%/Q)

 

3/13/2014

 

3,800

 

3,800

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured loan ($5,261 par due 3/2019)

 

7.25% (Libor + 6.00%/Q)

 

3/13/2014

 

5,261

 

5,261

(3)(20)

 

 

 

 

 

 

Class A preferred units (2,475,000 units)

 

 

 

3/13/2014

 

2,475

 

2,952

(2)

 

 

 

 

 

 

Class B common units (275,000 units)

 

 

 

3/13/2014

 

275

 

328

(2)

 

 

 

9



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

11,811

 

12,341

 

 

 

Dwyer Acquisition Parent, Inc. and TDG Group Holding Company

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($31,500 par due 2/2020)

 

11.00%

 

6/12/2015

 

31,500

 

31,500

(2)

 

 

 

 

 

 

Senior subordinated loan ($52,670 par due 2/2020)

 

11.00%

 

8/15/2014

 

52,670

 

52,670

(2)

 

 

 

 

 

 

Common stock (32,843 shares)

 

 

 

8/15/2014

 

3,378

 

4,986

(2)

 

 

 

 

 

 

 

 

 

 

 

 

87,548

 

89,156

 

 

 

Massage Envy, LLC (25)

 

Franchisor in the massage industry

 

First lien senior secured loan ($38,987 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

38,987

 

38,988

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($18,945 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

18,945

 

18,945

(4)(20)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

5,762

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,932

 

63,695

 

 

 

McKenzie Sports Products, LLC (25)

 

Designer, manufacturer and distributor of hunting-related supplies

 

First lien senior secured loan ($5,500 par due 9/2020)

 

6.75% (Libor + 5.75%/Q)

 

9/18/2014

 

5,500

 

5,390

(2)(14)(20)

 

 

 

 

 

 

First lien senior secured loan ($39,500 par due 9/2020)

 

6.75% (Libor + 5.75%/Q)

 

9/18/2014

 

39,500

 

38,710

(2)(14)(20)

 

 

 

 

 

 

First lien senior secured loan ($45,000 par due 9/2020)

 

6.75% (Libor + 5.75%/Q)

 

9/18/2014

 

45,000

 

44,100

(3)(14)(20)

 

 

 

 

 

 

 

 

 

 

 

 

90,000

 

88,200

 

 

 

OpenSky Project, Inc. and OSP Holdings, Inc.

 

Social commerce platform operator

 

First lien senior secured loan ($1,200 par due 9/2017)

 

10.00%

 

6/4/2014

 

1,195

 

1,200

(2)

 

 

 

 

 

 

Warrant to purchase up to 159,496 shares of Series D preferred stock (expires 4/2025)

 

 

 

6/29/2015

 

48

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,243

 

1,200

 

 

 

Osmose Holdings, Inc.

 

Provider of structural integrity management services to transmission and distribution infrastructure

 

Second lien senior secured loan ($25,000 par due 8/2023)

 

8.75% (Libor + 7.75%/Q)

 

9/3/2015

 

24,568

 

24,500

(2)(20)

 

 

SocialFlow, Inc.

 

Social media optimization platform provider

 

First lien senior secured loan ($4,000 par due 8/2019)

 

9.50% (Libor + 8.50%/M)

 

1/29/2016

 

3,919

 

4,000

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 215,331 shares of Series C preferred stock (expires 1/2026)

 

 

 

1/29/2016

 

 

25

(5)

 

 

 

 

 

 

 

 

 

 

 

 

3,919

 

4,025

 

 

 

Spin HoldCo Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($140,000 par due 5/2020)

 

8.00% (Libor + 7.00%/Q)

 

5/14/2013

 

140,000

 

137,200

(2)(20)

 

 

Surface Dive, Inc.

 

SCUBA diver training and certification provider

 

Second lien senior secured loan ($31,591 par due 1/2022)

 

9.00% (Libor + 8.00%/Q)

 

7/28/2015

 

31,591

 

31,591

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($94,094 par due 1/2022)

 

10.25% (Libor + 9.25%/Q)

 

1/29/2015

 

93,753

 

94,094

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

125,344

 

125,685

 

 

 

TWH Water Treatment Industries, Inc., TWH Filtration Industries, Inc. and TWH Infrastructure Industries, Inc. (25)

 

Wastewater infrastructure repair, treatment and filtration holding company

 

First lien senior secured loan ($5,370 par due 10/2019)

 

10.25% (Libor + 9.25%/Q)

 

10/10/2014

 

5,370

 

5,370

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($36,400 par due 10/2019)

 

10.25% (Libor + 9.25%/Q)

 

10/10/2014

 

36,400

 

36,400

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

41,770

 

41,770

 

 

 

U.S. Security Associates Holdings, Inc

 

Security guard service provider

 

Second lien senior secured loan ($25,000 par due 7/2018)

 

11.00%

 

11/24/2015

 

25,000

 

25,000

(2)

 

 

WASH Multifamily Acquisition Inc. and Coinamatic Canada Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($3,726 par due 5/2023)

 

8.00% (Libor + 7.00%/Q)

 

5/14/2015

 

3,664

 

3,689

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($21,274 par due 5/2023)

 

8.00% (Libor + 7.00%/Q)

 

5/14/2015

 

20,920

 

21,061

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

24,584

 

24,750

 

 

 

 

 

 

 

 

 

 

 

 

 

830,664

 

816,016

 

15.67

%

 

10



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruent, LLC and Athena Parent, Inc. (25)

 

Real estate and facilities management software provider

 

First lien senior secured loan ($15,000 par due 5/2022)

 

6.25% (Libor + 5.25%/Q)

 

9/13/2016

 

15,000

 

15,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($4,500 par due 5/2022)

 

6.25% (Libor + 5.25%/Q)

 

9/19/2016

 

4,500

 

4,500

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($10,500 par due 11/2022)

 

12.25%(Base Rate + 8.75%/Q)

 

9/19/2016

 

10,500

 

10,500

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($42,500 par due 11/2022)

 

10.75% (Libor + 9.75%/Q)

 

9/19/2016

 

42,500

 

42,500

(2)(20)

 

 

 

 

 

 

Series A preferred stock (778 shares)

 

 

 

9/19/2016

 

778

 

800

(2)

 

 

 

 

 

 

Common stock (3,000 shares)

 

 

 

5/16/2016

 

3,000

 

3,084

(2)

 

 

 

 

 

 

 

 

 

 

 

 

76,278

 

76,384

 

 

 

Brandtone Holdings Limited (9)

 

Mobile communications and marketing services provider

 

First lien senior secured loan ($4,676 par due 11/2018)

 

12.50% (Libor + 10.50% Cash, 1.00% PIK/M)

 

5/11/2015

 

4,591

 

3,975

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,098 par due 2/2019)

 

12.50% (Libor + 10.50% Cash, 1.00% PIK/M)

 

5/11/2015

 

3,035

 

2,633

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 184,003 units of Series Three participating convertible preferred shares (expires 8/2026)

 

 

 

5/11/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

7,626

 

6,608

 

 

 

CallMiner, Inc.

 

Provider of cloud-based conversational analytics solutions

 

Second lien senior secured loan ($2,424 par due 5/2018)

 

10.50% (Libor + 9.50%/M)

 

7/23/2014

 

2,417

 

2,424

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($1,394 par due 8/2018)

 

10.50% (Libor + 9.50%/M)

 

7/23/2014

 

1,389

 

1,394

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 2,350,636 shares of Series 1 preferred stock (expires 7/2024)

 

 

 

7/23/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,806

 

3,818

 

 

 

CIBT Holdings, Inc. and CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

6,015

(2)

 

 

Clearwater Analytics, LLC (25)

 

Provider of integrated cloud-based investment portfolio management, accounting, reporting and analytics software

 

First lien senior secured loan ($25,500 par due 9/2022)

 

8.50% (Libor + 7.50%/Q)

 

9/1/2016

 

25,500

 

25,500

(2)(20)

 

 

CMW Parent LLC (fka Black Arrow, Inc.)

 

Multiplatform media firm

 

Series A units (32 units)

 

 

 

9/11/2015

 

 

(2)

 

 

Command Alkon, Incorporated and CA Note Issuer, LLC

 

Software solutions provider to the ready-mix concrete industry

 

Second lien senior secured loan ($10,000 par due 8/2020)

 

9.25% (Libor + 8.25%/Q)

 

9/28/2012

 

10,000

 

10,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($11,500 par due 8/2020)

 

9.44% (Libor + 8.25%/Q)

 

9/28/2012

 

11,500

 

11,500

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($26,500 par due 8/2020)

 

9.25% (Libor + 8.25%/Q)

 

9/28/2012

 

26,500

 

26,500

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($22,542 par due 8/2021)

 

14.00% PIK

 

8/8/2014

 

22,542

 

22,542

(2)

 

 

 

 

 

 

 

 

 

 

 

 

70,542

 

70,542

 

 

 

Compuware Parent, LLC

 

Web and mobile cloud performance testing and monitoring services provider

 

Class A-1 common stock (4,132 units)

 

 

 

12/15/2014

 

2,250

 

2,113

(2)

 

 

 

 

 

 

Class B-1 common stock (4,132 units)

 

 

 

12/15/2014

 

450

 

422

(2)

 

 

 

 

 

 

Class C-1 common stock (4,132 units)

 

 

 

12/15/2014

 

300

 

282

(2)

 

 

 

 

 

 

Class A-2 common stock (4,132 units)

 

 

 

12/15/2014

 

 

(2)

 

 

 

 

 

 

Class B-2 common stock (4,132 units)

 

 

 

12/15/2014

 

 

(2)

 

 

 

 

 

 

Class C-2 common stock (4,132 units)

 

 

 

12/15/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

2,817

 

 

 

 

11



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Directworks, Inc. and Co-Exprise Holdings, Inc.

 

Provider of cloud-based software solutions for direct materials sourcing and supplier management for manufacturers

 

First lien senior secured loan ($1,917 par due 4/2018)

 

10.25% (Libor + 9.25%/M)

 

12/19/2014

 

1,863

 

1,782

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 1,875,000 shares of Series 1 preferred stock (expires 12/2024)

 

 

 

12/19/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,863

 

1,782

 

 

 

DTI Holdco, Inc. and OPE DTI Holdings, Inc. (25)

 

Provider of legal process outsourcing and managed services

 

First lien senior secured loan ($4,167 par due 9/2023)

 

6.25% (Libor + 5.25%/Q)

 

9/23/2016

 

4,125

 

4,166

(2)(20)

 

 

 

 

 

 

Class A common stock (7,500 shares)

 

 

 

8/19/2014

 

7,500

 

4,323

(2)

 

 

 

 

 

 

Class B common stock (7,500 shares)

 

 

 

8/19/2014

 

 

4,323

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,625

 

12,812

 

 

 

Faction Holdings, Inc. and The Faction Group LLC (fka PeakColo Holdings, Inc.) (25)

 

Wholesaler of cloud-based software applications and services

 

First lien senior secured revolving loan ($1,000 par due 11/2017)

 

7.75% (Base Rate + 4.25%/M)

 

11/3/2014

 

1,000

 

1,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,000 par due 12/2019)

 

9.75% (Libor + 8.75%/M)

 

12/3/2015

 

3,000

 

3,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,556 par due 5/2019)

 

9.75% (Libor + 8.75%/M)

 

11/3/2014

 

3,512

 

3,556

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 1,481 shares of Series A preferred stock (expires 12/2025)

 

 

 

12/3/2015

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,037 shares of Series A preferred stock (expires 11/2024)

 

 

 

11/3/2014

 

93

 

147

(2)

 

 

 

 

 

 

 

 

 

 

 

 

7,605

 

7,703

 

 

 

First Insight, Inc.

 

Software company providing merchandising and pricing solutions to companies worldwide

 

Warrant to purchase up to 122,827 units of Series C preferred stock (expires 3/2024)

 

 

 

3/20/2014

 

 

11

(2)

 

 

iControl Networks, Inc. and uControl Acquisition, LLC

 

Software and services company for the connected home market

 

Second lien senior secured loan ($20,000 par due 3/2019)

 

9.50% (Libor + 8.50%/M)

 

2/19/2015

 

19,750

 

20,150

(2)(18)(20)

 

 

 

 

 

 

Warrant to purchase up to 385,616 shares of Series D preferred stock (expires 2/2022)

 

 

 

2/19/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

19,750

 

20,150

 

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

Warrant to purchase up to 124,300 shares of Series C preferred stock (expires 10/2022)

 

 

 

10/15/2012

 

88

 

71

(2)

 

 

Interactions Corporation

 

Developer of a speech recognition software based customer interaction system

 

Second lien senior secured loan ($2,500 par due 7/2019)

 

9.85% (Libor + 8.85%/M)

 

6/16/2015

 

2,260

 

2,500

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($22,500 par due 7/2019)

 

9.85% (Libor + 8.85%/M)

 

6/16/2015

 

22,227

 

22,500

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 68,187 shares of Series G-3 convertible preferred stock (expires 6/2022)

 

 

 

6/16/2015

 

303

 

290

(2)

 

 

 

 

 

 

 

 

 

 

 

 

24,790

 

25,290

 

 

 

iPipeline, Inc., Internet Pipeline, Inc. and iPipeline Holdings, Inc. (25)

 

Provider of SaaS-based software solutions to the insurance and financial services industry

 

First lien senior secured loan ($2,504 par due 8/2022)

 

8.25% (Libor + 7.25%/Q)

 

8/4/2015

 

2,504

 

2,504

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($44,550 par due 8/2022)

 

8.25% (Libor + 7.25%/Q)

 

8/4/2015

 

44,550

 

44,550

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($14,850 par due 8/2022)

 

8.25% (Libor + 7.25%/Q)

 

8/4/2015

 

14,850

 

14,850

(4)(20)

 

 

 

 

 

 

Preferred stock (1,485 shares)

 

 

 

8/4/2015

 

1,485

 

2,508

(2)

 

 

 

 

 

 

Common stock (647,542 shares)

 

 

 

8/4/2015

 

15

 

25

(2)

 

 

 

 

 

 

 

 

 

 

 

 

63,404

 

64,437

 

 

 

IronPlanet, Inc.

 

Online auction platform provider for used heavy equipment

 

Warrant to purchase to up to 133,333 shares of Series C preferred stock (expires 9/2023)

 

 

 

9/24/2013

 

214

 

383

(2)

 

 

 

12



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Itel Laboratories, Inc. (25)

 

Data services provider for building materials to property insurance industry

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,254

(2)

 

 

Market Track Holdings, LLC

 

Business media consulting services company

 

Preferred stock (1,685 shares)

 

 

 

12/13/2013

 

2,221

 

2,538

 

 

 

 

 

 

 

Common stock (16,251 shares)

 

 

 

12/13/2013

 

2,221

 

2,278

 

 

 

 

 

 

 

 

 

 

 

 

 

4,442

 

4,816

 

 

 

Maximus Holdings, LLC

 

Provider of software simulation tools and related services

 

Warrant to purchase up to 1,050,013 shares of common stock (expires 10/2019)

 

 

 

12/13/2013

 

 

91

 

 

 

Ministry Brands, LLC and MB Parent Holdings, LLC (25)

 

Software and payment services provider to faith-based institutions

 

First lien senior secured loan ($244 par due 11/2021)

 

5.25% (Libor + 4.25%/Q)

 

7/12/2016

 

244

 

244

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($38,214 par due 11/2021)

 

10.75% (Libor + 9.75%/Q)

 

3/16/2016

 

37,992

 

38,214

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($24,875 par due 11/2021)

 

10.75% (Libor + 9.75%/Q)

 

3/16/2016

 

24,875

 

24,875

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,686 par due 11/2021)

 

10.75% (Libor + 9.75%/Q)

 

3/16/2016

 

9,686

 

9,686

(2)(20)

 

 

 

 

 

 

Class A common units (2,130,772 units)

 

 

 

11/20/2015

 

2,131

 

2,131

 

 

 

 

 

 

 

 

 

 

 

 

 

74,928

 

75,150

 

 

 

MVL Group, Inc. (8)

 

Marketing research provider

 

Senior subordinated loan ($450 par due 7/2012)

 

 

 

4/1/2010

 

226

 

226

(2)(19)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

226

 

226

 

 

 

NAS, LLC, Nationwide Marketing Group, LLC and Nationwide Administrative Services, Inc.

 

Buying and marketing services organization for appliance, furniture and consumer electronics dealers

 

Second lien senior secured loan ($24,100 par due 12/2021)

 

9.75% (Libor + 8.75%/Q)

 

6/1/2015

 

24,100

 

22,413

(2)(20)

 

 

NSM Insurance Group, LLC (25)

 

Insurance program administrator

 

First lien senior secured loan ($13,222 par due 9/2022)

 

5.75% (Libor + 4.75%/Q)

 

9/1/2016

 

13,222

 

13,222

(2)(20)

 

 

PayNearMe, Inc.

 

Electronic cash payment system provider

 

First lien senior secured loan ($10,000 par due 9/2019)

 

9.50% (Libor + 8.50%/M)

 

3/11/2016

 

9,576

 

10,000

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 195,726 shares of Series E preferred stock (expires 3/2023)

 

 

 

3/11/2016

 

207

 

192

(5)

 

 

 

 

 

 

 

 

 

 

 

 

9,783

 

10,192

 

 

 

PHL Investors, Inc., and PHL Holding Co. (8)

 

Mortgage services

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

Planview, Inc.

 

Provider of project and portfolio management software

 

Second lien senior secured loan ($30,000 par due 8/2022)

 

10.50% (Libor + 9.50%/Q)

 

8/9/2016

 

30,000

 

30,000

(2)(20)

 

 

Poplicus Incorporated

 

Business intelligence and market analytics platform for companies that sell to the public sector

 

First lien senior secured loan ($5,096 par due 1/2018)

 

 

 

6/25/2015

 

4,669

 

2,549

(5)(19)

 

 

 

 

 

 

Warrant to purchase up to 2,402,991 shares of Series C preferred stock (expires 6/2025)

 

 

 

6/25/2015

 

125

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

4,794

 

2,549

 

 

 

PowerPlan, Inc. and Project Torque Ultimate Parent Corporation

 

Fixed asset financial management software provider

 

Second lien senior secured loan ($30,000 par due 2/2023)

 

10.75% (Libor + 9.75%/Q)

 

2/23/2015

 

29,774

 

30,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 2/2023)

 

10.75% (Libor + 9.75%/Q)

 

2/23/2015

 

49,603

 

50,000

(3)(20)

 

 

 

 

 

 

Class A common stock (1,980 shares)

 

 

 

2/23/2015

 

1,980

 

7

(2)

 

 

 

 

 

 

Class B common stock (989,011 shares)

 

 

 

2/23/2015

 

20

 

3,507

(2)

 

 

 

 

 

 

 

 

 

 

 

 

81,377

 

83,514

 

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

1,473

(2)

 

 

Project Alpha Intermediate Holding, Inc. and Qlik Parent, Inc.

 

Provider of data visualization software for data analytics

 

First lien senior secured loan ($140,286 par due 8/2022)

 

9.25% (Libor + 8.25%/Q)

 

8/22/2016

 

138,324

 

140,286

(2)(20)

 

 

 

13



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Class A common shares (7,445 shares)

 

 

 

8/22/2016

 

7,445

 

7,445

(2)

 

 

 

 

 

 

Class B common shares (1,841,609 shares)

 

 

 

8/22/2016

 

75

 

75

(2)

 

 

 

 

 

 

 

 

 

 

 

 

145,844

 

147,806

 

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

266

(2)

 

 

Rocket Fuel Inc.

 

Provider of open and integrated software for digital marketing optimization

 

Common stock (11,405 shares)

 

 

 

9/9/2014

 

40

 

16

(2)

 

 

Sonian Inc.

 

Cloud-based email archiving platform

 

First lien senior secured loan ($7,500 par due 9/2019)

 

9.00% (Libor + 8.00%/M)

 

9/9/2015

 

7,346

 

7,500

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 169,045 shares of Series C preferred stock (expires 9/2022)

 

 

 

9/9/2015

 

93

 

93

(5)

 

 

 

 

 

 

 

 

 

 

 

 

7,439

 

7,593

 

 

 

Talari Networks, Inc.

 

Networking equipment provider

 

First lien senior secured loan ($6,000 par due 12/2018)

 

9.75% (Libor + 8.75%/M)

 

8/3/2015

 

5,923

 

6,000

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 421,052 shares of Series D-1 preferred stock (expires 8/2022)

 

 

 

8/3/2015

 

50

 

50

(5)

 

 

 

 

 

 

 

 

 

 

 

 

5,973

 

6,050

 

 

 

The Greeley Company, Inc. and HCP Acquisition Holdings, LLC (8)

 

Healthcare compliance advisory services

 

Senior subordinated loan ($10,131 par due 3/2017)

 

 

 

3/5/2013

 

 

1,000

(2)(19)

 

 

 

 

 

 

Class A units (14,293,110 units)

 

 

 

6/26/2008

 

12,793

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,793

 

1,000

 

 

 

TraceLink, Inc. (25)

 

Supply chain management software provider for the pharmaceutical industry

 

First lien senior secured revolving loan ($4,400 par due 12/2016)

 

7.50%(Base Rate + 4.00%/M)

 

1/2/2015

 

4,400

 

4,400

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($4,065 par due 1/2019)

 

8.50% (Libor + 7.00%/M)

 

1/2/2015

 

4,004

 

4,065

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 283,353 shares of Series A-2 preferred stock (expires 1/2025)

 

 

 

1/2/2015

 

146

 

1,040

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,550

 

9,505

 

 

 

Velocity Holdings Corp.

 

Hosted enterprise resource planning application management services provider

 

Common units (1,713,546 units)

 

 

 

12/13/2013

 

4,503

 

2,975

 

 

 

WorldPay Group PLC (9)

 

Payment processing company

 

C2 shares (73,974 shares)

 

 

 

10/21/2015

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

752,634

 

744,434

 

14.29

%

Consumer Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badger Sportswear Acquisition, Inc.

 

Provider of team uniforms and athletic wear

 

Second lien senior secured loan ($50,000 par due 3/2024)

 

10.00% (Libor + 9.00%/Q)

 

9/6/2016

 

49,893

 

50,000

(2)(20)

 

 

Feradyne Outdoors, LLC and Bowhunter Holdings, LLC

 

Provider of branded archery and bowhunting accessories

 

First lien senior secured loan ($4,438 par due 3/2019)

 

4.00% (Libor + 3.00%/Q)

 

4/24/2014

 

4,438

 

4,216

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($6,613 par due 3/2019)

 

4.00% (Libor + 3.00%/Q)

 

4/24/2014

 

6,613

 

6,282

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,500 par due 3/2019)

 

6.55% (Libor + 5.55%/Q)

 

4/24/2014

 

9,500

 

8,740

(2)(17)(20)

 

 

 

 

 

 

First lien senior secured loan ($50,100 par due 3/2019)

 

6.55% (Libor + 5.55%/Q)

 

4/24/2014

 

50,100

 

46,092

(3)(17)(20)

 

 

 

 

 

 

Common units (300 units)

 

 

 

4/24/2014

 

3,733

 

2,034

(2)

 

 

 

 

 

 

 

 

 

 

 

 

74,384

 

67,364

 

 

 

Indra Holdings Corp.

 

Designer, marketer, and distributor of rain and cold weather products

 

Second lien senior secured loan ($80,000 par due 11/2021)

 

8.50% (Libor + 7.50%/Q)

 

5/1/2014

 

79,117

 

61,600

(2)(20)

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of OTC healthcare products

 

Warrant to purchase up to 941 shares of preferred stock (expires 6/2021)

 

 

 

7/27/2011

 

 

1,424

(2)

 

 

 

 

 

 

Warrant to purchase up to 1,654,678 shares of common stock (expires 6/2021)

 

 

 

7/27/2011

 

 

579

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

2,003

 

 

 

 

14



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

First lien senior secured loan ($7,687 par due 4/2018)

 

7.84% (Libor + 7.00%/Q)

 

4/2/2012

 

7,676

 

7,686

(4)(20)

 

 

 

 

 

 

First lien senior secured loan ($43 par due 4/2018)

 

9.50%(Base Rate + 6.00%/Q)

 

4/2/2012

 

43

 

43

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

7,719

 

7,729

 

 

 

Plantation Products, LLC, Seed Holdings, Inc. and Flora Parent, Inc.

 

Provider of branded lawn and garden products

 

Second lien senior secured loan ($2,000 par due 6/2021)

 

9.54% (Libor + 8.54%/Q)

 

12/23/2014

 

1,996

 

2,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($54,000 par due 6/2021)

 

9.54% (Libor + 8.54%/Q)

 

12/23/2014

 

53,773

 

54,000

(3)(20)

 

 

 

 

 

 

Second lien senior secured loan ($10,000 par due 6/2021)

 

9.54% (Libor + 8.54%/Q)

 

12/23/2014

 

9,962

 

10,000

(4)(20)

 

 

 

 

 

 

Common stock (30,000 shares)

 

 

 

12/23/2014

 

3,000

 

4,212

(2)

 

 

 

 

 

 

 

 

 

 

 

 

68,731

 

70,212

 

 

 

SHO Holding I Corporation

 

Manufacturer and distributor of slip resistant footwear

 

Second lien senior secured loan ($100,000 par due 4/2023)

 

9.50% (Libor + 8.50%/Q)

 

10/27/2015

 

97,753

 

99,000

(2)(20)

 

 

Shock Doctor, Inc. and Shock Doctor Holdings, LLC (7)

 

Developer, marketer and distributor of sports protection equipment and accessories

 

Second lien senior secured loan ($35,425 par due 10/2021)

 

11.50% (Libor + 10.50%/Q)

 

4/22/2015

 

35,425

 

35,425

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($54,000 par due 10/2021)

 

11.50% (Libor + 10.50%/Q)

 

4/22/2015

 

54,000

 

54,000

(3)(20)

 

 

 

 

 

 

Class A preferred units (50,000 units)

 

 

 

3/14/2014

 

5,000

 

4,544

(2)

 

 

 

 

 

 

Class C preferred units (50,000 units)

 

 

 

4/22/2015

 

5,000

 

4,543

(2)

 

 

 

 

 

 

 

 

 

 

 

 

99,425

 

98,512

 

 

 

The Step2 Company, LLC (8)

 

Toy manufacturer

 

Second lien senior secured loan ($27,583 par due 9/2019)

 

10.00%

 

4/1/2010

 

27,501

 

27,583

(2)

 

 

 

 

 

 

Second lien senior secured loan ($48,318 par due 9/2019)

 

15.00% PIK

 

4/1/2010

 

30,307

 

48,318

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2011

 

24

 

3,418

 

 

 

 

 

 

 

Class B common units (126,278,000 units)

 

 

 

10/30/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

57,832

 

79,404

 

 

 

Varsity Brands Holding Co., Inc., Hercules Achievement, Inc., Hercules Achievement Holdings, Inc. and Hercules VB Holdings, Inc.

 

Leading manufacturer and distributor of textiles, apparel & luxury goods

 

Second lien senior secured loan ($1,576 par due 12/2022)

 

9.75% (Libor + 8.75%/Q)

 

12/11/2014

 

1,570

 

1,576

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($54,000 par due 12/2022)

 

9.75% (Libor + 8.75%/Q)

 

12/11/2014

 

53,573

 

54,000

(3)(20)

 

 

 

 

 

 

Second lien senior secured loan ($91,697 par due 12/2022)

 

9.75% (Libor + 8.75%/Q)

 

12/11/2014

 

90,987

 

91,697

(2)(20)

 

 

 

 

 

 

Common stock (3,353,370 shares)

 

 

 

12/11/2014

 

3,353

 

5,160

(2)

 

 

 

 

 

 

Common stock (3,353,371 shares)

 

 

 

12/11/2014

 

4,147

 

6,381

(2)

 

 

 

 

 

 

 

 

 

 

 

 

153,630

 

158,814

 

 

 

 

 

 

 

 

 

 

 

 

 

688,484

 

694,638

 

13.34

%

Power Generation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alphabet Energy, Inc.

 

Technology developer to convert waste-heat into electricity

 

First lien senior secured loan ($3,893 par due 8/2017)

 

14.50% (Libor + 11.50% Cash, 2.00% PIK/M)

 

12/16/2013

 

3,743

 

3,940

(2)(18)(20)

 

 

 

 

 

 

First lien senior secured loan ($20 par due 8/2017)

 

 

 

12/16/2013

 

19

 

20

(2)(18)

 

 

 

 

 

 

Series 1B preferred stock (12,976 shares)

 

 

 

6/21/2016

 

250

 

56

(2)

 

 

 

 

 

 

Warrant to purchase up to 125,000 shares of Series 2 preferred stock (expires 12/2023)

 

 

 

6/30/2016

 

146

 

54

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,158

 

4,070

 

 

 

CEI Kings Mountain Investor, LP

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($31,727 par due 3/2017)

 

11.00% PIK

 

3/11/2016

 

31,673

 

31,727

(2)

 

 

 

15



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

CPV Maryland Holding Company II, LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($44,460 par due 12/2020)

 

10.00%

 

8/8/2014

 

44,460

 

42,904

(2)

 

 

 

 

 

 

Warrant to purchase up to 4 units of common stock (expires 8/2018)

 

 

 

8/8/2014

 

 

200

(2)

 

 

 

 

 

 

 

 

 

 

 

 

44,460

 

43,104

 

 

 

DESRI VI Management Holdings, LLC

 

Wind power generation facility operator

 

Senior subordinated loan ($25,000 par due 12/2021)

 

9.75%

 

12/24/2014

 

25,000

 

25,000

(2)

 

 

 

 

 

 

Non-Controlling units (10.0 units)

 

 

 

12/24/2014

 

1,606

 

2,316

(2)

 

 

 

 

 

 

 

 

 

 

 

 

26,606

 

27,316

 

 

 

Green Energy Partners, Stonewall LLC and Panda Stonewall Intermediate Holdings II LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($25,000 par due 11/2021)

 

6.50% (Libor + 5.50%/Q)

 

11/13/2014

 

24,784

 

24,125

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($19,258 par due 12/2021)

 

8.00% Cash, 5.25% PIK

 

11/13/2014

 

19,258

 

18,776

(2)

 

 

 

 

 

 

Senior subordinated loan ($90,023 par due 12/2021)

 

8.00% Cash, 5.25% PIK

 

11/13/2014

 

90,023

 

87,772

(2)

 

 

 

 

 

 

 

 

 

 

 

 

134,065

 

130,673

 

 

 

Joule Unlimited Technologies, Inc. and Stichting Joule Global Foundation

 

Renewable fuel and chemical production developer

 

First lien senior secured loan ($8,743 par due 10/2018)

 

13.00% (Libor + 11.00% Cash, 1.00%PIK/M)

 

3/31/2015

 

8,664

 

7,570

(2)(18)(20)

 

 

 

 

 

 

First lien senior secured loan ($31 par due 10/2018)

 

 

 

3/31/2015

 

31

 

27

(2)(18)

 

 

 

 

 

 

Warrant to purchase up to 32,051 shares of Series C-2 preferred stock (expires 7/2023)

 

 

 

7/25/2013

 

 

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

8,695

 

7,597

 

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Second lien senior secured loan ($10,000 par due 2/2020)

 

 

 

2/20/2014

 

8,764

 

(2)(19)

 

 

Moxie Liberty LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($34,788 par due 8/2020)

 

7.50% (Libor + 6.50%/Q)

 

8/21/2013

 

34,550

 

34,440

(2)(20)

 

 

Moxie Patriot LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($34,345 par due 12/2020)

 

6.75% (Libor + 5.75%/Q)

 

12/19/2013

 

34,113

 

33,315

(2)(20)

 

 

Panda Power Annex Fund Hummel Holdings II LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($117,869 par due 10/2016)

 

13.00% PIK

 

10/27/2015

 

117,723

 

117,868

(2)

 

 

Panda Temple Power II, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($19,850 par due 4/2019)

 

7.25% (Libor + 6.00%/Q)

 

4/3/2013

 

19,763

 

18,064

(2)(20)

 

 

Panda Temple Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($24,625 par due 3/2022)

 

7.25% (Libor + 6.25%/Q)

 

3/6/2015

 

23,615

 

21,424

(2)(20)

 

 

PERC Holdings 1 LLC

 

Operator of recycled energy, combined heat and power, and energy efficiency facilities

 

Class B common units (21,653,543 units)

 

 

 

10/20/2014

 

21,654

 

25,062

(2)

 

 

 

 

 

 

 

 

 

 

 

 

509,839

 

494,660

 

9.50

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc., ADF Restaurant Group, LLC, and ARG Restaurant Holdings, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($28,581 par due 12/2018)

 

9.25% (Libor + 8.25%/Q)

 

11/27/2006

 

28,581

 

25,437

(2)(16)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,919 par due 12/2018)

 

9.25% (Libor + 8.25%/Q)

 

11/27/2006

 

10,922

 

9,718

(3)(16)(20)

 

 

 

 

 

 

Promissory note ($24,539 par due 12/2023)

 

 

 

11/27/2006

 

13,770

 

3,477

(2)

 

 

 

 

 

 

Warrant to purchase up to 23,750 units of Series D common stock (expires 12/2023)

 

 

 

12/18/2013

 

24

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

53,297

 

38,632

 

 

 

Benihana, Inc. (25)

 

Restaurant owner and operator

 

First lien senior secured revolving loan ($808 par due 7/2018)

 

7.25% (Libor + 6.00%/Q)

 

8/21/2012

 

808

 

759

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured revolving loan ($1,615 par due 7/2018)

 

8.25%(Base Rate + 4.75%/Q)

 

8/21/2012

 

1,615

 

1,518

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured loan ($4,801 par due 1/2019)

 

7.25% (Libor + 6.00%/Q)

 

8/21/2012

 

4,802

 

4,514

(4)(20)

 

 

 

16



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

7,225

 

6,791

 

 

 

DineInFresh, Inc.

 

Meal-delivery provider

 

First lien senior secured loan ($5,500 par due 7/2018)

 

9.75% (Libor + 8.75%/M)

 

12/19/2014

 

5,462

 

5,500

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 143,079 shares of Series A preferred stock (expires 12/2024)

 

 

 

12/19/2014

 

 

5

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,462

 

5,505

 

 

 

Garden Fresh Restaurant Corp. (25)

 

Restaurant owner and operator

 

First lien senior secured revolving loan

 

 

 

10/3/2013

 

 

(2)(23)

 

 

 

 

 

 

First lien senior secured loan ($40,141 par due 7/2018)

 

10.50% (Libor + 9.00%/Q)

 

10/3/2013

 

40,141

 

38,134

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

40,141

 

38,134

 

 

 

Global Franchise Group, LLC and GFG Intermediate Holding, Inc.

 

Worldwide franchisor of quick service restaurants

 

First lien senior secured loan ($60,811 par due 12/2019)

 

10.49% (Libor + 9.49%/Q)

 

12/18/2014

 

60,811

 

60,811

(3)(20)

 

 

Heritage Food Service Group, Inc. and WCI-HFG Holdings, LLC

 

Distributor of repair and replacement parts for commercial kitchen equipment

 

Second lien senior secured loan ($31,645 par due 10/2022)

 

9.50% (Libor + 8.50%/Q)

 

10/20/2015

 

31,645

 

31,645

(2)(20)

 

 

 

 

 

 

Preferred units (3,000,000 units)

 

 

 

10/20/2015

 

3,000

 

3,016

(2)

 

 

 

 

 

 

 

 

 

 

 

 

34,645

 

34,661

 

 

 

Orion Foods, LLC (8)

 

Convenience food service retailer

 

First lien senior secured loan ($1,180 par due 9/2015)

 

 

 

4/1/2010

 

1,180

 

516

(2)(19)

 

 

 

 

 

 

Second lien senior secured loan ($19,420 par due 9/2015)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,180

 

516

 

 

 

OTG Management, LLC (25)

 

Airport restaurant operator

 

First lien senior secured loan ($76,613 par due 8/2021)

 

9.50% (Libor + 8.50%/Q)

 

8/26/2016

 

76,613

 

76,613

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($24,688 par due 8/2021)

 

9.50% (Libor + 8.50%/Q)

 

8/26/2016

 

24,688

 

24,688

(3)(20)

 

 

 

 

 

 

Senior subordinated loan ($20,340 par due 2/2022)

 

17.50% PIK

 

8/26/2016

 

20,178

 

20,340

(2)

 

 

 

 

 

 

Class A preferred units (3,000,000 units)

 

 

 

8/26/2016

 

30,000

 

30,000

(2)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

11,148

(2)

 

 

 

 

 

 

Warrant to purchase up to 7.73% of common units (expires 6/2018)

 

 

 

6/19/2008

 

100

 

24,529

(2)

 

 

 

 

 

 

Warrant to purchase 0.60 shares of the common units (expires 12/2018)

 

 

 

8/26/2016

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

154,579

 

187,318

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

First lien senior secured loan ($34,615 par due 2/2019)

 

8.75% (Libor + 7.75%/Q)

 

3/13/2014

 

34,446

 

33,922

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

391,786

 

406,290

 

7.80

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC (8)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

 

524

 

 

 

Callidus Capital Corporation (8)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,668

 

 

 

Ciena Capital LLC (8)(25)

 

Real estate and small business loan servicer

 

First lien senior secured revolving loan ($14,000 par due 12/2016)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($250 par due 12/2016)

 

12.00%

 

11/29/2010

 

250

 

250

(2)

 

 

 

 

 

 

First lien senior secured loan ($500 par due 12/2016)

 

12.00%

 

11/29/2010

 

500

 

500

(2)

 

 

 

 

 

 

First lien senior secured loan ($1,250 par due 12/2016)

 

12.00%

 

11/29/2010

 

1,250

 

1,250

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

34,974

 

17,082

(2)

 

 

 

 

 

 

 

 

 

 

 

 

50,974

 

33,082

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 8/2022)

 

11.00% (Libor + 9.75%/Q)

 

5/10/2012

 

28,000

 

28,000

(2)(20)

 

 

Gordian Acquisition Corp.

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

(2)

 

 

 

17



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Imperial Capital Group LLC

 

Investment services

 

Class A common units (32,369 units)

 

 

 

5/10/2007

 

7,870

 

11,812

(2)

 

 

 

 

 

 

2006 Class B common units (10,605 units)

 

 

 

5/10/2007

 

1

 

2

(2)

 

 

 

 

 

 

2007 Class B common units (1,323 units)

 

 

 

5/10/2007

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

7,871

 

11,814

 

 

 

Ivy Hill Asset Management, L.P. (8)(10)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

233,464

 

 

 

Javlin Three LLC, Javlin Four LLC, and Javlin Five LLC (10)

 

Asset-backed financial services company

 

First lien senior secured loan ($34,900 par due 6/2017)

 

10.47% (Libor + 10.00%/Q)

 

6/24/2014

 

34,900

 

34,900

(2)

 

 

LSQ Funding Group, L.C. and LM LSQ Investors LLC (10)(25)

 

Asset based lender

 

Senior subordinated loan ($30,000 par due 6/2021)

 

10.50%

 

6/25/2015

 

30,000

 

30,000

(2)

 

 

 

 

 

 

Membership units (3,275,000 units)

 

 

 

6/25/2015

 

3,275

 

3,309

 

 

 

 

 

 

 

 

 

 

 

 

 

33,275

 

33,309

 

 

 

 

 

 

 

 

 

 

 

 

 

328,981

 

376,761

 

7.23

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Component Hardware Group, Inc. (25)

 

Commercial equipment

 

First lien senior secured revolving loan ($1,867 par due 7/2019)

 

5.50% (Libor + 4.50%/Q)

 

7/1/2013

 

1,867

 

1,867

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($8,001 par due 7/2019)

 

5.50% (Libor + 4.50%/Q)

 

7/1/2013

 

8,001

 

8,001

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

9,868

 

9,868

 

 

 

Harvey Tool Company, LLC and Harvey Tool Holding, LLC (25)

 

Cutting tool provider to the metalworking industry

 

Senior subordinated loan ($28,064 par due 9/2020)

 

10.00% Cash, 1.00% PIK

 

8/13/2015

 

28,064

 

28,064

(2)

 

 

 

 

 

 

Class A membership units (750 units)

 

 

 

3/28/2014

 

896

 

1,521

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,960

 

29,585

 

 

 

Ioxus, Inc

 

Energy storage devices

 

First lien senior secured loan ($662 par due 8/2017)

 

12.00% PIK

 

8/24/2016

 

662

 

662

(2)

 

 

 

 

 

 

First lien senior secured loan ($10,186 par due 6/2019)

 

5.00 % Cash, 7.00% PIK

 

4/29/2014

 

9,930

 

9,676

(2)

 

 

 

 

 

 

First lien senior secured loan ($268 par due 6/2019)

 

 

 

4/29/2014

 

261

 

255

(2)

 

 

 

 

 

 

Warrant to purchase up to 1,210,235 shares of Series BB preferred stock (expires 8/2026)

 

 

 

1/28/2016

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 3,038,730 shares of common stock (expires 1/2026)

 

 

 

1/28/2016

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,853

 

10,593

 

 

 

KPS Global LLC

 

Walk-in cooler and freezer systems

 

First lien senior secured loan ($27,140 par due 12/2020)

 

9.69% (Libor + 8.69%/Q)

 

12/4/2015

 

27,140

 

27,140

(2)(20)

 

 

MacLean-Fogg Company and MacLean-Fogg Holdings, L.L.C.

 

Manufacturer and supplier for the power utility and automotive markets worldwide

 

Senior subordinated loan ($99,187 par due 10/2025)

 

10.50% Cash, 3.00% PIK

 

10/31/2013

 

99,187

 

99,187

(2)

 

 

 

 

 

 

Preferred units (70,183 units)

 

4.50% Cash, 9.25% PIK

 

10/9/2015

 

72,794

 

72,794

 

 

 

 

 

 

 

 

 

 

 

 

 

171,981

 

171,981

 

 

 

Niagara Fiber Intermediate Corp. (25)

 

Insoluble fiber filler products

 

First lien senior secured revolving loan ($1,881 par due 5/2018)

 

 

 

5/8/2014

 

1,808

 

1,392

(2)(19)

 

 

 

 

 

 

First lien senior secured loan ($1,430 par due 5/2018)

 

 

 

5/8/2014

 

1,382

 

1,058

(2)(19)

 

 

 

 

 

 

First lien senior secured loan ($13,649 par due 5/2018)

 

 

 

5/8/2014

 

13,182

 

10,100

(2)(19)

 

 

 

 

 

 

 

 

 

 

 

 

16,372

 

12,550

 

 

 

Nordco Inc. (25)

 

Railroad maintenance-of-way machinery

 

First lien senior secured revolving loan ($1,375 par due 8/2020)

 

8.75%(Base Rate + 5.25%/Q)

 

8/26/2015

 

1,375

 

1,224

(2)(20)(24)

 

 

Pelican Products, Inc.

 

Flashlights

 

Second lien senior secured loan ($40,000 par due 4/2021)

 

9.25% (Libor + 8.25%/Q)

 

4/11/2014

 

39,962

 

38,000

(2)(20)

 

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

SI Holdings, Inc.

 

Elastomeric parts, mid-sized composite structures, and composite tooling

 

Common stock (1,500 shares)

 

 

 

5/30/2014

 

1,500

 

1,773

(2)

 

 

 

18



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

TPTM Merger Corp. (25)

 

Time temperature indicator products

 

First lien senior secured revolving loan ($1,250 par due 9/2018)

 

7.50% (Libor + 6.50%/Q)

 

9/12/2013

 

1,250

 

1,250

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($17,000 par due 9/2018)

 

9.67% (Libor + 8.67%/Q)

 

9/12/2013

 

17,000

 

17,000

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 9/2018)

 

9.67% (Libor + 8.67%/Q)

 

9/12/2013

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

28,250

 

28,250

 

 

 

 

 

 

 

 

 

 

 

 

 

337,261

 

330,964

 

6.35

%

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp. (7)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

9,650

(2)

 

 

Infilaw Holding, LLC (25)

 

Operator of for-profit law schools

 

First lien senior secured revolving loan ($6,000 par due 1/2017)

 

13.50% (Libor + 12.50%/M)

 

8/25/2011

 

6,000

 

6,000

(2)(20)(24)

 

 

 

 

 

 

Series A preferred units (1.25 units)

 

 

 

8/25/2011

 

125,521

 

79,930

(2)(19)

 

 

 

 

 

 

Series A-1 preferred units (0.03 units)

 

 

 

7/29/2016

 

2,546

 

2,546

(2)

 

 

 

 

 

 

Series B preferred units (0.39 units)

 

 

 

10/19/2012

 

9,245

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

143,312

 

88,476

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private School Operator

 

First lien senior secured loan ($2,811 par due 12/2018)

 

10.50% PIK (Libor + 9.00%/Q)

 

10/31/2015

 

2,811

 

2,811

(2)(20)

 

 

 

 

 

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

(2)

 

 

 

 

 

 

Senior preferred series A-1 shares (163,902 shares)

 

 

 

10/31/2015

 

119,422

 

58,400

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

127,922

 

61,211

 

 

 

Lakeland Tours, LLC (25)

 

Educational travel provider

 

First lien senior secured revolving loan ($11,306 par due 2/2022)

 

5.75% (Libor + 4.75%/Q)

 

2/10/2016

 

11,306

 

11,306

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured loan ($5,060 par due 2/2022)

 

5.75% (Libor + 4.75%/Q)

 

2/10/2016

 

5,008

 

5,060

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($31,707 par due 2/2022)

 

10.44% (Libor + 9.44%/Q)

 

2/10/2016

 

31,340

 

31,708

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

47,654

 

48,074

 

 

 

PIH Corporation (25)

 

Franchisor of education-based early childhood centers

 

First lien senior secured revolving loan ($621 par due 12/2018)

 

7.00% (Libor + 6.00%/Q)

 

12/13/2013

 

621

 

621

(2)(20)

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (1,977 shares)

 

 

 

7/30/2008

 

494

 

494

(2)

 

 

 

 

 

 

Common membership interest (15.76% interest)

 

 

 

9/21/2007

 

15,800

 

31,551

(2)

 

 

 

 

 

 

Warrant to purchase up to 27,890 shares (expires 11/2019)

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

16,294

 

32,045

 

 

 

Regent Education, Inc.

 

Provider of software solutions designed to optimize the financial aid and enrollment processes

 

First lien senior secured loan ($3,750 par due 1/2018)

 

12.00% (Libor + 8.00% Cash, 2.00% PIK/M)

 

7/1/2014

 

3,643

 

3,675

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($53 par due 1/2018)

 

 

 

7/1/2014

 

52

 

52

(2)

 

 

 

 

 

 

Warrant to purchase up to 987,771 shares of Series CC preferred stock (expires 11/2025)

 

 

 

7/1/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,695

 

3,727

 

 

 

RuffaloCODY,LLC (25)

 

Provider of student fundraising and enrollment management services

 

First lien senior secured revolving loan

 

 

 

5/29/2013

 

 

(23)

 

 

Severin Acquisition, LLC (25)

 

Provider of student information system software solutions to the K-12 education market

 

Second lien senior secured loan ($15,000 par due 7/2022)

 

9.75% (Libor + 8.75%/Q)

 

7/31/2015

 

14,750

 

14,850

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($4,154 par due 7/2022)

 

9.75% (Libor + 8.75%/Q)

 

10/28/2015

 

4,082

 

4,112

(2)(20)

 

 

 

19



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Second lien senior secured loan ($3,273 par due 7/2022)

 

10.25% (Libor + 9.25%/Q)

 

2/1/2016

 

3,213

 

3,273

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($2,833 par due 7/2022)

 

10.25% (Libor + 9.25%/Q)

 

8/8/2016

 

2,776

 

2,833

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

24,821

 

25,068

 

 

 

WCI-Quantum Holdings, Inc.

 

Distributor of instructional products, services and resources

 

Series A preferred stock (1,272 shares)

 

 

 

10/24/2014

 

1,000

 

1,126

(2)

 

 

 

 

 

 

 

 

 

 

 

 

375,839

 

269,998

 

5.18

%

Containers and Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charter NEX US Holdings, Inc.

 

Producer of high-performance specialty films used in flexible packaging

 

Second lien senior secured loan ($11,830 par due 2/2023)

 

9.25% (Libor + 8.25%/Q)

 

2/5/2015

 

11,691

 

11,830

(2)(20)

 

 

GS Pretium Holdings, Inc.

 

Manufacturer and supplier of high performance plastic containers

 

Common stock (500,000 shares)

 

 

 

6/2/2014

 

500

 

739

(2)

 

 

ICSH, Inc. (25)

 

Industrial container manufacturer, reconditioner and servicer

 

First lien senior secured revolving loan ($1,000 par due 12/2018)

 

6.75% (Libor + 5.75%/Q)

 

8/30/2011

 

1,000

 

1,000

(2)(20)(24)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 12/2018)

 

6.75% (Libor + 5.75%/Q)

 

8/26/2016

 

5,000

 

5,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($66,000 par due 12/2019)

 

10.16% (Libor + 9.00%/Q)

 

12/31/2015

 

66,000

 

66,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

72,000

 

72,000

 

 

 

LBP Intermediate Holdings LLC (25)

 

Manufacturer of paper and corrugated foodservice packaging

 

First lien senior secured revolving loan

 

 

 

7/10/2015

 

 

(23)

 

 

 

 

 

 

First lien senior secured loan ($12,759 par due 7/2020)

 

6.50% (Libor + 5.50%/Q)

 

7/10/2015

 

12,643

 

12,759

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

12,643

 

12,759

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC, and MStar Holding Corporation

 

Keg management solutions provider

 

Second lien senior secured loan ($78,500 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

78,500

 

78,500

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($54,000 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

54,000

 

54,000

(3)(20)

 

 

 

 

 

 

Second lien senior secured loan ($10,000 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

12/14/2012

 

3,951

 

7,515

(2)

 

 

 

 

 

 

 

 

 

 

 

 

146,451

 

150,015

 

 

 

 

 

 

 

 

 

 

 

 

 

243,285

 

247,343

 

4.75

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Seafoods Group LLC and American Seafoods Partners LLC (25)

 

Harvester and processor of seafood

 

First lien senior secured revolving loan ($3,767 par due 8/2021)

 

7.50%(Base Rate + 4.00%/Q)

 

8/19/2015

 

3,767

 

3,767

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($6,921 par due 8/2021)

 

6.00% (Libor + 5.00%/Q)

 

8/19/2015

 

6,847

 

6,921

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($94 par due 8/2021)

 

7.50%(Base Rate + 4.00%/Q)

 

8/19/2015

 

93

 

94

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($55,000 par due 2/2022)

 

10.00% (Libor + 9.00%/Q)

 

8/19/2015

 

55,000

 

55,000

(2)(20)

 

 

 

 

 

 

Class A units (77,922 units)

 

 

 

8/19/2015

 

78

 

83

(2)

 

 

 

 

 

 

Warrant to purchase up to 7,422,078 Class A units (expires 8/2035)

 

 

 

8/19/2015

 

7,422

 

7,872

(2)

 

 

 

 

 

 

 

 

 

 

 

 

73,207

 

73,737

 

 

 

Eagle Family Foods Group LLC

 

Manufacturer and producer of milk products

 

First lien senior secured loan ($466 par due 12/2021)

 

5.00% (Libor + 4.00%/Q)

 

8/22/2016

 

466

 

466

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($22,316 par due 12/2021)

 

10.05% (Libor + 9.05%/Q)

 

8/22/2016

 

22,316

 

22,316

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($4,775 par due 12/2021)

 

10.05% (Libor + 9.05%/Q)

 

12/31/2015

 

4,751

 

4,775

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($50,000 par due 12/2021)

 

10.05% (Libor + 9.05%/Q)

 

12/31/2015

 

49,659

 

50,000

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

77,192

 

77,557

 

 

 

 

20



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

GF Parent LLC

 

Producer of low-acid, aseptic food and beverage products

 

Class A preferred units (2,940 units)

 

 

 

5/13/2015

 

2,940

 

1,358

(2)

 

 

 

 

 

 

Class A common units (60,000 units)

 

 

 

5/13/2015

 

60

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

1,358

 

 

 

Kettle Cuisine, LLC

 

Manufacturer of fresh refrigerated and frozen food products

 

Second lien senior secured loan ($28,500 par due 2/2022)

 

10.75% (Libor + 9.75%/Q)

 

8/21/2015

 

28,500

 

28,500

(2)(20)

 

 

KeyImpact Holdings, Inc. and JWC/KI Holdings, LLC

 

Foodservice sales and marketing agency

 

Membership units (5,000 units)

 

 

 

11/16/2015

 

5,000

 

5,747

(2)

 

 

 

 

 

 

 

 

 

 

 

 

186,899

 

186,899

 

3.59

%

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AEP Holdings, Inc. and Arrowhead Holdco Company

 

Distributor of non-discretionary, mission-critical aftermarket replacement parts

 

Common stock (2,832 shares)

 

 

 

8/31/2015

 

2,832

 

2,978

(2)

 

 

CH Hold Corp. (25)

 

Collision repair company

 

First lien senior secured revolving loan ($3,065 par due 11/2019)

 

7.75%(Base Rate + 4.25%/Q)

 

2/24/2016

 

3,065

 

3,065

(2)(20)

 

 

ChargePoint, Inc.

 

Developer and operator of electric vehicle charging stations

 

Second lien senior secured loan ($20,000 par due 8/2020)

 

9.75% (Libor + 8.75%/M)

 

12/24/2014

 

19,496

 

20,000

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 809,126 shares of Series E preferred stock (expires 12/2024)

 

 

 

12/24/2014

 

327

 

1,453

(2)

 

 

 

 

 

 

 

 

 

 

 

 

19,823

 

21,453

 

 

 

Dent Wizard International Corporation and DWH Equity Investors, L.P.

 

Automotive reconditioning services

 

Second lien senior secured loan ($50,000 par due 10/2020)

 

10.25% (Libor + 9.25%/Q)

 

4/7/2015

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

Class A common stock (10,000 shares)

 

 

 

4/7/2015

 

333

 

578

(2)

 

 

 

 

 

 

Class B common stock (20,000 shares)

 

 

 

4/7/2015

 

667

 

1,156

(2)

 

 

 

 

 

 

 

 

 

 

 

 

51,000

 

51,734

 

 

 

Eckler Industries, Inc. (25)

 

Restoration parts and accessories provider for classic automobiles

 

First lien senior secured revolving loan ($2,000 par due 7/2017)

 

8.50%(Base Rate + 5.00%/Q)

 

7/12/2012

 

2,000

 

1,860

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($6,907 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

6,907

 

6,424

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($26,096 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

26,096

 

24,269

(3)(20)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

37,003

 

32,553

 

 

 

EcoMotors, Inc.

 

Engine developer

 

First lien senior secured loan ($9,840 par due 3/2018)

 

11.00%

 

9/1/2015

 

9,488

 

9,840

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C preferred stock (expires 12/2022)

 

 

 

12/28/2012

 

 

347

(2)

 

 

 

 

 

 

Warrant to purchase up to 70,000 shares of Series C preferred stock (expires 2/2025)

 

 

 

2/24/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,488

 

10,187

 

 

 

Simpson Performance Products, Inc.

 

Provider of motorsports safety equipment

 

First lien senior secured loan ($18,507 par due 2/2020)

 

9.73% (Libor + 8.73%/Q)

 

2/20/2015

 

18,507

 

18,506

(3)(20)

 

 

SK SPV IV, LLC

 

Collision repair site operators

 

Series A common stock (12,500 units)

 

 

 

8/18/2014

 

571

 

3,137

(2)

 

 

 

 

 

 

Series B common stock (12,500 units)

 

 

 

8/18/2014

 

571

 

3,137

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,142

 

6,274

 

 

 

TA THI Buyer, Inc. and TA THI Parent, Inc.

 

Collision repair company

 

Series A preferred stock (50,000 shares)

 

 

 

7/28/2014

 

5,000

 

13,196

(2)

 

 

 

 

 

 

 

 

 

 

 

 

147,860

 

159,946

 

3.07

%

 

21



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lonestar Prospects, Ltd.

 

Sand proppant producer and distributor to the oil and natural gas industry

 

First lien senior secured loan ($24,140 par due 9/2018)

 

8.50% (Libor + 6.50% Cash, 1.00% PIK/Q)

 

9/18/2014

 

24,140

 

24,140

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($47,107 par due 9/2018)

 

8.50% (Libor + 6.50% Cash, 1.00% PIK/Q)

 

9/18/2014

 

47,107

 

47,107

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

71,247

 

71,247

 

 

 

Petroflow Energy Corporation and TexOak Petro Holdings LLC (7)

 

Oil and gas exploration and production company

 

First lien senior secured loan ($16,333 par due 6/2019)

 

3.00%

 

6/29/2016

 

16,160

 

14,863

(2)

 

 

 

 

 

 

Second lien senior secured loan ($21,885 par due 12/2019)

 

 

 

6/29/2016

 

21,885

 

4,158

(2)(19)

 

 

 

 

 

 

Common units (202,000 units)

 

 

 

6/29/2016

 

11,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,120

 

19,021

 

 

 

UL Holding Co., LLC (7)

 

Manufacturer and distributor of re-refined oil products

 

Senior subordinated loan ($6,157 par due 5/2020)

 

10.00% PIK

 

4/30/2012

 

1,489

 

5,292

(2)

 

 

 

 

 

 

Senior subordinated loan ($159 par due 5/2020)

 

 

 

4/30/2012

 

38

 

136

(2)

 

 

 

 

 

 

Senior subordinated loan ($26,112 par due 5/2020)

 

10.00% PIK

 

4/30/2012

 

6,365

 

22,445

(2)

 

 

 

 

 

 

Senior subordinated loan ($672 par due 5/2020)

 

 

 

4/30/2012

 

164

 

578

(2)

 

 

 

 

 

 

Senior subordinated loan ($3,038 par due 5/2020)

 

10.00% PIK

 

4/30/2012

 

714

 

2,612

(2)

 

 

 

 

 

 

Senior subordinated loan ($78 par due 5/2020)

 

 

 

4/30/2012

 

18

 

67

(2)

 

 

 

 

 

 

Class A common units (533,351 units)

 

 

 

6/17/2011

 

4,993

 

(2)

 

 

 

 

 

 

Class B-5 common units (272,834 units)

 

 

 

6/17/2011

 

2,492

 

(2)

 

 

 

 

 

 

Class C common units (758,546 units)

 

 

 

4/25/2008

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 719,044 shares of Class A units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 28,663 shares of Class B-1 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 57,325 shares of Class B-2 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 29,645 shares of Class B-3 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 80,371 shares of Class B-5 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 59,655 shares of Class B-6 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 1,046,713 shares of Class C units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

16,273

 

31,130

 

 

 

 

 

 

 

 

 

 

 

 

 

136,640

 

121,398

 

2.33

%

Hotel Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aimbridge Hospitality, LLC (25)

 

Hotel operator

 

First lien senior secured loan ($2,870 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

1/7/2016

 

2,835

 

2,870

(2)(15)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,288 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

7/15/2015

 

3,263

 

3,288

(2)(15)(20)

 

 

 

 

 

 

First lien senior secured loan ($14,923 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

7/15/2015

 

14,777

 

14,923

(4)(15)(20)

 

 

 

 

 

 

 

 

 

 

 

 

20,875

 

21,081

 

 

 

Castle Management Borrower LLC

 

Hotel operator

 

Second lien senior secured loan ($10,000 par due 3/2021)

 

11.00% (Libor + 10.00%/Q)

 

10/17/2014

 

10,000

 

10,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($55,000 par due 3/2021)

 

11.00% (Libor + 10.00%/Q)

 

10/17/2014

 

55,000

 

55,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

65,000

 

65,000

 

 

 

Pyramid Management Advisors, LLC and Pyramid Investors, LLC (25)

 

Hotel operator

 

First lien senior secured loan ($19,500 par due 7/2021)

 

11.12% (Libor + 10.12%/Q)

 

7/15/2016

 

19,500

 

19,500

(2)(20)

 

 

 

 

 

 

Membership units (990,369 units)

 

 

 

7/15/2016

 

990

 

918

(2)

 

 

 

 

 

 

 

 

 

 

 

 

20,490

 

20,418

 

 

 

 

 

 

 

 

 

 

 

 

 

106,365

 

106,499

 

2.04

%

 

22



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC and New 10th Street, LLC (8)

 

Real estate holding company

 

First lien senior secured loan ($25,514 par due 11/2019)

 

12.00% Cash, 1.00% PIK

 

3/31/2014

 

25,514

 

25,514

(2)

 

 

 

 

 

 

Senior subordinated loan ($27,440 par due 11/2019)

 

12.00% Cash, 1.00% PIK

 

4/1/2010

 

27,440

 

27,440

(2)

 

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

37,259

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

53,573

 

90,238

 

 

 

 

 

 

 

 

 

 

 

 

 

53,573

 

90,238

 

1.73

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cadence Aerospace, LLC

 

Aerospace precision components manufacturer

 

First lien senior secured loan ($4,042 par due 5/2018)

 

7.00% (Libor + 5.75%/Q)

 

5/15/2012

 

4,031

 

4,042

(4)(20)

 

 

 

 

 

 

First lien senior secured loan ($11 par due 5/2018)

 

8.25%(Base Rate + 4.75%/Q)

 

5/15/2012

 

11

 

11

(4)(20)

 

 

 

 

 

 

Second lien senior secured loan ($79,657 par due 5/2019)

 

11.00% (Libor + 9.75%/Q)

 

5/10/2012

 

79,657

 

77,267

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

83,699

 

81,320

 

 

 

 

 

 

 

 

 

 

 

 

 

83,699

 

81,320

 

1.56

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MPH Energy Holdings, LP

 

Operator of municipal recycling facilities

 

Limited partnership interest (3.13% interest)

 

 

 

1/8/2014

 

 

(2)

 

 

RE Community Holdings, LP and Pegasus Community Energy, LLC

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

(2)

 

 

Waste Pro USA, Inc

 

Waste management services

 

Second lien senior secured loan ($16,448 par due 10/2020)

 

8.50% (Libor + 7.50%/Q)

 

10/15/2014

 

16,448

 

16,448

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($59,696 par due 10/2020)

 

8.50% (Libor + 7.50%/Q)

 

10/15/2014

 

59,696

 

59,696

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

76,144

 

76,144

 

 

 

 

 

 

 

 

 

 

 

 

 

84,983

 

76,144

 

1.46

%

Chemicals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Genomatica, Inc.

 

Developer of a biotechnology platform for the production of chemical products

 

Warrant to purchase 322,422 shares of Series D preferred stock (expires 3/2023)

 

 

 

3/28/2013

 

 

6

(2)

 

 

K2 Pure Solutions Nocal, L.P. (25)

 

Chemical Producer

 

First lien senior secured revolving loan ($1,500 par due 2/2021)

 

8.13% (Libor + 7.13%/Q)

 

8/19/2013

 

1,500

 

1,500

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($13,975 par due 2/2021)

 

7.00% (Libor + 6.00%/Q)

 

8/19/2013

 

13,975

 

13,975

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($26,000 par due 2/2021)

 

7.00% (Libor + 6.00%/Q)

 

8/19/2013

 

26,000

 

26,000

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($13,000 par due 2/2021)

 

7.00% (Libor + 6.00%/Q)

 

8/19/2013

 

13,000

 

13,000

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

54,475

 

54,475

 

 

 

Kinestral Technologies, Inc.

 

Designer of adaptive, dynamic glass for the commercial and residential markets.

 

First lien senior secured loan ($9,667 par due 10/2018)

 

8.75% (Libor + 7.75%/M)

 

4/22/2014

 

9,561

 

9,695

(2)(18)(20)

 

 

 

 

 

 

Warrant to purchase up to 325,000 shares of Series A preferred stock (expires 4/2024)

 

 

 

4/22/2014

 

73

 

151

(2)

 

 

 

 

 

 

Warrant to purchase up to 131,883 shares of Series B preferred stock (expires 4/2025)

 

 

 

4/9/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,634

 

9,846

 

 

 

Liquid Light, Inc. (8)

 

Developer and licensor of process technology for the conversion of carbon dioxide into major chemicals

 

First lien senior secured loan ($2,293 par due 11/2017)

 

 

 

8/13/2014

 

2,148

 

1,200

(2)(19)

 

 

 

 

 

 

Warrant to purchase up to 86,009 shares of Series B preferred stock (expires 8/2024)

 

 

 

8/13/2014

 

77

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,225

 

1,200

 

 

 

 

23



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

66,334

 

65,527

 

1.26

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc. (25)

 

Premier health club operator

 

First lien senior secured loan ($35,000 par due 10/2020)

 

9.50% (Libor + 8.50%/Q)

 

10/11/2007

 

35,000

 

35,000

(2)(20)

 

 

CFW Co-Invest, L.P., NCP Curves, L.P. and Curves International Holdings, Inc.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

(2)

 

 

 

 

 

 

Common stock (1,680 shares)

 

 

 

11/12/2014

 

 

(2)(9)

 

 

 

 

 

 

Limited partnership interest (2,218,235 shares)

 

 

 

7/31/2012

 

2,218

 

7,857

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

6,370

 

7,857

 

 

 

 

 

 

 

 

 

 

 

 

 

41,370

 

42,857

 

0.82

%

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flow Solutions Holdings, Inc.

 

Distributor of high value fluid handling, filtration and flow control products

 

Second lien senior secured loan ($6,000 par due 10/2018)

 

10.00% (Libor + 9.00%/Q)

 

12/16/2014

 

6,000

 

5,280

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($29,500 par due 10/2018)

 

10.00% (Libor + 9.00%/Q)

 

12/16/2014

 

29,500

 

25,960

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

35,500

 

31,240

 

 

 

 

 

 

 

 

 

 

 

 

 

35,500

 

31,240

 

0.60

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paper Source, Inc. and Pine Holdings, Inc. (25)

 

Retailer of fine and artisanal paper products

 

First lien senior secured revolving loan ($667 par due 9/2018)

 

8.50%(Base Rate + 5.00%/Q)

 

9/23/2013

 

667

 

667

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,724 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

9,724

 

9,724

(4)(20)

 

 

 

 

 

 

Class A common stock (36,364 shares)

 

 

 

9/23/2013

 

6,000

 

6,901

(2)

 

 

 

 

 

 

 

 

 

 

 

 

16,391

 

17,292

 

 

 

Things Remembered, Inc. and TRM Holdco Corp. (7)(25)

 

Personalized gifts retailer

 

First lien senior secured revolving loan ($283 par due 2/2019)

 

9.00% (Libor + 8.00%/Q)

 

8/30/2016

 

283

 

283

(2)(20)

 

 

 

 

 

 

First lien senior secured revolving loan ($581 par due 2/2019)

 

10.50%(Base Rate + 7.00%/Q)

 

8/30/2016

 

581

 

581

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,733 par due 3/2020)

 

 

 

5/24/2012

 

10,632

 

3,954

(2)(19)

 

 

 

 

 

 

Common stock (10,631,940 shares)

 

 

 

8/30/2016

 

6,082

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

17,578

 

4,818

 

 

 

 

 

 

 

 

 

 

 

 

 

33,969

 

22,110

 

0.42

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adaptive Mobile Security Limited (9)

 

Developer of security software for mobile communications networks

 

First lien senior secured loan ($2,232 par due 7/2018)

 

10.00% (Libor + 9.00%/M)

 

1/16/2015

 

2,280

 

2,449

(2)(18)(20)

 

 

 

 

 

 

First lien senior secured loan ($585 par due 10/2018)

 

10.00% (Libor + 9.00%/M)

 

1/16/2015

 

596

 

642

(2)(18)(20)

 

 

 

 

 

 

 

 

 

 

 

 

2,876

 

3,091

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, and Cameron Holdings of NC, Inc.

 

Broadband communication services

 

Warrant to purchase up to 208 shares (expires 11/2017)

 

 

 

11/7/2007

 

 

7,204

 

 

 

 

 

 

 

Warrant to purchase up to 200 shares (expires 9/2020)

 

 

 

9/1/2010

 

 

6,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,131

 

 

 

Startec Equity, LLC (8)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

Wilcon Holdings LLC

 

Communications infrastructure provider

 

Class A common stock (2,000,000 shares)

 

 

 

12/13/2013

 

1,829

 

3,420

 

 

 

 

 

 

 

 

 

 

 

 

 

4,705

 

20,642

 

0.40

%

Computers and Electronics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Everspin Technologies, Inc. (25)

 

Designer and manufacturer of computer memory solutions

 

First lien senior secured revolving loan ($1,145 par due 6/2017)

 

7.25%(Base Rate + 3.75%/M)

 

6/5/2015

 

1,145

 

1,145

(5)(20)

 

 

 

24



Table of Contents

 

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($8,000 par due 6/2019)

 

8.75% (Libor + 7.75%/M)

 

6/5/2015

 

7,633

 

8,000

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 480,000 shares of Series B preferred stock (expires 6/2025)

 

 

 

6/5/2015

 

355

 

252

(5)

 

 

 

 

 

 

 

 

 

 

 

 

9,133

 

9,397

 

 

 

Liquid Robotics, Inc.

 

Ocean data services provider utilizing long duration, autonomous surface vehicles

 

First lien senior secured loan ($3,005 par due 4/2019)

 

11.00% (Libor + 8.00% Cash, 2.00% PIK/M)

 

6/30/2016

 

2,933

 

3,005

(5)(20)

 

 

 

 

 

 

First lien senior secured loan ($5 par due 4/2019)

 

 

 

6/30/2016

 

5

 

5

(5)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 5/2019)

 

9.00% (Libor + 8.00%/M)

 

10/29/2015

 

4,885

 

5,000

(5)(20)

 

 

 

 

 

 

Warrant to purchase up to 30,172 shares of Series E preferred stock (expires 6/2026)

 

 

 

6/30/2016

 

42

 

60

(5)

 

 

 

 

 

 

Warrant to purchase up to 50,263 shares of Series E preferred stock (expires 10/2025)

 

 

 

10/29/2015

 

76

 

100

(5)

 

 

 

 

 

 

 

 

 

 

 

 

7,941

 

8,170

 

 

 

 

 

 

 

 

 

 

 

 

 

17,074

 

17,567

 

0.34

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

First lien senior secured loan ($9,915 par due 12/2016)

 

12.00% (Libor + 11.00%/M)

 

10/31/2012

 

9,915

 

10,065

(2)(18)(20)

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

3,734

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

10

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,069

 

3,744

 

 

 

 

 

 

 

 

 

 

 

 

 

10,984

 

13,809

 

0.27

%

 

 

 

 

 

 

 

 

 

 

$

8,927,999

 

$

8,804,651

 

169.03

%

 


(1)                                     Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of September 30, 2016 represented 169% of the Company’s net assets or 96% of the Company’s total assets, are subject to legal restrictions on sales.

 

(2)                                     These assets are pledged as collateral for the Revolving Credit Facility (as defined below) and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

(3)                                     These assets are owned by the Company’s consolidated subsidiary Ares Capital CP Funding LLC (“Ares Capital CP”), are pledged as collateral for the Revolving Funding Facility (as defined below) and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                                     These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility (as defined below) and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                                     These assets are owned by the Company’s consolidated subsidiary Ares Venture Finance, L.P. (“AVF LP”), are pledged as collateral for the SBA-guaranteed debentures (the “SBA Debentures”) and, as a result, are not directly available to

 

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the creditors of the Company to satisfy any obligations of the Company other than AVF LP’s obligations (see Note 5 to the consolidated financial statements). AVF LP operates as a Small Business Investment Company (“SBIC”) under the provisions of Section 301(c) of the Small Business Investment Act of 1958, as amended.

 

(6)                                     Investments without an interest rate are non-income producing.

 

(7)                                     As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” and “Control” this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended September 30, 2016 in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to Control) are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net realized
gains (losses)

 

Net
unrealized
gains (losses)

 

Campus Management Corp. and Campus Management Acquisition Corp.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

335

 

Crown Health Care Laundry Services, Inc. and Crown Laundry Holdings, LLC

 

$

3,500

 

$

310

 

$

18,000

 

$

1,096

 

$

 

$

 

$

228

 

$

 

$

(634

)

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

40

 

$

 

$

443

 

$

(360

)

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

431

 

$

(404

)

Petroflow Energy Corporation and TexOak Petro Holdings LLC

 

$

 

$

 

$

 

$

209

 

$

 

$

 

$

 

$

 

$

782

 

Shock Doctor, Inc. and Shock Doctor Holdings, LLC

 

$

 

$

 

$

 

$

7,827

 

$

 

$

 

$

37

 

$

 

$

(1,510

)

Things Remembered, Inc. and TRM Holdco Corp.

 

$

864

 

$

 

$

 

$

7

 

$

 

$

 

$

10

 

$

10

 

$

(1,671

)

UL Holding Co., LLC and Universal Lubricants, LLC

 

$

 

$

44,179

 

$

 

$

3,016

 

$

 

$

 

$

 

$

12,213

 

$

15,186

 

 

(8)                                     As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended September 30, 2016 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net realized
gains (losses)

 

Net
unrealized
gains (losses)

 

10th Street, LLC and New 10th Street, LLC

 

$

 

$

 

$

 

$

5,182

 

$

 

$

250

 

$

 

$

 

$

(7,261

)

AllBridge Financial, LLC

 

$

 

$

1,140

 

$

 

$

 

$

 

$

 

$

 

$

6,330

 

$

(6,373

)

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(2

)

Ciena Capital LLC

 

$

 

$

10,000

 

$

 

$

1,184

 

$

 

$

 

$

 

$

 

$

246

 

Community Education Centers, Inc. and CEC Parent Holdings LLC

 

$

 

$

 

$

 

$

3,433

 

$

 

$

 

$

56

 

$

 

$

8,220

 

Competitor Group, Inc., Calera XVI, LLC and Champion Parent Corporation

 

$

1,900

 

$

35

 

$

 

$

1,128

 

$

 

$

 

$

76

 

$

1

 

$

1,032

 

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

 

$

1,205

 

$

 

$

 

$

 

$

2,488

 

$

(2,670

)

HCI Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

1

 

Ivy Hill Asset Management, L.P.

 

$

 

$

 

$

 

$

 

$

 

$

30,000

 

$

 

$

 

$

(2,062

)

Liquid Light, Inc.

 

$

 

$

172

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(1,125

)

MVL Group, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Orion Foods, LLC

 

$

 

$

6,356

 

$

 

$

 

$

 

$

 

$

 

$

 

$

3,174

 

PHL Investors, Inc., and PHL Holding Co.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Senior Direct Lending Program, LLC*

 

$

195,338

 

$

 

$

 

$

4,829

 

$

550

 

$

 

$

266

 

$

 

$

 

Senior Secured Loan Fund LLC**

 

$

3,045

 

$

 

$

 

$

165,898

 

$

1,875

 

$

 

$

14,165

 

$

 

$

11,847

 

Startec Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

The Greeley Company, Inc. and HCP Acquisition Holdings, LLC

 

$

 

$

2,691

 

$

 

$

 

$

 

$

 

$

 

$

2,559

 

$

3,691

 

The Step2 Company, LLC

 

$

 

$

4,996

 

$

 

$

4,109

 

$

 

$

 

$

87

 

$

 

$

39,772

 

 

26



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*                                           Together with Varagon Capital Partners (“Varagon”), the Company has co-invested through the Senior Direct Lending Program LLC (d/b/a the “Senior Direct Lending Program” or the “SDLP”). The SDLP has been capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SDLP must be approved by an investment committee of the SDLP consisting of representatives of the Company and Varagon (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SDLP, the Company does not believe that it has control over the SDLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SDLP or any other special rights (see Note 4 to the consolidated financial statements).

 

**                                      Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company has co-invested through the Senior Secured Loan Fund LLC (d/b/a the “Senior Secured Loan Program” or the “SSLP”). The SSLP has been capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(9)                                     Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                                Exception from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(11)                                In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies (“BDCs”) the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) under Investment Company Act) (i.e. not eligible to be included in a BDC’s 70% “qualifying assets” basket). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which stated that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which the U.S. Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”. The Company provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a BDC to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, the Company has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified such entities, which include the SSLP, as “non-qualifying assets” should the Staff ultimately disagree with the Company’s position. Pursuant to Section 55(a) of the Investment Company Act (using the Staff’s methodology described above solely for this purpose), 28% of the Company’s total assets are represented by investments at fair value and other assets that are considered “non-qualifying assets” as of September 30, 2016.

 

(12)                                Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

(13)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $10 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the

 

27



Table of Contents

 

“first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(14)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $82 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.50% on $70 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $17 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.55% on $41 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                                The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

(19)                                Loan was on non-accrual status as of September 30, 2016.

 

(20)                                Loan includes interest rate floor feature.

 

(21)                                The certificates have a stated contractual interest rate and also entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, after expenses. However, the SSLP Certificates are junior in right of payment to the Senior Notes held by GE, and the Company expects that for so long as principal proceeds from SSLP repayments are directed entirely to repay the Senior Notes as discussed above, the yield on the SSLP Certificates will be lower than the stated coupon and continue to decline. See Note 4 to the consolidated financial statements for more information on the SSLP.

 

(22)                                In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SDLP’s loan portfolio, after expenses, which may result in a return to the Company greater than the contractual stated interest rate.

 

(23)                                As of September 30, 2016, no amounts were funded by the Company under this first lien senior secured revolving loan; however, there were letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(24)                                As of September 30, 2016, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(25)                                As of September 30, 2016, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. Such commitments are subject to the satisfaction of certain conditions set forth in the documents governing these loans and letters of credit and there can be no assurance that

 

28



Table of Contents

 

such conditions will be satisfied. See Note 7 to the consolidated financial statements for further information on revolving and delayed draw loan commitments, including commitments to issue letters of credit, related to certain portfolio companies.

 

Portfolio Company

 

Total revolving
and delayed draw
loan
commitments

 

Less: drawn
commitments

 

Total undrawn
commitments

 

Less:
commitments
substantially at
discretion of the
Company

 

Less: unavailable
commitments due
to borrowing base
or other covenant
restrictions

 

Total net adjusted
undrawn revolving
and delayed draw
commitments

 

Accruent, LLC

 

3,250

 

 

3,250

 

 

 

3,250

 

ADCS Clinics Intermediate Holdings, LLC

 

5,000

 

(1,400

)

3,600

 

 

 

3,600

 

ADG, LLC

 

17,762

 

(2,117

)

15,645

 

 

 

15,645

 

Aimbridge Hospitality, LLC

 

2,466

 

 

2,466

 

 

 

2,466

 

American Seafoods Group LLC

 

22,125

 

(3,767

)

18,358

 

 

 

18,358

 

Athletic Club Holdings, Inc.

 

10,000

 

 

10,000

 

 

 

10,000

 

Benihana, Inc.

 

3,231

 

(2,956

)

275

 

 

 

275

 

CCS Intermediate Holdings, LLC

 

7,500

 

(7,318

)

182

 

 

 

182

 

CH Hold Corp.

 

5,000

 

(3,065

)

1,935

 

 

 

1,935

 

Chariot Acquisition, LLC

 

1,000

 

 

1,000

 

 

 

1,000

 

Ciena Capital LLC

 

20,000

 

(14,000

)

6,000

 

(6,000

)

 

 

Clearwater Analytics, LLC

 

5,000

 

 

5,000

 

 

 

5,000

 

Competitor Group, Inc.

 

5,602

 

(5,202

)

400

 

 

 

400

 

Component Hardware Group, Inc.

 

3,734

 

(1,867

)

1,867

 

 

 

1,867

 

Crown Health Care Laundry Services, Inc.

 

5,000

 

(4,572

)

428

 

 

 

428

 

DCA Investment Holding, LLC

 

5,800

 

(5,800

)

 

 

 

 

DTI Holdco, Inc. and OPE DTI Holdings, Inc.

 

8,750

 

 

8,750

 

 

 

8,750

 

Eckler Industries, Inc.

 

4,000

 

(2,000

)

2,000

 

 

 

2,000

 

EN Engineering, L.L.C.

 

5,000

 

 

5,000

 

 

 

5,000

 

Everspin Technologies, Inc.

 

4,000

 

(1,145

)

2,855

 

 

 

2,855

 

Faction Holdings, Inc.

 

2,000

 

(1,000

)

1,000

 

 

 

1,000

 

Garden Fresh Restaurant Corp.

 

5,000

 

(2,293

)

2,707

 

 

 

2,707

 

Gentle Communications, LLC

 

5,000

 

 

5,000

 

 

 

5,000

 

Greenphire, Inc.

 

6,500

 

 

6,500

 

 

 

6,500

 

Harvey Tool Company, LLC

 

753

 

 

753

 

 

 

753

 

Hygiena Borrower LLC

 

1,927

 

 

1,927

 

 

 

1,927

 

ICSH, Inc.

 

5,000

 

(1,795

)

3,205

 

 

 

3,205

 

Infilaw Holding, LLC

 

20,000

 

(13,591

)

6,409

 

(6,409

)

 

 

iPipeline, Inc.

 

4,000

 

 

4,000

 

 

 

4,000

 

Island Medical Management Holdings, LLC

 

3,390

 

(250

)

3,140

 

 

 

3,140

 

Itel Laboratories, Inc.

 

2,500

 

 

2,500

 

 

 

2,500

 

K2 Pure Solutions Nocal, L.P.

 

5,000

 

(1,500

)

3,500

 

 

 

3,500

 

Lakeland Tours, LLC

 

11,910

 

(11,787

)

123

 

 

 

123

 

LBP Intermediate Holdings LLC

 

850

 

(75

)

775

 

 

 

775

 

LSQ Funding Group, L.C.

 

10,000

 

 

10,000

 

 

 

10,000

 

Massage Envy, LLC

 

5,000

 

 

5,000

 

 

 

5,000

 

McKenzie Sports Products, LLC

 

4,500

 

 

4,500

 

 

 

4,500

 

Ministry Brands LLC

 

5,881

 

 

5,881

 

 

 

5,881

 

MW Dental Holding Corp.

 

10,000

 

(1,000

)

9,000

 

 

 

9,000

 

My Health Direct, Inc.

 

1,000

 

 

1,000

 

 

 

1,000

 

Niagara Fiber Intermediate Corp.

 

1,881

 

(1,881

)

 

 

 

 

Noonan Acquisition Company, LLC

 

90,000

 

 

90,000

 

 

 

90,000

 

Nordco Inc

 

11,250

 

(1,388

)

9,862

 

 

 

9,862

 

NSM Insurance Group, LLC

 

7,889

 

 

7,889

 

 

 

7,889

 

OmniSYS Acquisition Corporation

 

2,500

 

 

2,500

 

 

 

2,500

 

OTG Management, LLC

 

22,637

 

 

22,637

 

 

 

22,637

 

Paper Source, Inc.

 

2,500

 

(667

)

1,833

 

 

 

1,833

 

PerfectServe, Inc.

 

2,000

 

 

2,000

 

 

 

2,000

 

PIH Corporation

 

3,314

 

(621

)

2,693

 

 

 

2,693

 

Pyramid Management Advisors, LLC

 

3,000

 

 

3,000

 

 

 

3,000

 

 

29



Table of Contents

 

Portfolio Company

 

Total revolving
and delayed draw
loan
commitments

 

Less: drawn
commitments

 

Total undrawn
commitments

 

Less:
commitments
substantially at
discretion of the
Company

 

Less: unavailable
commitments due
to borrowing base
or other covenant
restrictions

 

Total net adjusted
undrawn revolving
and delayed draw
commitments

 

RuffaloCODY, LLC

 

7,683

 

(163

)

7,520

 

 

 

7,520

 

Severin Acquisition, LLC

 

2,900

 

 

2,900

 

 

 

2,900

 

Things Remembered, Inc.

 

2,833

 

(864

)

1,969

 

 

 

1,969

 

Towne Holdings, Inc.

 

980

 

 

980

 

 

 

980

 

TPTM Merger Corp.

 

2,500

 

(1,250

)

1,250

 

 

 

1,250

 

TraceLink, Inc.

 

7,500

 

(4,400

)

3,100

 

 

 

3,100

 

TWH Water Treatment Industries, Inc.

 

5,830

 

 

5,830

 

 

 

5,830

 

Urgent Cares of America Holdings I, LLC

 

16,000

 

 

16,000

 

 

 

16,000

 

Zemax, LLC

 

3,000

 

 

3,000

 

 

 

3,000

 

 

 

$

450,628

 

$

(99,734

)

$

350,894

 

$

(12,409

)

$

 

$

338,485

 

 

(26)                          As of September 30, 2016, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

Portfolio Company

 

Total private equity
commitments

 

Less: funded
private equity
commitments

 

Total unfunded
private equity
commitments

 

Less: private equity
commitments
substantially at the
discretion of the
Company

 

Total net adjusted
unfunded private
equity
commitments

 

Imperial Capital Private Opportunities, LP

 

50,000

 

(6,794

)

43,206

 

(43,206

)

 

Partnership Capital Growth Investors III, L.P.

 

5,000

 

(4,255

)

745

 

 

745

 

PCG - Ares Sidecar Investment, L.P. and PCG-Ares Sidecar Investment II, L.P.

 

50,000

 

(9,855

)

40,145

 

(40,145

)

 

Piper Jaffray Merchant Banking Fund I, L.P.

 

2,000

 

(1,664

)

336

 

 

336

 

 

 

$

107,000

 

$

(22,568

)

$

84,432

 

$

(83,351

)

$

1,081

 

 

(27)                                As of September 30, 2016, the Company had commitments to co-invest in the SSLP for its portion of the SSLP’s commitment to fund delayed draw loans of up to $7.3 million. See Note 4 to the consolidated financial statements for more information on the SSLP.

 

(28)                                As of September 30, 2016, the Company had commitments to co-invest in the SDLP for its portion of the SDLP’s commitment to fund delayed draw loans of up to $31.5 million. See Note 4 to the consolidated financial statements for more information on the SDLP.

 

30



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CIC Flex, LP (10)

 

Investment partnership

 

Limited partnership units (0.94 units)

 

 

 

9/7/2007

 

$

 

$

263

(2)

 

 

Covestia Capital Partners, LP (10)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

487

 

1,862

(2)

 

 

HCI Equity, LLC (8)(9)(10)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

 

127

 

 

 

Imperial Capital Private Opportunities, LP (10)(26)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

4,054

 

16,906

(2)

 

 

Partnership Capital Growth Fund I, L.P. (10)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

 

692

(2)

 

 

Partnership Capital Growth Investors III, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

2,714

 

3,510

(2)

 

 

PCG-Ares Sidecar Investment II, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (100.00% interest)

 

 

 

10/31/2014

 

6,521

 

9,254

(2)

 

 

PCG-Ares Sidecar Investment, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (100.00% interest)

 

 

 

5/22/2014

 

2,152

 

242

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P. (10)(26)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

1,413

 

1,512

 

 

 

Senior Secured Loan Fund LLC (8)(11)(27)

 

Co-investment vehicle

 

Subordinated certificates ($2,000,914 par due 12/2024)

 

8.61% (Libor + 8.00%/M)(22)

 

10/30/2009

 

1,935,401

 

1,884,861

 

 

 

 

 

 

 

Member interest (87.50% interest)

 

 

 

10/30/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,935,401

 

1,884,861

 

 

 

VSC Investors LLC (10)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

299

 

1,158

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,953,041

 

1,920,387

 

37.12

%

Healthcare Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alegeus Technologies Holdings Corp.

 

Benefits administration and transaction processing provider

 

Preferred stock (2,997 shares)

 

 

 

12/13/2013

 

3,087

 

1,980

 

 

 

 

 

 

 

Common stock (3 shares)

 

 

 

12/13/2013

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,090

 

1,980

 

 

 

American Academy Holdings, LLC

 

Provider of education, training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

First lien senior secured loan ($8,810 par due 6/2019)

 

7.00% (Libor + 6.00%/Q)

 

6/27/2014

 

8,810

 

8,810

(2)(16)(21)

 

 

 

 

 

 

First lien senior secured loan ($52,039 par due 6/2019)

 

7.00% (Libor + 6.00%/Q)

 

6/27/2014

 

52,039

 

52,039

(3)(16)(21)

 

 

 

 

 

 

First lien senior secured loan ($2,988 par due 6/2019)

 

4.00% (Libor + 3.00%/Q)

 

6/27/2014

 

2,988

 

2,988

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

63,837

 

63,837

 

 

 

Argon Medical Devices, Inc.

 

Manufacturer and marketer of single-use specialty medical devices

 

Second lien senior secured loan ($9,000 par due 6/2022)

 

10.50% (Libor + 9.50%/Q)

 

12/23/2015

 

8,730

 

9,000

(2)(21)

 

 

AwarePoint Corporation

 

Healthcare technology platform developer

 

First lien senior secured loan ($10,000 par due 6/2018)

 

9.50%

 

9/5/2014

 

9,934

 

10,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 3,213,367 shares of Series 1 preferred stock (expires 9/2024)

 

 

 

11/14/2014

 

 

609

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,934

 

10,609

 

 

 

CCS Intermediate Holdings, LLC and CCS Group Holdings, LLC (25)

 

Correctional facility healthcare operator

 

First lien senior secured revolving loan ($5,250 par due 7/2019)

 

6.50% (Base Rate + 3.00%/Q)

 

7/23/2014

 

5,250

 

4,883

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($6,651 par due 7/2021)

 

5.00% (Libor + 4.00%/Q)

 

7/23/2014

 

6,626

 

6,186

(2)(21)

 

 

 

31



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Second lien senior secured loan ($135,000 par due 7/2022)

 

9.38% (Libor + 8.38%/Q)

 

7/23/2014

 

133,890

 

121,500

(2)(21)

 

 

 

 

 

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

 

878

(2)

 

 

 

 

 

 

 

 

 

 

 

 

145,766

 

133,447

 

 

 

Correctional Medical Group Companies, Inc. (25)

 

Correctional facility healthcare operator

 

First lien senior secured loan ($3,088 par due 9/2021)

 

9.60% (Libor + 8.60%/Q)

 

9/29/2015

 

3,088

 

3,088

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,093 par due 9/2021)

 

9.60% (Libor + 8.60%/Q)

 

9/29/2015

 

4,093

 

4,093

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($44,707 par due 9/2021)

 

9.60% (Libor + 8.60%/Q)

 

9/29/2015

 

44,707

 

44,707

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

51,888

 

51,888

 

 

 

DCA Investment Holding, LLC (25)

 

Multi-branded dental practice management

 

First lien senior secured revolving loan ($145 par due 7/2021)

 

7.75% (Base Rate + 4.25%/Q)

 

7/2/2015

 

145

 

142

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,089 par due 7/2021)

 

6.25% (Libor + 5.25%/Q)

 

7/2/2015

 

18,918

 

18,707

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

19,063

 

18,849

 

 

 

DNAnexus, Inc.

 

Bioinformatics company

 

First lien senior secured loan ($10,500 par due 10/2018)

 

9.25% (Libor + 8.25%/M)

 

3/21/2014

 

10,205

 

10,500

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 909,092 units of Series C preferred stock (expires 3/2024)

 

 

 

3/21/2014

 

 

240

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,205

 

10,740

 

 

 

Global Healthcare Exchange, LLC and GHX Ultimate Parent Corp.

 

On-demand supply chain automation solutions provider

 

Class A common stock (2,991 shares)

 

 

 

3/11/2014

 

2,991

 

2,991

(2)

 

 

 

 

 

 

Class B common stock (980 shares)

 

 

 

3/11/2014

 

30

 

3,788

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,021

 

6,779

 

 

 

Greenphire, Inc. and RMCF III CIV XXIX, L.P (25)

 

Software provider for clinical trial management

 

First lien senior secured loan ($4,000 par due 12/2018)

 

9.00% (Libor + 8.00%/M)

 

12/19/2014

 

4,000

 

4,000

(2)(21)

 

 

 

 

 

 

Limited partnership interest (99.90% interest)

 

 

 

12/19/2014

 

999

 

999

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,999

 

4,999

 

 

 

INC Research Mezzanine Co-Invest, LLC

 

Pharmaceutical and biotechnology consulting services

 

Common units (1,410,000 units)

 

 

 

9/27/2010

 

 

3,352

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Second lien senior secured loan ($112,000 par due 6/2020)

 

9.25% (Libor + 8.25%/Q)

 

12/27/2012

 

112,000

 

108,640

(2)(21)

 

 

LM Acquisition Holdings, LLC (9)

 

Developer and manufacturer of medical equipment

 

Class A units (426 units)

 

 

 

9/27/2013

 

660

 

1,732

(2)

 

 

MC Acquisition Holdings I, LLC

 

Healthcare professional provider

 

Class A units (1,338,314 shares)

 

 

 

1/17/2014

 

1,338

 

1,491

(2)

 

 

MW Dental Holding Corp. (25)

 

Dental services provider

 

First lien senior secured revolving loan ($3,500 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

3,500

 

3,500

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($22,616 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

22,616

 

22,616

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($24,233 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

24,233

 

24,233

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($47,743 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

47,743

 

47,743

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,744 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

19,744

 

19,744

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

117,836

 

117,836

 

 

 

My Health Direct, Inc. (25)

 

Healthcare scheduling exchange software solution provider

 

First lien senior secured loan ($2,500 par due 1/2018)

 

10.75%

 

9/18/2014

 

2,450

 

2,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 4,548 shares of Series D preferred stock (expires 9/2024)

 

 

 

9/18/2014

 

39

 

40

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,489

 

2,540

 

 

 

Napa Management Services Corporation

 

Anesthesia management services provider

 

First lien senior secured loan ($16,000 par due 2/2019)

 

9.03% (Libor + 8.03%/Q)

 

4/15/2011

 

16,000

 

16,000

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($54,000 par due 2/2019)

 

9.03% (Libor + 8.03%/Q)

 

4/15/2011

 

53,961

 

54,000

(3)(21)

 

 

 

 

 

 

Common units (5,345 units)

 

 

 

4/15/2011

 

5,764

 

17,350

(2)

 

 

 

32



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

75,725

 

87,350

 

 

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

Second lien senior secured loan ($90,000 par due 8/2019)

 

10.50% (Libor + 9.50%/Q)

 

2/27/2015

 

90,000

 

90,000

(2)(21)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

760

 

4,450

(2)

 

 

 

 

 

 

 

 

 

 

 

 

90,760

 

94,450

 

 

 

New Trident Holdcorp, Inc.

 

Outsourced mobile diagnostic healthcare service provider

 

Second lien senior secured loan ($80,000 par due 7/2020)

 

10.25% (Libor + 9.00%/Q)

 

8/6/2013

 

78,906

 

76,000

(2)(21)

 

 

Nodality, Inc.

 

Biotechnology company

 

First lien senior secured loan ($700 par due 2/2018)

 

 

 

11/12/2015

 

700

 

636

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($150 par due 2/2018)

 

 

 

11/12/2015

 

 

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($7,019 par due 2/2018)

 

 

 

4/25/2014

 

6,860

 

1,053

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($2,910 par due 8/2018)

 

 

 

4/25/2014

 

2,834

 

437

(2)(20)

 

 

 

 

 

 

Warrant to purchase up to 225,746 shares of Series B preferred stock (expires 4/2024)

 

 

 

4/25/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,394

 

2,126

 

 

 

OmniSYS Acquisition Corporation, OmniSYS, LLC, and OSYS Holdings, LLC (25)

 

Provider of technology-enabled solutions to pharmacies

 

First lien senior secured loan ($12,288 par due 11/2018)

 

8.50% (Libor + 7.50%/Q)

 

11/21/2013

 

12,288

 

12,288

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($6,906 par due 11/2018)

 

8.50% (Libor + 7.50%/Q)

 

11/21/2013

 

6,906

 

6,906

(4)(21)

 

 

 

 

 

 

Limited liability company membership interest (1.57%)

 

 

 

11/21/2013

 

1,000

 

1,197

(2)

 

 

 

 

 

 

 

 

 

 

 

 

20,194

 

20,391

 

 

 

Patterson Medical Supply, Inc.

 

Distributor of rehabilitation supplies and equipment

 

Second lien senior secured loan ($19,000 par due 8/2023)

 

8.75% (Libor + 7.75%/Q)

 

9/2/2015

 

18,816

 

18,430

(2)(21)

 

 

PerfectServe, Inc. (25)

 

Communications software platform provider for hospitals and physician practices

 

First lien senior secured loan ($9,000 par due 3/2020)

 

9.00% (Libor + 8.00%/M)

 

9/15/2015

 

8,661

 

9,000

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($2,000 par due 7/2020)

 

9.00% (Libor + 8.00%/M)

 

9/15/2015

 

1,960

 

2,000

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 28,428 units of Series C preferred stock (expires 9/2025)

 

 

 

9/15/2015

 

180

 

211

(2)

 

 

 

 

 

 

Warrant to purchase up to 34,113 units of Series C preferred stock (expires 12/2023)

 

 

 

12/26/2013

 

 

253

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,801

 

11,464

 

 

 

PhyMED Management LLC

 

Provider of anesthesia services

 

Second lien senior secured loan ($47,239 par due 5/2021)

 

9.75% (Libor + 8.75%/Q)

 

12/18/2015

 

46,516

 

46,294

(2)(21)

 

 

Physiotherapy Associates Holdings, Inc.

 

Physical therapy provider

 

Class A common stock (100,000 shares)

 

 

 

12/13/2013

 

3,090

 

8,900

 

 

 

POS I Corp. (fka Vantage Oncology, Inc.)

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

935

(2)

 

 

Reed Group Holdings, LLC

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

Warrant to purchase up to 99,094 shares of Series C preferred stock (expires 6/2022)

 

 

 

6/28/2012

 

38

 

28

(2)

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Second lien senior secured loan ($108,679 par due 6/2020)

 

9.25% (Libor + 8.00%/Q)

 

12/13/2012

 

108,513

 

108,679

(2)(21)

 

 

Sarnova HC, LLC, Tri-Anim Health Services, Inc., and BEMS Holdings, LLC

 

Distributor of emergency medical service and respiratory products

 

Second lien senior secured loan ($60,000 par due 9/2018)

 

8.75% (Libor + 8.00%/M)

 

6/30/2014

 

60,000

 

60,000

(2)(21)

 

 

SurgiQuest, Inc.

 

Medical device provider

 

Warrant to purchase up to 54,672 shares of Series D-4 convertible preferred stock (expires 4/2024)

 

 

 

9/28/2012

 

 

331

(2)

 

 

Transaction Data Systems, Inc.

 

Pharmacy management software provider

 

Second lien senior secured loan ($27,500 par due 6/2022)

 

9.25% (Libor + 8.25%/Q)

 

6/15/2015

 

27,500

 

26,950

(2)(21)

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

Second lien senior secured loan ($23,500 par due 9/2020)

 

10.25% (Libor + 9.25%/Q)

 

12/14/2015

 

23,500

 

23,500

(2)(21)

 

 

 

33



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 9/2020)

 

10.25% (Libor + 9.25%/Q)

 

9/24/2014

 

50,000

 

50,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

73,500

 

73,500

 

 

 

Urgent Cares of America Holdings I, LLC and FastMed Holdings I, LLC (25)

 

Operator of urgent care clinics

 

First lien senior secured loan ($14,000 par due 12/2022)

 

7.00% (Libor + 6.00%/M)

 

12/1/2015

 

14,000

 

13,860

(2)(21)(28)

 

 

 

 

 

 

First lien senior secured loan ($54,725 par due 12/2022)

 

7.00% (Libor + 6.00%/M)

 

12/1/2015

 

54,725

 

54,178

(2)(21)(28)

 

 

 

 

 

 

Preferred units (6,000,000 units)

 

 

 

6/11/2015

 

6,000

 

6,412

 

 

 

 

 

 

 

Series A common units (2,000,000 units)

 

 

 

6/11/2015

 

2,000

 

1,828

 

 

 

 

 

 

 

Series C common units (800,507 units)

 

 

 

6/11/2015

 

 

589

 

 

 

 

 

 

 

 

 

 

 

 

 

76,725

 

76,867

 

 

 

VistaPharm, Inc. and Vertice Pharma UK Parent Limited

 

Manufacturer and distributor of generic pharmaceutical products

 

First lien senior secured loan ($20,000 par due 12/2021)

 

8.00% (Base Rate + 4.50%/Q)

 

12/21/2015

 

20,000

 

20,000

(21)

 

 

 

 

 

 

Preferred shares (40,662 shares)

 

 

 

12/21/2015

 

407

 

407

(9)

 

 

 

 

 

 

 

 

 

 

 

 

20,407

 

20,407

 

 

 

Young Innovations, Inc.

 

Dental supplies and equipment manufacturer

 

Second lien senior secured loan ($45,000 par due 7/2019)

 

9.00% (Libor + 8.00%/Q)

 

5/30/2014

 

45,000

 

45,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

1,326,411

 

1,325,821

 

25.63

%

Other Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Residential Services L.L.C.

 

Heating, ventilation and air conditioning services provider

 

Second lien senior secured loan ($50,000 par due 12/2021)

 

9.00% (Libor + 8.00%/Q)

 

6/30/2014

 

49,600

 

50,000

(2)(21)

 

 

Community Education Centers, Inc. and CEC Parent Holdings LLC (8)

 

Offender re-entry and in-prison treatment services provider

 

First lien senior secured loan ($13,949 par due 12/2017)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

13,949

 

13,949

(2)(13)(21)

 

 

 

 

 

 

First lien senior secured loan ($337 par due 12/2017)

 

7.75% (Base Rate + 4.25%/Q)

 

12/10/2010

 

337

 

337

(2)(13)(21)

 

 

 

 

 

 

Second lien senior secured loan ($21,895 par due 6/2018)

 

15.42% (Libor + 15.00%/Q)

 

12/10/2010

 

21,895

 

21,895

(2)

 

 

 

 

 

 

Class A senior preferred units (7,846 units)

 

 

 

3/27/2015

 

9,384

 

9,467

(2)

 

 

 

 

 

 

Class A junior preferred units (26,154 units)

 

 

 

3/27/2015

 

20,168

 

12,080

(2)

 

 

 

 

 

 

Class A common units (134 units)

 

 

 

3/27/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

65,733

 

57,728

 

 

 

Competitor Group, Inc. and Calera XVI, LLC (25)

 

Endurance sports media and event operator

 

First lien senior secured revolving loan ($4,950 par due 11/2018)

 

 

 

11/30/2012

 

4,950

 

3,713

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($52,349 par due 11/2018)

 

 

 

11/30/2012

 

52,216

 

39,262

(2)(20)

 

 

 

 

 

 

Membership units (2,522,512 units)

 

 

 

11/30/2012

 

2,523

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

59,689

 

42,975

 

 

 

Crown Health Care Laundry Services, Inc. and Crown Laundry Holdings, LLC (7)(25)

 

Provider of outsourced healthcare linen management solutions

 

First lien senior secured revolving loan ($500 par due 3/2019)

 

7.25% (Libor + 6.00%/Q)

 

3/13/2014

 

500

 

500

(2)(21)(24)

 

 

 

 

 

 

First lien senior secured loan ($23,371 par due 3/2019)

 

7.25% (Libor + 6.00%/Q)

 

3/13/2014

 

23,371

 

23,371

(3)(21)

 

 

 

 

 

 

Class A preferred units (2,475,000 units)

 

 

 

3/13/2014

 

2,475

 

3,522

(2)

 

 

 

 

 

 

Class B common units (275,000 units)

 

 

 

3/13/2014

 

275

 

391

(2)

 

 

 

 

 

 

 

 

 

 

 

 

26,621

 

27,784

 

 

 

Dwyer Acquisition Parent, Inc. and TDG Group Holding Company

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($31,500 par due 2/2020)

 

11.00%

 

6/12/2015

 

31,500

 

31,500

(2)

 

 

 

 

 

 

Senior subordinated loan ($52,670 par due 2/2020)

 

11.00%

 

8/15/2014

 

52,670

 

52,670

(2)

 

 

 

 

 

 

Common stock (32,843 shares)

 

 

 

8/15/2014

 

3,378

 

4,113

(2)

 

 

 

 

 

 

 

 

 

 

 

 

87,548

 

88,283

 

 

 

 

34



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Massage Envy, LLC (25)

 

Franchisor in the massage industry

 

First lien senior secured loan ($8,017 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

8,017

 

8,017

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($46,434 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

46,434

 

46,434

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,469 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

19,469

 

19,469

(4)(21)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

5,077

(2)

 

 

 

 

 

 

 

 

 

 

 

 

76,920

 

78,997

 

 

 

McKenzie Sports Products, LLC (25)

 

Designer, manufacturer and distributor of hunting-related supplies

 

First lien senior secured loan ($39,500 par due 9/2020)

 

6.75% (Libor + 5.75%/M)

 

9/18/2014

 

39,500

 

37,920

(2)(14)(21)

 

 

 

 

 

 

First lien senior secured loan ($45,000 par due 9/2020)

 

6.75% (Libor + 5.75%/M)

 

9/18/2014

 

45,000

 

43,200

(3)(14)(21)

 

 

 

 

 

 

 

 

 

 

 

 

84,500

 

81,120

 

 

 

OpenSky Project, Inc. and OSP Holdings, Inc.

 

Social commerce platform operator

 

First lien senior secured loan ($2,100 par due 9/2017)

 

10.00%

 

6/4/2014

 

2,083

 

2,100

(2)

 

 

 

 

 

 

Warrant to purchase up to 159,496 shares of Series D preferred stock (expires 4/2025)

 

 

 

6/29/2015

 

48

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,131

 

2,100

 

 

 

Osmose Holdings, Inc.

 

Provider of structural integrity management services to transmission and distribution infrastructure

 

Second lien senior secured loan ($25,000 par due 8/2023)

 

8.75% (Libor + 7.75%/Q)

 

9/3/2015

 

24,521

 

24,250

(2)(21)

 

 

PODS, LLC

 

Storage and warehousing

 

Second lien senior secured loan ($17,500 par due 2/2023)

 

9.25% (Libor + 8.25%/Q)

 

2/2/2015

 

17,343

 

17,500

(2)(21)

 

 

Spin HoldCo Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($140,000 par due 5/2020)

 

8.00% (Libor + 7.00%/Q)

 

5/14/2013

 

140,000

 

131,600

(2)(21)

 

 

Surface Dive, Inc.

 

SCUBA diver training and certification provider

 

Second lien senior secured loan ($53,686 par due 1/2022)

 

9.00% (Libor + 8.00%/Q)

 

7/28/2015

 

53,686

 

53,686

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($72,000 par due 1/2022)

 

10.25% (Libor + 9.25%/Q)

 

1/29/2015

 

71,612

 

72,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

125,298

 

125,686

 

 

 

TWH Water Treatment Industries, Inc., TWH Filtration Industries, Inc. and TWH Infrastructure Industries, Inc. (25)

 

Wastewater infrastructure repair, treatment and filtration holding company

 

First lien senior secured loan ($2,240 par due 10/2019)

 

10.25% (Libor + 9.25%/Q)

 

10/10/2014

 

2,240

 

2,218

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($36,400 par due 10/2019)

 

10.25% (Libor + 9.25%/Q)

 

10/10/2014

 

36,400

 

36,036

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

38,640

 

38,254

 

 

 

U.S. Security Associates Holdings, Inc

 

Security guard service provider

 

Senior subordinated loan ($25,000 par due 7/2018)

 

11.00%

 

11/24/2015

 

25,000

 

25,000

(2)

 

 

WASH Multifamily Acquisition Inc. and Coinamatic Canada Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($3,726 par due 5/2023)

 

8.00% (Libor + 7.00%/Q)

 

5/14/2015

 

3,657

 

3,540

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($21,274 par due 5/2023)

 

8.00% (Libor + 7.00%/Q)

 

5/14/2015

 

20,880

 

20,210

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

24,537

 

23,750

 

 

 

 

 

 

 

 

 

 

 

 

 

848,081

 

815,027

 

15.75

%

Consumer Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Feradyne Outdoors, LLC and Bowhunter Holdings, LLC

 

Provider of branded archery and bowhunting accessories

 

First lien senior secured loan ($4,500 par due 3/2019)

 

4.00% (Libor + 3.00%/Q)

 

4/24/2014

 

4,500

 

4,365

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,500 par due 3/2019)

 

6.55% (Libor + 5.55%/Q)

 

4/24/2014

 

9,500

 

9,120

(2)(18)(21)

 

 

 

 

 

 

First lien senior secured loan ($6,742 par due 3/2019)

 

4.00% (Libor + 3.00%/Q)

 

4/24/2014

 

6,742

 

6,540

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($50,100 par due 3/2019)

 

6.55% (Libor + 5.55%/Q)

 

4/24/2014

 

50,100

 

48,096

(3)(18)(21)

 

 

 

 

 

 

Common units (373 units)

 

 

 

4/24/2014

 

3,733

 

3,390

(2)

 

 

 

 

 

 

 

 

 

 

 

 

74,575

 

71,511

 

 

 

Indra Holdings Corp.

 

Designer, marketer, and distributor of rain and cold weather products

 

Second lien senior secured loan ($80,000 par due 11/2021)

 

8.50% (Libor + 7.50%/Q)

 

5/1/2014

 

78,987

 

72,000

(2)(21)

 

 

 

35



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of OTC healthcare products

 

Warrant to purchase up to 1,654,678 shares of common stock (expires 6/2021)

 

 

 

7/27/2011

 

 

505

(2)

 

 

 

 

 

 

Warrant to purchase up to 1,120 shares of preferred stock (expires 6/2021)

 

 

 

7/27/2011

 

 

1,342

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

1,847

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

First lien senior secured loan ($2,586 par due 4/2018)

 

7.61% (Libor + 7.00%/Q)

 

4/2/2012

 

2,582

 

2,586

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($8,232 par due 4/2018)

 

7.61% (Libor + 7.00%/Q)

 

4/2/2012

 

8,216

 

8,232

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

10,798

 

10,818

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

1,937

(2)

 

 

Plantation Products, LLC, Seed Holdings, Inc. and Flora Parent, Inc.

 

Provider of branded lawn and garden products

 

Second lien senior secured loan ($66,000 par due 6/2021)

 

9.54% (Libor + 8.54%/Q)

 

12/23/2014

 

65,683

 

66,000

(2)(21)

 

 

 

 

 

 

Common stock (30,000 shares)

 

 

 

12/23/2014

 

3,000

 

4,138

(2)

 

 

 

 

 

 

 

 

 

 

 

 

68,683

 

70,138

 

 

 

SHO Holding I Corporation

 

Manufacturer and distributor of slip resistant footwear

 

Second lien senior secured loan ($100,000 par due 4/2023)

 

9.50% (Libor + 8.50%/Q)

 

10/27/2015

 

97,497

 

98,000

(2)(21)

 

 

Shock Doctor, Inc. and Shock Doctor Holdings, LLC (7)

 

Developer, marketer and distributor of sports protection equipment and accessories

 

Second lien senior secured loan ($89,425 par due 10/2021)

 

11.50% (Libor + 10.50%/Q)

 

4/22/2015

 

89,425

 

89,425

(2)(21)

 

 

 

 

 

 

Class A preferred units (50,000 units)

 

 

 

3/14/2014

 

5,000

 

5,299

(2)

 

 

 

 

 

 

Class C preferred units (50,000 units)

 

 

 

4/22/2015

 

5,000

 

5,299

(2)

 

 

 

 

 

 

 

 

 

 

 

 

99,425

 

100,023

 

 

 

The Hygenic Corporation

 

Designer, manufacturer and marketer of branded wellness products

 

Second lien senior secured loan ($70,000 par due 4/2021)

 

9.75% (Libor + 8.75%/Q)

 

2/27/2015

 

70,000

 

68,600

(2)(21)

 

 

The Step2 Company, LLC (8)

 

Toy manufacturer

 

Second lien senior secured loan ($27,583 par due 9/2019)

 

10.00%

 

4/1/2010

 

27,484

 

27,583

(2)

 

 

 

 

 

 

Second lien senior secured loan ($4,500 par due 9/2019)

 

10.00%

 

3/13/2014

 

4,500

 

4,500

(2)

 

 

 

 

 

 

Second lien senior secured loan ($43,196 par due 9/2019)

 

 

 

4/1/2010

 

30,802

 

12,527

(2)(20)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2011

 

24

 

 

 

 

 

 

 

 

Class B common units (126,278,000 units)

 

 

 

10/30/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,810

 

44,610

 

 

 

Varsity Brands Holding Co., Inc., Hercules Achievement, Inc., Hercules Achievement Holdings, Inc. and Hercules VB Holdings, Inc.

 

Leading manufacturer and distributor of textiles, apparel & luxury goods

 

Second lien senior secured loan ($55,576 par due 12/2022)

 

9.75% (Libor + 8.75%/Q)

 

12/11/2014

 

55,090

 

55,576

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($91,697 par due 12/2022)

 

9.75% (Libor + 8.75%/Q)

 

12/11/2014

 

90,901

 

91,697

(2)(21)

 

 

 

 

 

 

Common stock (3,353,370 shares)

 

 

 

12/11/2014

 

3,353

 

4,372

(2)

 

 

 

 

 

 

Common stock (3,353,371 shares)

 

 

 

12/11/2014

 

4,147

 

5,406

(2)

 

 

 

 

 

 

 

 

 

 

 

 

153,491

 

157,051

 

 

 

 

 

 

 

 

 

 

 

 

 

717,266

 

696,535

 

13.46

%

Power Generation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alphabet Energy, Inc.

 

Technology developer to convert waste-heat into electricity

 

First lien senior secured loan ($3,900 par due 7/2017)

 

9.62%

 

12/16/2013

 

3,773

 

3,900

(2)

 

 

 

 

 

 

Series B preferred stock (74,449 shares)

 

 

 

2/26/2014

 

250

 

400

(2)

 

 

 

36



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Warrant to purchase up to 59,524 units of Series B preferred stock (expires 12/2023)

 

 

 

12/16/2013

 

146

 

120

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,169

 

4,420

 

 

 

Bicent (California) Holdings LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($49,507 par due 2/2021)

 

8.25% (Libor + 7.25%/Q)

 

2/6/2014

 

49,507

 

49,507

(2)(21)

 

 

Brush Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($44,863 par due 8/2020)

 

6.25% (Libor + 5.25%/Q)

 

8/1/2013

 

44,863

 

44,863

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($500 par due 8/2020)

 

7.75% (Base Rate + 4.25%/Q)

 

8/1/2013

 

500

 

500

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($2,271 par due 8/2020)

 

6.25% (Libor + 5.25%/Q)

 

8/1/2013

 

2,271

 

2,271

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($6 par due 8/2020)

 

7.75% (Base Rate + 4.25%/Q)

 

8/1/2013

 

6

 

6

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,720 par due 8/2020)

 

6.25% (Libor + 5.25%/Q)

 

8/1/2013

 

9,720

 

9,720

(4)(21)

 

 

 

 

 

 

First lien senior secured loan ($108 par due 8/2020)

 

7.75% (Base Rate + 4.25%/Q)

 

8/1/2013

 

108

 

108

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

57,468

 

57,468

 

 

 

CPV Maryland Holding Company II, LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($44,460 par due 12/2020)

 

5.00% Cash, 5.00% PIK

 

8/8/2014

 

44,460

 

41,348

(2)

 

 

 

 

 

 

Warrant to purchase up to 4 units of common stock (expires 8/2018)

 

 

 

8/8/2014

 

 

200

(2)

 

 

 

 

 

 

 

 

 

 

 

 

44,460

 

41,548

 

 

 

DESRI VI Management Holdings, LLC

 

Wind power generation facility operator

 

Senior subordinated loan ($25,000 par due 12/2021)

 

9.75%

 

12/24/2014

 

25,000

 

25,000

(2)

 

 

 

 

 

 

Non-Controlling units (10.0 units)

 

 

 

12/24/2014

 

1,483

 

1,378

(2)

 

 

 

 

 

 

 

 

 

 

 

 

26,483

 

26,378

 

 

 

Grant Wind Holdings II, LLC

 

Wind power generation facility

 

Senior subordinated loan ($23,400 par due 7/2016)

 

10.00%

 

9/8/2015

 

23,400

 

23,400

(2)

 

 

Green Energy Partners, Stonewall LLC and Panda Stonewall Intermediate Holdings II LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($25,000 par due 11/2021)

 

6.50% (Libor + 5.50%/Q)

 

11/13/2014

 

24,753

 

23,000

(2)(21)

 

 

 

 

 

 

Senior subordinated loan ($18,508 par due 12/2021)

 

8.00% Cash, 5.25% PIK

 

11/13/2014

 

18,508

 

17,398

(2)

 

 

 

 

 

 

Senior subordinated loan ($86,519 par due 12/2021)

 

8.00% Cash, 5.25% PIK

 

11/13/2014

 

86,519

 

81,328

(2)

 

 

 

 

 

 

 

 

 

 

 

 

129,780

 

121,726

 

 

 

Joule Unlimited Technologies, Inc. and Stichting Joule Global Foundation (25)

 

Renewable fuel and chemical production developer

 

First lien senior secured loan ($10,000 par due 10/2018)

 

10.00% (Libor + 9.00%/M)

 

3/31/2015

 

9,881

 

10,000

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 32,051 shares of Series C-2 preferred stock (expires 7/2023)

 

 

 

7/25/2013

 

 

13

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

9,881

 

10,013

 

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Second lien senior secured loan ($10,000 par due 2/2020)

 

 

 

2/20/2014

 

9,469

 

3,000

(2)(20)

 

 

Moxie Liberty LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($35,000 par due 8/2020)

 

7.50% (Libor + 6.50%/Q)

 

8/21/2013

 

34,714

 

33,250

(2)(21)

 

 

Moxie Patriot LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($35,000 par due 12/2020)

 

6.75% (Libor + 5.75%/Q)

 

12/19/2013

 

34,720

 

32,550

(2)(21)

 

 

Panda Power Annex Fund Hummel Holdings II LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($73,566 par due 10/2016)

 

12.00% PIK

 

10/27/2015

 

73,068

 

73,566

(2)

 

 

Panda Sherman Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($32,104 par due 9/2018)

 

9.00% (Libor + 7.50%/Q)

 

9/14/2012

 

32,104

 

28,893

(2)(21)

 

 

Panda Temple Power II, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($20,000 par due 4/2019)

 

7.25% (Libor + 6.00%/Q)

 

4/3/2013

 

19,887

 

17,800

(2)(21)

 

 

Panda Temple Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($24,813 par due 3/2022)

 

7.25% (Libor + 6.25%/Q)

 

3/6/2015

 

23,654

 

22,083

(2)(21)

 

 

 

37



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

PERC Holdings 1 LLC

 

Operator of recycled energy, combined heat and power, and energy efficiency facilities

 

Class B common units (21,653,543 units)

 

 

 

10/20/2014

 

21,654

 

23,299

(2)

 

 

 

 

 

 

 

 

 

 

 

 

594,418

 

568,901

 

11.00

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambrios Technologies Corporation

 

Nanotechnology-based solutions for electronic devices and computers

 

Warrant to purchase up to 400,000 shares of Series D-4 convertible preferred stock (expires 8/2022)

 

 

 

8/7/2012

 

 

13

(2)

 

 

Chariot Acquisition, LLC (25)

 

Distributor and designer of aftermarket golf cart parts and accessories

 

First lien senior secured loan ($59,318 par due 9/2021)

 

7.25% (Libor + 6.25%/Q)

 

9/30/2015

 

59,318

 

59,318

(2)(21)(28)

 

 

Component Hardware Group, Inc. (25)

 

Commercial equipment

 

First lien senior secured revolving loan ($2,241 par due 7/2019)

 

5.50% (Libor + 4.50%/Q)

 

7/1/2013

 

2,241

 

2,218

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($8,062 par due 7/2019)

 

5.50% (Libor + 4.50%/Q)

 

7/1/2013

 

8,062

 

7,982

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

10,303

 

10,200

 

 

 

Harvey Tool Company, LLC and Harvey Tool Holding, LLC (25)

 

Cutting tool provider to the metalworking industry

 

Senior subordinated loan ($27,925 par due 9/2020)

 

11.00%

 

8/13/2015

 

27,925

 

27,925

(2)

 

 

 

 

 

 

Class A membership units (750 units)

 

 

 

3/28/2014

 

896

 

1,444

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,821

 

29,369

 

 

 

Ioxus, Inc.

 

Energy storage devices

 

First lien senior secured loan ($10,168 par due 11/2017)

 

10.00% Cash, 2.00% PIK

 

4/29/2014

 

9,957

 

8,643

(2)

 

 

 

 

 

 

Warrant to purchase up to 717,751 shares of Series AA preferred stock (expires 4/2024)

 

 

 

4/29/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,957

 

8,643

 

 

 

KPS Global LLC

 

Walk-in cooler and freezer systems

 

First lien senior secured loan ($50,000 par due 12/2020)

 

9.63% (Libor + 8.63%/Q)

 

12/4/2015

 

50,000

 

50,000

(2)(21)

 

 

MacLean-Fogg Company and MacLean-Fogg Holdings, L.L.C.

 

Manufacturer and supplier for the power utility and automotive markets worldwide

 

Senior subordinated loan ($96,992 par due 10/2025)

 

10.50% Cash, 3.00% PIK

 

10/31/2013

 

96,992

 

96,992

(2)

 

 

 

 

 

 

Preferred units (70,183 units)

 

4.50% Cash, 9.25% PIK

 

10/9/2015

 

70,782

 

70,782

 

 

 

 

 

 

 

 

 

 

 

 

 

167,774

 

167,774

 

 

 

MWI Holdings, Inc.

 

Engineered springs, fasteners, and other precision components

 

First lien senior secured loan ($14,164 par due 3/2019)

 

7.375% (Libor + 6.125%/Q)

 

10/30/2015

 

14,164

 

14,164

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($28,102 par due 3/2019)

 

9.375% (Libor + 8.125%/Q)

 

6/15/2011

 

28,102

 

28,102

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,879 par due 3/2019)

 

9.375% (Libor + 8.125%/Q)

 

6/15/2011

 

19,879

 

19,879

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

62,145

 

62,145

 

 

 

Niagara Fiber Intermediate Corp. (25)

 

Insoluble fiber filler products

 

First lien senior secured revolving loan ($1,881 par due 5/2018)

 

6.75% (Libor + 5.50%/Q)

 

5/8/2014

 

1,870

 

1,505

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($1,430 par due 5/2018)

 

6.75% (Libor + 5.50%/Q)

 

5/8/2014

 

1,421

 

1,144

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($13,649 par due 5/2018)

 

6.75% (Libor + 5.50%/Q)

 

5/8/2014

 

13,567

 

10,919

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

16,858

 

13,568

 

 

 

Nordco Inc. (25)

 

Railroad maintenance-of-way machinery

 

First lien senior secured revolving loan ($3,750 par due 8/2020)

 

8.75% (Base Rate + 5.25%/Q)

 

8/26/2015

 

3,750

 

3,713

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($70,250 par due 8/2020)

 

7.25% (Libor + 6.25%/Q)

 

8/26/2015

 

70,250

 

69,548

(2)(21)(28)

 

 

 

 

 

 

First lien senior secured loan ($188 par due 8/2020)

 

8.75% (Base Rate + 5.25%/Q)

 

8/26/2015

 

188

 

186

(2)(21)(28)

 

 

 

 

 

 

 

 

 

 

 

 

74,188

 

73,447

 

 

 

Pelican Products, Inc.

 

Flashlights

 

Second lien senior secured loan ($40,000 par due 4/2021)

 

9.25% (Libor + 8.25%/Q)

 

4/11/2014

 

39,955

 

38,400

(2)(21)

 

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

SI Holdings, Inc.

 

Elastomeric parts, mid-sized composite structures, and composite tooling

 

Common stock (1,500 shares)

 

 

 

5/30/2014

 

1,500

 

1,483

(2)

 

 

TPTM Merger Corp. (25)

 

Time temperature indicator products

 

First lien senior secured revolving loan ($750 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/12/2013

 

750

 

743

(2)(21)

 

 

 

38



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($22,000 par due 9/2018)

 

9.42% (Libor + 8.42%/Q)

 

9/12/2013

 

22,000

 

21,780

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 9/2018)

 

9.42% (Libor + 8.42%/Q)

 

9/12/2013

 

10,000

 

9,900

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

32,750

 

32,423

 

 

 

 

 

 

 

 

 

 

 

 

 

554,569

 

546,783

 

10.57

%

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2329497 Ontario Inc. (9)

 

Outsourced data center infrastructure and related services provider

 

Second lien senior secured loan ($42,480 par due 6/2019)

 

10.50% (Libor + 9.25%/M)

 

12/13/2013

 

43,096

 

26,023

(2)(21)

 

 

Brandtone Holdings Limited (9)(25)

 

Mobile communications and marketing services provider

 

First lien senior secured loan ($5,674 par due 11/2018)

 

9.50% (Libor + 8.50%/M)

 

5/11/2015

 

5,532

 

5,674

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($3,296 par due 1/2019)

 

9.50% (Libor + 8.50%/M)

 

5/11/2015

 

3,209

 

3,296

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 115,002 units of Series Three participating convertible preferred ordinary shares (expires 5/2025)

 

 

 

5/11/2015

 

 

1

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,741

 

8,971

 

 

 

CallMiner, Inc.

 

Provider of cloud-based conversational analytics solutions

 

First lien senior secured loan ($3,515 par due 5/2018)

 

10.00%

 

7/23/2014

 

3,499

 

3,515

(2)

 

 

 

 

 

 

First lien senior secured loan ($1,939 par due 9/2018)

 

10.00%

 

7/23/2014

 

1,929

 

1,939

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,350,636 shares of Series 1 preferred stock (expires 7/2024)

 

 

 

7/23/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,428

 

5,454

 

 

 

CIBT Holdings, Inc. and CIBT Investment Holdings, LLC (25)

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

4,563

(2)

 

 

CMW Parent LLC (fka Black Arrow, Inc.)

 

Multiplatform media firm

 

Series A units (32 units)

 

 

 

9/11/2015

 

 

(2)

 

 

Command Alkon, Incorporated and CA Note Issuer, LLC

 

Software solutions provider to the ready-mix concrete industry

 

Second lien senior secured loan ($10,000 par due 8/2020)

 

9.25% (Libor + 8.25%/Q)

 

9/28/2012

 

10,000

 

10,000

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($11,500 par due 8/2020)

 

9.25% (Libor + 8.25%/Q)

 

9/28/2012

 

11,500

 

11,500

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($26,500 par due 8/2020)

 

9.25% (Libor + 8.25%/Q)

 

9/28/2012

 

26,500

 

26,500

(2)(21)

 

 

 

 

 

 

Senior subordinated loan ($20,301 par due 8/2021)

 

14.00% PIK

 

8/8/2014

 

20,301

 

20,301

(2)

 

 

 

 

 

 

 

 

 

 

 

 

68,301

 

68,301

 

 

 

Compuware Parent, LLC

 

Web and mobile cloud performance testing and monitoring services provider

 

Class A-1 common stock (4,132 units)

 

 

 

12/15/2014

 

2,250

 

2,038

(2)

 

 

 

 

 

 

Class B-1 common stock (4,132 units)

 

 

 

12/15/2014

 

450

 

408

(2)

 

 

 

 

 

 

Class C-1 common stock (4,132 units)

 

 

 

12/15/2014

 

300

 

272

(2)

 

 

 

 

 

 

Class A-2 common stock (4,132 units)

 

 

 

12/15/2014

 

 

(2)

 

 

 

 

 

 

Class B-2 common stock (4,132 units)

 

 

 

12/15/2014

 

 

(2)

 

 

 

 

 

 

Class C-2 common stock (4,132 units)

 

 

 

12/15/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

2,718

 

 

 

Directworks, Inc. and Co-Exprise Holdings, Inc. (25)

 

Provider of cloud-based software solutions for direct materials sourcing and supplier management for manufacturers

 

First lien senior secured loan ($2,333 par due 4/2018)

 

10.25% (Libor + 9.25%/M)

 

12/19/2014

 

2,333

 

2,287

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 1,875,000 shares of Series 1 preferred stock (expires 12/2024)

 

 

 

12/19/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,333

 

2,287

 

 

 

 

39



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

DTI Holdco, Inc. and OPE DTI Holdings, Inc.

 

Provider of legal process outsourcing and managed services

 

First lien senior secured loan ($990 par due 8/2020)

 

5.75% (Libor + 4.75%/Q)

 

8/19/2014

 

990

 

950

(2)(21)

 

 

 

 

 

 

Class A common stock (7,500 shares)

 

 

 

8/19/2014

 

7,500

 

6,361

(2)

 

 

 

 

 

 

Class B common stock (7,500 shares)

 

 

 

8/19/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,490

 

7,311

 

 

 

EN Engineering, L.L.C. (25)

 

Engineering and consulting services to natural gas, electric power and other energy & industrial end markets

 

First lien senior secured loan ($2,568 par due 6/2021)

 

8.50% (Base Rate + 5.00%/Q)

 

6/30/2015

 

2,568

 

2,568

(2)(21)(28)

 

 

 

 

 

 

First lien senior secured loan ($22,368 par due 6/2021)

 

7.00% (Libor + 6.00%/Q)

 

6/30/2015

 

22,229

 

22,368

(2)(21)(28)

 

 

 

 

 

 

 

 

 

 

 

 

24,797

 

24,936

 

 

 

Faction Holdings, Inc. and The Faction Group LLC (fka PeakColo Holdings, Inc.) (25)

 

Wholesaler of cloud-based software applications and services

 

First lien senior secured revolving loan ($2,000 par due 11/2017)

 

7.75% (Base Rate + 4.25%/Q)

 

11/3/2014

 

2,000

 

2,000

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,000 par due 5/2019)

 

9.75% (Libor + 8.75%/Q)

 

11/3/2014

 

3,932

 

4,000

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($3,000 par due 12/2019)

 

9.75% (Libor + 8.75%/Q)

 

12/3/2015

 

3,000

 

3,000

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 1,481 shares of Series A preferred stock (expires 12/2025)

 

 

 

12/3/2015

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,037 shares of Series A preferred stock (expires 11/2024)

 

 

 

11/3/2014

 

93

 

147

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,025

 

9,147

 

 

 

First Insight, Inc.

 

Software company providing merchandising and pricing solutions to companies worldwide

 

Warrant to purchase up to 122,827 units of Series C preferred stock (expires 3/2024)

 

 

 

3/20/2014

 

 

13

(2)

 

 

HCPro, Inc. and HCP Acquisition Holdings, LLC (8)

 

Healthcare compliance advisory services

 

Senior subordinated loan ($9,810 par due 5/2015)

 

 

 

3/5/2013

 

2,691

 

(2)(20)

 

 

 

 

 

 

Class A units (14,293,110 units)

 

 

 

6/26/2008

 

12,793

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,484

 

 

 

 

iControl Networks, Inc. and uControl Acquisition, LLC

 

Software and services company for the connected home market

 

Second lien senior secured loan ($20,000 par due 3/2019)

 

9.50% (Libor + 8.50%/Q)

 

2/19/2015

 

19,684

 

20,075

(2)(19)(21)

 

 

 

 

 

 

Warrant to purchase up to 385,616 shares of Series D preferred stock (expires 2/2022)

 

 

 

2/19/2015

 

 

173

(2)

 

 

 

 

 

 

 

 

 

 

 

 

19,684

 

20,248

 

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

Warrant to purchase up to 124,300 shares of Series C preferred stock (10/2022)

 

 

 

10/15/2012

 

88

 

71

(2)

 

 

Interactions Corporation

 

Developer of a speech recognition software based customer interaction system

 

Second lien senior secured loan ($2,500 par due 7/2019)

 

9.85% (Libor + 8.85%/Q)

 

6/16/2015

 

2,196

 

2,500

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($22,500 par due 7/2019)

 

9.85% (Libor + 8.85%/Q)

 

6/16/2015

 

22,155

 

22,500

(5)(21)

 

 

 

 

 

 

Warrant to purchase up to 68,187 shares of Series G-3 convertible preferred stock (expires 6/2022)

 

 

 

6/16/2015

 

303

 

303

(2)

 

 

 

 

 

 

 

 

 

 

 

 

24,654

 

25,303

 

 

 

Investor Group Services, LLC (7)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (5.17% interest)

 

 

 

6/22/2006

 

 

360

 

 

 

iPipeline, Inc., Internet Pipeline, Inc. and iPipeline Holdings, Inc. (25)

 

Provider of software solutions to the insurance and financial services industry

 

First lien senior secured loan ($11,970 par due 8/2022)

 

8.25% (Libor + 7.25%/Q)

 

8/4/2015

 

11,970

 

11,970

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($44,888 par due 8/2022)

 

8.25% (Libor + 7.25%/Q)

 

8/4/2015

 

44,888

 

44,888

(3)(21)

 

 

 

40



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($14,963 par due 8/2022)

 

8.25% (Libor + 7.25%/Q)

 

8/4/2015

 

14,963

 

14,963

(4)(21)

 

 

 

 

 

 

Preferred stock (1,485 shares)

 

 

 

8/4/2015

 

1,485

 

1,912

(2)

 

 

 

 

 

 

Common stock (647,542 shares)

 

 

 

8/4/2015

 

15

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

73,321

 

73,733

 

 

 

IronPlanet, Inc.

 

Online auction platform provider for used heavy equipment

 

Warrant to purchase to up to 133,333 shares of Series C preferred stock (expires 9/2023)

 

 

 

9/24/2013

 

214

 

214

(2)

 

 

Itel Laboratories, Inc. (25)

 

Data services provider for building materials to property insurance industry

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,183

(2)

 

 

Market Track Holdings, LLC

 

Business media consulting services company

 

Preferred stock (1,685 shares)

 

 

 

12/13/2013

 

2,221

 

2,362

 

 

 

 

 

 

 

Common stock (16,251 shares)

 

 

 

12/13/2013

 

2,221

 

2,304

 

 

 

 

 

 

 

 

 

 

 

 

 

4,442

 

4,666

 

 

 

Maximus Holdings, LLC

 

Provider of software simulation tools and related services

 

Warrant to purchase up to 1,050,013 shares of common stock (expires 10/2019)

 

 

 

12/13/2013

 

 

 

 

 

Ministry Brands, LLC and MB Parent Holdings, LLC (25)

 

Software and payment services provider to faith-based institutions

 

First lien senior secured loan ($1,571 par due 11/2021)

 

5.25% (Libor + 4.25%/Q)

 

11/20/2015

 

1,571

 

1,571

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($16,688 par due 11/2021)

 

10.75% (Libor + 9.75%/Q)

 

11/20/2015

 

16,688

 

16,688

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($34,250 par due 11/2021)

 

10.75% (Libor + 9.75%/Q)

 

11/20/2015

 

33,912

 

34,250

(2)(21)

 

 

 

 

 

 

Class A common units (2,000,000 units)

 

 

 

11/20/2015

 

2,000

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

54,171

 

54,509

 

 

 

Multi-Ad Services, Inc. (7)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

 

404

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

404

 

 

 

MVL Group, Inc. (8)

 

Marketing research provider

 

Senior subordinated loan ($441 par due 7/2012)

 

 

 

4/1/2010

 

226

 

226

(2)(20)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

226

 

226

 

 

 

NAS, LLC, Nationwide Marketing Group, LLC and Nationwide Administrative Services, Inc.

 

Buying and marketing services organization for appliance, furniture and consumer electronics dealers

 

Second lien senior secured loan ($24,100 par due 12/2021)

 

9.75% (Libor + 8.75%/Q)

 

6/1/2015

 

24,100

 

23,136

(2)(21)

 

 

PHL Investors, Inc., and PHL Holding Co. (8)

 

Mortgage services

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

Poplicus Incorporated

 

Business intelligence and market analytics platform provider

 

First lien senior secured loan ($5,000 par due 7/2019)

 

8.50% (Libor + 7.50%/M)

 

6/25/2015

 

4,759

 

4,900

(5)(21)

 

 

 

 

 

 

Warrant to purchase up to 2,402,991 shares of Series C preferred stock (expires 6/2025)

 

 

 

6/25/2015

 

125

 

125

(5)

 

 

 

 

 

 

 

 

 

 

 

 

4,884

 

5,025

 

 

 

PowerPlan, Inc. and Project Torque Ultimate Parent Corporation

 

Fixed asset financial management software provider

 

Second lien senior secured loan ($30,000 par due 2/2023)

 

10.75% (Libor + 9.75%/Q)

 

2/23/2015

 

29,742

 

30,000

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 2/2023)

 

10.75% (Libor + 9.75%/Q)

 

2/23/2015

 

49,557

 

50,000

(3)(21)

 

 

 

 

 

 

Class A common stock (1,980 shares)

 

 

 

2/23/2015

 

1,980

 

2,592

(2)

 

 

 

 

 

 

Class B common stock (989,011 shares)

 

 

 

2/23/2015

 

20

 

26

(2)

 

 

 

 

 

 

 

 

 

 

 

 

81,299

 

82,618

 

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

1,130

(2)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

235

(2)

 

 

Rocket Fuel Inc.

 

Provider of open and integrated software for digital marketing optimization

 

Common stock (11,405 units)

 

 

 

9/9/2014

 

40

 

20

(2)

 

 

Sonian Inc.

 

Cloud-based email archiving platform

 

First lien senior secured loan ($7,500 par due 9/2019)

 

9.00% (Libor + 8.00%/M)

 

9/9/2015

 

7,308

 

7,350

(5)(21)

 

 

 

41



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Warrant to purchase up to 169,045 shares of Series C preferred stock (expires 9/2022)

 

 

 

9/9/2015

 

93

 

93

(5)

 

 

 

 

 

 

 

 

 

 

 

 

7,401

 

7,443

 

 

 

Talari Networks, Inc.

 

Networking equipment provider

 

First lien senior secured loan ($6,000 par due 12/2018)

 

9.75% (Libor + 8.75%/M)

 

8/3/2015

 

5,901

 

6,000

(5)(21)

 

 

 

 

 

 

Warrant to purchase up to 421,052 shares of Series D-1 preferred stock (expires 8/2022)

 

 

 

8/3/2015

 

50

 

50

(5)

 

 

 

 

 

 

 

 

 

 

 

 

5,951

 

6,050

 

 

 

TraceLink, Inc. (25)

 

Supply chain management software provider for the pharmaceutical industry

 

First lien senior secured loan ($4,500 par due 1/2019)

 

8.50% (Libor + 7.00%/M)

 

1/2/2015

 

4,413

 

4,500

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 283,353 shares of Series A-2 preferred stock (expires 1/2025)

 

 

 

1/2/2015

 

146

 

1,041

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,559

 

5,541

 

 

 

Velocity Holdings Corp.

 

Hosted enterprise resource planning application management services provider

 

Common units (1,713,546 units)

 

 

 

12/13/2013

 

4,503

 

2,966

 

 

 

WorldPay Group PLC (9)

 

Payment processing provider

 

C2 shares (73,974 shares)

 

 

 

10/21/2015

 

11

 

44

 

 

 

 

 

 

 

Ordinary shares (1,310,386 shares)

 

 

 

10/21/2015

 

1,128

 

5,931

 

 

 

 

 

 

 

 

 

 

 

 

 

1,139

 

5,975

 

 

 

 

 

 

 

 

 

 

 

 

 

507,889

 

480,780

 

9.29

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC (8)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

1,140

 

8,037

 

 

 

Callidus Capital Corporation (8)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,670

 

 

 

Ciena Capital LLC (8)(25)

 

Real estate and small business loan servicer

 

First lien senior secured revolving loan ($14,000 par due 12/2016)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($500 par due 12/2016)

 

12.00%

 

11/29/2010

 

500

 

500

(2)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

5,000

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($2,500 par due 12/2016)

 

12.00%

 

11/29/2010

 

2,500

 

2,500

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

38,974

 

20,835

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,974

 

42,835

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

Gordian Acquisition Corp.

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

(2)

 

 

Imperial Capital Group LLC

 

Investment services

 

Class A common units (40,440 units)

 

 

 

5/10/2007

 

9,832

 

14,376

(2)

 

 

 

 

 

 

2006 Class B common units (13,249 units)

 

 

 

5/10/2007

 

2

 

3

(2)

 

 

 

 

 

 

2007 Class B common units (1,652 units)

 

 

 

5/10/2007

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,834

 

14,379

 

 

 

Ivy Hill Asset Management, L.P. (8)(10)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

235,526

 

 

 

Javlin Three LLC, Javlin Four LLC, and Javlin Five LLC (10)(25)

 

Asset-backed financial services

 

First lien senior secured revolving loan ($50,960 par due 6/2017)

 

8.48% (Libor + 8.25%/M)

 

6/24/2014

 

50,960

 

50,960

(2)

 

 

LSQ Funding Group, L.C. and LM LSQ Investors LLC (10)(25)

 

Asset based lender

 

Senior subordinated loan ($30,000 par due 6/2021)

 

10.50%

 

6/25/2015

 

30,000

 

30,000

(2)

 

 

 

 

 

 

Membership units (3,000,000 units)

 

 

 

6/25/2015

 

3,000

 

2,966

 

 

 

 

 

 

 

 

 

 

 

 

 

33,000

 

32,966

 

 

 

 

 

 

 

 

 

 

 

 

 

357,869

 

414,373

 

8.01

%

 

42



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp. (7)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

9,315

(2)

 

 

Infilaw Holding, LLC (25)

 

Operator of for-profit law schools

 

First lien senior secured revolving loan

 

 

 

8/25/2011

 

 

(23)

 

 

 

 

 

 

First lien senior secured loan ($3,626 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

3,626

 

3,626

(3)(21)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

113,650

(2)(21)

 

 

 

 

 

 

Series B preferred units (3.91 units)

 

 

 

10/19/2012

 

9,245

 

9,765

(2)

 

 

 

 

 

 

 

 

 

 

 

 

137,761

 

127,041

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private school operator

 

First lien senior secured loan ($1,670 par due 12/2018)

 

10.50% (Libor + 9.00%/Q)

 

10/31/2015

 

1,670

 

1,670

(2)(21)

 

 

 

 

 

 

Senior preferred series A-1 shares (163,902 shares)

 

 

 

10/31/2015

 

119,422

 

99,514

(2)

 

 

 

 

 

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

126,781

 

101,184

 

 

 

Lakeland Tours, LLC

 

Educational travel provider

 

First lien senior secured loan ($30,750 par due 6/2020)

 

9.77% (Libor + 8.77%/Q)

 

6/9/2015

 

30,750

 

30,750

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($43,967 par due 6/2020)

 

9.77% (Libor + 8.77%/Q)

 

6/9/2015

 

43,960

 

43,967

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($40,362 par due 6/2020)

 

9.77% (Libor + 8.77%/Q)

 

6/9/2015

 

40,334

 

40,362

(3)(21)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

9,742

(2)

 

 

 

 

 

 

 

 

 

 

 

 

120,044

 

124,821

 

 

 

PIH Corporation (25)

 

Franchisor of education-based early childhood centers

 

First lien senior secured revolving loan ($621 par due 12/2018)

 

7.00% (Libor + 6.00%/Q)

 

12/13/2013

 

621

 

621

(2)(21)

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (1,977 shares)

 

 

 

7/30/2008

 

494

 

494

(2)

 

 

 

 

 

 

Common membership interest (15.76% interest)

 

 

 

9/21/2007

 

15,800

 

25,890

(2)

 

 

 

 

 

 

Warrant to purchase up to 27,890 shares (expires 11/2019)

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

16,294

 

26,384

 

 

 

Regent Education, Inc. (25)

 

Provider of software solutions designed to optimize the financial aid and enrollment processes

 

First lien senior secured revolving loan ($1,000 par due 7/2016)

 

10.00% (Libor + 8.00%/Q)

 

7/1/2014

 

1,000

 

960

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($3,000 par due 1/2018)

 

10.00% (Libor + 8.00%/Q)

 

7/1/2014

 

2,927

 

2,880

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 987,771 shares of Series CC preferred stock (expires 11/2025)

 

 

 

7/1/2014

 

 

62

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,927

 

3,902

 

 

 

Severin Acquisition, LLC (25)

 

Provider of student information system software solutions to the K-12 education market

 

Second lien senior secured loan ($4,154 par due 7/2022)

 

9.75% (Libor + 8.75%/Q)

 

10/28/2015

 

4,073

 

4,071

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($15,000 par due 7/2022)

 

9.25% (Libor + 8.25%/Q)

 

7/31/2015

 

14,718

 

14,550

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

18,791

 

18,621

 

 

 

WCI-Quantum Holdings, Inc.

 

Distributor of instructional products, services and resources

 

Series A preferred stock (1,272 shares)

 

 

 

10/24/2014

 

1,000

 

1,206

(2)

 

 

 

 

 

 

 

 

 

 

 

 

435,739

 

413,095

 

7.99

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc., ADF Restaurant Group, LLC, and ARG Restaurant Holdings, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($28,581 par due 12/2018)

 

9.25% (Libor + 8.25%/Q)

 

11/27/2006

 

28,581

 

25,151

(2)(17)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,919 par due 12/2018)

 

9.25% (Libor + 8.25%/Q)

 

11/27/2006

 

10,922

 

9,609

(3)(17)(21)

 

 

 

43



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Promissory note ($21,972 par due 12/2023)

 

 

 

11/27/2006

 

13,770

 

1,641

(2)

 

 

 

 

 

 

Warrant to purchase up to 23,750 units of Series D common stock (expires 12/2023)

 

 

 

12/18/2013

 

24

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

53,297

 

36,401

 

 

 

Benihana, Inc. (25)

 

Restaurant owner and operator

 

First lien senior secured revolving loan ($969 par due 7/2018)

 

8.25% (Base Rate + 4.75%/Q)

 

8/21/2012

 

969

 

921

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,839 par due 1/2019)

 

7.25% (Libor + 6.00%/Q)

 

8/21/2012

 

4,839

 

4,597

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

5,808

 

5,518

 

 

 

DineInFresh, Inc.

 

Meal-delivery provider

 

First lien senior secured loan ($7,500 par due 7/2018)

 

9.75% (Libor + 8.75%/M)

 

12/19/2014

 

7,438

 

7,500

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 143,079 shares of Series A preferred stock (12/2024)

 

 

 

12/19/2014

 

 

4

(2)

 

 

 

 

 

 

 

 

 

 

 

 

7,438

 

7,504

 

 

 

Garden Fresh Restaurant Corp. (25)

 

Restaurant owner and operator

 

First lien senior secured revolving loan ($1,100 par due 7/2018)

 

10.50% (Libor + 9.00%/Q)

 

10/3/2013

 

1,100

 

1,100

(2)(21)(24)

 

 

 

 

 

 

First lien senior secured loan ($40,688 par due 7/2018)

 

10.50% (Libor + 9.00%/Q)

 

10/3/2013

 

40,688

 

40,688

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

41,788

 

41,788

 

 

 

Global Franchise Group, LLC and GFG Intermediate Holding, Inc.

 

Worldwide franchisor of quick service restaurants

 

First lien senior secured loan ($62,500 par due 12/2019)

 

10.53% (Libor + 9.53%/Q)

 

12/18/2014

 

62,500

 

62,500

(3)(21)

 

 

Heritage Food Service Group, Inc. and WCI-HFG Holdings, LLC

 

Distributor of replacement parts for commercial kitchen equipment

 

Second lien senior secured loan ($31,645 par due 10/2022)

 

9.50% (Libor + 8.50%/Q)

 

10/20/2015

 

31,645

 

31,012

(2)(21)

 

 

 

 

 

 

Preferred units (3,000,000 units)

 

 

 

10/20/2015

 

3,000

 

3,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

34,645

 

34,012

 

 

 

Orion Foods, LLC (8)

 

Convenience food service retailer

 

First lien senior secured loan ($7,536 par due 9/2015)

 

 

 

4/1/2010

 

7,536

 

3,699

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($19,420 par due 9/2015)

 

 

 

4/1/2010

 

 

(2)(20)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

7,536

 

3,699

 

 

 

OTG Management, LLC (25)

 

Airport restaurant operator

 

First lien senior secured revolving loan ($2,300 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

2,300

 

2,300

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,756 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

10,756

 

10,756

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($22,101 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

22,101

 

22,101

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($24,688 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

24,688

 

24,688

(3)(21)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

11,451

(2)

 

 

 

 

 

 

Warrant to purchase up to 7.73% of common units (expires 6/2018)

 

 

 

6/19/2008

 

100

 

22,843

(2)

 

 

 

 

 

 

 

 

 

 

 

 

62,945

 

94,139

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

First lien senior secured loan ($36,309 par due 2/2019)

 

8.75% (Libor + 7.75%/Q)

 

3/13/2014

 

36,076

 

35,219

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

312,033

 

320,780

 

6.20

%

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lonestar Prospects, Ltd.

 

Sand proppant producer and distributor to the oil and natural gas industry

 

First lien senior secured loan ($25,286 par due 9/2018)

 

8.50% (Libor + 6.50% Cash, 1.00% PIK/Q)

 

9/18/2014

 

25,286

 

24,022

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($49,343 par due 9/2018)

 

8.50% (Libor + 6.50% Cash, 1.00% PIK/Q)

 

9/18/2014

 

49,343

 

46,876

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

74,629

 

70,898

 

 

 

Petroflow Energy Corporation

 

Oil and gas exploration and production company

 

First lien senior secured loan ($52,539 par due 7/2017)

 

 

 

7/31/2014

 

49,269

 

19,807

(2)(20)

 

 

 

44



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Primexx Energy Corporation

 

Privately-held oil and gas exploration and production company

 

Second lien senior secured loan ($125,000 par due 1/2020)

 

10.00% (Libor + 9.00%/M)

 

7/7/2015

 

124,524

 

116,250

(2)(21)

 

 

UL Holding Co., LLC and Universal Lubricants, LLC (7)

 

Manufacturer and distributor of re-refined oil products

 

Second lien senior secured loan ($12,099 par due 12/2016)

 

 

 

4/30/2012

 

8,717

 

9,972

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($51,314 par due 12/2016)

 

 

 

4/30/2012

 

37,043

 

42,295

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($5,971 par due 12/2016)

 

 

 

4/30/2012

 

4,272

 

4,921

(2)(20)

 

 

 

 

 

 

Class A common units (533,351 units)

 

 

 

6/17/2011

 

4,993

 

(2)

 

 

 

 

 

 

Class B-5 common units (272,834 units)

 

 

 

6/17/2011

 

2,492

 

(2)

 

 

 

 

 

 

Class C common units (758,546 units)

 

 

 

4/25/2008

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 654,045 shares of Class A units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 26,072 shares of Class B-1 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 52,143 shares of Class B-2 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 26,965 shares of Class B-3 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 73,106 shares of Class B-5 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 54,263 shares of Class B-6 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 952,095 shares of Class C units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

57,517

 

57,188

 

 

 

 

 

 

 

 

 

 

 

 

 

305,939

 

264,143

 

5.11

%

Containers and Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charter NEX US Holdings, Inc.

 

Producer of high-performance specialty films used in flexible packaging

 

Second lien senior secured loan ($16,000 par due 2/2023)

 

9.25% (Libor + 8.25%/Q)

 

2/5/2015

 

15,787

 

15,680

(2)(21)

 

 

GS Pretium Holdings, Inc.

 

Manufacturer and supplier of high performance plastic containers

 

Common stock (500,000 shares)

 

 

 

6/2/2014

 

500

 

479

(2)

 

 

ICSH, Inc. (25)

 

Industrial container manufacturer, reconditioner and servicer

 

First lien senior secured revolving loan

 

 

 

8/30/2011

 

 

(2)(23)

 

 

 

 

 

 

Second lien senior secured loan ($66,000 par due 12/2019)

 

10.00% (Libor + 9.00%/Q)

 

12/31/2015

 

66,000

 

66,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

66,000

 

66,000

 

 

 

LBP Intermediate Holdings LLC (25)

 

Manufacturer of paper and corrugated foodservice packaging

 

First lien senior secured revolving loan

 

 

 

7/10/2015

 

 

(2)(23)

 

 

 

 

 

 

First lien senior secured loan ($24,425 par due 7/2020)

 

6.50% (Libor + 5.50%/Q)

 

7/10/2015

 

24,153

 

24,425

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($193 par due 7/2020)

 

8.00% (Base Rate + 4.50%/Q)

 

7/10/2015

 

191

 

193

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

24,344

 

24,618

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC, and MStar Holding Corporation

 

Keg management solutions provider

 

Second lien senior secured loan ($142,500 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

142,500

 

142,500

(2)(21)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

12/14/2012

 

3,951

 

7,270

(2)

 

 

 

 

 

 

 

 

 

 

 

 

146,451

 

149,770

 

 

 

 

 

 

 

 

 

 

 

 

 

253,082

 

256,547

 

4.96

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Seafoods Group LLC and American Seafoods Partners LLC (25)

 

Harvester and processor of seafood

 

First lien senior secured loan ($19,850 par due 8/2021)

 

6.00% (Libor + 5.00%/Q)

 

8/19/2015

 

19,598

 

19,652

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($55,000 par due 2/2022)

 

10.00% (Libor + 9.00%/Q)

 

8/19/2015

 

55,000

 

53,900

(2)(21)

 

 

 

45



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Class A units (77,922 units)

 

 

 

8/19/2015

 

78

 

75

(2)

 

 

 

 

 

 

Warrant to purchase up to 7,422,078 Class A units (expires 8/2035)

 

 

 

8/19/2015

 

7,422

 

7,160

(2)

 

 

 

 

 

 

 

 

 

 

 

 

82,098

 

80,787

 

 

 

Eagle Family Foods Group LLC

 

Manufacturer and producer of milk products

 

First lien senior secured loan ($64,775 par due 12/2021)

 

10.05% (Libor + 9.05%/Q)

 

12/31/2015

 

64,277

 

64,775

(2)(21)

 

 

GF Parent LLC

 

Producer of low-acid, aseptic food and beverage products

 

Class A preferred units (2,940 units)

 

 

 

5/13/2015

 

2,940

 

2,433

(2)

 

 

 

 

 

 

Class A common units (59,999.74 units)

 

 

 

5/13/2015

 

60

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

2,433

 

 

 

Kettle Cuisine, LLC

 

Manufacturer of fresh refrigerated and frozen food products

 

Second lien senior secured loan ($28,500 par due 2/2022)

 

10.50% (Libor + 9.50%/Q)

 

8/21/2015

 

28,500

 

28,500

(2)(21)

 

 

KeyImpact Holdings, Inc. and JWC/KI Holdings, LLC (25)

 

Foodservice sales and marketing agency

 

First lien senior secured loan ($46,250 par due 11/2021)

 

7.13% (Libor + 6.13%/Q)

 

11/16/2015

 

46,250

 

45,788

(2)(21)(28)

 

 

 

 

 

 

Membership units (5,000 units)

 

 

 

11/16/2015

 

5,000

 

5,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

51,250

 

50,788

 

 

 

 

 

 

 

 

 

 

 

 

 

229,125

 

227,283

 

4.39

%

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AEP Holdings, Inc. and Arrowhead Holdco Company

 

Distributor of non-discretionary, mission-critical aftermarket replacement parts

 

First lien senior secured loan ($45,346 par due 8/2021)

 

7.25% (Libor + 6.25%/Q)

 

8/31/2015

 

45,346

 

44,893

(2)(21)(28)

 

 

 

 

 

 

First lien senior secured loan ($904 par due 8/2021)

 

8.75% (Base Rate + 5.25%/Q)

 

8/31/2015

 

904

 

895

(2)(21)(28)

 

 

 

 

 

 

Common stock (2,500 shares)

 

 

 

8/31/2015

 

2,500

 

2,518

(2)

 

 

 

 

 

 

 

 

 

 

 

 

48,750

 

48,306

 

 

 

ChargePoint, Inc.

 

Developer and operator of electric vehicle charging stations

 

First lien senior secured loan ($10,000 par due 7/2019)

 

9.75% (Libor + 8.75%/M)

 

12/24/2014

 

9,821

 

10,000

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 1/2019)

 

9.75% (Libor + 8.75%/M)

 

12/24/2014

 

9,567

 

10,000

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 404,563 shares of Series E preferred stock (expires 12/2024)

 

 

 

12/24/2014

 

327

 

327

(2)

 

 

 

 

 

 

 

 

 

 

 

 

19,715

 

20,327

 

 

 

Dent Wizard International Corporation and DWH Equity Investors, L.P.

 

Automotive reconditioning services

 

Second lien senior secured loan ($50,000 par due 10/2020)

 

10.25% (Libor + 9.25%/Q)

 

4/7/2015

 

50,000

 

50,000

(3)(21)

 

 

 

 

 

 

Class A Common Stock (10,000 shares)

 

 

 

4/7/2015

 

333

 

456

(2)

 

 

 

 

 

 

Class B Common Stock (20,000 shares)

 

 

 

4/7/2015

 

667

 

911

(2)

 

 

 

 

 

 

 

 

 

 

 

 

51,000

 

51,367

 

 

 

Eckler Industries, Inc. (25)

 

Restoration parts and accessories provider for classic automobiles

 

First lien senior secured revolving loan ($2,000 par due 7/2017)

 

8.50% (Base Rate + 5.00%/Q)

 

7/12/2012

 

2,000

 

1,940

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($7,054 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

7,054

 

6,842

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($26,581 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

26,581

 

25,784

(3)(21)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

37,635

 

34,566

 

 

 

EcoMotors, Inc.

 

Engine developer

 

First lien senior secured loan ($11,480 par due 3/2018)

 

11.00%

 

9/1/2015

 

10,855

 

11,480

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C preferred stock (expires 12/2022)

 

 

 

12/28/2012

 

 

347

(2)

 

 

 

 

 

 

Warrant to purchase up to 70,000 shares of Series C preferred stock (expires 2/2025)

 

 

 

2/24/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,855

 

11,827

 

 

 

 

46



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Simpson Performance Products, Inc.

 

Provider of motorsports safety equipment

 

First lien senior secured loan ($5,006 par due 2/2020)

 

9.80% (Libor + 8.80%/Q)

 

10/19/2015

 

5,006

 

5,006

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,500 par due 2/2020)

 

9.80% (Libor + 8.80%/Q)

 

2/20/2015

 

19,500

 

19,500

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

24,506

 

24,506

 

 

 

SK SPV IV, LLC

 

Collision repair site operators

 

Series A common stock (12,500 units)

 

 

 

8/18/2014

 

571

 

2,679

(2)

 

 

 

 

 

 

Series B common stock (12,500 units)

 

 

 

8/18/2014

 

571

 

2,679

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,142

 

5,358

 

 

 

TA THI Buyer, Inc. and TA THI Parent, Inc.

 

Collision repair company

 

Series A preferred stock (50,000 shares)

 

 

 

7/28/2014

 

5,000

 

9,297

(2)

 

 

 

 

 

 

 

 

 

 

 

 

198,603

 

205,554

 

3.97

%

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC and New 10th Street, LLC (8)

 

Real estate holding company

 

First lien senior secured loan ($25,320 par due 11/2019)

 

7.00% Cash, 1.00% PIK

 

3/31/2014

 

25,320

 

25,320

(2)

 

 

 

 

 

 

Senior subordinated loan ($27,235 par due 11/2019)

 

7.00% Cash, 1.00% PIK

 

4/1/2010

 

27,235

 

27,235

(2)

 

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

44,520

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

53,174

 

97,100

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

135

 

 

 

Crescent Hotels & Resorts, LLC and affiliates (8)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

15.00%

 

4/1/2010

 

 

2,670

(2)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,670

 

 

 

 

 

 

 

 

 

 

 

 

 

53,174

 

99,905

 

1.93

%

Chemicals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Genomatica, Inc.

 

Developer of a biotechnology platform for the production of chemical products

 

Warrant to purchase 322,422 shares of Series D preferred stock (expires 3/2023)

 

 

 

3/28/2013

 

 

6

(2)

 

 

K2 Pure Solutions Nocal, L.P. (25)

 

Chemical Producer

 

First lien senior secured revolving loan ($5,000 par due 8/2019)

 

9.125% (Libor + 8.125%/M)

 

8/19/2013

 

5,000

 

4,900

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($20,694 par due 8/2019)

 

8.00% (Libor + 7.00%/M)

 

8/19/2013

 

20,694

 

20,280

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($38,500 par due 8/2019)

 

8.00% (Libor + 7.00%/M)

 

8/19/2013

 

38,500

 

37,730

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,250 par due 8/2019)

 

8.00% (Libor + 7.00%/M)

 

8/19/2013

 

19,250

 

18,865

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

83,444

 

81,775

 

 

 

Kinestral Technologies, Inc.

 

Designer of adaptive,

dynamic glass for the

commercial and

residential markets

 

 

First lien senior secured loan ($10,000 par due 10/2018)

 

8.75% (Libor + 7.75%/M)

 

4/22/2014

 

9,856

 

10,000

(2)(21)

 

 

 

 

 

 

Warrant to purchase up to 325,000 shares of Series A preferred stock (expires 4/2024)

 

 

 

4/22/2014

 

73

 

151

(2)

 

 

 

 

 

 

Warrant to purchase up to 131,883 shares of Series B preferred stock (expires 4/2025)

 

 

 

4/9/2015

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,929

 

10,151

 

 

 

Liquid Light, Inc.

 

Developer and licensor of process technology for the conversion of carbon dioxide into major chemicals

 

First lien senior secured loan ($2,556 par due 11/2017)

 

10.00%

 

8/13/2014

 

2,518

 

2,556

(2)

 

 

 

 

 

 

Warrant to purchase up to 86,009 shares of Series B preferred stock (expires 8/2024)

 

 

 

8/13/2014

 

77

 

74

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,595

 

2,630

 

 

 

 

 

 

 

 

 

 

 

 

 

95,968

 

94,562

 

1.83

%

Hotel Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aimbridge Hospitality Holdings, LLC (25)

 

Hotel operator

 

First lien senior secured loan ($18,305 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

7/15/2015

 

18,066

 

18,305

(2)(15)(21)

 

 

 

47



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Castle Management Borrower LLC

 

Hotel operator

 

First lien senior secured loan ($5,940 par due 9/2020)

 

5.50% (Libor + 4.50%/Q)

 

10/17/2014

 

5,940

 

5,940

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($10,000 par due 3/2021)

 

11.00% (Libor + 10.00%/Q)

 

10/17/2014

 

10,000

 

10,000

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($55,000 par due 3/2021)

 

11.00% (Libor + 10.00%/Q)

 

10/17/2014

 

55,000

 

55,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

70,940

 

70,940

 

 

 

 

 

 

 

 

 

 

 

 

 

89,006

 

89,245

 

1.73

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cadence Aerospace, LLC

 

Aerospace precision components manufacturer

 

First lien senior secured loan ($4,074 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

4,057

 

4,074

(4)(21)

 

 

 

 

 

 

Second lien senior secured loan ($79,657 par due 5/2019)

 

10.50% (Libor + 9.25%/Q)

 

5/10/2012

 

79,657

 

77,267

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

83,714

 

81,341

 

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

131

 

131

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

2,504

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,422

 

2,635

 

 

 

 

 

 

 

 

 

 

 

 

 

86,136

 

83,976

 

1.62

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RE Community Holdings II, Inc., Pegasus Community Energy, LLC., and MPH Energy Holdings, LP

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

(2)

 

 

 

 

 

 

Limited partnership interest (3.13% interest)

 

 

 

1/8/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,839

 

 

 

 

Waste Pro USA, Inc

 

Waste management services

 

Second lien senior secured loan ($76,725 par due 10/2020)

 

8.50% (Libor + 7.50%/Q)

 

10/15/2014

 

76,725

 

76,725

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

85,564

 

76,725

 

1.48

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc. (25)

 

Premier health club operator

 

First lien senior secured loan ($41,000 par due 10/2020)

 

9.50% (Libor + 8.50%/Q)

 

10/11/2007

 

41,000

 

41,000

(2)(21)

 

 

CFW Co-Invest, L.P., NCP Curves, L.P. and Curves International Holdings, Inc.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

3,767

(2)

 

 

 

 

 

 

Common stock (1,680 shares)

 

 

 

11/12/2014

 

 

(2)(9)

 

 

 

 

 

 

Limited partnership interest (2,218,235 shares)

 

 

 

7/31/2012

 

2,218

 

2,012

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

6,370

 

5,779

 

 

 

 

 

 

 

 

 

 

 

 

 

47,370

 

46,779

 

0.90

%

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flow Solutions Holdings, Inc.

 

Distributor of high value fluid handling, filtration and flow control products

 

Second lien senior secured loan ($6,000 par due 10/2018)

 

10.00% (Libor + 9.00%/Q)

 

12/16/2014

 

6,000

 

5,820

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($29,500 par due 10/2018)

 

10.00% (Libor + 9.00%/Q)

 

12/16/2014

 

29,500

 

28,615

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

35,500

 

34,435

 

 

 

 

 

 

 

 

 

 

 

 

 

35,500

 

34,435

 

0.67

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paper Source, Inc. and Pine Holdings, Inc. (25)

 

Retailer of fine and artisanal paper products

 

First lien senior secured loan ($9,800 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

9,800

 

9,800

(4)(21)

 

 

 

 

 

 

Class A common stock (36,364 shares)

 

 

 

9/23/2013

 

6,000

 

7,056

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,800

 

16,856

 

 

 

Things Remembered, Inc. and TRM Holdings Corporation (25)

 

Personalized gifts retailer

 

First lien senior secured revolving loan ($3,167 par due 5/2017)

 

 

 

5/24/2012

 

3,126

 

1,868

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($12,878 par due 5/2018)

 

 

 

5/24/2012

 

12,606

 

7,598

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

15,732

 

9,466

 

 

 

 

 

 

 

 

 

 

 

 

 

31,532

 

26,322

 

0.51

%

 

48



Table of Contents

 

As of December 31, 2015

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(6)(12)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adaptive Mobile Security Limited (9)

 

Developer of security software for mobile communications networks

 

First lien senior secured loan ($3,039 par due 7/2018)

 

10.00% (Libor + 9.00%/M)

 

1/16/2015

 

3,196

 

3,189

(2)(19)(21)

 

 

 

 

 

 

First lien senior secured loan ($769 par due 10/2018)

 

10.00% (Libor + 9.00%/M)

 

1/16/2015

 

807

 

807

(2)(19)(21)

 

 

 

 

 

 

 

 

 

 

 

 

4,003

 

3,996

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, and Cameron Holdings of NC, Inc.

 

Broadband communication services

 

Warrant to purchase up to 208 shares (expires 11/2017)

 

 

 

11/7/2007

 

 

7,249

 

 

 

 

 

 

 

Warrant to purchase up to 200 shares (expires 9/2020)

 

 

 

9/1/2010

 

 

6,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,219

 

 

 

Startec Equity, LLC (8)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

Wilcon Holdings LLC

 

Communications infrastructure provider

 

Class A common stock (2,000,000 shares)

 

 

 

12/13/2013

 

1,829

 

2,620

 

 

 

 

 

 

 

 

 

 

 

 

 

5,832

 

20,835

 

0.40

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc. (25)

 

Independent digital media company

 

First lien senior secured revolving loan ($3,000 par due 6/2016)

 

10.00%

 

10/31/2012

 

3,000

 

3,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($6,590 par due 6/2017)

 

10.60%

 

10/31/2012

 

6,590

 

6,650

(2)(19)

 

 

 

 

 

 

 

 

 

 

 

 

9,590

 

9,650

 

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

3,875

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

9

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,069

 

3,884

 

 

 

 

 

 

 

 

 

 

 

 

 

10,659

 

13,534

 

0.26

%

Computers and Electronics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Everspin Technologies, Inc. (25)

 

Designer and manufacturer of computer memory solutions

 

First lien senior secured loan ($8,000 par due 6/2019)

 

8.75% (Libor + 7.75%/M)

 

6/5/2015

 

7,533

 

7,840

(5)(21)

 

 

 

 

 

 

Warrant to purchase up to 480,000 shares of Series B preferred stock (expires 6/2025)

 

 

 

6/5/2015

 

355

 

355

(5)

 

 

 

 

 

 

 

 

 

 

 

 

7,888

 

8,195

 

 

 

Liquid Robotics, Inc.

 

Ocean data services provider utilizing long duration, autonomous surface vehicles

 

First lien senior secured loan ($5,000 par due 5/2019)

 

9.00% (Libor + 8.00%/M)

 

10/29/2015

 

4,876

 

4,900

(5)(21)

 

 

 

 

 

 

Warrant to purchase up to 50,263 shares of Series E preferred stock (expires 10/2025)

 

 

 

10/29/2015

 

76

 

74

(5)

 

 

 

 

 

 

 

 

 

 

 

 

4,952

 

4,974

 

 

 

 

 

 

 

 

 

 

 

 

 

12,840

 

13,169

 

0.26

%

 

 

 

 

 

 

 

 

 

 

$

 9,147,646

 

$

 9,055,496

 

175.04

%

 


(1)                                     Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act. In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of December 31, 2015 represented 175% of the Company’s net assets or 95% of the Company’s total assets, are subject to legal restrictions on sales.

 

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(2)                                     These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

(3)                                     These assets are owned by the Company’s consolidated subsidiary Ares Capital CP, are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                                     These assets are owned by the Company’s consolidated subsidiary ACJB, are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                                     These assets are owned by the Company’s consolidated subsidiary AVF LP, are pledged as collateral for the SBA Debentures and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than AVF LP’s obligations (see Note 5 to the consolidated financial statements). AVF LP operates as a SBIC under the provisions of Section 301(c) of the Small Business Investment Act of 1958, as amended.

 

(6)                                     Investments without an interest rate are non-income producing.

 

(7)                                     As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” and “Control” this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2015 in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to Control) are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net realized
gains (losses)

 

Net
unrealized
gains (losses)

 

Campus Management Corp. and Campus Management Acquisition Corp.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(846

)

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.

 

$

41,571

 

$

121,827

 

$

43,170

 

$

5,049

 

$

129

 

$

1,312

 

$

71

 

$

25,920

 

$

(11,656

)

Crown Health Care Laundry Services, Inc. and Crown Laundry Holdings, LLC

 

$

500

 

$

1,645

 

$

 

$

1,930

 

$

 

$

 

$

133

 

$

 

$

888

 

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

107

 

$

 

$

333

 

$

(265

)

Multi-Ad Services, Inc.

 

$

 

$

788

 

$

 

$

 

$

 

$

2,235

 

$

 

$

 

$

(926

)

Shock Doctor, Inc. and Shock Doctor Holdings, LLC

 

$

108,425

 

$

 

$

14,000

 

$

6,947

 

$

2,472

 

$

 

$

36

 

$

 

$

(161

)

UL Holding Co., LLC

 

$

 

$

251

 

$

 

$

 

$

 

$

 

$

 

$

 

$

4,750

 

 

(8)                                     As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2015 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are as follows:

 

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Table of Contents

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net realized
gains (losses)

 

Net
unrealized
gains (losses)

 

10th Street, LLC and New 10th Street, LLC

 

$

 

$

 

$

 

$

8,165

 

$

 

$

950

 

$

 

$

 

$

(6,407

)

AllBridge Financial, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

2,233

 

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(32

)

Ciena Capital LLC

 

$

 

$

18,400

 

$

 

$

2,550

 

$

 

$

 

$

 

$

 

$

11,328

 

Community Education Centers, Inc. and CEC Parent Holdings LLC

 

$

 

$

 

$

 

$

3,867

 

$

 

$

 

$

72

 

$

 

$

(693

)

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

 

$

1,036

 

$

 

$

 

$

 

$

 

$

2,670

 

HCI Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

99

 

$

 

$

 

$

(270

)

HCP Acquisition Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Ivy Hill Asset Management, L.P.

 

$

 

$

 

$

 

$

 

$

 

$

50,000

 

$

 

$

 

$

(23,798

)

MVL Group, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Orion Foods, LLC

 

$

 

$

533

 

$

 

$

 

$

 

$

 

$

 

$

 

$

1,126

 

PHL Investors, Inc., and PHL Holding Co.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Senior Secured Loan Fund LLC*

 

$

228,676

 

$

329,693

 

$

 

$

276,067

 

$

21,970

 

$

 

$

26,176

 

$

 

$

(81,057

)

Startec Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

The Step2 Company, LLC

 

$

 

$

 

$

 

$

3,274

 

$

 

$

 

$

 

$

 

$

3,463

 

 

*                                           Together with GE, the Company has co-invested through the SSLP. The SSLP has been capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(9)                                     Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                                Exception from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(11)                                In the first quarter of 2011, the Staff informally communicated to certain BDCs the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) under Investment Company Act) (i.e. not eligible to be included in a BDC’s 70% “qualifying assets” basket). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which stated that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which the U.S. Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”. The Company provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a BDC to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, the Company has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified such entities, which include the SSLP, as “non-qualifying assets” should the Staff ultimately disagree with the Company’s position. Pursuant to Section 55(a) of the Investment Company Act (using the Staff’s methodology described above solely for this purpose), 25% of the Company’s total assets are represented by investments at fair value and other assets that are considered “non-qualifying assets” as of December 31, 2015.

 

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(12)                                Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

(13)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $13 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(14)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $85 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.50% on $62 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $48 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $19 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.55% on $42 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(19)                                The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

(20)                                Loan was on non-accrual status as of December 31, 2015.

 

(21)                                Loan includes interest rate floor feature.

 

(22)                                In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, after expenses, which may result in a return to the Company greater than the contractual stated interest rate.

 

(23)                                As of December 31, 2015, no amounts were funded by the Company under this first lien senior secured revolving loan; however, there were letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(24)                                As of December 31, 2015, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also letters of credit issued and outstanding through a financial intermediary under the loan.

 

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See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(25)                                As of December 31, 2015, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. Such commitments are subject to the satisfaction of certain conditions set forth in the documents governing these loans and letters of credit and there can be no assurance that such conditions will be satisfied. See Note 7 to the consolidated financial statements for further information on revolving and delayed draw loan commitments, including commitments to issue letters of credit, related to certain portfolio companies.

 

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Table of Contents

 

Portfolio Company

 

Total revolving
and delayed draw
loan
commitments

 

Less: drawn
commitments

 

Total undrawn
commitments

 

Less:
commitments
substantially at
discretion of the
Company

 

Less: unavailable
commitments due
to borrowing base
or other covenant
restrictions

 

Total net adjusted
undrawn revolving
and delayed draw
commitments

 

Aimbridge Hospitality, LLC

 

$

2,466

 

$

 

$

2,466

 

$

 

$

 

$

2,466

 

American Seafoods Group LLC

 

22,125

 

 

22,125

 

 

 

22,125

 

Athletic Club Holdings, Inc.

 

10,000

 

 

10,000

 

 

 

10,000

 

Batanga, Inc.

 

4,000

 

(3,000

)

1,000

 

 

 

1,000

 

Benihana, Inc.

 

3,231

 

(969

)

2,262

 

 

 

2,262

 

Brandtone Holdings Limited

 

4,539

 

 

4,539

 

 

 

4,539

 

CCS Intermediate Holdings, LLC

 

7,500

 

(5,250

)

2,250

 

 

 

2,250

 

Chariot Acquisition, LLC (28)

 

1,000

 

 

1,000

 

 

 

1,000

 

CIBT Holdings, Inc.

 

26,440

 

 

26,440

 

 

 

26,440

 

Ciena Capital LLC

 

20,000

 

(14,000

)

6,000

 

(6,000

)

 

 

Competitor Group, Inc.

 

6,250

 

(4,950

)

1,300

 

 

 

1,300

 

Component Hardware Group, Inc.

 

3,734

 

(2,241

)

1,493

 

 

 

1,493

 

Correctional Medical Group Companies, Inc.

 

163

 

 

163

 

 

 

163

 

Crown Health Care Laundry Services, Inc.

 

5,000

 

(1,272

)

3,728

 

 

 

3,728

 

DCA Investment Holding, LLC

 

5,800

 

(145

)

5,655

 

 

 

5,655

 

Directworks, Inc.

 

1,000

 

 

1,000

 

 

 

1,000

 

Eckler Industries, Inc.

 

4,000

 

(2,000

)

2,000

 

 

 

2,000

 

EN Engineering, L.L.C. (28)

 

4,932

 

 

4,932

 

 

 

4,932

 

Everspin Technologies, Inc.

 

4,000

 

 

4,000

 

 

 

4,000

 

Faction Holdings, Inc.

 

2,000

 

(2,000

)

 

 

 

 

Garden Fresh Restaurant Corp.

 

5,000

 

(3,742

)

1,258

 

 

 

1,258

 

Greenphire, Inc.

 

8,000

 

 

8,000

 

 

 

8,000

 

Harvey Tool Company, LLC

 

752

 

 

752

 

 

 

752

 

ICSH, Inc.

 

5,000

 

(703

)

4,297

 

 

 

4,297

 

Infilaw Holding, LLC

 

25,000

 

(9,670

)

15,330

 

 

 

15,330

 

iPipeline, Inc.

 

4,000

 

 

4,000

 

 

 

4,000

 

Itel Laboratories, Inc.

 

2,500

 

 

2,500

 

 

 

2,500

 

Javlin Three LLC

 

60,000

 

(50,960

)

9,040

 

 

 

9,040

 

Joule Unlimited Technologies, Inc.

 

5,000

 

 

5,000

 

 

 

5,000

 

K2 Pure Solutions Nocal, L.P.

 

5,000

 

(5,000

)

 

 

 

 

KeyImpact Holdings, Inc. (28)

 

12,500

 

 

12,500

 

 

 

12,500

 

LBP Intermediate Holdings LLC

 

850

 

(54

)

796

 

 

 

796

 

LSQ Funding Group, L.C.

 

10,000

 

 

10,000

 

 

 

10,000

 

Massage Envy, LLC

 

5,000

 

 

5,000

 

 

 

5,000

 

McKenzie Sports Products, LLC

 

12,000

 

 

12,000

 

 

 

12,000

 

Ministry Brands LLC

 

4,991

 

 

4,991

 

 

 

4,991

 

MW Dental Holding Corp.

 

17,250

 

(3,500

)

13,750

 

 

 

13,750

 

My Health Direct, Inc.

 

1,000

 

 

1,000

 

 

 

1,000

 

Niagara Fiber Intermediate Corp.

 

1,881

 

(1,881

)

 

 

 

 

Nordco Inc (28)

 

11,250

 

(3,750

)

7,500

 

 

 

7,500

 

OmniSYS Acquisition Corporation

 

2,500

 

 

2,500

 

 

 

2,500

 

OTG Management, LLC

 

19,369

 

(2,300

)

17,069

 

 

 

17,069

 

Paper Source, Inc.

 

2,500

 

 

2,500

 

 

 

2,500

 

PerfectServe, Inc.

 

5,000

 

 

5,000

 

 

 

5,000

 

PIH Corporation

 

3,314

 

(621

)

2,693

 

 

 

2,693

 

Regent Education, Inc.

 

2,000

 

(1,000

)

1,000

 

 

 

1,000

 

RuffaloCODY, LLC

 

7,683

 

 

7,683

 

 

 

7,683

 

Severin Acquisition, LLC

 

2,900

 

 

2,900

 

 

 

2,900

 

Things Remembered, Inc.

 

5,000

 

(3,167

)

1,833

 

 

 

1,833

 

TPTM Merger Corp.

 

2,500

 

(750

)

1,750

 

 

 

1,750

 

TraceLink, Inc.

 

3,000

 

 

3,000

 

 

 

3,000

 

TWH Water Treatment Industries, Inc.

 

8,960

 

 

8,960

 

 

 

8,960

 

Urgent Cares of America Holdings I, LLC (28)

 

16,000

 

 

16,000

 

 

 

16,000

 

 

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Portfolio Company

 

Total revolving
and delayed draw
loan
commitments

 

Less: drawn
commitments

 

Total undrawn
commitments

 

Less:
commitments
substantially at
discretion of the
Company

 

Less: unavailable
commitments due
to borrowing base
or other covenant
restrictions

 

Total net adjusted
undrawn revolving
and delayed draw
commitments

 

Zemax, LLC

 

3,000

 

 

3,000

 

 

 

3,000

 

 

 

$

418,880

 

$

(122,925

)

$

295,955

 

$

(6,000

)

$

 

$

289,955

 

 

(26)                          As of December 31, 2015, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

Portfolio Company

 

Total private equity
commitments

 

Less: funded
private equity
commitments

 

Total unfunded
private equity
commitments

 

Less: private equity
commitments
substantially at the
discretion of the
Company

 

Total net adjusted
unfunded private
equity
commitments

 

Imperial Capital Private Opportunities, LP

 

$

50,000

 

$

(6,794

)

$

43,206

 

$

(43,206

)

$

 

Partnership Capital Growth Investors III, L.P.

 

5,000

 

(4,037

)

963

 

 

963

 

PCG - Ares Sidecar Investment, L.P. and PCG-Ares Sidecar Investment II, L.P.

 

50,000

 

(8,652

)

41,348

 

(41,348

)

 

Piper Jaffray Merchant Banking Fund I, L.P.

 

2,000

 

(1,413

)

587

 

 

587

 

 

 

$

107,000

 

$

(20,896

)

$

86,104

 

$

(84,554

)

$

1,550

 

 

(27)                                As of December 31, 2015, the Company had commitments to co-invest in the SSLP for its portion of the SSLP’s commitment to fund delayed draw loans of up to $32.6 million. See Note 4 to the consolidated financial statements for more information on the SSLP.

 

(28)                                Loan, or a portion of the loan, is included as part of a forward sale agreement. See Note 6 to the consolidated financial statements for more information on the forward sale agreement.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands, except per share data)

(unaudited)

 

 

 

Common Stock

 

Capital in
Excess of

 

Accumulated
Overdistributed
Net Investment

 

Accumulated
Net
Realized Gains
(Losses)
on Investments,
Foreign
Currency
Transactions,
Extinguishment
of
Debt and Other

 

Net
Unrealized
Losses
on
Investments,
Foreign
Currency and
Other

 

Total
Stockholders’

 

 

 

Shares

 

Amount

 

Par Value

 

Income

 

Assets

 

Transactions

 

Equity

 

Balance at December 31, 2015

 

314,347

 

$

314

 

$

5,318,277

 

$

(894

)

$

(53,013

)

$

(91,352

)

$

5,173,332

 

Repurchases of common stock

 

(393

)

 

(5,477

)

 

 

 

(5,477

)

Net increase in stockholders’ equity resulting from operations

 

 

 

 

355,690

 

78,536

 

(35,044

)

399,182

 

Dividends declared and payable ($1.14 per share)

 

 

 

 

(358,058

)

 

 

(358,058

)

Balance at September 30, 2016

 

313,954

 

$

314

 

$

5,312,800

 

$

(3,262

)

$

25,523

 

$

(126,396

)

$

5,208,979

 

 

See accompanying notes to consolidated financial statements.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net increase in stockholders’ equity resulting from operations

 

$

399,182

 

$

363,957

 

Adjustments to reconcile net increase in stockholders’ equity resulting from operations:

 

 

 

 

 

Net realized gains on investments and foreign currency transactions

 

(78,536

)

(103,739

)

Net unrealized losses on investments, foreign currency and other transactions

 

35,044

 

96,600

 

Realized losses on extinguishment of debt

 

 

3,839

 

Net accretion of discount on investments

 

(4,385

)

(3,110

)

Payment-in-kind interest and dividends

 

(32,190

)

(15,399

)

Collections of payment-in-kind interest and dividends

 

2,936

 

279

 

Amortization of debt issuance costs

 

10,765

 

12,718

 

Net accretion of discount on notes payable

 

5,167

 

12,201

 

Depreciation

 

535

 

549

 

Proceeds from sales and repayments of investments

 

2,700,325

 

3,216,639

 

Purchases of investments

 

(2,385,352

)

(2,865,701

)

Changes in operating assets and liabilities:

 

 

 

 

 

Interest receivable

 

17,303

 

25,616

 

Other assets

 

(13,120

)

15,650

 

Base management fees payable

 

(202

)

(1,213

)

Income based fees payable

 

1,818

 

(1,228

)

Capital gains incentive fees payable

 

8,698

 

(23,159

)

Accounts payable and other liabilities

 

(10,436

)

(20,497

)

Interest and facility fees payable

 

(18,837

)

(3,860

)

Net cash provided by operating activities

 

638,715

 

710,142

 

FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings on debt

 

7,168,833

 

2,109,370

 

Repayments and repurchases of debt

 

(7,567,000

)

(2,392,750

)

Debt issuance costs

 

(8,980

)

(6,324

)

Dividends paid

 

(358,058

)

(367,870

)

Repurchases of common stock

 

(5,477

)

 

Net cash used in financing activities

 

(770,682

)

(657,574

)

CHANGE IN CASH AND CASH EQUIVALENTS

 

(131,967

)

52,568

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

257,056

 

194,555

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

125,089

 

$

247,123

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

138,986

 

$

143,962

 

Taxes, including excise tax, paid during the period

 

$

16,148

 

$

10,116

 

Dividends declared and payable during the period

 

$

358,058

 

$

374,062

 

 

See accompanying notes to consolidated financial statements.

 

57



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

1.                                      ORGANIZATION

 

Ares Capital Corporation (the “Company” or “ARCC”) is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). The Company has elected to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs.

 

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component. To a lesser extent, the Company also makes equity investments.

 

The Company is externally managed by Ares Capital Management LLC (“Ares Capital Management” or the Company’s “investment adviser”), a subsidiary of Ares Management, L.P. (“Ares Management” or “Ares”), a publicly traded, leading global alternative asset manager, pursuant to an investment advisory and management agreement. Ares Operations LLC (“Ares Operations” or the Company’s “administrator”), a subsidiary of Ares Management, provides certain administrative and other services necessary for the Company to operate.

 

2.                                      SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and its consolidated subsidiaries. The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2016.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market account. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

Investments

 

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, the Company looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of the Company’s investments) are valued at fair value as determined in good faith by the Company’s board of directors, based on, among other things, the input of the Company’s investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of the Company’s board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12-month period (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 55% of the Company’s portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, the Company’s independent registered public accounting firm obtains an understanding of, and performs select procedures relating to, the Company’s investment valuation process within the context of performing the integrated audit.

 

As part of the valuation process, the Company may take into account the following types of factors, if relevant, in determining the fair value of the Company’s investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets, which may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company considers the pricing indicated by the external event to corroborate its valuation.

 

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

The Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the Company’s portfolio management team.

 

·                  Preliminary valuations are reviewed and discussed with the Company’s investment adviser’s management and investment professionals, and then valuation recommendations are presented to the Company’s board of directors.

 

·                  The audit committee of the Company’s board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, who review a minimum of 55% of the Company’s portfolio at fair value.

 

·                  The Company’s board of directors discusses valuations and ultimately determines the fair value of each investment in the Company’s portfolio without a readily available market quotation in good faith based on, among other things, the input of the Company’s investment adviser, audit committee and, where applicable, independent third-party valuation firms.

 

See Note 8 for more information on the Company’s valuation process.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

Interest and Dividend Income Recognition

 

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain payment-in-kind (“PIK”) provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to its portfolio companies and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan.

 

Other income includes fees for management and consulting services, loan guarantees, commitments, amendments and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)         Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

(2)         Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations, if any. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Derivative Instruments

 

The Company does not utilize hedge accounting and as such values its derivatives at fair value with the unrealized gains or losses recorded in “net unrealized gains (losses) from foreign currency and other transactions” in the Company’s consolidated statement of operations.

 

Equity Offering Expenses

 

The Company’s offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method or the effective yield method, depending on the type of debt instrument.

 

Income Taxes

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must (among other requirements) meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company (among other requirements) has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal corporate-level income taxes.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year taxable income will be in excess of estimated dividend distributions for the current year, the Company accrues excise tax, if any, on estimated excess taxable income as such taxable income is earned.

 

Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes.

 

Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the Company’s board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such capital gains for investment.

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s board of directors authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company intends to use primarily newly issued shares to implement the dividend reinvestment plan (so long as the Company is trading at a premium to net asset value). If the Company’s shares are trading at a discount to net asset value and the Company is otherwise permitted under applicable law to purchase such shares, the Company may purchase shares in the open market in connection with the Company’s obligations under the dividend reinvestment plan. However, the Company reserves the right to issue new shares of the Company’s common stock in connection with the Company’s obligations under the dividend reinvestment plan even if the Company’s shares are trading below net asset value.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new guidance modifies the requirements for reporting debt issuance costs. Under the amendments in ASU No. 2015-03, debt issuance costs related to a recognized debt liability will no longer be recorded as a separate asset, but will be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU No. 2015-03. In addition, in August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30). The additional guidance reiterates that the Securities and Exchange Commission (“SEC”) would not object to an entity deferring and presenting debt issuance costs related to a line of credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. ASU No. 2015-03 and ASU No. 2015-15 are required to be applied retrospectively for periods beginning after December 15, 2015. The Company adopted ASU No. 2015-03 as of March 31, 2016. Prior to ASU No. 2015-03, deferred debt issuance costs related to term debt were reported on the balance sheet as other assets and amortized as interest expense. The consolidated balance sheet as of December 31, 2015 has been adjusted to apply the change in accounting principle retrospectively. There is no effect on the statement of operations as a result of the change in accounting principle. Debt issuance costs related to term debt of $24.5 million previously reported within other assets on the consolidated balance sheet as of December 31, 2015 were reclassified as a direct deduction from the carrying amount of the related debt liability. ASU No. 2015-03 had no impact on the presentation or amortization of the debt issuance costs related to the Company’s revolving credit facilities.

 

In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The new guidance removed the requirement that investments for which net asset value is determined based on practical expedient reliance be reported utilizing the fair value hierarchy. ASU No. 2015-07 is required to be applied retrospectively for periods beginning after December 15, 2015. The Company adopted ASU No. 2015-07 as of March 31, 2016 and thereby removed any investments valued in this manner from the fair value disclosures. See Note 8 for more information regarding the impact on the fair value disclosures.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the guidance in ASU No. 2014-09 and has the same effective date as the original standard. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, an update on identifying performance obligations and accounting for licenses of intellectual property. Additionally, in May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which includes amendments for enhanced clarification of the guidance. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Leases (Topic 840). Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The amendments in ASU No. 2016-02 are effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

3.                                      AGREEMENTS

 

Investment Advisory and Management Agreement

 

The Company is party to an investment advisory and management agreement (the “investment advisory and management agreement”) with Ares Capital Management. Subject to the overall supervision of the Company’s board of directors, Ares Capital Management provides investment advisory and management services to the Company. For providing these services, Ares Capital Management receives fees from the Company consisting of a base management fee, a fee based on the Company’s net investment income (“income based fee”) and a fee based on the Company’s net capital gains (“capital gains incentive fee”). The investment advisory and management agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

 

The base management fee is calculated at an annual rate of 1.5% based on the average value of the Company’s total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.

 

The income based fee is calculated and payable quarterly in arrears based on the Company’s net investment income excluding income based fees and capital gains incentive fees (“pre-incentive fee net investment income”) for the quarter.  Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the administration agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the income based fee and capital gains incentive fee accrued under GAAP). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that the Company has not yet received in cash. The Company’s investment adviser is not under any obligation to reimburse the Company for any part of the income based fees it received that was based on accrued interest that the Company never actually received.

 

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation, unrealized capital depreciation or income tax expense related to realized gains and losses. Because of the structure of the income based fee, it is possible that the Company may pay such fees in a quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable income based fee even if the Company has incurred a loss in that quarter due to realized and/or unrealized capital losses.

 

Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any income based fees and capital gains incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter. If market credit spreads rise, the Company may be able to invest its funds in debt instruments that provide for a higher return, which may increase the Company’s pre-incentive fee net investment income and make it easier for the Company’s investment adviser to surpass the fixed hurdle rate and receive an income based fee based on such net investment income. To the extent the Company has retained pre-incentive fee net investment income that has been used to calculate the income based fee, it is also included in the amount of the Company’s total assets (other than cash and cash equivalents but including assets purchased with borrowed funds) used to calculate the 1.5% base management fee.

 

The Company pays its investment adviser an income based fee with respect to the Company’s pre-incentive fee net investment income in each calendar quarter as follows:

 

·                  no income based fee in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the hurdle rate;

 

·                  100% of the Company’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter. The Company refers to this portion of its pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.1875%) as the “catch-up” provision. The “catch-up” is meant to provide the Company’s investment adviser with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeded 2.1875% in any calendar quarter; and

 

·                  20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter.

 

These calculations are adjusted for any share issuances or repurchases during the quarter.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

See Note 14 for information regarding a transaction support agreement entered into between the Company and Ares Capital Management in connection with the American Capital Acquisition (as defined below).

 

The capital gains incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the investment advisory and management agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting (a) the sum of the Company’s cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (b) the Company’s cumulative aggregate realized capital gains, in each case calculated from October 8, 2004 (the date the Company completed its initial public offering). Realized capital gains and losses include gains and losses on investments and foreign currencies, gains and losses on extinguishment of debt and from other assets, as well as any income tax expense related to realized gains and losses. If such amount is positive at the end of such year, then the capital gains incentive fee for such year is equal to 20% of such amount, less the aggregate amount of capital gains incentive fees paid in all prior years. If such amount is negative, then there is no capital gains incentive fee for such year.

 

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company’s portfolio when sold and (b) the accreted or amortized cost basis of such investment.

 

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.

 

The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable capital gains incentive fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

Notwithstanding the foregoing, as a result of an amendment to the capital gains incentive fee under the investment advisory and management agreement that was adopted on June 6, 2011, if the Company is required by GAAP to record an investment at its fair value as of the time of acquisition instead of at the actual amount paid for such investment by the Company (including, for example, as a result of the application of the acquisition method of accounting), then solely for the purposes of calculating the capital gains incentive fee , the “accreted or amortized cost basis” of an investment shall be an amount (the “Contractual Cost Basis”) equal to (1) (x) the actual amount paid by the Company for such investment plus (y) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the accretion of such investment plus (z) any other adjustments made to the cost basis included in the Company’s financial statements, including PIK interest or additional amounts funded (net of repayments) minus (2) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the amortization of such investment, whether such calculated Contractual Cost Basis is higher or lower than the fair value of such investment (as determined in accordance with GAAP) at the time of acquisition.

 

The Company defers cash payment of any income based fees and capital gains incentive fees otherwise earned by the Company’s investment adviser if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to the Company’s stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any income based fees and capital gains incentive fees payable during the period) is less than 7.0% of the Company’s net assets (defined as total assets less indebtedness) at the beginning of such period. Any deferred income based fees and capital gains incentive fees are carried over for payment in subsequent calculation periods to the extent such payment is payable under the investment advisory and management agreement.

 

There was no capital gains incentive fee earned by the Company’s investment adviser as calculated under the investment advisory and management agreement (as described above) for the three and nine months ended September 30, 2016. However, in accordance with GAAP, the Company had cumulatively accrued a capital gains incentive fee of $50,963 as of September 30, 2016, of which $50,963 is not currently due under the investment advisory and management agreement. GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains incentive fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains incentive fee equal to 20% of such cumulative amount, less the

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

aggregate amount of actual capital gains incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods. As of September 30, 2016, the Company has paid capital gains incentive fees since inception totaling $57,404. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future.

 

For the three and nine months ended September 30, 2016, base management fees were $33,923 and $103,126, respectively, and income based fees were $33,052 and $91,097, respectively. For the three months ended September 30, 2016, the reduction in capital gains incentive fees calculated in accordance with GAAP was $5,491. For the nine months ended September 30, 2016, the capital gains incentive fees calculated in accordance with GAAP was $8,698. For the three and nine months ended September 30, 2015, base management fees were $33,284 and $100,221, respectively, income based fees were $31,842 and $90,156, respectively. For the three months ended September 30, 2015, the reduction in capital gains incentive fees calculated in accordance with GAAP was $2,628. For the nine months ended September 30, 2015, the capital gains incentive fees calculated in accordance with GAAP was $834.

 

Administration Agreement

 

The Company is party to an administration agreement, referred to herein as the “administration agreement”, with its administrator, Ares Operations. Pursuant to the administration agreement, Ares Operations furnishes the Company with office equipment and clerical, bookkeeping and record keeping services at the Company’s office facilities. Under the administration agreement, Ares Operations also performs, or oversees the performance of, the Company’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, technology and investor relations, being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC. In addition, Ares Operations assists the Company in determining and publishing its net asset value, assists the Company in providing managerial assistance to its portfolio companies, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of its expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the administration agreement are equal to an amount based upon its allocable portion of Ares Operations’ overhead and other expenses (including travel expenses) incurred by Ares Operations in performing its obligations under the administration agreement, including the Company’s allocable portion of the compensation of certain of its officers (including the Company’s chief compliance officer, chief financial officer, chief accounting officer, general counsel, treasurer and assistant treasurer) and their respective staffs. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

 

For the three and nine months ended September 30, 2016, the Company incurred $3,433 and $10,198, respectively, in administrative fees. As of September 30, 2016, $3,433 of these fees were unpaid and included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet. For the three and nine months ended September 30, 2015, the Company incurred $3,545 and $10,515, respectively, in administrative fees.

 

4.                                      INVESTMENTS

 

As of September 30, 2016 and December 31, 2015, investments consisted of the following:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Amortized Cost(1)

 

Fair Value

 

Amortized Cost(1)

 

Fair Value

 

First lien senior secured loans

 

$

2,249,313

 

$

2,197,926

 

$

2,735,232

 

$

2,638,784

 

Second lien senior secured loans

 

2,911,245

 

2,840,351

 

2,944,551

 

2,861,294

 

Subordinated certificates of the SDLP (2)

 

195,338

 

195,338

 

 

 

Subordinated certificates of the SSLP (3)

 

1,938,446

 

1,899,754

 

1,935,401

 

1,884,861

 

Senior subordinated debt

 

701,732

 

721,146

 

663,003

 

654,066

 

Preferred equity securities

 

492,563

 

342,645

 

435,063

 

375,830

 

Other equity securities

 

439,362

 

607,491

 

434,396

 

640,526

 

Commercial real estate

 

 

 

 

135

 

Total

 

$

8,927,999

 

$

8,804,651

 

$

9,147,646

 

$

9,055,496

 

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 


(1)                                 The amortized cost represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

(2)                                 The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans to 10 different borrowers as of September 30, 2016.

 

(3)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans to 25 and 41 different borrowers as of September 30, 2016 and December 31, 2015, respectively.

 

The industrial and geographic compositions of the Company’s portfolio at fair value as of September 30, 2016 and December 31, 2015 were as follows:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

Industry

 

 

 

 

 

Investment Funds and Vehicles(1)

 

24.2

%

21.2

%

Healthcare Services

 

14.2

 

14.6

 

Other Services

 

9.3

 

9.0

 

Business Services

 

8.5

 

5.3

 

Consumer Products

 

7.9

 

7.7

 

Power Generation

 

5.6

 

6.3

 

Restaurants and Food Services

 

4.6

 

3.5

 

Financial Services

 

4.3

 

4.6

 

Manufacturing

 

3.8

 

6.0

 

Education

 

3.1

 

4.6

 

Containers and Packaging

 

2.8

 

2.8

 

Food and Beverage

 

2.1

 

2.5

 

Automotive Services

 

1.8

 

2.3

 

Oil and Gas

 

1.4

 

2.9

 

Hotel Services

 

1.2

 

1.0

 

Other

 

5.2

 

5.7

 

Total

 

100.0

%

100.0

%

 


(1)                                 Includes the Company’s investment in the SDLP, which had made first lien senior secured loans to 10 different borrowers as of September 30, 2016, and the Company’s investment in the SSLP, which had made first lien senior secured loans to 25 and 41 different borrowers as of September 30, 2016 and December 31, 2015, respectively. The portfolio companies in the SDLP and SSLP are in industries similar to the companies in the Company’s portfolio.

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

Geographic Region

 

 

 

 

 

West(1)

 

40.1

%

37.9

%

Southeast

 

21.9

 

20.3

 

Midwest

 

18.2

 

23.8

 

Mid Atlantic

 

15.9

 

13.7

 

Northeast

 

2.7

 

2.3

 

International

 

1.2

 

2.0

 

Total

 

100.0

%

100.0

%

 


(1)                                 Includes the Company’s investment in the SDLP, which represented 2.2% of the total investment portfolio at fair value as of September 30, 2016, and the Company’s investment in the SSLP, which represented 21.6% and 20.8% of the total investment portfolio at fair value as of September 30, 2016 and December 31, 2015, respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

As of September 30, 2016, 2.3% of total investments at amortized cost (or 1.2% of total investments at fair value) were on non-accrual status. As of December 31, 2015, 2.6% of total investments at amortized cost (or 1.7% of total investments at fair value) were on non-accrual status.

 

Co-Investment Programs

 

Senior Direct Lending Program

 

The Company established a joint venture with Varagon to make certain first lien senior secured loans, including certain stretch senior and unitranche loans, to U.S. middle-market companies. Varagon was formed in 2013 as a lending platform by American International Group, Inc. (NYSE:AIG) and other partners. The joint venture is called the SDLP. In July 2016, the Company and Varagon and its clients completed the initial funding of the SDLP. In conjunction with the initial funding, the Company and Varagon and its clients sold investment commitments to the SDLP. Such investment commitments included $528.9 million of investment commitments sold to the SDLP by the Company. No realized gains or losses were recorded by the Company on these transactions. The SDLP may generally commit and hold individual loans of up to $300.0 million. The Company may directly co-invest with the SDLP to accommodate larger transactions. The SDLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SDLP must be approved by an investment committee of the SDLP consisting of representatives of the Company and Varagon (with approval from a representative of each required).

 

The Company provides capital to the SDLP in the form of subordinated certificates (the “SDLP Certificates”), and Varagon and its clients provide capital to the SDLP in the form of senior notes, intermediate funding notes and SDLP Certificates. As of September 30, 2016, the Company and a client of Varagon owned 87.5% and 12.5%, respectively, of the outstanding SDLP Certificates.

 

As of September 30, 2016, the Company and Varagon and its clients agreed to make capital available to the SDLP of $2.9 billion in the aggregate, of which $590.6 million has been made available from the Company. This capital will only be committed to the SDLP upon approval of transactions by the investment committee of the SDLP as discussed above.  Below is a summary of the funded capital and unfunded capital commitments of the SDLP.

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

Total capital funded to the SDLP(1)

 

$

930.2

 

Total capital funded to the SDLP by the Company(1)

 

$

195.3

 

Total unfunded capital commitments to the SDLP(2)

 

$

147.0

 

Total unfunded capital commitments to the SDLP by the Company(2)

 

$

31.5

 

 


(1)                                 At principal amount.

 

(2)                                 These commitments have been approved by the investment committee of the SDLP and will be funded as the transactions are completed.

 

The SDLP Certificates pay a coupon of LIBOR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses, which may result in a return to the holders of the SDLP Certificates that is greater than the stated coupon. The SDLP Certificates are junior in right of payment to the senior notes and intermediate funding notes.

 

The amortized cost and fair value of the SDLP Certificates held by the Company were $195.3 million and $195.3 million, respectively, as of September 30, 2016. The Company’s yield on its investment in the SDLP at amortized cost and fair value was 13.5% and 13.5%, respectively, as of September 30, 2016. For the three and nine months ended September 30, 2016, the Company earned interest income of $4.8 million for each period from its investment in the SDLP Certificates. The Company is also entitled to certain fees in connection with the SDLP. For the three and nine months ended September 30, 2016, in connection with the SDLP, the Company earned capital structuring service and other fees totaling $0.8 million for each period.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

As of September 30, 2016, the SDLP’s portfolio was comprised entirely of first lien senior secured loans to U.S. middle-market companies and were in industries similar to the companies in the Company’s portfolio. As of September 30, 2016, none of the loans were on non-accrual status. Below is a summary of the SDLP’s portfolio.

 

 

 

As of

 

(dollar amounts in millions)

 

September 30, 2016

 

Total first lien senior secured loans(1)

 

$

929.1

 

Largest loan to a single borrower(1)

 

$

116.5

 

Total of five largest loans to borrowers(1)

 

$

549.1

 

Number of borrowers in the SDLP

 

10

 

Commitments to fund delayed draw loans(2)

 

$

147.0

 

 


(1)                                 At principal amount.

 

(2)                                 As discussed above, these commitments have been approved by the investment committee of the SDLP.

 

Senior Secured Loan Program

 

The Company and GE have co-invested in first lien senior secured loans of middle market companies through the SSLP. The SSLP has been capitalized as transactions are completed. All portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required). The Company has provided capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”). As of September 30, 2016 and December 31, 2015, the Company and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates.

 

In August 2015, GE completed the sale of its U.S. Sponsor Finance business, through which GE had participated with the Company in the SSLP, to Canada Pension Plan Investment Board (“CPPIB”). This sale excluded GE’s interest in the SSLP, and the Company and GE continue to operate the SSLP. The Company and GE no longer have an obligation to present senior secured lending investment opportunities to the SSLP and since June 30, 2015, the SSLP has not made any investments related to new portfolio companies; however, the Company and GE may provide capital to support the SSLP’s funding of existing commitments (see below) and other amounts to its portfolio companies. On August 24, 2015, the  Company was advised that GECC, as the holder of the senior notes of the SSLP (the “Senior Notes”), directed State Street Bank and Trust Company, as trustee of the Senior Notes and the SSLP Certificates, pursuant to the terms of the indenture governing the Senior Notes and the SSLP Certificates, to apply all principal proceeds received by the SSLP from its investments to the repayment of the outstanding principal amount of the Senior Notes until paid in full (prior to the distribution of any such principal proceeds to the holders of the SSLP Certificates, which includes the Company). GECC had previously elected to waive its right to receive priority repayments on the Senior Notes from principal proceeds in most circumstances. Prior to closing the sale to CPPIB, GE had announced its intention to provide the Company and CPPIB the opportunity to work together on the SSLP on a go-forward basis. GECC has also stated that if a mutual agreement between the Company and CPPIB to partner on the SSLP is not reached, it intends to retain its interest in the SSLP and the SSLP would be wound down in an orderly manner. The Company has been in dialogue with GE and CPPIB to determine if there is an opportunity to work together; however, to date there has been no agreement in respect of the SSLP as a result of these discussions and there can be no assurance that such discussions will continue or any such agreement will be reached.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

As discussed above, the Company anticipates that no new investments will be made by the SSLP and that possibly the Company and GE will only provide additional capital to support the SSLP’s funding of existing commitments and other amounts to its portfolio companies. Below is a summary of the funded capital and unfunded capital commitments of the SSLP.

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

December 31, 2015

 

Total capital funded to the SSLP(1)

 

$

5,682.9

 

$

8,535.1

 

Total capital funded to the SSLP by the Company(1)

 

$

2,004.0

 

$

2,000.9

 

Total unfunded capital commitments to the SSLP(2)

 

$

50.0

 

$

198.6

 

Total unfunded capital commitments to the SSLP by the Company(2)

 

$

7.3

 

$

32.6

 

 


(1)                                 At principal amount.

 

(2)                                 These commitments have been approved by the investment committee of the SSLP and will be funded as the transactions are completed.

 

The SSLP Certificates have a weighted average contractual coupon of LIBOR plus approximately 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses. However, the SSLP Certificates are junior in right of payment to the Senior Notes held by GE, and the Company expects that for so long as principal proceeds from SSLP repayments are directed entirely to repay the Senior Notes as discussed above, the yield on the SSLP Certificates will be lower than the stated coupon and continue to decline.

 

The amortized cost and fair value of the SSLP Certificates held by the Company were each $1.9 billion as of September 30, 2016, and each $1.9 billion as of December 31, 2015. The Company’s yield on its investment in the SSLP at amortized cost and fair value was 8.5% and 8.7%, respectively, as of September 30, 2016, and 12.0% and 12.3%, respectively, as of December 31, 2015. For the three and nine months ended September 30, 2016, the Company earned interest income of $49.5 million and $165.9 million, respectively, from its investment in the SSLP Certificates. For the three and nine months ended September 30, 2015, the Company earned interest income of $71.4 million and $209.6 million, respectively, from its investment in the SSLP Certificates. The Company is also entitled to certain fees in connection with the SSLP. For the three and nine months ended September 30, 2016, in connection with the SSLP, the Company earned capital structuring service, sourcing and other fees totaling $4.6 million and $16.0 million, respectively. For the three and nine months ended September 30, 2015, in connection with the SSLP, the Company earned capital structuring service, sourcing and other fees totaling $8.6 million and $41.8 million, respectively.

 

As of September 30, 2016 and December 31, 2015, the SSLP’s portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and were in industries similar to the companies in the Company’s portfolio. As of September 30, 2016 and December 31, 2015, none of these loans were on non-accrual status. Below is a summary of the SSLP’s portfolio.

 

 

 

As of

 

(dollar amounts in millions)

 

September 30, 2016

 

December 31, 2015

 

Total first lien senior secured loans(1)

 

$

4,731.8

 

$

8,138.5

 

Largest loan to a single borrower(1)

 

$

294.0

 

$

345.9

 

Total of five largest loans to borrowers(1)

 

$

1,361.3

 

$

1,579.9

 

Number of borrowers in the SSLP

 

25

 

41

 

Commitments to fund delayed draw loans(2)

 

$

50.0

 

$

198.6

 

 


(1)                                 At principal amount.

 

(2)                                 As discussed above, these commitments have been approved by the investment committee of the SSLP.

 

Ivy Hill Asset Management, L.P.

 

Ivy Hill Asset Management, L.P. (“IHAM”) is an asset management services company and an SEC-registered investment adviser. The Company has made investments in IHAM, its wholly owned portfolio company and previously made investments in certain vehicles managed by IHAM. As of September 30, 2016, IHAM had assets under management of approximately $3.6 billion. As of September 30, 2016, IHAM managed 16 vehicles and served as the sub-manager/sub-servicer for five other vehicles (these vehicles managed or sub-managed/sub-serviced by IHAM are collectively referred to as the “IHAM Vehicles”). IHAM earns fee income from managing the IHAM Vehicles and has also invested in certain of these vehicles as part of its business strategy. As of September 30, 2016 and December 31, 2015, IHAM had total investments of $218.0 million and $233.0 million, respectively. For the three and nine months ended September 30, 2016, IHAM had

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

management and incentive fee income of $4.0 million and $13.0 million, respectively, and other investment-related income of $6.0 million and $17.0 million, respectively. For the three and nine months ended September 30, 2015, IHAM had management and incentive fee income of $5.0 million and $15.0 million, respectively, and other investment-related income of $9.5 million and $20.0 million, respectively.

 

The amortized cost and fair value of the Company’s investment in IHAM was $171.0 million and $233.5 million, respectively, as of September 30, 2016, and $171.0 million and $235.5 million, respectively, as of December 31, 2015. For the three and nine months ended September 30, 2016, the Company received distributions consisting entirely of dividend income from IHAM of $10.0 million and $30.0 million, respectively. For the three and nine months ended September 30, 2015, the Company received distributions consisting entirely of dividend income from IHAM of $10.0 million and $40.0 million, respectively. The dividend income for the nine months ended September 30, 2015, included additional dividends of $10.0 million in addition to the quarterly dividends generally paid by IHAM.

 

From time to time, IHAM or certain IHAM Vehicles may purchase investments from, or sell investments to, the Company. For any such sales or purchases by the IHAM Vehicles to or from the Company, the IHAM Vehicles must obtain approval from third parties unaffiliated with the Company or IHAM, as applicable. During the nine months ended September 30, 2016 and 2015, IHAM or certain of the IHAM Vehicles purchased $305.3 million and $414.2 million, respectively, of investments from the Company. Net realized gains of $0.7 million and $0.4 million were recorded by the Company on these transactions for the nine months ended September 30, 2016 and 2015, respectively. During the nine months ended September 30, 2016, the Company did not purchase any investments from the IHAM Vehicles. During the nine months ended September 30, 2015, the Company purchased $11.5 million of investments from the IHAM Vehicles.

 

IHAM is party to an administration agreement, referred to herein as the “IHAM administration agreement,” with Ares Operations. Pursuant to the IHAM administration agreement, Ares Operations provides IHAM with, among other things, office facilities, equipment, clerical, bookkeeping and record keeping services, services relating to the marketing and sale of interests in vehicles managed by IHAM, services of, and oversight of, custodians, depositories, accountants, attorneys, underwriters and such other persons in any other capacity deemed to be necessary. Under the IHAM administration agreement, IHAM reimburses Ares Operations for all of the actual costs associated with such services, including Ares Operations’ allocable portion of overhead and the cost of its officers, employees and respective staff in performing its obligations under the IHAM administration agreement.

 

See Note 14 for information related to IHAM’s role in the American Capital Acquisition.

 

5.     DEBT

 

In accordance with the Investment Company Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing.  On June 21, 2016, the Company, Ares Capital Management, Ares Venture Finance GP LLC and AVF LP received exemptive relief from the SEC allowing the Company to modify the Company’s calculation of asset coverage requirements to exclude the SBA Debentures (defined below).  As such, the Company’s ratio of total consolidated assets to outstanding indebtedness may be less than 200%.  This exemptive relief provides the Company with increased investment flexibility but also increases the Company’s risk related to leverage. As of September 30, 2016 the Company’s asset coverage was 236% (excluding the SBA Debentures).

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

The Company’s outstanding debt as of September 30, 2016 and December 31, 2015 were as follows:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Total Aggregate
Principal
Amount
Committed/
Outstanding(1)

 

Principal
Amount
Outstanding

 

Carrying Value

 

Total Aggregate
Principal
Amount
Committed/
Outstanding(1)

 

Principal
Amount
Outstanding

 

Carrying Value

 

Revolving Credit Facility

 

$

1,265,000

(2)

$

465,000

 

$

465,000

 

$

1,290,000

 

$

515,000

 

$

515,000

 

Revolving Funding Facility

 

540,000

(3)

108,000

 

108,000

 

540,000

 

250,000

 

250,000

 

SMBC Funding Facility

 

400,000

 

108,000

 

108,000

 

400,000

 

110,000

 

110,000

 

SBA Debentures

 

75,000

 

25,000

 

24,461

 

75,000

 

22,000

 

21,491

 

February 2016 Convertible Notes

 

 

 

(4)

575,000

 

575,000

 

573,935

(5)

June 2016 Convertible Notes

 

 

 

(4)

230,000

 

230,000

 

228,008

(5)

2017 Convertible Notes

 

162,500

 

162,500

 

161,519

(5)

162,500

 

162,500

 

159,958

(5)

2018 Convertible Notes

 

270,000

 

270,000

 

266,361

(5)

270,000

 

270,000

 

264,392

(5)

2019 Convertible Notes

 

300,000

 

300,000

 

295,769

(5)

300,000

 

300,000

 

294,479

(5)

2018 Notes

 

750,000

 

750,000

 

744,667

(6)

750,000

 

750,000

 

742,954

(6)

2020 Notes

 

600,000

 

600,000

 

595,209

(7)

600,000

 

600,000

 

594,201

(7)

January 2022 Notes

 

600,000

 

600,000

 

591,772

(8)

 

 

 

October 2022 Notes

 

182,500

 

182,500

 

178,332

(9)

182,500

 

182,500

 

177,912

(9)

2047 Notes

 

229,557

 

229,557

 

181,826

(10)

229,557

 

229,557

 

181,604

(10)

Total

 

$

5,374,557

 

$

3,800,557

 

$

3,720,916

 

$

5,604,557

 

$

4,196,557

 

$

4,113,934

 

 


(1)                                 Subject to borrowing base, leverage and other restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

(2)                                 Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility (as defined below) to a maximum of $1,897,500.

 

(3)                                 Provides for a feature that allows the Company and Ares Capital CP (as defined below), under certain circumstances, to increase the size of Revolving Funding Facility (as defined below) to a maximum of $865,000.

 

(4)                                 See below for more information on the repayments of the February 2016 Convertible Notes and the June 2016 Convertible Notes (each as defined below).

 

(5)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below), the February 2016 Convertible Notes and the June 2016 Convertible Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuances of such notes. As of September 30, 2016, the total unamortized debt issuance costs and the unaccreted discount for the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes (each as defined below) were $981, $3,639 and $4,231, respectively. As of December 31, 2015, the total unamortized debt issuance costs and the unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes were $1,065, $1,992, $2,542, $5,608 and $5,521, respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

(6)                                 Represents the aggregate principal amount outstanding of the 2018 Notes (as defined below) less unamortized debt issuance costs and plus the net unamortized premium that was recorded upon the issuances of the 2018 Notes. As of September 30, 2016 and December 31, 2015, the total unamortized debt issuance costs less the net unamortized premium was $5,333 and $7,046, respectively.

 

(7)                                 Represents the aggregate principal amount outstanding of the 2020 Notes (as defined below) less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuances of the 2020 Notes. As of September 30, 2016 and December 31, 2015, the total unamortized debt issuance costs and the net unaccreted discount was $4,791 and $5,799, respectively.

 

(8)                                 Represents the aggregate principal amount outstanding of the January 2022 Notes (as defined below), less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the January 2022 Notes. As of September 30, 2016, the total unamortized debt issuance costs and the unaccreted discount was $8,228.

 

(9)                                 Represents the aggregate principal amount outstanding of the October 2022 Notes (as defined below) less unamortized debt issuance costs. As of September 30, 2016 and December 31, 2015, the total unamortized debt issuance costs was $4,168 and $4,588, respectively.

 

(10)                          Represents the aggregate principal amount outstanding of the 2047 Notes (as defined below) less the unaccreted purchased discount recorded as a part of the Allied Acquisition (as defined below). As of September 30, 2016 and December 31, 2015, the total unaccreted purchased discount was $47,731 and $47,953, respectively.

 

The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all the Company’s outstanding debt as of September 30, 2016 were 4.2% and 5.1 years, respectively, and as of December 31, 2015 were 4.4% and 4.5 years, respectively.

 

Revolving Credit Facility

 

The Company is party to a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which allows the Company to borrow up to $1,265,000 at any one time outstanding. For $1,195,000 of the Revolving Credit Facility, the end of the revolving period and the stated maturity date are May 4, 2020 and May 4, 2021, respectively. For the remaining $70,000 of the Revolving Credit Facility, the end of the revolving period and the stated maturity date are May 4, 2019 and May 4, 2020, respectively. The Revolving Credit Facility also provides for a feature that allows the Company, under certain circumstances, to increase in the size of the Revolving Credit Facility to a maximum of $1,897,500. The Revolving Credit Facility generally requires payments of interest at the end of each LIBOR interest period, but no less frequently than quarterly, on LIBOR based loans, and monthly payments of interest on other loans. From the end of the revolving period to the stated maturity date, the Company is required to repay outstanding principal amounts under the Revolving Credit Facility on a monthly basis in an amount equal to 1/12th of the outstanding principal amount at the end of the revolving period.

 

Under the Revolving Credit Facility, the Company is required to comply with various covenants, reporting requirements and other customary requirements for similar revolving credit facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) maintaining a certain minimum stockholders’ equity, (e) maintaining a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of the Company and its consolidated subsidiaries (subject to certain exceptions) of not less than 2.0:1.0, (f) limitations on pledging certain unencumbered assets, and (g) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. These covenants are subject to important limitations and exceptions that are described in the documents governing the Revolving Credit Facility. Amounts available to borrow under the Revolving Credit Facility (and the incurrence of certain other permitted debt) are also subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio that are pledged as collateral. As of September 30, 2016, the Company was in compliance in all material respects with the terms of the Revolving Credit Facility.

 

As of September 30, 2016 and December 31, 2015, there were $465,000 and $515,000 outstanding, respectively, under the Revolving Credit Facility. As of September 30, 2016, the Revolving Credit Facility also provides for a sub-limit for the issuance of letters of credit for up to an aggregate amount of $150,000. As of September 30, 2016 and December 31, 2015, the Company had $25,380 and $24,111, respectively, in letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued. As of September 30, 2016, there was $774,620 available for borrowing (net of letters of credit issued) under the Revolving Credit Facility.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

Since March 26, 2015, the interest rate charged on the Revolving Credit Facility is based on an applicable spread of either 1.75% or 2.00% over LIBOR or 0.75% or 1.00% over an  “alternate base rate” (as defined in the agreements governing the Revolving Credit Facility), in each case, determined monthly based on the total amount of the borrowing base relative to the total commitments of the Revolving Credit Facility and other debt, if any, secured by the same collateral as the Revolving Credit Facility. As of September 30, 2016, the interest rate in effect was LIBOR plus 1.75%. Prior to and including March 25, 2015, the interest rate charged on the Revolving Credit Facility was based on an applicable spread of 2.00% over LIBOR or an applicable spread of 1.00% over an “alternate base rate.” As of September 30, 2016, the one, two, three and six month LIBOR was 0.53%, 0.65%, 0.85% and 1.24%, respectively. As of December 31, 2015, the one, two, three and six month LIBOR was 0.43%, 0.51%, 0.61% and 0.85%, respectively. In addition to the stated interest expense on the Revolving Credit Facility, the Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility. Since March 26, 2015, the Company is also required to pay a letter of credit fee of either 2.00% or 2.25% per annum on letters of credit issued, determined monthly based on the total amount of the borrowing base relative to the total commitments of the Revolving Credit Facility and other debt, if any, secured by the same collateral as the Revolving Credit Facility. Prior to and including March 25, 2015, the Company paid a letter of credit fee of 2.25% per annum on letters of credit issued.

 

The Revolving Credit Facility is secured by certain assets in the Company’s portfolio and excludes investments held by Ares Capital CP under the Revolving Funding Facility, those held by ACJB under the SMBC Funding Facility and those held by AVF LP under the SBA Debentures, each as described below, and certain other investments.

 

For the three and nine months ended September 30, 2016 and 2015, the components of interest and credit facility fees expense, cash paid for interest expense, average stated interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Credit Facility were as follows:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

5,084

 

$

218

 

$

15,229

 

$

298

 

Facility fees

 

496

 

1,333

 

1,401

 

3,979

 

Amortization of debt issuance costs

 

593

 

724

 

1,850

 

1,885

 

Total interest and credit facility fees expense

 

$

6,173

 

$

2,275

 

$

18,480

 

$

6,162

 

Cash paid for interest expense

 

$

5,536

 

$

218

 

$

15,257

 

$

395

 

Average stated interest rate

 

2.27

%

2.00

%

2.23

%

2.10

%

Average outstanding balance

 

$

876,685

 

$

42,609

 

$

896,588

 

$

18,718

 

 

Revolving Funding Facility

 

The Company’s consolidated subsidiary, Ares Capital CP Funding LLC (“Ares Capital CP”), is party to a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $540,000 at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are May 14, 2017 and May 14, 2019, respectively. The Revolving Funding Facility also includes a feature that allows, under certain circumstances, for an increase in the Revolving Funding Facility to a maximum of $865,000. See Note 14 for information regarding a potential amendment to the Revolving Funding Facility in connection with the American Capital Acquisition.

 

Amounts available to borrow under the Revolving Funding Facility are subject to a borrowing base that applies different advance rates to different types of assets held by Ares Capital CP. Ares Capital CP is also subject to limitations with respect to the loans securing the Revolving Funding Facility, including restrictions on sector concentrations, loan size, payment frequency and status, collateral interests, loans with fixed rates and loans with certain investment ratings, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow. The Company and Ares Capital CP are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Revolving Funding Facility. As of September 30, 2016, the Company and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

As of September 30, 2016 and December 31, 2015, there was $108,000 and $250,000 outstanding, respectively, under the Revolving Funding Facility. The interest rate charged on the Revolving Funding Facility is based on an applicable spread ranging from 2.25% to 2.50% over LIBOR or ranging from 1.25% to 1.50% over a “base rate” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the Revolving Funding Facility. As of September 30, 2016, the interest rate in effect was LIBOR plus 2.25%. Ares Capital CP is required to pay a commitment fee between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

For the three and nine months ended September 30, 2016 and 2015, the components of interest and credit facility fees expense, cash paid for interest expense, average stated interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Funding Facility were as follows:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

917

 

$

481

 

$

2,811

 

$

934

 

Facility fees

 

577

 

704

 

1,652

 

3,038

 

Amortization of debt issuance costs

 

578

 

578

 

1,733

 

1,733

 

Total interest and credit facility fees expense

 

$

2,072

 

$

1,763

 

$

6,196

 

$

5,705

 

Cash paid for interest expense

 

$

861

 

$

33

 

$

2,560

 

$

2,095

 

Average stated interest rate

 

2.76

%

2.44

%

2.71

%

2.43

%

Average outstanding balance

 

$

129,913

 

$

77,130

 

$

136,201

 

$

50,670

 

 

SMBC Funding Facility

 

The Company’s consolidated subsidiary, Ares Capital JB Funding LLC (“ACJB”), is party to a revolving funding facility (as amended, the “SMBC Funding Facility”) with ACJB, as the borrower, and Sumitomo Mitsui Banking Corporation (“SMBC”), as the administrative agent, collateral agent, and lender, which allows ACJB to borrow up to $400,000 at any one time outstanding. The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2017 and September 14, 2022, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement.

 

Amounts available to borrow under the SMBC Funding Facility are subject to a borrowing base that applies an advance rate to assets held by ACJB. The Company and ACJB are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the documents governing the SMBC Funding Facility. As of September 30, 2016, the Company and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

As of September 30, 2016 and December 31, 2015, there was $108,000 and $110,000 outstanding, respectively, under the SMBC Funding Facility. Since June 30, 2015, the interest rate charged on the SMBC Funding Facility is based on an applicable spread of either 1.75% or 2.00% over LIBOR or 0.75% or 1.00% over a “base rate” (as defined in the agreements governing the SMBC Funding Facility), in each case, determined monthly based on the amount of the average borrowings outstanding under the SMBC Funding Facility. As of September 30, 2016, the interest rate in effect was LIBOR plus 1.75%. Prior to and including June 30, 2015, the interest rate charged on the SMBC Funding Facility was based on an applicable spread of 2.00% over LIBOR or 1.00% over a “base rate.” As of September 30, 2016 and December 31, 2015, the interest rate in effect was based on one month LIBOR, which was 0.53% and 0.43%, respectively. ACJB is required to pay a commitment fee of between 0.35% and 0.875% per annum depending on the size of the unused portion of the SMBC Funding Facility.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

For the three and nine months ended September 30, 2016 and 2015, the components of interest and credit facility fees expense, cash paid for interest expense, average stated interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the SMBC Funding Facility were as follows:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

631

 

$

228

 

$

1,941

 

$

254

 

Facility fees

 

262

 

356

 

760

 

1,203

 

Amortization of debt issuance costs

 

287

 

286

 

862

 

853

 

Total interest and credit facility fees expense

 

$

1,180

 

$

870

 

$

3,563

 

$

2,310

 

Cash paid for interest expense

 

$

640

 

$

217

 

$

2,002

 

$

308

 

Average stated interest rate

 

2.24

%

2.19

%

2.20

%

2.19

%

Average outstanding balance

 

$

110,130

 

$

40,815

 

$

115,854

 

$

15,344

 

 

SBA Debentures

 

In April 2015, the Company’s wholly owned subsidiary, AVF LP, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under the provisions of Section 301(c) of the Small Business Investment Act of 1958, as amended. The SBA places certain limitations on the financing of investments by SBICs in portfolio companies, including regulating the types of financings, restricting investments to only include small businesses with certain characteristics or in certain industries, and requiring capitalization thresholds that may limit distributions to the Company.

 

The license from the SBA allows AVF LP to obtain leverage by issuing SBA-guaranteed debentures (the “SBA Debentures”), subject to issuance of a capital commitment by the SBA and other customary procedures. Leverage through the SBA Debentures is subject to required capitalization thresholds. Current SBA regulations limit the amount that any SBIC may borrow to $150,000 and as of September 30, 2016, the amount of the SBA Debentures committed to AVF LP by the SBA was $75,000. The SBA Debentures are non-recourse to the Company, have interest payable semi-annually, have a 10-year maturity and may be prepaid at any time without penalty. As of September 30, 2016, AVF LP had $25,000 of the SBA Debentures issued and outstanding, which mature between September 2025 and March 2026. As of September 30, 2016, AVF LP was in compliance in all material respects with SBA regulatory requirements.

 

The interest rate for the SBA Debentures is fixed at the time the SBA Debentures and other applicable SBA-guaranteed debentures can be pooled and sold to the public and is based on a spread over U.S. treasury notes with 10-year maturities. The pooling of newly issued SBA-guaranteed debentures occurs twice per year. The spread includes an annual charge as determined by the SBA (the “Annual Charge”) as well as a market-driven component. Prior to the 10-year fixed interest rate being determined, the interim interest rate charged for the SBA-guarantee debentures is based on LIBOR plus an applicable spread of 0.30% and the Annual Charge. As of September 30, 2016, the weighted average interest rate in effect for the SBA Debentures was 3.48%.

 

For the three and nine months ended September 30, 2016, the components of interest expense, cash paid for interest expense, average stated interest rate and average outstanding balances for the SBA Debentures were as follows:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

219

 

$

62

 

$

619

 

$

70

 

Amortization of debt issuance costs

 

70

 

63

 

209

 

101

 

Total interest and credit facility fees expense

 

$

289

 

$

125

 

$

828

 

$

171

 

Cash paid for interest expense

 

$

425

 

$

58

 

$

735

 

$

58

 

Average stated interest rate

 

3.48

%

1.52

%

3.39

%

1.50

%

Average outstanding balance

 

$

25,000

 

$

16,011

 

$

24,409

 

$

15,869

 

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

Convertible Unsecured Notes

 

The Company has issued $162.5 million aggregate principal amount of unsecured convertible notes that mature on March 15, 2017 (the “2017 Convertible Notes”), $270.0 million aggregate principal amount of unsecured convertible notes that mature on January 15, 2018 (the “2018 Convertible Notes”) and $300.0 million aggregate principal amount of unsecured convertible notes that mature on January 15, 2019 (the “2019 Convertible Notes” and together with the 2017 Convertible Notes and the 2018 Convertible Notes, the “Convertible Unsecured Notes”). The Convertible Notes mature upon their respective maturity dates unless previously converted or repurchased in accordance with their terms. The Company does not have the right to redeem the Convertible Unsecured Notes prior to maturity. The 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes bear interest at a rate of 4.875%, 4.750% and 4.375%, respectively, per year, payable semi-annually.

 

In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election, at their respective conversion rates (listed below as of September 30, 2016) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). To the extent the 2017 Convertible Notes are converted, the Company has elected to settle with a combination of cash and shares of its common stock. Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the Convertible Unsecured Notes Indentures. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if the Company engages in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require the Company to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

Certain key terms related to the convertible features for each of the Convertible Unsecured Notes as of September 30, 2016 are listed below.

 

 

 

2017
Convertible Notes

 

2018
Convertible Notes

 

2019
Convertible Notes

 

Conversion premium

 

17.5

%

17.5

%

15.0

%

Closing stock price at issuance

 

$

16.46

 

$

16.91

 

$

17.53

 

Closing stock price date

 

March 8, 2012

 

October 3, 2012

 

July 15, 2013

 

Conversion price(1)

 

$

18.87

 

$

19.64

 

$

19.99

 

Conversion rate (shares per one thousand dollar principal amount)(1)

 

53.0020

 

50.9054

 

50.0292

 

Conversion dates

 

September 15, 2016

 

July 15, 2017

 

July 15, 2018

 

 


(1)                                 Represents conversion price and conversion rate, as applicable, as of September 30, 2016, taking into account certain de minimis adjustments that will be made on the conversion date.

 

As of September 30, 2016, the principal amounts of each series of the Convertible Unsecured Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Company’s common stock.

 

The Convertible Unsecured Notes Indentures contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of the Convertible Unsecured Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the Convertible Unsecured Notes Indentures. As of September 30, 2016, the Company was in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures.

 

The Convertible Unsecured Notes are accounted for in accordance with ASC 470-20. Upon conversion of any of the other Convertible Unsecured Notes, the Company intends to pay the outstanding principal amount in cash and to the extent that the conversion value exceeds the principal amount, the Company has the option to pay in cash or shares of the Company’s common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the Convertible Unsecured Notes Indentures. The Company has determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under GAAP. In accounting for the Convertible Unsecured Notes, the Company estimated at the time of issuance separate debt and equity components for each of the Convertible Unsecured Notes. An original issue discount equal to the equity components of the Convertible Unsecured Notes was recorded in “capital in excess of par value” in the accompanying consolidated balance sheet. Additionally, the issuance costs associated with the Convertible Unsecured Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

The debt and equity component percentages, the issuance costs and the equity component amounts for each of the Convertible Unsecured Notes are listed below.

 

 

 

2017
Convertible Notes

 

2018
Convertible Notes

 

2019
Convertible Notes

 

Debt and equity component percentages, respectively(1)

 

97.0% and 3.0%

 

98.0% and 2.0%

 

99.8% and 0.2%

 

Debt issuance costs(1)

 

$

4,813

 

$

5,712

 

$

4,475

 

Equity issuance costs(1)

 

$

149

 

$

116

 

$

9

 

Equity component, net of issuance costs(2)

 

$

4,724

 

$

5,243

 

$

582

 

 


(1)                                 At time of issuance.

 

(2)                                 At time of issuance and as of September 30, 2016.

 

In addition to the original issue discount equal to the equity components of the Convertible Unsecured Notes, the 2018 Convertible Notes and the 2019 Convertible Notes were each issued at a discount. The Company records interest expense comprised of both stated interest expense as well as accretion of any original issue discount.

 

As of September 30, 2016, the components of the carrying value of the Convertible Unsecured Notes, the stated interest rate and the effective interest rate were as follows:

 

 

 

2017
Convertible Notes

 

2018
Convertible Notes

 

2019
Convertible Notes

 

Principal amount of debt

 

$

162,500

 

$

270,000

 

$

300,000

 

Debt issuance costs, net of amortization

 

(476

)

(1,575

)

(1,948

)

Original issue discount, net of accretion

 

(505

)

(2,064

)

(2,283

)

Carrying value of debt

 

$

161,519

 

$

266,361

 

$

295,769

 

Stated interest rate

 

4.875

%

4.750

%

4.375

%

Effective interest rate(1)

 

5.5

%

5.3

%

4.7

%

 


(1)                                 The effective interest rate of the debt component of the Convertible Unsecured Notes is equal to the stated interest rate plus the accretion of original issue discount.

 

In February 2016, the Company repaid in full the $575.0 million aggregate principal amount of unsecured convertible notes (the “February 2016 Convertible Notes”) upon their maturity. In June 2016, the Company repaid in full the $230.0 million aggregate principal amount of unsecured convertible notes (the “June 2016 Convertible Notes”) upon their maturity.

 

For the three and nine months ended September 30, 2016 and 2015, the components of interest expense and cash paid for interest expense for the Convertible Unsecured Notes are listed below. For the nine months ended September 30, 2016 and 2015, and for the three months ended September 30, 2015, the following also includes components of interest expense and cash paid for interest expense on the February 2016 Convertible Notes and the June 2016 Convertible Notes.

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

8,468

 

$

19,680

 

$

33,071

 

$

59,042

 

Amortization of debt issuance costs

 

756

 

1,324

 

2,970

 

5,097

 

Accretion of original issue discount

 

877

 

4,027

 

4,907

 

11,878

 

Total interest expense

 

$

10,101

 

$

25,031

 

$

40,948

 

$

76,017

 

Cash paid for interest expense

 

$

16,936

 

$

33,467

 

$

56,298

 

$

72,828

 

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

Unsecured Notes

 

2018 Notes

 

The Company had issued $750,000 in aggregate principal amount of unsecured notes that mature on November 30, 2018 (the “2018 Notes”). The 2018 Notes bear interest at a rate of 4.875% per year, payable semi-annually and all principal is due upon maturity. The 2018 Notes may be redeemed in whole or in part at any time at the Company’s option at a redemption price equal to par plus a “make whole” premium, as determined pursuant to the indenture governing the 2018 Notes, and any accrued and unpaid interest. $600,000 in aggregate principal amount of the 2018 Notes were issued at a discount to the principal amount and $150,000 in aggregate principal amount of the 2018 Notes were issued at a premium to the principal amount.

 

2020 Notes

 

The Company had issued $600,000 in aggregate principal amount of unsecured notes that mature on January 15, 2020 (the “2020 Notes”). The 2020 Notes bear interest at a rate of 3.875% per year, payable semi-annually and all principal is due upon maturity. The 2020 Notes may be redeemed in whole or in part at any time at the Company’s option at a redemption price equal to par plus a “make whole” premium, if applicable, as determined pursuant to the indenture governing the 2020 Notes, and any accrued and unpaid interest. $400,000 in aggregate principal amount of the 2020 Notes were issued at a discount to the principal amount and $200,000 in aggregate principal amount of the 2020 Notes were issued at a premium to the principal amount.

 

January 2022 Notes

 

The Company had issued $600,000 in aggregate principal amount of unsecured notes that mature on January 19, 2022 (the “January 2022 Notes”). The January 2022 Notes bear interest at a rate of 3.625% per year, payable semi-annually and all principal is due upon maturity. The January 2022 Notes may be redeemed in whole or in part at any time at the Company’s option at a redemption price equal to par plus a “make whole” premium, if applicable, as determined pursuant to the indenture governing the January 2022 Notes, and any accrued and unpaid interest. The January 2022 Notes were issued at a discount to the principal amount.

 

October 2022 Notes

 

The Company had issued $182,500 in aggregate principal amount of unsecured notes that mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes bear interest at a rate of 5.875% per year, payable quarterly and all principal is due upon maturity. The October 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2047 Notes

 

As part of the acquisition of Allied Capital Corporation (“Allied Capital”) in April 2010 (the “Allied Acquisition”), the Company assumed $230,000 aggregate principal amount of unsecured notes due on April 15, 2047 (the “2047 Notes” and together with the 2018 Notes, the 2020 Notes, the January 2022 Notes, and the October 2022 Notes, the “Unsecured Notes”). The 2047 Notes bear interest at a rate of 6.875%, payable quarterly and all principal is due upon maturity. The 2047 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option, at a par redemption price of $25.00 per security plus accrued and unpaid interest. As of September 30, 2016 and December 31, 2015, the outstanding principal was $229,557 and $229,557 respectively, and the carrying value was $181,826 and $181,604, respectively. The carrying value represents the outstanding principal amount of the 2047 Notes less the unaccreted purchased discount recorded as a part of the Allied Acquisition.

 

February 2022 Notes

 

In March 2015, the Company redeemed the $143,750 aggregate principal amount of unsecured notes that were scheduled to mature on February 15, 2022 (the “February 2022 Notes”) in accordance with the terms of the indenture governing the February 2022 Notes. The February 2022 Notes bore interest at a rate of 7.00% per year, payable quarterly. The February 2022 Notes were redeemed at par plus accrued and unpaid interest for a total redemption price of approximately $144,616, which resulted in a realized loss on the extinguishment of debt of $3,839.

 

2040 Notes

 

In October 2015, the Company redeemed the $200,000 aggregate principal amount of unsecured notes that were scheduled to mature on October 15, 2040 (the “2040 Notes”) in accordance with the terms of the indenture governing the 2040 Notes. The 2040 Notes bore interest at a rate of 7.75% per year, payable quarterly. The 2040 Notes were redeemed at par plus accrued and unpaid interest for a total redemption price of approximately $200,560, which resulted in a realized loss on the extinguishment of debt of $6,572.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

For the three and nine months ended September 30, 2016 and 2015, the components of interest expense and cash paid for interest expense for the Unsecured Notes are listed below. For the three months ended September 30, 2015, the following also includes components of interest expense and cash paid for interest expense for the 2040 Notes. For the nine months ended September 30, 2015, the following also includes components of interest expense and cash paid for interest expense for the 2040 Notes and the February 2022 Notes.

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

22,304

 

$

25,453

 

$

65,461

 

$

77,877

 

Amortization of debt issuance costs

 

1,085

 

1,023

 

3,141

 

3,049

 

Net accretion of original issue discount

 

21

 

9

 

38

 

121

 

Accretion of purchase discount

 

75

 

69

 

222

 

202

 

Total interest expense

 

$

23,485

 

$

26,554

 

$

68,862

 

$

81,249

 

Cash paid for interest expense

 

$

18,976

 

$

25,613

 

$

62,134

 

$

68,278

 

 

The Unsecured Notes contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of such notes under certain circumstances. These covenants are subject to important limitations and exceptions set forth in the indentures governing such notes. As of September 30, 2016, the Company was in compliance in all material respects with the terms of the respective indentures governing each of the Unsecured Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are the Company’s unsecured senior obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of its secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

 

6.     DERIVATIVE INSTRUMENTS

 

The Company enters into forward currency contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. As of September 30, 2016 and December 31, 2015, the counterparty to these forward currency contracts was Bank of Montreal. Net unrealized gains or losses on foreign currency contracts are included in “net unrealized gains (losses) from foreign currency and other transactions” and net realized gains or losses on forward currency contracts are included in “net realized gains (losses) from foreign currency transactions” in the accompanying consolidated statement of operations.

 

During the three months ended December 31, 2015, the Company entered into an agreement with the SDLP to sell certain of the Company’s investments to the SDLP at a mutually agreed upon price on a future date (the “Forward Sale Agreement”). The value of the Forward Sale Agreement with the SDLP changed as the fair value of the identified loans changed and as additional loans were added to such agreement. In July 2016, the Company and Varagon and its clients completed the initial funding of the SDLP. In conjunction with the initial funding, the Company and Varagon and its clients sold investment commitments to the SDLP and the Forward Sale Agreement was terminated. For the three and nine months ended September 30, 2016, the unrealized gain related to this agreement was included in the “net unrealized gains (losses) from foreign currency and other transactions” in the accompanying consolidated statement of operations and as of December 31, 2015 in “other assets” in the accompanying consolidated balance sheet.

 

Forward currency contracts are considered undesignated derivative instruments.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

Certain information related to the Company’s derivative financial instruments is presented below as of September 30, 2016 and December 31, 2015.

 

 

 

As of September 30, 2016

 

Description

 

Notional
Amount

 

Maturity Date

 

Gross
Amount of
Recognized
Assets

 

Gross
Amount of
Recognized
Liabilities

 

Gross
Amount
Offset in
the Balance
Sheet

 

Balance Sheet
Location of Net Amounts

 

Foreign currency forward contract

 

CAD

45,000

 

10/5/2016

 

$

905

 

$

 

$

 

Other Assets

 

Foreign currency forward contract

 

2,840

 

10/5/2016

 

 

21

 

 

Accounts payable and other liabilities

 

Total

 

 

 

 

 

$

905

 

$

21

 

$

 

 

 

 

 

 

As of December 31, 2015

 

Description

 

Notional
Amount

 

Maturity Date

 

Gross
Amount of
Recognized
Assets

 

Gross
Amount of
Recognized
Liabilities

 

Gross
Amount
Offset in
the Balance
Sheet

 

Balance Sheet
Location of Net Amounts

 

Foreign currency forward contract

 

CAD

45,000

 

1/6/2016

 

$

1,112

 

$

 

$

 

Other Assets

 

Foreign currency forward contract

 

3,820

 

1/6/2016

 

143

 

 

 

Other Assets

 

Forward sale agreement

 

$

316,201

 

 

2,602

 

 

 

Other Assets

 

Total

 

 

 

 

 

 

$

3,857

 

$

 

$

 

 

 

 

7.     COMMITMENTS AND CONTINGENCIES

 

The Company has various commitments to fund investments in its portfolio as described below. As of September 30, 2016 and December 31, 2015, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) the Company’s discretion:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

Total revolving and delayed draw loan commitments

 

$

450,628

 

$

418,880

 

Less: drawn commitments

 

(99,734

)

(122,925

)

Total undrawn commitments

 

350,894

 

295,955

 

Less: commitments substantially at discretion of the Company

 

(12,409

)

(6,000

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

 

 

Total net adjusted undrawn revolving and delayed draw loan commitments

 

$

338,485

 

$

289,955

 

 

Included within the total revolving and delayed draw loan commitments as of September 30, 2016 and December 31, 2015 were delayed draw loan commitments totaling $175,018 and $148,609, respectively. The Company’s commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions. Generally, the most significant and uncertain term requires the borrower to satisfy a specific use of proceeds covenant. The use of proceeds covenant typically requires the borrower to use the additional loans for the specific purpose of a permitted acquisition or permitted investment, for example. In addition to the use of proceeds covenant, the borrower is generally required to satisfy additional negotiated covenants (including specified leverage levels).

 

Also included within the total revolving and delayed draw loan commitments as of September 30, 2016 were commitments to issue up to $53,469 in letters of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2016, the Company had $12,019 in letters of credit issued and outstanding under these commitments on behalf of portfolio companies. For all these letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of these letters of credit issued and outstanding are recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit, $22 expire in 2016, $11,983 expire in 2017 and $14 expire in 2018.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

The Company also has commitments to co-invest in the SSLP and the SDLP for the Company’s portion of the SSLP’s and the SDLP’s commitments to fund delayed draw loans to certain portfolio companies of the SSLP and the SDLP. See Note 4 for more information.

 

As of September 30, 2016 and December 31, 2015, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

Total private equity commitments

 

$

107,000

 

$

107,000

 

Less: funded private equity commitments

 

(22,568

)

(20,896

)

Total unfunded private equity commitments

 

84,432

 

86,104

 

Less: private equity commitments substantially at discretion of the Company

 

(83,351

)

(84,554

)

Total net adjusted unfunded private equity commitments

 

$

1,081

 

$

1,550

 

 

In the ordinary course of business, the Company may sell certain of its investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales) the Company has, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions have given rise to liabilities in the past and may do so in the future.

 

8.     FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows ASC 825-10, which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. With the exception of the line items entitled “other assets” and “debt,” which are reported at amortized cost, all assets and liabilities approximate fair value on the balance sheet. The carrying value of the lines titled “interest receivable,” “receivable for open trades,” “payable for open trades,” “accounts payable and other liabilities,” “base management fees payable,” “income based fees payable,” “capital gains incentive fees payable” and “interest and facility fees payable” approximate fair value due to their short maturity.

 

The Company also follows ASC 820-10, which expands the application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Company to assume that the portfolio investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

 

                   Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

                   Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

                   Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

In addition to using the above inputs in investment valuations, the Company continues to employ the net asset valuation policy approved by the Company’s board of directors that is consistent with ASC 820-10 (see Note 2). Consistent with the Company’s valuation policy, it evaluates the source of inputs, including any markets in which the Company’s investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. The Company’s valuation policy considers the fact that because there is not a readily available market value for most of the investments in the Company’s portfolio, the fair value of the investments must typically be determined using unobservable inputs.

 

The Company’s portfolio investments (other than as described below in the following paragraph) are typically valued using two different valuation techniques. The first valuation technique is an analysis of the enterprise value (“EV”) of the portfolio company. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s EBITDA (generally defined as net income before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The Company may also employ other valuation multiples to determine EV, such as revenues or, in the case of certain portfolio companies in the power generation industry, kilowatt capacity. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is performed to determine the value of equity investments, the value of debt investments in portfolio companies where the Company has control or could gain control through an option or warrant security, and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. The second valuation technique is a yield analysis, which is typically performed for non-credit impaired debt investments in portfolio companies where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the enterprise value of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

 

For other portfolio investments such as investments in the SSLP Certificates, discounted cash flow analysis is the primary technique utilized to determine fair value. Expected future cash flows associated with the investment are discounted to determine a present value using a discount rate that reflects estimated market return requirements.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of September 30, 2016 and December 31, 2015. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

 

 

 

As of September 30, 2016

 

 

 

 

 

 

 

Unobservable Input

 

Asset Category

 

Fair Value

 

Primary Valuation
Techniques

 

Input

 

Estimated Range

 

Weighted
Average

 

First lien senior secured loans

 

$

2,197,926

 

Yield analysis

 

Market yield

 

3.8% - 21.8%

 

9.5

%

Second lien senior secured loans

 

2,840,351

 

Yield analysis

 

Market yield

 

8.4% - 20.8%

 

10.8

%

Subordinated certificates of the SDLP

 

195,338

 

Discounted cash flow analysis

 

Discount rate

 

8.0% - 9.0%

 

8.5

%

Subordinated certificates of the SSLP

 

1,899,754

 

Discounted cash flow analysis

 

Discount rate

 

10.8% - 11.8%

 

11.3

%

Senior subordinated debt

 

721,146

 

Yield analysis

 

Market yield

 

9.8% - 17.5%

 

12.7

%

Preferred equity securities

 

342,645

 

EV market multiple analysis

 

EBITDA multiple

 

3.5x - 14.8x

 

7.6

x

Other equity securities and other

 

600,760

 

EV market multiple analysis

 

EBITDA multiple

 

5.0x - 15.3x

 

10.6

x

Total Investments

 

$

8,797,920

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

Unobservable Input

 

Asset Category

 

Fair Value

 

Primary Valuation
Techniques

 

Input

 

Estimated Range

 

Weighted
Average

 

First lien senior secured loans

 

$

2,638,784

 

Yield analysis

 

Market yield

 

4.0% - 16.5%

 

9.2

%

Second lien senior secured loans

 

2,861,294

 

Yield analysis

 

Market yield

 

8.5% - 19.5%

 

10.6

%

Subordinated certificates of the SSLP

 

1,884,861

 

Discounted cash flow analysis

 

Discount rate

 

10.5% - 11.5%

 

11.0

%

Senior subordinated debt

 

654,066

 

Yield analysis

 

Market yield

 

8.3% - 15.8%

 

12.2

%

Preferred equity securities

 

375,830

 

EV market multiple analysis

 

EBITDA multiple

 

4.0x - 14.8x

 

7.2

x

Other equity securities and other

 

630,026

 

EV market multiple analysis

 

EBITDA multiple

 

4.0x - 14.8x

 

10.2

x

Total Investments

 

$

9,044,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

2,602

 

Yield analysis

 

Market yield

 

7.0% - 7.6%

 

7.4

%

Total Other Assets

 

$

2,602

 

 

 

 

 

 

 

 

 

 

Changes in market yields, discount rates or EBITDA multiples, each in isolation, may change the fair value of certain of the Company’s investments. Generally, an increase in market yields or discount rates or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

The following table presents fair value measurements of cash and cash equivalents, investments and derivatives as of September 30, 2016:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

125,089

 

$

125,089

 

$

 

$

 

Investments not measured at net asset value

 

$

8,798,674

 

$

754

 

$

 

$

8,797,920

 

Investments measured at net asset value (1)

 

$

5,977

 

 

 

 

 

 

 

Total Investments

 

$

8,804,651

 

 

 

 

 

 

 

Derivatives

 

$

883

 

$

 

$

883

 

$

 

 


(1)                                 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

 

The following table presents fair value measurements of cash and cash equivalents, investments and derivatives as of December 31, 2015:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

257,056

 

$

257,056

 

$

 

$

 

Investments not measured at net asset value

 

$

9,048,233

 

$

3,372

 

$

 

$

9,044,861

 

Investments measured at net asset value (1)

 

$

7,263

 

 

 

 

 

 

 

Total Investments

 

$

9,055,496

 

 

 

 

 

 

 

Derivatives

 

$

3,857

 

$

 

$

1,255

 

$

2,602

 

 


(1)                                 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

 

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.

 

The following table presents changes in investments that use Level 3 inputs as of and for the three and nine months ended September 30, 2016:

 

 

 

As of and For the
Three Months Ended
September 30, 2016

 

Balance as of June 30, 2016

 

$

8,892,514

 

Net realized gains

 

20,873

 

Net unrealized losses

 

(42,673

)

Purchases

 

1,378,237

 

Sales

 

(920,147

)

Redemptions

 

(544,794

)

Payment-in-kind interest and dividends

 

12,340

 

Net accretion of discount on securities

 

1,570

 

Net transfers in and/or out of Level 3

 

 

Balance as of September 30, 2016

 

$

8,797,920

 

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

 

 

As of and For the
Nine Months Ended
September 30, 2016

 

Balance as of December 31, 2015

 

$

9,044,861

 

Net realized gains

 

74,943

 

Net unrealized losses

 

(22,084

)

Purchases

 

2,387,943

 

Sales

 

(1,208,630

)

Redemptions

 

(1,509,713

)

Payment-in-kind interest and dividends

 

32,190

 

Net accretion of discount on securities

 

4,385

 

Net transfers in and/or out of Level 3

 

(5,975

)

Balance as of September 30, 2016

 

$

8,797,920

 

 

As of September 30, 2016, the net unrealized depreciation on the investments that use Level 3 inputs was $128,357. For the nine months ended September 30, 2016, the net transfers out of Level 3 were due to privately held equity investments converting to publicly traded stock.

 

The following table presents changes in derivatives that use Level 3 inputs as of and for the three and nine months ended September 30, 2016:

 

 

 

As of and For the
Three Months Ended
September 30, 2016

 

Balance as of June 30, 2016

 

$

4,906

 

Net unrealized appreciation reversed related to termination of the Forward Sale Agreement

 

(4,906

)

Balance as of September 30, 2016

 

$

 

 

 

 

As of and For the
Nine Months Ended
September 30, 2016

 

Balance as of December 31, 2015

 

$

2,602

 

Net unrealized appreciation reversed related to termination of the Forward Sale Agreement

 

(2,602

)

Balance as of September 30, 2016

 

$

 

 

For the three and nine months ended September 30, 2016, the total amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the Company’s Level 3 assets still held as of September 30, 2016, and reported within the net unrealized gains (losses) from investments, foreign currency and other transactions in the Company’s consolidated statement of operations was $(55,544) and $(27,207), respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

The following table presents changes in investments that use Level 3 inputs as of and for the three and nine months ended September 30, 2015:

 

 

 

As of and For the
Three Months Ended
September 30, 2015

 

Balance as of June 30, 2015

 

$

8,559,859

 

Net realized gains

 

45,275

 

Net unrealized losses

 

(60,222

)

Purchases

 

1,474,831

 

Sales

 

(677,360

)

Redemptions

 

(666,495

)

Payment-in-kind interest and dividends

 

3,167

 

Net accretion of discount on securities

 

1,013

 

Net transfers in and/or out of Level 3

 

 

Balance as of September 30, 2015

 

$

8,680,068

 

 

 

 

As of and For the
Nine Months Ended
September 30, 2015

 

Balance as of December 31, 2014

 

$

9,016,437

 

Net realized gains

 

97,033

 

Net unrealized losses

 

(94,916

)

Purchases

 

2,863,701

 

Sales

 

(1,489,919

)

Redemptions

 

(1,729,671

)

Payment-in-kind interest and dividends

 

15,397

 

Net accretion of discount on securities

 

3,107

 

Net transfers in and/or out of Level 3

 

(1,101

)

Balance as of September 30, 2015

 

$

8,680,068

 

 

As of September 30, 2015, the net unrealized appreciation on the investments that use Level 3 inputs was $51,007. For the nine months ended September 30, 2015, the net transfers out of Level 3 were due to privately held equity investments converting to publicly traded stock.

 

For the three and nine months ended September 30, 2015, the total amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the Company’s Level 3 assets still held as of September 30, 2015, and reported within the net unrealized gains (losses) from investments, foreign currency and other transactions in the Company’s consolidated statement of operations was $(21,425) and $(50,001), respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

Following are the carrying and fair values of the Company’s debt obligations as of September 30, 2016 and December 31, 2015. Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available.

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Carrying value(1)

 

Fair value

 

Carrying value(1)

 

Fair value

 

Revolving Credit Facility

 

$

465,000

 

$

465,000

 

$

515,000

 

$

515,000

 

Revolving Funding Facility

 

108,000

 

108,000

 

250,000

 

250,000

 

SMBC Funding Facility

 

108,000

 

108,000

 

110,000

 

110,000

 

SBA Debentures

 

24,461

 

25,000

 

21,491

 

22,000

 

February 2016 Convertible Notes (principal amount outstanding of $0 and $575,000, respectively)

 

(2)

 

573,935

(3)

575,058

 

June 2016 Convertible Notes (principal amount outstanding of $0 and $230,000, respectively)

 

(2)

 

228,008

(3)

230,058

 

2017 Convertible Notes (principal amount outstanding of $162,500)

 

161,519

(3)

164,897

 

159,958

(3)

164,206

 

2018 Convertible Notes (principal amount outstanding of $270,000)

 

266,361

(3)

279,650

 

264,392

(3)

270,877

 

2019 Convertible Notes (principal amount outstanding of $300,000)

 

295,769

(3)

313,896

 

294,479

(3)

299,061

 

2018 Notes (principal amount outstanding of $750,000)

 

744,667

(4)

783,495

 

742,954

(4)

777,405

 

2020 Notes (principal amount outstanding of $600,000)

 

595,209

(5)

620,178

 

594,201

(5)

607,128

 

January 2022 Notes (principal amount outstanding of $600,000 and $0, respectively)

 

591,772

(6)

604,242

 

 

 

October 2022 Notes (principal amount outstanding of $182,500)

 

178,332

(7)

182,813

 

177,912

(7)

182,009

 

2047 Notes (principal amount outstanding of $229,557)

 

181,826

(8)

232,560

 

181,604

(8)

230,228

 

 

 

$

3,720,916

(9)

$

3,887,731

 

$

4,113,934

(9)

$

4,233,030

 

 


(1)                                 The Revolving Credit Facility, the Revolving Funding Facility and the SMBC Funding Facility carrying values are the same as the principal amounts outstanding.

 

(2)                                 See Note 5 for more information on the repayments of the February 2016 Convertible Notes and the June 2016 Convertible Notes.

 

(3)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuances of such notes.

 

(4)                                 Represents the aggregate principal amount outstanding of the 2018 Notes less unamortized debt issuance costs plus the net unamortized premium recorded upon the issuances of the 2018 Notes.

 

(5)                                 Represents the aggregate principal amount outstanding of the 2020 Notes less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuances of the 2020 Notes.

 

(6)                                 Represents the aggregate principal amount outstanding of the January 2022 Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuance of the January 2022 Notes.

 

(7)                                 Represents the aggregate principal amount outstanding of the October 2022 Notes less unamortized debt issuance costs.

 

(8)                                 Represents the aggregate principal amount outstanding of the 2047 Notes less the unaccreted purchased discount.

 

(9)                                 Total principal amount of debt outstanding totaled $3,800,557 and $4,196,557 as of September 30, 2016 and December 31, 2015, respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

The following table presents fair value measurements of the Company’s debt obligations as of September 30, 2016 and December 31, 2015:

 

 

 

As of

 

Fair Value Measurements Using

 

September 30, 2016

 

December 31, 2015

 

Level 1

 

$

415,373

 

$

412,237

 

Level 2

 

3,472,358

 

3,820,793

 

Total

 

$

3,887,731

 

$

4,233,030

 

 

9.     STOCKHOLDERS’ EQUITY

 

There were no sales of the Company’s equity securities for the nine months ended September 30, 2016 and 2015. See Note 11 for information regarding shares of common stock issued or purchased in accordance with the Company’s dividend reinvestment plan.

 

Stock Repurchase Program

 

In September 2015, the Company’s board of directors approved a stock repurchase program authorizing the Company to repurchase up to $100 million in the aggregate of its outstanding common stock in the open market at certain thresholds below its net asset value per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended.  The timing, manner, price and amount of any share repurchases will be determined by the Company, in its discretion, based upon the evaluation of economic and market conditions, stock price, applicable legal and regulatory requirements and other factors. The program will be in effect until February 28, 2017, unless extended or until the approved dollar amount has been used to repurchase shares. The program does not require the Company to repurchase any specific number of shares and it cannot assure stockholders that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time. As of September 30, 2016, the Company had repurchased a total of 515 shares of its common stock in the open market under the stock repurchase program since its inception in September 2015, at an average price of $13.92 per share, including commissions paid, leaving approximately $92.8 million available for additional repurchases under the program.

 

In May 2016, the Company suspended its stock repurchase program pending the completion of the American Capital Acquisition (see Note 14 for more information). During the nine months ended September 30, 2016, the Company repurchased a total of 393 shares of the Company’s common stock in the open market for $5,477 under the stock repurchase program. The shares were repurchased at an average price of $13.94 per share, including commissions paid.

 

10.     EARNINGS PER SHARE

 

The following information sets forth the computations of basic and diluted net increase in stockholders’ equity resulting from operations per share for the three and nine months ended September 30, 2016 and 2015:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Net increase in stockholders’ equity resulting from operations available to common stockholders

 

$

110,241

 

$

116,859

 

$

399,182

 

$

363,957

 

Weighted average shares of common stock outstanding—basic and diluted

 

313,954

 

314,469

 

314,067

 

314,350

 

Basic and diluted net increase in stockholders’ equity resulting from operations per share

 

$

0.35

 

$

0.37

 

$

1.27

 

$

1.16

 

 

For the purpose of calculating diluted net increase in stockholders’ equity resulting from operations per share, the average closing price of the Company’s common stock for the three and nine months ended September 30, 2016 was less than the conversion price for each of the Convertible Unsecured Notes outstanding as of September 30, 2016. For the three and nine months ended September 30, 2015, the average closing price of the Company’s common stock was less than the conversion

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words “million,”“billion” or otherwise)

 

price for each the Convertible Unsecured Notes outstanding as of September 30, 2015 as well as the February 2016 Convertible Notes and the June 2016 Convertible Notes. Therefore, for all periods presented in the financial statements, the underlying shares for the intrinsic value of the embedded options in the Convertible Unsecured Notes, the February 2016 Convertible Notes and the June 2016 Convertible Notes have no impact on the computation of diluted net increase in stockholders’ equity resulting from operations per share.

 

11.    DIVIDENDS AND DISTRIBUTIONS

 

The following table summarizes the Company’s dividends declared and payable during the nine months ended September 30, 2016 and 2015:

 

Date declared

 

Record date

 

Payment date

 

Per share
amount

 

Total amount

 

August 3, 2016

 

September 15, 2016

 

September 30, 2016

 

$

0.38

 

$

119,303

 

May 4, 2016

 

June 15, 2016

 

June 30, 2016

 

0.38

 

119,303

 

February 26, 2016

 

March 15, 2016

 

March 31, 2016

 

0.38

 

119,452

 

Total declared and payable for the nine months ended September 30, 2016

 

 

 

 

 

$

1.14

 

$

358,058

 

 

 

 

 

 

 

 

 

 

 

August 4, 2015

 

September 15, 2015

 

September 30, 2015

 

$

0.38

 

$

119,498

 

May 4, 2015

 

June 15, 2015

 

June 30, 2015

 

0.38

 

119,498

 

February 26, 2015

 

March 13, 2015

 

March 31, 2015

 

0.38

 

119,361

 

February 26, 2015

 

March 13, 2015

 

March 31, 2015

 

0.05

(1)

15,705

 

Total declared and payable for the nine months ended September 30, 2015

 

 

 

 

 

$

1.19

 

$

374,062

 

 


(1)                                 Represents an additional dividend.

 

The Company has a dividend reinvestment plan, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. When the Company issues new shares in connection with the dividend reinvestment plan, the issue price is equal to the closing price of its common stock on the dividend payment date. Dividend reinvestment plan activity for the nine months ended September 30, 2016 and 2015, was as follows:

 

 

 

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

 

Shares issued

 

 

361

 

Average issue price per share

 

$

 

$

17.17

 

Shares purchased by plan agent to satisfy dividends declared and payable during the period for stockholders

 

1,088

 

667

 

Average purchase price per share

 

$

14.85

 

$

15.70

 

 

12.     RELATED PARTY TRANSACTIONS

 

In accordance with the investment advisory and management agreement, the Company bears all costs and expenses of the operation of the Company and reimburses its investment adviser or its affiliates for certain of such costs and expenses incurred in the operation of the Company. For the three and nine months ended September 30, 2016, the Company’s investment adviser or its affiliates incurred such expenses totaling $1,149 and $3,856, respectively. For the three and nine months ended September 30, 2015, the Company’s investment adviser or its affiliates incurred such expenses totaling $1,834 and $4,668, respectively.

 

The Company is party to office leases pursuant to which it is leasing office facilities from third parties. For certain of these office leases, the Company has also entered into separate subleases with Ares Management LLC, the sole member of Ares Capital Management, and IHAM, pursuant to which Ares Management LLC and IHAM sublease a portion of these leases. For the three and nine months ended September 30, 2016, amounts payable to the Company under these subleases totaled $1,739 and $4,829, respectively. For the three and nine months ended September 30, 2015, amounts payable to the Company under these subleases totaled $1,134 and $3,343, respectively.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

Ares Management LLC has also entered into separate subleases with the Company, pursuant to which the Company subleases certain office spaces from Ares Management LLC. For the three and nine months ended September 30, 2016, amounts payable to Ares Management LLC under these subleases totaled $161 and $486, respectively. For the three and nine months ended September 30, 2015, amounts payable to Ares Management LLC under these subleases totaled $190 and $564, respectively.

 

The Company has also entered into agreements with Ares Management LLC and IHAM, pursuant to which Ares Management LLC and IHAM are entitled to use the Company’s proprietary portfolio management software. For the three and nine months ended September 30, 2016, amounts payable to the Company under these agreements totaled $25 and $75, respectively. For the three and nine months ended September 30, 2015, amounts payable to the Company under these agreements totaled $25 and $75, respectively.

 

See Notes 3, 4, 6 and 14 for descriptions of other related party transactions.

 

13.   FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights as of and for the nine months ended September 30, 2016 and 2015

 

 

 

As of and For the Nine Months Ended September 30,

 

Per Share Data:

 

2016

 

2015

 

Net asset value, beginning of period(1)

 

$

16.46

 

$

16.82

 

Net investment income for period(2)

 

1.13

 

1.15

 

Net realized and unrealized gains for period(2)

 

0.14

 

0.01

 

Net increase in stockholders’ equity

 

1.27

 

1.16

 

Total distributions to stockholders(3)

 

(1.14

)

(1.19

)

Net asset value at end of period(1)

 

$

16.59

 

$

16.79

 

Per share market value at end of period

 

$

15.50

 

$

14.48

 

Total return based on market value(4)

 

16.77

%

0.38

%

Total return based on net asset value(5)

 

7.69

%

6.92

%

Shares outstanding at end of period

 

313,954

 

314,469

 

Ratio/Supplemental Data:

 

 

 

 

 

Net assets at end of period

 

$

5,208,979

 

$

5,279,802

 

Ratio of operating expenses to average net assets(6)(7)

 

9.83

%

9.98

%

Ratio of net investment income to average net assets(6)(8)

 

9.12

%

9.07

%

Portfolio turnover rate(6)

 

36

%

44

%

 


(1)                                 The net assets used equals the total stockholders’ equity on the consolidated balance sheet.

 

(2)                                 Weighted average basic per share data.

 

(3)                                 Includes an additional dividend of $0.05 per share for the three months ended March 31, 2015.

 

(4)                                 For the nine months ended September 30, 2016, the total return based on market value equaled the increase of the ending market value at September 30, 2016 of $15.50 per share from the ending market value at December 31, 2015 of $14.25 per share plus the declared and payable dividends of $1.14 per share for the nine months ended September 30, 2016, divided by the market value at December 31, 2015. For the nine months ended September 30, 2015, the total return based on market value equaled the decrease of the ending market value at September 30, 2015 of $14.48 per share from the ending market value at December 31, 2014 of $15.61 per share plus the declared and payable dividends of $1.19 per share for the nine months ended September 30, 2015, divided by the market value at December 31, 2014. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

(5)                                 For the nine months ended September 30, 2016, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.14 per share for the nine months ended September 30, 2016, divided by the beginning net asset value for the period. For the nine months ended September 30, 2015, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.19 per share for the nine months ended September 30, 2015, divided by the beginning net asset value for the period. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan, the issuance of common stock in connection with any equity offerings and the equity components of any convertible notes issued during the period. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(6)                                 The ratios reflect an annualized amount.

 

(7)                                 For the nine months ended September 30, 2016, the ratio of operating expenses to average net assets consisted of 2.64% of base management fees, 2.56% of income based fees and capital gains incentive fees, 3.56% of the cost of borrowing and 1.07% of other operating expenses. For the nine months ended September 30, 2015, the ratio of operating expenses to average net assets consisted of 2.53% of base management fees, 2.29% of income based fees and capital gains incentive fees, 4.33% of the cost of borrowing and 0.83% of other operating expenses.

 

(8)                                 The ratio of net investment income to average net assets excludes income taxes related to realized gains and losses.

 

14.    AMERICAN CAPITAL ACQUISITION

 

On May 23, 2016, the Company entered into a definitive agreement (the “Merger Agreement”) to acquire American Capital, Ltd. (“American Capital”), a Delaware corporation, in a cash and stock transaction (the “American Capital Acquisition”).  As of May 20, 2016, the last full trading day prior to the announcement of the American Capital Acquisition, the transaction had an implied value of approximately $4.0 billion, or $17.40 per fully diluted share of American Capital common stock. As of September 30, 2016, the transaction had an implied value of approximately $4.0 billion, or $17.55 per fully diluted share of American Capital common stock.

 

Upon the completion of the American Capital Acquisition, each share of American Capital common stock issued and outstanding immediately prior to the effective time of the American Capital Acquisition will be converted into the right to receive from the Company, in accordance with the Merger Agreement, (i) $6.41 per share in cash consideration, (ii) stock consideration at the fixed exchange ratio of 0.483 shares, par value $0.001 per share, of the Company’s common stock (subject to the payment of cash instead of fractional shares) (the “Exchange Ratio”) (iii) $1.20 per share in cash from Ares Capital Management, acting solely on its own behalf (see Transaction Support Agreement discussed below) and (iv) $2.45 per share in cash, which amount represents the per share cash consideration paid to American Capital pursuant to the sale by American Capital of American Capital Mortgage Management, LLC, a wholly owned subsidiary of American Capital Asset Management, LLC (“ACAM”), a wholly owned portfolio company of American Capital, to American Capital Agency Corp.

 

Additionally, depending on the effective time of the American Capital Acquisition, each share of American Capital common stock issued and outstanding immediately prior to the effective time of the American Capital Acquisition will be converted into the right to receive, if any, the make-up dividend amount. The make-up dividend amount would equal (A) if the closing occurs after the record date with respect to the Company’s dividend payable with respect to the Company’s fourth quarter of 2016, 37.5% of the Exchange Ratio times the Company’s dividend for such quarter, plus (B) if the closing occurs after the record date with respect to the Company’s dividend payable with respect to the first quarter of 2017, 75% of the Exchange Ratio times the Company’s dividend for such quarter, plus (C) if the closing occurs after the record date with respect to the Company’s dividend for any subsequent quarter, 100% of the Exchange Ratio times the Company’s dividend for such quarter.  The Exchange Ratio was fixed on the date of the Merger Agreement, and is not subject to adjustment based on changes in the trading price of the Company’s or American Capital’s common stock before the closing of the American Capital Acquisition. Based on the number of shares of American Capital common stock outstanding on the date of the Merger Agreement, the above would result in approximately 110.8 million of the Company’s shares being exchanged for approximately 229.3 million fully diluted shares of American Capital common stock, subject to adjustment in certain limited circumstances.

 

In connection with the American Capital Acquisition, ACAM will merge with and into IHAM, with IHAM remaining as the surviving entity as a wholly owned portfolio company of the Company.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

The completion of the American Capital Acquisition is subject to certain conditions, including, among others, American Capital stockholder approval, the Company’s stockholder approval, required regulatory approvals (including from certain regulatory authorities), receipt of certain third party consents, including third party consents from certain investment funds managed by ACAM and its subsidiaries representing at least 75% of the aggregate assets under management of all such funds as of March 31, 2016 and other customary closing conditions. While there can be no assurances as to the exact timing, or that the American Capital Acquisition will be completed at all, the Company expects to complete the American Capital Acquisition as early as the first week of January 2017.

 

Additionally, on May 23, 2016, the Company entered into an agreement with Ares Capital Management, its investment adviser (the “Transaction Support Agreement”) in connection with the American Capital Acquisition. Under the terms of the Transaction Support Agreement, the Company’s investment adviser will (i) provide approximately $275 million of cash consideration, or $1.20 per share of American Capital common stock, payable to American Capital stockholders in accordance with the terms and conditions set forth in the Merger Agreement at closing and (ii) waive, for each of the first ten calendar quarters beginning with the first full calendar quarter after the closing of the American Capital Acquisition, the lesser of (x) $10 million of income based fees and (y) the amount of income based fees for such quarter, in each case, to the extent earned and payable by the Company in such quarter pursuant to and as calculated under the Company’s investment advisory and management agreement. The financial support contemplated by the Transaction Support Agreement is conditioned upon completion of the American Capital Acquisition, which is subject to the closing conditions described above.

 

The American Capital Acquisition is expected to be accounted for as an asset acquisition in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations-Related Issues. The fair value of the merger consideration paid by the Company is allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of acquisition and will not give rise to goodwill. If the fair value of the net assets acquired exceeds the fair value of the merger consideration paid by the Company, then the Company would recognize a deemed contribution from Ares Capital Management in an amount up to the cash consideration to be paid by Ares Capital Management described above. If the fair value of the net assets acquired exceeds the fair value of the aggregate merger consideration paid by the Company and by Ares Capital Management, then the Company would recognize a purchase accounting gain. Alternatively, if the fair value of the net assets acquired is less than the fair value of the merger consideration paid by the Company, then Ares Capital would recognize a purchase accounting loss.

 

Also in connection with the American Capital Acquisition, Ares Capital CP received commitments from certain lenders to provide $460.0 million in new commitments under the Revolving Funding Facility, which would bring the total commitments of the Revolving Funding Facility to $1.0 billion. The new commitments are conditioned upon completion of the American Capital Acquisition, which is subject to certain closing conditions described above, and also are subject to final documentation of the amendment to the Revolving Funding Facility.

 

In May 2016, in connection with the American Capital Acquisition, the Company suspended its stock repurchase program pending the completion of the American Capital Acquisition.

 

15.    LITIGATION

 

American Capital and the Company are aware that a consolidated putative shareholder class action has been filed by stockholders of American Capital challenging the American Capital Acquisition. On or about August 18, 2016, shareholders of American Capital filed a consolidated putative shareholder class action allegedly on behalf of holders of the common stock of American Capital against the members of American Capital’s board of directors in the Circuit Court for Montgomery County, Maryland due to the directors’ actions in approving the American Capital Acquisition. This action is a consolidation of putative shareholder complaints filed against the directors of American Capital on June 24, 2016, July 12, 2016, July 21, 2016 and July 27, 2016. The action alleges that the directors failed to adequately discharge their fiduciary duties to the public shareholders of American Capital by hastily commencing a sales process due to the board’s manipulation by a major shareholder, Elliott Management Corp. (together with its affiliates, “Elliott Management”). The complaint also alleges that the directors then failed to obtain for the shareholders the highest value available in the marketplace for their shares. The complaint further alleges that the proposed merger was the product of a flawed sales process due to Elliott Management’s continued manipulation of the directors, the use of deal protection devices in the American Capital Acquisition that precluded other bidders from making a higher offer to American Capital, and the directors’ conflicts of interest due to special benefits, including the full vesting of American Capital stock options and incentive awards, or golden parachutes the directors are due to receive upon consummation of the proposed merger. Additionally, the complaint alleges that the Company’s Registration Statement on Form N-14, which was filed with the SEC on July 20, 2016 and includes a joint proxy statement to American Capital’s

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated; for example, with the words "million,""billion" or otherwise)

 

shareholders, is materially false and misleading because it omits material information concerning the financial and procedural fairness of the proposed merger. The complaint seeks to enjoin the American Capital Acquisition. In the event that the American Capital Acquisition is completed, the complaint seeks to recover compensatory damages for all losses resulting from the alleged breaches of fiduciary duty. The court has ordered that this case proceed to expedited discovery. The Company believes that these claims are without merit.

 

On May 20, 2013, the Company was named as one of several defendants in an action (the Action) filed in the United States District Court for the Eastern District of Pennsylvania (the Pennsylvania Court) by the bankruptcy trustee of DSI Renal Holdings LLC and two related companies. On March 17, 2014, the Action was transferred to the United States District Court for the District of Delaware (the Delaware Court) pursuant to a motion filed by the defendants and granted by the Pennsylvania Court. On May 6, 2014, the Delaware Court referred the Action to the United States Bankruptcy Court for the District of Delaware. The complaint in the Action alleges, among other things, that each of the named defendants participated in a purported fraudulent transfer involving the restructuring of a subsidiary of DSI Renal Holdings LLC. Among other things, the complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which the complaint states the Company’s individual share is approximately $117 million, and (2) punitive damages. The Company is currently unable to assess with any certainty whether it may have any exposure in the Action. The Company believes the plaintiff’s claims are without merit and intends to vigorously defend itself in the Action.

 

Additionally, the Company is party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that the Company assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. It is possible that third parties could try to seek to impose liability against the combined company in connection with the matter discussed above or other potential legal proceedings. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, the Company does not expect that these legal proceedings will materially affect its business, financial condition or results of operations.

 

16.    SUBSEQUENT EVENTS

 

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the nine months ended September 30, 2016.

 

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Item 2.      Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report. In addition, some of the statements in this Quarterly Report (including in the following discussion) constitute forward- looking statements, which relate to future events, the future performance or financial condition of Ares Capital Corporation (the “Company,” “ARCC,” “Ares Capital,” “we,” “us,” or “our”) or the proposed transaction between American Capital, Ltd. (American Capital) and us. The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

 

·                  our, or our portfolio companies’, future business, operations, operating results or prospects;

 

·                  the return or impact of current and future investments;

 

·                  the impact of a protracted decline in the liquidity of credit markets on our business;

 

·                  the impact of fluctuations in interest rates on our business;

 

·                  the impact of changes in laws or regulations (including the interpretation thereof) governing our operations or the operations of our portfolio companies or the operations of our competitors;

 

·                  the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

·                  our ability to recover unrealized losses;

 

·                  market conditions and our ability to access alternative debt markets and additional debt and equity capital;

 

·                  our contractual arrangements and relationships with third parties, including parties to our co-investment programs;

 

·                  the general economy and its impact on the industries in which we invest;

 

·                  uncertainty surrounding the financial stability of the U.S., the EU and China;

 

·                  Middle East turmoil and the potential for fluctuating energy prices and its impact on the industries in which we invest;

 

·                  the social, geographical, financial, trade and legal implications of the referendum by British voters to leave the EU in June 2016;

 

·                  the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

 

·                  our expected financings and investments;

 

·                  our ability to successfully complete and integrate any acquisitions;

 

·                  the adequacy of our cash resources and working capital;

 

·                  the timing, form and amount of any dividend distributions;

 

·                  the timing of cash flows, if any, from the operations of our portfolio companies;

 

·                  the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments;

 

·                  the acquisition of American Capital (the “American Capital Acquisition”);

 

·                  the outcome and impact of any litigation relating to the American Capital Acquisition;

 

·                  the likelihood that the American Capital Acquisition is completed and the anticipated timing of its completion;

 

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·                  the ability of our business and American Capital’s business to successfully integrate if the American Capital Acquisition is completed; and

 

·                  the impact to the periods following the completion of the American Capital Acquisition.

 

All statements, other than historical facts, including statements regarding the expected timing of the closing of the proposed transaction; the ability of the parties to complete the proposed transaction considering the various closing conditions; the expected benefits of the proposed transaction such as improved operations, enhanced revenues and cash flow, growth potential, market profile and financial strength; the competitive ability and position of the combined company following completion of the proposed transaction; and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue,” “target” or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) that one or more closing conditions to the transaction may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the proposed transaction, may require conditions, limitations or restrictions in connection with such approvals or that the required approval by the stockholders of each of American Capital and Ares Capital may not be obtained; (2) the risk that the mergers or other transactions contemplated by the merger agreement may not be completed in the time frame expected by American Capital and Ares Capital, or at all; (3) unexpected costs, charges or expenses resulting from the proposed transaction; (4) uncertainty of the expected financial performance of the combined company following completion of the proposed transaction; (5) failure to realize the anticipated benefits of the proposed transaction, including as a result of delay in completing the proposed transaction or integrating the businesses of American Capital and Ares Capital; (6) the ability of the combined company to implement its business strategy; (7) difficulties and delays in achieving synergies and cost savings of the combined company; (8) inability to retain and hire key personnel; (9) the occurrence of any event that could give rise to termination of the merger agreement; (10) the risk that stockholder litigation in connection with the proposed transaction may affect the timing or occurrence of the contemplated merger or result in significant costs of defense, indemnification and liability; (11) evolving legal, regulatory and tax regimes; (12) changes in laws or regulations or interpretations of current laws and regulations that would impact Ares Capital’s classification as a business development company; (13) changes in general economic and/or industry specific conditions; and (14) other risk factors as detailed from time to time in American Capital’s and Ares Capital’s reports filed with the SEC, including this Quarterly Report and American Capital’s and Ares Capital’s respective annual reports on Form 10-K for the year ended December 31, 2015, periodic quarterly reports on Form 10-Q, periodic current reports on Form 8-K and other documents filed with the SEC.

 

We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

No Offer or Solicitation

 

The information in this Quarterly Report is for informational purposes only and shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

 

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Additional Information and Where to Find It

 

In connection with the proposed transaction, we have filed with the SEC a registration statement on Form N-14 (the “Registration Statement”) that includes a joint proxy statement of Ares Capital and American Capital (the “Joint Proxy Statement”) and that constitutes a prospectus of Ares Capital.  The Joint Proxy Statement and Registration Statement, as applicable, are first being mailed or otherwise delivered to stockholders on or about October 18, 2016. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT AND THE REGISTRATION STATEMENT, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT AMERICAN CAPITAL, ARES CAPITAL, THE PROPOSED TRANSACTION AND RELATED MATTERS.  Investors and security holders will be able to obtain the Joint Proxy Statement, the Registration Statement and other documents filed with the SEC by American Capital and Ares Capital, free of charge, from the SEC’s website at www.sec.gov and from either American Capital’s or Ares Capital’s websites at www.americancapital.com or at www.arescapitalcorp.com.  Investors and security holders may also obtain free copies of the Joint Proxy Statement, the Registration Statement and other documents filed with the SEC from American Capital by contacting American Capital’s Investor Relations Department at 1-301-951-5917 or from Ares Capital by contacting Ares Capital’s Investor Relations Department at 1-888-818-5298.

 

Participants in the Solicitation

 

American Capital, Ares Capital and their respective directors, executive officers, other members of their management and employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of the Ares Capital and American Capital stockholders in connection with the proposed transaction is set forth in the Joint Proxy Statement and Registration Statement filed with the SEC. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by security holdings or otherwise, will be set forth in the Joint Proxy Statement and the Registration Statement when such documents become available. These documents may be obtained free of charge from the sources indicated above.

 

OVERVIEW

 

We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”).

 

We are externally managed by Ares Capital Management LLC (“Ares Capital Management” or our “investment adviser”), a subsidiary of Ares Management L.P. (NYSE: ARES) (“Ares Management”), a publicly traded, leading global alternative asset manager, pursuant to our investment advisory and management agreement. Our administrator, Ares Operations LLC (“Ares Operations” or our “administrator”), a subsidiary of Ares Management, provides certain administrative and other services necessary for us to operate.

 

Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first lien senior secured loans (including unitranche loans), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component like warrants.

 

To a lesser extent, we also make preferred and/or common equity investments, which have generally been non-control equity investments, of less than $20 million (usually in conjunction with a concurrent debt investment). However, we may increase the size or change the nature of these investments.

 

Since our initial public offering (“IPO”) on October 8, 2004 through September 30, 2016, our exited investments resulted in an aggregate cash flow realized internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $14.0 billion and total proceeds from such exited investments of approximately $17.1 billion). Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized. Approximately 70% of these exited investments resulted in an aggregate cash flow realized internal rate of return to us of 10% or greater.

 

Additionally, since our IPO on October 8, 2004 through September 30, 2016, our realized gains have exceeded our realized losses by approximately $558 million (excluding a one-time gain on the acquisition of Allied Capital Corporation (“Allied Capital”) and realized gains/losses from the extinguishment of debt and from other assets). For this same time period, our average annualized net realized gain rate was approximately 1.1% (excluding a one-time gain on the acquisition of Allied Capital and realized gains/losses from the extinguishment of debt and from other assets). Net realized gain/loss rates for a particular period are the amount of net realized gains/losses during such period divided by the average quarterly investments at amortized cost in such period.

 

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Information included herein regarding internal rates of return, realized gains and losses and annualized net realized gain rates are historical results relating to our past performance and are not necessarily indicative of future results, the achievement of which cannot be assured.

 

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities and indebtedness of private U.S. companies and certain public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. Specifically, as part of this 30% basket, we may invest in entities that are not considered “eligible portfolio companies” (as defined in the Investment Company Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the Investment Company Act, and publicly traded entities whose public equity market capitalization exceeds the levels provided for under the Investment Company Act.

 

We have elected to be treated as a regulated investment company, or a “RIC”, under the Internal Revenue Code of 1986, as amended (the “Code”), and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Code, for each year. Pursuant to this election, we generally will not have to pay U.S. federal corporate-level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.

 

Pending American Capital Acquisition

 

On May 23, 2016, we entered into a definitive agreement (the “Merger Agreement”) to acquire American Capital in a cash and stock transaction. As of May 20, 2016, the last full trading day prior to the announcement of the American Capital Acquisition, the transaction had an implied value of approximately $4.0 billion, or $17.40 per fully diluted share of American Capital common stock.  As of September 30, 2016, the transaction had an implied value of approximately $4.0 billion, or $17.55 per fully diluted share of American Capital common stock.

 

Upon the completion of the American Capital Acquisition, each share of American Capital common stock issued and outstanding immediately prior to the effective time of the American Capital Acquisition will be converted into the right to receive from us, in accordance with the Merger Agreement, (i) $6.41 per share in cash consideration, (ii) stock consideration at the fixed exchange ratio of 0.483 shares, par value $0.001 per share, of our common stock (subject to the payment of cash instead of fractional shares) (the “Exchange Ratio”) (iii) $1.20 per share in cash from Ares Capital Management, acting solely on its own behalf (see Transaction Support Agreement discussed below) and (iv) $2.45 per share in cash, which amount represents the per share cash consideration paid to American Capital pursuant to the sale by American Capital of American Capital Mortgage Management, LLC, a wholly owned subsidiary of American Capital Asset Management, LLC (“ACAM”), a wholly owned portfolio company of American Capital, to American Capital Agency Corp.

 

Additionally, depending on the effective time of the American Capital Acquisition, each share of American Capital common stock issued and outstanding immediately prior to the effective time of the American Capital Acquisition will be converted into the right to receive, if any, the make-up dividend amount.  The make-up dividend amount would equal (A) if the closing occurs after the record date with respect to the our dividend payable with respect to our fourth quarter of 2016, 37.5% of the Exchange Ratio times our dividend for such quarter, plus (B) if the closing occurs after the record date with respect to our dividend payable with respect to the first quarter of 2017, 75% of the Exchange Ratio times our dividend for such quarter, plus (C) if the closing occurs after the record date with respect to our dividend for any subsequent quarter, 100% of the Exchange Ratio times our dividend for such quarter.  The Exchange Ratio was fixed on the date of the Merger Agreement, and is not subject to adjustment based on changes in the trading price of our or American Capital’s common stock before the closing of the American Capital Acquisition. Based on the number of shares of American Capital common stock outstanding on the date of the Merger Agreement, the above would result in approximately 110.8 million of our shares being exchanged for approximately 229.3 million fully diluted shares of American Capital common stock, subject to adjustment in certain limited circumstances.

 

In connection with the American Capital Acquisition, ACAM will merge with and into IHAM, with IHAM remaining as the surviving entity as a wholly owned portfolio company of Ares Capital.

 

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The Merger Agreement contains (a) customary representations and warranties of American Capital and us, including representations and warranties relating to, among others: corporate organization, capitalization, corporate authority and absence of conflicts, third party and governmental consents and approvals, reports and regulatory matters, financial statements, compliance with law and legal proceedings, absence of certain changes, taxes, employee matters, intellectual property, insurance and certain contracts, (b) limited representations and warranties from IHAM and ACAM, including representations and warranties relating to, among others: corporate organization, capitalization, corporate authority and absence of conflicts, (c) limited representations and warranties from our investment adviser, including representations and warranties relating to, among others: corporate organization, capitalization, corporate authority, absence of conflicts and regulatory matters, (d) covenants of American Capital and us to conduct our respective businesses in the ordinary course until the American Capital Acquisition is completed and (e) covenants of American Capital and ours not to take certain actions during this interim period.

 

Among other things, American Capital and we have agreed to, and will cause our respective affiliates, consolidated subsidiaries, and each of their respective officers, directors, managers, employees and other advisors, representatives and agents to, immediately cease and cause to be terminated all discussions and negotiations with respect to a Competing Proposal (as defined in the Merger Agreement) from a third party and not to directly or indirectly solicit or take any other action (including providing information) with the intent to solicit any inquiry, discussion, proposal or offer with respect to a Competing Proposal.

 

However, if either American Capital or we receive a Competing Proposal from a third party, and the board of directors of American Capital or we, as applicable, determines in good faith after consultation with our outside legal counsel and independent financial advisers that (i) failure to consider such proposal would reasonably be expected to be inconsistent with the fiduciary duties of the directors under applicable law and (ii) the Competing Proposal constitutes or is reasonably expected to result in a Superior Proposal (as defined in the Merger Agreement), then the party receiving such proposal may engage in discussions and negotiations with such third party so long as certain notice and other procedural requirements are satisfied. American Capital or we may terminate the Merger Agreement and enter into an agreement with a third party who makes a Superior Proposal, subject to certain procedural requirements and the payment of a $140 million termination fee.

 

The representations and warranties of each party set forth in the Merger Agreement (a) have been qualified by confidential disclosures made to the other party in connection with the Merger Agreement, (b) will not survive completion of the American Capital Acquisition and cannot be the basis for any claims under the Merger Agreement by the other party after the American Capital Acquisition is completed, (c) are qualified in certain circumstances by a materiality standard which may differ from what may be viewed as material by investors, (d) were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement and (e) may have been included in the Merger Agreement for the purpose of allocating risk between American Capital and we rather than establishing matters as facts.

 

While there can be no assurances as to the exact timing, or that the American Capital Acquisition will be completed at all, we expect to complete the American Capital Acquisition as early as the first week of January 2017. The completion of the American Capital Acquisition is subject to certain conditions, including, among others, American Capital stockholder approval, our stockholder approval, required regulatory approvals (including from certain regulatory authorities), receipt of certain third party consents, including third party consents from certain investment funds managed by ACAM and its subsidiaries representing at least 75% of the aggregate assets under management of all such funds as of March 31, 2016, and other customary closing conditions.

 

The Merger Agreement also contains certain termination rights for us and American Capital and provides that, in connection with the termination of the Merger Agreement under specified circumstances (including as more specifically described above), American Capital or we may be required to pay the other party a termination fee of $140 million.

 

Additionally, on May 23, 2016, we entered into an agreement with our investment adviser (the “Transaction Support Agreement”) in connection with the American Capital Acquisition. Under the terms of the Transaction Support Agreement, our investment adviser will (i) provide approximately $275 million of cash consideration, or $1.20 per share of American Capital Common Stock, payable to American Capital stockholders in accordance with the terms and conditions set forth in the Merger Agreement at closing and (ii) waive, for each of the first ten calendar quarters beginning with the first full calendar quarter after the closing of the American Capital Acquisition, the lesser of (x) $10 million of income based fees and (y) the amount of income based fees for such quarter, in each case, to the extent earned and payable by us in such quarter pursuant to and as calculated under our investment advisory and management agreement. The financial support contemplated by the Transaction Support Agreement is conditioned upon completion of the American Capital Acquisition, which is subject to the closing conditions described above.

 

Also in connection with the American Capital Acquisition, our consolidated subsidiary, Ares Capital CP Funding LLC (“Ares Capital CP”) received commitments from certain lenders to provide $460.0 million in new commitments under Ares Capital CP’s revolving funding facility (as amended, the “Revolving Funding Facility”), which would bring the total commitments of the Revolving Funding Facility to $1.0 billion. The new commitments are conditioned upon completion of the American Capital Acquisition, which is subject to certain closing conditions described above, and also are subject to final documentation of the amendment to the Revolving Funding Facility.

 

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In May 2016, in connection with the American Capital Acquisition, we suspended our stock repurchase program pending the completion of the American Capital Acquisition.

 

PORTFOLIO AND INVESTMENT ACTIVITY

 

Our investment activity for the three months ended September 30, 2016 and 2015 is presented below (information presented herein is at amortized cost unless otherwise indicated).

 

 

 

For the Three Months Ended September 30,

 

(dollar amounts in millions)

 

2016

 

2015

 

New investment commitments(1):

 

 

 

 

 

New portfolio companies

 

$

1,029.5

 

$

1,312.6

 

Existing portfolio companies(2)

 

499.6

 

211.3

 

Total new investment commitments(3)

 

1,529.1

 

1,523.9

 

Less:

 

 

 

 

 

Investment commitments exited(4)

 

1,499.2

 

1,340.5

 

Net investment commitments

 

$

29.9

 

$

183.4

 

Principal amount of investments funded:

 

 

 

 

 

First lien senior secured loans

 

$

778.6

 

$

1,090.2

 

Second lien senior secured loans

 

346.2

 

322.2

 

Subordinated certificates of the SDLP(5)

 

195.3

 

 

Subordinated certificates of the SSLP(6)

 

 

10.7

 

Senior subordinated debt

 

20.0

 

51.3

 

Preferred equity securities

 

30.8

 

1.7

 

Other equity securities

 

13.9

 

10.4

 

Total

 

$

1,384.8

 

$

1,486.5

 

Principal amount of investments sold or repaid:

 

 

 

 

 

First lien senior secured loans

 

$

1,113.4

 

$

1,152.6

 

Second lien senior secured loans

 

279.0

 

40.2

 

Subordinated certificates of the SSLP

 

 

99.4

 

Senior subordinated debt

 

55.3

 

14.8

 

Preferred equity securities

 

1.1

 

 

Other equity securities

 

4.2

 

0.4

 

Total

 

$

1,453.0

 

$

1,307.4

 

Number of new investment commitments(7)

 

28

 

23

 

Average new investment commitment amount

 

$

54.6

 

$

66.3

 

Weighted average term for new investment commitments (in months)(8)

 

94

 

66

 

Percentage of new investment commitments at floating rates

 

90

%

96

%

Percentage of new investment commitments at fixed rates

 

7

%

3

%

Weighted average yield of debt and other income producing securities(9):

 

 

 

 

 

Funded during the period at amortized cost

 

9.8

%

7.8

%

Funded during the period at fair value(10)

 

9.7

%

7.8

%

Exited or repaid during the period at amortized cost

 

8.2

%

8.0

%

Exited or repaid during the period at fair value(10)

 

8.2

%

8.0

%

 

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(1)                                 New investment commitments include new agreements to fund revolving credit facilities or delayed draw loans. See “Off Balance Sheet Arrangements” as well as Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2016, for more information on our commitments to fund revolving credit facilities or delayed draw loans.

 

(2)                                 Includes investment commitments to an unconsolidated Delaware limited liability company, the Senior Direct Lending Program LLC (d/b/a the “Senior Direct Lending Program” or the “SDLP”) to make co-investments with Varagon Capital Partners (“Varagon”) and its clients in first lien senior secured loans of middle market companies of $226.8 million for the three months ended September 30, 2016. Also, includes investment commitments to an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a the “Senior Secured Loan Program” or the “SSLP”) to make co-investments with GE Global Sponsor Finance LLC and General Electric Capital Corporation (“GECC”) (together, “GE”) in first lien senior secured loans of middle market companies of $7.3 million for the three months ended September 30, 2015.

 

(3)                                 Includes both funded and unfunded commitments. Of these new investment commitments, we funded $1,314.1 million and $1,420.1 million for the three months ended September 30, 2016 and 2015, respectively.

 

(4)                                 Includes both funded and unfunded commitments. For the three months ended September 30, 2016 and 2015, investment commitments exited included exits of unfunded commitments of $84.5 million and $51.6 million, respectively.

 

(5)                                 See “Senior Direct Lending Program” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information on the SDLP.

 

(6)                                 See “Senior Secured Loan Program” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information on the SSLP.

 

(7)                                 Number of new investment commitments represents each commitment to a particular portfolio company or a commitment to multiple companies as part of an individual transaction (e.g., the purchase of a portfolio of investments).

 

(8)                                 Includes the subordinated certificates of the SDLP which mature in December 2036.

 

(9)                                 “Weighted average yield of debt and other income producing securities” is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value as applicable.

 

(10)                          Represents fair value for investments in the portfolio as of the most recent prior quarter end, if applicable.

 

As of September 30, 2016 and December 31, 2015, our investments consisted of the following:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

(in millions)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

First lien senior secured loans

 

$

2,249.3

 

$

2,197.9

 

$

2,735.2

 

$

2,638.8

 

Second lien senior secured loans

 

2,911.2

 

2,840.4

 

2,944.6

 

2,861.3

 

Subordinated certificates of the SDLP(1)

 

195.3

 

195.3

 

 

 

Subordinated certificates of the SSLP(2)

 

1,938.5

 

1,899.8

 

1,935.4

 

1,884.9

 

Senior subordinated debt

 

701.7

 

721.1

 

663.0

 

654.1

 

Preferred equity securities

 

492.6

 

342.7

 

435.1

 

375.8

 

Other equity securities

 

439.4

 

607.5

 

434.4

 

640.5

 

Commercial real estate

 

 

 

 

0.1

 

Total

 

$

8,928.0

 

$

8,804.7

 

$

9,147.7

 

$

9,055.5

 

 


(1)                                 The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans to 10 different borrowers as of September 30, 2016.

(2)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans to 25 and 41 different borrowers as of September 30, 2016 and December 31, 2015, respectively.

 

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The weighted average yields at amortized cost and fair value of the following portions of our portfolio as of September 30, 2016 and December 31, 2015 were as follows:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

Debt and other income producing securities(1)

 

9.7

%

9.8

%

10.1

%

10.3

%

Total portfolio(2)

 

8.7

%

8.8

%

9.1

%

9.2

%

First lien senior secured loans(2)

 

8.6

%

8.8

%

8.2

%

8.5

%

Second lien senior secured loans(2)

 

9.9

%

10.2

%

9.4

%

9.7

%

Subordinated certificates of the SDLP(2)(3)

 

13.5

%

13.5

%

%

%

Subordinated certificates of the SSLP(2)(4)

 

8.5

%

8.7

%

12.0

%

12.3

%

Senior subordinated debt(2)

 

12.7

%

12.3

%

11.6

%

11.7

%

Income producing equity securities(2)

 

13.8

%

13.8

%

11.0

%

11.7

%

 


(1)                                 “Weighted average yield of debt and other income producing securities” is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value as applicable.

(2)                                 “Weighted average yields” are computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on the relevant accruing debt and other income producing securities, divided by (b) the total relevant investments at amortized cost or at fair value as applicable.

(3)                                 The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans.

(4)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans.

 

Ares Capital Management, our investment adviser, employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 4 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. Investments graded 3 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 3. Investments graded 2 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. An investment grade of 1 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 1, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 1, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 1 or 2, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. The grade of a portfolio investment may be reduced or increased over time.

 

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Set forth below is the grade distribution of our portfolio companies as of September 30, 2016 and December 31, 2015:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

(dollar amounts in millions)

 

Fair Value

 

%

 

Number of
Companies

 

%

 

Fair Value

 

%

 

Number of
Companies

 

%

 

Grade 1

 

$

182.1

 

2.1

%

13

 

6

%

$

28.6

 

0.3

%

8

 

3.7

%

Grade 2

 

320.1

 

3.6

%

10

 

4.7

%

445.6

 

4.9

%

16

 

7.3

%

Grade 3

 

7,437.1

 

84.4

%

172

 

80.0

%

7,824.5

 

86.4

%

174

 

79.8

%

Grade 4

 

865.4

 

9.9

%

20

 

9.3

%

756.8

 

8.4

%

20

 

9.2

%

Total

 

$

8,804.7

 

100.0

%

215

 

100.0

%

$

9,055.5

 

100.0

%

218

 

100.0

%

 

As of September 30, 2016 and December 31, 2015, the weighted average grade of the investments in our portfolio at fair value was 3.0 and 3.0, respectively.

 

As of September 30, 2016, loans on non-accrual status represented 2.3% and 1.2% of the total investments at amortized cost and at fair value, respectively. As of December 31, 2015, loans on non-accrual status represented 2.6% and 1.7% of the total investments at amortized cost and at fair value, respectively.

 

Senior Direct Lending Program

 

We established a joint venture with Varagon to make certain first lien senior secured loans, including certain stretch senior and unitranche loans, to U.S. middle-market companies. Varagon was formed in 2013 as a lending platform by American International Group, Inc. (NYSE:AIG) and other partners. The joint venture is called the SDLP. In July 2016, the Company and Varagon and its clients completed the initial funding of the SDLP. In conjunction with the initial funding, we and Varagon and its clients sold investment commitments to the SDLP. Such investment commitments included $528.9 million of investment commitments sold to the SDLP by us. No realized gains or losses were recorded by us on these transactions. The SDLP may generally commit and hold individual loans of up to $300.0 million. The SDLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SDLP must be approved by an investment committee of the SDLP consisting of representatives of ours and Varagon (with approval from a representative of each required).

 

We provide capital to the SDLP in the form of subordinated certificates (the “SDLP Certificates”), and Varagon and its clients provide capital to the SDLP in the form of senior notes, intermediate funding notes and SDLP Certificates. As of September 30, 2016, we and a client of Varagon owned 87.5% and 12.5%, respectively, of the outstanding SDLP Certificates.

 

As of September 30, 2016, we and Varagon and its clients agreed to make capital available to the SDLP of $2.9 billion in the aggregate, of which $590.6 million has been made available from us. This capital will only be committed to the SDLP upon approval of transactions by the investment committee of the SDLP as discussed above.  Below is a summary of the funded capital and unfunded capital commitments of the SDLP.

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

Total capital funded to the SDLP(1)

 

$

930.2

 

Total capital funded to the SDLP by the Company(1)

 

$

195.3

 

Total unfunded capital commitments to the SDLP(2)

 

$

147.0

 

Total unfunded capital commitments to the SDLP by the Company(2)

 

$

31.5

 

 


(1)                                 At principal amount.

(2)                                 These commitments have been approved by the investment committee of the SDLP and will be funded as the transactions are completed.

 

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The SDLP Certificates pay a coupon of LIBOR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses, which may result in a return to the holders of the SDLP Certificates that is greater than the stated coupon. The SDLP Certificates are junior in right of payment to the senior notes and intermediate funding notes.

 

The amortized cost and fair value of our SDLP Certificates held by us were $195.3 million and $195.3 million, respectively, as of September 30, 2016. Our yield on our investment in the SDLP at amortized cost and fair value was 13.5% and 13.5%, respectively, as of September 30, 2016. For the three and nine months ended September 30, 2016, we earned interest income of $4.8 million from our investment in the SDLP Certificates for each period. We are also entitled to certain fees in connection with the SDLP. For the three and nine months ended September 30, 2016, in connection with the SDLP, we earned capital structuring service and other fees totaling $0.8 million for each period.

 

As of September 30, 2016, the portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and were in industries similar to the companies in our portfolio. As of September 30, 2016, none of the loans were on non-accrual status. Below is a summary of the SDLP’s portfolio as of September 30, 2016:

 

 

 

As of

 

(dollar amounts in millions)

 

September 30, 2016

 

Total first lien senior secured loans(1)

 

$

929.1

 

Weighted average yield on first lien senior secured loans(2)

 

7.3

%

Largest loan to a single borrower(1)

 

$

116.5

 

Total of five largest loans to borrowers(1)

 

$

549.1

 

Number of borrowers in the SDLP

 

10

 

Commitments to fund delayed draw loans (3)

 

$

147.0

 

 


(1)                                 At principal amount.

(2)                                 Computed as (a) the annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.

(3)                                 As discussed above, these commitments have been approved by the investment committee of the SDLP.

 

Senior Secured Loan Program

 

We and GE have co-invested in first lien senior secured loans of middle market companies through the SSLP. The SSLP has been capitalized as transactions are completed. All portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of ours and GE (with approval from a representative of each required). We have provided capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”). As of September 30, 2016 and December 31, 2015, we and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates.

 

In August 2015, GE completed the sale of its U.S. Sponsor Finance business, through which GE had participated with us in the SSLP, to Canada Pension Plan Investment Board (“CPPIB”). This sale excluded GE’s interest in the SSLP, and we and GE continue to operate the SSLP. We and GE no longer have an obligation to present senior secured lending investment opportunities to the SSLP and since June 30, 2015, the SSLP has not made any investments related to new portfolio companies; however, we and GE may provide capital to support the SSLP’s funding of existing commitments (see below) and other amounts to its portfolio companies. On August 24, 2015, we were advised that GECC, as the holder of the senior notes of the SSLP (the “Senior Notes”), directed State Street Bank and Trust Company, as trustee of the Senior Notes and the SSLP Certificates, pursuant to the terms of the indenture governing the Senior Notes and the SSLP Certificates, to apply all principal proceeds received by the SSLP from its investments to the repayment of the outstanding principal amount of the Senior Notes until paid in full (prior to the distribution of any such principal proceeds to the holders of the SSLP Certificates, which includes us). GECC had previously elected to waive its right to receive priority repayments on the Senior Notes from principal proceeds in most circumstances. Prior to closing the sale to CPPIB, GE had announced its intention to provide us and CPPIB the opportunity to work together on the SSLP on a go-forward basis. GECC has also stated that if a mutual agreement between us and CPPIB to partner on the SSLP is not reached, it intends to retain its interest in the SSLP and the SSLP would be wound down in an orderly manner. We have been in dialogue with GE and CPPIB to determine if there is an opportunity to work together; however, to date there has been no agreement in respect of the SSLP as a result of these discussions and there can be no assurance that such discussions will continue or any such agreement will be reached.

 

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As discussed above, we anticipate that no new investments will be made by the SSLP and that we and GE will only provide additional capital to support the SSLP’s funding of existing commitments and possibly other amounts to its portfolio companies. Below is a summary of the funded capital and unfunded capital commitments of the SSLP.

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

December 31, 2015

 

Total capital funded to the SSLP(1)

 

$

5,682.9

 

$

8,535.1

 

Total capital funded to the SSLP by the Company(1)

 

$

2,004.0

 

$

2,000.9

 

Total unfunded capital commitments to the SSLP(2)

 

$

50.0

 

$

198.6

 

Total unfunded capital commitments to the SSLP by the Company(2)

 

$

7.3

 

$

32.6

 

 


(1)                                 At principal amount.

(2)                                 These commitments have been approved by the investment committee of the SSLP and will be funded as the transactions are completed.

 

The SSLP Certificates have a weighted average contractual coupon of LIBOR plus approximately 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses. However, the SSLP Certificates are junior in right of payment to the Senior Notes held by GE, and we expect that for so long as principal proceeds from SSLP repayments are directed entirely to repay the Senior Notes as discussed above, the yield on the SSLP Certificates will be lower than the stated coupon and continue to decline.

 

The amortized cost and fair value of our SSLP Certificates were $1.9 billion and $1.9 billion, respectively, as of September 30, 2016, and $2.0 billion and $2.0 billion, respectively, as of December 31, 2015. Our yield on our investment in the SSLP at amortized cost and fair value was 8.5% and 8.7%, respectively, as of September 30, 2016, and 12.0% and 12.3%, respectively, as of December 31, 2015. For the three and nine months ended September 30, 2016, we earned interest income of $49.5 million and $165.9 million, respectively, from our investment in the SSLP Certificates. For the three and nine months ended September 30, 2015, we earned interest income of $71.4 million and $209.6 million, respectively, from our investment in the SSLP Certificates.

 

We are also entitled to certain fees in connection with the SSLP. For the three and nine months ended September 30, 2016, in connection with the SSLP, we earned capital structuring service, sourcing and other fees totaling $4.6 million and $16.0 million, respectively. For the three and nine months ended September 30, 2015, in connection with the SSLP, we earned capital structuring service, sourcing and other fees totaling $8.6 million and $41.8 million, respectively.

 

As of September 30, 2016 and December 31, 2015, the SSLP’s portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and were in industries similar to the companies in our portfolio. As of September 30, 2016 and December 31, 2015, none of these loans were on non-accrual status. Below is a summary of the SSLP’s portfolio.

 

 

 

As of

 

(dollar amounts in millions)

 

September 30, 2016

 

December 31, 2015

 

Total first lien senior secured loans(1)

 

$

4,731.8

 

$

8,138.5

 

Weighted average yield on first lien senior secured loans(2)

 

6.9

%

6.7

%

Largest loan to a single borrower(1)

 

$

294.0

 

$

345.9

 

Total of five largest loans to borrowers(1)

 

$

1,361.3

 

$

1,579.9

 

Number of borrowers in the SSLP

 

25

 

41

 

Commitments to fund delay draw loans(3)

 

$

50.0

 

$

198.6

 

 


(1)                                 At principal amount.

(2)                                 Computed as (a) the annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.

(3)                                 As discussed above, these commitments have been approved by the investment committee of the SSLP.

 

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Table of Contents

 

SSLP Loan Portfolio as of September 30, 2016

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

AMZ Holding Corp.

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

$

221.2

 

Athletico Management, LLC and Accelerated Holdings, LLC

 

Provider of outpatient rehabilitation services

 

12/2020

 

6.3

%

294.0

 

Breg, Inc.

 

Designer, manufacturer, and distributor of non-surgical orthopedic products for preventative, post-operative and rehabilitative use

 

10/2020

 

6.5

%

147.7

 

Brewer Holdings Corp. and Zywave, Inc.

 

Provider of software and technology-enabled content and analytical solutions to insurance brokers

 

3/2021

 

8.0

%

249.5

 

Connoisseur Media, LLC

 

Owner and operator of radio stations

 

6/2019

 

7.3

%

95.7

 

DFS Holding Company, Inc.

 

Distributor of maintenance, repair, and operations parts, supplies, and equipment to the foodservice industry

 

2/2022

 

6.5

%

191.1

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

8.3

%

132.2

 

ECI Purchaser Company, LLC

 

Manufacturer of equipment to safely control pressurized gases

 

12/2018

 

6.2

%

207.2

 

Excelligence Learning Corporation

 

Developer, manufacturer and retailer of educational products

 

12/2020

 

6.8

%

174.6

 

Gehl Foods, LLC(4)

 

Producer of low-acid, aseptic food and beverage products

 

3/2021

 

7.5

%

155.7

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

4/2021

 

7.0

%

260.7

 

Intermedix Corporation(3)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2019

 

5.8

%

255.9

 

Mavis Tire Supply LLC

 

Auto parts retailer

 

10/2020

 

6.3

%

240.5

 

MCH Holdings, Inc.(4)

 

Healthcare professional provider

 

1/2020

 

6.5

%

168.5

 

Oak Parent, Inc.(2)

 

Manufacturer of athletic apparel

 

4/2018

 

7.8

%

267.6

 

Palermo Finance Corporation

 

Provider of mission-critical integrated public safety software and services to local, state, and federal agencies

 

11/2020

 

7.0

%

185.0

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

10/2019

 

7.0

%

60.7

 

Pretium Packaging, L.L.C(4)

 

Manufacturer and supplier of high performance plastic containers

 

6/2020

 

6.3

%

215.5

 

Restaurant Technologies, Inc.

 

Provider of bulk cooking oil management services to the restaurant and fast food service industries

 

10/2021

 

6.8

%

227.1

 

Sanders Industries Holdings, Inc.(4)

 

Elastomeric parts, mid-sized composite structures, and composite tooling

 

5/2020

 

6.5

%

75.9

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.8

%

183.4

 

STATS Acquisition, LLC

 

Sports technology, data and content company

 

6/2020

 

9.0

%

102.4

 

U.S. Anesthesia Partners, Inc.(3)

 

Anesthesiology service provider

 

12/2019

 

6.0

%

259.5

 

WCI-Quantum Holdings, Inc.(4)

 

Distributor of instructional products, services and resources

 

10/2020

 

5.9

%

80.7

 

Woodstream Group, Inc.

 

Pet products manufacturer

 

5/2022

 

7.3

%

279.5

 

 

 

 

 

 

 

 

 

$

4,731.8

 

 


(1)                                 Represents the weighted average annual stated interest rate as of September 30, 2016. All interest rates are payable in cash except for 0.5% and 2.0% of the interest rates for Singer Sewing Company and STATS Acquisition, LLC, respectively, which are payment-in-kind interest.

 

(2)                                 We also hold a portion of this company’s first lien senior secured loan.

 

(3)                                 We also hold a portion of this company’s second lien senior secured loan.

 

(4)                                 We hold an equity investment in this company.

 

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Table of Contents

 

SSLP Loan Portfolio as of December 31, 2015

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Fair
Value(2)

 

ADG, LLC

 

Dental services provider

 

9/2019

 

8.1

%

$

204.5

 

$

204.5

 

AMZ Holding Corp.

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

225.3

 

220.8

 

Athletico Management, LLC and Accelerated Holdings, LLC

 

Provider of outpatient rehabilitation services

 

12/2020

 

6.3

%

307.0

 

307.0

 

Breg, Inc.

 

Designer, manufacturer, and distributor of non-surgical orthopedic products for preventative, post-operative and rehabilitative use

 

10/2020

 

6.3

%

148.9

 

142.9

 

Brewer Holdings Corp. and Zywave, Inc.

 

Provider of software and technology-enabled content and analytical solutions to insurance brokers

 

3/2021

 

8.0

%

257.3

 

257.3

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

79.5

 

79.5

 

CH Hold Corp.

 

Collision repair company

 

11/2019

 

5.5

%

345.9

 

342.4

 

CIBT Holdings, Inc.(3)(5)

 

Expedited travel document processing services

 

12/2018

 

6.8

%

209.0

 

209.0

 

Connoisseur Media, LLC

 

Owner and operator of radio stations

 

6/2019

 

7.3

%

117.9

 

114.4

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

6/2016

 

7.0

%

121.3

 

121.3

 

DFS Holding Company, Inc.

 

Distributor of maintenance, repair, and operations parts, supplies, and equipment to the foodservice industry

 

2/2022

 

6.5

%

192.5

 

190.6

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

8.0

%

133.2

 

131.9

 

DTI Holdco, Inc.(3)(5)

 

Provider of legal process outsourcing and managed services

 

8/2020

 

5.8

%

297.2

 

288.3

 

ECI Purchaser Company, LLC

 

Manufacturer of equipment to safely control pressurized gases

 

12/2019

 

6.0

%

227.4

 

220.6

 

Excelligence Learning Corporation

 

Developer, manufacturer and retailer of educational products

 

12/2020

 

6.8

%

179.1

 

177.3

 

Gehl Foods, LLC(5)

 

Producer of low-acid, aseptic food and beverage products

 

3/2021

 

7.5

%

159.2

 

157.6

 

Gentle Communications, LLC

 

Dental services provider

 

6/2020

 

6.5

%

83.9

 

82.3

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

6/2018

 

6.0

%

204.0

 

204.0

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

4/2021

 

7.0

%

262.7

 

257.4

 

Intermedix Corporation(4)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2019

 

5.8

%

261.0

 

258.4

 

ISS Compressors Industries, Inc.

 

Provider of repairs, refurbishments and services to the broader industrial end user markets

 

6/2018

 

6.5

%

172.8

 

172.8

 

Laborie Medical Technologies Corp(5)

 

Developer and manufacturer of medical equipment

 

9/2019

 

7.3

%

198.9

 

196.9

 

Mavis Tire Supply LLC

 

Auto parts retailer

 

10/2020

 

6.3

%

242.4

 

242.4

 

MCH Holdings, Inc.(5)

 

Healthcare professional provider

 

1/2020

 

6.3

%

173.8

 

173.8

 

MWI Holdings, Inc.(3)

 

Engineered springs, fasteners, and other precision components

 

3/2019

 

7.4

%

254.9

 

254.9

 

Oak Parent, Inc.(3)

 

Manufacturer of athletic apparel

 

4/2018

 

7.6

%

285.0

 

285.0

 

Palermo Finance Corporation

 

Provider of mission-critical integrated public safety software and services to local, state, and federal agencies

 

11/2020

 

7.0

%

188.1

 

188.1

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

10/2019

 

7.3

%

70.9

 

70.9

 

Pretium Packaging, L.L.C(5)

 

Manufacturer and supplier of high performance plastic containers

 

6/2020

 

6.3

%

217.1

 

212.7

 

Restaurant Technologies, Inc.

 

Provider of bulk cooking oil management services to the restaurant and fast food service industries

 

10/2021

 

6.8

%

228.9

 

226.6

 

Sanders Industries Holdings, Inc.(5)

 

Elastomeric parts, mid-sized composite structures, and composite tooling

 

5/2020

 

7.0

%

77.5

 

77.5

 

 

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Table of Contents

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Fair
Value(2)

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

190.0

 

184.3

 

Square Brands International, LLC

 

Franchisor and operator of specialty battery and light bulb retail stores

 

6/2021

 

6.7

%

199.5

 

197.5

 

STATS Acquisition, LLC

 

Sports technology, data and content company

 

6/2020

 

7.0

%

102.7

 

97.6

 

Strategic Partners, Inc.(5)

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

8/2018

 

7.3

%

286.4

 

286.4

 

TA THI Buyer, Inc. and TA THI Parent, Inc.(5)

 

Collision repair company

 

7/2020

 

6.5

%

343.4

 

343.4

 

The Linen Group

 

Provider of outsourced commercial linen and laundry services

 

8/2019

 

8.0

%

96.2

 

95.2

 

Towne Holdings, Inc.

 

Provider of contracted hospitality services and parking systems

 

12/2019

 

6.8

%

166.1

 

166.1

 

U.S. Anesthesia Partners, Inc.(4)

 

Anesthesiology service provider

 

12/2019

 

6.0

%

261.4

 

261.4

 

WCI-Quantum Holdings, Inc.(5)

 

Distributor of instructional products, services and resources

 

10/2020

 

5.8

%

84.1

 

83.3

 

Woodstream Group, Inc.

 

Pet products manufacturer

 

5/2022

 

7.3

%

281.6

 

276.0

 

 

 

 

 

 

 

 

 

$

8,138.5

 

$

8,060.3

 

 


(1)                                 Represents the weighted average annual stated interest rate as of December 31, 2015. All interest rates are payable in cash.

 

(2)                                 Represents the fair value in accordance with Accounting Standards Codification (“ASC”) 820-10. The determination of such fair value is not included in our board of directors valuation process described elsewhere herein.

 

(3)                                 We also hold a portion of this company’s first lien senior secured loan.

 

(4)                                 We also hold a portion of this company’s second lien senior secured loan.

 

(5)                                 We hold an equity investment in this company.

 

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Table of Contents

 

Selected financial information for the SSLP as of September 30, 2016 and December 31, 2015 and for the nine months ended September 30, 2016 and 2015, was as follows:

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

December 31, 2015

 

Selected Balance Sheet Information:

 

 

 

 

 

Investments in loans receivable, net

 

$

4,705.6

 

$

8,090.0

 

Cash and other assets

 

946.6

 

437.4

 

Total assets

 

$

5,652.2

 

$

8,527.4

 

 

 

 

 

 

 

Senior notes

 

$

3,392.7

 

$

6,248.4

 

Other liabilities

 

50.3

 

72.8

 

Total liabilities

 

3,443.0

 

6,321.2

 

Subordinated certificates and members’ capital

 

2,209.2

 

2,206.2

 

Total liabilities and members’ capital

 

$

5,652.2

 

$

8,527.4

 

 

 

 

For the Nine Months Ended September 30,

 

(in millions)

 

2016

 

2015

 

Selected Statement of Operations Information:

 

 

 

 

 

Total interest and other income

 

$

383.3

 

$

514.0

 

Interest expense

 

125.3

 

172.5

 

Management and sourcing fees

 

40.2

 

54.8

 

Other expenses

 

17.6

 

42.1

 

Total expenses

 

183.1

 

269.4

 

Net income

 

$

200.2

 

$

244.6

 

 

RESULTS OF OPERATIONS

 

For the three and nine months ended September 30, 2016 and 2015

 

Operating results for the three and nine months ended September 30, 2016 and 2015 were as follows:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

(in millions)

 

2016

 

2015

 

2016

 

2015

 

Total investment income

 

$

258.6

 

$

261.0

 

$

752.0

 

$

763.7

 

Total expenses

 

117.4

 

129.6

 

383.5

 

396.0

 

Net investment income before income taxes

 

141.2

 

131.4

 

368.5

 

367.7

 

Income tax expense, including excise tax

 

3.6

 

0.9

 

12.8

 

7.0

 

Net investment income

 

137.6

 

130.5

 

355.7

 

360.7

 

Net realized gains on investments and foreign currency transactions

 

20.6

 

47.7

 

78.5

 

103.7

 

Net unrealized losses on investments, foreign currency and other transactions

 

(48.0

)

(61.4

)

(35.0

)

(96.6

)

Realized losses on extinguishment of debt

 

 

 

 

(3.8

)

Net increase in stockholders’ equity resulting from operations

 

$

110.2

 

$

116.8

 

$

399.2

 

$

364.0

 

 

Net income can vary substantially from period to period due to various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, comparisons of net increase in stockholders’ equity resulting from operations may not be meaningful.

 

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Table of Contents

 

Investment Income

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

(in millions)

 

2016

 

2015

 

2016

 

2015

 

Interest income from investments

 

$

199.8

 

$

207.9

 

$

611.0

 

$

607.9

 

Capital structuring service fees

 

35.0

 

29.8

 

62.9

 

73.0

 

Dividend income

 

16.2

 

14.1

 

53.5

 

53.5

 

Management and other fees

 

3.9

 

6.2

 

13.5

 

18.4

 

Other income

 

3.7

 

3.0

 

11.1

 

10.9

 

Total investment income

 

$

258.6

 

$

261.0

 

$

752.0

 

$

763.7

 

 

The decrease in interest income from investments for the three months ended September 30, 2016 from the comparable period in 2015 was primarily due to a decrease in the weighted average yield of our portfolio, partially offset by an increase in the size of our portfolio. The weighted average yield of our portfolio decreased from 9.7% for the three months ended September 30, 2015 to 8.8% for the comparable period in 2016, primarily driven by the decrease in the yield of the SSLP Certificates. The size of our portfolio increased from an average of $8.5 billion at amortized cost for the three months ended September 30, 2015 to an average of $9.0 billion at amortized cost for the comparable period in 2016. The increase in capital structuring service fees for the three months ended September 30, 2016 from the comparable period in 2015 was due to the increase in the weighted average capital structuring fees received on new investment commitments. Dividend income for the three months ended September 30, 2016 and 2015 included dividends received from IHAM totaling $10.0 million for each period. Also during the three months ended September 30, 2016, we received $3.7 million in other non-recurring dividends from non-income producing equity securities compared to $1.0 million for the comparable period in 2015. The decrease in management and other fees for the three months ended September 30, 2016 from the comparable period in 2015 was due to lower sourcing fees from the SSLP resulting from a decrease in the size of the SSLP portfolio.

 

The increase in interest income from investments for the nine months ended September 30, 2016 from the comparable period in 2015 was primarily due to an increase in the size of our portfolio, partially offset by a decrease in the weighted average yield of our portfolio. The size of our portfolio increased from an average of $8.5 billion at amortized cost for the nine months ended September 30, 2015 to an average of $9.1 billion at amortized cost for the comparable period in 2016. The weighted average yield of our portfolio decreased from 9.5% for the nine months ended September 30, 2015 to 9.0% for the comparable period in 2016, primarily driven by the decrease in the yield of the SSLP Certificates. The decrease in capital structuring service fees for the nine months ended September 30, 2016 from the comparable period in 2015 was due to the decrease in new investment commitments, which decreased from $2.8 billion for the nine months ended September 30, 2015 to $2.5 billion for the comparable period in 2016, partially offset by the increase in the weighted average capital structuring service fees received on new investment commitments, which increased from 2.6% for the nine months ended September 30, 2015 to 3.1% for the comparable period in 2016. Dividend income for the nine months ended September 30, 2016 and 2015 included dividends received from IHAM totaling $30.0 million and $40.0 million, respectively. The dividends received from IHAM for the nine months ended September 30, 2015 included additional dividends of $10.0 million that were paid in addition to the quarterly dividends generally paid by IHAM. IHAM paid the additional dividends out of accumulated earnings that had previously been retained by IHAM. Also during the nine months ended September 30, 2016, we received $9.8 million in other non-recurring dividends from non-income producing equity securities compared to $4.3 million for the comparable period in 2015. The decrease in management and other fees for the nine months ended September 30, 2016 from the comparable period in 2015 was due to lower sourcing fees from the SSLP resulting from a decrease in the size of the SSLP portfolio.

 

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Operating Expenses

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

(in millions)

 

2016

 

2015

 

2016

 

2015

 

Interest and credit facility fees

 

$

43.3

 

$

56.6

 

$

138.9

 

$

171.6

 

Base management fees

 

33.9

 

33.3

 

103.1

 

100.2

 

Income based fees

 

33.1

 

31.8

 

91.1

 

90.2

 

Capital gains incentive fees

 

(5.5

)

(2.6

)

8.7

 

0.8

 

Administrative fees

 

3.4

 

3.6

 

10.2

 

10.5

 

Professional fees and other costs related to the American Capital Acquisition

 

2.7

 

 

10.7

 

 

Other general and administrative

 

6.5

 

6.9

 

20.8

 

22.7

 

Total operating expenses

 

$

117.4

 

$

129.6

 

$

383.5

 

$

396.0

 

 

Interest and credit facility fees for the three and nine months ended September 30, 2016 and 2015, were comprised of the following:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

(in millions)

 

2016

 

2015

 

2016

 

2015

 

Stated interest expense

 

$

37.6

 

$

46.1

 

$

119.1

 

$

138.5

 

Facility fees

 

1.3

 

2.4

 

3.8

 

8.2

 

Amortization of debt issuance costs

 

3.4

 

4.0

 

10.8

 

12.7

 

Net accretion of discount on notes payable

 

1.0

 

4.1

 

5.2

 

12.2

 

Total interest and credit facility fees

 

$

43.3

 

$

56.6

 

$

138.9

 

$

171.6

 

 

Stated interest expense for the three months ended September 30, 2016 decreased from the comparable period in 2015 primarily due to the decrease in our weighted average stated interest rate of our debt outstanding. The weighted average stated interest rate on our outstanding debt was 4.1% for the three months ended September 30, 2016 as compared to 5.0% for the comparable period in 2015 primarily as a result of the repayment at maturity of our $575.0 million aggregate principal amount of 5.75% unsecured convertible notes (the “February 2016 Convertible Notes”) and the $230.0 million aggregate principal amount of 5.125% unsecured convertible notes (the “June 2016 Convertible Notes”), as well as the early repayment of the $200.0 million aggregate principal amount of 7.75% unsecured notes (the “2040 Notes”) and increased utilization of our lower cost revolving facilities, including utilization to repay these term notes. For the three months ended September 30, 2016, our average principal debt outstanding remained steady at $3.7 billion as compared to the comparable period in 2015. Facility fees for the three months ended September 30, 2016 decreased from the comparable period in 2015 primarily due to the increased utilization of our revolving facilities resulting in lower unused commitment fees. Net accretion of discount on notes payable for the three months ended September 30, 2016 decreased from the comparable period in 2015 primarily due to the maturity of the February 2016 Convertible Notes and the June 2016 Convertible Notes as well as the repayment of the 2040 Notes.

 

Stated interest expense for the nine months ended September 30, 2016 decreased from the comparable period in 2015 primarily due to the decrease in our weighted average stated interest rate of our debt outstanding, partially offset by an increase in the average principal amount of debt outstanding. The weighted average stated interest rate on our outstanding debt was 4.1% for the nine months ended September 30, 2016 as compared to 5.1% for the comparable period in 2015 primarily as a result of the repayment upon maturity of the higher cost February 2016 Convertible Notes and June 2016 Convertible Notes as well as the repayment of the 2040 Notes and increased utilization of our lower cost revolving facilities, as discussed above. For the nine months ended September 30, 2016, our average principal debt outstanding increased to $3.9 billion as compared to $3.6 billion for the comparable period in 2015.  Facility fees for the nine months ended September 30, 2016 decreased from the comparable period in 2015 primarily due to the increased utilization of our revolving facilities resulting in lower unused commitment fees. Amortization of debt issuance costs and net accretion of discount on notes payable for the nine months ended September 30, 2016 decreased from the comparable period in 2015 primarily due to the maturity of the February 2016 Convertible Notes and the June 2016 Convertible Notes as well as the repayment of the 2040 Notes.

 

The increase in base management fees for the three and nine months ended September 30, 2016 from the comparable period in 2015 was primarily due to the increase in the size of the portfolio. The increase in income based fees for the three and nine months ended September 30, 2016 from the comparable period in 2015 was primarily due to the increase in net investment income excluding income based fees and capital gains incentive fees.

 

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For the three months ended September 30, 2016, the reduction in capital gains incentive fees calculated in accordance with GAAP was $5.5 million. For the nine months ended September 30, 2016, the capital gains incentive fees expense calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) was $8.7 million. For the three months ended September 30, 2015, the reduction in capital gains incentive fees calculated in accordance with GAAP was $2.6 million. For the nine months ended September 30, 2015, the capital gains incentive fees calculated in accordance with GAAP was $0.8 million. The reduction in capital gains incentive fee expense accrual for the three months ended September 30, 2016 increased from the comparable period in 2015 primarily due to net losses on investments, foreign currency and other transactions during the three months ended September 30, 2016 of $27.5 million compared to net losses of $13.6 million during the three months ended September 30, 2015. Capital gains incentive fee expense accrual for the nine months ended September 30, 2016 increased from the comparable period in 2015 primarily due to net gains on investments, foreign currency and other transactions and the extinguishment of debt during the nine months ended September 30, 2016 of $43.5 million compared to net gains of $3.3 million during the nine months ended September 30, 2015. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, whereas the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of September 30, 2016, the total capital gains incentive fee accrual calculated in accordance with GAAP was $51.0 million. As of September 30, 2016, there was no capital gains incentive fee actually payable under our investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2016, for more information on the base management fees, income based fees and capital gains incentive fees.

 

Administrative fees represent fees paid to Ares Operations for our allocable portion of overhead and other expenses incurred by Ares Operations in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staffs. Other general and administrative expenses include professional fees, rent, insurance, depreciation and director’s fees, among other costs.

 

For the three and nine months ended September 30, 2016, the Company incurred $2.6 million and $10.7 million, respectively, in professional fees and other costs related to the American Capital Acquisition that were not incurred in the comparable periods in 2015.

 

Income Tax Expense, Including Excise Tax

 

We have elected to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must generally (among other requirements) timely distribute to our stockholders at least 90% of our investment company taxable income, as defined by the Code, for each year. In order to maintain our RIC status, we have made and intend to continue to make the requisite distributions to our stockholders which will generally relieve us from U.S. federal corporate-level income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. If we determine that our estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, we accrue excise tax on estimated excess taxable income as such taxable income is earned. For the three months ended September 30, 2016, we recorded a net expense of $2.5 million for U.S. federal excise tax. For the nine months ended September 30, 2016, we recorded a net expense of $8.5 million for U.S. federal excise tax, which includes a reduction in expense in the third quarter related to the recording of a requested refund resulting from the overpayment of 2015 excise tax of $1.3 million. For the three months ended September 30, 2015, we recorded a net expense of $1.5 million for U.S. federal excise tax. For the nine months ended September 30, 2015, we recorded a net expense of $5.5 million for U.S. federal excise tax, which includes a reduction in expense in the third quarter related to the recording of a requested refund resulting from the overpayment of 2014 excise tax of $1.5 million.

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes. For the three and nine months ended September 30, 2016, we recorded a tax expense of approximately $1.1 million and $4.3 million, respectively, for these subsidiaries. For the three and nine months ended September 30, 2015, we recorded a tax (benefit) expense of approximately $(0.6) million and $1.5 million, respectively, for these subsidiaries.

 

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Net Realized Gains/Losses

 

During the three months ended September 30, 2016, we had $1,465.1 million of sales, repayments or exits of investments resulting in $20.9 million of net realized gains on investments. These sales, repayments or exits included $197.2 million of investments sold to IHAM and certain vehicles managed by IHAM and $473.7 million of investments sold to the SDLP in conjunction with the initial funding of the SDLP. A net realized gain of $0.3 million was recorded on these transactions with IHAM and there was no realized gains or losses recorded on these transactions with the SDLP. See Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more detail on IHAM and its managed vehicles. During the three months ended September 30, 2016, net realized gains on investments of $20.9 million were comprised of $29.9 million of gross realized gains and $9.0 million of gross realized losses.

 

The net realized gains on investments during the three months ended September 30, 2016 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized
Gains (Losses)

 

UL Holding Co., LLC

 

$

12.2

 

Primexx Energy Corporation

 

4.2

 

The Greeley Company, Inc. and HCP Acquisition Holdings, LLC

 

2.6

 

Crescent Hotels & Resorts, LLC and affiliates

 

2.5

 

LM Acquisition Holdings, LLC

 

2.4

 

Q9 Holdings Inc.

 

(9.0

)

Other, net

 

6.0

 

Total

 

$

20.9

 

 

During the three months ended September 30, 2016, we also recognized net realized losses on foreign currency transactions of $0.3 million.

 

During the three months ended September 30, 2015, we had $1,343.4 million of sales, repayments or exits of investments resulting in $45.3 million of net realized gains on investments. These sales, repayments or exits included $143.4 million of investments sold to IHAM and certain vehicles managed by IHAM. A net realized gain of $0.2 million was recorded on these transactions. During the three months ended September 30, 2015, net realized gains on investments of $45.3 million were comprised of $45.4 million of gross realized gains and $0.1 million of gross realized losses.

 

The net realized gains on investments during the three months ended September 30, 2015 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized
Gains (Losses)

 

Cast & Crew Payroll, LLC

 

$

25.9

 

Global Healthcare Exchange, LLC

 

8.3

 

Hojeij Branded Foods, Inc.

 

8.0

 

Other, net

 

3.1

 

Total

 

$

45.3

 

 

During the three months ended September 30, 2015, we also recognized net realized loss on foreign currency transactions of $2.5 million.

 

During the nine months ended September 30, 2016, we had $2,721.3 million of sales, repayments or exits of investments resulting in $79.6 million of net realized gains on investments. These sales, repayments or exits included $299.0 million of investments sold to IHAM and certain vehicles managed by IHAM and $473.7 million of investments sold to the SDLP in conjunction with the initial funding of the SDLP. A net realized gain of $0.7 million was recorded on these transactions with IHAM and there was no realized gains or losses recorded on these transactions with the SDLP. During the nine months ended September 30, 2016, net realized gains on investments of $79.6 million were comprised of $89.7 million of gross realized gains and $10.1 million of gross realized losses.

 

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The net realized gains on investments during the nine months ended September 30, 2016 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized
Gains (Losses)

 

Napa Management Services Corporation

 

$

15.7

 

UL Holding Co., LLC

 

12.2

 

Physiotherapy Associates Holdings, Inc.

 

8.1

 

Netsmart Technologies, Inc.

 

7.7

 

AllBridge Financial, LLC

 

6.3

 

Lakeland Tours, LLC

 

5.0

 

WorldPay Group PLC

 

4.2

 

Primexx Energy Corporation

 

4.2

 

MedAssets, Inc.

 

3.0

 

The Greeley Company, Inc. and HCP Acquisition Holdings, LLC

 

2.6

 

Crescent Hotels & Resorts, LLC and affiliates

 

2.5

 

LM Acquisition Holdings, LLC

 

2.4

 

Q9 Holdings Inc.

 

(9.0

)

Other, net

 

14.7

 

Total, net

 

$

79.6

 

 

During the nine months ended September 30, 2016, we also recognized net realized losses on foreign currency transactions of $1.1 million.

 

During the nine months ended September 30, 2015, we had $3.2 billion of sales, repayments or exits of investments resulting in $97.4 million of net realized gains on investments. These sales, repayments or exits included $414.2 million of investments sold to IHAM and certain vehicles managed by IHAM. A net realized gain of $0.4 million was recorded on these transactions. During the nine months ended September 30, 2015, net realized gains on investments of $97.4 million were comprised of $100.8 million of gross realized gains and $3.4 million of gross realized losses.

 

The net realized gains on investments during the nine months ended September 30, 2015 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized
Gains (Losses)

 

Cast & Crew Payroll, LLC

 

$

25.9

 

Tripwire, Inc.

 

13.8

 

TAP Holdings, LLC

 

11.2

 

Global Healthcare Exchange, LLC

 

8.3

 

Protective Industries, Inc. dba Caplugs

 

8.2

 

Hojeij Branded Foods, Inc.

 

8.0

 

Driven Brands, Inc.

 

5.5

 

Implus Footcare, LLC

 

3.7

 

Woodstream Corporation

 

3.2

 

Panda Temple Power, LLC

 

2.4

 

Other, net

 

7.2

 

Total

 

$

97.4

 

 

During the nine months ended September 30, 2015, we also recognized net realized gains on foreign currency transactions of $6.3 million. In addition, during the nine months ended September 30, 2015, we redeemed the entire outstanding $143.8 million principal amount of the unsecured notes that were scheduled to mature on February 15, 2022. The total redemption price (including accrued and unpaid interest) was $144.6 million, which resulted in a realized loss on the extinguishment of debt of $3.8 million.

 

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Net Unrealized Gains/Losses

 

We value our portfolio investments quarterly and the changes in value are recorded as unrealized gains or losses in our consolidated statement of operations. Net unrealized gains and losses for our portfolio for the three and nine months ended September 30, 2016 and 2015, were comprised of the following:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

(in millions)

 

2016

 

2015

 

2016

 

2015

 

Unrealized appreciation

 

$

60.2

 

$

39.5

 

$

165.1

 

$

80.8

 

Unrealized depreciation

 

(105.7

)

(61.4

)

(181.7

)

(124.0

)

Net unrealized (appreciation) depreciation reversed related to net realized gains or losses(1)

 

1.5

 

(39.2

)

(14.4

)

(51.8

)

Total net unrealized losses

 

$

(44.0

)

$

(61.1

)

$

(31.0

)

$

(95.0

)

 


(1)                                 The net unrealized (appreciation) depreciation reversed related to net realized gains or losses represents the unrealized appreciation or depreciation recorded on the related asset at the end of the prior period.

 

The changes in net unrealized appreciation and depreciation during the three months ended September 30, 2016 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Depreciation)

 

The Step2 Company, LLC

 

$

23.7

 

Competitor Group, Inc.

 

5.0

 

Ciena Capital LLC

 

2.2

 

Ivy Hill Asset Management, L.P.

 

2.2

 

UL Holding Co., LLC

 

2.1

 

Absolute Dental Management LLC

 

(2.1

)

Garden Fresh Restaurant Corp.

 

(2.1

)

Indra Holdings Corp.

 

(2.4

)

Community Education Centers, Inc.

 

(2.5

)

FastMed Holdings I, LLC

 

(2.8

)

CCS Intermediate Holdings, LLC

 

(6.9

)

10th Street, LLC and New 10th Street, LLC

 

(7.2

)

ADF Capital, Inc.

 

(9.5

)

Instituto de Banca y Comercio, Inc.

 

(17.1

)

Infilaw Holding, LLC

 

(34.0

)

Other, net

 

5.9

 

Total

 

$

(45.5

)

 

During the three months ended September 30, 2016, we also recognized net unrealized gains on foreign currency and other transactions of $4.0 million.

 

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The changes in net unrealized appreciation and depreciation during the three months ended September 30, 2015 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Depreciation)

 

OTG Management, LLC

 

$

6.3

 

Ciena Capital LLC

 

4.5

 

ADF Capital, Inc.

 

2.2

 

Fulton Holdings Corp.

 

2.0

 

Cleveland East Equity, LLC

 

(2.1

)

Netsmart Technologies, Inc.

 

(2.2

)

Feradyne Outdoors, LLC

 

(2.6

)

2329497 Ontario Inc.

 

(2.7

)

Spin HoldCo Inc.

 

(2.8

)

Infilaw Holding, LLC

 

(3.2

)

Ivy Hill Asset Management, L.P.

 

(3.2

)

CCS Intermediate Holdings, LLC

 

(3.6

)

Petroflow Energy Corporation

 

(6.6

)

Senior Secured Loan Fund LLC

 

(9.9

)

Other, net

 

2.0

 

Total

 

$

(21.9

)

 

During the three months ended September 30, 2015, we also recognized net unrealized gains on foreign currency and other transactions of $0.3 million.

 

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The changes in net unrealized appreciation and depreciation during the nine months ended September 30, 2016 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Depreciation)

 

The Step2 Company, LLC

 

$

39.4

 

UL Holding Co., LLC

 

24.6

 

Senior Secured Loan Fund LLC

 

11.8

 

Community Education Centers, Inc.

 

8.2

 

R3 Education, Inc.

 

5.7

 

Spin HoldCo Inc.

 

5.6

 

Green Energy Partners

 

4.8

 

TA THI Buyer, Inc.

 

3.9

 

Lonestar Prospects, Ltd.

 

3.5

 

Orion Foods, LLC

 

3.1

 

Patterson Medical Supply, Inc.

 

2.3

 

ADF Capital, Inc.

 

2.2

 

Global Healthcare Exchange, LLC

 

2.2

 

McKenzie Sports Products, LLC

 

2.1

 

CFW Co-Invest, L.P.

 

2.1

 

American Seafoods Investors LLC

 

2.1

 

Ivy Hill Asset Management, L.P.

 

(2.1

)

Garden Fresh Restaurant Corp.

 

(2.1

)

Poplicus Incorporated

 

(2.4

)

INC Research Mezzanine Co-Invest, LLC

 

(2.6

)

La Paloma Generating Company, LLC

 

(2.6

)

Absolute Dental Management LLC and ADM Equity, LLC

 

(2.8

)

Flow Solutions Holdings, Inc.

 

(3.2

)

Feradyne Outdoors, LLC

 

(4.0

)

Things Remembered, Inc.

 

(5.7

)

10th Street, LLC and New 10th Street, LLC

 

(7.3

)

FastMed Holdings I, LLC

 

(7.9

)

Indra Holdings Corp.

 

(10.5

)

CCS Intermediate Holdings, LLC

 

(21.9

)

Instituto de Banca y Comercio, Inc.

 

(41.1

)

Infilaw Holding, LLC

 

(44.1

)

Other, net

 

20.1

 

Total, net

 

$

(16.6

)

 

During the nine months ended September 30, 2016, we also recognized net unrealized losses on foreign currency and other transactions of $4.0 million.

 

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The changes in net unrealized appreciation and depreciation during the nine months ended September 30, 2015 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Depreciation)

 

Ciena Capital LLC

 

$

11.8

 

OTG Management, LLC

 

9.0

 

The Step2 Company, LLC

 

3.4

 

Wellspring Distribution Corp

 

3.4

 

Lonestar Prospects, Ltd.

 

3.0

 

Fulton Holdings Corp.

 

2.8

 

Physiotherapy Associates Holdings, Inc.

 

2.5

 

TA THI Buyer, Inc.

 

2.4

 

Napa Management Services Corporation

 

2.4

 

Cadence Aerospace, LLC

 

2.4

 

PCG-Ares Sidecar Investment II, L.P.

 

2.3

 

Community Education Centers, Inc.

 

(2.2

)

Cleveland East Equity, LLC

 

(2.5

)

New Trident Holdcorp, Inc.

 

(2.6

)

UL Holding Co., LLC

 

(2.7

)

Instituto de Banca y Comercio, Inc.

 

(2.7

)

Netsmart Technologies, Inc.

 

(2.9

)

Indra Holdings Corp.

 

(3.3

)

Infilaw Holding, LLC

 

(6.0

)

2329497 Ontario Inc.

 

(6.8

)

CCS Intermediate Holdings, LLC

 

(8.6

)

Petroflow Energy Corporation

 

(8.7

)

Ivy Hill Asset Management, L.P.

 

(18.1

)

Senior Secured Loan Fund LLC

 

(26.6

)

Other, net

 

5.1

 

Total

 

$

(43.2

)

 

During the nine months ended September 30, 2015, we also recognized net unrealized losses on foreign currency and other transactions of $1.6 million.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Our liquidity and capital resources are generated primarily from the net proceeds of public offerings of equity and debt securities, advances from the Revolving Credit Facility, the Revolving Funding Facility and the SMBC Funding Facility (each as defined below and together, the “Facilities”), net proceeds from the issuance of other securities, including unsecured notes and Small Business Administration (“SBA”)-guaranteed debentures (the “SBA Debentures”), as well as cash flows from operations.

 

As of September 30, 2016, we had $125.1 million in cash and cash equivalents and $3.8 billion in total aggregate principal amount of debt outstanding ($3.7 billion at carrying value). Subject to leverage, borrowing base and other restrictions, we had approximately $1.5 billion available for additional borrowings under the Facilities and the SBA Debentures as of September 30, 2016.

 

We may from time to time seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock. Any such incurrence or

 

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issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing. On June 21, 2016, we received exemptive relief from the SEC allowing us to modify our calculation of asset coverage requirements to exclude the SBA Debentures. This exemptive relief provides us with increased investment flexibility but also increases our risk related to leverage. As of September 30, 2016, our asset coverage was 236% (excluding the SBA Debentures).

 

Equity Capital Activities

 

As of September 30, 2016 and December 31, 2015, our total equity market capitalization was $4.9 billion and $4.5 billion, respectively. There were no sales of our equity securities during the nine months ended September 30, 2016 and 2015.

 

In September 2015, our board of directors approved a stock repurchase program authorizing us to repurchase up to $100 million in the aggregate of our outstanding common stock in the open market at certain thresholds below our net asset value per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended.  The timing, manner, price and amount of any share repurchases will be determined by us, in our discretion, based upon the evaluation of economic and market conditions, stock price, applicable legal and regulatory requirements and other factors. Our stock repurchase program expires on February 28, 2017. The program does not require us to repurchase any specific number of shares and we cannot assure stockholders that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time. As of September 30, 2016, we had repurchased a total of 514,677 shares of our common stock in the open market under the stock repurchase program since its inception in September 2015, at an average price of $13.92 per share, including commissions paid, leaving approximately $92.8 million available for additional repurchases under the program.

 

In connection with our stock repurchase program, in March 2016, we entered into a Rule 10b5-1 plan to repurchase shares of our common stock in accordance with certain parameters set forth in such plan. In May 2016, we suspended our stock repurchase program pending the completion of the American Capital Acquisition. See “Pending American Capital Acquisition” above and Note 14 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information. During the nine months ended September 30, 2016, we repurchased a total of 393,056 shares of our common stock in the open market for $5.5 million under the stock repurchase program. The shares were repurchased at an average price of $13.94 per share, including commissions paid.

 

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Debt Capital Activities

 

Our debt obligations consisted of the following as of September 30, 2016 and December 31, 2015:

 

 

 

As of

 

 

 

September 30, 2016

 

December 31, 2015

 

(in millions)

 

Total
Aggregate
Principal
Amount
Available/
Outstanding(1)

 

Principal
Amount

 

Carrying
Value

 

Total
Aggregate
Principal
Amount
Available/
Outstanding(1)

 

Principal
Amount

 

Carrying
Value

 

Revolving Credit Facility

 

$

1,265.0

(2)

$

465.0

 

$

465.0

 

$

1,290.0

(2)

$

515.0

 

$

515.0

 

Revolving Funding Facility

 

540.0

(3)

108.0

 

108.0

 

540.0

 

250.0

 

250.0

 

SMBC Funding Facility

 

400.0

 

108.0

 

108.0

 

400.0

 

110.0

 

110.0

 

SBA Debentures

 

75.0

 

25.0

 

24.5

 

75.0

 

22.0

 

21.4

 

February 2016 Convertible Notes

 

 

 

(4)

575.0

 

575.0

 

573.9

(5)

June 2016 Convertible Notes

 

 

 

(4)

230.0

 

230.0

 

228.0

(5)

2017 Convertible Notes

 

162.5

 

162.5

 

161.5

(5)

162.5

 

162.5

 

160.0

(5)

2018 Convertible Notes

 

270.0

 

270.0

 

266.4

(5)

270.0

 

270.0

 

264.4

(5)

2019 Convertible Notes

 

300.0

 

300.0

 

295.8

(5)

300.0

 

300.0

 

294.5

(5)

2018 Notes

 

750.0

 

750.0

 

744.7

(6)

750.0

 

750.0

 

743.0

(6)

2020 Notes

 

600.0

 

600.0

 

595.2

(7)

600.0

 

600.0

 

594.2

(7)

January 2022 Notes

 

600.0

 

600.0

 

591.8

(8)

 

 

 

October 2022 Notes

 

182.5

 

182.5

 

178.3

(9)

182.5

 

182.5

 

177.9

(9)

2047 Notes

 

229.6

 

229.6

 

181.8

(10)

229.6

 

229.6

 

181.6

(10)

Total

 

$

5,374.6

 

$

3,800.6

 

$

3,721

 

$

5,604.6

 

$

4,196.6

 

$

4,113.9

 

 


(1)                                 Subject to borrowing base, leverage and other restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

(2)                                 Provides for a feature that allows us, under certain circumstances, to increase the size of the Revolving Credit Facility (as defined below) to a maximum of $1,897.5 million.

 

(3)                                 Provides for a feature that allows us and our consolidated subsidiary, Ares Capital CP, under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865.0 million.

 

(4)                                 See below for more information on the repayment of the February 2016 Convertible Notes and the June 2016 Convertible Notes.

 

(5)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below), the February 2016 Convertible Notes and the June 2016 Convertible Notes less unamortized debt issuance costs and the unaccreted discount recorded upon the issuances of such notes. As of September 30, 2016, the total unamortized debt issuance costs and the unaccreted discount for the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes (each as defined below) were $1.0 million, $3.6 million and $4.2 million, respectively. As of December 31, 2015, the total unamortized debt issuance costs and the unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes were $1.1 million, $2.0 million, $2.5 million, $5.6 million and $5.5 million, respectively.

 

(6)                                 Represents the aggregate principal amount outstanding of the 2018 Notes (as defined below) less unamortized debt issuance costs and plus the net unamortized premium that was recorded upon the issuances of the 2018 Notes. As of September 30, 2016 and December 31, 2015, the total unamortized debt issuance costs less the net unamortized premium were $5.3 million and $7.0 million, respectively.

 

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(7)                                 Represents the aggregate principal amount outstanding of the 2020 Notes (as defined below) less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuances of the 2020 Notes. As of September 30, 2016 and December 31, 2015, the total unamortized debt issuance costs and the net unaccreted discount were $4.8 million and $5.8 million, respectively.

 

(8)                                 Represents the aggregate principal amount outstanding of the January 2022 Notes (as defined below) less unamortized debt issuance costs and the net unaccreted discount recorded upon the issuance of the January 2022 Notes. As of September 30, 2016, the total unamortized debt issuance costs and the unaccreted discount was $8.2 million.

 

(9)                                 Represents the aggregate principal amount outstanding of the October 2022 Notes (as defined below) less unamortized debt issuance costs. As of September 30, 2016 and December 31, 2015, the total unamortized debt issuance costs were $4.2 million and $4.6 million, respectively.

 

(10)                          Represents the aggregate principal amount outstanding of the 2047 Notes (as defined below) less the unaccreted purchased discount recorded as part of the acquisition of Allied Capital Corporation in April 2010 (the “Allied Acquisition”). As of September 30, 2016 and December 31, 2015, the total unaccreted purchased discount was $47.8 million and $48.0 million, respectively.

 

The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all our debt outstanding as of September 30, 2016 were 4.2% and 5.1 years, respectively, and as of December 31, 2015 were 4.4% and 4.5 years, respectively.

 

The ratio of total principal amount of debt outstanding to stockholders’ equity as of September 30, 2016 was 0.73:1.00 compared to 0.81:1.00 as of December 31, 2015.

 

Revolving Credit Facility

 

We are party to a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which allows us to borrow up to $1,265.0 million at any one time outstanding. For $1,195.0 million of the Revolving Credit Facility, the end of the revolving period and the stated maturity date are May 4, 2020 and May 4, 2021, respectively. For the remaining $70 million of the Revolving Credit Facility, the end of the revolving period and the stated maturity date are May 4, 2019 and May 4, 2020, respectively. The Revolving Credit Facility also provides for a feature that allowed us, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,897.5 million. The interest rate charged on the Revolving Credit Facility is based on an applicable spread of either 1.75% or 2.00% over LIBOR or 0.75% or 1.00% over an “alternate base rate” (as defined in the agreements governing the Revolving Credit Facility), in each case, determined monthly based on the total amount of the borrowing base relative to the total commitments of the Revolving Credit Facility and other debt, if any, secured by the same collateral as the Revolving Credit Facility. As of September 30, 2016, the interest rate in effect was LIBOR plus 1.75%. We are also required to pay a letter of credit fee of either 2.00% or 2.25% per annum on letters of credit issued, determined monthly based on the total amount of the borrowing base relative to the total commitments of the Revolving Credit Facility and other debt, if any, secured by the same collateral as the Revolving Credit Facility. Additionally, we are required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility. As of September 30, 2016, there was $465.0 million outstanding under the Revolving Credit Facility and we were in compliance in all material respects with the terms of the Revolving Credit Facility.

 

Revolving Funding Facility

 

Ares Capital CP is party to the Revolving Funding Facility, which allows Ares Capital CP to borrow up to $540.0 million at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility is May 14, 2017 and May 14, 2019, respectively. The Revolving Funding Facility also provides for a feature that allows, under certain circumstances, for an increase in the size of the Revolving Funding Facility to a maximum of $865.0 million. See “Pending American Capital Acquisition” and Note 14 to our consolidated financial statements for the three and nine months ended September 30, 2016 for information regarding a potential amendment to the Revolving Funding Facility in connection with the American Capital Acquisition. The interest rate charged on the Revolving Funding Facility is based on an applicable spread ranging from 2.25% to 2.50% over LIBOR or ranging from 1.25% to 1.50% over a “base rate” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the Revolving Funding Facility. As of September 30, 2016, the interest rate in effect was LIBOR plus 2.25%. Additionally, Ares Capital CP is required to pay a commitment fee of between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility. As of September 30, 2016, there was $108.0 million outstanding under the Revolving Funding Facility and we and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

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SMBC Funding Facility

 

Our consolidated subsidiary, Ares Capital JB Funding LLC (“ACJB”), is party to a revolving funding facility (as amended, the “SMBC Funding Facility”), which allows ACJB to borrow up to $400.0 million at any one time outstanding. The SMBC Funding Facility is secured by all of the assets held by ACJB. As of September 30, 2016, the end of the reinvestment period and the stated maturity date for the SMBC Funding Facility were September 14, 2017 and September 14, 2022, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement. The interest rate charged on the SMBC Funding Facility is based on an applicable spread of either 1.75% or 2.00% over LIBOR or 0.75% or 1.00% over a “base rate” (as defined in the agreements governing the SMBC Funding Facility), in each case, determined monthly based on the amount of the average borrowings outstanding under the SMBC Funding Facility. As of September 30, 2016, the interest rate in effect was LIBOR plus 1.75%. Additionally, ACJB is required to pay a commitment fee of between 0.35% and 0.875% per annum depending on the size of the unused portion of the SMBC Funding Facility. As of September 30, 2016, there was $108.0 million outstanding under the SMBC Funding Facility and we and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

SBA Debentures

 

In April 2015, our wholly owned subsidiary, Ares Venture Finance, L.P. (“AVF LP”), received a license from the SBA to operate as a Small Business Investment Company (“SBIC”) under the provisions of Section 301(c) of the Small Business Investment Act of 1958, as amended. The SBA places certain limitations on the financing of investments by SBICs in portfolio companies, including regulating the types of financings, restricting investments to only include small businesses with certain characteristics or in certain industries, and requiring capitalization thresholds that may limit distributions to us.

 

The license from the SBA allows AVF LP to obtain leverage by issuing the SBA Debentures, subject to issuance of a capital commitment by the SBA and other customary procedures. Leverage through the SBA Debentures is subject to required capitalization thresholds. Current SBA regulations limit the amount that any SBIC may borrow to $150.0 million and as of September 30, 2016, the amount of the SBA Debentures committed to AVF LP by the SBA was $75.0 million. The SBA Debentures are non-recourse to us, have interest payable semi-annually, have a ten-year maturity and may be prepaid at any time without penalty. As of September 30, 2016, AVF LP had $25.0 million of the SBA Debentures issued and outstanding, which mature between September 2025 and March 2026. As of September 30, 2016, AVF LP was in compliance in all material respects with SBA regulatory requirements.

 

The interest rate for the SBA Debentures is fixed at the time the SBA Debentures and other applicable issued SBA-guaranteed debentures can be pooled and sold to the public and is based on a spread over U.S. treasury notes with ten-year maturities. The pooling of newly issued SBA-guaranteed debentures occurs twice per year. The spread includes an annual charge as determined by the SBA (the “Annual Charge”) as well as a market-driven component. Prior to the ten-year fixed interest rate being determined, the interest rate charged for the SBA Debentures is based on LIBOR plus an applicable spread of 0.30% and the Annual Charge. As of September 30, 2016, the weighted average interest rate in effect for the SBA Debentures was 3.48%.

 

Convertible Unsecured Notes

 

We have issued $162.5 million aggregate principal amount of unsecured convertible notes that mature on March 15, 2017 (the “2017 Convertible Notes”), $270.0 million aggregate principal amount of unsecured convertible notes that mature on January 15, 2018 (the “2018 Convertible Notes”) and $300.0 million aggregate principal amount of unsecured convertible notes that mature on January 15, 2019 (the “2019 Convertible Notes” and together with the 2017 Convertible Notes and the 2018 Convertible Notes, the “Convertible Unsecured Notes”). The Convertible Notes mature upon their respective maturity dates unless previously converted or repurchased in accordance with their terms. We do not have the right to redeem the Convertible Unsecured Notes prior to maturity. The 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes bear interest at a rate of 4.875% , 4.750% and 4.375%, respectively, per year, payable semi-annually.

 

In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at their respective conversion rates (listed below as of September 30, 2016) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). To the extent the 2017 Convertible Notes are converted, we have elected to settle with a combination of cash and shares of its common stock. Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the respective Convertible Unsecured Notes Indenture. On or after their respective conversion

 

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dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if we engage in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require us to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

Certain key terms related to the convertible features for each of the Convertible Unsecured Notes as of September 30, 2016 are listed below.

 

 

 

2017 Convertible
Notes

 

2018 Convertible
Notes

 

2019 Convertible
Notes

 

Conversion premium

 

17.5

%

17.5

%

15.0

%

Closing stock price at issuance

 

$

16.46

 

$

16.91

 

$

17.53

 

Closing stock price date

 

March 8, 2012

 

October 3, 2012

 

July 15, 2013

 

Conversion price(1)

 

$

18.87

 

$

19.64

 

$

19.99

 

Conversion rate (shares per one thousand dollar principal amount)(1)

 

53.0020

 

50.9054

 

50.0292

 

Conversion dates

 

September 15, 2016

 

July 15, 2017

 

July 15, 2018

 

 


(1)                                 Represents conversion price and conversion rate, as applicable, as of September 30, 2016, taking into account certain de minimis adjustments that will be made on the conversion date.

 

In February 2016, we repaid in full the February 2016 Convertible Notes upon their maturity. In June 2016, we repaid in full the June 2016 Convertible Notes upon their maturity.

 

Unsecured Notes

 

2018 Notes

 

We have issued $750.0 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 4.875% per year and mature on November 30, 2018 (the “2018 Notes”). The 2018 Notes require payment of interest semi-annually, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time at our option at a redemption price equal to par plus a “make whole” premium, as determined pursuant to the indenture governing the 2018 Notes, and any accrued and unpaid interest. $600.0 million in aggregate principal amount of the 2018 Notes were issued at a discount to the principal amount and $150.0 million in aggregate principal amount of the 2018 Notes were issued at a premium to the principal amount.

 

2020 Notes

 

We have issued $600.0 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 3.875% per year and mature on January 15, 2020 (the “2020 Notes”). The 2020 Notes require payment of interest semi-annually, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time at our option at a redemption price equal to par plus a “make whole” premium, if applicable, as determined pursuant to the indenture governing the 2020 Notes, and any accrued and unpaid interest. $400.0 million in aggregate principal amount of the 2020 Notes were issued at a discount to the principal amount and $200.0 million in aggregate principal amount of the 2020 Notes were issued at a premium to the principal amount.

 

January 2022 Notes

 

We have issued $600.0 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 3.625% per year and mature on January 19, 2022 (the “January 2022 Notes”). The January 2022 Notes require payment of interest semi-annually, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time at our option at a redemption price equal to par plus a “make whole” premium, if applicable, as determined pursuant to the indenture governing the January 2022 Notes, and any accrued and unpaid interest. The January 2022 Notes were issued at a discount to the principal amount.

 

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October 2022 Notes

 

We have issued $182.5 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 5.875% per year and mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes require payment of interest quarterly and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2047 Notes

 

As part of the Allied Acquisition, we assumed $230.0 million aggregate principal amount of unsecured notes which bear interest at a rate of 6.875% and mature on April 15, 2047 (the “2047 Notes” and together with the 2018 Notes, the 2020 Notes, the January 2022 Notes and the October 2022 Notes, the “Unsecured Notes”). The 2047 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

As of September 30, 2016, we were in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures and the indentures governing the Unsecured Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are our senior unsecured obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to our existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

 

See Note 5 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information on our debt obligations.

 

OFF BALANCE SHEET ARRANGEMENTS

 

We have various commitments to fund investments in our portfolio, as described below.

 

As of September 30, 2016 and December 31, 2015, we had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) our discretion:

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

December 31, 2015

 

Total revolving and delayed draw loan commitments

 

$

450.6

 

$

418.9

 

Less: drawn commitments

 

(99.7

)

(122.9

)

Total undrawn commitments

 

350.9

 

296.0

 

Less: commitments substantially at our discretion

 

(12.4

)

(6.0

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

 

 

Total net adjusted undrawn revolving and delayed draw loan commitments

 

$

338.5

 

$

290.0

 

 

Included within the total revolving and delayed draw loan commitments as of September 30, 2016 and December 31, 2015 were delayed draw loan commitments totaling $175.0 million and $148.6 million, respectively. Our commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions. Generally, the most significant and uncertain term requires the borrower to satisfy a specific use of proceeds covenant. The use of proceeds covenant typically requires the borrower to use the additional loans for the specific purpose of a permitted acquisition or permitted investment, for example. In addition to the use of proceeds covenant, the borrower is generally required to satisfy additional negotiated covenants (including specified leverage levels).

 

Also included within the total revolving and delayed draw loan commitments as of September 30, 2016 were commitments to issue up to $53.5 million in letters of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2016, we had $12.0 million in letters of credit issued and outstanding under these

 

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commitments on behalf of the portfolio companies. For all these letters of credit issued and outstanding, we would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of these letters of credit issued and outstanding are recorded as a liability on our balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit, $0.0 million expire in 2016, $12.0 million expire in 2017 and $0.0 million expire in 2018.

 

We also have commitments to co-invest in the SDLP and the SSLP for our portion of the SDLP’s and the SSLP’s commitments to fund delayed draw loans to certain portfolio companies of the SDLP and the SSLP. See “Senior Direct Lending Program” and “Senior Secured Loan Program” above and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information.

 

As of September 30, 2016 and December 31, 2015, we were party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

(in millions)

 

September 30, 2016

 

December 31, 2015

 

Total private equity commitments

 

$

107.0

 

$

107.0

 

Less: funded private equity commitments

 

(22.6

)

(20.9

)

Total unfunded private equity commitments

 

84.4

 

86.1

 

Less: private equity commitments substantially our discretion

 

(83.3

)

(84.6

)

Total net adjusted unfunded private equity commitments

 

$

1.1

 

$

1.5

 

 

In the ordinary course of business, we may sell certain of our investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales), we have, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions have given rise to liabilities in the past and may do so in the future.

 

RECENT DEVELOPMENTS

 

On October 18, 2016, we announced that we will hold a special meeting of stockholders on December 15, 2016 to seek approval of various matters necessary to complete the American Capital Acquisition.  On the same date, we also announced that our registration statement on Form N-14, which includes a joint proxy statement of Ares Capital and American Capital and a prospectus of Ares Capital, had been declared effective by the SEC and that the joint proxy statement/prospectus was first being mailed or otherwise delivered to stockholders on or about October 18, 2016. The joint proxy statement/prospectus contains important information about the American Capital Acquisition and the related stockholder approvals.

 

From October 1, 2016 through October 27, 2016, we made new investment commitments of approximately $73 million, of which $67 million were funded. Of these new commitments, 71% were in second lien senior secured loans and 29% were in first lien senior secured loans. Of the approximately $73 million of new investment commitments, 100% were floating rate. The weighted average yield of debt and other income producing securities funded during the period at amortized cost was 9.7%. We may seek to sell all or a portion of these new investment commitments, although there can be no assurance that we will be able to do so.

 

From October 1, 2016 through October 27, 2016, we exited approximately $182 million of investment commitments. Of these investment commitments, 43% were second lien senior secured loans, 40% were first lien senior secured loans and 17% were senior subordinated loans. Of the approximately $182 million of exited investment commitments, 60% were fixed rate and 40% were floating rate. The weighted average yield of debt and other income producing securities exited or repaid during the period at amortized cost was 9.6%. On the approximately $182 million of investment commitments exited from October 1, 2016 through October 27, 2016, we recognized total net realized gains of approximately $21 million.

 

In addition, as of October 27, 2016, we had an investment backlog and pipeline of approximately $540 million and $870 million, respectively. Investment backlog includes transactions approved by our investment adviser’s investment committee and/or for which a formal mandate, letter of intent or a signed commitment have been issued, and therefore we believe are likely to close. Investment pipeline includes transactions where due diligence and analysis are in process, but no formal mandate, letter of intent or signed commitment have been issued. The consummation of any of the investments in this backlog and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, we may sell all or a portion of these investments and certain of these investments may result in the repayment of existing investments. We cannot assure you that we will make any of these investments or that we will sell all or any portion of these investments.

 

CRITICAL ACCOUNTING POLICIES

 

See Note 2 to our consolidated financial statements for the three and nine months ended September 30, 2016, which describes our critical accounting policies and recently issued accounting pronouncements not yet required to be adopted by us.

 

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Item 3.                   Quantitative and Qualitative Disclosures About Market Risk

 

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.

 

Interest Rate Risk

 

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

As of September 30, 2016, 80% of the investments at fair value in our portfolio bore interest at variable rates, 10% bore interest at fixed rates, 9% were non-interest earning and 1% were on non-accrual status. Additionally, for the variable rate investments, 69% of these investments contained interest rate floors (representing 55% of total investments at fair value). Also, as of September 30, 2016, all the loans made through the SSLP and SDLP contained interest rate floors. The Facilities all bear interest at variable rates with no interest rate floors, while the SBA Debentures, the Unsecured Notes and the Convertible Unsecured Notes bear interest at fixed rates.

 

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

 

While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments. In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk.

 

Based on our September 30, 2016, balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)
Basis Point Change

 

Interest
Income

 

Interest
Expense

 

Net
Income(1)

 

Up 300 basis points

 

$

179.9

 

$

20.4

 

$

159.5

 

Up 200 basis points

 

$

116.1

 

$

13.6

 

$

102.5

 

Up 100 basis points

 

$

52.3

 

$

6.8

 

$

45.5

 

Down 100 basis points

 

$

14.9

 

$

(3.8

)

$

18.7

 

Down 200 basis points

 

$

14.7

 

$

(3.8

)

$

18.5

 

Down 300 basis points

 

$

14.7

 

$

(3.8

)

$

18.5

 

 


(1)                                 Excludes the impact of income based fees. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information on the income based fees.

 

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Based on our December 31, 2015, balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)
Basis Point Change

 

Interest
Income

 

Interest
Expense

 

Net
Income(1)

 

Up 300 basis points

 

$

177.0

 

$

26.6

 

$

150.4

 

Up 200 basis points

 

$

105.4

 

$

17.9

 

$

87.5

 

Up 100 basis points

 

$

33.9

 

$

9.1

 

$

24.8

 

Down 100 basis points

 

$

14.2

 

$

(3.4

)

$

17.6

 

Down 200 basis points

 

$

14.0

 

$

(3.4

)

$

17.4

 

Down 300 basis points

 

$

14.0

 

$

(3.4

)

$

17.4

 

 


(1)                                 Excludes the impact of income based fees. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2016 for more information on the income based fees.

 

Item 4.                   Controls and Procedures

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports it files or submits under the Securities Exchange Act of 1934.

 

There have been no changes in the Company’s internal control over financial reporting during the three and nine months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1.                   Legal Proceedings

 

For a description of our legal proceedings, see Note 15 to our consolidated financial statements for the three and nine months ended September 30, 2016.

 

Item 1A.          Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and those set forth under the caption “Risk Factors” in pre-effective Amendment No. 2 to our Registration Statement on Form N-14, filed on October 13, 2016 (the “N-14”), which could materially affect our business, financial condition and/or operating results.  The risks described in our Annual Report on Form 10-K and in the N-14 are not the only risks facing us.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

Item 2.                   Unregistered Sales of Equity Securities and Use of Proceeds.

 

Dividend Reinvestment Plan

 

We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933.

 

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During nine months ended September 30, 2016, as a part of our dividend reinvestment plan for our common stockholders, we purchased 1,218,544 shares of our common stock for an average price per share of $14.45 in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines such purchases of our common stock during the nine months ended September 30, 2016.

 

Period

 

Total Number
of Shares
Purchased

 

Average Price
Paid Per
Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

Maximum (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
or Programs

 

January 1, 2016 through January 31, 2016

 

453,216

 

$

14.28

 

 

 

February 1, 2016 through February 29, 2016

 

 

 

 

 

March 1, 2016 through March 31, 2016

 

 

 

 

 

April 1, 2016 through April 30, 2016

 

350,846

 

14.98

 

 

 

May 1, 2016 through May 31, 2016

 

 

 

 

 

June 1, 2016 through June 30, 2016

 

 

 

 

 

July 1, 2016 through July 31, 2016

 

414,482

 

14.19

 

 

 

August 1, 2016 through August 31, 2016

 

 

 

 

 

September 1, 2016 through September 30, 2016

 

 

 

 

 

Total

 

1,218,544

 

$

14.45

 

 

 

 

Stock Repurchase Program

 

In September 2015, our board of directors approved a stock repurchase program authorizing us to repurchase up to $100 million in the aggregate of our outstanding common stock in the open market at certain thresholds below its net asset value per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The timing, manner, price and amount of any share repurchases will be determined by us, in our discretion, based upon the evaluation of economic and market conditions, stock price, applicable legal and regulatory requirements and other factors. The program will be in effect until February 28, 2017, unless extended or until the approved dollar amount has been used to repurchase shares. The program does not require us to repurchase any specific number of shares and it cannot assure stockholders that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time.

 

In May 2016, in connection with the American Capital Acquisition, we suspended our stock repurchase program pending the completion of the American Capital Acquisition.

 

Repurchases of our common stock under our stock repurchase program were as follows:

 

(dollars in thousands, except share and per share data)
Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
Per Share (1)

 

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs

 

Maximum (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
or Programs

 

January 1, 2016 through January 31, 2016

 

 

$

 

 

$

98,315

 

February 1, 2016 through February 29, 2016

 

 

$

 

 

$

98,315

 

March 1, 2016 through March 31, 2016

 

393,056

 

$

13.94

 

393,056

 

$

92,837

 

April 1, 2016 through April 30, 2016

 

 

$

 

 

$

92,837

 

May 1, 2016 through May 31, 2016

 

 

$

 

 

$

92,837

 

June 1, 2016 through June 30, 2016

 

 

$

 

 

$

92,837

 

July 1, 2016 through July 31, 2016

 

 

$

 

 

$

92,837

 

August 1, 2016 through August 31, 2016

 

 

$

 

 

$

92,837

 

September 1, 2016 through September 30, 2016

 

 

$

 

 

$

92,837

 

Total

 

393,056

 

$

13.94

 

393,056

 

$

92,837

 

 


(1)                                 Amount includes commissions paid.

 

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Item 3.                   Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4.                   Mine Safety Disclosures.

 

Not applicable.

 

Item 5.                   Other Information.

 

None.

 

Item 6.                   Exhibits.

 

EXHIBIT INDEX

 

Number

 

Description

3.1

 

Articles of Amendment and Restatement, as amended(1)

3.2

 

Second Amended and Restated Bylaws, as amended(2)

4.1

 

Sixth Supplemental Indenture, dated as of September 19, 2016, relating to the 3.625% Notes due 2022, between Ares Capital Corporation and U.S. Bank National Association, as trustee(3)

4.2

 

Form of 3.625% Notes due 2022(3)

31.1

 

Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2

 

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1

 

Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 


*                                         Filed herewith

 

(1)                                 Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K (File No. 814-00663) for the year ended December 31, 2015, filed on February 24, 2016.

(2)                                 Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended June 30, 2010, filed on August 5, 2010.

(3)                                 Incorporated by reference to Exhibits 4.1 and 4.2, as applicable, to the Company’s Form 8-K (File No. 814-00663), filed on September 19, 2016.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

ARES CAPITAL CORPORATION

 

 

 

 

 

 

Date: November 2, 2016

By

/s/ R. Kipp deVeer

 

 

R. Kipp deVeer
Chief Executive Officer

 

 

 

Date: November 2, 2016

By

/s/ Penni F. Roll

 

 

Penni F. Roll
Chief Financial Officer

 

 

 

Date: November 2, 2016

By

/s/ Scott C. Lem

 

 

Scott C. Lem
Chief Accounting Officer,
Vice President and Treasurer

 

129