8-K/A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 18, 2019

 

 

Portman Ridge Finance Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   814-00735   20-5951150

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

650 Madison Avenue, 23rd Floor

New York, New York

  10022
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (212) 891-2880

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.01 per share   PTMN   The NASDAQ Global Select Market
6.125% Notes due 2022   KCAPL   The NASDAQ Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Explanatory Note

This Amendment No. 1 (this “Amendment No. 1”) is being filed to amend the Current Report on Form 8-K filed by Portman Ridge Finance Corporation, a Delaware Corporation (the “Company”) with the Securities and Exchange Commission on December 19, 2019 (the “Initial Form 8-K”). As previously reported in the Initial Form 8-K, on December 18, 2019, the Company completed its acquisition of OHA Investment Corporation, a Maryland corporation. Pursuant to the instructions to Item 9.01 of Form 8-K, the Company hereby files this Amendment No. 1 to amend the Initial Form 8-K in order to include the required financial statements and pro forma financial information that were previously omitted.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The following financial statements are filed as Exhibit 99.1 to this report and incorporated in their entirety herein by reference:

Audited Consolidated Financial Statements of OHA Investment Corporation as of and for the years ended December 31, 2018 and 2017.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Consolidated Schedules of Investments

Notes to Consolidated Financial Statements

Schedule 12 – 14 Investments in and Advances to Affiliates

Unaudited Consolidated Financial Statements of OHA Investment Corporation as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018.

Consolidated Balance Sheets for the nine months ended September 30, 2019 (unaudited) and December 31, 2018

Consolidated Statements of Operations for the three months ended September 30, 2019 and 2018 and the nine months ended September 30, 2019 and 2018 (unaudited)

Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2019 and 2018 (unaudited)

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

Consolidated Schedule of Investments as of September 30, 2019 (unaudited) and December 31, 2018

Notes to Consolidated Financial Statements (unaudited)

(b) Pro Forma Financial Statements.

The following pro forma information is filed as Exhibit 99.2 to this report and incorporated in its entirety herein by reference:

Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition as of September 30, 2019

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 2019

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2018

Unaudited Pro Forma Condensed Consolidated Schedule of Investments as of September 30, 2019


(d) Exhibits

 

23.1    Consent of Ernst & Young LLP
99.1    Audited Consolidated Financial Statements of OHA Investment Corporation as of and for the years ended December  31, 2018 and 2017 and Unaudited Consolidated Financial Statements of OHA Investment Corporation as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018.
99.2    Unaudited Pro Forma Condensed Consolidated Statement of Operations as of September  30, 2019, Unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and for the year ended December  31, 2018 and Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2018.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

PORTMAN RIDGE FINANCE CORPORATION
By:  

/s/ Edward U. Gilpin

  Edward U. Gilpin
  Chief Financial Officer

Date: March 3, 2020

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use of our report dated March 21, 2019, with respect to the consolidated financial statements of OHA Investment Corporation included in the Current Report (Form 8-K/A No. 814-00735) of Portman Ridge Finance Corporation.

/s/ Ernst & Young LLP

Dallas, Texas

March 3, 2020

EX-99.1

Exhibit 99.1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of OHA Investment Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of OHA Investment Corporation (the Company), including the schedules of investments, as of December 31, 2018 and 2017, the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations, changes in its net assets, and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 and 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2012.

Dallas, Texas

March 21, 2019


OHA INVESTMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

     December 31, 2018     December 31, 2017  

Assets

    

Investments in portfolio securities at fair value

    

Affiliate investments (cost: $26,028 and $23,263, respectively)

   $ 2,271     $ 18,179  

Non-affiliate investments (cost: $85,306 and $132,429, respectively)

     63,335       46,751  
  

 

 

   

 

 

 

Total portfolio investments (cost: $111,334 and $155,692, respectively)

     65,606       64,930  

Investments in U.S. Treasury Bills at fair value (cost: $14,989 and $19,994, respectively)

     14,989       19,994  
  

 

 

   

 

 

 

Total investments

     80,595       84,924  
  

 

 

   

 

 

 

Cash and cash equivalents

     3,124       19,939  

Accounts receivable and other current assets

     499       —    

Interest receivable

     224       632  

Other prepaid assets

     19       21  

Deferred tax asset (Note 6)

     316       632  
  

 

 

   

 

 

 

Total other assets

     4,182       21,224  
  

 

 

   

 

 

 

Total assets

   $ 84,777     $ 106,148  
  

 

 

   

 

 

 

Liabilities

    

Current liabilities

    

Due to broker

   $ 3,251     $ —    

Distributions payable

     403       403  

Accounts payable and accrued expenses

     683       1,585  

Due to affiliate (Note 5)

     571       562  

Management and incentive fees payable (Note 5)

     366       426  

Income taxes payable

     39       24  

Repurchase agreement

     14,689       19,592  

Short-term debt, net of debt issuance cost of $0 and $215, respectively

     —         35,785  
  

 

 

   

 

 

 

Total current liabilities

     20,002       58,377  
  

 

 

   

 

 

 

Long-term debt, net of debt issuance costs of $134 and $0, respectively

     28,866       —    
  

 

 

   

 

 

 

Total liabilities

     48,868       58,377  
  

 

 

   

 

 

 

Commitments and contingencies (Note 7)

    

Net assets

    

Common stock, $.001 par value, 250,000,000 shares authorized; 20,172,392 and 20,172,392 shares issued and outstanding, respectively

     20       20  

Paid-in capital in excess of par

     211,907       234,553  

Distributable earnings (loss)(1)

     (176,018     (186,802
  

 

 

   

 

 

 

Total net assets

     35,909       47,771  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 84,777     $ 106,148  
  

 

 

   

 

 

 

Net asset value per share

   $ 1.78     $ 2.37  

 

(1)

See Note 2. Significant Accounting Policies.

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

     For the year ended December 31,  
     2018     2017     2016  

Investment income:

      

Interest income:

      

Affiliate investments

   $ 43     $ 444     $ 1,903  

Payment-in-kind from affiliate investments

     2,722       3,476       1,020  

Non-affiliate investments

     5,458       6,278       10,444  

Payment-in-kind from non-affiliate investments

     —         —         15  

Dividend income:

      

Payment-in-kind from non-affiliate investments

     —         —         4,008  

Money market interest

     202       —         —    

Other income

     43       74       498  
  

 

 

   

 

 

   

 

 

 

Total investment income

     8,468       10,272       17,888  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Interest expense and bank fees

     2,984       3,926       3,819  

Management fees (Note 5)

     1,547       1,932       2,939  

Incentive fees (Note 5)

     —         89       281  

Costs related to strategic alternatives review

     75       —         —    

Professional fees

     1,444       1,679       2,442  

Other general and administrative expenses

     1,465       1,440       1,652  

Directors’ fees

     245       245       245  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     7,760       9,311       11,378  
  

 

 

   

 

 

   

 

 

 

Waived incentive fees (Note 5)

     —         (89     —    
  

 

 

   

 

 

   

 

 

 

Net operating expenses

     7,760       9,222       11,378  
  

 

 

   

 

 

   

 

 

 

Income tax provision, net

     37       22       7  
  

 

 

   

 

 

   

 

 

 

Net investment income

     671       1,028       6,503  
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investments:

      

Net realized capital gain (loss) on investments

      

Control investments

     —         —         (27,172

Non-affiliate investments

     (55,952     (11,563     223  

Benefit (provision) for taxes

           695       (62
  

 

 

   

 

 

   

 

 

 

Total net realized capital loss on investments

     (55,952     (10,868     (27,011
  

 

 

   

 

 

   

 

 

 

Net unrealized appreciation (depreciation) on investments

      

Control investments

     —         —         27,608  

Affiliate investments

     (18,673     (2,510     (2,820

Non-affiliate investments

     63,706       (18,758     (29,726
  

 

 

   

 

 

   

 

 

 

Total net unrealized appreciation (depreciation) on investments

   $ 45,033     $ (21,268   $ (4,938
  

 

 

   

 

 

   

 

 

 

Net decrease in net assets resulting from operations

   $ (10,248   $ (31,108   $ (25,446
  

 

 

   

 

 

   

 

 

 

Net decrease in net assets resulting from operations per common share

   $ (0.51   $ (1.54   $ (1.26
  

 

 

   

 

 

   

 

 

 

Distributions declared per common share

   $ 0.08     $ 0.08     $ 0.24  

Weighted average shares outstanding - basic and diluted

     20,172       20,172       20,172  

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except per share data)

 

     For the year ended December 31,  
     2018     2017     2016  

Increase (decrease) in net assets from operations

      

Net investment income

   $ 671     $ 1,028     $ 6,503  

Net realized capital gain (loss) on investments

     (55,952     (10,868     (27,011

Net unrealized appreciation (depreciation) on investments

     45,033       (21,268     (4,938
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (10,248     (31,108     (25,446
  

 

 

   

 

 

   

 

 

 

Distributions to common stockholders

      

Distributions from distributable earnings(1)

     (1,322     (469     (4,841

Return of capital

     (292     (1,145     —    
  

 

 

   

 

 

   

 

 

 

Net decrease in net assets from distributions

     (1,614     (1,614     (4,841
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets

     (11,862     (32,722     (30,287

Net assets, beginning of year

     47,771       80,493       110,780  
  

 

 

   

 

 

   

 

 

 

Net assets, end of year

   $ 35,909     $ 47,771     $ 80,493  
  

 

 

   

 

 

   

 

 

 

Net asset value per common share at end of period

   $ 1.78     $ 2.37     $ 3.99  

Common shares outstanding at end of period

     20,172       20,172       20,172  

 

(1)

See Note 2. Significant Accounting Policies.

 

 

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     For the year ended December 31,  
     2018     2017     2016  

Cash flows from operating activities:

      

Net decrease in net assets resulting from operations

   $ (10,248   $ (31,108   $ (25,446

Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by (used in) operating activities:

      

Payment-in-kind interest and dividend

     (4,905     (4,128     (5,432

Net amortization of premiums, discounts and fees

     (396     (204     (472

Net realized capital loss on investments

     55,952       11,563       26,949  

Net unrealized (appreciation) depreciation on investments

     (45,033     21,268       4,938  

Purchase of investments in portfolio securities

     (27,498     (21,941     (7,091

Proceeds from redemption of investments in portfolio securities

     21,565       33,517       50,813  

Proceeds from (fundings of) revolving loans, net

     (359     —         —    

Purchase of investments in U.S. Treasury Bills

     (67,000     (140,000     (130,000

Proceeds from redemption of investments in U.S. Treasury Bills

     72,005       160,003       125,000  

Amortization of debt issuance costs on Credit Facility

     255       1,172       362  

Effects of changes in operating assets and liabilities:

      

Accounts receivable and other current assets

     (500     33       484  

Interest receivable

     408       681       935  

Other prepaid assets

     2       (4     434  

Payables and accrued expenses

     (948     (627     (867

Deferred tax asset

     316       (632     —    

Due to broker

     3,251       —         (5,226

Due to affiliate

     9       342       (1
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (3,124     29,935       35,380  
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Borrowings under revolving credit facilities

     —         —         49,000  

Borrowings under repurchase agreement

     65,631       137,185       127,400  

Debt issuance costs paid

     (174     —         (1,749

Repayments on credit facilities

     (7,000     (4,500     (80,500

Repayments on repurchase agreement

     (70,534     (156,793     (122,500

Distributions to stockholders

     (1,614     (2,421     (6,052
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (13,691     (26,529     (34,401
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (16,815     3,406       979  

Cash and cash equivalents, beginning of period

     19,939       16,533       15,554  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 3,124     $ 19,939     $ 16,533  
  

 

 

   

 

 

   

 

 

 

Supplemental Disclosures:

      

Cash paid for interest

   $ 2,496     $ 2,665     $ 2,854  

Net cash paid (received) for taxes (refunds)

   $ 23     $ (67   $ 150  

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

(in thousands, except share amounts and percentages)

 

Portfolio Company

 

Industry Segment

  

Investment(1)

  Principal     Cost     Fair
Value
 

Affiliate Investments - (5% to 25% owned)

 

OCI Holdings, LLC

  Home Health Services    Subordinated Note (LIBOR+ 12.0% cash with a 1.0% floor plus 3.0% PIK), 21.51%, due 8/31/2019(2)(6)(11)   $ 25,711     $ 23,528     $ 2,271  

OCI Holdings, LLC

  Home Health Services    100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings,
LLC(2)(8)
      2,500       —    
        

 

 

   

 

 

 

Subtotal Affiliate Investments - (5% to 25% owned)

 

  $ 26,028     $ 2,271  
 

 

 

   

 

 

 

Non-affiliate Investments - (Less than 5% owned)

 

Equinox Holdings, Inc.

  Leisure Goods, Activities, Movies    Second Lien Term Loan (LIBOR+7.0% with a 1.0% floor), 9.52%, due 9/6/2024(3)   $ 7,000     $ 6,957     $ 7,018  

PAE Holding Corporation

  Aerospace and Defense    Second Lien Term Loan (LIBOR+9.50% with a 1.0% floor), 12.12%, due
10/20/2023(3)
    6,888       6,749       6,785  

Ministry Brands, LLC

  Business Services    Second Lien Term Loan (LIBOR+8.00% with a 1.0% floor), 10.52%, due
6/2/2023(2)
    6,000       5,945       5,880  

Avantor Performance Materials, Inc.

  Chemicals    Senior Unsecured Notes, 9.0%, due 10/1/2025(3)     5,000       5,000       5,000  

ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC

  Oil & Natural Gas
Production and Development
   Limited Term Royalty Interest (notional rate of 13.2%)(2)(7)(11)     —         26,450       4,778  

CVS Holdings I, LP (MyEyeDr)

  Retail    Second Lien Term Loan (LIBOR+6.75% with a 1.0% floor), 9.28%, due 2/6/2026(3)     5,000       4,977       4,725  

PowerSchool

  Business Services    Second Lien Term Loan (LIBOR+6.75%), 9.13%, due 8/01/2026(3)     3,800       3,763       3,762  

WASH Multifamily Acquisition, Inc.

  Industrials - Laundry Equipment    Second Lien Term Loan (LIBOR+7.0% with a 1.0% floor), 9.52%,
due 5/14/2023(3)
    3,404       3,388       3,293  

Sedgwick

  Healthcare    Unsecured Term Loan, 9.0%, due 12/31/2026(3)     3,300       3,251       3,251  


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2018

(in thousands, except share amounts and percentages)

 

Portfolio Company

 

Industry Segment

  

Investment(1)

  Principal     Cost     Fair
Value
 

DexKo Global, Inc.

  Automotive    Second Lien Term Loan (LIBOR+8.25% with a 1.0% floor), 11.05%,
due 7/24/2025(3)
  $ 3,000     $ 2,979     $ 3,000  

TIBCO Software, Inc.

  Software    Senior Unsecured Notes, 11.38%, due 12/1/2021(3)     2,100       1,995       2,200  

Hayward Industries, Inc.

  Consumer Goods    Second Lien Term Loan (LIBOR+8.25%), 10.77%, due 8/4/2025(3)     2,159       2,163       2,127  

CentralSquare Technologies

  Software    Second Lien Term Loan (LIBOR+7.50%), 10.02%, due 8/31/2026(3)     2,000       1,950       2,000  

Ensono

  Telecommunications    Second Lien Term Loan (LIBOR+9.25%), 11.77%, due 6/27/2026(3)     1,700       1,635       1,653  

MWI Industries (Helix Acquisition)

  Industrials    Second Lien Term Loan (LIBOR+8.00%), 10.8%, due 9/29/2025(3)     1,400       1,388       1,379  

Allied Universal Holdco, LLC

  Business Services    Second Lien Term Loan (LIBOR+8.50% with a 1.0% floor), 11.02%,
due 7/28/2023(3)
    1,250       1,250       1,191  

Vertafore, Inc.

  Business Services    Second Lien Term Loan (LIBOR+7.25%), 10.05%, due 7/2/2026(3)     900       891       865  

Safe Fleet Holdings, LLC

  Industrials    Second Lien Term Loan (LIBOR+6.75% with a 1.0% floor), 9.13%, due 2/1/2026(3)     700       697       665  

Coinamatic Canada, Inc.(5)

  Industrials - Laundry Equipment    Second Lien Term Loan (LIBOR+7.0% with a 1.0% floor), 9.52%, due 5/14/2023(3)     596       593       577  

Ardonagh(5)

  Insurance    Senior Secured Notes, 8.625%, due 7/15/2023(3)     600       541       513  

MedRisk, LLC

  Healthcare    Second Lien Term Loan (LIBOR+6.75%), 9.27%, due 12/28/2025(3)     500       498       491  

ClearChoice (CC Dental Implants Intermediate)

  Healthcare    First Lien Term Loan (Last Out) (LIBOR+6.50% with a 1.0% floor), 9.13%, due 1/2/2023(2)(10)     500       496       487  


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2018

(in thousands, except share amounts and percentages)

 

Portfolio Company

 

Industry Segment

  

Investment(1)

  Principal     Cost     Fair
Value
 

FirstLight Fiber

  Telecommunications    Second Lien Term Loan (LIBOR+7.50%), 10.02%, due 7/23/2026(3)   $ 400     $ 396     $ 393  

NAVEX

  Software    Second Lien Term Loan (LIBOR+7.00%), 9.53%, due 9/5/2026(3)     400       396       386  

ClearChoice (CC Dental Implants Intermediate)

  Healthcare    First Lien Revolver (Last Out) (Funded: Libor+6.50% with a 1.0% floor), 9.29%, due 1/2/2023(2)(9)(10)     375       361       336  

EaglePicher Technologies, LLC

  Aerospace and Defense    Second Lien Term Loan (LIBOR+7.25%), 9.77%, due 3/9/2026(3)     300       298       294  

Edelman Financial Services, LLC

 

Financial

Services

  

Second Lien

Term Loan (LIBOR+6.75%), 9.19%, due 7/20/2026(3)

    300       299       286  

Subtotal Non-affiliate Investments - (Less than 5% owned)

 

 

 

 

  $ 85,306     $ 63,335  
        

 

 

   

 

 

 

Subtotal Portfolio Investments (81.4% of total investments)

 

 

 

 

  $ 111,334     $ 65,606  
        

 

 

   

 

 

 

GOVERNMENT SECURITIES

     

U.S. Treasury Bills(4)

       $ 15,000     $ 14,989     $ 14,989  
        

 

 

   

 

 

 

Subtotal Government Securities (18.6% of total investments)

 

 

 

 

  $ 14,989     $ 14,989  
        

 

 

   

 

 

 

TOTAL INVESTMENTS

 

 

  

 

 

 

 

 

  $ 126,323     $ 80,595  
        

 

 

   

 

 

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

 

(1)

We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 of Notes to Consolidated Financial Statements. Percentages represent interest rates in effect as of December 31, 2018, and due dates represent the contractual maturity dates. Common stock and units are non-income producing securities, unless otherwise stated.

(2)

The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 10 to the Consolidated Financial Statements.

(3)

Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 10 to the Consolidated Financial Statements.

(4)

Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 10 to the Consolidated Financial Statements.

(5)

We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2018

(in thousands, except share amounts and percentages)

 

  ongoing basis. As of December 31, 2018, 1.4% of our investment portfolio was deemed not to be “qualifying assets” under Section 55(a) of the 1940 Act.
(6)

During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its Libor+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter 2016. OCI remains in financial covenant default. During 2017, we executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its Libor+12% cash interest during 2017. Through June 30, 2018, we have allowed the company to continue to PIK its 12% cash interest while paying the 2% default interest in cash. In June 2018, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to August 31, 2019. In September 2018, we executed an amendment to our note purchase and security agreement whereby we exchanged $217,625 of cash default interest previously paid to us by the company in 2018 for PIK interest, which was added to the principal outstanding balance of the note, on and as of the date the default interest payment was originally made. This amendment also allows the company to PIK its default interest through December 31, 2018. Beginning in the 4th quarter of 2018, OCI subordinated note was placed on non-accrual status.

(7)

Effective April 1, 2018, we discontinued income recognition on this investment and it remains on non-accrual status. All production payments received after April 1, 2018 are being applied to our cost basis and and considered return of capital. Previously, ATP was on nonaccrual status where income was recognized to the extent production payments were received. For more information on ATP, refer to the discussion of the ATP litigation in Note 7 to the Consolidated Financial Statements.

(8)

Non-income producing equity security.

(9)

Represents a revolving line of credit of which $1.2 million of the $1.6 million total commitment is unfunded at December 31, 2018. The revolving line of credit includes a 0.75% unused fee applied to the unfunded amount.

(10)

Investment is entitled to skim interest which results in a higher interest rate spread of approximately 28 basis points.

(11)

Investment on non-accrual status and therefore non-income producing.

 

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(in thousands, except share amounts and percentages)

 

Portfolio Company

 

Industry Segment

 

Investment(1)

  Principal     Cost     Fair
Value(2)
 

Affiliate Investments - (5% to 25% owned)

 

OCI Holdings, LLC

  Home Health Services   Subordinated Note (LIBOR+ 12.0% cash with a 1.0% floor plus 3.0% PIK)(7), 20.56%, due 8/15/2018   $ 20,806     $ 20,763     $ 18,015  

OCI Holdings, LLC

  Home Health Services   100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings,
LLC(11)
      2,500       164  
       

 

 

   

 

 

 

Subtotal Affiliate Investments - (5% to 25% owned)

 

  $ 23,263     $ 18,179  
 

 

 

   

 

 

 

Non-affiliate Investments - (Less than 5% owned)

 

Talos Production, LLC

  Oil & Natural Gas Production and Development   Senior Unsecured Notes, 9.75%, due 2/15/2018(3)   $ 11,536     $ 11,534     $ 8,652  

Equinox Holdings, Inc.

  Leisure Goods, Activities, Movies   Second Lien Term Loan (LIBOR+7.0% with a 1.0% floor), 8.57%, due 9/6/2024(3)     7,000       6,951       7,245  

PAE Holding Corporation

  Aerospace and Defense   Second Lien Term Loan (LIBOR+9.50% with a 1.0% floor), 11.12%, due 10/20/2023(3)     6,888       6,729       6,931  

Berlin Packaging

  Packaging   Second Lien Term Loan (LIBOR+6.75% with a 1.0% floor), 8.12%, due
10/1/2022(3)
    6,705       6,447       6,780  

Avantor Performance Materials, Inc.

  Chemicals   Senior Unsecured Notes, 9.0%, due 10/1/2025(3)     5,000       5,000       4,925  

WASH Multifamily Acquisition, Inc.

  Industrials - Laundry Equipment   Second Lien Term Loan (LIBOR+7.0% with a 1.0% floor), 8.57%, due
5/14/2023(3)
    3,404       3,385       3,387  

DexKo Global, Inc.

  Automotive   Second Lien Term Loan (LIBOR+8.25% with a 1.0% floor), 9.94%, due
7/24/2025(3)
    3,000       2,977       3,038  

TIBCO Software, Inc.

  Software   Senior Unsecured Notes, 11.38%, due 12/1/2021(3)     2,100       1,968       2,286  

MW Industries, Inc. (Helix Acquisition)

  Industrials   Second Lien Term Loan (LIBOR+8.0%), 9.69%, due 9/27/2025(3)     1,400       1,386       1,409  


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2017

(in thousands, except share amounts and percentages)

 

Portfolio Company

 

Industry Segment

  

Investment(1)

  Principal     Cost     Fair
Value(2)
 

Hayward Industries, Inc.

  Consumer Goods    Second Lien Term Loan (LIBOR+8.25%), 9.82%, due 8/4/2025(3)   $ 1,302     $ 1,280     $ 1,296  

Coinamatic Canada, Inc.(5)

  Industrials - Laundry Equipment    Second Lien Term Loan (LIBOR+7.0% with a 1.0% floor), 8.57%, due 5/14/2023(3)     596       593       593  

Gramercy Park CLO Ltd.(5)

  Financial Services   

Subordinated Notes,

Residual Interest, 13.46% based on cost, due 7/17/2023

    9,000       19       209  

Castex Energy 2005, LP

  Oil & Natural GasProduction and Development    Redeemable Preferred LP Units (current pay 8.0% cash or 10.0% PIK)(6)(8)     62,529       56,315       —    

ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC

  Oil & Natural Gas Production and Development    Limited Term Royalty Interest (notional rate of 13.2%)(9)     —         27,845       —    

Globe BG, LLC

  Coal Production    Contingent earn-out related to July 2011 sale of royalty interests in Alden Resources, LLC(10)     —         —         —    
        

 

 

   

 

 

 

Subtotal Non-affiliate Investments - (Less than 5% owned)

 

  $ 132,429     $ 46,751  
 

 

 

   

 

 

 

Subtotal Portfolio Investments (76.5% of total investments)

 

  $ 155,692     $ 64,930  
 

 

 

   

 

 

 
          

GOVERNMENT SECURITIES

 

U.S. Treasury Bills(4)

       $ 20,000     $ 19,994     $ 19,994  
        

 

 

   

 

 

 

Subtotal Government Securities (23.5% of total investments)

 

  $ 19,994     $ 19,994  
 

 

 

   

 

 

 

TOTAL INVESTMENTS

 

  $ 175,686     $ 84,924  
 

 

 

   

 

 

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

 

(1)

We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 of Notes to Consolidated Financial Statements. Percentages represent interest rates in effect as of December 31, 2017, and due dates represent the contractual maturity dates. Common stock, units and earn-outs are non-income producing securities, unless otherwise stated.

(2)

The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 10 to the Consolidated Financial Statements.

(3)

Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 10 to the Consolidated Financial Statements.

(4)

Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 10 to the Consolidated Financial Statements.


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2017

(in thousands, except share amounts and percentages)

 

(5)

We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an ongoing basis.

(6)

Investment on non-accrual status and therefore non-income producing.

(7)

During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its LIBOR+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter of 2016. OCI remains in financial covenant default and while in default, we are earning an additional 2% cash interest and 2% PIK interest. In 2017, we have executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its LIBOR +12% cash interest through December 31, 2017.

(8)

By the terms of our original investment, upon redemption, we were due the outstanding face amount of $50 million, any unpaid and accrued dividends, plus an option to elect to receive either: a) a cash payment resulting in a total 12% return or make-whole (inclusive of the 8% cash distributions even if not paid), or b) our pro rata share of 2% of the outstanding regular limited partner interests in Castex Energy 2005, LP, or Castex (0.67% net to us). Amounts shown for principal and cost include PIK dividends that have been added to the principal balance. Please refer to footnote 8 in the December 31, 2016 Consolidated Schedule of Investments for additional information our about our investment in Castex and the put process.

During the first quarter of 2017, we placed our investment in Castex on non-accrual status based on our March 31, 2017 valuation, which reflected a determination that future payments received from this investment would no longer be sufficient to cover all of the contractual principal and dividend amounts on this investment. On October 16, 2017, Castex announced that it (together with certain affiliates) has filed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. According to the filing, Castex and its affiliates in bankruptcy entered into a restructuring support agreement (“RSA”) with pre-petition lenders holding approximately 86% in principal amount of claims under the pre-petition credit facility. On February 26, 2018, we agreed to a settlement and agreed to withdraw our confirmation objections to the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy code in exchange for the potential to receive some amount of cash and warrants in the reorganized company. This agreement was approved on February 27, 2018. At this time we are unable to determine the value of a recovery, if any, resulting from the settlement which will be dependent upon the ultimate pool of unsecured claims. Therefore, until we are in a position to determine the value and likelihood of a recovery, we are estimating $0 fair market value of our investment in Castex at December 31, 2017 for financial statement purposes.

 

(9)

Effective July 1, 2015, ATP was placed on non-accrual status based on estimated future production payments and income is recognized to the extent cash received. For more information on ATP, refer to the discussion of the ATP litigation in Note 7 to the Consolidated Financial Statements.

(10)

Contingent payment of up to $6.8 million is dependent upon Alden Resources, LLC’s achievement of certain sales volume and operating efficiency levels during the three-year period ended July 2014. The reporting and review mechanism to conclude the ultimate value of the earn-out has not yet been completed. Globe BG, LLC has informally advised us that the company’s relative cost of production has not improved since July 2011.

(11)

Non-income producing equity security.

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

Note 1: Organization

These consolidated financial statements present the financial position, results of operations and cash flows of OHA Investment Corporation and its consolidated subsidiaries (collectively “we,” “us,” “our” and “OHAI”). We are a specialty finance company that was organized in July 2004 as a Maryland corporation. Our investment objective is to generate both current income and capital appreciation primarily through debt investments, some of which include equity components. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or a BDC, under the 1940 Act. For federal income tax purposes we operate so as to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. We have several direct and indirect subsidiaries that are single-member limited liability companies and wholly-owned limited partnerships established to hold certain portfolio investments or provide services to us in accordance with specific rules prescribed for a company operating as a RIC. We consolidate the financial results of our wholly-owned subsidiaries for financial reporting purposes, and we do not consolidate the financial results of our portfolio companies.

On September 30, 2014, our stockholders approved the appointment of Oak Hill Advisors, L.P., or OHA, as our investment advisor, replacing NGP Investment Advisor, LP, which had been our investment advisor since our inception. In connection with this change in investment advisor, we changed our name from NGP Capital Resources Company to OHA Investment Corporation. OHA is a registered investment adviser under the Investment Advisers Act of 1940, or the Advisers Act. OHA acts as our investment advisor and administrator pursuant to an investment advisory agreement and an administration agreement, respectively, each dated as of September 30, 2014, which we refer to as the Investment Advisory Agreement and the Administration Agreement, respectively. See Note 5.

Note 2: Accounting Policies

Basis of Presentation

These consolidated financial statements include the accounts of OHAI and its wholly-owned subsidiaries. The effects of all intercompany transactions between OHAI and its subsidiaries have been eliminated in consolidation. We prepare our consolidated financial statements in accordance with accounting principles generally accepted in United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies (“ASC 946”). Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and ASC 946, the Company is precluded from consolidating portfolio company investments, including those in which it has a controlling interest, unless the portfolio company is another investment company. An exception to this general principle occurs if the Company holds a controlling interest in an operating company that provides all or substantially all of its services directly to the Company or to its portfolio companies. None of the portfolio investments made by the Company qualify for this exception. Therefore, the Company’s investment portfolio is carried on the Consolidated Balance Sheet at fair value.

Going Concern

Our consolidated financial statements have been prepared assuming OHAI will continue as a going concern. Under that assumption, we expect that assets will be realized and liabilities will be satisfied in the normal course of business.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Use of Estimates

Preparing consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes to the consolidated financial statements. Although we believe our estimates and assumptions are reasonable, actual results could differ materially from these estimates.

Reclassifications

Certain prior-period amounts have been reclassified to conform to the current-period presentation.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments with an original maturity of three months or less in accounts such as demand deposit accounts, money market accounts, certain overnight investment sweep accounts and money market fund accounts. We record cash and cash equivalents at cost, which approximates fair value.

Deferred Loan Costs and Other Prepaid Assets

Deferred loan costs include up-front bank fees and related legal fees associated with the establishment of our credit facilities (see Note 3). Deferred loan costs are amortized to interest expense on a straight-line basis over the term of the related credit facility. Prepaid assets consist of premiums paid for directors’ and officers’ liability insurance with policy terms of one year and broker fees and commissions associated with the establishment of such policies. We amortize such premiums and fees on a straight-line basis over the term of the policy.

Concentration of Credit Risk

We place our cash and cash equivalents with financial institutions and, at times, cash held in checking or money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

Valuation of Investments

The 1940 Act requires the separate identification of investments according to the percentage ownership in a portfolio company’s outstanding voting securities. The percentages and categories are generally as follows:

 

 

Control investments — we own more than 25% of a portfolio company’s outstanding voting securities

 

 

Affiliate investments — we own 5% or more but not more than 25% of a portfolio company’s outstanding voting securities

 

 

Non-affiliate investments — we own less than 5% of a portfolio company’s outstanding voting securities

We account for all of the assets in our investment portfolio at fair value, following the provisions of the FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.

On a quarterly basis, the investment team of our investment advisor prepares fair value recommendations for all of the assets in our portfolio in accordance with ASC 820 and presents them to the Audit Committee of our


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Board of Directors. The Audit Committee recommends a fair value of each portfolio investment to our Board of Directors, which in good faith determines the final fair value for each portfolio investment.

 

 

Investment Team Valuation. The investment professionals of our investment advisor prepare fair value recommendations for each investment.

 

 

Investment Team Valuation Documentation. The investment team documents and discusses its preliminary fair value recommendations with the investment committee and senior management of our investment advisor.

 

 

Third Party Valuation Activity. We may, at our discretion, retain an independent valuation firm to review any or all of the valuation analyses and fair value recommendations provided by the investment team of our investment advisor. Since December 31, 2014, our general practice is that we have an independent valuation firm review all Level 3 investments (those whose value is determined using significant unobservable inputs) with recommended fair values in excess of $10 million on a quarterly basis, and review all Level 3 investments with recommended fair values greater than zero at least annually to provide positive assurance on our valuations. With respect to our valuations as of December 31, 2018 and 2017, an independent valuation firm reviewed and assisted in valuations representing 21% and 28%, respectively, of the total fair value of our portfolio investments.

 

 

Presentation to Audit Committee. Our investment advisor and senior management present the valuation analyses and fair value recommendations to the Audit Committee of our Board of Directors.

 

 

Board of Directors and Audit Committee. The Board of Directors and the Audit Committee review and discuss the valuation analyses and fair value recommendations provided by the investment team of our investment advisor and the independent valuation firm, if applicable.

 

 

Final Valuation Determination. Our Board of Directors discusses the fair values recommended by the Audit Committee and determines the fair value of each investment in our portfolio, in good faith, based on the input of the investment team of our investment advisor, our Audit Committee and the independent valuation firm, if applicable.

We record investments in securities for which market quotations are readily available at such market quotations in our financial statements as of the valuation date. For investments in securities for which market quotations are unavailable, or which have various degrees of trading restrictions, the investment team of our investment advisor prepares valuation analyses and fair value estimates, using the most recently available financial statements, forecasts and, when applicable, comparable transaction data. These valuation analyses rely on estimates of the asset values and enterprise values of portfolio companies issuing securities.

The methodologies for determining asset valuations include estimates based on: the liquidation or sale value of a portfolio company’s assets, the discounted value of expected future net cash flows from the assets and third party valuations of a portfolio company’s assets, such as asset appraisal reports, futures prices and engineering reserve reports of oil and natural gas properties. The investment team of our investment advisor considers some or all of the above valuation methods to determine the estimated asset value of a portfolio company.

The methodologies for determining enterprise valuations include estimates based on: valuations of comparable companies, recent sales of comparable companies, the value of recent investments in the equity securities of a portfolio company and on the methodologies used for asset valuations. The investment team of our investment advisor considers some or all of the above valuation methods to determine the estimated enterprise value of a portfolio company.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

The methodologies for determining estimated current market values of comparable securities include estimates based on: recent initial offerings of comparable securities of public and private companies; recent secondary market sales of comparable securities of public and private companies; current market implied interest rates for comparable securities in general; and current market implied interest rates for non-comparable securities in general, with adjustments for such elements as size of issue, terms, and liquidity. The investment team of our investment advisor considers some or all of the above valuation methods to determine the estimated current market value of a comparable security.

For some of our securities, quoted prices (unadjusted) in active markets for identical assets (Level 1 valuation inputs) or other significant observable inputs, including quoted prices of similar securities, interest rates, prepayments, credit risk, etc. (Level 2 valuation inputs) are readily available from independent sources and are used to value such securities. For other securities, there will be no readily available Level 1 or Level 2 pricing information, and therefore significant unobservable inputs (Level 3 valuation inputs), including the assumptions of OHA, must be relied upon in determining fair value for these securities.

If prices or quotes for securities are either not readily available, or a price or quote is deemed not reflective of the security’s fair market value, we employ a fair valuation technique for that security. In determining the fair value of a security, we may take into consideration (either individually or in combination) the financial condition and operating results of the underlying portfolio company, nature of the investment, restrictions on marketability, liquidity, market conditions, earnings multiple analyses using comparable companies, discounted cash flow analyses, appraisals, and other factors we deem appropriate.

Securities Transactions, Interest and Dividend Income Recognition

We account for all securities transactions on a trade-date basis, and we accrete premiums and discounts into interest or dividend income using the effective interest method. In conjunction with the acquisition of debt securities, we may receive detachable warrants, other equity securities or property interests such as overriding royalty interests. We record these interests separately from the debt securities at their initial fair value, with a corresponding amount recorded as a discount to the associated debt security. These original issue discounts, as well as market discounts or premiums, are capitalized and amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts and premiums and upfront loan origination fees.

We record interest income, adjusted for amortization of premiums or discounts, on an accrual basis to the extent that we expect to collect such amounts. We recognize dividend income on the ex-dividend date. When collectability of interest or dividends is no longer probable, we place the investment on non-accrual status and evaluate any existing interest or dividend receivable balances to determine if a reserve or write-off is necessary. We assess the collectability of the interest and dividends on many factors, including the portfolio company’s ability to service its debt based on current and projected cash flows as well as the current valuation of the portfolio company’s assets.

We defer the recognition of upfront loan origination fees, and amortize them into interest income over the life of the security using the effective interest method. Upon the prepayment of a loan or debt security, we record any unamortized loan origination fees as interest income and we record any unamortized market premium or discount as a realized gain or loss on the investment. We record prepayment premiums on loans and securities as other income when we receive such amounts.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

We record interest income from investments in CLO residual interests based upon an estimate of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. We monitor the anticipated cash flows from our CLO residual interest investments and adjust our effective yield periodically as needed on a prospective basis.

Payment-in-Kind Interest and Dividends

We have investments in our portfolio that contain payment-in-kind, or PIK, interest or dividend provisions. We compute PIK interest income or PIK dividend income at the contractual rate specified in each investment agreement, and we add that amount to the principal balance of the investment. For investments with PIK interest or PIK dividends, we calculate our income accruals on the principal balance plus any PIK amounts. If the portfolio company’s projected cash flows, further supported by estimated total enterprise value, are not sufficient to cover the contractual principal and interest or dividend amounts, as applicable, we do not accrue PIK interest income or PIK dividend income on the investment. To maintain our RIC status, we must pay out this non-cash income to stockholders in the form of distributions, even though we have not yet collected the cash. We recorded net PIK interest income of $2.7 million, $3.5 million, and $1.0 million in 2018, 2017 and 2016, respectively primarily related to our investment in OCI’s subordinated notes. Beginning in October 2018, we discontinued recognizing any PIK interest income on our investment in OCI’s subordinated notes from a tax and GAAP perspective. We recorded PIK dividend income of $0.0 million, $0.7 million, and $4.4 million in 2018, 2017, and 2016, respectively from our investment in Castex.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains on a security as the excess of the net amount realized from the sale or other disposition of such security over the amortized cost for the security. We measure realized losses on a security as the amount by which the net amount realized from the sale or other disposition of such security is less than the amortized cost of such security. We consider unamortized upfront fees and investments charged off during the year, net of recoveries, and we do not include previously recognized unrealized appreciation or depreciation.

We measure unrealized appreciation or depreciation on a security as the amount by which the fair value of such security exceeds or is less than the amortized cost of such security, as applicable. Net unrealized appreciation or depreciation for the period reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when we realize the settled gains or losses upon redemption.

Fee Income Recognition

Fees primarily include financial advisory, transaction structuring, loan administration, commitment, amendment and prepayment fees. Financial advisory fees represent amounts received for providing advice and analysis to companies, and we recognize these fees as earned when we perform such services, provided collection is probable. Transaction structuring fees, which are non-recurring represent amounts received for structuring, financing and executing transactions and are generally payable only if the transaction closes. We defer such fees and accrete them into interest income over the life of the loan using the effective interest method. Commitment fees represent amounts received for committed funding and are generally payable whether the transaction closes or not. We defer commitment fees on transactions that close within the commitment period and accrete these fees into interest income over the life of the loan using the effective interest method. We record commitment fees on transactions that do not close in the month the commitment period expires. We recognize


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

prepayment and loan administration fees when we receive them. During the years ended December 31, 2018, 2017, and 2016 we recorded the following amounts of fee income (in thousands):

 

     2018      2017      2016  

Prepayment, amendment and loan administration fees

   $ 43      $ 74      $ 498  

Commitment fees and discounts accreted and premiums amortized into interest income

     397        367        472  
  

 

 

    

 

 

    

 

 

 

Total fee income

   $ 440      $ 441      $ 970  
  

 

 

    

 

 

    

 

 

 

Distributions

We record distributions to stockholders on the ex-dividend date. We currently intend that our distributions each year will be sufficient to maintain our status as a RIC for federal income tax purposes and to eliminate federal excise tax liability. We currently intend to make distributions to stockholders on a quarterly basis so that substantially all of our net taxable income is distributed on an annual basis. We also intend to make distributions of net realized capital gains, if any, at least annually. However, we may in the future decide to retain such capital gains for investment and designate such retained amounts as deemed distributions. Each quarter, we estimate our annual taxable earnings. The Board of Directors considers this estimate and determines the distribution amount, if any. We generally declare our distributions each quarter and pay them shortly thereafter. The following table summarizes our recent distribution history:

 

Declaration Date

   Per Share
Amount
    

Record Date

  

Payment Date

March 14, 2017

   $ 0.02      March 31, 2017    April 7, 2017

June 16, 2017

     0.02      June 30, 2017    July 10, 2017

September 18, 2017

     0.02      September 30, 2017    October 9, 2017

December 12, 2017

     0.02      December 31, 2017    January 9, 2018

March 14, 2018

     0.02      March 31, 2018    April 9, 2018

May 8, 2018

     0.02      June 30, 2018    July 9, 2018

September 13, 2018

     0.02      September 30, 2018    October 9, 2018

December 12, 2018

     0.02      December 31, 2018    January 9, 2019

We determine the tax characteristics of our dividend distributions as of the end of the fiscal year, based on the taxable income for the full year and distributions paid during the year. Taxable income available for distribution differs from consolidated net investment income under GAAP due to (i) temporary and permanent differences in income and expense recognition, (ii) capital gains and losses, (iii) activity at taxable subsidiaries, and (iv) the timing and period of recognition regarding dividends declared in December of one year and paid in January of the following year. The tax characteristics of distributions paid in 2018 represented $1.3 million from ordinary income, $0.3 million from return of capital and none from capital gains. For tax purposes, 100% of the $0.4 million dividend declared in December 2018 and paid on January 9, 2019 will be applied to 2019. For tax purposes, 100% of the $0.4 million dividend paid on January 9, 2018 was applied to 2018 taxable income.

We have established an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend, our plan agent automatically reinvests a stockholder’s cash dividend in additional shares of our common stock unless the stockholder, or his or her broker, specifically “opts out” of the dividend reinvestment plan and elects to receive cash dividends. It is customary practice for many brokers to “opt out” of dividend reinvestment plans on behalf of their clients unless specifically instructed otherwise.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

The purpose of the plan is to provide stockholders with a method of investing cash dividends and distributions in additional shares at the current market price without charges for record-keeping, custodial and reporting services. Any stockholder of record may elect to partially participate in the plan, or begin or resume participation at any time, by providing the plan agent with written notice.

The plan agent of our dividend reinvestment plan purchases shares in the open market for credit to the accounts of plan participants unless the average of the closing sales prices for the shares for the five days immediately preceding the payment date exceeds 110% of the most recently reported net asset value per share.

The table below summarizes recent participation in our dividend reinvestment plan (in thousands, except percentages, shares and price per share):

 

Dividend

   Participating
Shares
     Percentage of
Outstanding
Shares
    Total
Distribution
     Cash
Dividends
     Common Stock Dividends  
   Purchased
in Open
Market
     Price per
Share
 

March 2017

     115,000        0.5   $ 403      $ 401      $ 2      $ 1.63  

June 2017

     111,000        0.5     403        401        2        1.32  

September 2017

     107,000        0.5     403        401        2        1.33  

December 2017

     89,000        0.4     403        401        2        1.20  

March 2018

     93,000        0.4     403        401        2        1.47  

June 2018

     127,000        0.6     403        401        2        1.62  

September 2018

     125,000        0.6     403        401        2        1.57  

December 2018

     97,000        0.4     403        401        2        1.29  

Income Taxes

For federal income tax purposes, we operate so as to qualify as a RIC under Subchapter M of Chapter 1 of the Code. As a RIC, we are generally not subject to corporate-level U.S. federal income taxes on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) that we distribute to our stockholders. We have distributed and intend to distribute sufficient dividends to eliminate taxable income. We may also be subject to federal excise tax if we do not distribute an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year (taking into account certain deferrals and elections), (2) 98.2% of our capital gain net income, computed for the one year period ended October 31 of that calendar year, and (3) 100% of any ordinary income or capital gain net income not distributed or taxed in prior years. Dividends to stockholders are recorded on the ex-dividend date. We currently intend to make sufficient distributions each year to maintain our status as a RIC for federal income tax purposes and to avoid excise taxes.

Certain of our wholly owned subsidiaries, or Taxable Subsidiaries, have elected to be taxed as corporations for federal income tax purposes. The Taxable Subsidiaries hold certain of our portfolio investments and are consolidated for financial reporting purposes, but not for income tax reporting purposes. These Taxable Subsidiaries permit us to hold equity investments in portfolio companies that are “pass through” entities for tax purposes, in order to comply with the “source-of-income” requirements that must be satisfied to maintain our qualification as a RIC. The Taxable Subsidiaries may generate net income tax expense or benefit, which is reflected on our Consolidated Statements of Operations.

We record any tax interest and penalties in other general and administrative expenses on our Consolidated Statement of Operations. Tax interest and penalties were immaterial for all periods presented.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (“ASU 2014-09”). This 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 2014-09 are effective for annual reporting periods beginning after December 31, 2017, including interim periods within that period. The application of this guidance did not have a material impact on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08 - Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). This guidance amends the amortization period for certain purchased callable debt securities held at a premium. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The application of this guidance will not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements pertaining to fair value measurement of Level 3 securities for public companies. Under the new standard, reporting entities can remove the disclosures no longer required and amend the disclosures immediately with retrospective application. The effective date for the additional disclosures for all public and nonpublic companies is for fiscal years, and interim periods within those years, beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures immediately and delay adoption of the additional disclosures until their effective date. The Company has elected to early adopt ASU 2018-13 in the current annual period. No significant changes were made to the Company’s fair value disclosures in the Notes to the Consolidated Financial Statements in order to comply with ASU 2018-13.

Securities Exchange Commission (“SEC”) Disclosure Update and Simplification: In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification (the “SEC Release”), amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. The final rule is effective for all filings on or after November 5, 2018, therefore, the Company adopted the SEC Release in the current annual period. The SEC Release requires presentation changes to the Company’s Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Net Assets. Prior to adoption, the Company presented, in accordance with previous SEC rules, distributable earnings on the Consolidated Statements of Financial Condition, as three components: 1) undistributed net investment income; 2) net unrealized appreciation (depreciation) on investments and secured borrowings; and 3) net realized gain (loss) on investments and presented distributions from distributable earnings on the Consolidated Statements of Changes in Net Assets as two components: 1) distributions from net investment income; and 2) distributions from realized gain. In accordance with the SEC Release, distributable earnings and distributions from distributable earnings are shown in total on the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Net Assets, respectively. The changes in presentation have been retrospectively applied to the Consolidated Statement of Financial Condition as of December 31, 2017 and to the Consolidated Statements of Changes in Net Assets for the years ended December 31, 2017 and 2016. The following tables provide reconciliations of retrospective changes applied to prior periods.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Consolidated Statement of Financial Condition - The table below provides a reconciliation for previously disclosed components of distributable earnings on the Consolidated Statement of Financial Condition as of December 31, 2017 to total distributable earnings as of December 31, 2017 as disclosed in the current filing.

 

     December 31, 2017  

Undistributed net investment income (loss)

   $ (2,113

Net unrealized appreciation (depreciation) on investments

     (87,646

Net realized gain (loss) on investments

     (97,043
  

 

 

 

Distributable earnings (loss)

   $ (186,802
  

 

 

 

Consolidated Statements of Changes in Net Assets - Below is a reconciliation representing previously disclosed distributions from net investment income and realized gain for the years ended December 31, 2017 and 2016 to distributions from distributable earnings as disclosed in the current filing.

 

    

Years ended December 31,

 
     2017      2016  

Distribution to stockholders:

     

Distributions from net investment income

   $ (469    $ (4,841

Distribution from realized gains

     —          —    
  

 

 

    

 

 

 

Distribution from distributable earnings

   $ (469    $ (4,841
  

 

 

    

 

 

 

Note 3: Credit Facility and Borrowings

Credit Facility

We are party to a Credit Agreement (the “Credit Facility”), dated September 9, 2016, with MidCap Financial Trust, as administrative agent, which replaced our prior Third Amended and Restated Revolving Credit Agreement, as amended, with SunTrust Bank, as administrative agent (the “Investment Facility”). The initial size of the Credit Facility was $56.5 million with a maturity date of March 9, 2018, with an option to extend for a six-month period, subject to certain conditions. The initial proceeds of $40.5 million from the Credit Facility were used to pay off the $38.5 million outstanding balance on the Investment Facility, pay transaction expenses and provide balance sheet cash. The remaining $16.0 million consisted of a delayed draw term loan and was committed for one year.

On November 10, 2017, we entered into an amendment to the Credit Facility whereby we agreed to make a voluntary principal prepayment in the amount of $4.5 million, reducing the total principal amount outstanding to $36.0 million, and the lenders agreed not to test certain covenants at certain determination dates.

On February 2, 2018, we exercised the option to extend the Credit Facility through September 9, 2018.

On September 7, 2018 we entered into an amendment to extend the maturity date of the Credit Facility to September 9, 2019, which can be extended for an additional six-month period at the Company’s option. In connection with the extension, the Company made a repayment of principal of $7.0 million of its Credit Facility, reducing the principal amount outstanding to $29.0 million. The $7.0 million principal repayment is available to the Company to be re-borrowed as a delayed draw term loan, which is committed until September 9, 2019. In addition, the interest rate for the borrowings under the Credit Facility was reduced to Libor plus 4.95% for Eurodollar Loans and prime plus 3.95% for Base Rate Loans. Certain financial covenants were also amended.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

As of December 31, 2018, the total amount outstanding under the Credit Facility was $29.0 million with $7.0 million available to draw. The total amount outstanding on the Credit Facility is shown net of unamortized debt issuance costs of $0.1 million on our Consolidated Balance Sheet as of December 31, 2018. Substantially all of our assets, except our investments in U.S. Treasury Bills, are pledged as collateral for the obligations under the Credit Facility. The Credit Facility bears an interest rate of Adjusted LIBOR plus 4.95% for Eurodollar Loans, subject to a 1% LIBOR floor, and Base Rate plus 3.95% for Base Rate Loans. As of December 31, 2018 the interest rate on our outstanding balance of $29.0 million was 7.3%.

The Credit Facility contains affirmative and reporting covenants and certain financial ratio and restrictive covenants. We have complied with these covenants from the date of the Credit Agreement through December 31, 2018, and had no existing defaults or events of default under the Credit Facility. The financial covenants, with terms as defined in the Credit Agreement, are:

 

 

maintain a Debt to Tangible Net Worth Ratio of not more than 1.00:1.00 as determined on the last day of each calendar month,

 

 

maintain at all times a minimum liquidity in the form of Cash or Cash Equivalents of at least $1.0 million,

 

 

maintain a Debt to Fair Market Value Ratio of not more than 0.50:1.00 at any time, and

 

 

maintain the Fair Market Value of Liquid Portfolio Investments as a percentage of outstanding aggregate principal balance to not be less than 100% through September 9, 2019.

Repurchase Agreements

At the end of each quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which includes purchasing U.S. Treasury Bills, by utilizing repurchase agreements on a temporary basis. On December 21, 2018, we purchased $15.0 million of U.S. Treasury Bills and contemporaneously entered into a $14.7 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $15.0 million of U.S. Treasury Bills and $0.3 million of cash as collateral under the repurchase agreement. We repaid the $14.7 million borrowed under the repurchase agreement, and was returned the $0.3 million cash collateral, net of a $14.0 thousand financing fee, upon maturity of the U.S. Treasury Bills on January 2, 2019. We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability December 31, 2018.

On December 26, 2017, we purchased $20.0 million of U.S. Treasury Bills and contemporaneously entered into a $19.6 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $20.0 million of U.S. Treasury Bills and $0.4 million of cash as collateral under the repurchase agreement. We repaid the amount borrowed under the repurchase agreement, and was returned the $0.4 million cash collateral, net of a $7.8 thousand financing fee, upon maturity of the U.S. Treasury Bills on January 4, 2018. We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability at December 31, 2017.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Our average amount of debt outstanding during 2018 was $33.8 million and the average interest rate was 7.2%. During the years ended December 31, 2018, 2017 and 2016, interest expense and bank fees included the following (in thousands):

 

     2018      2017      2016  

Interest expense on borrowed amounts

   $ 2,496      $ 2,664      $ 2,816  

Commitment fees on unborrowed amounts

     11        56        39  

Amortization of deferred loan and debt issuance costs

     435        1,172        928  

Bank service charges

     42        34        36  
  

 

 

    

 

 

    

 

 

 

Interest expense and bank fees

   $ 2,984      $ 3,926      $ 3,819  
  

 

 

    

 

 

    

 

 

 

Note 4: Common Stock

During the years ended December 31, 2018 and December 31, 2017 there were no share repurchases.

Under the Credit Facility, we are prohibited from repurchasing shares of our common stock.

Note 5: Investment Management

Investment Advisory Agreement

On September 30, 2014, we entered into the Investment Advisory Agreement with OHA, an investment adviser registered under the Advisers Act pursuant to which OHA replaced NGP Investment Advisor, LP as our investment advisor. The Investment Advisory Agreement was most recently approved by our Board of Directors, a majority of whom are not “interested” persons (as defined in the 1940 Act) of us, on August 2, 2018. Pursuant to the Investment Advisory Agreement, OHA implements our business strategy on a day-to-day basis and performs certain services for us, subject to the supervision of our Board of Directors. Under the Investment Advisory Agreement, we pay OHA a fee consisting of two components — a base management fee and an incentive fee.

Base Management Fee: The base management fee is paid quarterly in arrears, and is calculated by multiplying the average value of our total assets (excluding cash, cash equivalents and U.S. Treasury Bills that are purchased with borrowed funds solely for the purpose of satisfying quarter-end diversification requirements related to our election to be taxed as a RIC under the Code), as of the end of the two immediately prior fiscal quarters, by a rate of 1.75% per annum, with a 0.25% reduction in this 1.75% annual rate for the first year following September 30, 2014. For the years ended December 31, 2018 and December 31, 2017, we incurred $1.5 million and $1.9 million in base management fees, respectively.

Incentive Fee: The incentive fee consists of two parts. The first part, the investment income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the fiscal quarter for which the fee is being calculated. Pre-incentive fee net investment income means interest income, dividend income, royalty payments, net profits interest payments, and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence, monitoring and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Accordingly, we may pay an incentive fee based partly on accrued investment income, the collection of which is uncertain or deferred. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less liabilities at the end of the immediately preceding fiscal quarter) is compared to a “hurdle rate” of 1.75% per quarter (7% annualized). OHA receives no incentive fee for any fiscal quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate. OHA receives an incentive fee equal to 100% of our pre-incentive fee net investment income for any fiscal quarter in which our pre-incentive fee net investment income exceeds the hurdle rate but is less than 2.1875% (8.75% annualized) of net assets (also referred to as the “catch up” provision) plus 20% of our pre-incentive fee net investment income for such fiscal quarter greater than 2.1875% (8.75% annualized) of net assets. For the years ended December 31, 2018 and December 31, 2017 we did not incur any investment income incentive fees. For the year ended December 31, 2016 we incurred $0.3 million in investment income incentive fees, respectively.

The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each fiscal year (or, upon termination of the Investment Advisory Agreement, as of the termination date). The capital gains incentive fee is equal to 20% of our cumulative aggregate realized capital gains from September 30, 2014 through the end of that fiscal year, computed net of our cumulative aggregate realized capital losses and cumulative aggregate unrealized depreciation on investments for the same time period. The aggregate amount of any previously paid capital gains incentive fees to OHA is subtracted from the capital gains incentive fee calculated. If such amount is negative, then there is no capital gains fee for such year. For the purposes of the capital gains incentive fee, any gains and losses associated with our investment portfolio as of September 30, 2014 shall be excluded from the capital gains incentive fee calculation.

On November 10, 2017, we entered into an Incentive Fee Waiver Agreement with OHA whereby OHA agreed to waive any incentive fees earned relating to fiscal years 2017 and 2018. Under the Incentive Fee Waiver Agreement, any capitalized gains fees that would have been earned and accrued during 2017 and 2018, which under the Investment Advisory Agreement would not have been paid until 2018 and 2019, respectively, will be waived. For the year ended December 31, 2018 there were no capital gains incentive fees that would have been earned. For the year ended December 31, 2017, OHA waived $89,000 of capital gains incentive fee that would have been earned in 2017 and paid in 2018.

The Investment Advisory Agreement may be terminated at any time, without the payment of any penalty, by a vote of our Board of Directors or a vote of the holders of at least a majority of our outstanding voting securities (within the meaning of the 1940 Act) on 60 days’ written notice to OHA, and would automatically terminate in the event of its “assignment” (within the meaning of the 1940 Act). OHA may terminate the Investment Advisory Agreement without penalty by providing us at least than 60 days’ written notice. Pursuant to the Investment Advisory Agreement, OHA pays the compensation expense of its investment professionals, who provide management and investment advisory services to us. We bear all other costs and expenses of our operations and transactions.

Administration Agreement

Under the Administration Agreement, OHA furnishes us with certain administrative services, personnel and facilities. The Administration Agreement was most recently approved by our Board of Directors on August 2, 2018. Payments under the Administration Agreement are equal to our allocable portion of OHA’s overhead in performing its obligations under the Administration Agreement, including all administrative services necessary


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

for our operation and the conduct of our business. The aggregate amount of certain costs and expenses payable by us under the Investment Advisory Agreement and the Administration Agreement for the period from October 1, 2014 to September 30, 2015 shall not exceed $2.5 million, or the Cap; provided that interest expense and bank fees, management and incentive fees, legal and professional fees, insurance expenses, taxes and costs related to the change in investment advisor are not subject to the Cap. Following the expiration of the Cap period, we completed the reconciliation of the related costs and expenses which resulted in approximately $0.5 million credit from OHA and was reflected in general and administrative expenses as of December 31, 2015. The Administration Agreement may be terminated at any time, without penalty, by a vote of our Board of Directors or by OHA upon 60 days’ written notice to the other party.

We owed $0.6 million and $0.6 million to OHA under the Administration Agreement as of December 31, 2018 and December 31, 2017, respectively, for expenses incurred on our behalf for the final month of the respective quarterly period. We include these amounts in accounts payable and accrued expenses on our Consolidated Balance Sheets.

Note 6: Income Taxes

We operate so as to qualify, for tax purposes, as a RIC under Subchapter M of Chapter 1 of the Code. As a RIC, we are generally not subject to corporate-level U.S. federal income taxes on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) that we distribute to our stockholders. To qualify as a RIC, we are required, among other things, to distribute to our stockholders each year at least 90% of investment company taxable income, as defined by the Code, and to meet certain asset-diversification requirements.

The Taxable Subsidiaries have elected to be taxed as corporations for federal income tax purposes. The Taxable Subsidiaries hold certain of our portfolio investments and are consolidated for financial reporting purposes, but not for income tax reporting purposes. These Taxable Subsidiaries permit us to hold equity investments in portfolio companies that are “pass through” entities for tax purposes, in order to comply with the “source-of-income” requirements that must be satisfied to maintain our qualification as a RIC. The Taxable Subsidiaries may generate net income tax expense or benefit, which is reflected on our Consolidated Statements of Operations.

On December 22, 2017, the U.S. government enacted significant tax legislation commonly referred to as the Tax Act and Job Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent, (2) repealing the Corporate Alternative Minimum Tax (AMT), (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (4) creating a new limitation on deductible interest expense, (5) changing rules related to the use and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 and; (6) the requirement to pay a one-time transition tax on all undistributed earnings of foreign subsidiaries.

Recently, the SEC staff also issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimated in the financial statements. If we cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

In connection with our initial analysis of the impact of the Tax Act, we have recorded a net tax expense of approximately $12.2 million in the period ending December 31, 2017 which consists of a reduction of deferred tax assets previously valued at 34%. The reduction in the statutory U.S. federal rate is expected to positively impact our future U.S. after tax earnings.

In addition, due to the Tax Act, we are eligible for a full refund of our AMT credit carryforward. Accordingly, the valuation allowance related to this AMT credit carryforward has been released in the amount of $632,000, or $0.03 per share. The valuation allowance related to other net deferred tax assets remains. Therefore, the associated valuation allowance has been released for the full AMT credit carryforward at this time. This provisional amount of $0.7 million is based on our current understanding of the impact of the Tax Act, which may change in the near future as notices and regulations regarding the Tax Act are issued. We need more time and further guidance to more accurately account for the tax law changes under ASC 740. While we feel confident we have accounted for the other material changes in the tax law correctly, any future notices or regulations further clarifying the law could alter our analysis.

Our estimate of the impact of the Tax Act is based upon our analysis and interpretations of currently available information. Uncertainties remain regarding the impact of the Tax Act due to future regulatory and rule-making processes, prospects of additional corrective or supplemental legislation, and potential trade or other litigation. These uncertainties, along with our completion of the calculations and potential changes in our initial assumptions as new information becomes available, could cause the actual charge to ultimately differ materially from the provisional amount recorded in 2017 related to the enactment of the Tax Act.

Tax years 2014 through 2017 with respect to the Company and our Taxable Subsidiaries are open to future IRS examination. Our Taxable Subsidiaries have federal net operating loss carryforwards of $87.9 million that expire in various years through 2037. Federal and state laws impose limitations on the utilization of capital losses and NOLs in the event of an “ownership” change for tax purposes, as defined by Sections 382 and 383 of the Internal Revenue Code. An ownership change at either the RIC entity or Taxable Subsidiary level, if one were to occur, would limit our ability to use pre-ownership change NOLs to offset post-ownership change taxable income. An ownership change would also limit our ability to use pre-ownership change capital losses to offset post-ownership change capital gains.

Deferred income tax expense (benefit) results from temporary differences in the recognition of income and expenses for financial reporting purposes and for income tax purposes. The significant components of the income tax effects of these temporary differences, representing deferred income tax assets and liabilities are as follows (in thousands):

 

     December 31,  
     2018      2017  

Deferred tax assets

     

Net operating loss carryforwards

   $ 18,455      $ 8,429  

Unrealized losses, net

     35        12,339  

AMT credit carryforward

     316        632  

Capital loss carryforward

     3,912        180  
  

 

 

    

 

 

 

Total gross deferred tax assets

     22,718        21,580  

Less valuation allowance

     (21,751      (20,459
  

 

 

    

 

 

 

Net deferred tax assets

     967        1,121  
  

 

 

    

 

 

 


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

     December 31,  
     2018      2017  

Deferred tax liabilities

     

Investment in partnerships-Federal

   $ (651    $ (489

Unrealized gains, net

     —          —    
  

 

 

    

 

 

 

Total gross deferred tax liabilities

     (651      (489
  

 

 

    

 

 

 

Net deferred tax assets (liabilities)

   $ 316      $ 632  
  

 

 

    

 

 

 

Federal and state income tax provisions (benefits) on net investment income, capital gains (losses) and unrealized appreciation (depreciation) on investments are as follows (in thousands):

 

     Year Ended December 31,  
     2018      2017      2016  

Current:

        

U.S. federal – capital (AMT)

   $ —        $ —        $ 62  

U.S. federal - capital loss on investment

     (316      (62      —    

State – net investment income

     15        22        7  
  

 

 

    

 

 

    

 

 

 
   $ (301    $ (40    $ 69  
  

 

 

    

 

 

    

 

 

 

Deferred:

        

U.S federal - realized loss on investment

   $ 316      $ (632    $ —    

U.S. federal – unrealized

     —          —          —    
  

 

 

    

 

 

    

 

 

 
   $ 316      $ (632    $ —    
  

 

 

    

 

 

    

 

 

 

Total

   $ 15      $ (672    $ 69  
  

 

 

    

 

 

    

 

 

 

Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 21% to net investment income before provision for income taxes. These differences and the differences between the statutory federal tax rate and the effective income tax rate were as follows (in thousands, except percentages):

 

     Year Ended December 31,  
     2018     2017     2016  

Net income (loss) before taxes

   $ (4,206     $ (31,775     $ (25,376  

Provision (benefit) at the statutory rate

     (883     21     (10,803     34     (8,628     34

Increase (decrease) in provision resulting from:

            

RIC loss (income) not subject to income taxes

     816       (19 )%      (1,809     6     3,335       (13 )% 

State income taxes

     15       —       22       —       7       —  

Return to provision

     —         —         (1,023     3     —         —  

Effect of rate change

     —         —       12,239       (39 )%      —         —  

Valuation allowance

     84       (2 )%      714       (2 )%      5,361       (21 )% 

Other

     (17     —       (12     —       (6     —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income tax provision (benefit), net

   $ 15       —     $ (672     2   $ 69       —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

       —         2       —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Note 7: Commitments and Contingencies

As of December 31, 2018, we had investments in 26 active portfolio companies totaling $111.3 million. Of these 26 active portfolio companies, the Company had already funded investments in the amount of $108.1 million and there were outstanding unfunded commitments of $1.2 million related to our investment in ClearChoice revolving credit facility, $1.1 million related to an investment we committed to in December of 2018, and $3.3 million due to broker for unsettled trades. As of December 31, 2017, we had investments in 14 active portfolio companies totaling $155.7 million. Of these 14 active portfolio companies, the Company had already funded investments in the amount of $155.7 million and there were no remaining outstanding unfunded commitments.

We have continuing obligations under the Investment Advisory Agreement and the Administration Agreement with OHA. See Note 5. The agreements provide that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its duties and obligations, OHA and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with OHA will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of services under the agreements or otherwise as our investment advisor or administrator. The agreements also provide that OHA and its affiliates will not be liable to us or any stockholder for any error of judgment, mistake of law, any loss or damage with respect to any of our investments or any action taken or omitted to be taken by OHA in connection with the performance of any of its duties or obligations under the agreements or otherwise as investment advisor or administrator to us, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. In the normal course of business, we enter into a variety of undertakings containing a variety of representations that may expose us to some risk of loss. We do not expect significant losses, if any, from such undertakings.

In the second quarter ended June 30, 2018, we wrote off our investment in Castex Energy 2005, L.P., or Castex. Previously, Castex filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on October 16, 2017. According to the filing, Castex and its affiliates in bankruptcy entered into a restructuring support agreement with pre-petition lenders holding approximately 86% in principal amount of claims under the pre-petition credit facility. On February 26, 2018, we agreed to a settlement and agreed to withdraw our confirmation objections to the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy code in exchange for the potential to receive some amount of cash and warrants in the reorganized company. This agreement was approved by the Bankruptcy court on February 27, 2018. At this time we are unable to determine the value of a recovery, if any, resulting from the settlement which will be dependent upon the ultimate pool of unsecured claims.

Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal proceeding, other than those described below, individually or in the aggregate, would be material to our business, financial condition or cash flows.

ATP Litigation. This matter is now concluded in our favor. As discussed extensively in prior reports, we filed a lawsuit against ATP Oil & Gas Corporation styled: OHA Investment Corporation v. ATP Oil and Gas Corporation, Adv. Proc. No. 10-03443, in the U.S. Bankruptcy Court for the Southern District of Texas. The claims asserted by the service companies or Statutory Lien Claimants were resolved in OHAI’s favor by the


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

United States Court of Appeals for the Fifth Circuit. The deadline for the Statutory Lien Claimants to file a petition for certiorari with the United States Supreme Court was September 4, 2018. No appeal was filed. Accordingly, we consider the matter concluded and the Fifth Circuit’s decision final.

Status of Investment. As of December 31, 2018, our unrecovered investment was $39.7 million, and we had received aggregate royalty payments of $39.2 million since the date of ATP’s bankruptcy filing. As of December 31, 2018, we had incurred legal and consulting fees totaling $6.5 million in connection with the enforcement of our rights under the ORRIs. On various occasions, we have provided notice that such legal expenses will be added to our unrecovered investment balance to the extent they are not reimbursed. To date, we have not received any payments on account of legal expenses aside from our receipt of regular monthly production payments. As a result, we add our legal expenses to the unrecovered investment balance in accordance with our transaction documents. As of December 31, 2018, $5.4 million of the $6.5 million in legal and consulting fees have been added to, and are thus included in the unrecovered investment balance under the terms of our transaction documents. No legal expenses have been added to our unrecovered investment balance during the year ended December 31, 2018. Please see our discussion regarding the history of the asset purchase by Bennu Oil & Gas LLC from ATP, and the Bennu Chapter 7 bankruptcy, in the Notes to our December 31, 2017 Consolidated Financial Statements. Production recommenced on the MC941 and MC 942 wells in April 2018. Previously, these wells ceased production in November 2016 as a result of the Bennu Chapter 7 bankruptcy. In August 2017, the bankruptcy court authorized the sale of certain assets including MC 941 and MC 942 to Equinor, formerly known as StatOil USA E&P, Inc. Equinor recommenced production on these wells in April 2018. Equinor disputes that legal fees are eligible to be included in our unrecovered investment balance, but given that current production is not expected to be sufficient to pay the primary sum and notional interest accruing (which Equinor does not dispute), this legal fee issue is not ripe for debate and efforts are not currently ongoing to resolve it. We note that the fair value of our investment in ATP ORRI is $4.8 million as of December 31, 2018.

Through December 31, 2018, we received post-petition royalty payments from the Gomez properties and the Telemark properties in the amount of $8.3 million and $30.9 million, respectively.

Note 8: Dividends and Distributions

We declared dividends for the years ended December 31, 2018 and December 31, 2017 totaling $1.6 million, or $0.08 per share, and $1.6 million, or $0.08 per share, respectively. The tax characteristics of deemed distributions for 2018 represented $1.3 million from ordinary income, $0.3 million from return of capital and none from capital gains. The tax characteristics of deemed distributions in 2017 represented $1.2 million from ordinary income, $1.1 million from return of capital and none from capital gains. For tax purposes, 100% of the $0.4 million distribution paid on January 9, 2019 was deemed to be distributed in 2019. Also, 100% of the $0.4 million distribution paid on January 9, 2018 was deemed to be distributed in 2018 for tax purposes.

The following table summarizes the differences between financial statement net increase in net assets resulting from operations and taxable income available for distribution to stockholders for the years ended December 31, 2018, 2017 and 2016 (in thousands):

 

     Year Ended December 31,  
     2018     2017     2016  

Net increase (decrease) in net assets resulting from operations

   $ (10,248   $ (31,108   $ (25,446

Adjustments:

      

Net change in unrealized (appreciation) depreciation, net of income tax (benefit) provision

     (45,033     21,268       4,938  

Net revenue, income and expenses from Taxable Subsidiaries

     (37     276       (328

Realized (gain) loss of Taxable Subsidiaries

     —         —         6,626  


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

     Year Ended December 31,  
     2018     2017     2016  

Realized (gain) loss offset by capital loss carryforwards

   $ 55,952     $ 10,869     $ 20,385  

Defaulted loan interest

     828       —         196  

Costs related to strategic alternatives review

     (179     (179     (542

Income from investment in Passive Foreign Investment Company

     —         —         —    

State taxes, tax penalty, interest and fees

     37       22       (19

Income tax (benefit) provision

     —         —         3  

Other

     2       6       1  
  

 

 

   

 

 

   

 

 

 

Taxable income available for distribution to stockholders

     1,322       1,154       5,814  

Less:

      

Dividends declared

     1,614       1,614       4,841  

Dividends payable at prior year end

     403       1,210       2,421  

Dividends payable at current year end

     (403     (403     (1,210

Current year IRC Section 852(b)(7) dividend payable

     —         —         121  

Prior year IRC Section 852(b)(7) dividend payable

     —         (121     (359
  

 

 

   

 

 

   

 

 

 

Current year deemed distributions

     1,614       2,300       5,814  
  

 

 

   

 

 

   

 

 

 

Over distribution

   $ (292   $ (1,146   $ —    
  

 

 

   

 

 

   

 

 

 

As of December 31, 2018, the components of net assets (excluding paid in capital) on a tax basis consisted of net unrealized depreciation on portfolio investments of $43.9 million and other temporary differences of $2.8 million. As of December 31, 2018, we had long-term and short-term capital loss carryforwards of $128.2 million and $1.2 million, respectively, which do not expire. In addition, we have a $22.4 million remaining capital loss carryforward balance generated in the year ended December 31, 2010, that expired in 2018, for a total remaining capital loss carryforward of $129.4 million at December 31, 2018. At December 31, 2018, the aggregate cost of total portfolio investments for federal income tax purposes was $124.5 million, resulting in gross unrealized appreciation of $0.4 million and gross unrealized depreciation of $44.3 million. The difference between cost of investments for book and tax amounts for federal income tax purposes was due primarily to timing differences in recognizing certain gains and losses on investment transactions.

Note 9: Reclassifications

GAAP requires adjustments to certain components of net assets to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on total net assets or net asset value per share. These reclassifications are primarily due to non-deductible meal expenses, and expired capital loss carryforwards. The table below summarizes the reclassifications from undistributed net investment income (loss), undistributed net realized capital gain (loss), and paid-in capital in excess of par for the years ended December 31, 2018, 2017, and 2016 (in thousands):

 

Year

   Undistributed
Net Investment
Income (Loss)
     Undistributed
Net Realized
Capital Gain
(Loss)
     Paid-in Capital
in Excess
of Par
 

2018

   $ 2      $ 22,351      $ (22,353

2017

     201        (196      (5

2016

     1,413        4,869        (6,282


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

Note 10: Fair Value

Our investments consisted of the following as of December 31, 2018 and 2017:

 

     December 31, 2018     December 31, 2017  

(Dollar amounts in thousands)

   Cost      % of
total
    Fair
Value
     % of
total
    Cost      % of
total
    Fair
Value
     % of
total
 

Portfolio investments

                    

First lien secured debt

   $ 496        0.4   $ 487        0.6   $ —          —     $ —          —  

Revolving loan facility

     361        0.3     336        0.4     —          —       —          —  

Unsecured term loan

     3,251        2.5     3,251        4.0     —          —       —          —  

Second lien debt

     47,212        37.4     46,770        58.0     29,748        16.9     30,679        36.2

Subordinated debt

     31,064        24.6     9,984        12.4     39,265        22.4     33,878        39.9

Limited term royalties

     26,450        20.9     4,778        6.0     27,845        15.8     —          —  

Redeemable preferred units

     —          —       —          —       56,315        32.1     —          —  

CLO residual interests

     —          —       —          —       19        —       209        0.2

Equity securities

     2,500        2.0     —          —       2,500        1.4     164        0.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total portfolio investments

     111,334        88.1     65,606        81.4     155,692        88.6     64,930        76.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Government securities

                    

U.S. Treasury Bills

     14,989        11.9     14,989        18.6     19,994        11.4     19,994        23.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total investments

   $ 126,323        100.0   $ 80,595        100.0   $ 175,686        100.0   $ 84,924        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

ASC 820 defines fair value as the price that a seller would receive for an asset or pay to transfer a liability in an orderly transaction between independent, knowledgeable and willing market participants at the measurement date. The fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes the use of observable market inputs over unobservable entity-specific inputs. In accordance with ASC 820, we categorize our investments based on the inputs to our valuation methodologies as follows:

 

 

Level 1 — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

 

 

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

 

 

Level 3 — Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding what market participants would use to price the asset or liability based on the best available information.

Fair value accounting classifies financial assets and liabilities in their entirety based on the lowest level of input that is significant to the estimated fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment that may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels. We did not have any liabilities carried at fair value at December 31, 2018 or December 31, 2017. Amounts outstanding under our Credit Facility are carried at amortized cost in the Consolidated Balance Sheets. As of December 31, 2018, the estimated fair value of our Credit Facility approximated its carry value of $28.9 million. As of December 31, 2017, the fair value of our Credit Facility approximated its carry value of $35.8 million. The estimated fair value of the Credit Facility is determined by discounting projected remaining payments using market interest rates for borrowings of the Company.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

During 2018 or 2017, there were no transfers between Levels 3, 2 or 1 categories. During 2018 and 2017, none of our investments in portfolio companies changed between the categories of Control Investments, Affiliate Investments and Non-Affiliate Investments.

The following tables set forth our financial assets by level within the fair value hierarchy that we accounted for at fair value as of December 31, 2018 and 2017 (in thousands):

 

December 31, 2018

   Total      Level 1      Level 2      Level 3  

Portfolio investments

           

Affiliate investments

           

Subordinated debt

   $ 2,271      $ —        $ —        $ 2,271  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total affiliate investments

     2,271        —          —          2,271  

Non-affiliate investments

           

First lien secured debt

     487        —          —          487  

Second lien debt

     46,770        —          40,890        5,880  

Subordinated debt

     7,713        —          7,713        —    

Limited term royalties

     4,778        —          —          4,778  

Revolving loan facility

     336        —          —          336  

Unsecured term loan

     3,251        —          3,251        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-affiliate investments

     63,335        —          51,854        11,481  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio investments

     65,606        —          51,854        13,752  
  

 

 

    

 

 

    

 

 

    

 

 

 

Government securities

           

U.S. Treasury Bills

     14,989        14,989        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 80,595      $ 14,989      $ 51,854      $ 13,752  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2017

   Total      Level 1      Level 2      Level 3  

Portfolio investments

           

Affiliate investments

           

Subordinated debt

   $ 18,015      $ —        $ —        $ 18,015  

Equity securities

     164        —          —          164  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total affiliate investments

     18,179        —          —          18,179  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-affiliate investments

           

Second lien debt

     30,679        —          30,679        —    

Subordinated debt

     15,863        —          15,863        —    

CLO residual interests

     209        —          —          209  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-affiliate investments

     46,751        —          46,542        209  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio investments

     64,930        —          46,542        18,388  
  

 

 

    

 

 

    

 

 

    

 

 

 

Government securities

           

U.S. Treasury Bills

     19,994        19,994        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 84,924      $ 19,994      $ 46,542      $ 18,388  
  

 

 

    

 

 

    

 

 

    

 

 

 


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

The following table presents a roll-forward of the changes in fair value during the years ended December 31, 2018 and 2017 for all investments for which we determine fair value using unobservable (Level 3) factors (in thousands):

 

    First Lien
Secured
Debt

and
Limited

Term
Royalties
    Revolving
Loan
Facility
    Second
Lien Debt
    Subordinated
Debt and
Redeemable
Preferred
Units
    Equity
Securities
    CLO
Residual
Interests
    Total
Investments
 

Fair value at December 31, 2016

  $ —       $ —       $ 9,137     $ 49,340     $ 686     $ 1,773     $ 60,936  

Total gains, (losses) and amortization:

 

Net realized gains (losses)

    —         —         (12,659     —         —         —         (12,659

Net unrealized gains (losses)

    —         —         12,739       (35,517     (522     (53     (23,353

Net amortization of premiums, discounts and fees

    —         —         18       63       —         —         81  

New investments, repayments and settlements, net:

             

New investments

    —         —         —         —         —         —         —    

Payment-in-kind

    —         —         —         4,129       —         —         4,129  

Repayments and settlements

    —         —         (9,235     —         —         (1,511     (10,746

Transfers into Level 3

    —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value at December 31, 2017

  $ —       $ —       $ —       $ 18,015     $ 164     $ 209     $ 18,388  

Total gains, (losses) and amortization:

 

Net realized gains (losses)

    —           —         (56,315     —         —         (56,315

Net unrealized gains (losses)

    6,165       (26     (65     37,806       (164     (190     43,526  

Net amortization of premiums, discounts and fees

    (1,400     (13     (55     (2,140     —         (19     (3,627

New investments, repayments and settlements, net:

             

New investments

    500       2,875       6,000       —         —         —         9,375  

Payment-in-kind

    —           —         4,905       —         —         4,905  

Repayments and settlements

    —         (2,500     —         —         —         —         (2,500

Transfers into Level 3

    —           —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value at December 31, 2018

  $ 5,265     $ 336     $ 5,880     $ 2,271     $ —       $ —       $ 13,752  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We present net unrealized gains (losses) on our Consolidated Statements of Operations as “Net unrealized appreciation (depreciation) on investments.”


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

The following table summarizes the significant unobservable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique as of December 31, 2018 (fair value in thousands):

 

Type of Investment

  Fair
Value
   

Valuation
Technique

 

Significant
Unobservable
Inputs

  Range of
Inputs
    Weighted
Average
 

Non-Energy Investments:

     

First lien debt

  $ 487     Private transaction comparables   Market yield     9.0% - 10.0%       9.5

Second lien debt

    5,880     Private transaction comparables   Market yield     9.5% - 12.0%       11.7

Subordinated debt

    2,271     Market comparables   EBITDA multiples     4.0x - 6.0x       5.0

Revolving loan facility

    336     Private transaction comparables   Market yield     9.0% - 10.0%       9.5
 

 

 

         
    8,974          
 

 

 

         

Energy Investments:

         

Limited term royalties

    4,778     Discounted cash flow(1)   Discount rate     10.0% - 20.0%       15.0
 

 

 

         
    4,778          
 

 

 

         

Total Level 3 investments

  $ 13,752          
 

 

 

         

 

(1)

Cash flows are based on Proved Developed Producing reserves only. Estimated production volumes are based on a January 1, 2019 engineer’s reserve report.

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of December 31, 2018. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market multiples would result in an increase or decrease, respectively in the fair value.

Note 11: Financial Highlights

 

     Year Ended December 31,  
Per Share Data(1)    2018     2017     2016     2015     2014  

Net asset value, beginning of period

   $ 2.37     $ 3.99     $ 5.49     $ 7.48     $ 9.20  

Net investment income

     0.03       0.05       0.32       0.49       0.16  

Net realized and unrealized gain (loss) on investments(2)

     (0.54     (1.59     (1.58     (2.03     (1.24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (0.51     (1.54     (1.26     (1.54     (1.08
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

     Year Ended December 31,  
Per Share Data(1)    2018     2017     2016     2015     2014  

Distributions to common stockholders

          

Distributions from net investment income

   $ (0.07   $ (0.02   $ (0.24   $ (0.48   $ (0.47

Return of capital

     (0.01     (0.06     —         —         (0.17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in net assets from distributions

     (0.08     (0.08     (0.24     (0.48     (0.64

Effect of shares repurchased, gross

     —         —         —         0.03       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

   $ 1.78     $ 2.37     $ 3.99     $ 5.49     $ 7.48  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Market value, beginning of period

   $ 1.15     $ 1.72     $ 3.80     $ 4.69     $ 7.47  

Market value, end of period

   $ 1.01     $ 1.15     $ 1.72     $ 3.80     $ 4.69  

Market value return(3)

     (7.2 )%      (29.0 )%      (50.2 )%      (10.7 )%      (30.2 )% 

Net asset value return(4)

     (20.6 )%      (36.9 )%      (20.0 )%      (19.1 )%      (9.7 )% 

Ratios and Supplemental Data

          

($ and shares in thousands)

          

Net assets, end of period

   $ 35,909     $ 47,771     $ 80,493     $ 110,780     $ 154,164  

Average net assets

   $ 46,690     $ 60,411     $ 99,220     $ 143,394     $ 176,556  

Common shares outstanding, end of period

     20,172       20,172       20,172       20,172       20,616  

Total operating expenses/average net assets, before waived incentive fees(5)

     16.7     15.4     11.5     8.3     10.7

Total operating expenses/average net assets, net of waived incentive fees(5)

     16.7     15.3     11.5     8.3     10.7

Net investment income/average net assets, before waived incentive fees(5)(7)

     1.4     1.6     6.6     7.0     1.8

Net investment income/average net assets, net of waived incentive fees(5)(7)

     1.4     1.7     6.6     7.0     1.8

Portfolio turnover rate

     33.2     25.7     4.8     26.7     34.2

Expense Ratios (as a percentage of average net assets)(4)

          

Interest expense and bank fees

     6.4     6.5     3.9     2.4     1.2

Management fees(6)

     3.2     3.1     2.9     2.1     2.6

Incentive fees(6)

     —       0.1     0.3     0.7     —  

Incentive fees, net of waived incentive fees(6)

     —       —       0.3     0.7     —  

Costs related to strategic alternatives review

     0.2     —       —       —       3.4

Other operating expenses including provision for income taxes(5)(7)

     6.8     5.6     4.4     3.2     3.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses including provision for income taxes, before waived incentive fees(5)(7)

     16.6     15.3     11.5     8.4     10.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses including provision for income taxes, net of waived incentive fees(5)(7)

     16.6     15.2     11.5     8.4     10.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Per Share Data is based on weighted average number of common shares outstanding for the period.

(2)

May include a balancing amount necessary to reconcile the change in net asset value per share with other per share information presented. This amount may not agree with the aggregate gains and losses for the period because the difference in the net asset value at the beginning and end of the period may not equal the per share changes of the line items disclosed.


OHA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2018

 

(3)

Total return based on market value is calculated as the change in market value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with our dividend reinvestment plan.

(4)

Total return based on net asset value is calculated as the change in net asset value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with dividend reinvestment plan.

(5)

Net of legal fee reimbursements of $0.5 million, $1.6 million and $3.2 million in 2015, 2014 and 2013, respectively. Excluding these legal fee reimbursements, other operating expense ratio and total operating expense ratios would have been 3.7% and 8.9%, respectively, for the year ended December 31, 2015, 4.4% and 11.6%, respectively, for the year ended December 31, 2014 and 4.8% and 9.6%, respectively, for the year ended December 31, 2013.

(6)

On September 30, 2014, OHA replaced NGP Investment Advisor, LP as our investment advisor. Also, on November 10, 2017, we entered into an Incentive Fee Waiver Agreement with OHA whereby OHA agreed to waive any incentive fees earned relating to fiscal years 2017 and 2018. Under the Incentive Fee Waiver Agreement, any capital gains incentive fees that would have been earned and accrued during 2017 and 2018, which under our investment advisory agreement would not have been paid until 2018 and 2019, respectively, will be waived. For the year ended December 31, 2017, OHA waived $89,000 of capital gains incentive fee that would have been earned in 2017 and paid in 2018.

(7)

For the year ended December 31, 2015, we applied a credit to our expenses of $0.5 million from OHA related to expenses in excess of the cap under the Investment Advisory Agreement and the Administration Agreement. Excluding this credit, the net investment ratio would have been 6.6%, the net decrease in net assets resulting from operations ratio would have been (22.1)%, the other operating expenses ratio would have been 3.5% and the total operating expenses ratio would have been 8.7%.

Note 12: Selected Quarterly Financial Data (unaudited)

 

     Investment
Income
     Net Investment
Income (Loss)
    Net Realized
and Unrealized
Gain (Loss) on
Investments
    Net Increase
(Decrease) in Net
Assets Resulting
from Operations
 

Quarter Ended

   Total      Per
Share
     Total     Per
Share
    Total     Per
Share
    Total     Per
Share
 
     (In thousands, except per share amounts)  

March 31, 2017

   $ 2,455      $ 0.12      $ 193     $ 0.01     $ (19,284   $ (0.96   $ (19,091   $ (0.95

June 30, 2017

     2,475        0.12        145       0.01       (5,041     (0.25     (4,896     (0.24

September 30, 2017

     2,751        0.14        323       0.02       (8,508     (0.42     (8,185     (0.41

December 31, 2017

     2,591        0.13        367       0.02       697       0.03       1,064       0.05  

March 31, 2018

     2,283        0.11        (95     (0.01     1,827       0.09       1,732       0.09  

June 30, 2018

     2,627        0.13        667       0.03       341       0.02       1,008       0.05  

September 30, 2018

     1,886        0.09        56       0.00       (6,005     (0.29     (5,949     (0.29

December 31, 2018

     1,672        0.08        43       0.00       (7,082     (0.35     (7,039     0.35  


Schedule 12 — 14

OHA INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES(1)

December 31, 2018

(In Thousands)

 

Portfolio Company

   Investment(2)     Year Ended
December 31,
2018

Amount of
Interest
Credited to

Income(3)
    December 31,
2017

Fair Value
    Gross
Additions(4)
    Gross
Reductions(5)
    December 31,
2018

Fair Value
 

Control Investments

            
     $ —       $ —       $ —       $ —       $ —    
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal Control Investments

     $ —       $ —       $ —       $ —       $ —    
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Affiliate Investments

            

OCI Holdings, LLC

     Subordinated Note     $ 2,765     $ 18,015     $ 4,948     $ (20,692   $ 2,271  
    

OHA/OCI
Investments, LLC
Units(6)
 
 
 
    —         164       —       $ (164     —    
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal Affiliate Investments

     $ 2,765     $ 18,179     $ 4,948     $ (20,856   $ 2,271  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Control Investments and Affiliate Investments

     $ 2,765     $ 18,179     $ 4,948     $ (20,856   $ 2,271  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

This schedule should be read in conjunction with our Consolidated Financial Statements for the year ended December 31, 2018.

(2)

Units and common stock are generally non-income producing and restricted. The principal amount for debt, number of shares of common stock or number, or percentage of, units is shown in the Consolidated Schedule of Investments as of December 31, 2018.

(3)

Represents the total amount of interest and discount accretion credited to income for the portion of the year an investment was included in our Control Investments or Affiliate Investments categories, as applicable.

(4)

Gross additions include increases in investments resulting from new portfolio company investments, payment-in-kind interest and the amortization of discounts or fees. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation.

(5)

Gross reductions include increases in net unrealized depreciation and payment-in-kind reserve.

(6)

Non-income producing equity security.


PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

OHA INVESTMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts) 

 

    September 30,
2019
    December 31,
2018
 
    (unaudited)        

Assets

   

Investments in portfolio securities at fair value

   

Affiliate investments (cost: $26,028 and $26,028, respectively)

  $ 2,422     $ 2,271  

Non-affiliate investments (cost: $80,722 and $85,306, respectively)

    59,982       63,335  
 

 

 

   

 

 

 

Total portfolio investments (cost: $106,750 and $111,334, respectively)

    62,404       65,606  

Investments in U.S. Treasury Bills at fair value (cost: $9,999 and $14,989, respectively)

    9,999       14,989  
 

 

 

   

 

 

 

Total investments

    72,403       80,595  
 

 

 

   

 

 

 

Cash and cash equivalents

    4,497       3,124  

Accounts receivable and other current assets

    492       499  

Interest receivable

    425       224  

Other prepaid assets

    34       19  

Deferred tax asset

    158       316  
 

 

 

   

 

 

 

Total current assets

    5,606       4,182  
 

 

 

   

 

 

 

Total assets

  $ 78,009     $ 84,777  
 

 

 

   

 

 

 

Liabilities

   

Current liabilities

   

Due to broker

  $ 199     $ 3,251  

Distributions payable

    403       403  

Accounts payable and accrued expenses

    1,697       683  

Due to affiliate (Note 4)

    122       571  

Management and incentive fees payable (Note 4)

    351       366  

Income taxes payable

    39       39  

Repurchase agreement

    9,800       14,689  

Short-term debt, net of debt issuance costs

    29,894       —    
 

 

 

   

 

 

 

Total current liabilities

    42,505       20,002  
 

 

 

   

 

 

 

Long-term debt, net of debt issuance costs

    —         28,866  
 

 

 

   

 

 

 

Total liabilities

    42,505       48,868  
 

 

 

   

 

 

 

Commitments and contingencies (Note 6)

   

Net assets

   

Common stock, $.001 par value, 250,000,000 shares authorized; 20,172,392 and 20,172,392 shares issued and outstanding, respectively

    20       20  

Paid-in capital in excess of par

    211,907       211,907  

Total distributable earnings (loss)

    (176,423     (176,018
 

 

 

   

 

 

 

Total net assets

    35,504       35,909  
 

 

 

   

 

 

 

Total liabilities and net assets

  $ 78,009     $ 84,777  
 

 

 

   

 

 

 

Net asset value per share

  $ 1.76     $ 1.78  

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     For the three months
ended September 30,
    For the nine months
ended September 30,
 
     2019     2018     2019     2018  

Investment income:

        

Interest income:

        

Affiliate investments

   $ —       $ (209   $ —       $ 43  

Payment-in-kind from affiliate investments

     —         668       —         2,722  

Non-affiliate investments

     1,496       1,360       4,499       3,807  

Money market interest

     18       50       50       190  

Other income

     4       17       18       34  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     1,518       1,886       4,567       6,796  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Interest expense and bank fees

     620       767       1,860       2,391  

Management fees (Note 4)

     305       397       925       1,181  

Incentive fees (Note 4)

     (32     6       46       6  

Costs related to strategic alternatives review

     754       —         1,063       75  

Professional fees

     (31     260       406       1,120  

Allocation of administrative expenses from advisor (Note 4)

     371       298       1,113       962  

Other general and administrative expenses

     29       40       161       210  

Directors’ fees

     62       61       184       184  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,078       1,829       5,758       6,129  
  

 

 

   

 

 

   

 

 

   

 

 

 

Waived incentive fees (Note 4)

     —         (6     —         (6

Income tax provision, net

     —         7       15       45  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (560     56       (1,206     628  
  

 

 

   

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investments:

        

Net realized capital gain (loss) on investments

        

Control investments

     —         —         178       —    

Non-affiliate investments

     —         —         451       (55,952

Provision for taxes

     —         3       —         (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized capital gain (loss) on investments

     —         3       629       (55,991
  

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized appreciation on investments

        

Affiliate investments

     (110     (7,812     151       (10,064

Non-affiliate investments

     (429     1,804       1,231       62,218  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net unrealized appreciation (depreciation) on investments

     (539     (6,008     1,382       52,154  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (1,099   $ (5,949   $ 805     $ (3,209
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations per common share

   $ (0.05   $ (0.29   $ 0.04     $ (0.16
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared per common share

   $ 0.02     $ 0.02     $ 0.06     $ 0.06  

Weighted average shares outstanding — basic and diluted

     20,172       20,172       20,172       20,172  

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(in thousands, except share data)

(unaudited)

 

     Common Stock      Paid in
Capital in
Excess of
Par
     Distributable
Earnings
(Loss)
    Total Net
Assets
 
     Shares      Par Amount  

Balance at December 31, 2018

     20,172,392      $ 20      $ 211,907      $ (176,018   $ 35,909  

Net investment loss

     —          —          —          (145     (145

Net realized and unrealized gain

     —          —          —          1,692       1,692  

Distributions to common stockholders

     —          —          —          (404     (404
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at March 31, 2019

     20,172,392        20        211,907        (174,875     37,052  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net investment loss

     —          —          —          (501     (501

Net realized and unrealized gain

     —          —          —          858       858  

Distributions to common stockholders

     —          —          —          (403     (403
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at June 30, 2019

     20,172,392        20        211,907        (174,921     37,006  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net investment loss

     —          —          —          (560     (560

Net realized and unrealized loss

     —          —          —          (539     (539

Distributions to common stockholders

     —          —          —          (403     (403
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at September 30, 2019

     20,172,392      $ 20      $ 211,907      $ (176,423   $ 35,504  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     Common Stock      Paid in
Capital in
Excess of
Par
     Distributable
Earnings
(Loss)
    Total Net
Assets
 
     Shares      Par Amount  

Balance at December 31, 2017

     20,172,392      $ 20      $ 234,553      $ (186,802   $ 47,771  

Net investment loss

     —          —          —          (95     (95

Net realized and unrealized gain

     —          —          —          1,827       1,827  

Distributions to common stockholders

     —          —          —          (404     (404
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at March 31, 2018

     20,172,392        20        234,553        (185,474     49,099  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net investment income

     —          —          —          667       667  

Net realized and unrealized gain

     —          —          —          340       340  

Distributions to common stockholders

     —          —          —          (403     (403
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at June 30, 2018

     20,172,392        20        234,553        (184,870     49,703  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net investment income

     —          —          —          56       56  

Net realized and unrealized loss

     —          —          —          (6,004     (6,004

Distributions to common stockholders

     —          —          —          (403     (403
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at September 30, 2018

     20,172,392      $ 20      $ 234,553      $ (191,221   $ 43,352  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the nine months ended
September 30,
 
     2019     2018  

Cash flows from operating activities:

    

Net increase (decrease) in net assets resulting from operations

   $ 805     $ (3,209

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:

    

Payment-in-kind interest

     —         (3,550

Net amortization of premiums, discounts and fees

     (203     (371

Net realized capital (gain) loss on investments

     (629     55,952  

Net unrealized depreciation (appreciation) on investments

     (1,382     (52,153

Purchase of investments in portfolio securities

     (12,014     (25,599

Proceeds from redemption or sale of investments in portfolio securities

     15,173       20,686  

Proceeds from revolving loans, net of draws

     369       16  

Purchase of investments in U.S. Treasury Bills

     (30,000     (52,000

Proceeds from redemption of investments in U.S. Treasury Bills

     34,990       50,001  

Proceeds from ATP production payments applied to cost basis

     1,889       860  

Amortization of debt issuance costs on Credit Facility

     103       226  

Effects of changes in operating assets and liabilities:

    

Accounts receivable and other current assets

     9       (7

Interest receivable

     (201     227  

Prepaid assets

     (15     (4

Payables and accrued expenses

     999       (477

Deferred tax asset

     158       39  

Due from broker

     (3     —    

Due to broker

     (3,052     —    

Due to affiliate

     (449     (434
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     6,547       (9,797
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings under credit facilities

     3,000       —    

Borrowings under repurchase agreement

     29,394       50,942  

Debt issuance cost paid

     (75     (174

Repayments on Credit Facility

     (2,000     (7,000

Repayments on repurchase agreement

     (34,283     (48,982

Distributions to common stockholders

     (1,210     (1,210
  

 

 

   

 

 

 

Net cash used in financing activities

     (5,174     (6,424
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     1,373       (16,221

Cash and cash equivalents, beginning of period

     3,124       19,939  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 4,497     $ 3,718  
  

 

 

   

 

 

 

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2019

(in thousands, except share amounts and percentages)

(unaudited)

 

Portfolio

Company

 

Industry

Segment

 

Investment(1)

  Acquisition
Date(15)
    Principal     Cost     Fair
Value
 

Affiliate Investments — (5% to 25% owned)

 

OCI Holdings, LLC

  Home Health Services   Subordinated Note (1M LIBOR+19.0% PIK with a 1.0% floor), 21.05%, due 2/29/2020(2)(6)(11)     $ 30,187     $ 23,528     $ 2,422  

OCI Holdings, LLC

  Home Health Services   100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings, LLC(2)(8)         2,500       —    
         

 

 

   

 

 

 

Subtotal Affiliate Investments — (5% to 25% owned)

 

  $ 26,028     $ 2,422  
         

 

 

   

 

 

 

Non-affiliate Investments — (Less than 5% owned)

 

Equinox Holdings, Inc.

  Leisure Goods, Activities, Movies   Second Lien Term Loan (1M LIBOR+7.00% with a 1.0% floor), 9.04%, due 9/6/2024(3)     3/8/2017     $ 7,000     $ 6,962     $ 7,053  

PAE Holding Corporation

  Aerospace and Defense   Second Lien Term Loan (3M LIBOR+9.50% with a 1.0% floor), 11.60%, due 10/20/2023(3)     10/20/2016       6,888       6,766       6,802  

Ministry Brands, LLC

  Business Services   Second Lien Term Loan (2M LIBOR+8.00% with a 1.0% floor), 10.09%, due 6/2/2023(2)     5/30/2018       6,000       5,953       6,000  

NAVEX

  Software   Second Lien Term Loan (3M LIBOR+7.00%), 9.13%, due 9/5/2026(3)     8/9/2018       4,700       4,659       4,659  

PowerSchool

  Business Services   Second Lien Term Loan (3M LIBOR+6.75%), 8.96%, due 8/1/2026(3)     6/12/2018       3,800       3,766       3,781  

ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC

 

Oil & Natural Gas Production and Development

 

Limited Term Royalty Interest (notional rate of 13.2%)(2)(7)(11)

 

 

9/30/2014

 

 

 

—  

 

 

 

24,561

 

 

 

3,672

 

Sedgwick

  Insurance   Unsecured Term Loan, 9.00%, due 12/31/2026(3)     12/31/2018       3,300       3,254       3,300  

DexKo Global, Inc.

  Automotive   Second Lien Term Loan (3M LIBOR+8.25% with a 1.0% floor), 10.35%, due 7/24/2025(3)     7/13/2017       2,935       2,917       2,935  

WASH Multifamily Acquisition, Inc.

 

Industrials — Laundry Equipment

 

Second Lien Term Loan (1M LIBOR+7.00% with a 1.0% floor), 9.04%, due 5/14/2023(3)

 

 

5/14/2015

 

 

 

2,978

 

 

 

2,966

 

 

 

2,908

 


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

September 30, 2019

(in thousands, except share amounts and percentages)

(unaudited)

 

Portfolio

Company

 

Industry

Segment

 

Investment(1)

  Acquisition
Date(15)
    Principal     Cost     Fair
Value
 

Non-affiliate Investments — (Less than 5% owned) — (Continued)

 

Coinamatic Canada, Inc.(5)

  Industrials — Laundry Equipment   Second Lien Term Loan (1M LIBOR+7.00% with a 1.0% floor), 9.04%, due 5/14/2023(3)     5/14/2015     $ 522     $ 520     $ 509  

Hayward Industries, Inc.

  Consumer Goods   Second Lien Term Loan (1M LIBOR+8.25%), 10.29%, due 8/4/2025(3)     7/18/2017       2,159       2,162       2,051  

CentralSquare Technologies

 

Software

 

Second Lien Term Loan (1M LIBOR+7.50%), 9.54%, due 8/31/2026(3)

 

 

8/15/2018

 

 

 

2,000

 

 

 

1,953

 

 

 

1,903

 

Ensono

  Telecommunications   Second Lien Term Loan (1M LIBOR+9.25%), 11.29%, due 6/27/2026(3)     5/3/2018       1,700       1,639       1,677  

Blackboard Transact

  Software   Second Lien Term Loan (3M LIBOR+8.50%), 10.76%, due 4/30/2027(2)     3/7/2019       1,455       1,405       1,425  

Aptean

  Software   Second Lien Term Loan (3M LIBOR+8.50%), 10.60%, due 4/23/2027(2)     2/25/2019       1,400       1,359       1,372  

MW Industries (Helix Acquisition)

 

Industrials

 

Second Lien Term Loan (3M LIBOR+8.00%), 10.10%, due 9/29/2025(3)

 

 

9/28/2017

 

 

 

1,400

 

 

 

1,389

 

 

 

1,340

 

JS Held

  Business Equipment and Services   First Lien Term Loan (LIBOR+6.00%), 8.31%, due 7/1/2025(2)     5/16/2019       1,248       1,218       1,235  

JS Held

  Business Equipment and Services   Revolver (Funded: Prime+5.00%, Unfunded: 0.5%), 10.00%, due 7/1/2025(2)(12)     5/16/2019       10       7       9  

JS Held

  Business Equipment and Services   Delayed Draw Term Loan (Funded: LIBOR+6.00%, Unfunded: 1.0%), 8.31%, due 7/1/2025(2)(13)     5/16/2019       —         (6     (3

PharMerica

  Healthcare   Second Lien Term Loan (1M LIBOR+8.50% with a 1.0% floor), 10.54%, due 3/5/2027(3)     2/19/2019       1,200       1,171       1,212  

Caliber Collision

  Automotive   Second Lien Term Loan (1M LIBOR+7.25%), 9.29%, due 2/5/2027(3)     12/19/2018       1,100       1,082       1,100  

Vertafore, Inc.

  Business Services   Second Lien Term Loan (1M LIBOR+7.25%), 9.29%, due 7/2/2026(3)     6/4/2018       900       892       888  


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

September 30, 2019

(in thousands, except share amounts and percentages)

(unaudited)

 

Portfolio

Company

 

Industry

Segment

 

Investment(1)

  Acquisition
Date(15)
    Principal     Cost     Fair
Value
 

Non-affiliate Investments — (Less than 5% owned) — (Continued)

 

Imperial Dade

  Food Services   Second Lien Term Loan (1M LIBOR+8.00%), 10.04%, due 6/11/2027(2)     5/20/2019     $ 833     $ 813     $ 825  

Imperial Dade

  Food Services   Delayed Draw Term Loan (Funded: LIBOR+8.00%), 10.04%, due 6/11/2027(2)(14)     5/20/2019       —         (2     (2

Safe Fleet Holdings, LLC

  Industrials   Second Lien Term Loan (1M LIBOR+6.75% with a 1.0% floor), 8.79%, due 2/1/2026(3)     1/23/2018       700       697       679  

Ardonagh(5)

  Insurance   Senior Secured Notes 8.63%, due 7/15/2023(3)     11/2/2018       600       549       573  

ClearChoice (CC Dental Implants Intermediate)

 

Healthcare

 

First Lien Term Loan (Last Out) (1M LIBOR+6.50% with a 1.0% floor), 8.90%, due 1/2/2023(2)(10)

 

 

3/21/2018

 

 

 

500

 

 

 

496

 

 

 

500

 

ClearChoice (CC Dental Implants Intermediate)

 

Healthcare

 

First Lien Revolver (Last Out) (Funded: 1M LIBOR+6.50% with a 1.0% floor, Unfunded: 0.75%), 8.55%, due 1/2/2023(2)(9)(10)

 

 

3/21/2018

 

 

 

—  

 

 

 

(11

 

 

—  

 

MedRisk, LLC

  Healthcare   Second Lien Term Loan (1M LIBOR+6.75%), 8.79%, due 12/28/2025(3)     1/25/2018       500       498       494  

FirstLight Fiber

  Telecommunications   Second Lien Term Loan (1M LIBOR+7.50%), 9.54%, due 7/23/2026(3)     6/19/2018       400       396       397  

EaglePicher Technologies, LLC

 

Aerospace and Defense

 

Second Lien Term Loan (1M LIBOR+7.25%), 9.29% due 3/9/2026(3)

 

 

2/23/2018

 

 

 

400

 

 

 

392

 

 

 

388

 

Edelman Financial Services, LLC

 

Financial Services

 

Second Lien Term Loan (1M LIBOR+6.75%), 8.81%, due 7/20/2026(3)

 

 

6/26/2018

 

 

 

300

 

 

 

299

 

 

 

300

 

Subtotal Non-affiliate Investments — (Less than 5% owned)

 

  $ 80,722     $ 59,982  
         

 

 

   

 

 

 

Subtotal Portfolio Investments (86.2% of total investments)

 

  $ 106,750     $ 62,404  
         

 

 

   

 

 

 

GOVERNMENT SECURITIES

 

U.S. Treasury Bills (CUSIP 912796SL4)(4)

  1.66%     9/30/2019     $ 10,000     $ 9,999     $ 9,999  
       

 

 

   

 

 

 

Subtotal Government Securities (13.8% of total investments)

 

  $ 9,999     $ 9,999  
         

 

 

   

 

 

 

TOTAL INVESTMENTS

 

  $ 116,749     $ 72,403  
         

 

 

   

 

 

 


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

September 30, 2019

(in thousands, except share amounts and percentages)

(unaudited)

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

 

(1)

The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 to Consolidated Financial Statements. The majority of the investments bear interest at a rate that maybe determined by reference to London Interbank Offered Rate (“LIBOR”) or Prime and which reset daily, monthly, quarterly, semiannually or annually. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect as of September 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate investments, a spread above a reference rate is not applicable. As of September 30, 2019, the index rates for 1M LIBOR, 2M LIBOR, and 3M LIBOR are 2.02%, 2.07%, and 2.09%, respectively. The actual index rate for each investment listed may not be the applicable index rate outstanding as of September 30, 2019, as the loan may have priced or repriced based on an index rate prior to September 30, 2019. Due dates represent the contractual maturity dates. Common stock and units are non-income producing securities, unless otherwise stated.

(2)

The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 7 to the Consolidated Financial Statements.

(3)

Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 7 to the Consolidated Financial Statements.

(4)

Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 7 to the Consolidated Financial Statements.

(5)

We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an ongoing basis. As of September 30, 2019, 1.73% of our investment portfolio was deemed not to be “qualifying assets” under Section 55(a) of the 1940 Act.

(6)

During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its LIBOR+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter 2016. OCI remains in financial covenant default. During 2017, we executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its LIBOR+12% cash interest during 2017. Through June 30, 2018, we have allowed the company to continue to PIK its 12% cash interest while paying the 2% default interest in cash. In June 2018, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to August 31, 2019. In September 2018, we executed an amendment to our note purchase and security agreement whereby we exchanged $217,625 of cash default interest previously paid to us by the company in 2018 for PIK interest, which was added to the principal outstanding balance of the note, on and as of the date the default interest payment was originally made. This amendment also allows the company to PIK its default interest through December 31, 2018. In 2019, OCI continues to be in default and continues to PIK all of its interest, including default interest. Beginning in the 4th quarter of 2018, OCI subordinated note was placed on non-accrual status. In October 2019, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to February 29, 2020.


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

September 30, 2019

(in thousands, except share amounts and percentages)

(unaudited)

 

(7)

Effective April 1, 2018, we discontinued income recognition on this investment and it remains on non-accrual status. All production payments received after April 1, 2018 are being applied to our cost basis and considered return of capital. Previously, ATP was on non-accrual status where income was recognized to the extent production payments were received. For more information on ATP, refer to the discussion of the ATP litigation in Note 6 to the Consolidated Financial Statements.

(8)

Non-income producing equity security.

(9)

Represents a revolving line of credit of which $1.7 million of the $1.7 million total commitment is unfunded at September 30, 2019. The revolving line of credit includes a 0.75% unused fee applied to the unfunded amount. In February 2019, ClearChoice executed an amendment to the financing agreement which increased the amount committed by OHAI under the revolving line of credit from $1.6 million to $1.7 million and modified certain other loan covenants.

(10)

Investment is entitled to skim interest which results in a higher interest rate spread of approximately 30 basis points.

(11)

Investment on non-accrual status and therefore non-income producing.

(12)

Represents a revolving line of credit of which $133 thousand of the $143 thousand total commitment is unfunded at September 30, 2019. The revolving line of credit includes a 0.5% unused fee.

(13)

Represents a delayed draw term loan with a total commitment of $306 thousand all of which is unfunded at September 30, 2019. The delayed draw term loan includes a 1.0% unused fee.

(14)

Represents a delayed draw term loan with a total commitment of $167 thousand all of which is unfunded at September 30, 2019.

(15)

Acquisition date represents the date of initial investment in the portfolio investment.

(See accompanying notes to consolidated financial statements)


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

(in thousands, except share amounts and percentages)

 

Portfolio

Company

 

Industry

Segment

 

Investment(1)

  Acquisition
Date(12)
    Principal     Cost     Fair
Value
 

Affiliate Investments — (5% to 25% owned)

 

OCI Holdings, LLC

  Home Health Services   Subordinated Note (1M LIBOR+ 19.0% PIK with a 1.0% floor ), 21.51%, due 8/31/2019(2)(6)(11)     $ 25,711     $ 23,528     $ 2,271  

OCI Holdings, LLC

  Home Health Services   100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings, LLC(2)(8)         2,500       —    
         

 

 

   

 

 

 

Subtotal Affiliate Investments — (5% to 25% owned)

 

  $ 26,028     $ 2,271  
     

 

 

   

 

 

 

Non-affiliate Investments — (Less than 5% owned)

 

Equinox Holdings, Inc.

  Leisure Goods, Activities, Movies   Second Lien Term Loan (1M LIBOR+7.0% with a 1.0% floor), 9.52%, due 9/6/2024(3)     3/8/2017     $ 7,000     $ 6,957     $ 7,018  

PAE Holding Corporation

 

Aerospace and Defense

 

Second Lien Term Loan (2M LIBOR+9.50% with a 1.0% floor), 12.12%, due 10/20/2023(3)

 

 

10/20/2016

 

 

 

6,888

 

 

 

6,749

 

 

 

6,785

 

Ministry Brands, LLC

  Business Services   Second Lien Term Loan (1M LIBOR+8.0% with a 1.0% floor), 10.52%, due 6/2/2023(2)     5/30/2018       6,000       5,945       5,880  

Avantor Performance Materials, Inc.

 

Chemicals

 

Senior Unsecured Notes, 9.00%, due 10/1/2025(3)

 

 

9/22/2017

 

 

 

5,000

 

 

 

5,000

 

 

 

5,000

 

ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC

 

Oil & Natural Gas Production and Development

 

Limited Term Royalty Interest (notional rate of 13.2%)(2)(7)(11)

 

 

9/30/2014

 

 

 

—  

 

 

 

26,450

 

 

 

4,778

 

CVS Holdings I, LP (MyEyeDr)

 

Retail

 

Second Lien Term Loan (1M LIBOR+6.75% with a 1.0% floor), 9.28%, due 2/6/2026(3)

 

 

2/1/2018

 

 

 

5,000

 

 

 

4,977

 

 

 

4,725

 

PowerSchool

  Business Services   Second Lien Term Loan (1M LIBOR+6.75%), 9.13%, due 8/1/2026(3)     6/12/2018       3,800       3,763       3,762  

WASH Multifamily Acquisition, Inc.

 

Industrials — Laundry Equipment

 

Second Lien Term Loan (1M LIBOR+7.0% with a 1.0% floor), 9.52%, due 5/14/2023(3)

 

 

5/14/2015

 

 

 

3,404

 

 

 

3,388

 

 

 

3,293

 

Sedgwick

  Insurance   Unsecured Term Loan, 9.00%, due 12/31/2026(3)     12/31/2018       3,300       3,251       3,251  


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2018

(in thousands, except share amounts and percentages)

 

Portfolio

Company

 

Industry

Segment

 

Investment(1)

  Acquisition
Date(12)
    Principal     Cost     Fair
Value
 

Non-affiliate Investments — (Less than 5% owned) — Continued

 

DexKo Global, Inc.

  Automotive   Second Lien Term Loan (3M LIBOR+8.25% with a 1.0% floor), 11.05%, due 7/24/2025(3)     7/13/2017     $ 3,000     $ 2,979     $ 3,000  

TIBCO Software, Inc.

  Software   Senior Unsecured Notes, 11.38%, due 12/1/2021(3)     7/7/2015       2,100       1,995       2,200  

Hayward Industries, Inc.

  Consumer Goods   Second Lien Term Loan (1M LIBOR+8.25%), 10.77%, due 8/04/2025(3)     7/18/2017       2,159       2,163       2,127  

CentralSquare Technologies

 

Software

 

Second Lien Term Loan (1M LIBOR+7.50%), 10.02%, due 8/31/2026(3)

 

 

8/15/2018

 

 

 

2,000

 

 

 

1,950

 

 

 

2,000

 

Ensono

  Telecommunications   Second Lien Term Loan (1M LIBOR+9.25%), 11.77%, due 6/27/2026(3)     5/3/2018       1,700       1,635       1,653  

MW Industries (Helix Acquisition)

 

Industrials

 

Second Lien Term Loan (3M LIBOR+8.0%), 10.80%, due 9/29/2025(3)

 

 

9/28/2017

 

 

 

1,400

 

 

 

1,388

 

 

 

1,379

 

Allied Universal Holdco, LLC

 

Business Services

 

Second Lien Term Loan (1M LIBOR+8.50% with a 1.0% floor), 11.02%, due 7/28/2023(3)

 

 

3/15/2018

 

 

 

1,250

 

 

 

1,250

 

 

 

1,191

 

Vertafore, Inc.

  Business Services   Second Lien Term Loan (3M LIBOR+7.25%), 10.05%, due 7/2/2026(3)     6/4/2018       900       891       865  

Safe Fleet Holdings, LLC

  Industrials   Second Lien Term Loan (1M LIBOR+6.75% with a 1.0% floor), 9.13%, due 2/1/2026(3)     1/23/2018       700       697       665  

Coinamatic Canada, Inc.(5)

 

Industrials —

Laundry Equipment

 

Second Lien Term Loan (1M LIBOR+7.0% with a 1.0% floor), 9.52%, due 5/14/2023(3)

 

 

5/14/2015

 

 

 

596

 

 

 

593

 

 

 

577

 

Ardonagh(5)

  Insurance   Senior Secured Notes, 8.625%, due 7/15/2023(3)     11/2/2018       600       541       513  

MedRisk, LLC

  Healthcare   Second Lien Term Loan (1M LIBOR+6.75%), 9.27%, due 12/28/2025(3)     1/25/2018       500       498       491  

ClearChoice (CC Dental Implants Intermediate)

 

Healthcare

 

First Lien Term Loan (Last Out) (1M LIBOR+6.50% with a 1.0% floor), 9.13%, due 1/2/2023(2)(10)

 

 

3/21/2018

 

 

 

500

 

 

 

496

 

 

 

487

 


OHA INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2018

(in thousands, except share amounts and percentages)

 

Portfolio

Company

 

Industry

Segment

 

Investment(1)

  Acquisition
Date(12)
    Principal     Cost     Fair
Value
 

Non-affiliate Investments — (Less than 5% owned) — Continued

 

ClearChoice (CC Dental Implants Intermediate)

 

Healthcare

 

First Lien Revolver (Last Out) (Funded: 1M LIBOR+6.50% with a 1.0% floor, Unfunded: 0.75%), 9.29%, due 1/2/2023(2)(9)(10)

 

 

3/21/2018

 

 

$

375

 

 

$

361

 

 

$

336

 

FirstLight Fiber

  Telecommunications   Second Lien Term Loan (1M LIBOR+7.50%), 10.02%, due 7/23/2026(3)     6/19/2018       400       396       393  

NAVEX

  Software   Second Lien Term Loan (1M LIBOR+7.00%), 9.53%, due 9/5/2026(3)     8/9/2018       400       396       386  

EaglePicher Technologies, LLC

 

Aerospace and Defense

 

Second Lien Term Loan (1M LIBOR+7.25%), 9.77%, due 3/9/2026(3)

 

 

2/23/2018

 

 

 

300

 

 

 

298

 

 

 

294

 

Edelman Financial Services, LLC

 

Financial Services

 

Second Lien Term Loan (3M LIBOR+6.75%), 9.19%, due 7/20/2026(3)

 

 

6/26/2018

 

 

 

300

 

 

 

299

 

 

 

286

 

Subtotal Non-affiliate Investments — (Less than 5% owned)

 

  $ 85,306     $ 63,335  
 

 

 

   

 

 

 

Subtotal Portfolio Investments (81.4% of total investments)

 

  $ 111,334     $ 65,606  
 

 

 

   

 

 

 

GOVERNMENT SECURITIES

       

U.S. Treasury Bills (CUSIP 912796LC1)(4)

  2.28%     12/21/2018     $ 15,000     $ 14,989     $ 14,989  
       

 

 

   

 

 

 

Subtotal Government Securities (18.6% of total investments)

 

  $ 14,989     $ 14,989  
     

 

 

   

 

 

 

TOTAL INVESTMENTS

 

  $ 126,323     $ 80,595  
         

 

 

   

 

 

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

 

(1)

The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 to Consolidated Financial Statements. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect as of December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate investments, a spread above a reference rate is not app