UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
For the transition period from to
Commission File No.
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of Incorporation or organization) |
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(I.R.S. Employer Identification Number) |
(Address of principal executive offices)
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The number of outstanding shares of common stock of the registrant as of November 7, 2022 was
TABLE OF CONTENTS
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Page |
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Part I. Financial Information |
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Item 1. |
Consolidated Financial Statements |
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Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 |
4 |
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5 |
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6 |
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7 |
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Consolidated Schedules of Investments (unaudited) as of September 30, 2022 and December 31, 2021 |
8 |
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Consolidated Financial Highlights (unaudited) for the nine months ended September 30, 2022 and 2021 |
21 |
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22 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
48 |
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Item 3. |
61 |
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Item 4. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
62 |
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Item 5. |
62 |
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Item 1. |
63 |
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Item 1A. |
63 |
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Item 2. |
63 |
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Item 3. |
64 |
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Item 4. |
64 |
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Item 5. |
64 |
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Item 6. |
64 |
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65 |
NOTE ABOUT REFERENCES TO PORTMAN RIDGE FINANCE CORPORATION
In this Quarterly Report on Form 10-Q, the “Company”, “Portman Ridge”, “we”, “us” and “our” refer to Portman Ridge Finance Corporation and its wholly-owned subsidiaries, unless the context otherwise requires.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
The information contained in this item should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report and in conjunction with the financial statements and notes thereto in the Company’s Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”). In addition, some of the statements in this report constitute forward-looking statements. The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Portman Ridge Finance Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “outlook, ”believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved. These statements are not
2
guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
For a more detailed discussion of factors that could cause our actual results to differ from forward-looking statements contained in this Quarterly Report, please see the discussion in Part II, “Item 1A. Risk Factors” of this Quarterly Report, and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date this Quarterly Report is filed with the SEC.
3
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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September 30, 2022 |
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December 31, 2021 |
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(Unaudited) |
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ASSETS |
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Investments at fair value: |
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Non-controlled/non-affiliated investments (amortized cost: 2022 - $ |
$ |
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$ |
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Non-controlled affiliated investments (amortized cost: 2022 - $ |
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Controlled affiliated investments (cost: 2022 - $ |
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Total Investments at Fair Value (cost: 2022 - $ |
$ |
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$ |
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Cash and cash equivalents |
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Restricted cash |
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Interest receivable |
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Receivable for unsettled trades |
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Due from affiliates |
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Other assets |
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Total Assets |
$ |
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$ |
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LIABILITIES |
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2018-2 Secured Notes (net of discount of: 2022 - $ |
$ |
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$ |
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4.875% Notes Due 2026 (net of discount of: 2022 - $ |
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Great Lakes Portman Ridge Funding LLC Revolving Credit Facility (net of deferred financing costs of: 2022 - $ |
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Derivative liabilities (cost: 2021 - $ |
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- |
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Payable for unsettled trades |
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- |
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Accounts payable, accrued expenses and other liabilities |
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Accrued interest payable |
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Due to affiliates |
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Management and incentive fees payable |
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Total Liabilities |
$ |
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$ |
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(NOTE 8) |
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NET ASSETS |
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Common stock, par value $ |
$ |
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$ |
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Capital in excess of par value |
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Total distributable (loss) earnings |
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( |
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( |
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Total Net Assets |
$ |
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$ |
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Total Liabilities and Net Assets |
$ |
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$ |
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NET ASSET VALUE PER COMMON SHARE (1) |
$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
4
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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INVESTMENT INCOME |
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Interest income: |
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Non-controlled/non-affiliated investments |
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$ |
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$ |
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$ |
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$ |
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Non-controlled affiliated investments |
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Controlled affiliated investments |
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- |
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( |
) |
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- |
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( |
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Total interest income |
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$ |
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$ |
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$ |
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$ |
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Payment-in-kind income: |
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Non-controlled/non-affiliated investments |
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$ |
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$ |
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$ |
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$ |
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Non-controlled affiliated investments |
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Controlled affiliated investments |
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- |
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- |
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Total payment-in-kind income |
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$ |
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$ |
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$ |
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$ |
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Dividend income: |
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Non-controlled affiliated investments |
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$ |
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$ |
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$ |
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$ |
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Controlled affiliated investments |
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Total dividend income |
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$ |
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$ |
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$ |
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$ |
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Fees and other income |
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$ |
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$ |
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$ |
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$ |
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Total investment income |
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$ |
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$ |
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$ |
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$ |
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EXPENSES |
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Management fees |
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$ |
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$ |
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$ |
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$ |
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Performance-based incentive fees |
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Interest and amortization of debt issuance costs |
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Professional fees |
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Administrative services expense |
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Other general and administrative expenses |
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Total expenses |
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$ |
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$ |
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$ |
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$ |
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NET INVESTMENT INCOME |
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$ |
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$ |
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$ |
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$ |
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REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
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Net realized gains (losses) from investment transactions: |
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Non-controlled/non-affiliated investments |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Non-controlled affiliated investments |
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( |
) |
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( |
) |
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( |
) |
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( |
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Derivatives |
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- |
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- |
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( |
) |
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- |
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Net realized gain (loss) on investments |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Net change in unrealized appreciation (depreciation) on: |
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Non-controlled/non-affiliated investments |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Non-controlled affiliated investments |
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( |
) |
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Controlled affiliated investments |
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( |
) |
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( |
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( |
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Derivatives |
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- |
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( |
) |
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( |
) |
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Net unrealized gain (loss) on investments |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Tax (provision) benefit on realized and unrealized gains (losses) on investments |
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$ |
( |
) |
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$ |
- |
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$ |
( |
) |
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$ |
- |
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Net realized and unrealized appreciation (depreciation) on investments, net of taxes |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Realized gains (losses) on extinguishments of debt |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
( |
) |
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Net Increase (Decrease) In Net Assets Resulting from Operations per Common Share (1): |
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Basic and Diluted: |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Net Investment Income Per Common Share (1): |
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Basic and Diluted: |
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$ |
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$ |
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$ |
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$ |
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Weighted Average Shares of Common Stock Outstanding—Basic and Diluted (1) |
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See accompanying notes to unaudited consolidated financial statements.
5
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS(1)
(in thousands, except share and per share amounts)
(Unaudited)
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For the Nine Months Ended September 30, |
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2022 |
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2021 |
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Operations: |
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Net investment income |
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$ |
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$ |
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Net realized gains (losses) from investment transactions |
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( |
) |
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( |
) |
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Realized gains (losses) from extinguishments of debt |
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- |
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( |
) |
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Net change in unrealized appreciation (depreciation) on investments |
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( |
) |
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Tax (provision) benefit on realized and unrealized gains (losses) on investments |
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( |
) |
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- |
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Net increase (decrease) in net assets resulting from operations |
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$ |
( |
) |
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$ |
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Stockholder distributions: |
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Distributions of ordinary income |
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$ |
( |
) |
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$ |
( |
) |
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Net decrease in net assets resulting from stockholder distributions |
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$ |
( |
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$ |
( |
) |
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Capital share transactions: |
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Issuance of common stock for: |
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Distribution reinvestment plan |
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$ |
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$ |
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Stock repurchases |
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( |
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( |
) |
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Private placement and other |
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Net increase (decrease) in net assets resulting from capital share transactions |
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$ |
( |
) |
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$ |
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Net assets at beginning of period |
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$ |
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$ |
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Net assets at end of period |
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$ |
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$ |
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Net asset value per common share (2) |
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$ |
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$ |
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Common shares outstanding at end of period (2) |
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See accompanying notes to unaudited consolidated financial statements.
6
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share and per share amounts)
(Unaudited)
|
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For the Nine Months Ended September 30, |
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2022 |
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2021 |
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OPERATING ACTIVITIES: |
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Net increase (decrease) in net assets resulting from operations |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash (used in) provided by in operations: |
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Net realized (gains) losses on investment transactions |
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Net change in unrealized (appreciation) depreciation from investments |
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( |
) |
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Purchases of investments |
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( |
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( |
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Proceeds from sales and redemptions of investments |
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Net accretion of investments |
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( |
) |
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( |
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Amortization of debt issuance costs |
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Realized (gains) losses on extinguishments of debt |
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- |
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Net payment-in-kind income |
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( |
) |
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( |
) |
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Cash consideration net of cash acquired from mergers |
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- |
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Change in operating assets and liabilities: |
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(Increase) decrease in receivable for unsettled trades |
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(Increase) decrease in interest and dividends receivable |
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( |
) |
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(Increase) decrease in due from affiliates |
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( |
) |
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( |
) |
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(Increase) decrease in other assets |
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( |
) |
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Increase (decrease) in payable for unsettled trades |
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( |
) |
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Increase (decrease) in accrued interest payable |
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Increase (decrease) in management and incentive fees payable |
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( |
) |
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Increase (decrease) in due to affiliates |
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( |
) |
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( |
) |
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Increase (decrease) in accounts payable and accrued expenses |
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( |
) |
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Net cash (used in) provided by operating activities |
|
$ |
( |
) |
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$ |
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FINANCING ACTIVITIES: |
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Debt issuance costs |
|
$ |
( |
) |
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$ |
( |
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Private placement and other |
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Stock repurchase program |
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( |
) |
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( |
) |
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Distributions to stockholders |
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( |
) |
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( |
) |
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Repurchase of |
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- |
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( |
) |
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Repayment of 2018-2 Secured Notes |
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- |
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( |
) |
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Repurchase of |
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- |
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( |
) |
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Issuance of |
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- |
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|
|
Borrowings from Revolving Credit Facilities |
|
|
|
|
|
|
|
||
Net cash (used in) provided by financing activities |
|
$ |
( |
) |
|
$ |
( |
) |
|
CHANGE IN CASH AND RESTRICTED CASH |
|
$ |
( |
) |
|
$ |
( |
) |
|
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD |
|
|
|
|
|
|
|
||
CASH AND RESTRICTED CASH, END OF PERIOD |
|
$ |
|
|
$ |
|
|
||
Amounts per balance sheet: |
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
||
Restricted cash |
|
|
|
|
|
|
|
||
Total Cash and Restricted cash |
|
$ |
|
|
$ |
|
|
||
Supplemental Information and non-cash activities: |
|
|
|
|
|
|
|
||
Cash paid for interest during the period |
|
$ |
|
|
$ |
|
|
||
Reinvestment of distributions |
|
$ |
|
|
$ |
|
|
||
See accompanying notes to unaudited consolidated financial statements.
7
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of September 30, 2022
(in thousands, except share and per share amounts)
(Unaudited)
Debt Securities Portfolio
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
Senior Secured Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Accordion Partners LLC |
Term Loan |
SOFR+ |
|
|
$ |
|
$ |
|
(7)(12)(13) |
||||||||
Accordion Partners LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Accordion Partners LLC |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(13)(20) |
||||
Accordion Partners LLC |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(13)(20) |
||||
Accurate Background, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Accurate Background, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Advantage Capital Holdings LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
AIDC IntermediateCo 2, LLC |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
AIS Holdco, LLC |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
AMCP Pet Holdings, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
AMCP Pet Holdings, Inc. |
Revolving Loan |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
American Academy Holdings, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
American Academy Holdings, LLC |
Term Loan Second Lien |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
American Academy Holdings, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Analogic Corporation |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Analogic Corporation |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Ancile Solutions, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Anthem Sports & Entertainment Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Anthem Sports & Entertainment Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
Anthem Sports & Entertainment Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
AP Core Holdings II, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
AP Core Holdings II, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Appfire Technologies, LLC |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(13)(20) |
||||
Appfire Technologies, LLC |
Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Beta Plus Technologies, Inc. |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Beta Plus Technologies, Inc. |
Revolver |
|
|
|
- |
|
|
- |
|
|
- |
|
(7)(12)(20) |
||||
Bradshaw International Parent Corp. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Bradshaw International Parent Corp. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
Bristol Hospice |
Unitranche |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Bristol Hospice |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
C.P. Converters, Inc. |
Seventh Amendment Acquisition Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
C.P. Converters, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
C.P. Converters, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
CB Midco, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Cenexel Clinical Research, Inc. |
Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Centric Brands Inc. |
Revolver |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Centric Brands Inc. |
Term Loan |
SOFR+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Centric Brands Inc. |
Revolver |
SOFR+ |
|
|
|
|
|
|
|
(7)(12)(13)(20) |
|||||||
See accompanying notes to unaudited consolidated financial statements.
8
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
Circustrix Holdings, LLC |
Term Loan |
L+ |
|
|
$ |
|
$ |
|
(7)(12)(13) |
||||||||
Circustrix Holdings, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Circustrix Holdings, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Coastal Screen and Rail, LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Critical Nurse Staffing, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Critical Nurse Staffing, LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Critical Nurse Staffing, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Datalink, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Dodge Data & Analytics LLC |
Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Drilling Info Holdings, Inc. |
Initial Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Drilling Info Holdings, Inc. |
2020 Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
ELO Touch Solutions, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Florida Food Products, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Florida Food Products, LLC |
First Lein Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Franchise Group, Inc. |
First Out Term Loan |
L+ |
|
|
|
|
|
|
(13) |
||||||||
Global Integrated Flooring Systems Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Global Integrated Flooring Systems Inc. |
Revolver |
L+ |
|
|
|
|
|
( |
) |
(7)(12)(20) |
|||||||
Grindr Capital LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
H.W. Lochner, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
H.W. Lochner, Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
H-CA II, LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
HDC/HW Intermediate Holdings, LLC |
First Lien Term Loan A |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
HDC/HW Intermediate Holdings, LLC |
Revolver |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Hollander Intermediate LLC |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Intermedia Holdings, Inc. |
First Lien Term Loan B |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
JO ET Holdings Limited |
Term Loan |
SOFR+ |
|
|
|
|
|
|
(3)(12) |
||||||||
Keg Logistics LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Keg Logistics LLC |
Revolver |
EURIBOR+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Lifescan Global Corporation |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Lucky Bucks Holdings LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Lucky Bucks, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Luminii LLC |
First Lien Term Loan B |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Luminii LLC |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
MAG DS Corp. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Marble Point Credit Management LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(12)(13) |
||||||||
Marble Point Credit Management LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
- |
|
(12)(20) |
||||
Maxor National Pharmacy Services, LLC |
Revolver |
|
|
|
- |
|
|
- |
|
|
( |
) |
(7)(12)(13)(20) |
||||
Maxor National Pharmacy Services, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Mobex Global U.S., Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Mobex Global U.S., Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Mobex Global U.S., Inc. |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Mobex Global U.S., Inc. |
First Lien Term Loan B |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
See accompanying notes to unaudited consolidated financial statements.
9
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
Mother's Market & Kitchen, Inc. |
First Lien Term Loan |
L+ |
|
|
$ |
|
$ |
|
(7)(12)(13) |
||||||||
MSM Acquisitions, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
MSM Acquisitions, Inc. |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Nasco Healthcare Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Naviga Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Naviga Inc. |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Naviga Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Naviga Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Naviga Inc. |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Naviga Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Netwrix Corporation |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Netwrix Corporation |
Delayed Draw Term Loan - First Lien |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Netwrix Corporation |
Delayed Draw Term Loan - First Lien |
|
|
|
|
- |
|
|
- |
|
|
( |
) |
(7)(12)(13)(20) |
|||
Netwrix Corporation |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Northeast Metal Works LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(17) |
|||||||
One Stop Mailing LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Orbit Purchaser LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Orbit Purchaser LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Orbit Purchaser LLC |
Incremental First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Pomeroy Technologies, LLC |
Senior Term Loan A |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Senior Term Loan B |
|
|
|
|
|
|
|
|
(5)(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Super Senior Term Loan B |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Premier Imaging, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Premier Imaging, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Priority Holdings, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Project Castle, Inc. |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Project Leopard Holdings, Inc. |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(13) |
||||||||
PVHC Holding Corp |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Qualtek USA, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(13) |
||||||||
Radiology Partners, Inc |
Term B Loan (First Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Radius Aerospace, Inc. |
Initial Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Reception Purchaser, LLC |
First Lien Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Securus Technologies Holdings, Inc |
Term Loan |
L+ |
|
|
|
|
|
|
|
||||||||
South Street Securities Holdings, Inc |
Senior Notes |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Sundance Holdings Group, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Surge Busy Bee Holdings LLC |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Surge Busy Bee Holdings LLC |
First Lien Term Loan B |
|
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Surge Hippodrome Holdings LLC |
Last Out Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(17) |
||||||||
See accompanying notes to unaudited consolidated financial statements.
10
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
Symplr Software, Inc. |
Term Loan |
SOFR+ |
|
|
$ |
|
$ |
|
(7)(13) |
||||||||
TA/WEG Holdings, LLC |
Delayed Draw Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TA/WEG Holdings, LLC |
Delayed Draw Term Loan |
SOFR+ |
|
|
|
|
|
|
|
(7)(12)(20) |
|||||||
TA/WEG Holdings, LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Tailwind Randys, LLC |
Initial Term Loan |
SOFR+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TLE Holdings, LLC |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TLE Holdings, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
TronAir Parent Inc. |
Initial Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Wework Companies LLC |
First Lien Term Loan - Last Out Lender |
SOFR+ |
|
|
|
|
|
|
(12)(13) |
||||||||
Wonder Love, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Total Senior Secured Loans ( |
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|||||
Junior Secured Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Confluence Technologies, Inc. |
Term Loan Second Lien |
L+ |
|
|
$ |
|
$ |
|
(7)(12)(13) |
||||||||
DCert Buyer, Inc. |
Term Loan (Second Lien) |
SOFR+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Firstlight Holdco Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Global Tel*Link Corporation |
Term Loan (Second Lien) |
SOFR+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Helix Acquisition Holdings, Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Hoffmaster Group, Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Idera, Inc. |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Ivanti Software, Inc. |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Navex Topco, Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13)(17) |
|||||||
Phoenix Guarantor Inc. |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
ProAir, LLC |
Sub Note |
|
|
|
|
|
|
|
|
(7)(8)(12) |
|||||||
Project Leopard Holdings, Inc. |
2nd Lien TL |
SOFR+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Redstone Holdco 2 LP |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Robertshaw US Holding Corp. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Safe Fleet Holdings LLC |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Tex-Tech Industries, Inc. |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TRSO II, Inc. |
Promissory Note |
|
|
|
|
|
|
|
- |
|
(5)(7)(12) |
||||||
Zest Acquisition Corp. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13)(17) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Junior Loans ( |
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|||||
Senior Unsecured Bond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tank Partners Equipment Holdings LLC |
10.00% - 02/2022 - TankConvert |
Energy: Oil & Gas |
|
|
|
|
$ |
|
$ |
|
(5)(7)(8)(12) |
||||||
Total Senior Unsecured Bond ( |
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|||||
See accompanying notes to unaudited consolidated financial statements.
11
Equity Securities Portfolio
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Initial Acquisition Date |
Par/Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
4L Ultimate Topco Corporation |
Common |
|
|
|
$ |
|
$ |
|
(7)(12)(18) |
|||||
AAPC Holdings, LLC |
Equity |
|
|
- |
|
|
- |
|
|
|
(7)(12)(18)(23) |
|||
AAPC Holdings, LLC |
Preferred Equity |
18.0% Cash |
|
|
|
|
|
|
(7)(12)(23) |
|||||
Advantage Capital Holdings LLC |
Class A Membership Units |
|
|
|
|
- |
|
|
|
(7)(12)(18)(19)(23) |
||||
Advantage Capital Holdings LLC |
Preferred Equity |
|
|
|
|
|
|
(7)(12)(23) |
||||||
Advantage Capital Holdings LLC |
Class A Membership Units |
|
|
|
|
|
|
|
(7)(12)(18)(23) |
|||||
Anthem Sports & Entertainment Inc. |
Warrant Class A |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Anthem Sports & Entertainment Inc. |
Warrant Class B |
|
|
|
|
- |
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrant Common Stock |
|
|
|
|
- |
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrants |
|
|
|
|
- |
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrants |
|
|
|
|
- |
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrants |
|
|
|
|
- |
|
|
|
(7)(12)(18) |
||||
Aperture Dodge 18 LLC |
Equity |
|
|
|
|
|
|
|
(7)(12)(18)(20) |
|||||
ATP Oil & Gas Corporation |
Limited Term Royalty Interest |
|
|
- |
|
|
- |
|
|
|
(7)(11)(12) |
|||
BMP Slappey Holdco, LLC |
Preferred Stock |
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
BMP Slappey Investment II |
Preferred Stock |
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Brite Media LLC |
Common Stock |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Carestream Health Holdings, Inc. |
Common Stock |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Centric Brands Inc. |
Common |
|
|
|
|
- |
|
|
- |
|
(7)(12)(13)(18)(21) |
|||
Coastal Screen and Rail, LLC |
Preferred Stock |
|
|
|
|
|
|
|
(7)(12)(18)(21) |
|||||
EJF Investments Ltd. |
Preferred Equity |
|
|
|
|
|
|
|
(3)(18) |
|||||
Everyware Global, Inc. |
Common |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Flight Lease VII |
Common Stock |
|
|
|
|
|
|
|
(7)(12)(15)(18)(22) |
|||||
FP WRCA Coinvestment Fund VII, Ltd. |
Class A Shares |
|
|
|
|
|
|
|
(3)(12)(18) |
|||||
Fusion Connect, Inc. |
Common |
|
|
|
|
|
|
- |
|
(7)(12)(13)(18) |
||||
GreenPark Infrastructure, LLC |
Preferred Equity |
|
|
|
|
|
|
|
(7)(12)(17)(18)(23) |
|||||
GreenPark Infrastructure, LLC |
Preferred Equity |
|
|
|
|
|
|
|
(7)(12)(17)(18)(20)(23) |
|||||
KC Engineering & Construction Services, LLC |
Common Stock |
|
|
|
|
|
|
|
(7)(12)(18)(21) |
|||||
Kleen-Tech Acquisition, LLC |
Common Stock |
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Northeast Metal Works LLC |
Preferred Stock |
|
|
|
|
- |
|
|
|
(7)(12)(17)(18)(21) |
||||
Ohene Holdings B.V. |
Warrants |
|
|
|
|
- |
|
|
- |
|
(3)(12)(18) |
|||
ProAir HoldCo, LLC |
Common Stock |
|
|
|
|
|
|
|
(7)(8)(12)(18) |
|||||
Prosper Marketplace |
Class B Preferred Units |
|
|
|
|
|
|
|
(6)(7)(12)(18) |
|||||
Ravn Air Liquidation Trust |
Equity |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Roscoe Investors, LLC |
Class A Units |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Safety Services Holdings Corporation, |
Preferred Stock |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
South Street Securities Holdings, Inc |
Warrant |
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Surge Busy Bee Holdings LLC |
Warrants |
|
|
|
|
|
|
|
(7)(12)(18)(21) |
|||||
Surge Hippodrome Holdings LLC |
Warrants |
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Surge Hippodrome Partners LP |
Common Stock |
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Tank Partners Equipment Holdings LLC |
Class A Units |
|
|
|
|
|
|
- |
|
(7)(8)(12)(18) |
||||
World Business Lenders, LLC |
Common Stock |
|
|
|
|
- |
|
|
- |
|
(12)(18) |
|||
Total Equities ( |
|
|
|
|
|
|
$ |
|
$ |
|
|
|||
CLO Subordinated Investments
Portfolio Company14 |
Investment10 |
Industry |
Maturity |
Percentage Ownership |
|
Initial Acquisition Date |
|
Cost |
|
|
Fair Value2 |
|
Footnote Refs |
||
Catamaran CLO 2014-1 Ltd. |
Subordinated Securities, effective interest |
|
|
$ |
|
|
$ |
|
(3)(12) |
||||||
Catamaran CLO 2014-2 Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
- |
|
(3)(12) |
|||||
Catamaran CLO 2015-1 Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
- |
|
(3)(12) |
|||||
Catamaran CLO 2018-1 Ltd |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
Dryden 30 Senior Loan Fund |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
JMP Credit Advisors CLO IV LTD |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
JMP Credit Advisors CLO V LTD |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
Total CLO Fund Securities ( |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
||
See accompanying notes to unaudited consolidated financial statements.
12
Asset Manager Affiliates
Portfolio Company14 |
Investment |
Percentage Ownership |
Initial Acquisition Date |
Cost |
|
|
Fair Value2 |
|
|
Footnote Refs |
||
Asset Manager Affiliates |
Asset Management Company |
- |
- |
$ |
|
|
$ |
- |
|
|
(8)(12) |
|
Total Asset Manager Affiliates ( |
|
|
|
$ |
|
|
$ |
- |
|
|
|
|
Joint Ventures
Portfolio Company14 |
Investment |
Percentage Ownership |
Initial Acquisition Date |
Cost |
|
|
Fair Value2 |
|
|
Footnote Refs |
||
KCAP Freedom 3 LLC |
Joint Ventures |
$ |
|
|
$ |
|
|
(8)(12) |
||||
Series A-Great Lakes Funding II LLC |
Joint Ventures |
|
|
|
|
|
|
(9)(16)(17)(20) |
||||
Total Joint Venture ( |
|
|
|
$ |
|
|
$ |
|
|
|
||
Derivatives
Portfolio Company14 |
Investment |
Industry |
Initial Acquisition Date |
Cost |
|
|
Fair Value2 |
|
|
Footnote Refs |
||
HDNet Holdco LLC (Anthem) |
Derivatives |
$ |
|
|
$ |
|
|
(12)(19) |
||||
Advantage Capital Holdings LLC |
Derivatives |
|
- |
|
|
|
- |
|
|
(12)(19) |
||
Coastal Screen and Rail, LLC |
Derivatives |
|
- |
|
|
|
- |
|
|
(12)(19) |
||
Total Derivatives ( |
|
|
|
$ |
|
|
$ |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Total Investments4 ( |
|
|
|
$ |
|
|
$ |
|
|
|
||
See accompanying notes to unaudited consolidated financial statements.
13
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Counterparty |
|
Number of shares |
|
|
Notional amount |
|
|
Exercise price |
|
|
Expiration date |
|
Value |
|
||||
Call option |
|
HDNet Holdco LLC |
|
|
|
$ |
|
|
|
|
|
N/A |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Counterparty |
|
Number of shares |
|
|
Notional amount |
|
|
Exercise price |
|
|
Expiration date |
|
Value |
|
||||
Put option |
|
Coastal Screen and Rail |
|
|
- |
|
|
$ |
|
|
|
|
|
|
$ |
- |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Counterparty |
|
Number of shares |
|
|
Notional amount |
|
|
Exercise price |
|
|
Expiration date |
|
Value |
|
||||
Put option |
|
Advantage Capital Holdings LLC |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
- |
|
||||
See accompanying notes to unaudited consolidated financial statements.
14
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of December 31, 2021
(in thousands, except share and per share amounts)
Debt Securities Portfolio
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/ Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
Senior Secured Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Accordion Partners LLC |
Term Loan |
L+ |
|
|
$ |
|
$ |
|
(7)(12)(13) |
||||||||
Accordion Partners LLC |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(13)(20) |
||||
Accordion Partners LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Accurate Background, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Advantage Capital Holdings LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Advantage Capital Holdings LLC |
Delayed Draw Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
AIS Holdco, LLC |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
AMCP Pet Holdings, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
AMCP Pet Holdings, Inc. |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
- |
|
(7)(12)(13)(20) |
||||
AMCP Pet Holdings, Inc. |
Revolving Loan |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
Analogic Corporation |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Analogic Corporation |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Ancile Solutions, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Anthem Sports & Entertainment Inc. |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Anthem Sports & Entertainment Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
AP Core Holdings II, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
AP Core Holdings II, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Appfire Technologies, LLC |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(13)(20) |
||||
Appfire Technologies, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Athos Merger Sub LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
BJ Services, LLC |
First Out Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
BMC Acquisition, Inc. |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Bradshaw International Parent Corp. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Bradshaw International Parent Corp. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
Bristol Hospice |
Unitranche |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Bristol Hospice |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
C.P. Converters, Inc. |
Seventh Amendment Acquisition Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
C.P. Converters, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
C.P. Converters, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
CB Midco, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Centric Brands Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Centric Brands Inc. |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Circustrix Holdings, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Circustrix Holdings, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Circustrix Holdings, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Coastal Screen and Rail, LLC |
First Lien Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Critical Nurse Staffing, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Critical Nurse Staffing, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Critical Nurse Staffing, LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Datalink, LLC |
Delayed Draw Term Loan (First Lien) |
|
|
|
- |
|
|
( |
) |
|
- |
|
(7)(12)(20) |
||||
Datalink, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Digitran Innovations B.V. (Pomeroy Solutions Holding Company, Inc.) |
EUR Term Loan A |
|
|
|
|
|
|
|
|
(12) |
|||||||
Drilling Info Holdings, Inc. |
Initial Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Drilling Info Holdings, Inc. |
2020 Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
See accompanying notes to unaudited consolidated financial statements.
15
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/ Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
ELO Touch Solutions, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Global Integrated Flooring Systems Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Global Integrated Flooring Systems Inc. |
Revolver |
|
|
|
- |
|
|
- |
|
|
( |
) |
(7)(12)(20) |
||||
Grupo HIMA San Pablo, Inc. |
Term B Loan (First Lien) |
L+ |
|
|
|
|
|
|
(5)(7)(12)(13) |
||||||||
Grupo HIMA San Pablo, Inc. |
Delayed Draw Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(20) |
|||||||
Grupo HIMA San Pablo, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(5)(7)(12)(13) |
||||||||
H.W. Lochner, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
H.W. Lochner, Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
H-CA II, LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
HDC/HW Intermediate Holdings, LLC |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
HDC/HW Intermediate Holdings, LLC |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Infobase Holdings, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Infobase Holdings, Inc. |
Term Loan (add on) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Intermedia Holdings, Inc. |
First Lien Term Loan B |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
JO ET Holdings Limited |
Term Loan |
L+ |
|
|
|
|
|
|
(3)(12) |
||||||||
Keeco, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Keg Logistics LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Keg Logistics LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(20) |
||||
Lifescan Global Corporation |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Lucky Bucks, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Luminii LLC |
First Lien Term Loan B |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Luminii LLC |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
MAG DS Corp. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Marble Point Credit Management LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(12)(13) |
||||||||
Marble Point Credit Management LLC |
Revolver |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(12)(20) |
||||
Maxor National Pharmacy Services, LLC |
Revolver |
|
|
|
- |
|
|
- |
|
|
- |
|
(7)(12)(13)(20) |
||||
Maxor National Pharmacy Services, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Mother's Market & Kitchen, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
MSM Acquisitions, Inc. |
Delayed Draw Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
MSM Acquisitions, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Nasco Healthcare Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Naviga Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Naviga Inc. |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Naviga Inc. |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Naviga Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Naviga Inc. |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Northeast Metal Works LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12)(17) |
|||||||
One Stop Mailing LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Orbit Purchaser LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Orbit Purchaser LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Orbit Purchaser LLC |
Incremental First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Pomeroy Technologies, LLC |
Senior Term Loan A |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Senior Term Loan B |
|
|
|
|
|
|
|
|
(5)(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Super Senior Term Loan B |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Pomeroy Technologies, LLC |
Term Loan |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Premier Imaging, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Premier Imaging, LLC |
Delayed Draw Term Loan |
|
|
|
- |
|
|
( |
) |
|
( |
) |
(7)(12)(13)(20) |
||||
Priority Holdings, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
PVHC Holding Corp |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Q Holding Company (fka Lex Precision Corp) |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Qualtek USA, LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
See accompanying notes to unaudited consolidated financial statements.
16
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/ Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
Radiology Partners, Inc |
Term B Loan (First Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Radius Aerospace, Inc. |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Ritedose Holdings I, INC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Ritedose Holdings I, INC |
Revolver |
|
|
|
- |
|
|
- |
|
|
- |
|
(7)(12)(13)(20) |
||||
Rotolo Consultants, INC. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
San Vicente Capital LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Shipston Group, U.S., Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Shipston Group, U.S., Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
South Street Securities Holdings, Inc |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Sundance Holdings Group, LLC |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Surge Busy Bee Holdings LLC |
First Lien Term Loan A |
L+ |
|
|
|
|
|
|
|
(7)(12) |
|||||||
Surge Busy Bee Holdings LLC |
First Lien Term Loan B |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Surge Hippodrome Holdings LLC |
Last Out Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(17) |
||||||||
TA/WEG Holdings, LLC |
Revolver |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
TA/WEG Holdings, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(20) |
||||||||
Tailwind Randys, LLC |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TLE Holdings, LLC |
Initial Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TLE Holdings, LLC |
Delayed Draw Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13)(20) |
||||||||
Triangle Home Fashions LLC |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TronAir Parent Inc. |
Initial Term Loan (First Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
VTK Acquisition, Inc. |
Revolver |
L+ |
|
|
|
|
|
|
|
(7)(12)(17) |
|||||||
VTK Acquisition, Inc. |
First Lien Term Loan |
L+ |
|
|
|
|
|
|
|
(7)(12)(17) |
|||||||
Wonder Love, Inc. |
Term Loan |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Total Senior Secured Loans ( |
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|||||
Senior Unsecured Bond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tank Partners Equipment Holdings LLC |
|
|
|
|
|
|
|
|
|
(5)(7)(8)(12) |
|||||||
Total Senior Unsecured Bond ( |
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|||||
Junior Secured Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Carestream Health, Inc. |
2023 Extended Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Confluence Technologies, Inc. |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
DCert Buyer, Inc. |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Firstlight Holdco Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(12)(13) |
|||||||
Global Tel*Link Corporation |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Grupo HIMA San Pablo, Inc. |
Term Loan (Second Lien) |
|
|
|
|
|
|
|
- |
|
(5)(7)(12) |
||||||
Helix Acquisition Holdings, Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13) |
|||||||
Hoffmaster Group, Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Idera, Inc. |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Ivanti Software, Inc. |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Ministry Brands, LLC |
April 2018 Incremental Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Navex Topco, Inc. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
|
(7)(13)(17) |
|||||||
Phoenix Guarantor Inc. |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
ProAir Holdings Corporation |
Term Loan Second Lien |
|
|
|
|
|
|
|
|
(5)(7)(12) |
|||||||
ProAir Holdings Corporation |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
See accompanying notes to unaudited consolidated financial statements.
17
Portfolio Company14 |
Investment |
Industry |
Interest Rate |
Reference Rate and Spread1 |
Floor |
Maturity |
Initial Acquisition Date |
Par/ Shares |
|
Cost |
|
Fair Value2 |
|
Footnote Refs |
|||
ProAir Holdings Corporation |
Term Loan Second Lien |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Redstone Holdco 2 LP |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
Robertshaw US Holding Corp. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12) |
||||||||
Roscoe Medical, Inc. |
Term Loan (Second Lien) |
|
|
|
|
|
|
|
|
(7)(12) |
|||||||
Safe Fleet Holdings LLC |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(13) |
||||||||
Tex-Tech Industries, Inc. |
Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13) |
||||||||
TRSO II, Inc. |
Promissory Note |
|
|
|
|
|
|
|
- |
|
(5)(7)(12) |
||||||
Zest Acquisition Corp. |
Initial Term Loan (Second Lien) |
L+ |
|
|
|
|
|
|
(7)(12)(13)(17) |
||||||||
Total Junior Loans ( |
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|||||
Equity Securities Portfolio
Portfolio Company14 |
Investment |
Industry |
Initial Acquisition Date |
|
Par/ Shares |
|
|
Cost |
|
|
Fair Value |
|
|
Footnote Refs |
|||
4L Ultimate Topco Corporation |
Common |
|
|
|
|
$ |
|
|
$ |
|
|
(7)(12)(18) |
|||||
AAPC Holdings, LLC |
Class A Preferred Units |
|
|
|
|
|
|
|
|
|
|
(7)(12)(19) |
|||||
Advantage Capital Holdings LLC |
Class A Membership Units |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(18)(19) |
||||
Anthem Sports & Entertainment Inc. |
Warrant Class A |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Anthem Sports & Entertainment Inc. |
Warrant Class B |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrant Common Stock |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrants |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrants |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(18) |
||||
Anthem Sports & Entertainment Inc. |
Warrants |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(18) |
||||
ATP Oil & Gas Corporation |
Limited Term Royalty Interest |
|
|
|
|
|
|
|
|
|
|
(7)(11)(12) |
|||||
BMP Slappey Holdco, LLC |
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
BMP Slappey Investment II |
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Brite Media LLC |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Carestream Health, Inc. |
Warrant |
|
|
|
|
|
- |
|
|
|
- |
|
|
(7)(12)(18) |
|||
Centric Brands Inc. |
Common |
|
|
|
|
|
- |
|
|
|
|
|
(7)(12)(13)(18) |
||||
Coastal Screen and Rail, LLC |
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18)(21) |
|||||
EJF Investments Ltd. |
Preferred Equity |
|
|
|
|
|
|
|
|
|
|
(3)(18) |
|||||
Everyware Global, Inc. |
Common |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Flight Lease VII |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(15)(18)(22) |
|||||
Flight Lease XII |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
FP WRCA Coinvestment Fund VII, Ltd. |
Class A Shares |
|
|
|
|
|
|
|
|
|
|
(3)(12)(18) |
|||||
Fusion Connect, Inc. |
Common |
|
|
|
|
|
|
|
|
- |
|
|
(7)(12)(13)(18) |
||||
KC Engineering & Construction Services, LLC |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18)(21) |
|||||
Kleen-Tech Acquisition, LLC |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Northeast Metal Works LLC |
Preferred Stock |
|
|
|
|
|
- |
|
|
|
- |
|
|
(7)(12)(17)(18)(21) |
|||
Ohene Holdings B.V. |
Warrants |
|
|
|
|
|
- |
|
|
|
- |
|
|
(3)(12)(18) |
|||
Prosper Marketplace |
Class B Preferred Units |
|
|
|
|
|
|
|
|
|
|
(6)(7)(12)(18) |
|||||
Ravn Air Liquidation Trust |
Equity |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Roscoe Investors, LLC |
Class A Units |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Safety Services Holdings Corporation, |
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18) |
|||||
Surge Busy Bee Holdings LLC |
Warrants |
|
|
|
|
|
|
|
|
|
|
(7)(12)(18)(21) |
|||||
Surge Hippodrome Holdings LLC |
Warrants |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Surge Hippodrome Partners LP |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
Tank Partners Equipment Holdings LLC |
Class A Units |
|
|
|
|
|
|
|
|
- |
|
|
(7)(8)(12)(18) |
||||
VTK Acquisition, Inc. |
Common Stock |
|
|
|
|
|
|
|
|
|
|
(7)(12)(17)(18)(21) |
|||||
World Business Lenders, LLC |
Common Stock |
|
|
|
|
|
- |
|
|
|
- |
|
|
(12)(18) |
|||
Total Equities ( |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||||
See accompanying notes to unaudited consolidated financial statements.
18
CLO Fund Securities
Portfolio Company14 |
Investment10 |
Industry |
Maturity |
Percentage Ownership |
|
Initial Acquisition Date |
|
Cost |
|
|
Fair Value |
|
Footnote Refs |
||
Catamaran CLO 2013- 1 Ltd. |
Subordinated Securities, effective interest |
|
|
$ |
|
|
$ |
|
(3)(12) |
||||||
Catamaran CLO 2014-1 Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
Catamaran CLO 2014-2 Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
- |
|
(3)(12) |
|||||
Catamaran CLO 2015-1 Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
- |
|
(3)(12) |
|||||
Catamaran CLO 2018-1 Ltd |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
Dryden 30 Senior Loan Fund |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
JMP Credit Advisors CLO IV Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
JMP Credit Advisors CLO V Ltd. |
Subordinated Securities, effective interest |
|
|
|
|
|
|
|
(3)(12) |
||||||
Total CLO Fund Securities ( |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
||
Asset Manager Affiliates
Portfolio Company14 |
Investment |
Percentage Ownership |
Initial Acquisition Date |
Cost |
|
|
Fair Value |
|
|
Footnote Refs |
||
Asset Manager Affiliates |
Asset Management Company |
$ |
|
|
$ |
- |
|
|
(8)(12) |
|||
Total Asset Manager Affiliates ( |
|
|
|
$ |
|
|
$ |
- |
|
|
|
|
Derivatives
Portfolio Company14 |
Investment |
Industry |
Initial Acquisition Date |
Cost |
|
|
Fair Value |
|
|
Footnote Refs |
||
AAPC Holdings, LLC |
Derivatives |
$ |
- |
|
|
$ |
( |
) |
|
(12)(19) |
||
Coastal Screen and Rail, LLC |
Derivatives |
|
- |
|
|
|
- |
|
|
(12)(19) |
||
HDNet Holdco LLC (Anthem) |
Derivatives |
|
|
|
|
|
|
(12)(19) |
||||
Total Derivatives (- |
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
Joint Venture
Portfolio Company14 |
Investment |
Percentage Ownership |
Initial Acquisition Date |
Cost |
|
|
Fair Value |
|
|
Footnote Refs |
||
KCAP Freedom 3 LLC |
Joint Ventures |
$ |
|
|
$ |
|
|
(8)(12) |
||||
BCP Great Lakes Holdings LP |
Joint Ventures |
$ |
|
|
|
|
|
(9)(16)(17)(20) |
||||
Total Joint Venture ( |
|
|
|
$ |
|
|
$ |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Total Investments4 ( |
|
|
|
$ |
|
|
$ |
|
|
|
||
See accompanying notes to unaudited consolidated financial statements.
19
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Payments made |
|
Payments received |
|
Counterparty |
|
Maturity date |
|
Notional amount |
|
|
Value |
|
|
Upfront payments/receipts |
|
|
Unrealized gain (loss) |
|
||||
Securities Swap and Option Agreement |
|
|
|
Advantage Capital Holdings LLC. |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
||||
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Counterparty |
|
Number of shares |
|
|
Notional amount |
|
|
Exercise price |
|
|
Expiration date |
|
Value |
|
||||
Call option |
|
HDNet Holdco LLC |
|
|
|
$ |
|
|
|
|
|
N/A |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Counterparty |
|
Number of shares |
|
|
Notional amount |
|
|
Exercise price |
|
|
Expiration date |
|
Value |
|
||||
Put option |
|
Coastal Screen and Rail |
|
|
- |
|
|
$ |
|
|
|
|
|
|
$ |
- |
|
|||
See accompanying notes to unaudited consolidated financial statements.
20
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except share and per share amounts)
(Unaudited)
|
|
For the Nine Months Ended September 30, |
|||||||
|
|
2022(4) |
|
|
2021(4) |
|
|
||
Per Share Data: |
|
|
|
|
|
|
|
||
Net asset value, at beginning of period |
|
$ |
|
|
$ |
|
|
||
Net investment income(1) |
|
|
|
|
|
|
|
||
Net realized gains (losses) from investments(1) |
|
|
( |
) |
|
|
( |
) |
|
Net change in unrealized (depreciation) appreciation on investments(1) |
|
|
( |
) |
|
|
|
|
|
Realized gains (losses) from extinguishment of debt(1) |
|
|
- |
|
|
|
( |
) |
|
Tax (provision) benefit on realized and unrealized gains (losses) on investments |
|
|
( |
) |
|
|
- |
|
|
Net (decrease) increase in net assets resulting from operations |
|
$ |
( |
) |
|
$ |
|
|
|
Net decrease in net assets resulting from distributions |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net increase (decrease) in net assets relating to stock-based transactions(6) |
|
|
|
|
|
( |
) |
|
|
Net asset value, end of period |
|
$ |
|
|
$ |
|
|
||
Total net asset value return(2) |
|
|
( |
)% |
|
|
% |
|
|
Total market return(3) |
|
|
( |
)% |
|
|
% |
|
|
Ratio/Supplemental Data: |
|
|
|
|
|
|
|
||
Per share market value at beginning of period |
|
$ |
|
|
$ |
|
|
||
Per share market value at end of period |
|
$ |
|
|
$ |
|
|
||
Shares outstanding at end of period |
|
|
|
|
|
|
|
||
Net assets at end of period |
|
$ |
|
|
$ |
|
|
||
Portfolio turnover rate(5) |
|
|
% |
|
|
% |
|
||
Asset coverage ratio |
|
|
% |
|
|
% |
|
||
Ratio of net investment income to average net assets (annualized) |
|
|
% |
|
|
% |
|
||
Ratio of total expenses to average net assets (annualized) |
|
|
% |
|
|
% |
|
||
Ratio of interest expense to average net assets (annualized) |
|
|
% |
|
|
% |
|
||
Ratio of non-interest expenses to average net assets (annualized) |
|
|
% |
|
|
% |
|
||
See accompanying notes to unaudited consolidated financial statements.
21
PORTMAN RIDGE FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
Portman Ridge Finance Corporation (“Portman Ridge” or the “Company”), formerly known as KCAP Financial, Inc., is an externally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company was formed as a Delaware limited liability company on
The Company originates, structures, and invests in secured term loans, bonds or notes and mezzanine debt primarily in privately-held middle market companies but may also invest in other investments such as loans to publicly-traded companies, high-yield bonds, and distressed debt securities (collectively the “Debt Securities Portfolio”). The Company also invests in debt and subordinated securities issued by collateralized loan obligation funds (“CLO Fund Securities”). In addition, from time to time the Company may invest in the equity securities of privately held middle market companies and may also receive warrants or options to purchase common stock in connection with its debt investments.
The Company has elected to be treated and intends to continue to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a RIC, the Company must, among other things, meet certain source-of-income, asset diversification and annual distribution requirements. As a RIC, the Company generally will not have to pay corporate-level U.S. federal income taxes on any income that it distributes in a timely manner to its stockholders.
On March 29, 2018, the Company’s Board of Directors (the “Board”), including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act (“SBCA”). As a result, the Company’s asset coverage requirement for senior securities changed from
During the third quarter of 2017, the Company formed a joint venture with Freedom 3 Opportunities LLC (“Freedom 3 Opportunities”), an affiliate of Freedom 3 Capital LLC, to create KCAP Freedom 3 LLC (the “F3C Joint Venture”). The F3C Joint Venture may originate loans from time to time and sell them to the fund capitalized by the F3C Joint Venture.
On
The Externalization Agreement
On December 14, 2018, the Company entered into a stock purchase and transaction agreement (the “Externalization Agreement”) with BC Partners Advisors L.P. (“BCP”), an affiliate of BC Partners LLP, (“BC Partners”), through which Sierra Crest Investment Management LLC (the “Adviser”), an affiliate of BC Partners, became the Company’s investment adviser pursuant to an investment advisory Agreement (the “Advisory Agreement”) with the Company. At a special meeting of the Company’s stockholders (the “Special Meeting”) held on February 19, 2019, the Company’s stockholders approved the Advisory Agreement. The transactions contemplated by the Externalization Agreement closed on April 1, 2019 (the “Closing”), and the Company commenced operations as an externally managed BDC managed by the Adviser on that date.
On the date of the Closing, the Company changed its name from KCAP Financial, Inc. to Portman Ridge Finance Corporation and on April 2, 2019, began trading on the NASDAQ Global Select Market under the symbol “PTMN.”
About the Adviser
The Adviser is an affiliate of BC Partners. Subject to the overall supervision of the Board, the Adviser is responsible for managing the Company’s business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring the Company’s investments, and monitoring the Company’s portfolio companies on an ongoing basis through a team of investment professionals.
The Adviser seeks to invest on behalf of the Company in performing, well-established middle market businesses that operate across a wide range of industries (i.e., no concentration in any one industry). The Adviser employs fundamental credit analysis, targeting investments in businesses with relatively low levels of cyclicality and operating risk. The holding size of each position will generally be dependent upon a number of factors including total facility size, pricing and structure, and the number of other lenders in the facility. The Adviser has experience managing levered vehicles, both public and private, and seeks to enhance the Company’s returns through the use of leverage with a prudent approach that prioritizes capital preservation. The Adviser believes this strategy and approach offers attractive risk/return with lower volatility given the potential for fewer defaults and greater resilience through market cycles.
During the fourth quarter of 2020, LibreMax Intermediate Holdings, LP (“LibreMax”) sold its minority stake in the Adviser to a wholly-owned subsidiary of Mount Logan Capital Inc. (“Mount Logan”). An affiliate of BC Partners serves as administrator to Mount Logan.
GARS Transaction
On October 28, 2020 the Company completed its acquisition of Garrison Capital Inc., a publicly traded BDC (“GARS”, and such transaction, the “GARS Acquisition”). To effect the acquisition, a wholly owned merger subsidiary of the Company merged with and into GARS, with GARS surviving the merger as the Company’s wholly owned subsidiary. Immediately thereafter and as a single integrated transaction, GARS consummated a second merger, whereby GARS merged with and into the Company, with the Company surviving the merger. Under the terms of the merger agreement for the GARS Acquisition, dated
22
HCAP Acquisition and Assumption and Redemption of HCAP Notes
On June 9, 2021 the Company completed its acquisition of Harvest Capital Credit Corporation, a publicly traded BDC (“HCAP”, and such transaction, the “HCAP Acquisition”). To effect the acquisition, the Company’s wholly owned merger subsidiary (“Acquisition Sub”) merged with HCAP, with HCAP surviving the merger as the Company’s wholly owned subsidiary. Immediately thereafter and as a single integrated transaction, HCAP consummated a second merger, whereby HCAP merged with and into the Company, with the Company surviving the merger. As a result of, and as of the effective time of, the second merger, HCAP’s separate corporate existence ceased.
Under the terms of the merger agreement for the HCAP Acquisition, dated December 23, 2020 (the “HCAP Merger Agreement”), HCAP stockholders as of immediately prior to the effective time of the first merger (other than shares held by a subsidiary of HCAP or held, directly or indirectly, by the Company or Acquisition Sub, and all treasury shares (collectively, “Cancelled Shares”)) received a combination of (i) $
With respect to the merger consideration from the Company, HCAP stockholders as of immediately prior to the effective time of the first merger (other than Cancelled Shares) were entitled, with respect to all or any portion of the shares of HCAP common stock they held as of the effective time of the first merger, to elect to receive the merger consideration in the form of cash (an “Election”) or in the form of the Company's common stock, subject to certain conditions and limitations in the merger agreement. Any HCAP stockholder who did not validly make an Election was deemed to have elected to receive shares of the Company’s common stock with respect to the merger consideration as payment for their shares of HCAP common stock. Each share of HCAP common stock (other than Cancelled Shares) with respect to which an Election was made was treated as an “Electing Share” and each share of HCAP Common Stock (other than a Cancelled Share) with respect to which an Election was not made or that was transferred after the election deadline on June 2, 2021 was treated as a “Non-Electing Share.”
Pursuant to the conditions of and adjustment mechanisms in the HCAP Merger Agreement,
On June 9, 2021, the Company entered into a third supplemental indenture (the “HCAP Third Supplemental Indenture”) by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”), effective as of the closing of the HCAP Acquisition. The HCAP Third Supplemental Indenture relates to the Company’s assumption of $
Pursuant to the HCAP Third Supplemental Indenture, the Company expressly assumed the due and punctual payment of the principal of (and premium, if any) and interest, if any, on the HCAP Notes and the performance of HCAP’s covenants under the base indenture, dated as of January 27, 2015, by and between HCAP and the Trustee, as supplemented by the second supplemental indenture, dated as of August 24, 2017, by and between HCAP and the Trustee. No change of control offer was required to be made in respect of the HCAP Notes in connection with the consummation of the HCAP Acquisition.
The HCAP Notes could be redeemed by the Company at any time at par value plus accrued and unpaid interest. On July 23, 2021, the Company redeemed the entire notional amount of $
Reverse Stock Split
On August 23, 2021, the Company filed a Certificate of Amendment (the “Reverse Stock Split Certificate of Amendment”) to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-
As a result of the Reverse Stock Split, every ten shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).
On August 23, 2021, the Company filed a Certificate of Amendment to decrease the number of authorized shares of common stock by one half of the reverse stock split ratio (the “Decrease Shares Certificate of Amendment”) with the Secretary of State of the State of Delaware. The Decrease Shares Certificate of Amendment became effective as of 12:05 a.m. (Eastern Time) on August 26, 2021. Following the effectiveness of the Decrease Shares Certificate of Amendment, the number of authorized shares of common stock under the Company’s Certificate of Incorporation was reduced from
The Reverse Stock Split Certificate of Amendment and the Decrease Shares Certificate of Amendment were approved by the Company’s stockholders at its annual meeting held on June 7, 2021 and were approved by the Board on August 4, 2021.
All share and per share values have been adjusted retroactively to reflect the split for all periods presented, except where otherwise noted.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required for annual consolidated financial statements. The unaudited interim consolidated financial statements (“consolidated financial statements”) and notes thereto should be read in conjunction with the financial statements and notes thereto in the Company’s Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”). The Company is an investment company and follows accounting and reporting guidance in Accounting Standards Codification (“ASC”) topic 946 – Financial Services – Investment Companies.
The consolidated financial statements reflect all adjustments, both normal and recurring which, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition for the periods presented. Furthermore, the preparation of the consolidated financial statements requires the Company to make significant estimates and assumptions including with respect to the fair value of investments that do not have a readily available market value. Actual results could differ from those estimates, and the differences could be material. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for the full year.
23
The Company consolidates the financial statements of its wholly-owned special purpose financing subsidiaries Portman Ridge Funding 2018-2 Ltd. (“PRF CLO 2018-2”) (formerly known as Garrison Funding 2018-2 Ltd.), Great Lakes KCAP Funding I LLC, Kohlberg Capital Funding I LLC, KCAP Senior Funding I, LLC, KCAP Funding I Holdings, LLC, Great Lakes Portman Ridge Funding, LLC and HCAP ICC, LLC in its consolidated financial statements as they are operated solely for investment activities of the Company. The creditors of Great Lakes KCAP Senior Funding I, LLC and Great Lakes Portman Ridge Funding, LLC received security interests in the assets which are owned by them and such assets are not intended to be available to the creditors of Portman Ridge Finance Corporation., or any other affiliate. The Company also consolidates various subsidiaries (KCAP Coastal, LLC, PTMN Sub Holdings, LLC, OHA Funding, LP, Garrison Capital Equity Holdings I LLC, Garrison Capital Equity Holdings II, LLC, Garrison Capital Equity Holdings VIII LLC, Garrison Capital Equity Holdings XI LLC, GIG Rooster Holdings, LLC, HCAP Equity Holdings, LLC and PTMN Sub Holdings LLC) created primarily to provide specific tax treatment for the equity and other investments held by these entities.
In accordance with Article 6 of Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company does not consolidate portfolio company investments, including those in which it has a controlling interest.
The determination of the tax character of distributions is made on an annual (full calendar year) basis at the end of the year based upon our taxable income for the full year and the distributions paid during the full year. Therefore, an estimate of tax attributes made on a quarterly basis may not be representative of the actual tax attributes of distributions for a full year.
It is the Company’s primary investment objective to generate current income and capital appreciation by lending directly to privately-held middle market companies. During the nine months ended September 30, 2022, the Company provided approximately $
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. Management continues to assess the impact that the adoption of this guidance will have on the Company.
In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"). The accounting standard update clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions and measured at fair value in accordance with Topic 820. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact that adoption of this new accounting standard will have on its consolidated financial statements, but the impact of the adoption is not expected to be material.
Investments
Investment transactions are recorded on the applicable trade date. Realized gains or losses are determined using the specific identification method.
Valuation of Portfolio Investments. The Board has designated the Adviser as its "valuation designee" pursuant to Rule 2a-5 under the 1940 Act, and in that role the Adviser is responsible for performing fair value determinations relating to all of the Company's investments, including periodically assessing and managing any material valuation risks and establishing and applying fair value methodologies, in accordance with valuation policies and procedures that have been approved by the Board. The Board remains ultimately responsible for making fair value determinations under the 1940 Act and satisfies its responsibility through oversight of the valuation designee in accordance with Rule 2a-5. Debt and equity securities for which market quotations are readily available are generally valued at such market quotations. Debt and equity securities that are not publicly traded or whose market price is not readily available are valued by the Adviser based on detailed analyses prepared by management and, in certain circumstances, third parties with valuation expertise. Valuations are conducted by management on
The Company utilizes one or more independent valuation firms to provide third party valuation consulting services. Each quarter the independent valuation firms perform third party valuations of the Company’s investments in material illiquid securities such that they are reviewed at least once during a trailing 12-month period. These third-party valuation estimates are considered as one of the relevant data points in the Company’s determination of fair value.
The Adviser may consider other methods of valuation than those set forth below to determine the fair value of Level III investments as appropriate in conformity with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may differ materially from the values that would have been used had a readily available market existed for such investments. Further, such investments may be generally subject to legal and other restrictions on resale or otherwise be less liquid than publicly traded securities. In addition, changes in the market environment and other events may occur over the life of the investments that may cause the value realized on such investments to be different from the currently assigned valuations.
The majority of the Company’s investment portfolio is composed of debt and equity securities with unique contract terms and conditions and/or complexity that requires a valuation of each individual investment that considers multiple levels of market and asset specific inputs, which may include historical and forecasted financial and operational performance of the individual investment, projected cash flows, market multiples, comparable market transactions, the priority of the security compared with those of other securities for such issuers, credit risk, interest rates, and independent valuations and reviews.
Debt Securities. To the extent that the Company’s investments are liquid and are priced or have sufficient price indications from normal course trading at or around the valuation date (financial reporting date), such pricing will be used to determine the fair value of the investments. Valuations from third party pricing services may be used as an indication of fair value, depending on the volume and reliability of the valuation, sufficient and reasonable correlation of bid and ask quotes, and, most importantly, the level of actual trading activity. However, if the Company has been unable to identify directly comparable market indices or other market guidance that correlate directly to the types of investments the Company owns, the Company will determine fair value using alternative methodologies such as available market data, as adjusted, to reflect the types of assets the Company owns, their structure, qualitative and credit attributes and other asset-specific characteristics.
The Company derives fair value for its illiquid investments that do not have indicative fair values based upon active trades primarily by using a present value technique that discounts the estimated contractual cash flows for the subject assets with discount rates imputed by broad market indices, bond spreads and yields for comparable issuers relative to the subject assets (the “Income Approach”). The Company also considers, among other things, recent loan amendments or other activity specific to the subject asset. Discount rates applied to estimated contractual cash flows for an underlying asset vary by specific investment, industry, priority and nature of the debt security (such as the seniority or
24
security interest of the debt security) and are assessed relative to leveraged loan and high-yield bond indices, at the valuation date. The Company has identified these indices as benchmarks for broad market information related to its loan and debt securities. Because the Company has not identified any market index that directly correlates to the loan and debt securities held by the Company and therefore uses these benchmark indices, these market indices may require significant adjustment to better correlate such market data for the calculation of fair value of the investment under the Income Approach. Such adjustments require judgment and may be material to the calculation of fair value. Further adjustments to the discount rate may be applied to reflect other market conditions or the perceived credit risk of the borrower. When broad market indices are used as part of the valuation methodology, their use is subject to adjustment for many factors, including priority, collateral used as security, structure, performance and other quantitative and qualitative attributes of the asset being valued. The resulting present value determination is then weighted along with any quotes from observable transactions and broker/pricing quotes. If such quotes are indicative of actual transactions with reasonable trading volume at or near the valuation date that are not liquidation or distressed sales, relatively more reliance will be put on such quotes to determine fair value. If such quotes are not indicative of market transactions or are insufficient as to volume, reliability, consistency or other relevant factors, such quotes will be compared with other fair value indications and given relatively less weight based on their relevancy. Other significant assumptions, such as coupon and maturity, are asset-specific and are noted for each investment in the Consolidated Schedules of Investments included herein.
Equity Securities. The Company’s equity securities in portfolio companies for which there is no liquid public market are carried at fair value based on the enterprise value of the portfolio company, which is determined using various factors, including EBITDA (earnings before interest, taxes, depreciation and amortization) and discounted cash flows from operations, less capital expenditures and other pertinent factors, such as recent offers to purchase a portfolio company’s securities or other liquidation events. The determined fair values are generally discounted to account for restrictions on resale and minority ownership positions. In the event market quotations are readily available for the Company’s equity securities in public companies, those investments may be valued using the Market Approach (as defined below). In cases where the Company receives warrants to purchase equity securities, a market standard Black-Scholes model is utilized.
The significant inputs used to determine the fair value of equity securities include prices, EBITDA and cash flows after capital expenditures for similar peer comparables and the investment entity itself. Equity securities are classified as Level III, when there is limited activity or less transparency around inputs to the valuation given the lack of information related to such equity investments held in nonpublic companies. Significant assumptions observed for comparable companies are applied to relevant financial data for the specific investment. Such assumptions, such as model discount rates or price/earnings multiples, vary by the specific investment, equity position and industry and incorporate adjustments for risk premiums, liquidity and company specific attributes. Such adjustments require judgment and may be material to the calculation of fair value.
Derivatives. The Company recognizes all derivative instruments as assets or liabilities at fair value in its financial statements. Derivative contracts entered into by the Company are not designated as hedging instruments, and as a result the Company presents changes in fair value and realized gains or losses through current period earnings. Derivative instruments are measured in terms of the notional contract amount and derive their value based upon one or more underlying instruments. Derivative instruments are subject to various risks similar to non-derivative instruments including market, credit, liquidity, and operational risks. The Company manages these risks on an aggregate basis as part of its risk management process. The derivatives may require the Company to pay or receive an upfront fee or premium. These upfront fees or premiums are carried forward as cost or proceeds to the derivatives. The Company generally records a realized gain or loss on the expiration, termination, or settlement of a derivative contract. The periodic payments for the securities Swap and Option Agreement (excluding collateral) are included as a realized gain or loss.
The Company values derivative contracts using various pricing models that take into account the terms of the contract (including notional amount and contract maturity) and observable and unobservable inputs such as interest rates and changes in fair value of the reference asset.
Asset Manager Affiliates. The Company sold all of its investment in the Disposed Manager Affiliates on December 31, 2018. Previously, the Company’s investments in its wholly-owned Asset Manager Affiliates, were carried at fair value, which was primarily determined utilizing the discounted cash flow approach, which incorporated different levels of discount rates depending on the hierarchy of fees earned (including the likelihood of realization of senior, subordinate and incentive fees) and prospective modeled performance. Such valuation took into consideration an analysis of comparable asset management companies and the amount of assets under management. The Asset Manager Affiliates were classified as a Level III investment. Any change in value from period to period was recognized as net change in unrealized appreciation or depreciation.
CLO Fund Securities. The Company typically makes a non-controlling investment in the most junior class of securities of CLO Funds. The investments held by CLO Funds generally relate to non-investment grade credit instruments issued by corporations.
The Company’s investments in CLO Fund Securities are carried at fair value, which is based either on (i) the present value of the net expected cash inflows for interest income and principal repayments from underlying assets and cash outflows for interest expense, debt pay-down and other fund costs for the CLO Funds that are approaching or past the end of their reinvestment period and therefore are selling assets and/or using principal repayments to pay down CLO Fund debt (or will begin to do so shortly), and for which there continue to be net cash distributions to the class of securities owned by the Company, a Discounted Cash Flow approach, (ii) a discounted cash flow model that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow and comparable yields for similar securities or preferred shares to those in which the Company has invested, or (iii) indicative prices provided by the underwriters or brokers who arrange CLO Funds, a Market Approach. The Company recognizes unrealized appreciation or depreciation on the Company’s investments in CLO Fund Securities as comparable yields in the market change and/or based on changes in net asset values or estimated cash flows resulting from changes in prepayment or loss assumptions in the underlying collateral pool. As each investment in CLO Fund Securities ages, the expected amount of losses and the expected timing of recognition of such losses in the underlying collateral pool are updated and the revised cash flows are used in determining the fair value of the CLO Fund investment. The Company determines the fair value of its investments in CLO Fund Securities on a security-by-security basis.
Due to the individual attributes of each CLO Fund Security, they are classified as a Level III investment unless specific trading activity can be identified at or near the valuation date. When available, observable market information will be identified, evaluated and weighted accordingly in the application of such data to the present value models and fair value determination. Significant assumptions to the present value calculations include default rates, recovery rates, prepayment rates, investment/reinvestment rates and spreads and the discount rate by which to value the resulting underlying cash flows. Such assumptions can vary significantly, depending on market data sources which often vary in depth and level of analysis, understanding of the CLO market, detailed or broad characterization of the CLO market and the application of such data to an appropriate framework for analysis. The application of data points are based on the specific attributes of each individual CLO Fund Security’s underlying assets, historic, current and prospective performance, vintage, and other quantitative and qualitative factors that would be evaluated by market participants. The Company evaluates the source of market data for reliability as an indicative market input, consistency amongst other inputs and results and also the context in which such data is presented.
For rated note tranches of CLO Fund Securities (those above the junior class) without transactions to support a fair value for the specific CLO Fund and tranche, fair value is based on discounting estimated bond payments at current market yields, which may reflect the adjusted yield on the leveraged loan index for similarly rated tranches, as well as prices for similar tranches for other CLO Funds and also other factors such as indicative prices provided by underwriters or brokers who arrange CLO Funds, and the default and recovery rates of underlying assets in the CLO Fund, as may be applicable. Such model assumptions may vary and incorporate adjustments for risk premiums and CLO Fund specific attributes.
Short-term investments. Short-term investments are generally comprised of money market accounts, time deposits, and U.S. treasury bills.
Joint Ventures. The Company carries investments in joint ventures (“Joint Ventures”) at fair value based upon the fair value of the investments held by the joint venture, or the net asset value as a practical expedient. See Note 4 below, for more information regarding the Joint Ventures.
Cash and Cash Equivalents
25
Cash and cash equivalents include short-term, highly liquid investments, readily convertible to known amounts of cash, with an original maturity of three months or less in accounts such as demand deposit accounts and certain overnight investment sweep accounts. The company records cash and cash equivalents at cost, which approximates fair value.
Restricted Cash
Restricted cash and cash equivalents generally consists of cash held for interest and principal payments on the Company’s borrowings.
Foreign Currency Translations
The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the foreign exchange rate on the date of valuation. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.
Investment Income
Interest Income. Interest income, including the amortization of premium and accretion of discount and accrual of payment-in-kind (“PIK”) interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. The Company generally places a loan or security on non-accrual status and ceases recognizing interest income on such loan or security when a loan or security becomes 90 days or more past due or if the Company otherwise does not expect the debtor to be able to service its debt obligations. For investments with PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible (i.e. via a partial or full non-accrual). Loans which are on partial or full non-accrual remain in such status until the borrower has demonstrated the ability and intent to pay contractual amounts due or such loans become current. As of September 30, 2022,
Investment Income on CLO Fund Securities. The Company generates investment income from its investments in the most junior class of securities issued by CLO Funds (typically preferred shares or subordinated securities). The Company’s CLO Fund junior class securities are subordinated to senior note holders who typically receive a stated interest rate of return based on a floating rate index, such as the London Interbank Offered Rate (“LIBOR”) on their investment. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior note holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares.
GAAP-basis investment income on CLO equity investments is recorded using the effective interest method in accordance with the provisions of ASC 325-40, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated projected future cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield prospectively over the remaining life of the investment from the date the estimated yield was changed. Accordingly, investment income recognized on CLO equity securities in the GAAP statement of operations differs from both the tax–basis investment income and from the cash distributions actually received by the Company during the period.
For non-junior class CLO Fund Securities, interest is earned at a fixed spread relative to the LIBOR index.
Investment Income on Joint Ventures. The Company recognizes investment income on its investment in the Joint Ventures based upon its share of the estimated earnings and profits of the Joint Venture on the ex-dividend or ex-distribution date. The final determination of the tax attributes of distributions from the Joint Ventures is made on an annual (full calendar year) basis at the end of the year based upon taxable income and distributions for the full year. Therefore, any estimate of tax attributes of distributions made on an interim basis may not be representative of the actual tax attributes of distributions for the full year.
Fees and other income. Origination fees (to the extent services are performed to earn such income), amendment fees, consent fees, and other fees associated with investments in portfolio companies are recognized as income when they are earned. Prepayment penalties received by the Company for debt instruments repaid prior to maturity date are recorded as income upon receipt.
Debt Issuance Costs
Debt issuance costs represent fees and other direct costs incurred in connection with the Company’s borrowings. These amounts are capitalized, presented as a reduction of debt, and amortized using the effective interest method over the expected term of the borrowing.
Extinguishment of Debt
The Company derecognizes a liability if and only if it has been extinguished through delivery of cash, delivery of other financial assets, delivery of goods or services, or reacquisition by the Company of its outstanding debt securities whether the securities are cancelled or held. If the debt contains a cash conversion option, the Company allocates the consideration transferred and transaction costs incurred to the extinguishment of the liability component and the reacquisition of the equity component and recognize a gain or loss in the statement of operations.
Expenses
The Company is externally managed and in connection with the Advisory Agreement, pays the Adviser certain investment advisory fees and reimburses the Adviser and Administrator for certain expenses incurred in connection with the services they provide. See Note 5 “Related Party Transactions - Payment of Expenses under the Advisory and Administration Agreements.”
Shareholder Distributions
Distributions to common stockholders are recorded on the ex-dividend date. The amount of distributions, if any, is determined by the Board each quarter. The Company has adopted a dividend reinvestment plan (the "DRIP") that provides for reinvestment of its distributions on behalf of its stockholders, unless a stockholder “opts out” of the DRIP to receive cash in lieu of having their cash distributions automatically reinvested in additional shares of the Company’s common stock.
26
3.
In accordance with the provisions of ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.
The following information sets forth the computation of basic and diluted net increase (decrease) in net assets per share for the three and nine months ended September 30, 2022 and 2021:
|
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net increase (decrease) in net assets resulting from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Weighted average number of common and common stock equivalent shares outstanding for basic and diluted shares computation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net increase (decrease) in net assets per basic common shares and diluted shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net increase (decrease) in net assets from operations(1) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
4. INVESTMENTS
The following table shows the Company’s portfolio by security type at September 30, 2022 and December 31, 2021:
|
|
|
|
|
|
|
||||||||||||||||||
($ in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
Security Type |
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
||||||
Senior Secured Loan |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Junior Secured Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Senior Unsecured Bond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CLO Fund Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Asset Manager Affiliates(2) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Joint Ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
||||
Total |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
27
The industry concentrations based on the fair value of the Company’s investment portfolio as of September 30, 2022 and December 31, 2021 were as follows:
($ in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
Industry Classification |
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
||||||
Aerospace and Defense |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Asset Management Company(2) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Automotive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Banking, Finance, Insurance & Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Beverage, Food and Tobacco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Chemicals, Plastics & Rubber |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CLO Fund Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction & Building |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer goods: Durable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer goods: Non-durable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Containers, Packaging and Glass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Electronics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Energy: Electricity |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Energy: Oil & Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Environmental Industries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forest Products & Paper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Healthcare, Education and Childcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Healthcare & Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
High Tech Industries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Hotel, Gaming & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Joint Ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Machinery (Non-Agrclt/Constr/Electr) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Media: Advertising, Printing & Publishing |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|||||
Media: Broadcasting & Subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Media: Diversified & Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Services: Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Services: Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Telecommunications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Textiles and Leather |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transportation: Cargo |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Transportation: Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
The Company may invest up to
At September 30, 2022 and December 31, 2021, the total amount of non-qualifying assets was approximately
Investments in CLO Fund Securities
The Company has made non-controlling investments in the most junior class of securities (typically preferred shares or subordinated securities) of CLO Funds. These securities also are entitled to recurring distributions which generally equal the net remaining cash flow of the payments made by the underlying CLO Funds securities less contractual payments to senior bond holders, management fees and CLO Fund expenses. CLO Funds invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which the Company has an investment are generally diversified secured or unsecured corporate debt. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the CLO Funds less payments made to senior bond holders, fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares.
In January 2021, the Company sold $
In July 2022, the Company received a final cash distribution from Catamaran 2013-1, and the Company's investment in Catamaran 2013-1 was redeemed in full.
28
Affiliate Investments:
The following table details investments in affiliates at September 30, 2022 (unaudited):
($ in thousands) |
Industry |
Fair Value |
|
Purchases/ |
|
Net |
|
Transfers |
|
Net Change in Unrealized |
|
Realized |
|
Fair Value |
|
Principal / Shares at September 30, 2022 |
|
Interest |
|
Dividend |
|
||||||||||
Asset Manager Affiliates(1)(2)(3) |
Asset |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
- |
|
$ |
- |
|
$ |
- |
|
Tank Partners Equipment Holdings, LLC(1)(2)(3)(6) |
Energy: Oil & |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
Tank Partners Equipment Holdings, LLC(1)(2)(3) |
Energy: Oil & |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
Flight Lease VII (1)(2)(4)(6) |
Aerospace and Defense |
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
ProAir, LLC(1)(2)(3)(6) |
Capital Equipment |
|
- |
|
|
- |
|
|
- |
|
|
|
|
( |
) |
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
ProAir, LLC(1)(2)(3) |
Capital Equipment |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
||||
KCAP Freedom 3, LLC (1)(3) |
Joint Venture |
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
|
|
|
|
- |
|
|
|
||||
Total controlled affiliates |
|
$ |
|
$ |
|
$ |
- |
|
$ |
|
$ |
( |
) |
$ |
- |
|
$ |
|
|
|
$ |
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
BCP Great Lakes Holdings LP(5)(7) |
Joint Venture |
$ |
|
$ |
|
$ |
- |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
- |
|
|
- |
|
$ |
- |
|
|
|
|||
Series A-Great Lakes Funding II LLC(5)(6)(8) |
Joint Venture |
|
- |
|
|
( |
) |
|
- |
|
|
|
|
( |
) |
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
Flight Lease XII(1)(2)(5)(6) |
Aerospace and Defense |
|
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
||
GreenPark Infrastructure, LLC(1)(2)(5)(6) |
Energy: Electricity |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
GreenPark Infrastructure, LLC(1)(2)(5)(6)(8) |
Energy: Electricity |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
GreenPark Infrastructure, LLC(5)(8) |
Energy: Electricity |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Kleen-Tech Acquisition, LLC (1)(2)(5)(6) |
Services: Business |
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
Northeast Metal Works LLC (1)(2)(5) |
Metals & Mining |
|
|
|
|
|
( |
) |
|
- |
|
|
|
|
- |
|
|
|
|
|
|
|
|
- |
|
||||||
Northeast Metal Works LLC (1)(2)(5)(6) |
Metals & Mining |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
|||
BMP Slappey Holdco, LLC (1)(2)(5)(6) |
Telecommunications |
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
||||
BMP Slappey Investment II (1)(2)(5)(6) |
Telecommunications |
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
||||
Surge Hippodrome Partners LP(1)(2)(5)(6) |
Services: Business |
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
||||
Surge Hippodrome Holdings LLC(1)(2)(5)(6) |
Services: Business |
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
- |
|
||||
Surge Hippodrome Holdings LLC(1)(2)(5) |
Services: Business |
|
|
|
- |
|
|
|
|
- |
|
|
( |
) |
|
- |
|
|
|
|
|
|
|
|
- |
|
|||||
VTK Acquisition, Inc.(1)(2)(5) |
Capital Equipment |
|
|
|
( |
) |
|
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|||
VTK Acquisition, Inc.(1)(2)(5) |
Capital Equipment |
|
|
|
( |
) |
|
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|||
VTK Acquisition, Inc.(1)(2)(5)(6) |
Capital Equipment |
|
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
||
Navex Topco, Inc.(1)(2)(5) |
Electronics |
|
|
|
- |
|
|
|
|
- |
|
|
( |
) |
|
- |
|
|
|
|
|
|
|
|
- |
|
|||||
Zest Acquisition Corp.(1)(2)(5) |
Healthcare, Education and Childcare |
|
|
|
- |
|
|
|
|
- |
|
|
( |
) |
|
- |
|
|
|
|
|
|
|
|
- |
|
|||||
Total Non-controlled affiliates |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
- |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
|
|
$ |
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total Affiliated Investments |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
|
|
$ |
|
$ |
|
|||||||
29
The following table details investments in affiliates at December 31, 2021:
($ in thousands) |
|
Industry |
|
Fair Value |
|
|
Purchases/ |
|
|
Net |
|
|
Transfers |
|
|
Net Change in Unrealized |
|
|
Realized |
|
|
Fair Value |
|
|
Principal / Shares at |
|
|
Interest |
|
|
Dividend |
|
||||||||||
Asset Manager Affiliates(1)(2)(3) |
|
Asset |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Tank Partners Equipment Holdings, LLC(1)(2)(3)(6) |
|
Energy: Oil & |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Tank Partners Equipment Holdings, LLC(1)(2)(3) |
|
Energy: Oil & |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Flight Lease VII (1)(2)(4)(6) |
|
Aerospace and Defense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
KCAP Freedom 3, LLC (1)(3) |
|
Joint Venture |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||||
Total controlled affiliates |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
BCP Great Lakes Holdings LP(5)(7) |
|
Joint Venture |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||||
Flight Lease XII(1)(2)(5)(6) |
|
Aerospace and Defense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Kleen-Tech Acquisition, LLC (1)(2)(5)(6) |
|
Services: Business |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Northeast Metal Works LLC (1)(2)(5) |
|
Metals & Mining |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Northeast Metal Works LLC (1)(2)(5)(6) |
|
Metals & Mining |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
BMP Slappey Holdco, LLC (1)(2)(5)(6) |
|
Telecommunications |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
BMP Slappey Holdco, LLC (1)(2)(5)(6) |
|
Telecommunications |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Surge Hippodrome Holdings LLC(1)(2)(5)(6) |
|
Services: Business |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
Surge Hippodrome Holdings LLC(1)(2)(5)(6) |
|
Services: Business |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Surge Hippodrome Holdings LLC(1)(2)(5) |
|
Services: Business |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
VTK Acquisition, Inc.(1)(2)(5) |
|
Capital Equipment |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
VTK Acquisition, Inc.(1)(2)(5) |
|
Capital Equipment |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
VTK Acquisition, Inc.(1)(2)(5)(6) |
|
Capital Equipment |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Navex Topco, Inc.(2)(5) |
|
Electronics |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Zest Acquisition Corp.(1)(2)(5) |
|
Healthcare, Education and Childcare |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
GIG Rooster Holdings I, LLC (2)(5) |
|
Energy: Oil & |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Total Non-controlled affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total Affiliated Investments |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
30
Investments in Joint Ventures
For the three months ended September 30, 2022 and 2021, the Company recognized $
KCAP Freedom 3 LLC
During the third quarter of 2017, the Company and Freedom 3 Opportunities LLC (“Freedom 3 Opportunities”), an affiliate of Freedom 3 Capital LLC, entered into an agreement to create KCAP Freedom 3 LLC (the “F3C Joint Venture”). The fund capitalized by the F3C Joint Venture invests primarily in middle-market loans and the F3C Joint Venture partners may source middle-market loans from time-to-time for the fund.
The Company owns a
The Company has determined that the F3C Joint Venture is an investment company under Accounting Standards Codification (“ASC”), Financial Services — Investment Companies (“ASC 946”), however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. The Company does not consolidate its interest in the F3C Joint Venture because the Company does not control the F3C Joint Venture due to allocation of the voting rights among the F3C Joint Venture partners.
KCAP Freedom 3 LLC
Summarized Statements of Financial Condition
($ in thousands)
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
||
|
|
|
|
|
|
|
||
Cash |
|
$ |
— |
|
|
$ |
— |
|
Investment at fair value |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
Total Liabilities |
|
$ |
|
|
$ |
|
||
Total Equity |
|
$ |
|
|
$ |
|
||
Total Liabilities and Equity |
|
$ |
|
|
$ |
|
||
KCAP Freedom 3 LLC
Summarized Statements of Operations
($ in thousands)
(Unaudited)
|
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|
||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Investment income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net investment income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Unrealized appreciation on investments |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Net income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
KCAP Freedom 3 LLC
Schedule of Investments
September 30, 2022
($ in thousands)
(Unaudited)
Portfolio Company |
|
Investment |
|
Percentage |
|
|
Amortized |
|
|
Fair Value |
|
|||
Great Lakes KCAP F3C Senior, LLC(1)(2) |
|
Subordinated Securities, effective interest 23.7%, 12/29 maturity |
|
|
% |
|
$ |
|
|
$ |
|
|||
Total Investments |
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
31
KCAP Freedom 3 LLC
Schedule of Investments
December 31, 2021
($ in thousands)
Portfolio Company |
|
Investment |
|
Percentage |
|
|
Amortized |
|
|
Fair Value |
|
|||
Great Lakes KCAP F3C Senior, LLC(1)(2) |
|
Subordinated Securities, effective interest 21.3%, 12/29 maturity |
|
|
% |
|
$ |
|
|
$ |
|
|||
Total Investments |
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
Series A – Great Lakes Funding II LLC
In August 2022, the Company invested in Series A – Great Lakes Funding II LLC (the “Great Lakes II Joint Venture,” collectively with the F3C Joint Venture the “Joint Ventures”), a joint venture with an investment strategy to underwrite and hold senior, secured unitranche loans made to middle-market companies. The Company treats its investment in the Great Lakes II Joint Venture as a joint venture since an affiliate of the Adviser controls a
The Great Lakes II Joint Venture is a Delaware series limited liability company, and pursuant to the terms of the Great Lakes Funding II LLC Limited Liability Company Agreement (the “Great Lakes II LLC Agreement”), prior to the end of the investment period with respect to each series established under the Great Lakes II LLC Agreement, each member of the predecessor series would be offered the opportunity to roll its interests into any subsequent series of the Great Lakes II Joint Venture. The Company does not pay any advisory fees in connection with its investment in the Great Lakes II Joint Venture. Certain other funds managed by the Adviser or its affiliates have also invested in the Great Lakes II Joint Venture.
The fair value of the Company’s investment in the Great Lakes II Joint Venture at September 30, 2022 was $
As of September 30, 2022, the Company has a $
Fair Value Measurements
The Company follows the provisions of ASC 820: Fair Value, which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. This standard defines fair value and establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820: Fair Value defines “fair value” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This fair value definition focuses on an exit price in the principle, or most advantageous market, and prioritizes, within a measurement of fair value, the use of market-based inputs (which may be weighted or adjusted for relevance, reliability and specific attributes relative to the subject investment) over entity-specific inputs. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
ASC 820: Fair Value establishes the following three-level hierarchy, based upon the transparency of inputs to the fair value measurement of an asset or liability as of the measurement date:
Level I – Unadjusted quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I include listed equities and listed securities. As required by ASC 820: Fair Value, the Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably affect the quoted price.
Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. Such inputs may be quoted prices for similar assets or liabilities, quoted markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full character of the financial instrument, or inputs that are derived principally from, or corroborated by, observable market information. Investments which are generally included in this category include illiquid debt securities and less liquid, privately held or restricted equity securities for which some level of recent trading activity has been observed.
Level III – Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs may be based on the Company’s own assumptions about how market participants would price the asset or liability or may use Level II inputs, as adjusted, to reflect specific investment attributes relative to a broader market assumption. These inputs into the determination of fair value may require significant management judgment or estimation. Even if observable market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level III if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation methodology.
32
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the investment. A majority of the Company’s investments are classified as Level III. The Company evaluates the source of inputs, including any markets in which its investments are trading, in determining fair value. Inputs that are highly correlated to the specific investment being valued and those derived from reliable or knowledgeable sources will tend to have a higher weighting in determining fair value. The Company’s fair value determinations may include factors such as an assessment of each underlying investment, its current and prospective operating and financial performance, consideration of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance factors, and other investment or industry specific market data, among other factors.
The following table summarizes the fair value of investments by fair value hierarchy levels provided by ASC 820: Fair Value as of September 30, 2022 (unaudited) and December 31, 2021, respectively:
|
As of September 30, 2022 |
|
|||||||||||||
($ in thousands) |
Level I |
|
Level II |
|
Level III |
|
NAV |
|
Total |
|
|||||
Debt securities |
$ |
- |
|
$ |
|
$ |
|
$ |
- |
|
$ |
|
|||
Equity securities |
|
|
|
- |
|
|
|
|
- |
|
|
|
|||
CLO Fund securities |
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Joint Ventures |
|
- |
|
|
- |
|
|
|
|
|
|
|
|||
Derivatives |
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
|
|
As of December 31, 2021 |
|
|||||||||||||||||
($ in thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
NAV |
|
|
Total |
|
|||||
Debt securities |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
CLO Fund securities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Joint Ventures |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Derivatives |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
As a BDC, the Company is required to invest primarily in the debt and equity of non-public companies for which there is little, if any, market-observable information. As a result, a significant portion of the Company’s investments at any given time will likely be deemed Level III investments. Investment values derived by a third-party pricing service are generally deemed to be Level III values. For those that have observable trades, the Company considers them to be Level II.
The fair value of the Company’s investment in the Great Lakes II Joint Venture at September 30, 2022 was $
Subject to the limitations noted above, values derived for debt and equity securities using comparable public/private companies generally utilize market-observable data from such comparables and specific, non-public and non-observable financial measures (such as earnings or cash flows) for the private, underlying company/issuer. Such non-observable company/issuer data is typically provided on a monthly or quarterly basis, is certified as correct by the management of the company/issuer and/or audited by an independent accounting firm on an annual basis. Since such private company/issuer data is not publicly available it is not deemed market-observable data and, as a result, such investment values are grouped as Level III assets.
The Company’s policy for determining transfers between levels is based solely on the previously defined three-level hierarchy for fair value measurement. Transfers between the levels of the fair value hierarchy are separately noted in the tables below and the reason for such transfer described in each table’s respective footnotes. Certain information relating to investments measured at fair value for which the Company has used unobservable inputs to determine fair value is as follows:
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||
($ in thousands) |
|
Debt |
|
|
Equity |
|
|
CLO Fund |
|
|
Joint |
|
|
Derivatives |
|
|
Total |
|
||||||
Balance, December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Transfers out of Level III¹ |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Transfers into Level III² |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Net accretion |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Purchases |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Sales/Paydowns/Return of Capital |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
( |
) |
|
Total realized gain (loss) included in earnings |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Change in unrealized gain (loss) included in earnings |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Balance, September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Changes in unrealized gains (losses) included in earnings related to investments still held at reporting date |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
33
|
|
Nine Months Ended September 30, 2021 |
|
|||||||||||||||||||||
($ in thousands) |
|
Debt |
|
|
Equity |
|
|
CLO Fund |
|
|
Joint |
|
|
Derivatives |
|
|
Total |
|
||||||
Balance, December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Transfers out of Level III¹ |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Transfers into Level III² |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Net accretion |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Purchases |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||||
Sales/Paydowns/Return of Capital |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Total realized gain (loss) included in earnings |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
( |
) |
||
Change in unrealized gain (loss) included in earnings |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Balance, September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Changes in unrealized gains (losses) included in earnings related to investments still held at reporting date |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
As of September 30, 2022 and December 31, 2021, the Company’s Level II portfolio investments were valued by a third party pricing services for which the prices are not adjusted and for which inputs are observable or can be corroborated by observable market data for substantially the full character of the financial instrument, or by inputs that are derived principally from, or corroborated by, observable market information. The fair value of the Company’s Level II portfolio investments was $
As of September 30, 2022 the Company’s Level III portfolio investments had the following valuation techniques and significant inputs:
Type |
|
Fair Value |
|
|
Primary Valuation |
|
Unobservable |
|
Range of Inputs |
|
|
|
$ |
|
|
Enterprise Value |
|
Average |
|
||
Debt Securities |
|
|
|
|
|
|
Recovery Rate Multiple |
|
||
|
|
|
|
|
Income Approach |
|
Implied |
|
||
|
|
|
|
|
Recent Transaction |
|
Implied |
|
||
|
|
|
|
|
Enterprise Value |
|
Average |
|
||
Equity Securities |
|
|
|
|
|
|
Recovery Rate |
|
||
|
|
|
|
|
Income Approach |
|
Implied |
|
||
|
|
|
|
|
Recent Transaction |
|
Implied |
|
||
|
|
|
|
|
|
|
Discount Rate |
|
||
|
|
|
|
|
|
|
Probability of |
|
||
CLO Fund Securities |
|
|
|
|
Discounted Cash Flow |
|
Loss Severity |
|
||
|
|
|
|
|
|
|
Recovery Rate |
|
||
|
|
|
|
|
|
|
Prepayment |
|
||
|
|
|
|
|
|
|
Discount Rate |
|
||
|
|
|
|
|
|
|
Probability of |
|
||
Joint Ventures |
|
|
|
|
Discounted Cash Flow |
|
Loss Severity |
|
||
|
|
|
|
|
|
|
Recovery Rate |
|
||
|
|
|
|
|
|
|
Prepayment |
|
||
Derivatives |
|
|
|
|
Market Approach |
|
Transacted Value/Contractual Financing Rate |
|
|
|
Total Level III Investments |
|
$ |
|
|
|
|
|
|
|
|
34
As of December 31, 2021, the Company’s Level III portfolio investments had the following valuation techniques and significant inputs:
Type |
|
Fair Value |
|
|
Primary Valuation |
|
Unobservable |
|
Range of Inputs |
|
|
|
$ |
|
|
Enterprise Value |
|
Average |
|
||
Debt Securities |
|
|
|
|
|
|
Recovery Rate Multiple |
|
||
|
|
|
|
|
Income Approach |
|
Implied |
|
||
|
|
$ |
|
|
Enterprise Value |
|
Average |
|
||
Equity Securities |
|
|
|
|
|
|
Recovery Rate Multiple |
|
||
|
|
|
|
|
Income Approach |
|
Implied |
|
||
|
|
|
|
|
|
|
Discount Rate |
|
||
|
|
|
|
|
|
|
Probability of |
|
||
CLO Fund Securities |
|
|
|
|
Discounted Cash Flow |
|
Loss Severity |
|
||
|
|
|
|
|
|
|
Recovery Rate |
|
||
|
|
|
|
|
|
|
Prepayment |
|
||
|
|
|
|
|
|
|
Discount Rate |
|
||
|
|
|
|
|
|
|
Probability of |
|
||
Joint Ventures |
|
|
|
|
Discounted Cash Flow |
|
Loss Severity |
|
||
|
|
|
|
|
|
|
Recovery Rate |
|
||
|
|
|
|
|
|
|
Prepayment |
|
||
Derivatives |
|
|
( |
) |
|
Market Approach |
|
Transacted Value/Contractual Financing Rate |
|
|
Total Level III Investments |
|
$ |
|
|
|
|
|
|
|
|
The significant unobservable inputs used in the fair value measurement of the Company’s debt securities may include, among other things, broad market indices, the comparable yields of similar investments in similar industries, effective discount rates, average EBITDA multiples, and weighted average cost of capital. Significant increases or decreases in such comparable yields would result in a significantly lower or higher fair value measurement, respectively.
The significant unobservable inputs used in the fair value measurement of the Company’s equity securities include the EBITDA multiple of similar investments in similar industries and the weighted average cost of capital. Significant increases or decreases in such inputs would result in a significantly lower or higher fair value measurement.
Significant unobservable inputs used in the fair value measurement of the Company’s CLO Fund Securities include default rates, recovery rates, prepayment rates, spreads, and the discount rate by which to value the resulting underlying cash flows. Such assumptions can vary significantly, depending on market data sources which often vary in depth and level of analysis, understanding of the CLO market, detailed or broad characterization of the CLO market and the application of such data to an appropriate framework for analysis. The application of data points are based on the specific attributes of each individual CLO Fund Security’s underlying assets, historic, current and prospective performance, vintage, and other quantitative and qualitative factors that would be evaluated by market participants. The Company evaluates the source of market data for reliability as an indicative market input, consistency amongst other inputs and results and also the context in which such data is presented. Significant increases or decreases in probability of default and loss severity inputs in isolation would result in a significantly lower or higher fair value measurement, respectively. In general, a change in the assumption of the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity in an event of default. Significant increases or decreases in the discount rate in isolation would result in a significantly lower or higher fair value measurement.
The Company’s investment in the F3C Joint Venture is carried at fair value based upon the fair value of the investments held by the F3C Joint Venture.
35
The Company values derivative contracts using various pricing models that take into account the terms of the contract (including notional amount and contract maturity) and observable and unobservable inputs such as interest rates and changes in fair value of the reference asset.
The following table details derivative investments at September 30, 2022 and December 31, 2021:
($ in thousands) |
|
September 30, 2022 |
|
|||||||||||||
Types of contracts |
|
Notional amounts |
|
|
Derivative assets (liabilities) |
|
|
Realized gain(loss) |
|
|
Unrealized gain(loss) |
|
||||
Call option(2) |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
||
Put option(2) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Securities Swap and Option Agreement(1) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
(1) Net amount included in the derivative caption on the consolidated balance sheets |
|
|||||||||||||||
(2) Net amount included in non-controlled/non- affiliated investments on the consolidated balance sheets |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
($ in thousands) |
|
December 31, 2021 |
|
|||||||||||||
Types of contracts |
|
Notional amounts |
|
|
Derivative assets (liabilities) (1) |
|
|
Realized gain(loss) |
|
|
Unrealized gain(loss) |
|
||||
Call option |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
||
Put option |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Securities Swap and Option Agreement |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
(1) Net amount included in the derivative caption on the consolidated balance sheets |
|
|||||||||||||||
5. RELATED PARTY TRANSACTIONS
Advisory Agreement
The Adviser provides management services to the Company pursuant to the Advisory Agreement. Under the terms of the Advisory Agreement, the Adviser is responsible for the following:
The Adviser’s services under the Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to the Company are not impaired.
Term
Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect from year-to-year if approved annually by a majority of the Board or by the holders of a majority of the outstanding shares, and, in each case, a majority of the independent directors.
The Advisory Agreement will automatically terminate within the meaning of the 1940 Act and related Securities and Exchange Commission (“SEC”) guidance and interpretations in the event of its assignment.
Removal of Adviser
Compensation of Adviser
Pursuant to the terms of the Advisory Agreement, the Company pays the Adviser (i) a base management fee (the “Base Management Fee”) and (ii) an incentive fee (the “Incentive Fee”).
36
Pre-incentive fee net investment income means dividends (including reinvested dividends), interest and fee income accrued by the Company during the calendar quarter, minus operating expenses for the quarter (including the management fee, expenses payable under the administration agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind (“PIK”) interest and zero coupon securities), accrued income that the Company may not have received in cash. The Adviser is not obligated to return the incentive fee it receives on PIK interest that is later determined to be uncollectible in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
To determine the income incentive fee, pre-incentive fee net investment income is expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a calendar quarter in which the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the quarterly hurdle rate, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that calendar quarter due to realized capital losses and unrealized capital depreciation. In addition, because the quarterly hurdle rate is calculated based on our net assets, decreases in the Company’s net assets due to realized capital losses or unrealized capital depreciation in any given calendar quarter may increase the likelihood that the hurdle rate is reached and therefore the likelihood of the Company paying an incentive fee for the subsequent quarter. The Company’s net investment income used to calculate this component of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the management fee because gross assets are total assets (including cash received) before deducting liabilities (such as declared dividend payments).
The second component of the incentive fee, the capital gains incentive fee, payable at the end of each calendar year in arrears, equals
The fees that are payable under the Investment Advisory Agreement for any partial period will be appropriately prorated.
Limitations of Liability and Indemnification
Under the Advisory Agreement, the Adviser, its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser, including without limitation its managing member, will not be liable to the Company for acts or omissions performed in accordance with and pursuant to the Advisory Agreement, except those resulting from acts constituting criminal conduct, gross negligence, willful misfeasance, bad faith or reckless disregard of the duties that the Adviser owes to the Company under the Advisory Agreement. In addition, as part of the Advisory Agreement, the Company has agreed to indemnify the Adviser and each of its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser, including without limitation its general partner, and the Administrator from and against any damages, liabilities, costs and expenses, including reasonable legal fees and other expenses reasonably incurred, in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of the Company or its security holders) arising out of or otherwise based upon the performance of any of the Adviser’s duties or obligations under the Advisory Agreement or otherwise as an investment adviser of the Company, except where attributable to criminal conduct, gross negligence, willful misfeasance, bad faith or reckless disregard of such person’s duties under the Advisory Agreement.
Board Approval of the Advisory Agreement
On December 12, 2018, the then-current Board of the Company held an in-person meeting to consider and approve the Advisory Agreement and related matters, and on April 1, 2019 the Company entered into the Advisory Agreement with the Adviser. The Board most recently determined to re-approve the Advisory Agreement at a meeting held on March 8, 2022. In reaching a decision to re-approve the Advisory Agreement, the Board was provided the information required to consider the Advisory Agreement, including: (a) the nature, quality and extent of the advisory and other services to be provided to the Company by the Adviser; (b) comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; (c) the Company projected operating expenses and expense ratio compared to BDCs with similar investment objectives; (d) any existing and potential sources of indirect income to the Adviser from its relationship with the Company and the profitability of that relationship; (e) information about the services to be performed and the personnel performing such services under the Advisory Agreement; and (f) the organizational capability and financial condition of the Adviser and its affiliates.
The Board, including a majority of independent directors will oversee and monitor the Company’s investment performance and annually reviews the compensation we pay to the Adviser.
Management fees for the three months ended September 30, 2022 and 2021 were approximately $
Administration Agreement
Under the terms of the administration agreement (the “Administration Agreement”) between the Company and BC Partners Management LLC (the “Administrator”), the Administrator will perform, or oversee the performance of, required administrative services, which includes providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the performance of administrative and professional services rendered by others. The Company will reimburse the Administrator for services performed for us pursuant to the terms of the Administration Agreement. In addition, pursuant to the terms of the Administration Agreement, the Administrator may delegate its obligations under the Administration Agreement to an affiliate or to a third party and the Company will reimburse the Administrator for any services performed for it by such affiliate or third party.
Payments under the Administration Agreement are equal to an amount that reimburses the Administrator for its costs and expenses in performing its obligations and providing personnel and facilities (including rent, office equipment and utilities) for the Company’s use under the Administration Agreement, including an allocable portion of the compensation paid to the Company’s chief compliance officer and chief financial officer and their respective staff who provide services to the Company. The Board,
37
including the independent directors, will review the general nature of the services provided by the Administrator as well as the related cost to the Company for those services and consider whether the cost is reasonable in light of the services provided.
Unless earlier terminated as described below, the Administration Agreement will remain in effect from year-to-year if approved annually by a majority of the Board or by the holders of a Majority of the Outstanding Shares, and, in each case, a majority of the independent directors. On April 1, 2019, the Board approved the Administration Agreement with the Administrator and the Board most recently determined to re-approve the Administration Agreement at a meeting held on March 8, 2022.
The Company incurred $
Payment of Expenses under the Advisory and Administration Agreements
Except as specifically provided below, all investment professionals and staffs of the Adviser, when and to the extent engaged in providing investment advisory and management services to the Company, and the compensation and routine overhead expenses (including rent, office equipment and utilities), of such personnel allocable to such services, is provided and paid for by the Adviser. The Company bears an allocable portion of the compensation paid by the Adviser (or its affiliates) to the Company’s chief compliance officer and chief financial officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs). The Company also bears all other costs and expenses of our operations, administration and transactions, including, but not limited to (i) investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Advisory Agreement; (ii) an allocable portion of overhead and other expenses incurred by the Adviser (or its affiliates) in performing its administrative obligations under the Advisory Agreement, and (iii) all other expenses of our operations and transactions including, without limitation, those relating to:
Co-investment Exemptive Relief
As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term.
On October 23, 2018, the SEC issued an order granting an application for exemptive relief to an affiliate of the Adviser that allows BDCs managed by the Adviser, including the Company, to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions, with other funds managed by the Advisers or its
38
affiliates, including BCP Special Opportunities Fund I LP, BC Partners Lending Corporation, Logan Ridge Finance Corporation and any future funds that are advised by the Adviser or its affiliated investment advisers. Under the terms of the exemptive order, in order for the Company to participate in a co-investment transaction a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must conclude that (i) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching with respect of the Company or its stockholders on the part of any person concerned, and (ii) the proposed transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objectives and strategies and certain criteria established by the Board.
Related Party Trades
For the nine months ended September 30, 2022, the Company purchased $
6. BORROWINGS
The Company’s debt obligations consist of the following:
|
As of |
|
As of |
|
||
($ in thousands) |
September 30, 2022 |
|
December 31, 2021 |
|
||
|
|
|
|
|
||
2018-2 Secured Notes (net of discount of: 2022 - $ |
$ |
|
$ |
|
||
4.875% Notes Due 2026 (net of discount of: 2022 - $ |
|
|
|
|
||
Great Lakes Portman Ridge Funding LLC Revolving Credit Facility (net of deferred financing costs of: 2022 - $ |
|
|
|
|
||
|
$ |
|
$ |
|
||
The weighted average stated interest rate and weighted average maturity on all our debt outstanding as of September 30, 2022 was
Notes Offering
On
On April 30, 2021, the Company and U.S. Bank National Association (the “Trustee”) entered into a Supplemental Indenture (the “Third Supplemental Indenture”), which supplements that certain Base Indenture, dated as of October 10, 2012 (as may be further amended, supplemented or otherwise modified from time to time, the “Base Indenture” and, together with the Third Supplemental Indenture, the “Indenture”). The Third Supplemental Indenture relates to the Company’s issuance of the
The
The Indenture contains certain covenants, including covenants requiring the Company to comply with the asset coverage requirements of Sections 18(a)(1)(A) and 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, whether or not it is subject to those requirements, and to provide financial information to the holders of the Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Exchange Act. Additionally, the Company has agreed to use its commercially reasonable efforts to maintain a rating of the 4.875% Notes due 2026 from a rating agency, as long as the notes are outstanding. These covenants are subject to important limitations and exceptions that are described in the Indenture.
In addition, on the occurrence of a “change of control repurchase event,” as defined in the Indenture, the Company will generally be required to make an offer to purchase the outstanding notes at a price equal to
Sale of Additional 4.875% Notes due 2026
On June 23, 2021, the Company issued $
The New Notes were issued under the Indenture governing the 4.875% Notes due 2026. The New Notes were issued as “Additional Notes” under the Indenture and have identical terms to Company’s $
In connection with the issuance of the 4.875% Notes Due 2026, (including the New Notes) the Company incurred approximately $
Exchange of 4.875% Notes due 2026
On October 5, 2021, the Company filed with the SEC a registration statement relating to an offer to exchange the 4.875% Notes due 2026 for new notes issued by the Company that are registered under the Securities Act (the “Exchange Offer”), which registration statement was declared effective on December 2, 2021. Upon the terms and subject to the conditions in the prospectus relating to the Exchange Offer, the Company accepted any existing 4.875% Notes due 2026 (the “Restricted Notes”) validly tendered and not withdrawn prior to January 3, 2022, the expiration date of the Exchange Offer, and issued new 4.875% Notes due 2026 that have been registered under the Securities Act (the “Exchange Notes”). The form and terms of the Exchange Notes are substantially identical to those of the Restricted Notes, except that the transfer restrictions and
39
registration rights relating to the Restricted Notes do not apply to the Exchange Notes, and the Exchange Notes do not provide for the payment of additional interest in the event of a registration default. In addition, the Exchange Notes bear a different CUSIP number than the Restricted Notes. The Exchange Notes are issued under and entitled to the benefits of the same indenture that authorized the issuance of the Restricted Notes.
On the expiration date of the Exchange Offer, all of the Restricted Notes had been validly tendered, and all of the outstanding Restricted Notes were exchanged for newly issued Exchange Notes.
Fair Value of 4.875% Notes Due 2026.
The 4.875% Notes Due 2026 were issued during the second quarter of 2021 and are carried at cost, net of unamortized discount of approximately $
6.125% Notes Due 2022
During the third quarter of 2017, the Company issued $
For the three and nine months ended September 30, 2021, interest expense related to the 6.125% Notes Due 2022 was approximately $
Redemption of 6.125% Notes due 2022
On
Assumption of HCAP Notes
In connection with the closing of the HCAP Acquisition, on June 9, 2021, the Company entered into the HCAP Third Supplemental Indenture, effective as of the closing of the HCAP Acquisition. The HCAP Third Supplemental Indenture relates to the Company’s assumption of $
Pursuant to the HCAP Third Supplemental Indenture, the Company expressly assumed the due and punctual payment of the principal of (and premium, if any) and interest, if any, on the HCAP Notes and the performance of HCAP’s covenants under the base indenture, dated as of January 27, 2015, by and between HCAP and the Trustee, as supplemented by the second supplemental indenture, dated as of August 24, 2017, by and between HCAP and the Trustee. The HCAP Notes could be redeemed by the Company at any time at par value plus accrued and unpaid interest. No change of control offer was required to be made in respect of the HCAP Notes in connection with the consummation of the HCAP Acquisition.
On June 24, 2021, the Company notified the trustee for the Company’s HCAP Notes of the Company’s election to redeem the $
Revolving Credit Facility
On December 18, 2019, Great Lakes Portman Ridge Funding LLC (“GLPRF LLC”), our wholly-owned subsidiary, entered into a senior secured revolving credit facility (the “Revolving Credit Facility”) with JPMorgan Chase Bank, National Association (“JPM”). JPM serves as administrative agent, U.S. Bank National Association serves as collateral agent, securities intermediary and collateral administrator, and we serve as portfolio manager under the Revolving Credit Facility.
Advances under the Revolving Credit Facility bear interest at a per annum rate equal to the three-month LIBOR in effect, plus the applicable margin of
The initial principal amount of the Revolving Credit Facility is $
GLPRF LLC’s obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in all of GLPRF LLC’s portfolio of investments and cash. The obligations of GLPRF LLC under the Revolving Credit Facility are non-recourse to us, and our exposure under the Revolving Credit Facility is limited to the value of our investment in GLPRF LLC. In connection with the Revolving Credit Facility, GLPRF LLC has made certain customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Revolving Credit Facility contains customary events of default for similar financing transactions, including if a change of control of GLPRF LLC occurs or if we are no longer the portfolio manager of GLPRF LLC.
On April 29, 2022, GLPRF LLC amended the Revolving Credit Facility with JPM as administrative agent. The amended agreement replaces three-month SOFR as the benchmark interest rate and reduces the applicable margin to
At September 30, 2022, GLPRF LLC was in compliance with all of its debt covenants and $
For the three months ended September 30, 2022 and 2021 interest and fees expense related to the Revolving Credit Facility was approximately $
40
2018-2 Secured Notes
($ in thousands) |
|
|
|
|
|
|
|
|
|||
September 30, 2022 |
Amortized Carrying Value |
|
Outstanding Principal at Par |
|
Spread |
|
Rating(1) |
|
Stated |
||
2018-2 Secured Notes: |
|
|
|
|
|
|
|
|
|||
Class A-1R-R Notes |
$ |
|
$ |
|
LIBOR + |
|
|
||||
Class A-1T-R Notes |
|
|
|
|
LIBOR + |
|
|
||||
Class A-2-R Notes |
|
|
|
|
LIBOR + |
|
|
||||
Class B-R Notes |
|
|
|
|
LIBOR + |
|
|
||||
|
$ |
|
$ |
|
|
|
|
|
|
||
($ in thousands) |
|
|
|
|
|
|
|
|
|||
December 31, 2021 |
Amortized Carrying Value |
|
Outstanding Principal at Par |
|
Spread |
|
Rating(1) |
|
Stated |
||
2018-2 Secured Notes: |
|
|
|
|
|
|
|
|
|
||
Class A-1R-R Notes |
$ |
|
$ |
|
LIBOR + |
|
|
||||
Class A-1T-R Notes |
|
|
|
|
LIBOR + |
|
|
||||
Class A-2-R Notes |
|
|
|
|
LIBOR + |
|
|
||||
Class B-R Notes |
|
|
|
|
LIBOR + |
|
|
||||
|
$ |
|
$ |
|
|
|
|
|
|
||
October 28, 2020 the Company completed the GARS Acquisition, pursuant to the terms and conditions of the GARS Merger Agreement. In connection therewith, the Company now consolidates the financial statements the 2018-2 CLO a $
The CLO was executed by GF 2018-2 (the “Issuer”) and Portman Ridge Funding 2018-2 LLC (formerly known as Garrison Funding 2018-2 LLC, together with the Issuer, the “Co-Issuers”) who issued $
During the first quarter of 2021, the Company redeemed approximately $
The fair value of the 2018-2 Notes approximated their carrying value on the consolidated statements of financial condition as of September 30, 2022 and are categorized as Level III under the ASC 820 Fair Value Hierarchy.
Collateralized Loan Obligation Financing Covenants
The documents governing the CLO include three overcollateralization tests which are comprised of the Class A Overcollateralization Test, the Class B Overcollateralization Test and the EoD Overcollateralization Test, each of which are individually defined below.
The documents governing the CLO include
The second test compares the aggregate assets that serve as collateral for the 2018-2 Secured Notes, or the Total Capitalization, as defined and calculated in accordance with the indenture, to the aggregate outstanding principal amount of the 2018-2 Secured Notes in respect of the amounts drawn. To meet this second test at any time, the Total Capitalization must equal at least (1)
If the coverage tests are not satisfied with respect to a quarterly payment date, the CLO may be required to apply amounts to the repayment of interest on and principal of the 2018-2 Notes prior to their maturity to the extent necessary to satisfy the applicable coverage tests. As a result, there may be reduced funds available for 2018-2 CLO to
41
make additional investments or to make distributions on the 2018-2 Notes held by the Company. Additionally, compliance was measured on each day collateral loans are purchased, originated or sold and in connection with monthly reporting to the note holders.
Furthermore, if under the second coverage test the Total Capitalization equals
As of September 30, 2022, the trustee for the CLO has asserted that the Class A Overcollateralization Test, Class B Overcollateralization, and the EoD Overcollateralization Test were met.
Senior Securities
Information about the Company’s senior securities is shown as of the dates indicated in the below table.
Class and Period |
|
Total Amount |
|
|
Asset Coverage per |
|
|
Involuntary |
|
|
Average Market |
|||
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|||
Fiscal 2011 |
|
$ |
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2012 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2013 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2014 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2015 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2016 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2017 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2018 |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2019(5) |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2020(6) |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
Fiscal 2021(7) |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
March 31, 2022(8) |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
June 30, 2022(9) |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
September 30, 2022(10) |
|
|
|
|
|
|
|
|
— |
|
|
N/A |
||
7. DISTRIBUTABLE TAXABLE INCOME
Effective December 11, 2006, the Company elected to be treated as a RIC under the Code and adopted a December 31 tax-calendar year end. As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to its stockholders as a dividend. The Company’s quarterly distributions, if any, are determined by the Board. The Company anticipates distributing substantially all of its taxable income and gains, within the Subchapter M rules, and thus the Company anticipates that it will not incur any federal or state income tax at the RIC level. As a RIC, the Company is also subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis (e.g., calendar year 2021). Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a
The Company may distribute taxable dividends that are payable in cash or shares of its common stock at the election of each stockholder. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treated as taxable dividends. The Internal Revenue Service has published guidance indicating that this rule will apply even where the total amount of cash that may be distributed is limited to no more than
42
extent of the Company’s current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the Company’s stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, the Company may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of the Company’s stockholders determine to sell shares of its stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of the Company’s stock.
The following reconciles net increase in net assets resulting from operations to taxable income for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
||
Net (decrease) increase in net assets resulting from operations |
|
$ |
( |
) |
|
$ |
|
|
Tax (provision) benefit on realized and unrealized gains (losses) on investments |
|
|
|
|
|
- |
|
|
Net change in unrealized depreciation (appreciation) from investments |
|
|
|
|
|
( |
) |
|
Net realized losses |
|
|
|
|
|
|
||
Book/tax differences on CLO equity investments |
|
|
( |
) |
|
|
|
|
Book/tax differences related to mergers and partnership investments |
|
|
|
|
|
( |
) |
|
Other book/tax differences |
|
|
|
|
|
|
||
Taxable income before deductions for distributions |
|
$ |
|
|
$ |
|
||
Taxable income before deductions for distributions per weighted |
|
$ |
|
|
$ |
|
||
Dividends from Asset Manager Affiliates are recorded based upon a quarterly estimate of tax-basis earnings and profits of each Asset Manager Affiliate. Distributions in excess of the estimated tax-basis quarterly earnings and profits of each distributing Asset Manager Affiliate are recognized as tax-basis return of capital. The actual tax-basis earnings and profits and resulting dividend and/or return of capital for the year will be determined at the end of the tax year for each distributing Asset Manager Affiliate. For the three and nine months ended September 30, 2022, the Asset Manager Affiliates did not make any cash distributions to the Company.
Distributions to shareholders that exceed tax-basis distributable income (tax-basis net investment income and realized gains, if any) are reported as distributions of paid-in capital (i.e. return of capital). The tax character of distributions is made on an annual (full calendar-year) basis. The determination of the tax attributes of our distributions is made at the end of the year based upon our taxable income for the full year and the distributions paid during the full year. Therefore, a determination of tax attributes made on a quarterly basis may not be representative of the actual tax attributes of distributions for a full year.
At September 30, 2022, the Company had a net capital loss carryforward of $
The Company has certain taxable subsidiaries which have elected to be taxed as corporations for U.S. tax purposes. For the nine months ended September 30, 2022, the taxable subsidiaries’ activity resulted in a provision for income taxes of $
ASC Topic 740 Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Company’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (the last three fiscal years) or expected to be taken in the Company’s current year tax return. The Company identifies its major tax jurisdictions as U.S. Federal and New York State, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof.
8. COMMITMENTS AND CONTINGENCIES
From time-to-time the Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the needs of the Company’s investment in portfolio companies. Such instruments include commitments to extend credit and may involve, in varying degrees, elements of credit risk in excess of amounts recognized on the Company’s balance sheet. Prior to extending such credit, the Company attempts to limit its credit risk by conducting extensive due diligence, obtaining collateral where necessary and negotiating appropriate financial covenants. As of September 30, 2022 and December 31, 2021, the Company had $
The Company has made an aggregate commitment to the Great Lakes II Joint Venture of $
The Company is involved in litigation in the normal course of its operations and does not expect that the outcome of those litigations to have a material adverse impact to the Company’s financial position or results of operations.
The Company may, from time to time, enter into commitments to fund investments. These unfunded commitments are assessed for fair value in accordance with ASC 820. As of September 30, 2022, the Company had the following outstanding commitments to fund investments in current portfolio companies:
43
($ in thousands) |
|
|
|
Par Value |
|
||
Portfolio Company |
|
Investment |
|
September 30, 2022 |
|
||
Accordion Partners LLC |
|
Delayed Draw Term Loan |
|
$ |
|
|
|
Accordion Partners LLC |
|
Delayed Draw Term Loan |
|
|
|
|
|
Accordion Partners LLC |
|
Revolver |
|
|
|
|
|
AMCP Pet Holdings, Inc. |
|
Revolving Loan |
|
|
|
|
|
Analogic Corporation |
|
Revolver |
|
|
|
|
|
Anthem Sports & Entertainment Inc. |
|
Revolver |
|
|
|
|
|
Appfire Technologies, LLC |
|
Delayed Draw Term Loan |
|
|
|
|
|
Beta Plus Technologies, Inc. |
|
Revolver |
|
|
|
|
|
Bradshaw International Parent Corp. |
|
Revolver |
|
|
|
|
|
Bristol Hospice |
|
Delayed Draw Term Loan |
|
|
|
|
|
Centric Brands Inc. |
|
Revolver |
|
|
|
|
|
Centric Brands Inc. |
|
Revolver |
|
|
|
|
|
Critical Nurse Staffing, LLC |
|
Revolver |
|
|
|
|
|
Critical Nurse Staffing, LLC |
|
Delayed Draw Term Loan |
|
|
|
|
|
Global Integrated Flooring Systems Inc. |
|
Revolver |
|
|
|
|
|
H.W. Lochner, Inc. |
|
Revolver |
|
|
|
|
|
Luminii LLC |
|
Revolver |
|
|
|
|
|
Marble Point Credit Management LLC |
|
Revolver |
|
|
|
|
|
Maxor National Pharmacy Services, LLC |
|
Revolver |
|
|
|
|
|
Naviga Inc. |
|
Revolver |
|
|
|
|
|
Netwrix Corporation |
|
Delayed Draw Term Loan - First Lien |
|
|
|
|
|
Netwrix Corporation |
|
Revolver |
|
|
|
|
|
Netwrix Corporation |
|
Delayed Draw Term Loan - First Lien |
|
|
|
|
|
Premier Imaging, LLC |
|
Delayed Draw Term Loan |
|
|
|
|
|
TA/WEG Holdings, LLC |
|
Delayed Draw Term Loan |
|
|
|
|
|
TA/WEG Holdings, LLC |
|
Revolver |
|
|
|
|
|
TLE Holdings, LLC |
|
Delayed Draw Term Loan |
|
|
|
|
|
Aperture Dodge 18 LLC |
|
Equity - Unfunded |
|
|
|
|
|
GreenPark Infrastructure, LLC |
|
Preferred Equity |
|
|
|
|
|
Series A-Great Lakes Funding II LLC |
|
Joint Ventures |
|
|
|
|
|
Total Unfunded Portfolio Company Commitments |
|
|
|
$ |
|
|
|
9. STOCKHOLDERS’ EQUITY
The following table details the components of Stockholders’ Equity for the nine months ended September 30, 2022 and 2021:
|
|
For the Nine Months Ended September 30, 2022 |
|
|||||||||||||
($ in thousands) |
|
Common |
|
|
Capital in |
|
|
Total |
|
|
Total |
|
||||
Balance, January 1, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net investment income |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Net change in unrealized appreciation on investments |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Net realized (losses) from investment transactions and extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Tax (provision) benefit on realized and unrealized gains (losses) on investments |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Distributions to Stockholders |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Reinvested Dividends |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Stock-repurchase |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Private placement and other |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Balance, March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net investment income |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Net change in unrealized appreciation on investments |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Net realized (losses) from investment transactions and extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Tax (provision) benefit on realized and unrealized gains (losses) on investments |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Distributions to Stockholders |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Reinvested Dividends |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Stock-repurchase |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Private placement |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance, June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net investment income |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Net change in unrealized appreciation on investments |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Net realized (losses) from investment transactions and extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Tax (provision) benefit on realized and unrealized gains (losses) on investments |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Distributions to Stockholders |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Reinvested Dividends |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Stock-repurchase |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Private placement |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance, September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
44
|
|
For the Nine Months Ended September 30, 2021 |
|
|||||||||||||
($ in thousands) |
|
Common |
|
|
Capital in |
|
|
Total |
|
|
Total |
|
||||
Balance, January 1, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net investment income |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Net realized (losses) from investment transactions and extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Net change in unrealized appreciation on investments |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Distributions to Stockholders |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Reinvested Dividends |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Balance at March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net investment income |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Net realized (losses) from investment transactions and extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Net change in unrealized appreciation on investments |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Distributions to Stockholders |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Reinvested Dividends |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Stock-repurchase |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Private placement |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
HCAP purchase (net of offering expenses) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Balance, June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net investment income |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Net realized (losses) from investment transactions and extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Net change in unrealized appreciation on investments |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Distributions to Stockholders |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Reinvested Dividends |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Stock-repurchase |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance, September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
On March 11, 2021, the Board of Directors of the Company approved a $
During the three months ended September 30, 2022 and 2021, the Company issued
There were
Repurchase Program at an aggregate cost of approximately $
10. ACQUISITIONS OF GARRISON CAPITAL INC. AND HARVEST CAPITAL CREDIT CORPORATION
GARS acquisition
On October 28, 2020, the Company completed the GARS Acquisition, pursuant to the terms and conditions of the GARS Merger Agreement. To effect the acquisition, a wholly owned merger subsidiary of the Company merged with and into GARS, with GARS surviving the merger as the Company’s wholly owned subsidiary. Immediately thereafter and as a single integrated transaction, GARS consummated a second merger, whereby GARS merged with and into the Company, with the Company surviving the merger. Under the terms of the GARS Merger Agreement, each share of GARS Common Stock issued and outstanding was converted into the right to receive (i) an amount in cash, without interest, equal to approximately $
The merger was accounted for in accordance with the asset acquisition method of accounting as detailed in ASC Topic 805-50. The fair value of the consideration paid, and transaction costs incurred to complete the merger by the Company, including $
45
($ in thousands) |
|
|
|
|
Common stock issued by the Company (1) |
|
$ |
|
|
Cash consideration to GARS shareholders |
|
|
|
|
Transaction costs (excluding offering costs $ |
|
|
|
|
Total purchase consideration |
|
|
|
|
Assets acquired: |
|
|
|
|
Investments, at fair value (amortized cost of $ |
|
|
|
|
Cash |
|
|
|
|
Interest receivable |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Liabilities assumed: |
|
|
|
|
Debt |
|
|
|
|
Other liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Net assets acquired |
|
|
|
|
Total purchase discount |
|
$ |
( |
) |
HCAP Acquisition and Assumption and Redemption of HCAP Notes
On June 9, 2021 the Company completed the HCAP Acquisition, pursuant to the terms and conditions of the HCAP Merger Agreement. To effect the acquisition, the Acquisition Sub merged with and into HCAP, with HCAP surviving the merger as the Company’s wholly owned subsidiary. Immediately thereafter and as a single integrated transaction, HCAP consummated a second merger, whereby HCAP merged with and into the Company, with the Company surviving the merger. As a result of, and as of the effective time of, the second merger, HCAP’s separate corporate existence ceased.
Under the terms of the HCAP Merger Agreement, HCAP stockholders as of immediately prior to the effective time of the first merger (other than shares held by a subsidiary of HCAP or held, directly or indirectly, by the Company or Acquisition Sub, and all treasury shares (collectively, “Cancelled Shares”)) received a combination of (i) $
With respect to the merger consideration from the Company, HCAP stockholders as of immediately prior to the effective time of the first merger (other than Cancelled Shares) were entitled, with respect to all or any portion of the shares of HCAP common stock they held as of the effective time of the first merger, to elect to receive the merger consideration in the form of cash (an “Election”) or in the form of the Company's common stock, subject to certain conditions and limitations in the merger agreement. Any HCAP stockholder who did not validly make an Election was deemed to have elected to receive shares of the Company’s common stock with respect to the merger consideration as payment for their shares of HCAP common stock. Each share of HCAP common stock (other than Cancelled Shares) with respect to which an Election was made was treated as an “Electing Share” and each share of HCAP Common Stock (other than Cancelled Shares) with respect to which an Election was not made or that was transferred after the election deadline on June 2, 2021 was treated as a “Non-Electing Share.”
Pursuant to the conditions of and adjustment mechanisms in the HCAP Merger Agreement,
The HCAP Acquisition was accounted for in accordance with the asset acquisition method of accounting as detailed in ASC Topic 805-50. The fair value of the consideration paid, and transaction costs incurred to complete the merger by the Company, including $
46
($ in thousands) |
|
|
|
|
Common stock issued by the Company (1) |
|
$ |
|
|
Cash consideration to HCAP shareholders (2) |
|
|
|
|
Transaction costs (excluding offering costs $ |
|
|
|
|
Total purchase consideration |
|
|
|
|
Assets acquired: |
|
|
|
|
Investments, at fair value (amortized cost of $ |
|
$ |
|
|
Cash |
|
|
|
|
Interest receivable |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Liabilities assumed: |
|
|
|
|
Debt |
|
|
|
|
Other liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Net assets acquired |
|
|
|
|
Total purchase discount |
|
$ |
( |
) |
On June 9, 2021, the Company entered into the HCAP Third Supplemental Indenture, effective as of the closing of the HCAP Acquisition. The HCAP Third Supplemental Indenture relates to the Company’s assumption of $
Pursuant to the HCAP Third Supplemental Indenture, the Company expressly assumed the due and punctual payment of the principal of (and premium, if any) and interest, if any, on the HCAP Notes and the performance of HCAP’s covenants under the base indenture, dated as of January 27, 2015, by and between HCAP and the Trustee, as supplemented by the second supplemental indenture, dated as of August 24, 2017, by and between HCAP and the Trustee. No change of control offer was required to be made in respect of the HCAP Notes in connection with the consummation of the HCAP Acquisition.
The HCAP Notes could be redeemed by the Company at any time at par value plus accrued and unpaid interest. On July 23, 2021, the Company redeemed the entire notional amount of $
11. SUBSEQUENT EVENTS
On
The Company has evaluated events and transactions occurring subsequent to September 30, 2022 for items that should potentially be recognized or disclosed in these financial statements. Other than as described above, management has determined that there are no other material subsequent events that would require adjustment to, or disclosure in, these unaudited consolidated financial statements.
47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A of this Form 10-Q of this Quarterly Report. Our actual results could differ materially from those anticipated by such forward-looking statements due to factors discussed under the “Risk Factors” section included in our SEC filings and “Note About Forward-Looking Statements” appearing elsewhere in this Form 10-Q.
GENERAL
We are an externally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). Sierra Crest Investment Management LLC (the “Adviser”) is an affiliate of BC Partners LLP (“BC Partners”). Subject to the overall supervision of the Board, the Adviser is responsible for managing our business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring our investments, and monitoring our portfolio companies on an ongoing basis through a team of investment professionals.
We originate, structure, and invest in secured term loans, bonds or notes and mezzanine debt primarily in privately-held middle market companies but may also invest in other investments such as loans to publicly-traded companies, high-yield bonds, and distressed debt securities (collectively the “Debt Securities Portfolio”). We also invest in debt and subordinated securities issued by collateralized loan obligation funds (“CLO Fund Securities”). In addition, from time to time we may invest in the equity securities of privately held middle market companies and may also receive warrants or options to purchase common stock in connection with our debt investments.
In our Debt Securities Portfolio, our investment objective is to generate current income and, to a lesser extent, capital appreciation from the investments in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle market companies. We define the middle market as comprising companies with EBITDA of $10 million to $50 million and/or total debt of $25 million to $150 million. We primarily invest in first and second lien term loans which, because of their priority in a company’s capital structure, we expect will have lower default rates and higher rates of recovery of principal if there is a default and which we expect will create a stable stream of interest income. While there is no specific collateral associated with senior unsecured debt, such positions are senior in payment priority over subordinated debt investments. The investments in our Debt Securities Portfolio are all or predominantly below investment grade, and have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.
From time-to-time we have also made investments in CLO Fund Securities managed by other asset managers. Our collateralized loan obligation funds (“CLO Funds”) typically invest in broadly syndicated loans, high-yield bonds and other credit instruments.
Our portfolio may include “covenant-lite” loans which generally refer to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
We have elected to be treated for U.S. federal income tax purposes as a RIC under the Code and intend to operate in a manner to maintain our RIC status. As a RIC, we intend to distribute to our stockholders substantially all of our net ordinary taxable income and the excess of realized net short-term capital gains over realized net long-term capital losses, if any, for each year. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. Pursuant to this election, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we timely distribute to our stockholders.
From time to time, we may seek to retire, repurchase, or exchange debt securities in open market purchases or by other means dependent on market conditions, liquidity, contractual obligations, and other matters. In addition, we evaluate strategic opportunities available to us, including mergers with unaffiliated funds and affiliated funds, divestures, spin-offs, joint ventures and other similar transactions from time to time. An example of an opportunity we are currently in the initial stages of evaluating is a potential merger with one or more of our affiliated 1940 Act funds, which may result in the use of an exchange ratio other than NAV-for-NAV (including but not limited to relative market price) in connection therewith.
The Externalization
On April 1, 2019 (the “Closing”), we became externally managed (the “Externalization”) by the Adviser, pursuant to a stock purchase and transaction agreement (the “Externalization Agreement”) with BC Partners Advisors L.P. (“BCP”), an affiliate of BC Partners. In connection with the Externalization, our stockholders approved an investment advisory agreement (the “Advisory Agreement”) with the Adviser. See “-Advisory Agreement” below.
Pursuant to the Externalization Agreement with BCP, the Adviser became our investment adviser in exchange for a cash payment from BCP, or its affiliate, of $25 million, or $0.669672 per share of our common stock, directly to our stockholders. In addition, the Adviser (or its affiliate) will use up to $10 million of the incentive fee actually paid to the Adviser prior to the second anniversary of the Closing to buy newly issued shares of our common stock at the most recently determined net asset value per share of our common stock at the time of such purchase. In November 2020, the Adviser purchased approximately $570 thousand newly issued shares of our common stock in connection therewith, and in May 2021, the Adviser purchased approximately $4.0 million of newly issued shares of our common stock in connection therewith. In both cases, the shares were issued at the most recently determined net asset value per share of our common stock. The obligations of the Advisor to use incentive fees to purchase shares expired on April 1, 2021. For the period of one year from the first day of the first quarter following the quarter in which the Closing occurred, the Adviser will permanently forego up to the full amount of the incentive fees earned by the Adviser without recourse against or reimbursement by us, to the extent necessary in order to achieve aggregate net investment income per share of common stock for such one-year period to be at least equal to $0.40 per share, subject to certain adjustments. BCP and the Adviser’s total financial commitment to the transactions contemplated by the Externalization Agreement was $35.0 million.
GARS Transaction
On October 28, 2020, we completed our acquisition of Garrison Capital Inc., a publicly traded BDC (“GARS”, and such transaction, the “GARS Acquisition”). To effect the acquisition, our wholly owned merger subsidiary merged with and into GARS, with GARS surviving the merger as our wholly owned subsidiary. Immediately thereafter and as a single integrated transaction, GARS consummated a second merger, whereby GARS merged with and into us, with the Company surviving the merger.
In accordance with the terms of the merger agreement for the GARS Acquisition, dated June 24, 2020 (the “GARS Merger Agreement”), each share of common stock, par value $0.001 per share, of GARS (the “GARS Common Stock”) issued and outstanding was converted into the right to receive (i) an amount in cash, without interest, equal to approximately $1.19 and (ii) approximately 1.917 shares of common stock, par value $0.01 per share, of the Company (plus any applicable cash in lieu of fractional shares). Each share of GARS Common Stock issued and outstanding received, as additional consideration funded by the Adviser, an amount in cash, without interest, equal to approximately $0.31. In connection with the closing of the GARS Acquisition, the Board approved an increase in the size of the Board from seven members to nine members, and appointed each of Matthew Westwood and Joseph Morea to serve on the Board.
48
HCAP Acquisition and Assumption and Redemption of HCAP Notes
On June 9, 2021 we completed our acquisition of Harvest Capital Credit Corporation, a publicly traded BDC (“HCAP”, and such transaction, the “HCAP Acquisition”). To effect the acquisition, our wholly owned merger subsidiary (“Acquisition Sub”) merged with and into HCAP, with HCAP surviving the merger as the Company’s wholly owned subsidiary. Immediately thereafter and as a single integrated transaction, HCAP consummated a second merger, whereby HCAP merged with and into the Company, with the Company surviving the merger. As a result of, and as of the effective time of, the second merger, HCAP’s separate corporate existence ceased.
Under the terms of the merger agreement for the HCAP Acquisition, dated December 23, 2020 (the “HCAP Merger Agreement”), HCAP stockholders as of immediately prior to the effective time of the first merger (other than shares held by a subsidiary of HCAP or held, directly or indirectly, by the Company or Acquisition Sub, and all treasury shares (collectively, “Cancelled Shares”)) received a combination of (i) $18.54 million in cash paid by the Company, (ii) 15,252,453 validly issued, fully paid and non-assessable shares of the Company’s common stock, par value $0.01 per share, and (iii) an additional cash payment from the Adviser of $2.15 million in the aggregate.
With respect to the merger consideration from the Company, HCAP stockholders as of immediately prior to the effective time of the first merger (other than Cancelled Shares) were entitled, with respect to all or any portion of the shares of HCAP common stock they held as of the effective time of the first merger, to elect to receive the merger consideration in the form of cash (an “Election”) or in the form of our common stock, subject to certain conditions and limitations in the merger agreement. Any HCAP stockholder who did not validly make an Election was deemed to have elected to receive shares of the Company’s common stock with respect to the merger consideration as payment for their shares of HCAP common stock. Each share of HCAP common stock (other than Cancelled Shares) with respect to which an Election was made was treated as an “Electing Share” and each share of HCAP Common Stock (other than Cancelled Shares) with respect to which an Election was not made or that was transferred after the election deadline on June 2, 2021 was treated as a “Non-Electing Share.”
Pursuant to the conditions of and adjustment mechanisms in the HCAP Merger Agreement, 475,806 Electing Shares were converted to Non-Electing Shares for purposes of calculating the total mix of consideration to be paid to each Electing Share in order to ensure that the value of the aggregate cash consideration paid to holders of the Electing Shares equaled the aggregate cash consideration that HCAP received from the Company under the terms of the HCAP Merger Agreement. Accordingly, as a result of the Elections received from HCAP stockholders and any resulting adjustment under the terms of the HCAP Merger Agreement, each Electing Share received, in aggregate, approximately $7.43 in cash and 0.74 shares of the Company's common stock, while each Non-Electing Share received, in aggregate, approximately 3.86 shares of the Company's common stock.
On June 9, 2021, the Company entered into a third supplemental indenture (the “HCAP Third Supplemental Indenture”) by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”), effective as of the closing of the HCAP Acquisition. The HCAP Third Supplemental Indenture relates to the Company’s assumption of $28.75 million in aggregate principal amount of HCAP’s 6.125% Notes due September 15, 2022 (the “HCAP Notes”).
Pursuant to the HCAP Third Supplemental Indenture, the Company expressly assumed the due and punctual payment of the principal of (and premium, if any) and interest, if any, on the HCAP Notes and the performance of HCAP’s covenants under the base indenture, dated as of January 27, 2015, by and between HCAP and the Trustee, as supplemented by the second supplemental indenture, dated as of August 24, 2017, by and between HCAP and the Trustee. No change of control offer was required to be made in respect of the HCAP Notes in connection with the consummation of the HCAP Acquisition.
The HCAP Notes could be redeemed by the Company at any time at par value plus accrued and unpaid interest. On July 23, 2021, the Company redeemed the entire notional amount of $28.75 million of the HCAP Notes.
Reverse Stock Split
On August 23, 2021, the Company filed a Certificate of Amendment (the “Reverse Stock Split Certificate of Amendment”) to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split of the issued and outstanding (or held in treasury) shares of the Company’s common stock, par value $0.01 per share (the “Reverse Stock Split”). The Reverse Stock Split became effective as of 12:01 a.m. (Eastern Time) on August 26, 2021.
As a result of the Reverse Stock Split, every ten shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).
On August 23, 2021, the Company filed a Certificate of Amendment to decrease the number of authorized shares of common stock by one half of the reverse stock split ratio (the “Decrease Shares Certificate of Amendment”) with the Secretary of State of the State of Delaware. The Decrease Shares Certificate of Amendment became effective as of 12:05 a.m. (Eastern Time) on August 26, 2021. Following the effectiveness of the Decrease Shares Certificate of Amendment, the number of authorized shares of common stock under the Company’s Certificate of Incorporation was reduced from 100 million shares to 20 million shares.
The Reverse Stock Split Certificate of Amendment and the Decrease Shares Certificate of Amendment were approved by the Company’s stockholders at its annual meeting held on June 7, 2021 and were approved by the Board on August 4, 2021.
PORTFOLIO AND INVESTMENT ACTIVITY
Our primary investments are lending to and investing in middle-market businesses through investments in senior secured loans, junior secured loans, subordinated/mezzanine debt investments, and other equity investments, which may include warrants, investments in joint ventures, and investments in CLO Fund Securities.
49
Total portfolio investment activity (excluding activity in short-term investments) for the nine months ended September 30, 2022 (unaudited) and for the year ended December 31, 2021 was as follows:
($ in thousands) |
|
Debt |
|
|
Equity |
|
|
CLO Fund |
|
|
Joint |
|
|
Derivatives(1) |
|
|
Total |
|
||||||
Fair Value at December 31, 2020 |
|
$ |
404,861 |
|
|
$ |
13,945 |
|
|
$ |
19,583 |
|
|
$ |
49,349 |
|
|
$ |
(1,109 |
) |
|
$ |
486,629 |
|
Purchases / originations / draws |
|
|
309,363 |
|
|
|
9,002 |
|
|
|
18,077 |
|
|
|
34,358 |
|
|
|
- |
|
|
|
370,800 |
|
Pay-downs / pay-offs / sales |
|
|
(287,238 |
) |
|
|
(4,740 |
) |
|
|
(11,675 |
) |
|
|
(24,925 |
) |
|
|
(880 |
) |
|
|
(329,458 |
) |
Net accretion of interest |
|
|
27,549 |
|
|
|
- |
|
|
|
4,754 |
|
|
|
- |
|
|
|
- |
|
|
|
32,303 |
|
Net realized gains (losses) |
|
|
2,361 |
|
|
|
(2,176 |
) |
|
|
(5,323 |
) |
|
|
- |
|
|
|
880 |
|
|
|
(4,258 |
) |
Increase (decrease) in fair value |
|
|
(21,603 |
) |
|
|
6,555 |
|
|
|
6,216 |
|
|
|
1,692 |
|
|
|
(1,303 |
) |
|
|
(8,443 |
) |
Fair Value at December 31, 2021 |
|
$ |
435,293 |
|
|
$ |
22,586 |
|
|
$ |
31,632 |
|
|
$ |
60,474 |
|
|
$ |
(2,412 |
) |
|
$ |
547,573 |
|
Purchases / originations / draws |
|
|
179,217 |
|
|
|
7,763 |
|
|
|
- |
|
|
|
1,700 |
|
|
|
- |
|
|
|
188,680 |
|
Pay-downs / pay-offs / sales |
|
|
(125,901 |
) |
|
|
(8,036 |
) |
|
|
(5,571 |
) |
|
|
(10,400 |
) |
|
|
2,075 |
|
|
|
(147,833 |
) |
Net accretion of interest |
|
|
8,595 |
|
|
|
- |
|
|
|
3,476 |
|
|
|
- |
|
|
|
- |
|
|
|
12,071 |
|
Net realized gains (losses) |
|
|
(14,719 |
) |
|
|
1,271 |
|
|
|
(12,054 |
) |
|
|
(526 |
) |
|
|
(2,095 |
) |
|
|
(28,123 |
) |
Increase (decrease) in fair value |
|
|
(5,088 |
) |
|
|
903 |
|
|
|
7,140 |
|
|
|
(6,107 |
) |
|
|
2,440 |
|
|
|
(712 |
) |
Fair Value at September 30, 2022 |
|
$ |
477,397 |
|
|
$ |
24,487 |
|
|
$ |
24,623 |
|
|
$ |
45,141 |
|
|
$ |
8 |
|
|
$ |
571,656 |
|
The level of investment activity for investments funded and principal repayments for our investments can vary substantially from period to period depending on the number and size of investments that we invest in or divest of, and many other factors, including the amount and competition for the debt and equity securities available to middle market companies, the level of merger and acquisition activity for such companies and the general economic environment.
The following table shows the Company’s portfolio by security type at September 30, 2022 and December 31, 2021:
|
|
|
|
|
|
|
||||||||||||||||||
($ in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
Security Type |
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
||||||
Senior Secured Loan |
|
$ |
426,052 |
|
|
$ |
415,819 |
|
|
|
73 |
|
|
$ |
361,556 |
|
|
$ |
364,701 |
|
|
|
66 |
|
Junior Secured Loan |
|
|
65,672 |
|
|
|
61,535 |
|
|
|
11 |
|
|
|
82,996 |
|
|
|
70,549 |
|
|
|
13 |
|
Senior Unsecured Bond |
|
|
416 |
|
|
|
43 |
|
|
|
0 |
|
|
|
416 |
|
|
|
43 |
|
|
|
0 |
|
Equity Securities |
|
|
27,679 |
|
|
|
24,487 |
|
|
|
4 |
|
|
|
26,680 |
|
|
|
22,586 |
|
|
|
4 |
|
CLO Fund Securities |
|
|
37,411 |
|
|
|
24,623 |
|
|
|
4 |
|
|
|
51,561 |
|
|
|
31,632 |
|
|
|
6 |
|
Asset Manager Affiliates(2) |
|
|
17,791 |
|
|
|
- |
|
|
|
- |
|
|
|
17,791 |
|
|
|
- |
|
|
|
- |
|
Joint Ventures |
|
|
55,139 |
|
|
|
45,141 |
|
|
|
8 |
|
|
|
64,365 |
|
|
|
60,474 |
|
|
|
11 |
|
Derivatives |
|
|
31 |
|
|
|
8 |
|
|
|
0 |
|
|
|
31 |
|
|
|
(2,412 |
) |
|
|
- |
|
Total |
|
$ |
630,191 |
|
|
$ |
571,656 |
|
|
|
100 |
% |
|
$ |
605,396 |
|
|
$ |
547,573 |
|
|
|
100 |
% |
50
The industry concentrations, based on the fair value of the Company’s investment portfolio as of September 30, 2022 and December 31, 2021, were as follows:
($ in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
Industry Classification |
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
|
Cost/Amortized |
|
|
Fair Value |
|
|
%(¹) |
|
||||||
Aerospace and Defense |
|
$ |
10,764 |
|
|
$ |
10,522 |
|
|
|
2 |
|
|
$ |
11,730 |
|
|
$ |
11,692 |
|
|
|
2 |
|
Asset Management Company(2) |
|
|
17,791 |
|
|
|
- |
|
|
|
- |
|
|
|
17,791 |
|
|
|
- |
|
|
|
- |
|
Automotive |
|
|
12,007 |
|
|
|
11,803 |
|
|
|
2 |
|
|
|
11,331 |
|
|
|
11,487 |
|
|
|
2 |
|
Banking, Finance, Insurance & Real Estate |
|
|
72,192 |
|
|
|
74,457 |
|
|
|
13 |
|
|
|
41,487 |
|
|
|
42,858 |
|
|
|
8 |
|
Beverage, Food and Tobacco |
|
|
12,381 |
|
|
|
12,237 |
|
|
|
2 |
|
|
|
5,511 |
|
|
|
5,625 |
|
|
|
1 |
|
Capital Equipment |
|
|
10,679 |
|
|
|
6,915 |
|
|
|
1 |
|
|
|
14,387 |
|
|
|
10,620 |
|
|
|
2 |
|
Chemicals, Plastics & Rubber |
|
|
10,496 |
|
|
|
10,379 |
|
|
|
2 |
|
|
|
12,692 |
|
|
|
12,969 |
|
|
|
2 |
|
CLO Fund Securities |
|
|
37,411 |
|
|
|
24,623 |
|
|
|
4 |
|
|
|
51,561 |
|
|
|
31,632 |
|
|
|
6 |
|
Construction & Building |
|
|
10,481 |
|
|
|
10,530 |
|
|
|
2 |
|
|
|
8,966 |
|
|
|
9,501 |
|
|
|
2 |
|
Consumer goods: Durable |
|
|
16,804 |
|
|
|
13,852 |
|
|
|
2 |
|
|
|
25,151 |
|
|
|
24,831 |
|
|
|
5 |
|
Consumer goods: Non-durable |
|
|
2,187 |
|
|
|
2,197 |
|
|
|
0 |
|
|
|
4,162 |
|
|
|
4,197 |
|
|
|
1 |
|
Containers, Packaging and Glass |
|
|
2,761 |
|
|
|
2,661 |
|
|
|
1 |
|
|
|
2,780 |
|
|
|
2,570 |
|
|
|
1 |
|
Electronics |
|
|
10,809 |
|
|
|
10,917 |
|
|
|
2 |
|
|
|
10,623 |
|
|
|
11,089 |
|
|
|
2 |
|
Energy: Electricity |
|
|
671 |
|
|
|
671 |
|
|
|
0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Energy: Oil & Gas |
|
|
6,718 |
|
|
|
1,388 |
|
|
|
0 |
|
|
|
7,921 |
|
|
|
2,355 |
|
|
|
0 |
|
Environmental Industries |
|
|
4,315 |
|
|
|
6,200 |
|
|
|
1 |
|
|
|
4,315 |
|
|
|
4,200 |
|
|
|
1 |
|
Finance |
|
|
7,759 |
|
|
|
7,757 |
|
|
|
1 |
|
|
|
10,916 |
|
|
|
10,912 |
|
|
|
2 |
|
Forest Products & Paper |
|
|
1,587 |
|
|
|
1,376 |
|
|
|
0 |
|
|
|
1,583 |
|
|
|
1,271 |
|
|
|
0 |
|
Healthcare, Education and Childcare |
|
|
9,740 |
|
|
|
9,613 |
|
|
|
2 |
|
|
|
9,783 |
|
|
|
9,752 |
|
|
|
2 |
|
Healthcare & Pharmaceuticals |
|
|
49,296 |
|
|
|
48,667 |
|
|
|
9 |
|
|
|
71,696 |
|
|
|
62,275 |
|
|
|
11 |
|
High Tech Industries |
|
|
79,358 |
|
|
|
73,154 |
|
|
|
13 |
|
|
|
58,803 |
|
|
|
58,715 |
|
|
|
11 |
|
Hotel, Gaming & Leisure |
|
|
10,128 |
|
|
|
8,823 |
|
|
|
2 |
|
|
|
4,906 |
|
|
|
4,898 |
|
|
|
1 |
|
Joint Ventures |
|
|
55,139 |
|
|
|
45,141 |
|
|
|
8 |
|
|
|
64,365 |
|
|
|
60,474 |
|
|
|
11 |
|
Machinery (Non-Agrclt/Constr/Electr) |
|
|
9,524 |
|
|
|
9,716 |
|
|
|
2 |
|
|
|
7,748 |
|
|
|
8,967 |
|
|
|
2 |
|
Media: Advertising, Printing & Publishing |
|
|
150 |
|
|
|
281 |
|
|
|
- |
|
|
|
150 |
|
|
|
246 |
|
|
|
0 |
|
Media: Broadcasting & Subscription |
|
|
13,081 |
|
|
|
13,848 |
|
|
|
2 |
|
|
|
12,407 |
|
|
|
13,255 |
|
|
|
2 |
|
Media: Diversified & Production |
|
|
7,160 |
|
|
|
7,175 |
|
|
|
1 |
|
|
|
6,272 |
|
|
|
6,365 |
|
|
|
1 |
|
Metals & Mining |
|
|
15,763 |
|
|
|
15,052 |
|
|
|
3 |
|
|
|
15,342 |
|
|
|
13,647 |
|
|
|
3 |
|
Retail |
|
|
10,748 |
|
|
|
10,787 |
|
|
|
2 |
|
|
|
6,144 |
|
|
|
6,775 |
|
|
|
1 |
|
Services: Business |
|
|
72,599 |
|
|
|
73,124 |
|
|
|
13 |
|
|
|
76,071 |
|
|
|
77,798 |
|
|
|
14 |
|
Services: Consumer |
|
|
8,347 |
|
|
|
7,980 |
|
|
|
1 |
|
|
|
990 |
|
|
|
990 |
|
|
|
0 |
|
Telecommunications |
|
|
9,473 |
|
|
|
8,541 |
|
|
|
2 |
|
|
|
7,521 |
|
|
|
6,675 |
|
|
|
1 |
|
Textiles and Leather |
|
|
12,640 |
|
|
|
12,408 |
|
|
|
2 |
|
|
|
12,496 |
|
|
|
11,095 |
|
|
|
2 |
|
Transportation: Cargo |
|
|
11,566 |
|
|
|
11,484 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Transportation: Consumer |
|
|
7,666 |
|
|
|
7,377 |
|
|
|
1 |
|
|
|
7,795 |
|
|
|
7,837 |
|
|
|
1 |
|
Total |
|
$ |
630,191 |
|
|
$ |
571,656 |
|
|
|
100 |
% |
|
$ |
605,396 |
|
|
$ |
547,573 |
|
|
|
100 |
% |
Debt Securities Portfolio
At September 30, 2022 and December 31, 2021, the weighted average contractual interest rate on our interest earning Debt Securities Portfolio was approximately 10.0% and 8.1%, respectively.
The investment portfolio (excluding our investments in the CLO Funds, Joint Ventures and short-term investments) at September 30, 2022 was spread across 32 different industries and 117 different entities with an average par balance per entity of approximately $3.4 million. As of September 30, 2022, three of our investments were on non-accrual status. As of December 31, 2021, seven of our investments were on non-accrual status.
We may invest up to 30% of our investment portfolio in “non-qualifying” opportunistic investments such as high-yield bonds, debt and equity securities of CLO Funds, foreign investments, joint ventures, managed funds, partnerships and distressed debt or equity securities of large cap public companies. At September 30, 2022 and December 31, 2021, the total amount of non-qualifying assets to total assets was approximately 15.3% and 15.8% of total assets, respectively. The majority of non-qualifying assets were the Company’s investments in Joint Ventures, in the aggregate representing approximately 7.2% and 9.3%, of the total assets as of September 30, 2022 and December 31, 2021, respectively, and our total assets including our investments in CLO Funds, which are typically domiciled outside the U.S. and represented approximately 3.9% and 4.9% of total assets on such dates, respectively.
Asset Manager Affiliates
As of September 30, 2022, our remaining asset management affiliates (the “Asset Manager Affiliates”) have limited operations and are expected to be liquidated. As of September 30, 2022, the Asset Manager Affiliates manage CLO Funds that invest in broadly syndicated loans, high yield bonds and other credit instruments.
CLO Fund Securities
We have made minority investments in the subordinated securities or preferred shares of CLO Funds managed by the Disposed Manager Affiliates and may selectively invest in securities issued by CLO Funds managed by other asset management companies. As of September 30, 2022 and December 31, 2021, we had approximately $24.6 million and $31.6 million, respectively, invested in CLO Fund Securities.
The CLO Funds invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Fund Securities in which we have an investment are generally diversified secured or unsecured corporate debt.
51
The structure of CLO Funds, which are highly levered, is extremely complicated. Since we primarily invest in securities representing the residual interests of CLO Funds, our investments are much riskier than the risk profile of the loans by which such CLO Funds are collateralized. Our investments in CLO Funds may be riskier and less transparent to us and our stockholders than direct investments in the underlying loans. For a more detailed discussion of the risks related to our investments in CLO Funds, please see “Risk Factors — Risks Related to Our Investments — Our investments may be risky, and you could lose all or part of your investment.”
Our CLO Fund Securities as of September 30, 2022 and December 31, 2021 were as follows:
($ in thousands) |
|
|
|
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|||||||||||
CLO Fund Securities |
|
Investment |
|
%(1) |
|
|
Amortized |
|
|
Fair Value |
|
|
Amortized |
|
|
Fair Value |
|
|||||
Catamaran CLO 2013- 1 Ltd. |
|
Subordinated Notes |
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,198 |
|
|
$ |
1,779 |
|
Catamaran CLO 2014-1 Ltd. |
|
Subordinated Notes |
|
|
22.2 |
|
|
|
4,175 |
|
|
|
2,835 |
|
|
|
9,679 |
|
|
|
4,278 |
|
Catamaran CLO 2014-2 Ltd. |
|
Subordinated Notes |
|
|
24.9 |
|
|
|
6,066 |
|
|
|
- |
|
|
|
6,066 |
|
|
|
- |
|
Catamaran CLO 2015-1 Ltd. |
|
Subordinated Notes |
|
|
9.9 |
|
|
|
2,534 |
|
|
|
- |
|
|
|
2,549 |
|
|
|
- |
|
Catamaran CLO 2018-1 Ltd. |
|
Subordinated Notes |
|
|
24.8 |
|
|
|
6,261 |
|
|
|
5,294 |
|
|
|
8,694 |
|
|
|
6,314 |
|
Dryden 30 Senior Loan Fund |
|
Subordinated Notes |
|
|
6.8 |
|
|
|
1,157 |
|
|
|
950 |
|
|
|
1,147 |
|
|
|
1,258 |
|
JMP CLO IV Junior Sub Note |
|
Subordinated Notes |
|
|
57.2 |
|
|
|
6,407 |
|
|
|
6,396 |
|
|
|
8,530 |
|
|
|
8,105 |
|
JMP CLO V Junior Sub Note |
|
Subordinated Notes |
|
|
57.2 |
|
|
|
10,811 |
|
|
|
9,148 |
|
|
|
10,698 |
|
|
|
9,898 |
|
Total |
|
|
|
|
|
|
$ |
37,411 |
|
|
$ |
24,623 |
|
|
$ |
51,561 |
|
|
$ |
31,632 |
|
|
Investment in Joint Ventures
KCAP Freedom 3 LLC
During the third quarter of 2017, we and Freedom 3 Opportunities LLC (“Freedom 3 Opportunities”), an affiliate of Freedom 3 Capital LLC, entered into an agreement to create KCAP Freedom 3 LLC (the “F3C Joint Venture”). The fund capitalized by the F3C Joint Venture invests primarily in middle-market loans and the F3C Joint Venture partners may source middle-market loans from time-to-time for the fund.
We own a 62.8% economic interest in the F3C Joint Venture. The F3C Joint Venture is structured as an unconsolidated Delaware limited liability company. All portfolio and other material decisions regarding the F3C Joint Venture must be submitted to its board of managers, which is comprised of four members, two of whom were selected by us and two of whom were selected by Freedom 3 Opportunities, and must be approved by at least one member appointed by us and one appointed by Freedom 3 Opportunities. In addition, certain matters may be approved by the F3C Joint Venture’s investment committee, which is comprised of one member appointed by us and one member appointed by Freedom 3 Opportunities.
We have determined that the F3C Joint Venture is an investment company under Accounting Standards Codification (“ASC”), Financial Services — Investment Companies (“ASC 946”), however, in accordance with such guidance, we will generally not consolidate our investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. We do not consolidate its interest in the F3C Joint Venture because we do not control the F3C Joint Venture due to allocation of the voting rights among the F3C Joint Venture partners.
KCAP Freedom 3 LLC
Summarized Statements of Financial Condition
($ in thousands)
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
||
|
|
|
|
|
|
|
||
Cash |
|
$ |
— |
|
|
$ |
— |
|
Investment at fair value |
|
|
28,703 |
|
|
|
35,841 |
|
Total Assets |
|
$ |
28,703 |
|
|
$ |
35,841 |
|
Total Liabilities |
|
$ |
164 |
|
|
$ |
164 |
|
Total Equity |
|
$ |
28,539 |
|
|
$ |
35,677 |
|
Total Liabilities and Equity |
|
$ |
28,703 |
|
|
$ |
35,841 |
|
KCAP Freedom 3 LLC
Summarized Statements of Operations
($ in thousands)
(Unaudited)
|
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|
||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Investment income |
|
$ |
2,542 |
|
|
$ |
1,620 |
|
|
$ |
6,938 |
|
|
$ |
4,919 |
|
Operating expenses |
|
|
2 |
|
|
|
36 |
|
|
|
5 |
|
|
|
52 |
|
Net investment income |
|
$ |
2,540 |
|
|
$ |
1,584 |
|
|
$ |
6,933 |
|
|
$ |
4,867 |
|
Unrealized appreciation on investments |
|
$ |
(4,199 |
) |
|
$ |
(766 |
) |
|
$ |
(9,282 |
) |
|
$ |
564 |
|
Net income |
|
$ |
(1,659 |
) |
|
$ |
818 |
|
|
$ |
(2,349 |
) |
|
$ |
5,431 |
|
52
KCAP Freedom 3 LLC
Schedule of Investments
September 30, 2022
($ in thousands)
(Unaudited)
Portfolio Company |
|
Investment |
|
Percentage |
|
|
Amortized |
|
|
Fair Value |
|
|||
Great Lakes KCAP F3C Senior, LLC(1)(2) |
|
Subordinated Securities, effective interest 23.7%, 12/29 maturity |
|
|
100.0 |
% |
|
$ |
42,990 |
|
|
$ |
28,703 |
|
Total Investments |
|
|
|
|
|
|
$ |
42,990 |
|
|
$ |
28,703 |
|
|
KCAP Freedom 3 LLC
Schedule of Investments
December 31, 2021
($ in thousands)
Portfolio Company |
|
Investment |
|
Percentage |
|
|
Amortized |
|
|
Fair Value |
|
|||
Great Lakes KCAP F3C Senior, LLC(1)(2) |
|
Subordinated Securities, effective interest 21.3%, 12/29 maturity |
|
|
100.0 |
% |
|
$ |
40,847 |
|
|
$ |
35,841 |
|
Total Investments |
|
|
|
|
|
|
$ |
40,847 |
|
|
$ |
35,841 |
|
|
Series A – Great Lakes Funding II LLC
In August 2022, we invested in Series A – Great Lakes Funding II LLC (the “Great Lakes II Joint Venture,” collectively with the F3C Joint Venture the “Joint Ventures”), a joint venture with an investment strategy to underwrite and hold senior, secured unitranche loans made to middle-market companies. We treat our investment in the Great Lakes II Joint Venture as a joint venture since an affiliate of the Adviser controls a 50% voting interest in the Great Lakes II Joint Venture. In connection with the launch of the Great Lakes II Joint Venture, we entered into a series of transactions pursuant to which our prior investment in BCP Great Lakes Holdings LP, a vehicle formed as a co-investment vehicle to facilitate the participation of certain co-investors to invest, directly or indirectly, in BCP Great Lakes Funding, LLC (the “Prior Great Lakes Joint Venture”), and the corresponding assets held by the Prior Great Lakes Joint Venture in respect of our investment in BCP Great Lakes Holdings LP, were transferred to the Great Lakes II Joint Venture in complete redemption of our investment in BCP Great Lakes Holdings LP.
The Great Lakes II Joint Venture is a Delaware series limited liability company, and pursuant to the terms of the Great Lakes Funding II LLC Limited Liability Company Agreement (the “Great Lakes II LLC Agreement”), prior to the end of the investment period with respect to each series established under the Great Lakes II LLC Agreement, each member of the predecessor series would be offered the opportunity to roll its interests into any subsequent series of the Great Lakes II Joint Venture. We do not pay any advisory fees in connection with our investment in the Great Lakes II Joint Venture. Certain other funds managed by the Adviser or its affiliates have also invested in the Great Lakes II Joint Venture.
The fair value of our investment in the Great Lakes II Joint Venture at September 30, 2022 was $27.0 million. The fair value of our investment in the Prior Great Lakes Joint Venture at December 31, 2021 was $37.4 million. Fair value has been determined utilizing the practical expedient pursuant to ASC 820-10. Pursuant to the terms of the Great Lakes II LLC Agreement, we generally may not effect any direct or indirect sale, transfer, assignment, hypothecation, pledge or other disposition of or encumbrance upon our interests in the Great Lakes II Joint Venture, except that we may sell or otherwise transfer our interests with the consent of the managing members of the Great Lakes II Joint Venture or to an affiliate or a successor to substantially all of our assets.
As of September 30, 2022, we have a $21.7 million unfunded commitment to the Great Lakes II Joint Venture. As of December 31, 2021, we had a $13.0 million unfunded commitment to the Prior Great Lakes Joint Venture.
RESULTS OF OPERATIONS
The principal measure of our financial performance is the net increase (decrease) in net assets resulting from operations, which includes net investment income (loss) and net realized and unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest, distributions, fees, and other investment income and our operating expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net change in unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.
Set forth below is a discussion of our results of operations for the three and nine months ended September 30, 2022 and 2021.
53
Revenue
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
INVESTMENT INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-controlled/non-affiliated investments |
|
$ |
13,727 |
|
|
$ |
16,370 |
|
|
$ |
37,043 |
|
|
$ |
48,283 |
|
Non-controlled affiliated investments |
|
|
823 |
|
|
|
1,775 |
|
|
|
2,271 |
|
|
|
2,670 |
|
Controlled affiliated investments |
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
(5 |
) |
Total interest income |
|
$ |
14,550 |
|
|
$ |
18,140 |
|
|
$ |
39,314 |
|
|
$ |
50,948 |
|
Payment-in-kind income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-controlled/non-affiliated investments |
|
$ |
1,505 |
|
|
$ |
1,225 |
|
|
$ |
3,830 |
|
|
$ |
3,078 |
|
Non-controlled affiliated investments |
|
|
74 |
|
|
|
71 |
|
|
|
403 |
|
|
|
95 |
|
Controlled affiliated investments |
|
|
161 |
|
|
|
- |
|
|
|
181 |
|
|
|
- |
|
Total payment-in-kind interest |
|
$ |
1,740 |
|
|
$ |
1,296 |
|
|
$ |
4,414 |
|
|
$ |
3,173 |
|
Dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-controlled affiliated investments |
|
$ |
1,149 |
|
|
$ |
2,070 |
|
|
$ |
3,099 |
|
|
$ |
3,997 |
|
Controlled affiliated investments |
|
|
1,033 |
|
|
|
373 |
|
|
|
3,262 |
|
|
|
3,015 |
|
Total dividend income |
|
$ |
2,182 |
|
|
$ |
2,443 |
|
|
$ |
6,361 |
|
|
$ |
7,012 |
|
Fees and other income |
|
$ |
537 |
|
|
$ |
1,032 |
|
|
$ |
908 |
|
|
$ |
1,628 |
|
Total investment income |
|
$ |
19,009 |
|
|
$ |
22,911 |
|
|
$ |
50,997 |
|
|
$ |
62,761 |
|
Revenues consist primarily of investment income from interest and dividends on our investment portfolio and various ancillary fees related to our investment holdings. Investment income for the three months ended September 30, 2022 and 2021 was approximately $19.0 million and $22.9 million, respectively. Investment income for the nine months ended September 30, 2022 and 2021 was approximately $51.0 million and $62.8 million, respectively.
Interest from Investments in Debt Securities. We generate interest income from our investments in debt securities that consist primarily of senior and junior secured loans. Our Debt Securities Portfolio is spread across multiple industries and geographic locations and, as such, we are broadly exposed to market conditions and business environments. As a result, although our investments are exposed to market risks, we continuously seek to limit concentration of exposure in any particular sector or issuer.
The majority of investment income is attributable to interest income on our Debt Securities Portfolio. For the three months ended September 30, 2022 and 2021 approximately $15.4 million and $18.7 million, respectively, of investment income was attributable to interest income on our Debt Securities Portfolio. For the nine months ended September 30, 2022 and 2021 approximately $40.3 million and $51.9 million, respectively, of investment income was attributable to interest income on our Debt Securities Portfolio.
At September 30, 2022 and December 31, 2021, the weighted average contractual interest rate on our interest earning Debt Securities Portfolio was approximately 10.0% and 8.1%, respectively.
Investment income is primarily dependent on the composition and credit quality of our investment portfolio. Generally, our Debt Securities Portfolio is expected to generate predictable, recurring interest income in accordance with the contractual terms of each loan. Corporate equity securities may pay a dividend and may increase in value for which a gain may be recognized; generally, such dividend payments and gains are less predictable than interest income on our loan portfolio.
Investment income is comprised of coupon interest, accretion of discount and accelerated accretion resulting from paydowns and other revenue earned from operations. Recent acquisitions of GARS (October 2020) and HCAP (June 2021) have had a significant positive impact on earnings as a result of amortization of purchase discount established at the time of the merger. The table below illustrates that impact.
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||
($ in thousands) |
|
2022 |
|
2021 |
|
|
2022 |
|
2021 |
|
||||
Interest from investments in debt excluding accretion |
|
$ |
12,232 |
|
$ |
14,602 |
|
|
$ |
31,320 |
|
$ |
36,750 |
|
Purchase discount accounting |
|
|
1,404 |
|
|
2,790 |
|
|
|
4,518 |
|
|
11,987 |
|
PIK Investment Income |
|
|
1,740 |
|
|
1,296 |
|
|
|
4,414 |
|
|
3,173 |
|
CLO Income |
|
|
914 |
|
|
748 |
|
|
|
3,476 |
|
|
2,211 |
|
JV Income |
|
|
2,182 |
|
|
2,443 |
|
|
|
6,361 |
|
|
7,012 |
|
Service Fees |
|
|
537 |
|
|
1,032 |
|
|
|
908 |
|
|
1,628 |
|
Investment Income |
|
$ |
19,009 |
|
$ |
22,911 |
|
|
$ |
50,997 |
|
$ |
62,761 |
|
Less : Purchase discount accounting |
|
$ |
(1,404 |
) |
$ |
(2,790 |
) |
|
$ |
(4,518 |
) |
$ |
(11,987 |
) |
Core Investment Income |
|
$ |
17,605 |
|
$ |
20,121 |
|
|
$ |
46,479 |
|
$ |
50,774 |
|
Core investment income excludes the impact of purchase discount amortization in connection with the GARS and HCAP mergers which is investment income as determined in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), excluding the impact of purchase discount amortization associated with the GARS and HCAP mergers. We believe presenting investment income excluding the impact of the GARS and HCAP merger-related purchase discount amortization and the related per share amount is useful and appropriate supplemental disclosure for analyzing our financial performance due to the unique circumstance giving rise to the purchase accounting adjustment. However, this measure is a non-U.S. GAAP measure and should not be considered as a replacement for net investment income and other earnings measures presented in accordance with U.S. GAAP. Instead, this measure should be reviewed only in connection with such U.S. GAAP measures in analyzing Portman Ridge’s financial performance. A reconciliation of net investment income in accordance with U.S. GAAP to net investment income excluding the impact of purchase accounting is detailed in the table above.
Investment Income on Investments in CLO Fund Securities. For the three months ended September 30, 2022 and 2021, approximately $914 thousand and $748 thousand, respectively, of investment income was attributable to investments in CLO Fund Securities. For the nine months ended September 30, 2022 and 2021, approximately $3.5 million and $2.2 million, respectively, of investment income was attributable to investments in CLO Fund Securities. During the year ended December 31, 2021, we acquired two additional investments in CLO Fund Securities. We generate investment income from our investments in the securities (typically preferred shares or subordinated securities) of CLO Funds. CLO Funds invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which we have an investment are generally diversified secured or unsecured corporate debt. Our CLO Fund Securities that are subordinated securities or preferred shares (“junior securities”) are subordinated to senior note holders who typically receive a return on their investment at a fixed spread relative to the LIBOR index. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares. The level of excess spread from CLO Fund Securities can be impacted by the timing and level of the resetting of the benchmark interest rate for the underlying assets (which reset at various times throughout the quarter) in the CLO Fund and the related CLO Fund note liabilities (which reset at each quarterly distribution date); in periods of short-term and volatile changes in the benchmark interest rate, the levels of excess spread and resulting cash distributions to us can vary significantly.
54
Interest income on investments in CLO equity investments is recorded using the effective interest method in accordance with the provisions of ASC 325-40, Beneficial Interests in Securitized Financial Assets (“ASC 325-40”), based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated projected future cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield prospectively over the remaining life of the investment from the date the estimated yield was changed. Accordingly, investment income recognized on CLO equity securities in our U.S. generally accepted accounting principles (“GAAP”) statement of operations differs from both the tax–basis investment income and from the cash distributions actually received by us during the period. As a RIC, we anticipate a timely distribution of our tax-basis taxable income.
Investments in Joint Ventures. For the three months ended September 30, 2022 and 2021, we recognized $2.2 million and $2.4 million, respectively, in investment income from our investments in Joint Ventures. For the nine months ended September 30, 2022 and 2021, we recognized $6.4 million and $7.0 million, respectively, in investment income from our investments in Joint Ventures. As of September 30, 2022 and December 31, 2021, the fair value of our investments in Joint Ventures was approximately $45.1 million and $60.5 million, respectively. The final determination of the tax attributes of distributions from Joint Ventures is made on an annual (full calendar year) basis at the end of the year based upon taxable income and distributions for the full year. Therefore, any estimate of tax attributes of distributions made on an interim basis may not be representative of the actual tax attributes of distributions for the full year.
Capital Structuring Service Fees. We may earn ancillary structuring and other fees related to the origination, investment, disposition or liquidation of debt and investment securities. For the three months ended September 30, 2022 and 2021, approximately $537 thousand and $1.0 million, respectively, of investment income was attributable to Capital Structuring Fees. For the nine months ended September 30, 2022 and 2021, approximately $908 thousand and $1.6 million, respectively, of investment income was attributable to Capital Structuring Fees.
Expenses
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management fees |
|
$ |
2,082 |
|
|
$ |
2,065 |
|
|
$ |
6,305 |
|
|
$ |
5,772 |
|
Performance-based incentive fees |
|
|
1,780 |
|
|
|
1,939 |
|
|
|
4,627 |
|
|
|
6,333 |
|
Interest and amortization of debt issuance costs |
|
|
4,673 |
|
|
|
3,408 |
|
|
|
11,906 |
|
|
|
10,315 |
|
Professional fees |
|
|
759 |
|
|
|
490 |
|
|
|
2,483 |
|
|
|
2,680 |
|
Administrative services expense |
|
|
862 |
|
|
|
760 |
|
|
|
2,531 |
|
|
|
2,092 |
|
Other general and administrative expenses |
|
|
461 |
|
|
|
531 |
|
|
|
1,323 |
|
|
|
1,928 |
|
Total expenses |
|
$ |
10,617 |
|
|
$ |
9,193 |
|
|
$ |
29,175 |
|
|
$ |
29,120 |
|
We are externally managed and no longer have any employees. However, in connection with the Advisory Agreement, we pay the Adviser certain investment advisory fees and reimburse the Adviser and Administrator for certain expenses incurred in connection with the services they provide. We bear our allocable portion of the compensation paid by the Adviser (or its affiliates) to our chief compliance officer and chief financial officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs). We also bear all other costs and expenses of our operations, administration and transactions, including, but not limited to (i) investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Advisory Agreement; (ii) our allocable portion of overhead and other expenses incurred by the Adviser (or its affiliates) in performing its administrative obligations under the Advisory Agreement, and (iii) all other expenses of our operations and transactions including, without limitation, those relating to:
55
Management Fees and Incentive Fees. Management fees for the three months ended September 30, 2022 and 2021 were approximately $2.1 million and $2.1 million, respectively. Management fees for the nine months ended September 30, 2022 and 2021 were approximately $6.3 million and $5.8 million, respectively. Incentive fees for the three months ended September 30, 2022 and 2021 were approximately $1.8 million and $1.9 million, respectively. Incentive fees for the nine months ended September 30, 2022 and 2021 were approximately $4.6 million and $6.3 million, respectively.
Interest and Amortization of Debt Issuance Costs. Interest expense is dependent on the average outstanding balance on our borrowings and the base index rate for the period. Debt issuance costs represent fees and other direct costs incurred in connection with our borrowings. These amounts are capitalized and amortized over the expected term of the borrowing. For the three months ended September 30, 2022 and 2021, interest expense and amortization on debt issuance costs and discount for the period was approximately $4.7 million and $3.4 million, respectively, on average debt outstanding of $355.9 million and $355.0 million, respectively. For the nine months ended September 30, 2022 and 2021, interest expense and amortization on debt issuance costs for the period was approximately $11.9 million and $10.3 million, respectively.
Professional Fees and General and Administrative Expenses. The balance of our expenses includes professional fees (primarily legal, accounting, director fees, valuation and other professional services), insurance costs, Administrative services expense under the Administration Agreement and general administrative and other costs.
Total expenses for the three months ended September 30, 2022 and 2021 were approximately $10.6 million and $9.1 million, respectively. Total expenses for the nine months ended September 30, 2022 and 2021 were approximately $29.2 million and $29.1 million, respectively.
For the three months ended September 30, 2022 and 2021, professional fees totaled approximately $759 thousand and $490 thousand, respectively. For the nine months ended September 30, 2022 and 2021, professional fees totaled approximately $2.5 million and $2.7 million, respectively
For the three months ended September 30, 2022 and 2021, administrative services expense was approximately $862 thousand and $760 thousand, respectively. For the nine months ended September 30, 2022 and 2021, administrative services expense was approximately $2.5 million and $2.1 million, respectively. The increase in administrative services expense for the three and nine months ended September 30, 2022 in comparison to the prior year was primarily driven by the increase in assets under management.
Other general and administrative expenses, which includes insurance, technology and other office and administrative expenses, totaled approximately $461 thousand and $531 thousand for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, other general and administrative expenses totaled approximately $1.3 million and $1.9 million, respectively.
Net Investment Income and Net Realized Gains (Losses)
Net investment income and net realized gains (losses) represents the change in net assets before net unrealized appreciation or depreciation on investments. For the three months ended September 30, 2022 net investment income and net realized gains (losses) were approximately ($0.7) million, or ($0.07) per share. For the three months ended September 30, 2021, net investment income and net realized gains (losses) were approximately $9.8 million, or $1.07 per share. For the nine months ended September 30, 2022, net investment income and net realized gains (losses) were approximately ($6.8) million, or ($0.71) per share. For the nine months ended September 30, 2021, net investment income and net realized gains (losses) were approximately $22.3 million, or $2.70 per share. Net investment income represents the income earned on our investments less operating and interest expense before net realized gains or losses and unrealized appreciation or depreciation on investments.
Investments are carried at fair value, with changes in fair value recorded as unrealized appreciation (depreciation) in the statement of operations. When an investment is sold or liquidated, any previously recognized unrealized appreciation/depreciation is reversed and a corresponding amount is recognized as realized gain (loss). For the nine months ended September 30, 2022, GAAP-basis net investment income was approximately $8.4 million or $0.87 per share, while tax-basis distributable income was approximately $22.1 million or $2.29 per basic share. For the nine months ended September 30, 2021, GAAP-basis net investment income was approximately $33.6 million or $4.10 per share, while tax-basis distributable income was approximately $20.5 million or $2.49 per basic share.
Net Unrealized (Depreciation) Appreciation on Investments
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Unrealized Gains (Losses) On Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net change in unrealized appreciation (depreciation) on: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-controlled/non-affiliated investments |
|
$ |
(318 |
) |
|
$ |
310 |
|
|
$ |
5,381 |
|
|
$ |
5,143 |
|
Non-controlled affiliated investments |
|
|
338 |
|
|
|
182 |
|
|
|
(874 |
) |
|
|
1,770 |
|
Controlled affiliated investments |
|
|
(2,988 |
) |
|
|
(955 |
) |
|
|
(7,661 |
) |
|
|
1,553 |
|
Derivatives |
|
|
- |
|
|
|
(179 |
) |
|
|
2,442 |
|
|
|
(873 |
) |
Total net unrealized gain (loss) from investment transactions |
|
$ |
(2,968 |
) |
|
$ |
(642 |
) |
|
$ |
(712 |
) |
|
$ |
7,593 |
|
During the three months ended September 30, 2022, our total investments had net change in unrealized appreciation (depreciation) of approximately ($3.0) million. The net change in unrealized appreciation (depreciation) on investments is made up of approximately $7.8 million on CLO Fund Securities, ($963) thousand on equity securities, ($2.2) million on our Joint Ventures investments, ($7.6) million on our debt securities, and ($2) thousand on our derivatives. During the three months ended September 30, 2021, our total investments had net change in unrealized appreciation (depreciation) of approximately ($642) thousand. The net change in unrealized appreciation (depreciation) on investments is made up of approximately $707 thousand on CLO Fund Securities, $1.2 million on equity securities, $2.1 million on our Joint Ventures investments, ($4.4) million on our debt securities, and ($179) thousand on our derivatives.
During the nine months ended September 30, 2022, our total investments had net change in unrealized appreciation (depreciation) of approximately ($712) thousand. The net change in unrealized appreciation (depreciation) is made up of approximately $7.1 million on CLO Fund Securities, $903 thousand on equity securities, ($6.1) million on our Joint Ventures investments, ($5.1) million on our debt securities, and $2.4 million on our derivatives. During the nine months ended September 30, 2021, our total investments had net change in unrealized appreciation (depreciation) of approximately $7.6 million. The net change in unrealized appreciation (depreciation) is made up of approximately $9.4 million on CLO Fund Securities, $4.0 million on equity securities, $2.7 million on our Joint Ventures investment, ($7.4) million on our debt securities, and ($873) thousand on our derivatives.
56
Net Change in Net Assets Resulting From Operations
The net increase (decrease) in net assets resulting from operations for the three months ended September 30, 2022 was ($4.2) million, or ($0.44) per basic share. The net increase (decrease) in net assets resulting from operations for the three months ended September 30, 2021 was $9.1 million, or $1.00 per basic share. The net increase (decrease) in net assets resulting from operations for the nine months ended September 30, 2022 was ($8.6) million, or ($0.89) per basic share. The net increase (decrease) in net assets resulting from operations for the nine months ended September 30, 2021 was $28.0 million, or $3.41 per share.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay distributions to our stockholders and other general business needs. We recognize the need to have funds available for operating our business and to make investments. We seek to have adequate liquidity at all times to cover normal cyclical swings in funding availability and to allow us to meet irregular and unexpected funding requirements. We plan to satisfy our liquidity needs through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds.
As of September 30, 2022 and December 31, 2021 the fair value of investments and cash were as follows:
($ in thousands) |
|
|
|
|||||
Security Type |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
16,871 |
|
|
$ |
28,919 |
|
Restricted Cash |
|
|
22,183 |
|
|
|
39,421 |
|
Senior Secured Loan |
|
|
415,819 |
|
|
|
364,701 |
|
Junior Secured Loan |
|
|
61,535 |
|
|
|
70,549 |
|
Senior Unsecured Bond |
|
|
43 |
|
|
|
43 |
|
Equity Securities |
|
|
24,487 |
|
|
|
22,586 |
|
CLO Fund Securities |
|
|
24,623 |
|
|
|
31,632 |
|
Asset Manager Affiliates |
|
|
- |
|
|
|
- |
|
Joint Ventures |
|
|
45,141 |
|
|
|
60,474 |
|
Derivatives |
|
|
8 |
|
|
|
(2,412 |
) |
Total |
|
$ |
610,710 |
|
|
$ |
615,913 |
|
Subject to market conditions, we intend to grow our portfolio of assets by raising additional capital, including through the prudent use of leverage available to us. As a BDC, we are limited in the amount of leverage we can incur under the 1940 Act. Effective March 29, 2019, we are allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. Because we also recognize the need to have funds available for operating our business and to make investments, we seek to have adequate liquidity at all times to cover normal cyclical swings in funding availability and to allow us to meet abnormal and unexpected funding requirements. As a result, we may hold varying amounts of cash and other short-term investments from time-to-time for liquidity purposes.
Borrowings
We use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our shareholders by reducing our overall cost of capital. As a BDC, we are limited in the amount of leverage we can incur under the 1940 Act. We are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. As of September 30, 2022, we had approximately $368.9 million of par value of outstanding borrowings and our asset coverage ratio of total assets to total borrowings was 167%, compliant with the minimum asset coverage level of 150% generally required for a BDC by the 1940 Act. We may also borrow amounts of up to 5% of the value of our total assets for temporary purposes.
The Small Business Credit Availability Act (the “SBCA”) has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. On March 29, 2018, the Board , including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of its Board, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCA. As a result, our asset coverage requirements for senior securities changed from 200% to 150%, effective as of March 29, 2019.
Outstanding Notes
During the second quarter of 2021, we issued $108.0 million aggregate principal amount of our 4.875% Notes Due 2026. The net proceeds for the 4.875% Notes Due 2026, after the payment of underwriting expenses, were approximately $104.6 million. Interest on the 4.875% Notes Due 2026 is paid semi-annually on March 16 and September 16, at a rate of 4.875% commencing September 16, 2021. The 4.875% Notes Due 2026 mature on April 30, 2026 and are general unsecured obligations. The indenture governing the 4.875% Notes Due 2026 contains certain restrictive covenants, including compliance with certain provisions of the 1940 Act relating to borrowing and dividends. At September 30, 2022, there was approximately $108.0 million of principal amount outstanding, and we were in compliance with all of our debt covenants on the 4.875% Notes.
Revolving Credit Facility
On December 18, 2019, Great Lakes Portman Ridge Funding LLC (“GLPRF LLC”), a wholly-owned subsidiary of the Company, entered into a senior secured revolving credit facility (the “Revolving Credit Facility”) with JPMorgan Chase Bank, National Association (“JPM”). JPM serves as administrative agent, U.S. Bank National Association serves as collateral agent, securities intermediary and collateral administrator, and the Company serves as portfolio manager under the Revolving Credit Facility.
Advances under the Revolving Credit Facility bear interest at a per annum rate equal to the three-month LIBOR in effect, plus the applicable margin of 2.85% per annum. GLPRF LLC is required to utilize a minimum of 80% of the commitments under the Revolving Credit Facility, after an initial six-month ramp-up period during which a lesser minimum utilization requirement applies. Unused amounts below such minimum utilization amount accrue interest as if such amounts are outstanding as borrowings under the Revolving Credit Facility. In addition, GLPRF LLC will pay a non-usage fee during the first three years after the closing date in an amount not to exceed 0.50% per annum on the average daily unborrowed portion of the financing commitments in excess of such minimum utilization amount.
The initial principal amount of the Revolving Credit Facility is $115 million. The Revolving Credit Facility has an accordion feature, subject to the satisfaction of various conditions, which could bring total commitments under the Revolving Credit Facility to up to $215 million. Proceeds from borrowings under the Revolving Credit Facility may be used to fund portfolio investments by GLPRF LLC and to make advances under delayed draw term loans where GLPRF LLC is a lender. All amounts outstanding under the Revolving Credit Facility must be repaid by the maturity date of December 18, 2023.
On April 29, 2022, GLPRF LLC amended the Revolving Credit Facility with JPM as administrative agent. The amended agreement replaces three-month SOFR as the benchmark interest rate and reduces the applicable margin to 2.80% per annum from 2.85% per annum. Other amendments include the extension of the reinvestment period and scheduled termination date to April 29, 2025 and April 29, 2026, respectively.
57
GLPRF LLC’s obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in all of SPV’s portfolio of investments and cash. The obligations of GLPRF LLC under the Revolving Credit Facility are non-recourse to the Company, and the Company’s exposure under the Revolving Credit Facility is limited to the value of the Company’s investment in GLPRF LLC.
In connection with the Revolving Credit Facility, GLPRF LLC has made certain customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Revolving Credit Facility contains customary events of default for similar financing transactions, including if a change of control of GLPRF LLC occurs or if the Company is no longer the portfolio manager of GLPRF LLC. Upon the occurrence and during the continuation of an event of default, JPM may declare the outstanding advances and all other obligations under the Revolving Credit Facility immediately due and payable.
The occurrence of an event of default (as described above) or a market value event (as defined in the Revolving Credit Facility) triggers a requirement that GLPRF LLC obtain the consent of JPM prior to entering into certain sales or dispositions with respect to portfolio assets, and the occurrence of a market value event triggers the right of JPM to direct GLPRF LLC to enter into sales or dispositions with respect to any portfolio assets, in each case in JPM’s sole discretion.
At September 30, 2022, GLPRF LLC was in compliance with all of its debt covenants and there was approximately $97.1 million principal amount of borrowings was outstanding under the Revolving Credit Facility.
2018-2 Secured Notes
On October 28, 2020 the Company completed the GARS Acquisition, pursuant to the terms and conditions of the GARS Merger Agreement. In connection therewith, the Company now consolidates the financial statements the 2018-2 CLO a $420.0 million par value CLO facility. On the date of the transaction the debt assumed was recognized at fair value, resulting in a $2.4 million discount which is amortized over the remaining term of the borrowings.
The CLO was executed by GF 2018-2 (the “Issuer”) and Portman Ridge Funding 2018-2 LLC (formerly known as Garrison Funding 2018-2 LLC, together with the Issuer, the “Co-Issuers”) who issued $312.0 million of senior secured notes (collectively referred to as the “2018-2 Secured Notes”) and $108.0 million of subordinated notes (the “2018-2 Subordinated Notes” and, together with the 2018-2 Secured Notes, the “2018-2 Notes”) backed by a diversified portfolio of primarily senior secured loans. The Company owns all $108.0 million of the par value of the 2018-2 Subordinated Notes and $18.3 million of the par value of the Class B-R Notes and serves as collateral manager for the Co-Issuers. The Company is entitled to receive interest from the Class B-R Notes, distributions from the 2018-2 Subordinated Notes and fees for serving as collateral manager in accordance with the CLO’s governing documents and to the extent funds are available for such purposes. However, as a result of retaining all of the 2018-2 Subordinated Notes, the Company consolidates the accounts of the Co-Issuers into its financial statements and all transactions between the Company and the Co-Issuers are eliminated on consolidation. As a result of this consolidation, the 2018-2 Secured Notes issued by the CLO is treated as the Company’s indebtedness, except any 2018-2 Secured Notes owned by the Company, which are eliminated in consolidation. The 2018-2 Notes are scheduled to mature on November 20, 2029, however the Co-Issuers may redeem the 2018-2 Notes on any business day after November 20, 2020. The indenture governing the 2018-2 Notes provides that, to the extent cash is available from cash collections, the holders of the 2018-2 Notes are to receive quarterly interest payments on the 20th day or, if not a business day, the next succeeding business day of February, May, August and November of each year until the stated maturity or earlier redemption. On July 18, 2019, $25.0 million outstanding of the aggregate $50.0 million Class A-1R-R Notes available under the CLO converted to Class A-1T-R Notes. The remaining $25.0 million of Class A-1R-R Notes, to the extent drawn, will convert to term notes on or before November 20, 2022.
During the first quarter of 2021, we redeemed approximately $88 million of the par value of the 2018-2 Secured Notes. In connection therewith, we recognized a realized loss on extinguishment of debt of approximately $0.9 million.
Stockholder Distributions
We intend to continue to make quarterly distributions to our stockholders. To avoid certain excise taxes imposed on RICs, we generally endeavor to distribute during each calendar year an amount at least equal to the sum of:
We may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, to the extent required.
The amount of our declared distributions, as evaluated by management and approved by our Board, is based primarily on our evaluation of our net investment income and distributable taxable income.
We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treated as taxable dividends. The Internal Revenue Service has published guidance indicating that this rule will apply even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. Under this guidance, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock). If we decide to make any distributions consistent with this guidance that are payable in part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, shares of our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.
We are also prohibited by the 1940 Act and the indenture governing our 4.875% Notes due 2026 from declaring dividends (except a dividend payable in our stock) or making distributions on our common stock, or purchasing any such stock, if, at the time of declaration or at the time of any such purchase, our asset coverage, as defined in the 1940 Act, is below the threshold specified in Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions thereto of the 1940 Act, after deducting the amount of such dividend, distribution or purchase price, as the case may be, and giving effect, in each case (i) to any exemptive relief granted to us by the SEC and (ii) to any no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain its status as a RIC under the Code. In any such event, we would be prohibited from making distributions required in order to maintain our status as a RIC unless made in accordance with any such exemptive or no-action relief granted by the SEC.
58
The following table sets forth the quarterly distributions paid by us since 2020.
|
|
Distribution 1 |
|
|
Declaration |
|
Record |
|
Pay Date |
|
2022: |
|
|
|
|
|
|
|
|
|
|
Third quarter |
|
$ |
0.63 |
|
|
8/9/2022 |
|
8/16/2022 |
|
9/2/2022 |
Second quarter |
|
|
0.63 |
|
|
5/10/2022 |
|
5/24/2022 |
|
6/7/2022 |
First quarter |
|
|
0.63 |
|
|
3/10/2022 |
|
3/21/2022 |
|
3/30/2022 |
Total declared in 2022 |
|
$ |
1.89 |
|
|
|
|
|
|
|
2021: |
|
|
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
0.62 |
|
|
11/3/2021 |
|
11/15/2021 |
|
11/30/2021 |
Third quarter |
|
|
0.60 |
|
|
8/4/2021 |
|
8/17/2021 |
|
8/31/2021 |
Second quarter |
|
|
0.60 |
|
|
5/6/2021 |
|
5/19/2021 |
|
6/1/2021 |
First quarter |
|
|
0.60 |
|
|
2/12/2021 |
|
2/22/2021 |
|
3/2/2021 |
Total declared in 2021 |
|
$ |
2.42 |
|
|
|
|
|
|
|
2020: |
|
|
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
0.60 |
|
|
10/16/2020 |
|
10/26/2020 |
|
11/27/2020 |
Third quarter |
|
|
0.60 |
|
|
8/5/2020 |
|
8/17/2020 |
|
8/28/2020 |
Second quarter |
|
|
0.60 |
|
|
3/17/2020 |
|
5/7/2020 |
|
5/27/2020 |
First quarter |
|
|
0.60 |
|
|
2/5/2020 |
|
2/18/2020 |
|
2/28/2020 |
Total declared in 2020 |
|
$ |
2.40 |
|
|
|
|
|
|
|
Stock Repurchase Program
On March 11, 2021, the Board of Directors of the Company approved a $10 million stock repurchase program (the “Stock Repurchase Program”) for an approximately one-year period, effective March 11, 2021 and terminating on March 31, 2022. Under this repurchase program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise subject to any law or agreement to which we are party including any restrictions under the 1940 Act and in the indenture for our 4.875% Notes Due 2026. The timing and actual number of shares repurchased will depend on a variety of factors, including legal requirements, price, and economic and market conditions. This Stock Repurchase Program may be suspended or discontinued at any time. On March 8, 2022, the Board of Directors of the Company authorized a renewed stock repurchase program of up to $10 million (the “Renewed Stock Repurchase Program”) for an approximately one-year period, effective March 8, 2022 and terminating on March 31, 2023. The terms and conditions of the Renewed Stock Repurchase Program are substantially similar to the prior Stock Repurchase Program. The Renewed Stock Repurchase Program may be suspended or discontinued at any time. Subject to these restrictions, we will selectively pursue opportunities to repurchase shares which are accretive to net asset value per share.
There were no share repurchases during the three months ended September 30, 2022 under the Renewed Stock Repurchase Program. During the nine months ended September 30, 2022, the Company repurchased 129,617 shares under the Renewed Stock Repurchase program at an aggregate cost of approximately $3.0 million. During the three months ended September 30, 2021, the Company repurchased 59,659 of its shares under the Stock Repurchase program at an aggregate cost of approximately $1.4 million. During the nine months ended September 30, 2021, the Company repurchased 75,377 of its shares under the Stock Repurchase program at an aggregate cost of approximately $1.8 million.
OFF-BALANCE SHEET ARRANGEMENTS
From time-to-time we are a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the needs of our investment in portfolio companies. Such instruments include commitments to extend credit and may involve, in varying degrees, elements of credit risk in excess of amounts recognized on our balance sheet. Prior to extending such credit, we attempt to limit our credit risk by conducting extensive due diligence, obtaining collateral where necessary and negotiating appropriate financial covenants. As of September 30, 2022 and December 31, 2021, we had approximately $54.4 million and $47.9 million commitments to fund investments, respectively. We may also enter into derivative contracts with off-balance sheet risk in connection with its investing activities.
We have made an aggregate commitment to the Great Lakes II Joint Venture of $50 million, subject to certain limitations (including that we are not obligated to fund capital calls if such funding would cause us to be out of compliance with certain provisions of the 1940 Act). As of September 30, 2022 , we had a $21.7 million unfunded commitment to the Great Lakes II Joint Venture. As of December 31, 2021, the Company had a $13.0 million unfunded commitment to the Prior Great Lakes Joint Venture.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual cash obligations and other commercial commitments as of September 30, 2022:
($ in thousands) |
|
Payments Due by Period |
|
|||||||||||||||||
Contractual Obligations |
|
Total |
|
|
Less than |
|
|
2 - 3 years |
|
|
4 - 5 years |
|
|
More than |
|
|||||
Long-term debt obligations |
|
$ |
368,934 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
205,071 |
|
|
$ |
163,863 |
|
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our critical accounting policies are those applicable to the basis of presentation, valuation of investments, and certain revenue recognition matters as discussed below. See Note 2 to our consolidated financial statements, “Significant Accounting Policies — Investments” contained elsewhere herein.
Valuation of Portfolio Investments
The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.
59
Value, as defined in Section 2(a)(41) of 1940 Act, is (1) the market price for those securities for which a market quotation is readily available and (2) for all other securities and assets, fair value as determined in good faith by our Board pursuant to procedures approved by our Board. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio based on the nature of the security, the market for the security and other considerations including the financial performance and enterprise value of the portfolio company. Because of the inherent uncertainty of valuation, the Board determined values may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
Pursuant to ASC 946: Financial Services — Investment Companies (“ASC 946”), we reflect our investments on our balance sheet at their determined fair value with unrealized gains and losses resulting from changes in fair value reflected as a component of unrealized gains or losses on our statements of operations. Fair value is the amount that would be received to sell the investments in an orderly transaction between market participants at the measurement date (i.e., the exit price).
See Note 4 to the consolidated financial statements for the additional information about the level of market observability associated with investments carried at fair value.
We follow the provisions of ASC 820: Fair Value Measurements and Disclosures (“ASC 820: Fair Value”), which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. This standard defines fair value and establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820: Fair Value defines “fair value” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This fair value definition focuses on an exit price in the principle, or most advantageous market, and prioritizes, within a measurement of fair value, the use of market-based inputs (which may be weighted or adjusted for relevance, reliability and specific attributes relative to the subject investment) over entity-specific inputs. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Subsequent to the adoption of ASC 820: Fair Value, the FASB has issued various staff positions clarifying the initial standard (see Note 2 to the consolidated financial statements: “Significant Accounting Policies — Investments”).
ASC 820: Fair Value establishes the following three-level hierarchy, based upon the transparency of inputs to the fair value measurement of an asset or liability as of the measurement date:
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. We assess of the significance of a particular input to the fair value measurement in its entirety requires judgment, and we consider factors specific to the investment. The majority of our investments are classified as Level III. We evaluate the source of inputs, including any markets in which its investments are trading, in determining fair value. Inputs that are backed by actual transactions, those that are highly correlated to the specific investment being valued and those derived from reliable or knowledgeable sources will tend to have a higher weighting in determining fair value. Our fair value determinations may include factors such as an assessment of each underlying investment, its current and prospective operating and financial performance, consideration of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance factors, and other investment or industry specific market data, among other factors.
We have valued our investments, in the absence of observable market prices, using the valuation methodologies described below applied on a consistent basis. For some investments, little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of management’s judgment.
Our investments in CLO Fund Securities are carried at fair value, which is based either on (i) the present value of the net expected cash inflows for interest income and principal repayments from underlying assets and the cash outflows for interest expense, debt paydown and other fund costs for the CLO Funds which are approaching or past the end of their reinvestment period and therefore are selling assets and/or using principal repayments to pay-down CLO Fund debt, and for which there continue to be net cash distributions to the class of securities we own, or (ii) a discounted cash flow model that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow and comparable yields for similar securities or preferred shares to those in which we have invested, or (iii) indicative prices provided by the underwriters or brokers who arrange CLO Funds. We recognize unrealized appreciation or depreciation on our investments in CLO Fund Securities as comparable yields in the market change and/or based on changes in net asset values or estimated cash flows resulting from changes in prepayment or loss assumptions in the underlying collateral pool. As each investment in CLO Fund Securities ages, the expected amount of losses and the expected timing of recognition of such losses in the underlying collateral pool are updated and the revised cash flows are used in determining the fair value of the CLO Fund Securities. We determine the fair value of our investments in CLO Fund Securities on a security-by-security basis.
Our investments in our wholly-owned Asset Manager Affiliates are carried at fair value, which is primarily determined utilizing a discounted cash flow model which incorporates different levels of discount rates depending on the hierarchy of fees earned (including the likelihood of realization of senior, subordinate and incentive fees) and prospective modeled performance (“Discounted Cash Flow”). Such valuation takes into consideration an analysis of comparable asset management companies and a percentage of assets under management. The Asset Manager Affiliates are classified as a Level III investment (as described above). Any change in value from period to period is recognized as net change in unrealized appreciation or depreciation.
We carry investments in joint ventures at fair value based upon the fair value of the investments held by the joint venture.
Fair values of other investments for which market prices are not observable are determined by reference to public market or private transactions or valuations for comparable companies or assets in the relevant asset class and/or industry when such amounts are available. Generally, these valuations are derived by multiplying a key performance metric of the investee company or asset (e.g., EBITDA) by the relevant valuation multiple observed for comparable companies or transactions, adjusted by management for differences between the investment and the referenced comparable. Such investments may also be valued at cost for a period of time after an acquisition as the
60
best indicator of fair value. If the fair value of such investments cannot be valued by reference to observable valuation measures for comparable companies, then the primary analytical method used to estimate the fair value is a discounted cash flow method and/or cap rate analysis. A sensitivity analysis is applied to the estimated future cash flows using various factors depending on the investment, including assumed growth rates (in cash flows), capitalization rates (for determining terminal values) and appropriate discount rates to determine a range of reasonable values or to compute projected return on investment.
For bond rated note tranches of CLO Fund securities (those above the junior class) without transactions to support a fair value for the specific CLO Fund and tranche, fair value is based on discounting estimated bond payments at current market yields, which may reflect the adjusted yield on the leveraged loan index for similarly rated tranches, as well as prices for similar tranches for other CLO Funds and also other factors such as indicative prices provided by underwriters or brokers who arrange CLO Funds, and the default and recovery rates of underlying assets in the CLO Fund, as may be applicable. Such model assumptions may vary and incorporate adjustments for risk premiums and CLO Fund specific attributes.
We derive fair value for our illiquid loan investments that do not have indicative fair values based upon active trades primarily by using the Income Approach, and also consider recent loan amendments or other activity specific to the subject asset as described above. Other significant assumptions, such as coupon and maturity, are asset-specific and are noted for each investment in the Schedules of Investments.
The determination of fair value using this methodology takes into consideration a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. This valuation methodology involves a significant degree of our judgment.
Our Board may consider other methods of valuation to determine the fair value of investments as appropriate in conformity with GAAP.
Interest Income
Interest income, including amortization of premium and accretion of discount and accrual payment-in-kind (“PIK”) interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We generally place a loan on non-accrual status and cease recognizing interest income on such loan or security when a loan or security becomes 90 days or more past due or if we otherwise do not expect the debtor to be able to service its debt obligations. For investments with PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible (i.e. via a partial or full non-accrual). Loans which are on partial or full non-accrual remain in such status until the borrower has demonstrated the ability and intent to pay contractual amounts due or such loans become current. As of September 30, 2022, three of our investments were on non-accrual status.
Investment Income on CLO Fund Securities
We receive distributions from our investments in the most junior class of securities of CLO Funds (typically preferred shares or subordinated securities). Our CLO Fund junior class securities are subordinated to senior note holders who typically receive a return on their investment at a fixed spread relative to the LIBOR index. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior note holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares. The level of excess spread from CLO Fund Securities can be impacted from the timing and level of the resetting of the benchmark interest rate for the underlying assets (which reset at various times throughout the quarter) in the CLO Fund and the related CLO Fund note liabilities (which reset at each quarterly distribution date); in periods of short-term and volatile changes in the benchmark interest rate, the levels of excess spread and distributions to us can vary significantly. In addition, the failure of CLO Funds in which we invest to comply with certain financial covenants may lead to the temporary suspension or deferral of cash distributions to us.
GAAP-basis investment income on CLO equity investments is recorded using the effective interest method in accordance with the provisions of ASC 325-40, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated projected future cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield prospectively over the remaining life of the investment from the date the estimated yield was changed. Accordingly, investment income recognized on CLO equity securities in the GAAP statement of operations differs from both the tax-basis investment income and from the cash distributions actually received by us during the period. For U.S. tax purposes, these CLO equity investments are treated as PFICs. Taxable income is provided on a PFIC statement, where income and capital gains are determined based on the U.S. shareholder's proportionate ownership of the PFIC.
For non-junior class CLO Fund Securities interest is earned at a fixed spread relative to the LIBOR index.
Payment in Kind Interest
We may have loans in our portfolio that contain a PIK provision. PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain our RIC status, this non-cash source of income must be distributed to stockholders in the form of cash dividends, even though we have not yet collected any cash.
Fee Income
Fee income includes fees, if any, for due diligence, structuring, commitment and facility fees, and fees, if any, for transaction services and management services rendered by us to portfolio companies and other third parties. Commitment and facility fees are generally recognized as income over the life of the underlying loan, whereas due diligence, structuring, transaction service and management service fees are generally recognized as income when the services are rendered.
United States Federal Income Taxes
We have elected to be treated as a RIC and intend to continue to qualify for the tax treatment applicable to RICs under Subchapter M of the Code and, among other things, intend to make the required distributions to our stockholders as specified therein. In order to qualify for tax treatment as a RIC, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, to the extent required.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our business activities contain elements of market risks. We consider our principal market risks to be fluctuations in interest rates and the valuations of our investment portfolio. Managing these risks is essential to our business. Accordingly, we have systems and procedures designed to identify and analyze our risks, to establish appropriate policies and thresholds and to continually monitor these risks and thresholds by means of administrative and information technology systems and other policies and processes.
Interest Rate Risk
Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest
61
income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest-bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio.
Our investment income is affected by fluctuations in various interest rates, including LIBOR and prime rates. As of September 30, 2022 , approximately 89.3% of our Debt Securities Portfolio were either floating rate with a spread to an interest rate index such as LIBOR or the prime rate. 74.8% of these floating rate loans contain LIBOR floors ranging between 0.50% and 2.00%. We generally expect that future portfolio investments will predominately be floating rate investments. As of September 30, 2022, we had $368.9 million (par value) of borrowings outstanding at a current weighted average interest rate of 5.0%, of which $108.0 million par value had a fixed rate and $260.9 million par value has a floating rate.
Because we borrow money to make investments, our net investment income is dependent upon the difference between our borrowing rate and the rate we earn on the invested proceeds borrowed. In periods of rising or lowering interest rates, the cost of the portion of our debt associated with our fixed rate borrowings would remain the same, while the interest rate on borrowings under the Revolving Credit Facility would fluctuate with changes in interest rates.
Generally, we would expect that an increase in the base rate index for our floating rate investment assets would increase our gross investment income and that a decrease in the base rate index for such assets would decrease our gross investment income (in either case, such increase/decrease may be limited by interest rate floors/minimums for certain investment assets).
We have analyzed the potential impact of changes in interest rates on interest income net of interest expense. Assuming that our balance sheet at September 30, 2022 was to remain constant and no actions were taken to alter the existing interest rate sensitivity, the table below illustrates the impact on net investment income on our Debt Securities Portfolio for various hypothetical increases in interest rates:
|
|
Impact on net investment income from |
|
|||||||||
($ in thousands) |
|
1% |
|
|
2% |
|
|
3% |
|
|||
Increase in interest rate |
|
$ |
2,100 |
|
|
$ |
4,029 |
|
|
$ |
5,957 |
|
Decrease in interest rate |
|
$ |
1,340 |
|
|
$ |
(561 |
) |
|
$ |
(2,493 |
) |
As shown above, net investment income assuming a 1% increase in interest rates would increase by approximately $2.1 million on an annualized basis. If the increase in rates was more significant, such as 2% or 3%, the net effect on net investment income would be an increase of approximately $4.0 million and $6.0 million, respectively.
On an annualized basis, a decrease in interest rates of 1% would result in an increase in net investment income of approximately $1.3 million. A decrease in interest rates of 2% and 3% would result in an decrease in net investment income of approximately $0.6 million and $2.5 million, respectively. The effect on net investment income from declines in interest rates impacted by interest rate floors on certain of our floating rate investments, as there is no floor on our floating rate debt facility and the 2018-2 Secured Notes.
Although management believes that this measure is indicative of sensitivity to interest rate changes on our Debt Securities Portfolio, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect a net change in assets resulting from operations or net income. Accordingly, no assurances can be given that actual results would not materially differ from the potential outcome simulated by this estimate.
Portfolio Valuation
We carry our investments at fair value, as determined in good faith by our Board pursuant to a valuation methodology approved by our Board. Investments for which market quotations are generally readily available are generally valued at such market quotations. Investments for which there is not a readily available market value are valued at fair value as determined in good faith by our Board under a valuation policy and consistently applied valuation process. However, due to the inherent uncertainty of determining the fair value of investments that cannot be marked to market, the fair value of our investments may differ materially from the values that would have been used had a ready market existed for such investments. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the value realized on these investments to be different than the valuations that are assigned. The types of factors that we may take into account in fair value pricing of our investments include, as relevant, the nature and realizable value of any collateral, third party valuations, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly-traded securities, recent sales of or offers to buy comparable companies, and other relevant factors.
The Company has engaged an independent valuation firm to provide third party valuation consulting services to the Board. Each quarter, the independent valuation firm will perform third party valuations on the Company’s material investments in illiquid securities such that they are reviewed at least once during a trailing 12-month period. These third-party valuation estimates were considered as one of the relevant data inputs in the Company’s determination of fair value. The Company intends to continue to engage an independent valuation firm in the future to provide certain valuation services, including the review of certain portfolio assets, as part of the quarterly and annual year-end valuation process.
Item 4. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 5. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer (“CEO”) and its Chief Financial Officer (“CFO”), has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Acts recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
62
PART II. Other Information
Item 1. Legal Proceedings
The Company is not currently a party to any material legal proceedings except as set forth below.
HCAP and certain of its officer and directors as well as JMP Group LLC were named as defendants in two putative stockholder class action lawsuits, both filed in the Court of Chancery in the State of Delaware, captioned Stewart Thompson v. Joseph Jolson, et al., Case No. 2021-0164 and Ronald Tornese v. Joseph Jolson, et al., Case No. 2021-0167 (the “Delaware Actions”). The complaints in the Delaware Actions allege certain breaches of fiduciary duties against the defendants as well as aiding and abetting claims against JMP Group LLC and HCAP’s Chief Executive Officer concerning HCAP’s proposed merger with the Company and Acquisition Sub that resulted in the merger with and into the Company.
On June 9, 2021, HCAP merged with and into the Company with the Company as the surviving corporation. As a result, the Company became responsible for any claims against HCAP as well as for any advancement and/or indemnification owed to the former officers and directors of HCAP. On or about May 10, 2022, plaintiffs in the Delaware Actions filed a consolidated amended complaint seeking damages against defendants for allegedly breaching their fiduciary duties in connection with the proposed merger. On or about May 31, 2022, defendants moved to dismiss the Delaware action.
The Delaware Actions remain at the early stage. We and the former HCAP officers and directors intend to defend ourselves vigorously against the allegations in the aforementioned actions to the extent they proceed. Neither the outcome of the lawsuits nor an estimate of any reasonably possible losses is determinable at this time. While we and HCAP maintain directors’ and officers’ insurance that provides coverage for claims such as those alleged in the complaints, an adverse judgment for monetary damages in excess of or outside of available insurance coverage could have a material adverse effect on our operations and liquidity.
Item 1A. Risk Factors
Other than the items noted below, there have been no material changes during fiscal 2021 to the risk factors that were included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Other than the shares issued pursuant to our dividend reinvestment plan (“DRIP”),we did not engage in any sales of unregistered securities during the nine months ended September 30, 2022, except as previously reported by us on our current reports on Form 8-K. We issued a total of 38,835 shares of common stock under our dividend reinvestment plan (“DRIP”) during the nine months ended September 30, 2022. This issuance was not subject to the registration requirements of the Securities Act. For the nine months ended September 30, 2022, the aggregate value of the shares of our common stock issued under our DRIP was approximately $888 thousand.
The following table sets forth information regarding recent repurchases of shares of our common stock.
|
Total Number of Shares Purchased (2) |
|
Average Price |
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (Dollars in Thousands) (1) |
|
||||
March 11-March 31, 2021 |
|
- |
|
|
|
|
- |
|
|
$ |
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
April 1-June 30, 2021 |
|
15,718 |
|
$ |
24.20 |
|
|
15,718 |
|
|
$ |
9,620 |
|
|
|
|
|
|
|
|
|
|
|
||||
July 1-September 30, 2021 |
|
59,659 |
|
$ |
24.24 |
|
|
59,659 |
|
|
$ |
8,174 |
|
|
|
|
|
|
|
|
|
|
|
||||
October 1-December 31, 2021 |
|
- |
|
|
|
|
- |
|
|
$ |
8,174 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total, December 31, 2021 |
|
75,377 |
|
|
|
|
75,377 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||||
March 17-March 31, 2022 |
|
22,990 |
|
$ |
23.72 |
|
|
22,990 |
|
|
$ |
9,455 |
|
|
|
|
|
|
|
|
|
|
|
||||
April 1-April 30, 2022 |
|
39,014 |
|
$ |
23.75 |
|
|
39,014 |
|
|
$ |
8,528 |
|
|
|
|
|
|
|
|
|
|
|
||||
May 1-May 31, 2022 |
|
42,426 |
|
$ |
22.73 |
|
|
42,426 |
|
|
$ |
7,564 |
|
|
|
|
|
|
|
|
|
|
|
||||
June 1-June 30, 2022 |
|
25,187 |
|
$ |
22.53 |
|
|
25,187 |
|
|
$ |
6,996 |
|
|
|
|
|
|
|
|
|
|
|
||||
July 1-September 30, 2022 |
|
- |
|
|
|
|
- |
|
|
$ |
6,996 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total, September 30, 2022 |
|
129,617 |
|
|
|
|
129,617 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
204,994 |
|
|
|
|
204,994 |
|
|
|
|
||
63
As permitted by our policies and procedures governing transactions in our securities by our directors, executive officers and other employees, from time to time some of these persons may establish plans or arrangements complying with Rule 10b5-1 under the Exchange Act, and similar plans and arrangements relating to our common stock
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Reference is made to the Exhibit List filed as a part of this report beginning on page E-1. Each of such exhibits is incorporated by reference herein.
64
Exhibit Index
Exhibit Number |
|
Description of Document |
|
|
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
|
|
** Submitted herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
PORTMAN RIDGE FINANCE CORPORATION |
||
|
|
|
|
Date: November 8, 2022 |
By |
|
/s/ Edward Goldthorpe |
|
|
|
Edward Goldthorpe |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Date: November 8, 2022 |
By |
|
/s/ Jason Roos |
|
|
|
Jason Roos |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
* * * * *
65
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Edward Goldthorpe, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 of Portman Ridge Finance Corporation (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2022
|
By: |
|
/S/ EDWARD GOLDTHORPE |
|
|
|
Edward Goldthorpe |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
28356044.2
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Jason Roos, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2022
|
By: |
|
/S/ JASON ROOS |
|
|
|
Jason Roos |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
28356073.2
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Portman Ridge Finance Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 (the “Report”), I, Edward Goldthorpe, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 8, 2022
|
By: |
|
/S/ EDWARD GOLDTHORPE |
|
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Edward Goldthorpe |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
28356095.2
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Portman Ridge Finance Corporation, (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 (the “Report”), I, Jason Roos, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 8, 2022
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By: |
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/S/ JASON ROOS |
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Jason Roos |
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Chief Financial Officer |
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(Principal Financial Officer) |
28356099.2