| (1) | The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment; |
| (2) | The Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser and the portfolio companies as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation approaches including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor; |
| (3) | The Independent Valuation Advisors’ preliminary valuations are reviewed by the Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ valuation ranges are compared to the Investment Adviser’s valuations to ensure the Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Valuation and Side Pocket Sub-CommitteeWorking Group of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment decision making process; |
| (4) | The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors; |
| (5) | (5) | The Audit Committee of the Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, the Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and |
| (6) | The Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of the investments in good faith, based on the inputs of the Investment Adviser, the Independent Valuation Advisors and the Audit Committee. |
Money Market Funds Investments in money market funds are valued at net asset value (“NAV”) per share. See Note 3 “Significant Agreements and Related Party Transactions.” 16
Cash Cash consists of deposits held at a custodian bank. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company held $11,967an aggregate cash balance of $22,047 and $4,565, respectively,$9,409. Foreign currency of $1,073 and $1,003 (acquisition cost of $1,082 and $991) is included in cash.cash as of March 31, 2020 and December 31, 2019. Foreign Currency Translation Amounts denominated in foreign currencies are translated into U.S. dollarsUSD on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollarsUSD based upon currency exchange rates effective on the datelast business day of valuation;the period; and (ii) purchases and sales of investments, borrowings and repayments of such borrowings, income, and expense itemsexpenses denominated in foreign currencies are translated into U.S. dollarsUSD based upon currency exchange rates prevailing on the transaction dates. The Company does not isolate thatthe portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gains or losses on investment transactions.investments. Fluctuations arising from the translation of non-investment assets and liabilities are included with the net change in unrealized gains (losses) on foreign currency translations on the Consolidated Statements of Operations. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities. Derivatives The Company may enter into foreign currency forward contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies. In a foreign currency forward contract, the Company agrees to receive or deliver a fixed quantity of one currency for another, at a pre-determined price at a future date. Forward foreign currency contracts are marked-to-market at the applicable forward rate. Unrealized appreciation (depreciation) on foreign currency forward contracts are recorded on the Consolidated Statements of Assets and Liabilities by counterparty on a net basis, not taking into account collateral posted which is recorded separately, if applicable. Notional amounts of foreign currency forward contract assets and liabilities are presented separately on the Consolidated Schedules of Investments. Purchases and settlements of foreign currency forward contracts having the same settlement date and counterparty are generally settled net and any realized gains or losses are recognized on the settlement date. The Company does not utilize hedge accounting and as such, the Company recognizes its derivatives at fair value with changes in the net unrealized appreciation (depreciation) on foreign currency forward contracts recorded on the Consolidated Statements of Operations. Income Taxes The Company recognizes tax positions in its consolidated financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The Company reports any interest expense related to income tax matters in income tax expense, and any income tax penalties under expenses in the Consolidated Statements of Operations. The Company’s tax positions have been reviewed based on applicable statutes of limitation for tax assessments, which may vary by jurisdiction, and based on such review, the Company has concluded that no additional provision for income tax is required in the Company’s consolidated financial statements. The Company is subject to potential examination by certain taxing authorities in various jurisdictions. The Company’s tax positions are subject to ongoing interpretation of laws and regulations by taxing authorities. The Company has elected to be treated as a RIC commencing with its taxable year ended December 31, 2013. So long as the Company maintains its status as a RIC, it will generally not be subjectrequired to pay corporate-level U.S. federal income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any U.S. federal income tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.
To maintain its statustax treatment as a RIC, the Company must meet specified source-of-income and asset diversification requirements and timely distribute to its stockholders for each taxable year at least 90% of its investment company taxable income (generally, its net ordinary income plus the excess of its realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction). In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required. For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, the Company accrued excise taxes of $383$427 and $1,116, respectively.$442. As of September 30, 2017, $1,079March 31, 2020, $622 of accrued excise taxes remained payable. For Certain of the threeCompany’s consolidated subsidiaries are subject to U.S. federal and nine months ended September 30, 2016,state corporate-level income taxes. Income tax expense, if any, is included under the Company accrued excise taxesincome category for which it applies in the Consolidated Statements of $294 and $728, respectively.Operations. Distributions Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. The Company may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent they are charged or credited to paid-in capital in excess of par accumulated undistributed net investment income or accumulated net realized gain (loss),distributable earnings, as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return. Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by the Investment Adviser. The Company may pay distributions to its stockholders in a year in excess of its net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and depending upon the level of the Company’s taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods. 17
The Company has adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and GS & Co. has opted out of the dividend reinvestment plan in respect of shares of the Company’s common stock acquired through its 10b5-1 plan. See Note 3 “Significant Agreements and Related Party Transactions”. Deferred Financing and Debt Issuance Costs Deferred financing and debt issuance costs consist of fees and expenses paid in connection with the closing of and amendments to the Company’s senior secured revolving credit agreement (as amended, the “Revolving Credit Facility”) with Truist Bank (formerly known as SunTrust Bank,Bank), as administrative agent, and Bank of America, N.A., as syndication agent, and the offering of the Company’s 4.50% Convertible Notes due 2022 (the “Convertible Notes”), and the offering of the Company’s 3.75% Notes due 2025 (the “2025 Notes”). TheseThe aforementioned costs are amortized using the straight-line method over the respective term of the Revolving Credit Facility and Convertible Notes.each instrument’s term. Deferred financing costs related to the Revolving Credit Facility are presented separately as an asset on the Company’s Consolidated Statements of Assets and Liabilities. Deferred debt issuance costs related to the Convertible Notes and the 2025 Notes are presented net against the outstanding debt balance on the Consolidated Statements of Assets and Liabilities. Deferred Offering Costs The Company records expenses related to registration statement filings and applicable offering costs as deferred offering costs. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of paid-in-capital upon each such offering. New Accounting Pronouncements In March 2020, the FASB issued Accounting Standard Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional exceptions for applying GAAP to contract modifications, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is
elective and is effective on March 12, 2020 through December 31, 2022. The Company expects that the adoption of this guidance will not have a material impact on its consolidated financial statements. 3. | SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS |
Investment Management Agreement The Company has entered into an investment management agreement (as amended and restated as of January 1, 2015,June 15, 2018, the “Investment Management Agreement”) with the Investment Adviser, pursuant to which the Investment Adviser manages the Company’s investment program and related activities. The Company is seeking shareholder approval of the amendment and restatement of the Investment Management Agreement between the Investment Adviser and the Company (as amended, the “New Investment Management Agreement”). The New Investment Management Agreement would amend and restate the Investment Management Agreement in order to exclude any amounts resulting solely from the purchase accounting for any premium or discount paid for the acquisition of assets in a merger, such as the premium to NAV to be paid for the shares of GS MMLC common stock in the Merger, from the calculation of the income incentive fee under such agreement. None of the other material terms will change in the New Investment Management Agreement as compared to the Investment Management Agreement, including the services to be provided, the Management Fee (as defined below) and the capital gain incentive fee. If approved by our stockholders, the New Investment Management Agreement would take effect upon, and be contingent on, the closing of the Merger. Management Fee The Company pays the Investment Adviser a management fee (the “Management Fee”), accrued and payable quarterly in arrears. The Management Fee is(i) was calculated at an annual rate of 1.50% (0.375% per quarter) (the “Original Rate”) through June 14, 2018 and (ii) is calculated at an annual rate of 1.00% (0.25% per quarter) (the “New Rate”) thereafter, in each case, of the average value of the Company’s gross assets (excluding cash or cash equivalents (such as investments in money market funds), but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters (and, in the case of our first quarter, our gross assets as of such quarter-end).quarters. The Management Fee for any partial quarter (including any quarter during which both the Original Rate and the New Rate were in effect) will be appropriately prorated.prorated based on the actual number of days elapsed relative to the total number of days in such calendar quarter. For the three and nine months ended September 30, 2017,March 31, 2020 and 2019 Management Fees amounted to $4,369$3,666 and $13,181, respectively.$3,536. The Investment Adviser has voluntarily agreed to permanently waive $660 of Management Fees for the three months ended March 31, 2020. As of September 30, 2017, $4,369March 31, 2020, $3,006 remained payable. For the three and nine months ended September 30, 2016, Management Fees amounted to $4,292 and $12,606, respectively. 18
Incentive Fee The incentive fee (the “Incentive Fee”) consists of two components that are determined independent of each other, with the result that one component may be payable even if the other is not. Effective as of January 1, 2015, theThe Incentive Fee is calculated as follows: A portion of the Incentive Fee is based on income and a portion is based on capital gains, each as described below. The Investment Adviser is entitled to receive the Incentive Fee based on income if Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.75%. For this purpose, the hurdle is computed by reference to the Company’s NAV and does not take into account changes in the market price of the Company’s common stock. Beginning with the calendar quarter that commenced on January 1, 2015, theThe Incentive Fee based on income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to the Company’s aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015) (such period the “Trailing Twelve Quarters”). The Incentive Fee based on capital gains is determined and paid annually in arrears at the end of each calendar year by reference to an “Annual Period,” which means the period beginning on January 1 of each calendar year and ending on December 31 of such calendar year or, in the case of the first and last year, the appropriate portion thereof.
The hurdle amount for the Incentive Fee based on income is determined on a quarterly basis and is equal to 1.75% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which includes all of the Company’s issuances of shares of its common stock, including issuances pursuant to its dividend reinvestment plan) and distributions that occurred during the relevant Trailing Twelve Quarters. The Incentive Fee for any partial period will be appropriately prorated. i. Quarterly Incentive Fee Based on Income For the portion of the Incentive Fee based on income, the Company pays the Investment Adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount”. Ordinary Income is net of all fees and expenses, including the Management Fee but excluding any Incentive Fee.
The Incentive Fee based on income for each quarter is determined as follows: No Incentive Fee based on income is payable to the Investment Adviser for any calendar quarter for which there is no Excess Income Amount; 100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, referred to as the “Catch-up Amount,” determined as the sum of 2.1875% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and 20% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income. The amount of the Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter equals the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below). The Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters. “Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company pays no Incentive Fee based on income to the Investment Adviser for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company pays an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company pays an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap. 19
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
ii. Annual Incentive Fee Based on Capital Gains. The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each Annual Period, the Company pays the Investment Adviser an amount equal to (A) 20% of the difference, if positive, of the sum of the Company’s aggregate realized capital gains, if any, computed net of the Company’s aggregate realized capital losses, if any, and the Company’s aggregate unrealized capital depreciation, in each case from April 1, 2013 until the end of such Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to the Investment Adviser from April 1, 2013. For the avoidance of doubt, unrealized capital appreciation is excluded from the calculation in clause (A) above. The Company accrues, but does not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under GAAP, the Company is required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, the Company considers the cumulative aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then the Company records a capital gains incentive fee equal to 20% of such amount, minus the aggregate amount of actual Incentive Fees based on capital gains paid in all prior periods. If such amount is negative, then there is no accrual for such period. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, the Company incurred Incentive Fees based on income of $4,624$0 and $9,595, respectively.$493. As of September 30, 2017, $4,624March 31, 2020, no incentive fees remained payable. For the three and nine months ended September 30, 2016, the Company incurred Incentive Fees based on income of $5,459March 31, 2020 and $8,948, respectively. For the three and nine months ended September 30, 2017 and 2016,2019, the Company did not accrue or pay any Incentive Fees based on capital gains. In connection with the Merger, GSAM has agreed to waive a portion of its Incentive Fee based on income to the extent incurred, for a period of five quarters, commencing with the quarter ended December 31, 2019 and through and including the quarter ending December 31, 2020, otherwise payable by the Company under the Investment Management Agreement and the proposed New Investment Management Agreement by and between the Company and GSAM, as applicable, for each such quarter in an amount sufficient to ensure that the Company’s net investment income per weighted share outstanding for such quarter is at least $0.48 per share. For the three months ended March 31, 2020, the Company did not incur an Incentive Fee based on income. Administration and Custodian Fees The Company has entered into an administration agreement with State Street Bank and Trust Company (the “Administrator”) under which the Administrator provides various accounting and administrative services to the Company. The Company pays the Administrator fees for its services as it determines to be commercially reasonable in its sole discretion. The Company also reimburses the Administrator for all reasonable expenses. To the extent that the Administrator outsources any of its functions, the Administrator pays any compensation associated with such functions. The Administrator also serves as the Company’s custodian (the “Custodian”). For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, the Company incurred expenses for services provided by the Administrator and the Custodian of $213$237 and $594, respectively.$237. As of September 30, 2017, $94March 31, 2020, $159 remained payable. For the three and nine months ended September 30, 2016, the Company incurred expenses for services provided by the Administrator and the Custodian of $212 and $633, respectively. Transfer Agent Fees Effective May 2, 2016, theThe Company has entered into a transfer agency and services agreement pursuant to which Computershare Trust Company, N.A. serves as the Company’s transfer agent (the “Transfer Agent”), dividend agent and registrar. From the IPO to May 1, 2016, State Street Bank and Trust Company served as the Transfer Agent and dividend agent. Prior to the IPO, GS & Co. was the Transfer Agent. For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, the Company incurred expenses for services provided by the Transfer Agent of $6$4 and $14, respectively.$3. As of September 30, 2017, noneMarch 31, 2020, $3 remained payable. For the three and nine months ended September 30, 2016, the Company incurred expenses for services provided by the Transfer Agent of $1 and $21, respectively.
10b5-1 Plan
GS & Co. adopted a 10b5-1 plan (the “GS 10b5-1 Plan”) in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provided for the purchase by GS & Co. in the open market up to the lesser of (i) $25,000 in the aggregate of the Company’s common stock and (ii) such amount that would not bring its collective ownership (with Group Inc.) of the Company’s common stock over 19.9%. The GS 10b5-1 Plan expired on March 18, 2016. The GS 10b5-1 Plan required GS & Co. to purchase shares of the Company’s common stock when the market price per share was below the Company’s most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by the Company to any previously announced NAV per share). The purchase of shares by GS & Co. pursuant to the GS 10b5-1 Plan was intended to satisfy the conditions of Rules 10b5-1 and 10b-18 under the Exchange Act, and was otherwise subject to applicable law, including Regulation M. Under the GS 10b5-1 Plan, GS & Co. increased the volume of purchases made anytime the market price per share of the Company’s common stock declined below the most recently reported NAV per share, subject to volume restrictions. Purchases of the Company’s common stock by GS & Co. under the GS 10b5-1 Plan may have resulted in the price of the Company’s common stock being higher than the price that otherwise might have existed in the open market. For the period January 1, 2016 through March 18, 2016, GS & Co. purchased 432,638 shares of the Company’s common stock pursuant to the GS 10b5-1 Plan.
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Common Stock Repurchase PlanPlans In February 2015, the2019, our Board of Directors approved a common stock repurchase plan (thethe “Company Repurchase10b5-1 Plan”), which authorized the Company’s purchase of up to $35,000 of its common stock in the open market during open trading periods. No repurchases were made pursuant to the Company Repurchase Plan which expired on March 18, 2016. In February 2016, the Board of Directors authorizedprovides for the Company to repurchase up to $25,000 of the Company’sshares of our common stock if the stock trades below the most recently announced NAVnet asset value per share, (including any updates, corrections or adjustments publicly announced by the Company to any previously announced NAV per share), from March 18, 2016 to March 18, 2017, subject to certain limitations. In February 2017, the Company’s Board of Directors renewed its authorization of the stock repurchase plan to extend the expiration to March 18, 2018.
In connection with this authorization, the Company entered into a 10b5-1 plan (the “Company 10b5-1 Plan”). The Company 10b5-1 Plan provides that purchases will be conducted on the open market on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. No purchases will be effected pursuant toUnder the Company 10b5-1 Plan, no purchases will be made if such purchasepurchases would (i) cause the aggregate ownership of the Company’sour outstanding common stock by Group Inc. and GS & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of such purchase) or (ii) cause the Company’s debt/equity ratioour Debt/Equity Ratio to exceed 0.75.the lower of (a) 1.40 or (b) the Maximum Debt/Equity Ratio. In the Company 10b5-1 Plan, “Debt/Equity Ratio” means the sum of debt on the Consolidated Statements of Assets and Liabilities and the total notional value of the Purchaser’s unfunded commitments divided by 85% of total equity, as of the most recent reported financial statement end date, and “Maximum Debt/Equity Ratio” means the sum of debt on the balance sheet and committed uncalled debt divided by net assets, as of the most recent reported financial statement end date. Purchases under the Company 10b5-1 Plan would be conducted on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and other applicable securities laws. The Company 10b5-1 Plan initially took effect on March 18, 2016 (with any purchases to commence after the opening of NYSE trading2019, was temporarily suspended on March 21, 2016), was subsequently renewedDecember 9, 2019 and is scheduled to expireexpired on March 18, 2018. Further, no purchases will be effected during the applicable restricted period under Regulation M as a result of an offering of securities by the Company or for a period of 60 days after the expiration of any overallotment option included in any common equity offering.2020.
The Company’s repurchase of its common stock under the Company 10b5-1 Plan or otherwise may result in the price of the Company’s common stock being higher than the price that otherwise might exist in the open market. For the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, the Company did not repurchase any of its common stock pursuant to the Company 10b5-1 Plan or otherwise.
Affiliates As of March 31, 2020 and December 31, 2019, Group Inc. owned 16.05% and 16.06%, of the outstanding shares of the Company’s common stock. The table below presents the Company’s affiliated investments: | | Beginning Fair Value Balance | | | Gross Additions(3) | | | Gross Reductions(4) | | | Net Realized Gain(Loss) | | | Net Change in Unrealized Appreciation (Depreciation) | | | Ending Fair Value Balance | | | Dividend, Interest, PIK and Other Income | | For the Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Animal Supply Holdings LLC | | $ | 50,685 | | | $ | 33 | | | $ | (9 | ) | | $ | — | | | $ | (4,217 | ) | | $ | 46,492 | | | $ | 125 | | Bolttech Mannings, Inc. | | | 22,854 | | | | 22,054 | | | | (20,401 | ) | | | (4,704 | ) | | | 818 | | | | 20,621 | | | | 606 | | Total Controlled Affiliates | | $ | 73,539 | | | $ | 22,087 | | | $ | (20,410 | ) | | $ | (4,704 | ) | | $ | (3,399 | ) | | $ | 67,113 | | | $ | 731 | | Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund(1) | | $ | — | | | $ | 109,827 | | | $ | (45,521 | ) | | $ | — | | | $ | — | | | $ | 64,306 | | | $ | 5 | | Accuity Delivery Systems, LLC | | | 15,213 | | | | 14 | | | | — | | | | — | | | | 805 | | | | 16,032 | | | | 237 | | CB-HDT Holdings, Inc. (dba Hunter Defense Technologies) | | | 32,248 | | | | — | | | | — | | | | — | | | | 5,949 | | | | 38,197 | | | | 190 | | Collaborative Imaging, LLC (dba Texas Radiology Associates) | | | 17,311 | | | | 7 | | | | — | | | | — | | | | (578 | ) | | | 16,740 | | | | 327 | | Conergy Asia Holdings, Ltd | | | 1,064 | | | | — | | | | — | | | | — | | | | (9 | ) | | | 1,055 | | | | 27 | | Elah Holdings, Inc. | | | 2,234 | | | | — | | | | — | | | | — | | | | — | | | | 2,234 | | | | — | | Iracore International Holdings, Ltd | | | 10,884 | | | | — | | | | — | | | | — | | | | (2,002 | ) | | | 8,882 | | | | 79 | | Kawa Solar Holdings Limited | | | 3,502 | | | | 28 | | | | — | | | | — | | | | (286 | ) | | | 3,244 | | | | — | | Prairie Provident Resources, Inc. | | | 124 | | | | — | | | | — | | | | — | | | | (86 | ) | | | 38 | | | | — | | Total Non-Controlled Affiliates | | $ | 82,580 | | | $ | 109,876 | | | $ | (45,521 | ) | | $ | — | | | $ | 3,793 | | | $ | 150,728 | | | $ | 865 | | Total Affiliates | | $ | 156,119 | | | $ | 131,963 | | | $ | (65,931 | ) | | $ | (4,704 | ) | | $ | 394 | | | $ | 217,841 | | | $ | 1,596 | |
For the Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Animal Supply Holdings LLC | | $ — | | | $ | 58,075 | | | $ | — | | | $ | — | | | $ | (7,390 | ) | | $ | 50,685 | | | $ | 337 | | Bolttech Mannings, Inc. | | | 23,863 | | | | 3,827 | | | | — | | | | — | | | | (4,836 | ) | | | 22,854 | | | | 2,245 | | Senior Credit Fund, LLC (2) | | | 96,456 | | | | 125,555 | | | | (224,926 | ) | | | (629 | ) | | | 3,544 | | | | — | | | | 3,450 | | Total Controlled Affiliates | | $ | 120,319 | | | $ | 187,457 | | | $ | (224,926 | ) | | $ | (629 | ) | | $ | (8,682 | ) | | $ | 73,539 | | | $ | 6,032 | | Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund(1) | | $ | — | | | $ | 332,086 | | | $ | (332,086 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | 70 | | Accuity Delivery Systems, LLC | | | 13,730 | | | | 53 | | | | — | | | | — | | | | 1,430 | | | | 15,213 | | | | 1,039 | | CB-HDT Holdings, Inc. (dba Hunter Defense Technologies) | | | 26,854 | | | | 698 | | | | — | | | | — | | | | 4,696 | | | | 32,248 | | | | 698 | | Collaborative Imaging, LLC (dba Texas Radiology Associates) | | | 10,273 | | | | 6,523 | | | | — | | | | — | | | | 515 | | | | 17,311 | | | | 1,060 | | Conergy Asia Holdings, Ltd | | | 1,064 | | | | — | | | | — | | | | — | | | | — | | | | 1,064 | | | | 106 | | Elah Holdings, Inc. | | | 2,234 | | | | — | | | | — | | | | — | | | | — | | | | 2,234 | | | | — | | Iracore International Holdings, Ltd | | | 7,807 | | | | — | | | | (472 | ) | | | — | | | | 3,549 | | | | 10,884 | | | | 393 | | Kawa Solar Holdings Limited | | | 8,066 | | | — | | | | (4,575 | ) | | | — | | | | 11 | | | | 3,502 | | | — | | NTS Communications, Inc. | | | 55,557 | | | | 576 | | | | (55,817 | ) | | | (7,226 | ) | | | 6,910 | | | | — | | | | 734 | | Prairie Provident Resources, Inc. | | | 504 | | | | — | | | | — | | | | — | | | | (380 | ) | | | 124 | | | | — | | Total Non-Controlled Affiliates | | $ | 126,089 | | | $ | 339,936 | | | $ | (392,950 | ) | | $ | (7,226 | ) | | $ | 16,731 | | | $ | 82,580 | | | $ | 4,100 | | Total Affiliates | | $ | 246,408 | | | $ | 527,393 | | | $ | (617,876 | ) | | $ | (7,855 | ) | | $ | 8,049 | | | $ | 156,119 | | | $ | 10,132 | |
(1) | Fund advised by an affiliate of Goldman Sachs. |
(2) | Together with Cal Regents, the Company previously invested through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it had control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”. |
(3) | Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category. |
(4) | Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category. |
Due to Affiliates The Investment Adviser pays certain general and administrative expenses, including legal expenses, on behalf of the Company in the ordinary course of business. As of March 31, 2020 and December 31, 2019, there were $520 and $234 included within Accrued expenses and other liabilities and $625 and $0 included within Interest and other debt expenses payable paid by the Investment Adviser and its affiliates on behalf of the Company. Co-investment Activity In certain circumstances, negotiated co-investments by the Company and other funds managed by the Investment Adviser may be made only pursuant to an order from the SEC permitting the Company to do so. On January 4, 2017, the SEC granted GSAM,exemptive relief (“Exemptive Relief”) that permits the Company to co invest with Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”), GS MMLC, Goldman Sachs Private Middle Market Lending Corp.Credit II LLC (“GS MMLC”) and the Company exemptive relief (“Exemptive Relief”) that permits the Company to co-invest with GS PMMC GS MMLCII”) and certain other funds that may be managed by GSAM, including the GSAM Credit Alternatives Team, inafter the future,date of the exemptive order, subject to certain termsconditions including that co-investments are made in a manner consistent with the Company’s investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions inrequired by the Exemptive Relief.Relief, and are allocated fairly among participants. The GSAM Credit Alternatives Team is comprised of investment professionals dedicated to the Company’s investment strategy and other funds that share a similar investment strategy with the Company, who are responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, negotiating and structuring the Company’s investments and monitoring and servicing the Company’s investments, together with investment professionals who are primarily focused on investment strategies in syndicated, liquid credit. Under the terms of the Exemptive Relief, a “required majority” (as defined in Section 57(o) of the Investment Company Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to the Company and the Company’s stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the then-current investment objectives and strategies of the Company. As a result of the Exemptive Relief, there could be significant overlap in the Company’s investment portfolio and the investment portfolios of GS PMMC, GS MMLC, GS PMMC II and/or other funds established by the GSAM Credit Alternatives Team that could avail themselves of the Exemptive Relief. 21
Affiliates
At September 30, 2017 and December 31, 2016, Group Inc. owned 16.16% and 17.85%, respectively, of the outstanding shares of the Company’s common stock.
The Company’s investments in affiliates for the nine months ended September 30, 2017, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value as of
December 31,
2016 | | | Gross
Additions(3) | | | Gross
Reductions(4) | | | Net
Realized Gains/ (Losses) | | | Change in Unrealized Gains/ (Losses) | | | Fair Value as of September 30,
2017 | | | Dividend,
Interest and
PIK Income | | | Other
Income | | | Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Senior Credit Fund, LLC(1) | | $ | 78,394 | | | $ | 16,750 | | | $ | – | | | $ | – | | | $ | (30 | ) | | $ | 95,114 | | | $ | 7,250 | | | $ | 1,096 | | | Total Controlled Affiliates | | $ | 78,394 | | | $ | 16,750 | | | $ | – | | | $ | – | | | $ | (30 | ) | | $ | 95,114 | | | $ | 7,250 | | | $ | 1,096 | | | Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund(2) | | $ | 1 | | | $ | 253,829 | | | $ | (253,827 | ) | | $ | – | | | $ | – | | | $ | 3 | | | $ | 20 | | | $ | – | | | CB-HDT Holdings, Inc. | | | 18,510 | | | | 184 | | | | – | | | | – | | | | 1,254 | | | | 19,948 | | | | 284 | | | | – | | | Conergy Asia Holdings, Ltd | | | – | | | | 5,300 | | | | – | | | | – | | | | (1,226 | ) | | | 4,074 | | | | – | | | | – | | Iracore International Holdings, Ltd | | | – | | | | 10,392 | | | | – | | | | – | | | | (790 | ) | | | 9,602 | | | | 164 | | | | – | | | Kawa Solar Holdings Limited | | | 15,917 | | | | 3,927 | | | | (5,025 | ) | | | (2,495 | ) | | | (2,653 | ) | | | 9,671 | | | | 1,072 | | | | – | | Prairie Provident Resources, Inc. | | | 2,178 | | | | – | | | | – | | | | – | | | | (1,047 | ) | | | 1,131 | | | | – | | | | – | | | NTS Communications, Inc. | | | 47,498 | | | | 5,225 | | | | – | | | | – | | | | (3,480 | ) | | | 49,243 | | | | 5,243 | | | | 19 | | Total Non-Controlled Affiliates | | $ | 84,104 | | | $ | 278,857 | | | $ | (258,852 | ) | | $ | (2,495 | ) | | $ | (7,942 | ) | | $ | 93,672 | | | $ | 6,783 | | | $ | 19 | | | Total Affiliates | | $ | 162,498 | | | $ | $295,607 | | | $ | (258,852 | ) | | $ | (2,495 | ) | | $ | (7,972 | ) | | $ | 188,786 | | | $ | 14,033 | | | $ | 1,115 | |
(1) | 4. | Together with The Regents of the University of California (“Cal Regents”, and collectively with the Company, the “Members”), the Company invests through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it has control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”.INVESTMENTS
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(2) | | Fund advised by an affiliate of Goldman Sachs.
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(3) | | Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
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(4) | | Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
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The Company’s investments in affiliates for the year ended December 31, 2016, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value as of December 31, 2015 | | | Gross Additions(4) | | | Gross Reductions(5) | | | Net
Realized Gains/
(Losses) | | | Change in Unrealized Gains/ (Losses) | | | Fair Value as of
December 31, 2016 | | | Dividend,
Interest and
PIK Income | | | Other Income | | | Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Senior Credit Fund, LLC(1) | | $ | 44,897 | | | $ | 31,425 | | | $ | – | | | $ | – | | | $ | 2,072 | | | $ | 78,394 | | | $ | 6,575 | | | $ | 2,212 | | | Total Controlled Affiliates | | $ | 44,897 | | | $ | 31,425 | | | $ | – | | | $ | – | | | $ | 2,072 | | | $ | 78,394 | | | $ | 6,575 | | | $ | 2,212 | | | Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund(2) | | $ | 10,117 | | | $ | 381,895 | | | $ | (392,011 | ) | | $ | – | | | $ | – | | | $ | 1 | | | $ | 37 | | | $ | – | | | CB-HDT Holdings, Inc. | | | – | | | | 15,694 | | | | – | | | | – | | | | 2,816 | | | | 18,510 | | | | 18 | | | | – | | Kawa Solar Holdings Limited | | | – | | | | 15,931 | | | | – | | | | – | | | | (14 | ) | | | 15,917 | | | | 851 | | | | – | | Prairie Provident Resources, Inc. (3) | | | 4,048 | | | | – | | | | – | | | | – | | | | (1,870 | ) | | | 2,178 | | | | – | | | | – | | | NTS Communications, Inc. | | | – | | | | 42,929 | | | | – | | | | – | | | | 4,569 | | | | 47,498 | | | | 1,669 | | | | 13 | | Total Non-Controlled Affiliates | | $ | 14,165 | | | $ | 456,449 | | | $ | (392,011 | ) | | $ | – | | | $ | 5,501 | | | $ | 84,104 | | | $ | 2,575 | | | $ | 13 | | | Total Affiliates | | $ | 59,062 | | | $ | 487,874 | | | $ | (392,011 | ) | | $ | – | | | $ | 7,573 | | | $ | 162,498 | | | $ | 9,150 | | | $ | 2,225 | |
(1) | | Together with Cal Regents, the Company invests through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it has control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”.
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(2) | | Fund advised by an affiliate of Goldman Sachs.
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(3) | | Formerly known as Lone Pine Resources CDA, Ltd.
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(4) | | Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
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(5) | | Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
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22
As of the dates indicated, the Company’s investments (excluding an investment in a money market fund, if any, managed by an affiliate of Group Inc. of $3 and $1, respectively)) consisted of the following: | | | | September 30, 2017 | | | December 31, 2016 | | | March 31, 2020 | | | December 31, 2019 | | | Investment Type | | Cost | | | Fair Value | | | Cost | | | Fair Value | | | Cost | | | Fair Value | | | Cost | | | Fair Value | | | 1st Lien/Senior Secured Debt | | $ | 359,269 | | | $ | 355,727 | | | $ | 436,896 | | | $ | 421,026 | | | $ | 1,144,910 | | | $ | 1,074,489 | | | $ | 1,094,885 | | | $ | 1,080,670 | | | 1st Lien/Last-Out Unitranche | | | 303,874 | | | | 274,409 | | | | 329,455 | | | | 310,254 | | | | 35,303 | | | | 34,182 | | | | 35,307 | | | | 35,278 | | | 2nd Lien/Senior Secured Debt | | | 418,344 | | | | 419,360 | | | | 352,696 | | | | 336,178 | | | | 246,270 | | | | 200,832 | | | | 263,440 | | | | 234,025 | | | Unsecured Debt | | | 3,300 | | | | 3,300 | | | | 3,115 | | | | 3,115 | | | | 7,409 | | | | 7,400 | | | | 7,409 | | | | 7,409 | | | Preferred Stock | | | 11,750 | | | | 12,415 | | | | 11,123 | | | | 11,833 | | | | 41,664 | | | | 53,814 | | | | 41,664 | | | | 48,762 | | | Common Stock | | | 26,126 | | | | 18,362 | | | | 11,633 | | | | 6,490 | | | | 75,436 | | | | 52,030 | | | | 67,142 | | | | 48,108 | | | Investment Funds & Vehicles(1) | | | 94,342 | | | | 95,114 | | | | 77,592 | | | | 78,394 | | | Total Investments | | $ | 1,217,005 | | | $ | 1,178,687 | | | $ | 1,222,510 | | | $ | 1,167,290 | | | $ | 1,550,992 | | | $ | 1,422,747 | | | $ | 1,509,847 | | | $ | 1,454,252 | | | | | | | | | | | | | | | | | | | |
(1) | | Includes equity investments in the Senior Credit Fund.
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As of the dates indicated, the industry composition of the Company’s portfolio at fair value and net assets was as follows: | | | | | | March 31, 2020 | | | December 31, 2019 | | | Industry | | September 30, 2017 | | December 31, 2016 | | | Fair Value | | | Net Assets | | | Fair Value | | | Net Assets | | Health Care Providers & Services | | | | 9.3 | % | | | 22.3 | % | | | 10.9 | % | | | 23.5 | % | | Software | | | 11.0 | % | | 9.8 | % | | | 8.3 | | | | 19.8 | | | | 8.2 | | | | 17.7 | | | Diversified Telecommunication Services | | | 8.2 | | | 8.0 | | | | Investment Funds & Vehicles | | | 8.1 | | | 6.7 | | | | Health Care Providers & Services | | | 6.8 | | | 3.2 | | | Interactive Media & Services | | | | 7.3 | | | | 17.4 | | | | 7.4 | | | | 15.9 | | Health Care Technology | | | | 7.1 | | | | 17.0 | | | | 6.3 | | | | 13.6 | | IT Services | | | | 6.4 | | | | 15.3 | | | | 6.5 | | | | 14.1 | | | Health Care Equipment & Supplies | | | 6.4 | | | 4.7 | | | | 5.8 | | | | 13.9 | | | | 5.9 | | | | 12.6 | | Real Estate Management & Development | | | | 5.6 | | | | 13.5 | | | | 5.1 | | | | 11.0 | | Professional Services | | | | 5.2 | | | | 12.5 | | | | 5.0 | | | | 10.7 | | Diversified Consumer Services | | | | 5.0 | | | | 12.0 | | | | 2.6 | | | | 5.7 | | Commercial Services & Supplies | | | | 4.2 | | | | 9.9 | | | | 4.5 | | | | 9.6 | | Media | | | | 3.3 | | | | 7.9 | | | | 3.4 | | | | 7.3 | | | Distributors | | | 5.5 | | | 5.1 | | | | 3.3 | | | | 7.8 | | | | 3.5 | | | | 7.5 | | | Real Estate Management & Development | | | 4.9 | | | 4.9 | | | | Electronic Equipment, Instruments & Components | | | 4.8 | | | 4.8 | | | | Household Products | | | 4.2 | | | 2.5 | | | | Professional Services | | | 3.8 | | | 4.8 | | | | Chemicals | | | 3.7 | | | | – | | | | Media | | | 3.6 | | | 3.7 | | | Air Freight & Logistics | | | | 3.0 | | | | 7.2 | | | | 3.2 | | | | 7.0 | | | Aerospace & Defense | | | 3.2 | | | 3.1 | | | | 2.7 | | | | 6.4 | | | | 2.2 | | | | 4.8 | | | Diversified Financial Services | | | 2.9 | | | | – | | | | 2.6 | | | | 6.1 | | | | 2.8 | | | | 6.1 | | | Machinery | | | 2.8 | | | 3.1 | | | Hotels, Restaurants & Leisure | | | | 2.4 | | | | 5.6 | | | | 2.4 | | | | 5.2 | | Chemicals | | | | 2.2 | | | | 5.3 | | | | 2.4 | | | | 5.2 | | Road & Rail | | | | 2.1 | | | | 5.0 | | | | 2.5 | | | | 5.4 | | Household Products | | | | 1.6 | | | | 3.9 | | | | 1.7 | | | | 3.6 | | Transportation Infrastructure | | | | 1.5 | | | | 3.6 | | | | 1.5 | | | | 3.2 | | Diversified Telecommunication Services | | | | 1.4 | | | | 3.5 | | | | 1.4 | | | | 2.9 | | Auto Components | | | | 1.3 | | | | 3.2 | | | | 1.4 | | | | 3.0 | | Entertainment | | | | 1.2 | | | | 2.8 | | | | 1.3 | | | | 2.7 | | Life Sciences Tools & Services | | | | 0.9 | | | | 2.3 | | | | 1.0 | | | | 2.1 | | Leisure Products | | | | 0.7 | | | | 1.7 | | | | 0.7 | | | | 1.6 | | Insurance | | | | 0.7 | | | | 1.6 | | | | 0.7 | | | | 1.6 | | Trading Companies & Distributors | | | | 0.7 | | | | 1.6 | | | | 0.8 | | | | 1.7 | | Energy Equipment & Services | | | | 0.6 | | | | 1.5 | | | | 0.8 | | | | 1.6 | | | Food Products | | | 2.7 | | | 1.0 | | | | 0.6 | | | | 1.4 | | | | 0.6 | | | | 1.3 | | Beverages | | | | 0.6 | | | | 1.4 | | | | 0.6 | | | | 1.2 | | Internet & Direct Marketing Retail | | | | 0.5 | | | | 1.3 | | | | 0.5 | | | | 1.1 | | Communications Equipment | | | | 0.4 | | | | 1.0 | | | | 0.5 | | | | 1.1 | | Textiles, Apparel & Luxury Goods | | | | 0.4 | | | | 0.9 | | | | 0.5 | | | | 1.0 | | | Specialty Retail | | | 2.5 | | | 2.6 | | | | 0.3 | | | | 0.8 | | | | 0.4 | | | | 0.8 | | | Internet Software & Services | | | 2.3 | | | 8.3 | | | | Air Freight & Logistics | | | 2.1 | | | 3.8 | | | | Internet Catalog & Retail | | | 1.8 | | | | – | | | | IT Services | | | 1.8 | | | | – | | | | Auto Components | | | 1.7 | | | 1.7 | | | | Commercial Services & Supplies | | | 1.5 | | | 1.7 | | | | Construction & Engineering | | | 1.2 | | | 1.4 | | | | 0.3 | | | | 0.7 | | | | 0.3 | | | | 0.7 | | | Leisure Equipment & Products | | | 0.9 | | | 0.9 | | | | Energy Equipment & Services | | | 0.8 | | | 0.6 | | | | Containers & Packaging | | | 0.7 | | | | – | | | | 0.3 | | | | 0.7 | | | | 0.3 | | | | 0.7 | | | Oil, Gas & Consumable Fuels | | | 0.1 | | | 0.2 | | | | Health Care Technology | | | – | | | 6.0 | | | | Building Products | | | – | | | 6.4 | | | | Computers & Peripherals | | | – | | | 1.0 | | | Capital Markets | | | | 0.2 | | | | 0.4 | | | | 0.2 | | | | 0.3 | | Oil, Gas & Consumable Fuels(1) | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 239.2 | % | | | 100.0 | % | | | 215.1 | % |
(1) Amount rounds to 0.0% As of the dates indicated, the geographic composition of the Company’s portfolio at fair value was as follows: | | Geographic | | September 30, 2017 | | December 31, 2016 | | | March 31, 2020 | | | December 31, 2019 | | | United States | | | 98.8 | % | | 98.5 | % | | | 95.8 | % | | | 95.7 | % | Canada | | | | 2.6 | | | | 2.6 | | Ireland | | | | 1.3 | | | | 1.4 | | | Germany | | | 0.8 | | | 1.3 | | | | 0.2 | | | | 0.2 | | | Singapore | | | 0.3 | | | | – | | | | 0.1 | | | | 0.1 | | | Canada | | | 0.1 | | | 0.2 | | | Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
23
Senior Credit Fund, LLC The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. The Company investsinvested together with Cal Regents through the Senior Credit Fund. The Senior Credit Fund’s principal purpose iswas to make investments, either directly or indirectly through its wholly owned subsidiary, Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies. Each of the Company and Cal Regents arewere responsible for sourcing the Senior Credit Fund’s investments. Each of the Company and Cal Regents hashad a 50% economic ownership in the Senior Credit Fund and each hashad subscribed to fundand has fully contributed $100,000. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which the Company and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. On July 31, 2017, the Company and Cal Regents, as members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period for the Senior Credit Fund from August 1, 2017 to November 1, 2017. On December 19, 2016, SPV I entered into an amended and restated credit facility (as amended, the “Asset Based Facility”), which consistsconsisted of a revolving credit facility (the “SPV I Revolving Credit Facility”), a term loan facility (the “SPV I Term Loan Facility”) and a Class B loan facility (the “SPV I Class B Facility”), with various lenders. For the Asset Based Facility, Natixis, New York Branch (“Natixis”) servesserved as the facility agent, and State Street Bank and Trust Company servesserved as the collateral agent. On February 27, 2019, the board of managers of the Senior Credit Fund authorized the liquidation and subsequent dissolution of the Senior Credit Fund and the pro-rata distribution of its assets and liabilities to the members of the Senior Credit Fund. On May 8, 2019, the Company and Cal Regents each contributed $125,555 to the Senior Credit Fund, which was used by the Senior Credit Fund to repay in full all outstanding indebtedness, including all accrued and unpaid interest and fees, under the Asset Based Facility and to fund certain other related expenses that the Senior Credit Fund expects to incur in connection with its dissolution. The Asset Based Facility includes a maximum borrowing capacity of $400,000. The SPV I Revolving Credit Facility provided for borrowings in an aggregate amount up to $120,000 on a committed basis as of September 30, 2017. As of September 30, 2017,was then terminated and all liens securing the SPV I Term Loan Facility consisted of a $240,000 fully drawn term loan and the SPV I Class B Facility consisted of a $40,000 fully drawn Class B loan. As of September 30, 2017 and December 31, 2016, the SPV I’s outstanding borrowingscollateral under the Asset Based Facility were $309,154released and $303,250, respectively.terminated. The Senior Credit Fund had entered into a revolving credit facility (the “Subscription Facility”) with Versailles Assets LLC, as lender,Following the repayment and Natixis, as the facility agent. The Subscription Facility provided for borrowings in an aggregate amount up to $50,000 on a committed basis. The Senior Credit Fund’s obligations to Natixis and the lenders were secured by the unfunded subscriptionstermination of the Company and Cal Regents, proceeds of such subscriptions and certain other assets. On September 30, 2016,aforementioned Asset Based Facility, the Senior Credit Fund paid in full all loans outstanding anddistributed to its members their pro rata share of the Subscription Facility was terminated. In connection thereof, the related documents governing the Subscription Facility were also terminated.
Asassets of September 30, 2017 and December 31, 2016, the Company and Cal Regents had subscribed to fund and contributed the following to the Senior Credit Fund:
| | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | December 31, 2016 | | | Member | | Subscribed to fund | | | Contributed | | | Subscribed to fund | | | Contributed | | | Company | | $ | 100,000 | | | $ | 94,342 | | | $ | 100,000 | | | $ | 77,592 | | | Cal Regents | | | 100,000 | | | | 94,342 | | | | 100,000 | | | | 77,592 | | Total | | $ | 200,000 | | | $ | 188,684 | | | $ | 200,000 | | | $ | 155,184 | |
AsFund. The pro rata portion of September 30, 2017the assets received by the Company included senior secured loans of $215,103 and December 31, 2016,$210,088 at amortized cost and at fair value, and cash of $9,822. In addition, the Company assumed the obligation to fund outstanding unfunded commitments of the Senior Credit Fund had total investments in senior secured debt at fair valuethat totaled $5,664, representing its pro rata portion of $471,530 and $479,526, respectively. Asall unfunded commitments of September 30, 2017 and December 31, 2016, the Senior Credit Fund had no investments on non-accrual status. Asat such time. The pro rata portion of September 30, 2017the assets received by the Company have been included in the Company’s consolidated financial statements and December 31, 2016,notes thereto. After the satisfaction of all remaining liabilities and the distribution of remaining assets, the Senior Credit Fund had an investment in a money market fund managed by an affiliate of Group Inc. with a total fair value of $4,849 and $1,942, respectively. In addition, as of September 30, 2017, the Senior Credit Fund had eight unfunded commitments totaling $13,478 and as of December 31, 2016, the Senior Credit Fund had three unfunded commitments totaling $6,296.
Below is a summary of the Senior Credit Fund’s portfolio, excluding an investment in a money market fund managed by an affiliate of Group Inc., followed by a listing of the individual loans in the Senior Credit Fund’s portfolio as of September 30, 2017 and December 31, 2016:
| | | | | | | | | | | | As of | | | | | September 30, 2017 | | | December 31, 2016 | | | Total senior secured debt(1) | | $ | 490,871 | | | $ | 489,657 | | | Weighted average current interest rate on senior secured debt(2) | | | 7.0% | | | | 6.6% | | | Number of borrowers in the Senior Credit Fund | | | 34 | | | | 37 | | | Largest loan to a single borrower(1) | | $ | 24,897 | | | $ | 24,618 | |
(2) | | Computed as the (a) annual stated interest rate on accruing senior secured debt, divided by (b) total senior secured debt at par amount.
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was terminated. 24
Senior Credit Fund Portfolio as of September 30, 2017
| | | | | | | | | | | | | | | | | | | | Portfolio Company | | Industry | | Interest | | Maturity | | Par
Amount | | | Cost | | | Fair
Value | | | | | | | | | | 1st Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | 3SI Security Systems, Inc.(+++) | | Commercial Services & Supplies | | L + 6.25% (1.00% Floor) | | 06/16/2023 | | $ | 15,000 | | | $ | 14,784 | | | $ | 14,775 | | | A Place For Mom, Inc.(+++) | | Diversified Consumer Services | | L + 4.00% (1.00% Floor) | | 08/10/2024 | | | 4,000 | | | | 3,980 | | | | 3,995 | | | Ansira Partners, Inc.(+++) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 8,662 | | | | 8,583 | | | | 8,575 | | | Ansira Partners, Inc.(+++) (1) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 1,271 | | | | 693 | | | | 692 | | | ASC Acquisition Holdings, LLC(+++) (2) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 10,828 | | | | 10,734 | | | | 10,720 | | | ASC Acquisition Holdings, LLC(1) (2) (3) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 3,750 | | | | (38 | ) | | | (38 | ) | | ATX Networks Corp.(+++) | | Communications Equipment | | L + 6.00% (1.00% Floor) | | 06/11/2021 | | | 16,555 | | | | 16,419 | | | | 16,306 | | | Badger Sportswear, Inc.(+++) | | Textiles, Apparel & Luxury Goods | | L + 4.50% (1.00% Floor) | | 09/11/2023 | | | 14,850 | | | | 14,720 | | | | 14,776 | | | Crowne Group, LLC(+++) | | Auto Components | | L + 9.25% (1.00% Floor) | | 05/26/2021 | | | 16,490 | | | | 16,359 | | | | 16,655 | | | CST Buyer Company(++++) | | Diversified Consumer Services | | L + 6.25% (1.00% Floor) | | 03/01/2023 | | | 20,597 | | | | 20,073 | | | | 20,030 | | | CST Buyer Company(1) (3) | | Diversified Consumer Services | | L + 6.25% (1.00% Floor) | | 03/01/2023 | | | 1,800 | | | | (45 | ) | | | (50 | ) | | DBRS Limited(+++) | | Capital Markets | | L + 5.25% (1.00% Floor) | | 03/04/2022 | | | 11,700 | | | | 11,619 | | | | 11,583 | | | DiscoverOrg, LLC(+) (2) | | Software | | L + 4.50% (1.00% Floor) | | 08/25/2023 | | | 8,000 | | | | 7,961 | | | | 7,920 | | | FWR Holding Corporation(++++) | | Hotels, Restaurants & Leisure | | L + 6.00% (1.00% Floor) | | 08/21/2023 | | | 9,103 | | | | 8,878 | | | | 8,875 | | | FWR Holding Corporation(+++) (1) | | Hotels, Restaurants & Leisure | | L + 6.00% (1.00% Floor) | | 08/21/2023 | | | 1,175 | | | | 294 | | | | 294 | | | FWR Holding Corporation(1) (3) | | Hotels, Restaurants & Leisure | | L + 6.00% (1.00% Floor) | | 08/21/2019 | | | 2,936 | | | | (72 | ) | | | (73 | ) | | GK Holdings, Inc.(+++) | | IT Services | | L + 6.00% (1.00% Floor) | | 01/20/2021 | | | 17,505 | | | | 17,433 | | | | 16,455 | | | HC Group Holdings III, Inc.(+++) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 04/07/2022 | | | 8,820 | | | | 8,789 | | | | 8,886 | | | Help/Systems, LLC(+++) | | Software | | L + 4.50% (1.00% Floor) | | 10/08/2021 | | | 17,766 | | | | 17,318 | | | | 17,810 | | | Hygiena Borrower LLC(+++) | | Life Sciences Tools & Services | | L + 4.75% (1.00% Floor) | | 08/26/2022 | | | 15,920 | | | | 15,775 | | | | 15,602 | | | Hygiena Borrower LLC(1) (3) | | Life Sciences Tools & Services | | L + 4.75% (1.00% Floor) | | 08/26/2022 | | | 1,667 | | | | (22 | ) | | | (33 | ) | | Jill Acquisition LLC(+++) | | Textiles, Apparel & Luxury Goods | | L + 5.00% (1.00% Floor) | | 05/08/2022 | | | 14,035 | | | | 13,948 | | | | 13,907 | | | KMG Chemicals, Inc.(+) | | Chemicals | | L + 4.25% (1.00% Floor) | | 06/15/2024 | | | 6,847 | | | | 6,814 | | | | 6,930 | | | Lattice Semiconductor Corporation(+) | | Semiconductors & Semiconductor Equipment | | L + 4.25% (1.00% Floor) | | 03/10/2021 | | | 10,775 | | | | 10,629 | | | | 10,829 | | | Liquidnet Holdings, Inc.(+) | | Capital Markets | | L + 4.25% (1.00% Floor) | | 07/15/2024 | | | 9,875 | | | | 9,779 | | | | 9,900 | | | Loar Group, Inc.(+) | | Aerospace & Defense | | L + 4.75% (1.00% Floor) | | 01/12/2022 | | | 14,133 | | | | 13,808 | | | | 14,062 | | | MB Aerospace Holdings Inc.(+) | | Aerospace & Defense | | L + 5.50% (1.00% Floor) | | 12/15/2022 | | | 15,729 | | | | 15,603 | | | | 15,689 | | | Netsmart Technologies, Inc.(+++) | | Health Care Technology | | L + 4.50% (1.00% Floor) | | 04/19/2023 | | | 18,795 | | | | 18,742 | | | | 18,983 | | | Pomeroy Group LLC(+++++) | | IT Services | | L + 6.00% (1.00% Floor) | | 11/30/2021 | | | 15,799 | | | | 15,410 | | | | 15,246 | | | Professional Physical Therapy(+++) | | Health Care Providers & Services | | L + 6.00% (1.00% Floor) | | 12/16/2022 | | | 10,421 | | | | 10,328 | | | | 10,317 | | | RealD, Inc.(++) | | Media | | L + 7.50% (1.00% Floor) | | 03/22/2021 | | | 16,703 | | | | 16,572 | | | | 16,577 | | | Research Now Group, Inc.(+++) | | Professional Services | | L + 4.50% (1.00% Floor) | | 03/18/2021 | | | 9,435 | | | | 9,338 | | | | 9,388 | | | SciQuest, Inc.(+) | | Internet Software & Services | | L + 4.75% (1.00% Floor) | | 07/28/2023 | | | 19,568 | | | | 19,481 | | | | 19,470 | | | Smarte Carte, Inc.(+++) | | Air Freight & Logistics | | L + 5.50% (1.00% Floor) | | 08/30/2021 | | | 10,702 | | | | 10,615 | | | | 10,622 | | | SMS Systems Maintenance Services, Inc.(+) | | IT Services | | L + 5.00% (1.00% Floor) | | 10/30/2023 | | | 14,888 | | | | 14,819 | | | | 14,478 | | | Stackpath, LLC(+++) | | Internet Software & Services | | L + 5.00% (1.00% Floor) | | 02/03/2023 | | | 16,958 | | | | 16,801 | | | | 16,788 | | | Tronair Parent Inc.(+++) | | Air Freight & Logistics | | L + 4.75% (1.00% Floor) | | 09/08/2023 | | | 13,860 | | | | 13,740 | | | | 13,721 | | | U.S. Acute Care Solutions, LLC(+++) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 05/14/2021 | | | 12,903 | | | | 12,791 | | | | 12,773 | | | VRC Companies, LLC(+) | | Commercial Services & Supplies | | L + 6.50% (1.00% Floor) | | 03/31/2023 | | | 19,956 | | | | 19,535 | | | | 19,507 | | | VRC Companies, LLC(+++) (1) | | Commercial Services & Supplies | | L + 6.50% (1.00% Floor) | | 03/31/2023 | | | 3,529 | | | | 2,184 | | | | 2,179 | | | VRC Companies, LLC(1) | | Commercial Services & Supplies | | P + 5.50% | | 03/31/2022 | | | 1,412 | | | | 748 | | | | 745 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/Senior Secured Debt | | | | | | | | | | | 445,920 | | | | 445,866 | | | | | | | | | | 1st Lien/First-Out Unitranche | | | | | | | | | | | | | | | | | | | | Infogix, Inc.(+++) | | Software | | L + 5.00% (1.00% Floor) | | 12/31/2021 | | | 9,653 | | | | 9,579 | | | | 9,629 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/First-Out Unitranche | | | | | | | | | | | 9,579 | | | | 9,629 | | | | | | | | | | 2nd Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | DiscoverOrg, LLC(+) (2) | | Software | | L + 8.50% (1.00% Floor) | | 02/23/2024 | | | 10,500 | | | | 10,346 | | | | 10,395 | | | GK Holdings, Inc.(+++) | | IT Services | | L + 10.25% (1.00% Floor) | | 01/20/2022 | | | 6,000 | | | | 5,915 | | | | 5,640 | | | | | | | | | | | | | | | | | | | | | Total 2nd Lien/Senior Secured Debt | | | | | | | | | | | 16,261 | | | | 16,035 | | | | | | | | | | | | | | | | | | | | | Total Corporate Debt | | | | | | | | | | | 471,760 | | | | 471,530 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yield | | | | Shares | | | Cost | | | Fair
Value | | | | | | | | | Investments in Affiliated Money Market Fund | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund - Institutional Shares | | 0.91%(4) | | | | | 4,849,420 | | | $ | 4,849 | | | $ | 4,849 | | | | | | | | | | | | | | | | | | | | | Total Investments in Affiliated Money Market Fund | | | | | | | | | 4,849 | | | | 4,849 | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL INVESTMENTS | | | | | | | | | | | | $ | 476,609 | | | $ | 476,379 | | | | | | | | | | | | | | | | | | | | |
25
(+) | | The interest rate on these loans is subject toThe table below presents the greater of a LIBOR floor or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2017 was 1.23%.
|
(++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 2 month LIBOR plus a base rate. The 2 month LIBOR as of September 30, 2017 was 1.27%.
|
(+++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2017 was 1.33%.
|
(++++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 6 month LIBOR plus a base rate. The 6 month LIBOR as of September 30, 2017 was 1.51%.
|
(+++++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 12 month LIBOR plus a base rate. The 12 month LIBOR as of September 30, 2017 was 1.78%.
|
(1) | | Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date, that may expire prior to the maturity date stated.
|
(2) | | The Company also holds a portion of the 2nd lien/senior secured debt in this portfolio company.
|
(3) | | The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.
|
(4) | | The rate shown is the annualized seven-day yield as of September 30, 2017.
|
L – LIBOR
P – U.S. Prime Rate (which as of September 30, 2017 was 4.25%)
26
Senior Credit Fund Portfolio as of December 31, 2016
| | | | | | | | | | | | | | | | | | | | Portfolio Company | | Industry | | Interest | | Maturity | | Par Amount | | | Cost | | | Fair Value | | | | | | | | | | 1st Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | Affordable Care Holding Corp.(+++) | | Health Care Providers & Services | | L + 4.75% (1.00% Floor) | | 10/22/2022 | | $ | 4,950 | | | $ | 4,864 | | | $ | 4,950 | | | Ansira Partners, Inc.(1) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 8,727 | | | | 8,640 | | | | 8,640 | | | Ansira Partners, Inc.(1)(2) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 1,273 | | | | – | | | | – | | | ASC Acquisition Holdings, LLC(+++)(3) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 11,250 | | | | 11,138 | | | | 11,137 | | | ASC Acquisition Holdings, LLC(+++)(2)(3) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 3,750 | | | | – | | | | – | | | ATX Networks Corp.(+++) | | Communications Equipment | | L + 6.00% (1.00% Floor) | | 06/11/2021 | | | 16,767 | | | | 16,607 | | | | 16,348 | | | Badger Sportswear, Inc.(+++) | | Textiles, Apparel & Luxury Goods | | L + 4.50% (1.00% Floor) | | 09/11/2023 | | | 14,963 | | | | 14,861 | | | | 14,850 | | | ConvergeOne Holdings Corporation(+++)(4) | | Communications Equipment | | L + 5.38% (1.00% Floor) | | 06/17/2020 | | | 17,401 | | | | 17,261 | | | | 17,314 | | | Crowne Group, LLC(+++) | | Auto Components | | L + 9.25% (1.00% Floor) | | 05/26/2021 | | | 16,873 | | | | 16,717 | | | | 17,041 | | | DBRS Limited(+++) | | Capital Markets | | L + 5.25% (1.00% Floor) | | 03/04/2022 | | | 11,790 | | | | 11,697 | | | | 10,729 | | | DiscoverOrg, LLC(+)(3) | | Software | | L + 4.25% (1.00% Floor) | | 06/02/2020 | | | 7,147 | | | | 7,121 | | | | 7,075 | | | Edgewood Partners Insurance Center(+) | | Insurance | | L + 6.00% (1.00% Floor) | | 03/16/2023 | | | 15,880 | | | | 15,589 | | | | 15,920 | | | Explorer Holdings, Inc.(+++) | | Health Care Technology | | L + 5.00% (1.00% Floor) | | 05/02/2023 | | | 9,950 | | | | 9,855 | | | | 10,025 | | | GK Holdings, Inc.(+++) | | IT Services | | L + 5.50% (1.00% Floor) | | 01/20/2021 | | | 17,640 | | | | 17,555 | | | | 17,464 | | | HC Group Holdings III, Inc.(+++) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 04/07/2022 | | | 8,888 | | | | 8,852 | | | | 8,510 | | | Help/Systems, LLC(+++) | | Software | | L + 5.25% (1.00% Floor) | | 10/08/2021 | | | 17,955 | | | | 17,407 | | | | 17,910 | | | Imagine! Print Solutions, Inc.(+++) | | Commercial Services & Supplies | | L + 6.00% (1.00% Floor) | | 03/30/2022 | | | 4,965 | | | | 4,909 | | | | 5,039 | | | Jill Acquisition LLC(+++) | | Textiles, Apparel & Luxury Goods | | L + 5.00% (1.00% Floor) | | 05/08/2022 | | | 15,805 | | | | 15,700 | | | | 15,746 | | | Lattice Semiconductor Corporation(+++) | | Semiconductors & Semiconductor Equipment | | L + 4.25% (1.00% Floor) | | 03/10/2021 | | | 11,986 | | | | 11,803 | | | | 11,956 | | | Liquidnet Holdings, Inc.(+)(4) | | Capital Markets | | L + 6.75% (1.00% Floor) | | 05/22/2019 | | | 24,618 | | | | 24,340 | | | | 24,433 | | | Loar Group, Inc.(++) | | Aerospace & Defense | | L + 4.75% (1.00% Floor) | | 01/12/2022 | | | 9,925 | | | | 9,684 | | | | 9,875 | | | MB Aerospace Holdings Inc.(+++) | | Aerospace & Defense | | L + 5.50% (1.00% Floor) | | 12/15/2022 | | | 15,849 | | | | 15,708 | | | | 15,769 | | | Mister Car Wash, Inc.(1) | | Automobiles | | L + 4.25% (1.00% Floor) | | 08/20/2021 | | | 6,650 | | | | 6,600 | | | | 6,658 | | | Mister Car Wash, Inc.(1)(2) | | Automobiles | | L + 4.25% (1.00% Floor) | | 08/20/2021 | | | 1,333 | | | | – | | | | 12 | | | Netsmart Technologies, Inc.(+++) | | Health Care Technology | | L + 4.50% (1.00% Floor) | | 04/19/2023 | | | 18,937 | | | | 18,878 | | | | 18,997 | | | Oasis Outsourcing Holdings, Inc.(+) | | Diversified Financial Services | | L + 4.75% (1.00% Floor) | | 12/27/2021 | | | 3,979 | | | | 3,970 | | | | 3,989 | | | PGX Holdings, Inc.(+++)(4) | | Professional Services | | L + 5.25% (1.00% Floor) | | 09/29/2020 | | | 13,578 | | | | 13,510 | | | | 13,552 | | | Playcore Wisconsin, Inc.(+++) | | Leisure Equipment & Products | | L + 4.25% (1.00% Floor) | | 05/29/2020 | | | 18,000 | | | | 17,820 | | | | 17,820 | | | Pomeroy Group LLC(++++) | | IT Services | | L + 6.00% (1.00% Floor) | | 11/30/2021 | | | 15,920 | | | | 15,472 | | | | 15,760 | | | Precyse Acquisition Corp.(+) | | Health Care Technology | | L + 5.50% (1.00% Floor) | | 10/20/2022 | | | 7,469 | | | | 7,369 | | | | 7,553 | | | Professional Physical Therapy(+++) | | Health Care Providers & Services | | L + 6.00% (1.00% Floor) | | 12/16/2022 | | | 10,500 | | | | 10,395 | | | | 10,395 | | | RealD, Inc.(++) | | Media | | L + 7.50% (1.00% Floor) | | 03/22/2021 | | | 16,873 | | | | 16,719 | | | | 16,704 | | | Research Now Group, Inc.(+++) | | Professional Services | | L + 4.50% (1.00% Floor) | | 03/18/2021 | | | 9,592 | | | | 9,476 | | | | 9,448 | | | SciQuest, Inc.(++++) | | Internet Software & Services | | L + 4.75% (1.00% Floor) | | 07/28/2023 | | | 13,930 | | | | 13,863 | | | | 13,860 | | | Smarte Carte, Inc.(+++) | | Air Freight & Logistics | | L + 5.50% (1.00% Floor) | | 08/30/2021 | | | 11,213 | | | | 11,107 | | | | 11,100 | | | Tronair Parent Inc.(+++) | | Air Freight & Logistics | | L + 4.75% (1.00% Floor) | | 09/08/2023 | | | 13,860 | | | | 13,762 | | | | 13,721 | | | U.S. Acute Care Solutions, LLC(1) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 05/14/2021 | | | 13,000 | | | | 12,870 | | | | 12,870 | | | Veresen Midstream Limited Partnership(+++) | | Energy Equipment & Services | | L + 4.25% (1.00% Floor) | | 03/31/2022 | | | 10,808 | | | | 10,614 | | | | 10,871 | | | Zep Inc.(+++) | | Chemicals | | L + 4.00% (1.00% Floor) | | 06/27/2022 | | | 11,901 | | | | 11,879 | | | | 11,961 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/Senior Secured Debt | | | | | | | | | | | 454,612 | | | | 456,002 | | | | | | | | | | 1st Lien/First-Out Unitranche | | | | | | | | | | | | | | | | | | | | Infogix, Inc.(+++) | | Software | | L + 4.75% (1.00% Floor) | | 12/31/2021 | | | 9,762 | | | | 9,676 | | | | 9,664 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/First-Out Unitranche | | | | | | | | | | | 9,676 | | | | 9,664 | |
27
| | | | | | | | | | | | | | | | | | | | Portfolio Company | | Industry | | Interest | | Maturity | | Par Amount | | | Cost | | | Fair
Value | | | | | | | | | | 2nd Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | DiscoverOrg, LLC(+++)(3) | | Software | | L + 9.00% (1.00% Floor) | | 02/10/2022 | | $ | 8,000 | | | $ | 7,858 | | | $ | 7,860 | | | GK Holdings, Inc.(+++) | | IT Services | | L + 9.50% (1.00% Floor) | | 01/20/2022 | | | 6,000 | | | | 5,904 | | | | 6,000 | | | | | | | | | | | | | | | | | | | | | Total 2nd Lien/Senior Secured Debt | | | | | | | | | | | 13,762 | | | | 13,860 | | | | | | | | | | | | | | | | | | | | | Total Corporate Debt | | | | | | | | | | | 478,050 | | | | 479,526 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yield | | | | Shares | | | Cost | | | Fair Value | | | | | | | | | Investments in Affiliated Money Market Fund | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund | | 0.45%(5) | | | | | 1,941,599 | | | $ | 1,942 | | | $ | 1,942 | | | | | | | | | | | | | | | | | | | | | Total Investments in Affiliated Money Market Fund | | | | | | | | | | | 1,942 | | | | 1,942 | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL INVESTMENTS | | | | | | | | | | $ | 479,992 | | | $ | 481,468 | | | | | | | | | | | | | | | | | | | | |
(+) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 1 month LIBOR plus a base rate. The 1 month LIBOR as of December 31, 2016 was 0.77%.
|
(++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 2 month LIBOR plus a base rate. The 2 month LIBOR as of December 31, 2016 was 0.82%.
|
(+++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 3 month LIBOR plus a base rate. The 3 month LIBOR as of December 31, 2016 was 1.00%.
|
(++++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 12 month LIBOR plus a base rate. The 12 month LIBOR as of December 31, 2016 was 1.69%.
|
(1) | | Position or portion thereof unsettled as of December 31, 2016.
|
(2) | | Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date, that may expire prior to the maturity date stated.
|
(3) | | The Company also holds a portion of the 2nd lien/senior secured debt in this portfolio company.
|
(4) | | Initial investment was purchased at fair value from the Company in October 2014.
|
(5) | | The rate shown is the annualized seven-day yield as of December 31, 2016.
|
L – LIBOR
Below is selected balance sheet information for the Senior Credit Fund as of September 30, 2017 and December 31, 2016:
| | | | | | | | | | | | As of
| | | | | September 30,
2017 | | | December 31,
2016 | | | Selected Balance Sheet Information | | | | | | | | | | Total investments, at fair value | | $ | 476,379 | | | $ | 481,468 | | | Cash and other assets | | | 29,402 | | | | 10,930 | | | Total assets | | $ | 505,781 | | | $ | 492,398 | | | | | | Debt(1) | | $ | 306,590 | | | $ | 300,574 | | | Other liabilities | | | 8,963 | | | | 35,036 | | | Total liabilities | | $ | 315,553 | | | $ | 335,610 | | | Members’ equity | | | 190,228 | | | | 156,788 | | | Total liabilities and members’ equity | | $ | 505,781 | | | $ | 492,398 | |
(1) | Net of deferred financing costs for the SPV I Term Loan Facility, which were in the amount of $2,564 and $2,676 as of September 30, 2017 and December 31, 2016, respectively.
|
28
Below is selected statementsstatement of operations information for the Senior Credit Fund for the three and nine months ended September 30, 2017 and 2016:Fund:
| | | | | | | | | | | | | | | | | | | | For the
Three Months Ended
September 30, | | | For the
Nine Months Ended
September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | Selected Statements of Operations Information: | | | | | | | | | | | | | | | | | | Total investment income | | $ | 9,535 | | | $ | 6,905 | | | $ | 28,140 | | | $ | 18,220 | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | Interest and other debt expenses | | | 3,482 | | | | 2,308 | | | | 10,132 | | | | 6,582 | | | Excess loan origination and structuring fees | | | 350 | | | | 1,109 | | | | 1,096 | | | | 1,712 | | | Professional fees | | | 176 | | | | 90 | | | | 485 | | | | 297 | | | Administration and custodian fees | | | 103 | | | | 81 | | | | 299 | | | | 240 | | | Other expenses | | | 36 | | | | 26 | | | | 88 | | | | 52 | | | Total expenses | | $ | 4,147 | | | $ | 3,614 | | | $ | 12,100 | | | $ | 8,883 | | | Total net income | | | 5,388 | | | | 3,291 | | | | 16,040 | | | | 9,337 | | | Net realized gain (loss) on investments | | | 29 | | | | – | | | | 106 | | | | – | | | Net change in unrealized appreciation (depreciation) on investments | | | (135 | ) | | | 1,829 | | | | (1,706 | ) | | | 3,823 | | | Net increase (decrease) in members’ equity | | $ | 5,282 | | | $ | 5,120 | | | $ | 14,440 | | | $ | 13,160 | |
Loan Origination and Structuring Fees
If the loan origination and structuring fees earned by the Senior Credit Fund (including directly or indirectly through SPV I or another vehicle) during a period exceed the Senior Credit Fund’s expenses (excluding interest and other debt expenses), such excess is paid as a fee to the Member(s) responsible for the origination of the loans pro rata in accordance with the total loan origination and structuring fees earned by the Senior Credit Fund with respect to the loans originated by such Member. The loan origination and structuring fee is accrued quarterly and included in other income from controlled affiliated investments on the Consolidated Statements of Operations and paid annually. For the three and nine months ended September 30, 2017, the Company accrued income based on loan origination and structuring fees of $350 and $1,096, respectively. For the three and nine months ended September 30, 2016, the Company accrued income based on loan origination and structuring fees of $1,074 and $1,618, respectively.
| | | For the
Three Months Ended
March 31,
2019 | Selected Statements of Operations Information: | | Total investment income | $9,196 | | | Expenses | | Interest and other debt expense | 4,002 | Professional fees | 198 | Administration and custodian fees | 98 | Other expenses | 7 | Total expenses | $4,305 | Total net income | 4,891 | Net realized gain (loss) on investments | – | Net change in unrealized appreciation (depreciation) on investments | (1,040) | Net increase (decrease) in members’ equity | $3,851 |
The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows: Basis of Fair Value Measurement Level 1 – Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
Level 2 – Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs. Level 3 – Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 “Significant Accounting Policies” should be read in conjunction with the information outlined below. 29
The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 Instruments. | | | Level 2 Instruments | | Valuation Techniques and Significant Inputs | Equity and Fixed Income | | The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments. Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources. | | | | Derivative Contracts | | OTC derivatives (both centrally cleared and bilateral) are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, calibration to market-clearing transactions, broker or dealer quotations, or other alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms of, and specific risks inherent in, the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, voluntary and involuntary prepayment rates, loss severity rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment. OTC derivatives are classified within Level 2 of the fair value hierarchy when significant inputs are corroborated by market evidence. |
The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 3 Instruments. | | | Level 3 Instruments | | Valuation Techniques and Significant Inputs | Bank Loans, Corporate Debt, and Other Debt Obligations | | Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis. | Level 3 Instruments | | Valuation Techniques and Significant Inputs | Equity | | Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available: •available (i) Transactions in similar instruments;
• (ii) Discounted cash flow techniques;
• (iii) Third party appraisals; and
• (iv) Industry multiples and public comparables.
Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including: •including (i) Current financial performance as compared to projected performance;
• (ii) Capitalization rates and multiples; and
• (iii) Market yields implied by transactions of similar or related assets.
|
The tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets and liabilities as of September 30, 2017March 31, 2020 and December 31, 2016.2019. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien/Senior Secured Debt is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets and liabilities. 30
| | | | | | | Level 3 Instruments | | Level 3 Assets as of
September 30, 2017 March 31, 2020(1(1)) | | Significant Unobservable Inputs by Valuation Techniques(2(2)) | | Range(3)(3) of Significant Unobservable Inputs (Weighted Average(4)(4)) as of September 30, 2017 March 31, 2020
| Bank Loans, Corporate Debt, and Other Debt Obligations | | 1st Lien/Senior Secured Debt | | Discounted cash flows: | | | | $274,856873,592 | | • Discount Rate | | 9.4% –6.6% - 16.9% (12.1%(9.3%) | | | | Collateral analysis: | | | | | | | • Recovery Rate | | 92.3%82.8% | | | 1st Lien/Last-Out Unitranche | | Discounted cash flows: | | | | $34,182 | $262,807 | | • Discount Rate | | 10.0% – 19.8% (13.3%8.9% - 12.0% (10.9%) | | | | | Comparable multiples: | | | | | | | • EV/Revenue
| | 0.3x – 0.9x (0.7x) | | | | | Comparable multiples: | | | | | | | • EV/EBITDA(5)
| | 8.2x – 12.9x (7.1x) | | | | | | | 2nd Lien/Senior Secured Debt | | Discounted cash flows: | | | | $163,719 | $212,367 | | • Discount Rate | | 10.5% – 15.1% (11.7%9.2% - 13.4% (11.4%) | | | | Collateral analysis: | | | | | • Recovery Rate | 2.5% | | Unsecured Debt | | Discounted cash flows: | | | | $7,400 | $3,300 | | • Discount Rate | | 3.7% – 5.7% (12.0%11.9% - 12.0% (11.9%) | Equity | | Preferred Stock | Collateral analysis: | Comparable multiples: | | | | | $11,815 | • Recovery Rate | 99.1% | Equity | Preferred Stock | Comparable multiples: | | | $53,814 | | • EV/Revenue | 0.6x - 3.4x (1.2x) | | | | Comparable multiples: | | | | | • EV/EBITDA(5)(5) | | 6.5x – 15.0x (7.3x)7.0x - 17.4x (8.6x) | | | Common Stock | | Discounted cash flows: | | | | $51,992 | $17,231 | | • Discount Rate | | 9.7% – 28.0% (24.2%12.7% - 31.5% (24.0%) | | | | | Comparable multiples: | | | | | | | • EV/Revenue | | 2.1x – 9.6x (3.0x)0.5x - 9.7x (5.0x) | | | | | Comparable multiples: | | | | | | | • EV/EBITDA(5)(5) | | 7.3x – 18.0x (7.4x) | | | | | Collateral analysis: | | | | | | | • Recovery Rate3.8x - 9.8x (7.2x)
| | 73.9% |
(1) | | Included within Level 3 Assetsassets of $973,549$1,341,509 is an amount of $191,173 in$156,810 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions). The income approach was used in the determination of fair value for $1,074,344 or 86.9% of Level 3 bank loans, corporate debt, and other debt obligations. |
(2) | | The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques. |
(3) | | The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment. |
(4) | | Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment. |
(5) | | Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”). |
Level 3 Instruments | Level 3 Assets as of December 31, 2019(1) | Significant Unobservable Inputs by Valuation Techniques(2) | Range(3) of Significant Unobservable Inputs (Weighted Average(4)) as of December 31, 2019 | | Bank Loans, Corporate Debt, and Other Debt Obligations | 1st Lien/Senior Secured | Discounted cash flows: | | | | | $ | 831,066 | | | • Discount Rate | 5.8% - 14.6% (8.9%) | | | | | | | Collateral analysis: | | | | | | | | | • Recovery Rate | 89.4% | | | 1st Lien/Last-Out Unitranche | Discounted cash flows: | | | | | $ | 35,278 | | | • Discount Rate | 8.5% - 10.1% (9.7%) | | | 2nd Lien/Senior Secured | Discounted cash flows: | | | | | $ | 187,033 | | | • Discount Rate | 9.9% - 11.7% (10.6%) | | | | | | | Comparable multiples: | | | | | | | | | • EV/EBITDA(5) | 11.0x - 18.9x (7.8x) | | | | | | | Collateral analysis: | | | | | | | | | • Recovery Rate | 16.1% - 63.5% (59.3%) | | | Unsecured Debt | Discounted cash flows: | | | | | $ | 7,409 | | | • Discount Rate | 11.9% - 12.0% (11.9%) | | | | | | | Collateral analysis: | | | | | | | | | • Recovery Rate | 100.0% | | Equity | Preferred Stock | Comparable multiples: | | | | | $ | 48,762 | | | • EV/Revenue | 1.0x - 3.2x (1.3x) | | | | | | | Comparable multiples: | | | | | | | | | • EV/EBITDA(5) | 7.0x - 19.0x (8.8x) | | | Common Stock | Discounted cash flows: | | | | | $ | 47,984 | | | • Discount Rate | 13.9% - 31.0% (23.8%) | | | | | | | Comparable multiples: | | | | | | | | | • EV/Revenue | 0.6x - 9.7x (9.0x) | | | | | | | Comparable multiples: | | | | | | | | | • EV/EBITDA(5) | 4.3x - 12.7x (7.4x) | |
| | | | | | | Level 3 Instruments | | Level 3 Assets as of
December 31, 2016(1)
| | Significant Unobservable
Inputs by Valuation
Techniques(2)
| | Range(3) of Significant
Unobservable
Inputs (Weighted Average(4))
as of
December 31, 2016
| Bank Loans, Corporate Debt, and Other Debt Obligations | | 1st Lien/Senior Secured Debt | | Discounted cash flows: | | | | $379,181 | | • Discount Rate
| | 9.1% – 20% (11.6%) | | | | Comparable multiples: | | | | | | | • EV/EBITDA(5)
| | 2.9x – 19.5x (5.0x) | | | 1st Lien/Last-Out Unitranche | | Discounted cash flows: | | | | | $310,254 | | • Discount Rate
| | 10.8% – 15.6% (12.9%) | | | | | Comparable multiples: | | | | | | | • EV/EBITDA(5)
| | 7.7x – 13.2x (7.9x) | | | 2nd Lien/Senior Secured Debt | | Discounted cash flows: | | | | | $214,643 | | • Discount Rate
| | 10.7% – 48.1% (12.6%) | | | | | Comparable multiples: | | | | | | | • EV/EBITDA(5)
| | 6.5x –�� 9.1x (6.8x) | Equity | | Preferred Stock | | Comparable multiples: | | | | | $11,083 | | • EV/EBITDA(5)
| | 5.6x – 12.3x (6.3x) | | | Common Stock | | Comparable multiples: | | | | | $4,312 | | • EV/EBITDA(5)
| | 5.6x – 12.3x (6.3x) |
31
(1) | | Included within Level 3 Assetsassets of $977,713$1,340,553 is an amount of $58,240 in$183,021 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions). The income approach was used in the determination of fair value for $1,041,020 or 83.7% of Level 3 bank loans, corporate debt, and other debt obligations. |
(2) | | The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques. |
(3) | | The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment. |
(4) | | Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment. |
(5) | | Enterprise value of portfolio company as a multiple of EBITDA. |
As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of September 30, 2017March 31, 2020 and December 31, 2016.2019. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates or market yields is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease, respectively, in the fair value.
TheAs of the dates indicated, the following is a summary of the Company’s assets categorized within the fair value hierarchy as of September 30, 2017:hierarchy.
| | | | | | | | | | March 31, 2020 | | | December 31, 2019 | | | Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | 1st Lien/Senior Secured Debt | | $ | – | | | $ | 20,100 | | | $ | 335,627 | | | $ | 355,727 | | | $ | — | | | $ | 53,607 | | | $ | 1,020,882 | | | $ | 1,074,489 | | | $ | — | | | $ | 80,583 | | | $ | 1,000,087 | | | $ | 1,080,670 | | | 1st Lien/Last-Out Unitranche | | | – | | | | – | | | | 274,409 | | | | 274,409 | | | | — | | | | — | | | | 34,182 | | | | 34,182 | | | | — | | | | — | | | | 35,278 | | | | 35,278 | | | 2nd Lien/Senior Secured Debt | | | – | | | | 88,793 | | | | 330,567 | | | | 419,360 | | | | — | | | | 27,593 | | | | 173,239 | | | | 200,832 | | | | — | | | | 32,992 | | | | 201,033 | | | | 234,025 | | | Unsecured Debt | | | – | | | | – | | | | 3,300 | | | | 3,300 | | | | — | | | | — | | | | 7,400 | | | | 7,400 | | | | — | | | | — | | | | 7,409 | | | | 7,409 | | | Preferred Stock | | | – | | | | – | | | | 12,415 | | | | 12,415 | | | | — | | | | — | | | | 53,814 | | | | 53,814 | | | | — | | | | — | | | | 48,762 | | | | 48,762 | | | Common Stock | | | – | | | | 1,131 | | | | 17,231 | | | | 18,362 | | | | 38 | | | | — | | | | 51,992 | | | | 52,030 | | | | 124 | | | | — | | | | 47,984 | | | | 48,108 | | | Affiliated Money Market Fund | | | 3 | | | | – | | | | – | | | | 3 | | | | 64,306 | | | | — | | | | — | | | | 64,306 | | | | — | | | | — | | | | — | | | | — | | | Subtotal | | $ | 3 | | | $ | 110,024 | | | $ | 973,549 | | | $ | 1,083,576 | | | | Investments measured at NAV(1) | | | | | | | | | 95,114 | | | | Total assets | | | | | | | | $ | 1,178,690 | | | $ | 64,344 | | | $ | 81,200 | | | $ | 1,341,509 | | | $ | 1,487,053 | | | $ | 124 | | | $ | 113,575 | | | $ | 1,340,553 | | | $ | 1,454,252 | | Foreign currency forward contracts (asset) (1) | | | $ | — | | | $ | 114 | | | $ | — | | | $ | 114 | | | $ | — | | | $ | 32 | | | $ | — | | | $ | 32 | |
(1) | | Includes equity investments inAmounts disclosed represent the Senior Credit Fund.unrealized appreciation on the foreign currency forward contracts.
|
The following isbelow table presents a summary of the Company’s assets categorized within thechanges in fair value hierarchy as of December 31, 2016: | | | | | | | | | | | | | | | | | | Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | 1st Lien/Senior Secured Debt | | $ | – | | | $ | 41,845 | | | $ | 379,181 | | | $ | 421,026 | | | 1st Lien/Last-Out Unitranche | | | – | | | | – | | | | 310,254 | | | | 310,254 | | | 2nd Lien/Senior Secured Debt | | | – | | | | 67,160 | | | | 269,018 | | | | 336,178 | | | Unsecured Debt | | | – | | | | – | | | | 3,115 | | | | 3,115 | | | Preferred Stock | | | – | | | | – | | | | 11,833 | | | | 11,833 | | | Common Stock | | | – | | | | 2,178 | | | | 4,312 | | | | 6,490 | | | Affiliated Money Market Fund | | | 1 | | | | – | | | | – | | | | 1 | | | Subtotal | | $ | 1 | | | $ | 111,183 | | | $ | 977,713 | | | $ | 1,088,897 | | | Investments measured at NAV(1) | | | | | | | | | | | | | | | 78,394 | | | Total assets | | | | | | | | | | | | | | $ | 1,167,291 | |
(1) | | Includes equity investments in the Senior Credit Fund.
|
32
The following is a reconciliation of Level 3 assets for the nine months ended September 30, 2017:by investment type.
| | | | | | | | | | | | | | | | | | | | Beginning Balance | | | Purchases(1) | | | Net Realized Gain (Loss) | | | Net Change in Unrealized Appreciation (Depreciation) | | | Sales and Settlements | | | Net Amortization of Premium/ Discount | | | Transfers In(2) | | | Transfers Out(3) | | | Ending Balance | | | Net Change in Unrealized Appreciation (Depreciation) for assets still held | | | Level 3 | | Beginning
Balance
as of
January 1,
2017 | | Purchases(1) | | Net
Realized
Gain (Loss) | | Net Change in
Unrealized
Appreciation
(Depreciation)(2) | | Sales and
Settlements(1) | | Net
Amortization
of Premium/ Discount | | Transfers
In | | Transfers
Out | | Ending
Balance as of September 30,
2017 | | | For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | 1st Lien/Senior Secured Debt | | $ | 379,181 | | | $ | 109,367 | | | $ | (16,900 | ) | | $ | 9,714 | | | $ | (149,519 | ) | | $ | 3,784 | | | $ | – | | | $ | – | | | $ | 335,627 | | | $ | 1,000,087 | | | $ | 98,519 | | | $ | 155 | | | $ | (46,290 | ) | | $ | (31,550 | ) | | $ | 1,084 | | | $ | 24,424 | | | $ | (25,547 | ) | | $ | 1,020,882 | | | $ | (46,472 | ) | | 1st Lien/Last-Out Unitranche | | 310,254 | | | 44,550 | | | | – | | | (10,265 | ) | | (72,425 | ) | | 2,295 | | | | – | | | | – | | | 274,409 | | | | 35,278 | | | | — | | | | — | | | | (1,092 | ) | | | (44 | ) | | | 40 | | | | — | | | | — | | | | 34,182 | | | | (1,092 | ) | 2nd Lien/Senior Secured Debt | | 269,018 | | | 290,608 | | | (23,565 | ) | | 14,295 | | | (221,699 | ) | | 1,910 | | | | – | | | | – | | | 330,567 | | | | 201,033 | | | | 26,883 | | | | (10,288 | ) | | | (8,509 | ) | | | (33,907 | ) | | | 127 | | | | — | | | | (2,100 | ) | | | 173,239 | | | | (14,899 | ) | | Unsecured Debt | | 3,115 | | | 185 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | 3,300 | | | | 7,409 | | | | — | | | | — | | | | (9 | ) | | | — | | | | — | | | | — | | | | — | | | | 7,400 | | | | (9 | ) | | Preferred Stock | | 11,833 | | | 628 | | | | – | | | (46 | ) | | | – | | | | – | | | | – | | | | – | | | 12,415 | | | | 48,762 | | | | — | | | | — | | | | 5,052 | | | | — | | | | — | | | | — | | | | — | | | | 53,814 | | | | 5,052 | | | Common Stock | | 4,312 | | | 14,493 | | | | – | | | (1,574 | ) | | | – | | | | – | | | | – | | | | – | | | 17,231 | | | | 47,984 | | | | 8,293 | | | | — | | | | (4,285 | ) | | | — | | | | — | | | | — | | | | — | | | | 51,992 | | | | (4,285 | ) | | Total assets | | $ | 977,713 | | | $ | 459,831 | | | $ | (40,465 | ) | | $ | 12,124 | | | $ | (443,643 | ) | | $ | 7,989 | | | $ | – | | | $ | – | | | $ | 973,549 | | | $ | 1,340,553 | | | $ | 133,695 | | | $ | (10,133 | ) | | $ | (55,133 | ) | | $ | (65,501 | ) | | $ | 1,251 | | | $ | 24,424 | | | $ | (27,647 | ) | | $ | 1,341,509 | | | $ | (61,705 | ) |
For the Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | 1st Lien/Senior Secured Debt | | $ | 711,204 | | | $ | 81,430 | | | $ | (2 | ) | | $ | (1 | ) | | $ | (14,404 | ) | | $ | 1,610 | | | $ | — | | | $ | — | | | $ | 779,837 | | | $ | (4 | ) | 1st Lien/Last-Out Unitranche | | | 106,879 | | | | 202 | | | | 113 | | | | (144 | ) | | | (6,044 | ) | | | 81 | | | | — | | | | — | | | | 101,087 | | | | (176 | ) | 2nd Lien/Senior Secured Debt | | | 348,741 | | | | 10,382 | | | | (24,833 | ) | | | 6,982 | | | | (93,830 | ) | | | 1,098 | | | | — | | | | (6,060 | ) | | | 242,480 | | | | (7,119 | ) | Unsecured Debt | | | 6,697 | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | — | | | | — | | | | 6,701 | | | | 4 | | Preferred Stock | | | 21,534 | | | | 25,000 | | | | — | | | | (1,669 | ) | | | — | | | | — | | | | — | | | | — | | | | 44,865 | | | | (1,669 | ) | Common Stock | | | 21,839 | | | | 29,231 | | | — | | | | (591 | ) | | — | | | | — | | | | — | | | | — | | | | 50,479 | | | | (591 | ) | Total assets | | $ | 1,216,894 | | | $ | 146,245 | | | $ | (24,722 | ) | | $ | 4,581 | | | $ | (114,278 | ) | | $ | 2,789 | | | $ | — | | | $ | (6,060 | ) | | $ | 1,225,449 | | | $ | (9,555 | ) |
(1) | | Purchases may include securities received in corporate actions and PIK. Sales and Settlements may include securities delivered in corporate actions.
|
(2) | | Change in unrealized appreciation (depreciation) relating to assets still held at September 30, 2017 totaled $1,499 consisting of the following: 1st Lien/Senior Secured Debt $12,588, 1st Lien/Last-Out Unitranche $(10,173), 2nd Lien/Senior Secured Debt $704, Unsecured Debt $0, Preferred Stock $(46) and Common Stock $(1,574).
|
The following is a reconciliation of Level 3 assets for the nine months ended September 30, 2016:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 3 | | Beginning
Balance
as of
January 1,
2016 | | | Purchases(1) | | | Net
Realized
Gain (Loss) | | | Net Change in Unrealized Appreciation (Depreciation)(2) | | | Sales and Settlements(1) | | | Net Amortization of Premium/ Discount | | | Transfers
In | | | Transfers
Out | | | Ending
Balance as of
September 30,
2016 | | | 1st Lien/Senior Secured Debt | | $ | 362,331 | | | $ | 99,430 | | | $ | – | | | $ | 611 | | | $ | (80,300 | ) | | $ | 1,050 | | | $ | – | | | $ | – | | | $ | 383,122 | | | 1st Lien/Last-Out Unitranche | | | 305,727 | | | | 53,379 | | | | 123 | | | | (11,375 | ) | | | (34,407 | ) | | | 999 | | | | – | | | | – | | | | 314,446 | | 2nd Lien/Senior Secured Debt | | | 257,701 | | | | 79,808 | | | | (22,116 | ) | | | (6,762 | ) | | | (73,138 | ) | | | 1,368 | | | | – | | | | (16,800 | ) | | | 220,061 | | | Preferred Stock | | | 24,872 | | | | 10,686 | | | | – | | | | 1,454 | | | | – | | | | – | | | | – | | | | (4,791 | ) | | | 32,221 | | | Common Stock | | | – | | | | 2,395 | | | | – | | | | 4,443 | | | | – | | | | – | | | | – | | | | (4,446 | ) | | | 2,392 | | | Total assets | | $ | 950,631 | | | $ | 245,698 | | | $ | (21,993 | ) | | $ | (11,629 | ) | | $ | (187,845 | ) | | $ | 3,417 | | | $ | – | | | $ | (26,037 | ) | | $ | 952,242 | |
(1) | | Purchases may include PIK and securities received in corporate actions and restructurings. Sales and Settlements may include securities delivered in corporate actions and restructuring of investments. |
(2) | | ChangeTransfers in unrealized appreciation (depreciation) relatingwere primarily due to assets still held at September 30, 2016 totaled $(10,624), consisting of the following: 1st Lien/Senior Secured Debt $611, 1st Lien/Last-Out Unitranche $(11,375), 2nd Lien/Senior Secured Debt $(5,757), Preferred Stock $1,454 and Common Stock $4,443.decreased price transparency.
|
Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. For the nine months ended September 30, 2017, there were no transfers between levels. For the nine months ended September 30, 2016, transfers from Level 3 to Level 2
(3) | Transfers out were primarily due to increased price transparency. |
Debt Not Carried at Fair Value The fair value of the Revolving Credit Facility, which would be categorized as Level 3 within the fair value hierarchy as of September 30, 2017March 31, 2020 and December 31, 2016,2019, approximates its carrying value.value because the Revolving Credit Facility has variable interest based on selected short term rates. The fair value of the Company’s Convertible Notes, which would be categorized as Level 2 within the fair value hierarchy, as of September 30, 2017March 31, 2020 and December 31, 2016,2019 was $118,809$142,406 and $116,006, respectively,$160,689, based on broker quotes received by the Company. The fair value of the Company’s 2025 Notes, which would be categorized as Level 2 within the fair value hierarchy, as of March 31, 2020 was $334,908, based on vendor pricing received by the Company.
In accordance with the Investment Company Act, with certain exceptions, theThe Company is only allowedpermitted to borrow amounts such that its asset coverage ratio, as defined in the Investment Company Act, is at least 2 to 1150% after such borrowing.borrowing (if certain requirements are met). As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company’s asset coverage ratio based on the aggregate borrowingsamount outstanding of senior securities was 2.63 to 1165% and 2.32 to 1, respectively.
187%.33
TheAs of the dates indicated, the Company’s outstanding debt as of September 30, 2017 and December 31, 2016 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of | | | | | September 30, 2017 | | | December 31, 2016 | | | | | Aggregate
Borrowing
Amount
Committed | | | Outstanding
Borrowing | | | Amount
Available | | | Carrying
Value | | | Aggregate
Borrowing
Amount
Committed | | | Outstanding
Borrowing | | | Amount
Available | | | Carrying
Value | | | Revolving Credit Facility(1) | | $ | 605,000 | | | $ | 332,750 | | | $ | 272,250 | | | $ | 332,750 | | | $ | 605,000 | | | $ | 387,750 | | | $ | 217,250 | | | $ | 387,750 | | | Convertible Notes(2) | | | 115,000 | | | | 115,000 | | | | – | | | | 111,055 | | | | 115,000 | | | | 115,000 | | | | – | | | | 110,402 | | | Total Debt | | $ | 720,000 | | | $ | 447,750 | | | $ | 272,250 | | | $ | 443,805 | | | $ | 720,000 | | | $ | 502,750 | | | $ | 217,250 | | | $ | 498,152 | |
| | As of | | | | March 31, 2020 | | | December 31, 2019 | | | | Aggregate Borrowing Amount Committed | | | Amount Available | | | Carrying Value(4) | | | Aggregate Borrowing Amount Committed | | | Amount Available | | | Carrying Value(4) | | Revolving Credit Facility(1)(2) | | $ | 795,000 | | | $ | 392,312 | | | $ | 402,797 | | | $ | 795,000 | | | $ | 177,039 | | | $ | 618,407 | | Convertible Notes(3) | | | 155,000 | | | | — | | | | 151,732 | | | | 155,000 | | | | — | | | | 151,320 | | 2025 Notes(4) | | | 360,000 | | | | — | | | | 353,542 | | | — | | | — | | | — | | Total Debt | | $ | 1,310,000 | | | $ | 392,312 | | | $ | 908,071 | | | $ | 950,000 | | | $ | 177,039 | | | $ | 769,727 | |
(1) | | Provides, under certain circumstances, a total borrowing capacity of $1,000,000. |
(2) | The Company may borrow amounts in USD or certain other permitted currencies. Debt outstanding denominated in currencies other than USD has been converted to USD using the applicable foreign currency exchange rate as of the applicable reporting date. As of March 31, 2020, the Company had outstanding borrowings denominated in USD of $365,574 and in Euros (EUR) of 33,750. As of December 31, 2019, the Company had outstanding borrowings denominated in USD of $580,550 and in EUR of 33,750. |
(3) | The carrying value of the Company’s Convertible Notes is presented net of unamortized debt issuance costs of $3,323$2,345 and OID net of accretion of $622$923 as of September 30, 2017,March 31, 2020, and net of unamortized debt issuance costs of $3,884$2,648 and OID net of accretion of $714$1,032 as of December 31, 2016.2019. |
(4) | The carrying value of the Company’s 2025 Notes is presented net of unamortized debt issuance costs of $6,458 as of March 31, 2020. |
The combined weighted average interest ratesrate of the aggregate borrowings outstanding for the ninethree months ended September 30, 2017March 31, 2020 and the year ended December 31, 2016 were 3.42%2019 was 3.80% and 2.65%, respectively.4.25%. Revolving Credit Facility On September 19, 2013, the Company entered into a Revolving Credit Facility with various lenders. Truist Bank (formerly known as SunTrust BankBank) serves as administrative agent and Bank of America, N.A. serves as syndication agent under the Revolving Credit Facility. On October 3, 2014, the The Company has amended and restated the Revolving Credit Facility on October 3, 2014, November 4, 2015, December 16, 2016, February 21, 2018, September 17, 2018 and February 25, 2020.
The aggregate committed borrowing amount under the Revolving Credit Facility is $795,000. The Revolving Credit Facility includes an uncommitted accordion feature that allows the Company, under certain circumstances, to among other things: increase the aggregate borrowing amount on a committed basis, increase the total borrowing capacity extend the maturity date, and reduce the applicable margin of borrowings. On January 16, 2015, the Company exercised the right under the accordion feature and increased the size of the Revolving Credit Facility up to $535,000, on a$1,000,000. Upon consummation of the Merger, the aggregate committed basis.
On March 27, 2015,borrowings under the Revolving Credit Facility will be $1,695,000 and the uncommitted accordion feature will allow the Company exercisedto increase the right under the accordion feature and increased the sizeborrowing capacity of the Revolving Credit Facility up to $560,000, on a committed basis.$2,250,000.
On November 3, 2015, the Company amended the Revolving Credit Facility to, among other things:
increase the aggregate borrowing amount to $570,000 on a committed basis;
increase the total borrowing capacity to a maximum of $1,000,000;
extend the final maturity date to November 4, 2020; and
reduce the applicable margin of borrowings with respect to (i) any loan bearing interest at a rate determined by reference to the alternate base rate from 1.25% to 0.75% or 1.00%, subject to borrowing base conditions and (ii) any loan bearing interest at a rate determined by reference to the adjusted LIBOR rate from 2.25% to 1.75% or 2.00%, subject to borrowing base conditions.
On December 16, 2016, the Company further amended the Revolving Credit Facility to, among other things:
increase aggregate borrowing amount to $605,000 on a committed basis; and
extend the final maturity date to December 16, 2021.
Borrowings under the Revolving Credit Facility,denominated in USD, including amounts drawn in respect of letters of credit, bear interest (at the Company’s election) of either (i) LIBOR plus a margin of either 1.75% or 1.875%, subject to borrowing base conditions or (ii) an applicable margin or an applicable margin plusalternative base rate, which is the higherhighest of 0, the Prime Rate, the Federal Funds Effective Rate plus 0.5% or0.50% and overnight LIBOR plus 1.0%.1.00%, plus either 0.75% or 0.875%, subject to borrowing base conditions. Borrowings denominated in non-USD bear interest of LIBOR plus a margin of either 1.75% or 1.875%, subject to borrowing base conditions. With respect to borrowings denominated in USD, the Company may elect either the LIBOR, or an alternative base rate at the time of borrowing, and such borrowings may be converted from one rate to another at any time, subject to certain conditions. Interest is payable quarterly in arrears. The Company pays a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on December 16, 2021.February 25, 2025. The Revolving Credit Facility may be guaranteed by certain of the Company’s domestic subsidiaries, including any that are formed or acquired by the Company in the future (collectively, the “Guarantors”). The Senior Credit Fund is not a Guarantor of the Revolving Credit Facility.future. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments. 34
The Company’s obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially all of the Company’s portfolio of investments and cash, with certain exceptions. The Revolving Credit Facility contains certain covenants, including: (i) maintaining a minimum stockholder’s equity of $478,513, subject to increase pending certain$500,000 plus 25% of net proceeds of the sale of equity sales,interests after February 25, 2020, (ii) maintaining ana minimum asset coverage ratio of at least 2150%, (iii) maintaining a minimum asset coverage ratio of 200% with respect to 1, (iii)the consolidated assets (with certain limitations on the contribution of equity in financing subsidiaries as specified therein) of the Company and its subsidiary guarantors to the secured debt of the Company and its subsidiary guarantors, (iv) maintaining a minimum Company net worth of at least $350,000, (v) maintaining a minimum liquidity test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, each as defined in the Revolving Credit Facility, and (iv)(vi) complying with restrictions on industry concentrations in the Company’s investment portfolio. The Company is in compliance with these covenants.
Costs of $9,716$17,017 were incurred in connection with obtaining and amending the Revolving Credit Facility, which have been recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and are being amortized over the life of the Revolving Credit Facility using the straight-line method. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, deferred financing costs were $5,107$8,950 and $6,018, respectively.$4,427. The below table presents the summary information of the Revolving Credit Facility for the three and nine months ended September 30, 2017 and 2016 is as follows:Facility. | | | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | | | For the Three Months Ended | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | March 31, 2020 | | | March 31, 2019 | | | Borrowing interest expense | | $ | 2,746 | | | $ | 3,206 | | | $ | 7,997 | | | $ | 8,632 | | | $ | 3,904 | | | $ | 5,781 | | | Facility fees | | | 313 | | | | 118 | | | | 780 | | | | 369 | | | | 333 | | | | 186 | | | Amortization of financing costs | | | 311 | | | | 304 | | | | 923 | | | | 908 | | | | 400 | | | | 339 | | | Total | | $ | 3,370 | | | $ | 3,628 | | | $ | 9,700 | | | $ | 9,909 | | | $ | 4,637 | | | $ | 6,306 | | | Weighted average interest rate | | | 3.30% | | | | 2.55% | | | | 3.06% | | | | 2.50% | | | | 3.54 | % | | | 4.38 | % | | Average outstanding balance | | $ | 330,265 | | | $ | 500,070 | | | $ | 349,395 | | | $ | 460,469 | | | $ | 443,639 | | | $ | 534,673 | |
Convertible Notes On October 3, 2016, the Company closed an offering of $115,000 aggregate principal amount of unsecured Convertible Notes, which includes $15,000 aggregate principal amount issued pursuant to the initial purchasers’ exercise in full of an over-allotment option.option (the “Initial Convertible Notes”). On July 2, 2018, the Company closed an additional offering of $40,000 aggregate principal amount of Convertible Notes (the “Additional Convertible Notes” and together with Initial Convertible Notes, the “Convertible Notes”). The Additional Convertible Notes have identical terms, are fungible with and are part of the Initial Convertible Notes. The Convertible Notes were issued pursuant to an indenture between the Company and Wells Fargo Bank, National Association (“Wells Fargo”), as Trustee. Wells Fargo and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The Convertible Notes bear interest at a rate of 4.50% per year, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2017. The Convertible Notes will mature on April 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. In certain circumstances, the Convertible Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, based on an initial conversion rate of 40.8397 shares of the Company’s common stock per $1,000one thousand dollars principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $24.49 per share of common stock, subject to customary anti-dilution adjustments and the other terms of the indenture governing the Convertible Notes. The conversion price is approximately 10.0% above the $22.26 per share closing price of the Company’s common stock on September 27, 2016.2016 and 16.7% above the $20.99 per share closing price of our common stock on June 26, 2018. The Company will not have the right to redeem the Convertible Notes prior to maturity. The sale of the Convertible Notes generated net proceeds of approximately $110,900. The Company used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding October 1, 2021 only under the following circumstances: (1) during any calendar quarter, commencing after December 31, 2016, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000one thousand dollars principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after October 1, 2021, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances. 35
The Convertible Notes are accounted for in accordance with ASC Topic 470-20,Debt with Conversion and Other Options. Upon conversion of any of the Convertible Notes, the Company intends to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, has the option to pay the excess amount in cash or shares of the Company’s common stock (or a combination of cash and shares), subject to the requirements of the respective indenture.indenture governing the Convertible Notes. The Company has determined that the embedded conversion options in the Convertible Notes are not required to be separately accounted for as derivatives under ASC Topic 815,Derivatives and Hedging. At the time of issuance the values of the debt and equity components of the Initial Convertible Notes and Additional Convertible Notes were approximately 99.4% and 0.6%, respectively.and 97.9% and 2.1%. The OID equal to the equity component of the Convertible Notes was recorded in “paid-in capital in excess of par” in the accompanying Consolidated Statements of Assets and Liabilities. The Company records interest expense comprised of both stated interest and amortization of the OID. At the time of issuance, the equity componentcomponents of the Initial Convertible Notes was $743.and the Additional Convertible Notes were $743 and $836. Additionally, the issuance costs associated with the Convertible Notes were allocated to the debt and equity components in proportion to the allocation of the values at the time of issuance and accounted for as debt issuance costs and equity issuance costs, respectively.costs.
As of September 30, 2017 and December 31, 2016,the dates indicated, the below table presents the components of the carrying value of the Convertible Notes were as follows:Notes: | | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2020 | | | December 31, 2019 | | | Principal amount of debt | | $ | 115,000 | | | $ | 115,000 | | | $ | 155,000 | | | $ | 155,000 | | | OID, net of accretion | | | 622 | | | 714 | | | | 922 | | | | 1,032 | | | Unamortized debt issuance costs | | | 3,323 | | | 3,884 | | | | 2,346 | | | | 2,648 | | | Carrying value | | $ | 111,055 | | | $ | 110,402 | | | $ | 151,732 | | | $ | 151,320 | | | Stated interest rate | | | 4.50 | % | | 4.50 | % | | | 4.50 | % | | | 4.50 | % | | Effective interest rate (stated interest rate plus accretion of OID) | | | 4.61 | % | | 4.60 | % | | | 4.78 | % | | | 4.77 | % |
For the three and nine months ended September 30, 2017 and 2016,
The below table presents the components of interest and other debt expenses related to the Convertible Notes: | | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | Borrowing interest expense | | $ | 1,744 | | | $ | 1,744 | | Accretion of OID | | | 110 | | | | 104 | | Amortization of debt issuance costs | | | 303 | | | | 299 | | Total | | $ | 2,157 | | | $ | 2,147 | |
2025 Notes On February 10, 2020, the Company closed an offering of $360,000 aggregate principal amount of unsecured notes. The 2025 Notes were issued pursuant to an indenture between the Company and Wells Fargo Bank, as Trustee. Wells Fargo Bank and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The 2025 Notes bear interest at a rate of 3.75% per year, payable semi-annually, commencing on August 10, 2020. The 2025 Notes will mature on February 10, 2025 and may be redeemed in whole or in part at the Company’s option at any time or from time to time at the redemption prices set forth in the indenture. As of the dates indicated, the below table presents the components of the carrying value of the 2025 Notes: | | March 31, 2020 | | | December 31, 2019 | Principal amount of debt | | $ | 360,000 | | | N/A | Unamortized debt issuance costs | | | 6,458 | | | N/A | Carrying value | | | 353,542 | | | N/A | Stated interest rate | | | 3.75 | % | | N/A |
The below table presents the components of interest and other debt expenses related to the 2025 Notes: | | For the Three Months Ended | | | March 31, 2020 | | | March 31, 2019 | Borrowing interest expense | | $ | 1,912 | | | N/A | Amortization of debt issuance costs | | | 188 | | | N/A | Total | | $ | 2,100 | | | N/A |
The Company enters into foreign currency forward contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty risk, the Company may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or a similar agreement with its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Company and a counterparty that governs OTC derivatives, including foreign currency forward contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.
For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Company and cash collateral received from the counterparty, if any, is included in the Consolidated Statements of Assets and Liabilities as due to/due from broker. The Company minimizes counterparty credit risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties. For the three months ended March 31, 2020 and 2019, the Company’s average USD notional exposure to foreign currency forward contracts was $3,815 and $3,492. As of the dates indicated, the table below sets forth the Company’s net exposure to foreign currency forward contracts by counterparty that are subject to ISDA Master Agreements or similar agreements. | | Presented on the Consolidated Statements of Financial Condition | | | | Gross Amount of Assets | | | Gross Amount of (Liabilities) | | | Net Amount of Assets or (Liabilities) | | | Collateral (Received) Pledged (1) | | | Net Amounts (2) | | March 31, 2020 | | | | | | | | | | | | | | | | | | | | | Bank of America, N.A. | | $ | 114 | | | $ | — | | | $ | 114 | | | $ | — | | | $ | 114 | | December 31, 2019 | | | | | | | | | | | | | | | | | | | | | Bank of America, N.A. | | $ | 32 | | | $ | — | | | $ | 32 | | | $ | — | | | $ | 32 | |
(1) | Amount excludes excess cash collateral paid. |
(2) | Net amount represents the net amount due (to) from counterparty in the event of a default based on the contractual setoff rights under the agreement. Net amount excludes any over-collateralized amounts. |
The effect of transactions in derivative instruments to the Consolidated Statements of Operations was as follows: | | | | | | | | | | | | | | | | | | | | Three Months
Ended
September 30, 2017 | | | Three Months
Ended
September 30, 2016 | | | Nine Months
Ended
September 30, 2017 | | | Nine Months
Ended
September 30, 2016 | | | Borrowing interest expense | | $ | 1,294 | | | | N/A | | | $ | 3,881 | | | | N/A | | | Accretion of OID | | | 31 | | | | N/A | | | | 92 | | | | N/A | | | Amortization of debt issuance costs | | | 189 | | | | N/A | | | | 562 | | | | N/A | | | Total | | $ | 1,514 | | | | N/A | | | $ | 4,535 | | | | N/A | |
| | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | Net realized gain (loss) on foreign currency forward contracts | | $ | 28 | | | $ | 18 | | Net change in unrealized appreciation (depreciation) on foreign currency forward contracts | | | 82 | | | | 78 | | Total net realized and unrealized gains (losses) on foreign currency forward contracts | | $ | 110 | | | $ | 96 | |
7.8. | COMMITMENTS AND CONTINGENCIES |
Commitments The Company may enter into investment commitments through signed commitment letters which in certain circumstances may be disclosed by the Company. In many circumstances, borrower acceptance and final terms are subject to fund investments.transaction-related contingencies. These are disclosed as commitments upon execution of a final agreement. As of September 30, 2017,March 31, 2020, the Company believed that it had adequate financial resources to satisfy its unfunded commitments. The Company had the following unfunded commitments by investment types as of the dates indicated:types: | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | December 31, 2016 | | | | | Commitment
Expiration
Date(1) | | | Unfunded
Commitment(2) | | | Fair
Value(3) | | | Commitment
Expiration
Date(1) | | | Unfunded
Commitment(2) | | | Fair Value(3) | | | 1st Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | | | | | | | Continuum Managed Services LLC | | | 06/08/2019 | | | $ | 1,800 | | | $ | (49 | ) | | | – | | | $ | – | | | $ | – | | | Legacy Buyer Corp. | | | 10/24/2019 | | | | 2,500 | | | | (50 | ) | | | 10/24/2019 | | | | 800 | | | | (28 | ) | | Elemica, Inc. | | | 07/07/2021 | | | | 6,000 | | | | (105 | ) | | | 07/07/2021 | | | | 6,000 | | | | (135 | ) | | Netvoyage Corporation | | | 03/24/2022 | | | | 654 | | | | (11 | ) | | | – | | | | – | | | | – | | | Continuum Managed Services LLC | | | 06/08/2022 | | | | 2,220 | | | | (61 | ) | | | – | | | | – | | | | – | | | Xactly Corporation | | | 07/29/2022 | | | | 1,697 | | | | (34 | ) | | | – | | | | – | | | | – | | | Total 1st Lien/Senior Secured Debt | | | | | | | 14,871 | | | | (310 | ) | | | | | | | 6,800 | | | | (163 | ) | | Total | | | | | | $ | 14,871 | | | $ | (310 | ) | | | | | | $ | 6,800 | | | $ | (163 | ) |
| | | | Unfunded Commitment(2) | | | Fair Value(3) | | | | Commitment Expiration Date(1) | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2020 | | | December 31, 2019 | | 1st Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | Ansira Partners, Inc. | | 4/16/2020 | $ | | 96 | | $ | | 96 | | $ | | (11 | ) | $ | | (3 | ) | Hygiena Borrower LLC | | 6/29/2020 | | | 715 | | | | 715 | | | | (36 | ) | | | (14 | ) | Convene 237 Park Avenue, LLC (dba Convene) | | 8/30/2020 | | | 2,986 | | | | 6,220 | | | | (448 | ) | | | (124 | ) | Diligent Corporation | | 12/19/2020 | | | 4,267 | | | | 4,268 | | | | (43 | ) | | | (43 | ) | Brillio, LLC | | 2/6/2021 | | | 755 | | | | 1,510 | | | | (42 | ) | | | (15 | ) | CorePower Yoga LLC | | 5/14/2021 | | | 158 | | | | 1,807 | | | | (16 | ) | | | (27 | ) | CFS Management, LLC (dba Center for Sight Management) | | 7/1/2021 | | | 1,418 | | | | 1,418 | | | | (67 | ) | | | (14 | ) | Associations, Inc. | | 7/30/2021 | | | 851 | | | | 912 | | | | (62 | ) | | | (9 | ) | WebPT, Inc. | | 8/28/2021 | | | 1,274 | | | | 1,274 | | | | (105 | ) | | | (26 | ) | Elemica Parent, Inc. | | 9/18/2021 | | | 560 | | | | 560 | | | | (42 | ) | | | (14 | ) | Bullhorn, Inc. | | 10/1/2021 | | | 591 | | | | 727 | | | | (27 | ) | | | (11 | ) | Chronicle Bidco Inc. (dba Lexitas) | | 11/14/2021 | | | 1,352 | | | | 2,940 | | | | (47 | ) | | | (29 | ) | Eptam Plastics, Ltd. | | 12/6/2021 | | | 1,830 | | | | 1,830 | | | | (78 | ) | | | (14 | ) | MRI Software LLC | | 2/10/2022 | | | 1,363 | | | — | | | | (177 | ) | | — | | | Netvoyage Corporation (dba NetDocuments) | | 3/24/2022 | | | 654 | | | | 654 | | | | (31 | ) | | | (8 | ) | Diligent Corporation | | 4/14/2022 | | | 156 | | | | 156 | | | | (2 | ) | | | (2 | ) | Xactly Corporation | | 7/29/2022 | | | 1,697 | | | | 1,697 | | | | (59 | ) | | | (21 | ) | Hygiena Borrower LLC | | 8/26/2022 | | | 1,313 | | | | 1,313 | | | | (66 | ) | | | (26 | ) | Lithium Technologies, Inc. | | 10/3/2022 | | | 2,684 | | | | 2,684 | | | | (141 | ) | | | (40 | ) | Businessolver.com, Inc. | | 5/15/2023 | | | 1,569 | | | | 941 | | | | (78 | ) | | | (16 | ) | Integral Ad Science, Inc. | | 7/19/2023 | | | 1,815 | | | | 1,815 | | | | (68 | ) | | | (27 | ) | FWR Holding Corporation (dba First Watch Restaurants) | | 8/21/2023 | | | 191 | | | | 88 | | | | (11 | ) | | | (1 | ) | SPay, Inc. (dba Stack Sports) | | 6/17/2024 | | | 380 | | | | 380 | | | | (39 | ) | | | (12 | ) | Fenergo Finance 3 Limited | | 9/5/2024 | | | 1,654 | | | | 1,683 | | | | (79 | ) | | | (13 | ) | Fenergo Finance 3 Limited | | 9/5/2024 | | | 1,182 | | | | 1,182 | | | | (56 | ) | | | (9 | ) | iCIMS, Inc. | | 9/12/2024 | | | 1,868 | | | | 1,868 | | | | (89 | ) | | | (33 | ) | MMIT Holdings, LLC (dba Managed Markets Insight & Technology) | | 11/15/2024 | | | 510 | | | | 2,295 | | | | (18 | ) | | | (40 | ) | Wrike, Inc. | | 12/31/2024 | | | 1,600 | | | | 1,600 | | | | (48 | ) | | | (32 | ) | Apptio, Inc. | | 1/10/2025 | | | 2,225 | | | | 2,225 | | | | (61 | ) | | | (39 | ) | ConnectWise, LLC | | 2/28/2025 | | | 1,036 | | | | 1,036 | | | | (75 | ) | | | (13 | ) | Villa Bidco Inc (dba Authority Brands) | | 3/21/2025 | | | 626 | | | — | | | | (14 | ) | | — | | | Mailgun Technologies, Inc. | | 3/26/2025 | | | 993 | | | | 993 | | | | (50 | ) | | | (17 | ) | Internet Truckstop Group, LLC (dba Truckstop) | | 4/2/2025 | | | 1,800 | | | | 1,800 | | | | (72 | ) | | | (27 | ) | PlanSource Holdings, Inc. | | 4/22/2025 | | | 3,142 | | | | 3,142 | | | | (173 | ) | | | (63 | ) | CorePower Yoga LLC | | 5/14/2025 | | | 678 | | | | 678 | | | | (68 | ) | | | (10 | ) | Wolfpack IP Co. (dba Lone Wolf Technologies) | | 6/13/2025 | | | 3,169 | | | | 3,169 | | | | (79 | ) | | | (63 | ) | Riverpoint Medical, LLC | | 6/21/2025 | | | 822 | | | | 1,644 | | | | (62 | ) | | | (16 | ) | HS4 AcquisitionCo, Inc. (dba HotSchedules & Fourth) | | 7/9/2025 | | | 800 | | | | 1,600 | | | | (80 | ) | | | (32 | ) | WorkForce Software, LLC | | 7/31/2025 | | | 771 | | | | 771 | | | | (50 | ) | | | (15 | ) | Elemica Parent, Inc. | | 9/18/2025 | | | 102 | | | | 253 | | | | (8 | ) | | | (6 | ) | CST Buyer Company (dba Intoxalock) | | 10/3/2025 | | | 351 | | | | 876 | | | | (53 | ) | | — | | Acquia, Inc. | | 10/31/2025 | | | 1,322 | | | | 1,322 | | | | (66 | ) | | | (26 | ) | Chronicle Bidco Inc. (dba Lexitas) | | 11/14/2025 | | | 880 | | | | 880 | | | | (31 | ) | | | (18 | ) | Governmentjobs.com, Inc. (dba NeoGov) | | 2/5/2026 | | | 2,441 | | | — | | | | (55 | ) | | — | | | MRI Software LLC | | 2/10/2026 | | | 311 | | | — | | | | (40 | ) | | — | | | Instructure Holdings | | 3/24/2026 | | | 2,000 | | | — | | | | (25 | ) | | — | | |
| | | | Unfunded Commitment(2) | | | Fair Value(3) | | | | Commitment Expiration Date(1) | | March 31, 2020 | | | | December 31, 2019 | | | March 31, 2020 | | | | December 31, 2019 | | Output Services Group, Inc. | | 3/27/2020 | | — | | | | 24 | | | — | | | | (4 | ) | Gastro Health Holdco, LLC | | 4/13/2020 | | — | | | | 754 | | | — | | | | (11 | ) | GlobalTranz Enterprises, Inc. | | 5/15/2020 | | — | | | | 1,992 | | | — | | | | (179 | ) | The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo) | | 8/15/2021 | | — | | | | 4,643 | | | — | | | | (81 | ) | Gastro Health Holdco, LLC | | 9/13/2021 | | — | | | | 5,100 | | | — | | | | (77 | ) | VRC Companies, LLC (dba Vital Records Control) | | 3/31/2022 | | — | | | | 394 | | | — | | | | (3 | ) | DDS USA Holding, Inc. | | 6/30/2022 | | — | | | | 971 | | | — | | | | (5 | ) | Gastro Health Holdco, LLC | | 9/4/2023 | | — | | | | 2,000 | | | — | | | | (30 | ) | Empirix, Inc. | | 9/25/2023 | | — | | | | 1,300 | | | — | | | | (130 | ) | Associations, Inc. | | 7/30/2024 | | — | | | | 587 | | | — | | | | (6 | ) | WebPT, Inc. | | 8/28/2024 | | — | | | | 1,062 | | | — | | | | (21 | ) | The Center for Orthopedic and Research Excellence, Inc. (dba HOPCo) | | 8/15/2025 | | — | | | | 1,764 | | | — | | | | (31 | ) | Bullhorn, Inc. | | 10/1/2025 | | — | | | | 545 | | | — | | | | (8 | ) | Eptam Plastics, Ltd. | | 12/6/2025 | | — | | | | 686 | | | — | | | | (10 | ) | Total 1st Lien/Senior Secured Debt | | | $ | | 58,958 | | $ | | 84,844 | | $ | | (3,048 | ) | $ | | (1,564 | ) | 2nd Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | Hygiena Borrower LLC | | 6/29/2020 | $ | 583 | | $ | | 583 | | $ | | (45 | ) | $ | | (10 | ) | | Genesis Acquisition Co. (dba ProCare Software) | | 7/31/2020 | | | 1,800 | | | | 1,800 | | | | (185 | ) | | | (45 | ) | Total 2nd Lien/Senior Secured Debt | | | $ | | 2,383 | | $ | | 2,383 | | $ | | (230 | ) | $ | | (55 | ) | Total | | | $ | | 61,341 | | $ | | 87,227 | | $ | | (3,278 | ) | $ | | (1,619 | ) |
(1) | | Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity. |
(2) | | NetUnfunded commitments denominated in currencies other than USD have been converted to USD using the exchange rate as of capitalized fees, expenses and OID.the applicable reporting date.
|
(3) | | A negativeThe fair value wasis reflected as investments, at fair value in the Consolidated Statements of Assets and Liabilities. The negative fair value is the result of the capitalized discount on the loan.
|
36
Contingencies In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications. Equity Issuances On May 24, 2017, the Company completed a follow-on offering under its shelf registration statement, issuing 3,250,000 shares of its common stock at a public offering price of $22.50 per share. Net of offering and underwriting costs, the Company received cash proceeds of $69,648.
On May 26, 2017, the Company sold an additional 487,500 shares of its common stock pursuant to the underwriters’ exercise of the option to purchase additional shares the Company granted in connection with the aforementioned offering. Net of underwriting costs, the Company received additional cash proceeds of $10,640.
There were no sales of ourthe Company’s common stock during the ninethree months ended September 30, 2016.March 31, 2020 and 2019. Distributions The following table reflects the distributions declared on shares of the Company’s common stock during the nine months ended September 30, 2017:stock: | | | | | | | Date Declared | | Record Date | | Payment Date | | Amount Per Share | February 22, 2017 | | March 31, 2017 | | April 17, 2017 | | $0.45 | May 1, 2017 | | June 30, 2017 | | July 17, 2017 | | $0.45 | August 1, 2017 | | September 29, 2017 | | October 16, 2017 | | $0.45 |
The following table reflects the distributions declared on shares of the Company’s common stock during the nine months ended September 30, 2016:
Date Declared | | Record Date | | Payment Date | | Amount Per Share | | For the Three Months Ended March 31, 2020 | | | | | | | February 19, 2020 | | March 31, 2020 | | April 15, 2020 | | $ | 0.45 | |
| | | | | | | Date Declared | | Record Date | | Payment Date | | Amount Per Share | February 25, 2016 | | March 31, 2016 | | April 15, 2016 | | $0.45 | May 3, 2016 | | June 30, 2016 | | July 15, 2016 | | $0.45 | August 2, 2016 | | September 30, 2016 | | October 17, 2016 | | $0.45 |
For the Three Months Ended March 31, 2019 | | | | | | | February 20, 2019 | | March 29, 2019 | | April 15, 2019 | | $ | 0.45 | |
Dividend Reinvestment Plan Concurrent with the IPO, theThe Company has adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors, unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution.
The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2017 to stockholders who had not opted out of the dividend reinvestment plan: 37
| | | | | | | Date Declared | | Record Date | | Payment Date | | Shares | November 1, 2016 | | December 31, 2016 | | January 17, 2017 | | 11,124 | February 22, 2017 | | March 31, 2017 | | April 17, 2017 | | 11,202 | May 1, 2017 | | June 30, 2017 | | July 17, 2017 | | 18,417 |
The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2016 to stockholders who had not opted out of the dividend reinvestment plan:
Date Declared | | Record Date | | Payment Date | | Shares | | Date DeclaredFor the Three Months Ended March 31, 2020 | | Record Date | | Payment Date | | Shares | November 3, 2015October 30, 2019 | | December 31, 20152019 | | January 28, 201615, 2020 | | 8,206 | 34,566 | |
For the Three Months Ended March 31, 2019 | | | | | | | February 25, 2016October 30, 2018 | | MarchDecember 31, 20162018 | | AprilJanuary 15, 20162019 | | 5,555 | May 3, 2016 | 39,591 | June 30, 2016 | | July 15, 2016 | | 8,937 |
10.EARNINGS (LOSS) PER SHARE The following information sets forth the computation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2017 and 2016:share: | | | | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Numerator for basic and diluted earnings per share - increase in net assets resulting from operations | | $ | 18,112 | | | $ | 22,663 | | | $ | 37,262 | | | $ | 35,064 | | | Denominator for basic and diluted earnings per share - weighted average shares outstanding | | | 40,106,702 | | | | 36,320,014 | | | | 38,130,304 | | | | 36,312,852 | | | Basic and diluted earnings per share | | $ | 0.45 | | | $ | 0.62 | | | $ | 0.98 | | | $ | 0.97 | |
| | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | Net increase (decrease) in net assets resulting from operations | | $ | (63,780 | ) | | $ | 2,215 | | Weighted average shares outstanding | | | 40,396,319 | | | | 40,261,057 | | Basic and diluted earnings (loss) per share | | $ | (1.58 | ) | | $ | 0.06 | |
For the purpose of calculating diluted earnings (loss) per common share, the average closing price of the Company’s common stock for the three and nine months ended September 30, 2017March 31, 2020 and 2019 was less than the conversion price for the Convertible Notes outstanding as of September 30, 2017.March 31, 2020 and 2019. Therefore, for the three and nine months ended September 30, 2017,March 31, 2020 and 2019, diluted earnings (loss) per share equalsequal basic earnings (loss) per share because the underlying shares for the intrinsic value of the embedded options in the Convertible Notes were not dilutive. For the three and nine months ended September 30, 2016, diluted earnings per share equals basic earnings per share because there were no common stock equivalents outstanding. 38
10.11. | FINANCIAL HIGHLIGHTS |
Below ispresents the schedule of financial highlights of the Company for the nine months ended September 30, 2017 and 2016:Company: | | | | For the Nine Months
Ended
September 30, 2017 | | For the Nine Months
Ended
September 30, 2016 | | Three Months Ended March 31, 2020 | | | Three Months Ended March 31, 2019 | | | Per Share Data:(1) | | | | | | | | | NAV, beginning of period | | $ | 18.31 | | | $ | 18.97 | | | $ | 16.75 | | | $ | 17.65 | | | Net investment income (loss) | | $ | 1.60 | | | $ | 1.60 | | | | 0.45 | | | | 0.55 | | | Net realized and unrealized gains (losses) | | $ | (0.65 | ) | | $ | (0.64 | ) | | | | | | | | Net realized and unrealized gains (losses)(2) | | | | (2.03 | ) | | | (0.51 | ) | Income tax provision, realized and unrealized gains | | | | — | | | | 0.01 | | | Net increase (decrease) in net assets resulting from operations | | | 0.95 | | | 0.96 | | | | (1.58 | ) | | | 0.05 | | | | | | | | | Issuance of common stock, net of underwriting and offering costs | | | 0.32 | | | | – | | | | Distributions declared from net investment income(2) | | | (1.35 | ) | | (1.35 | ) | | | | | | | | Distributions declared from net investment income(3) | | | | (0.45 | ) | | | (0.45 | ) | | Total increase (decrease) in net assets | | | (0.08 | ) | | (0.39 | ) | | | (2.03 | ) | | | (0.40 | ) | | | | | | | | NAV, end of period | | $ | 18.23 | | | $ | 18.58 | | | $ | 14.72 | | | $ | 17.25 | | | | | | | | | | Market price, end of period | | $ | 22.82 | | | $ | 21.77 | | | $ | 12.33 | | | $ | 20.54 | | | Shares outstanding, end of period | | | 40,109,905 | | | 36,321,374 | | | | 40,401,637 | | | | 40,267,216 | | | Weighted average shares outstanding | | | 38,130,304 | | | 36,312,852 | | | | 40,396,319 | | | | 40,261,057 | | | Total return based on NAV(3) | | | 5.74% | | | 4.89% | | | | Total return based on market value(4) | | | 3.04% | | | 22.70% | | | | Total return based on NAV(4) | | | | (9.23 | )% | | | (0.01 | )% | Total return based on market value(5) | | | | (40.16 | )% | | | 14.33 | % | | Ratio/Supplemental Data (all amounts in thousands except ratios): | | | | | | | | | | | | | | Net assets, end of period | | $ | 731,159 | | | $ | 674,970 | | | $ | 594,859 | | | $ | 694,746 | | | Ratio of net expenses to average net assets(5) | | | 7.98% | | | 7.17% | | | Ratio of expenses (without incentive fees and interest and other debt expenses) to average net assets(5) | | | 3.40% | | | 3.44% | | | | Ratio of interest and other debt expenses to average net assets(6) | | | 2.74% | | | 1.96% | | | | Ratio of incentive fees to average net assets(6) | | | 1.84% | | | 1.77% | | | | Ratio of total expenses to average net assets(5) | | | 7.98% | | | 7.17% | | | | Ratio of net investment income to average net assets(5)(7) | | | 11.69% | | | 11.45% | | | Ratio of net expenses to average net assets(6) | | | | 8.59 | % | | | 8.11 | % | Ratio of expenses (without incentive fees and interest and other debt expenses) to average net assets(6) | | | | 2.96 | % | | | 2.95 | % | Ratio of interest and other debt expenses to average net assets(7) | | | | 5.63 | % | | | 4.88 | % | Ratio of incentive fees to average net assets(7) | | | | — | | | | 0.28 | % | Ratio of total expenses to average net assets(6) | | | | 9.01 | % | | | 8.11 | % | Ratio of net investment income (loss) to average net assets(6) | | | | 11.65 | % | | | 12.98 | % | | Average debt outstanding | | $ | 464,395 | | | $ | 460,469 | | | $ | 800,397 | | | $ | 689,673 | | | Average debt per share(8) | | $ | 12.18 | | | $ | 12.68 | | | $ | 19.81 | | | $ | 17.13 | | | Portfolio turnover | | | 41% | | | 13% | | | | 6 | % | | | 8 | % |
(1) | | The per share data was derived by using the weighted average shares outstanding during the applicable period, except for distributions declared, which reflects the actual amount of distributions declared per share for the applicable period. |
(2) | The amount shown may not correspond with the aggregate amount paid for the period as it includes the effect of the timing of the distribution. |
(3) | The per share data for distributions declared reflects the actual amount of distributions declared per share for the applicable period. |
(3)(4)
| | Total return based on NAV is calculated as the change in NAV per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan. |
(4)(5)
| | Total return based on market value is calculated as the change in market value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan. |
(5)(6)
| | Annualized except for certain operating expenses. |
(7)(
| | Annualized except for certain components of other income.8)
|
(8) | | Average debt per share is calculated as average debt outstanding divided by the weighted average shares outstanding during the applicable period. |
12. | PENDING MERGER WITH GS MMLC |
On December 9, 2019, the Company entered into the Merger Agreement with GS MMLC, Merger Sub, and the Investment Adviser. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into GS MMLC, with GS MMLC continuing as the surviving company and, immediately thereafter, GS MMLC will merge with and into the Company, with the Company continuing as the surviving company. The parties to the Merger Agreement intend the Merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Code. Pursuant to the Merger, each share of GS MMLC common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into 0.9939 shares of the Company’s common stock (the “Exchange Ratio”) in connection with the closing of the Merger (other than certain excluded shares as described in the Merger Agreement). The Exchange Ratio will only be adjusted if, between the date of the Merger Agreement and the effective time, (i) either GS MMLC or the Company declares or pays an extraordinary dividend, or (ii) the respective outstanding shares of the Company’s common stock or GS MMLC common stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, other than shares issued pursuant to the Company’s distribution reinvestment plan, as permitted by the Merger Agreement. No fractional shares of the Company’s common stock will be issued, and holders of GS MMLC common stock will receive cash in lieu of fractional shares. Consummation of the Merger is subject to certain closing conditions, including (a) the Company’s stockholder approval of each of the Merger, the amended and restated certificate of incorporation of the Company, the issuance of shares of the Company’s common stock and the New Investment Management Agreement (b) GS MMLC stockholder approval of each of the Merger and the New Investment Management Agreement, (c) the effectiveness of the registration statement on Form N-14, which includes a joint proxy statement of the Company and GS MMLC, and a prospectus of the Company and (d) certain other closing conditions. The Merger Agreement also contains certain termination rights in favor of the Company and GS MMLC, including if the Merger is not completed on or before December 9, 2020 or if the requisite approvals of the Company’s stockholders or GS MMLC’s stockholders are not obtained. The Merger Agreement also provides that, upon the termination of the Merger Agreement under certain circumstances, the Company may be required to pay GS MMLC a termination fee of $20.5 million, or GS MMLC may be required to pay the Company a termination fee of $27.8 million. The Merger is expected to be accounted for as an asset acquisition of GS MMLC by the Company in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations—Related Issues, with the fair value of total consideration paid in conjunction with the Merger allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of the Merger. Generally, under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. The cost of the group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on their relative fair values of net identifiable assets acquired other than certain “non-qualifying” assets (for example cash) and does not give rise to goodwill. The final allocation of the purchase price will be determined after the Merger is completed and after completion of a final analysis to determine the estimated relative fair values of GS MMLC’s assets and liabilities. 39
Subsequent events after the Consolidated Statements of Assets and Liabilities date have been evaluated through the date the unaudited consolidated financial statements were issued. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the consolidated financial statements. On October 31, 2017,May 5, 2020, the Board of Directors declared a quarterly distribution of $0.45 per share payable on January 16, 2018July 15, 2020 to holders of record as of December 29, 2017. On November 1, 2017, the Company and Cal Regents, as members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period for the Senior Credit Fund from November 1, 2017 to January 2, 2018.
June 30, 2020.
40ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. References to “we,” “us,” “our,” and the “Company,” mean Goldman Sachs BDC, Inc. or Goldman Sachs BDC, Inc. together with its consolidated subsidiaries, as the context may require. The terms “GSAM,” our “Adviser” or our “Investment Adviser” refer to Goldman Sachs Asset Management, L.P., a Delaware limited partnership. The term “Group Inc.” refers to The Goldman Sachs Group, Inc. “GS & Co.” refers to Goldman Sachs & Co. LLC and its predecessors. The term “Goldman Sachs” refers to Group Inc., together with GS & Co., GSAM and its other subsidiaries and affiliates. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this report. OVERVIEW We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, we have elected to be treated, and expect to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2013. From our formation in 2012 through September 30, 2017,March 31, 2020, we originated more than $2.43$3.77 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last-out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments. “Unitranche” loans are first lien loans that may extend deeper in a company’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, we may find another lender to provide the “first out”“first-out” portion of such loan and retain the “last-out” portion of such loan, in which case, the “first out”“first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that we would continue to hold. In exchange for the greater risk of loss, the “last-out” portion generally earns a higher interest rate than the “first-out” portion. We use the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. We may make multiple investments in the same portfolio company. We invest primarily in U.S. middle-market companies, which we believe are underserved by traditional providers of capital such as banks and the public debt markets. In this report, we generally use the term “middle market companies” to refer to companies with between $5 million and $200 million of annual earnings before interest taxes,expense, income tax expense, depreciation and amortization (“EBITDA”) excluding certain one-time, and non-recurring items that are outside the operations of between $5 million and $75 million annually.these companies. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to us, unless, to the extent required by applicable law or exemptive relief therefrom, we only receive our allocable portion of such fees when invested in the same portfolio company as another client account managed by our Investment Adviser (including Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”)PMMC, GS MMLC and Goldman Sachs Middle Market Lending Corp. (“GS MMLC”),PMMC II, collectively with other client accounts managed by our Investment Adviser, the “Accounts”). The companies in which we invest use our capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or refinance indebtedness. Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases, we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. We generally seek to make investments that have maturities between three and ten years and range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. In addition, part of our strategy involves a joint venture with the Regents of the University of California (“Cal Regents”, and collectively with us, the “Members”) through the Senior Credit Fund, LLC (the “Senior Credit Fund”). The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary, Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies. For a discussion of the competitive landscape we face, please see “Risk Factors – “Item 1A. Risk Factors–Risks Relating to Our Business and Structure–We operate in a highly competitive market for investment opportunities” and “Business – “Item 1. Business–Competitive Advantages”Advantages,” in our annual report on Form 10-K for the year ended December 31, 2016.2019. Pending Merger with GS MMLC On December 9, 2019, we entered into the Merger Agreement with GS MMLC, a Delaware corporation, Evergreen Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and GSAM, a Delaware limited partnership and investment adviser to each of us and GS MMLC. The Merger Agreement provides that, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into GS MMLC, with GS MMLC continuing as the surviving company and, immediately thereafter, GS MMLC will merge with and into us, with us continuing as the surviving company (the “Merger”). For more information about the Merger, see Note 12 “Pending Merger With GS MMLC” to our consolidated financial statements included in this report and our preliminary joint proxy statement and prospectus on Form N-14, filed with the SEC on January 8, 2020.
41Impact of COVID-19 Pandemic
The COVID-19 pandemic has resulted in governments around the world implementing a broad suite of measures to help control the spread of the virus, including quarantines, travel restrictions and business curtailments and others. The emergence of COVID-19 has created economic and financial disruptions that, during the first quarter, adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity, our portfolio companies’ results of operations and liquidity and by extension our operating results. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity, our portfolio companies’ results of operations and by extension our operating results will depend on future developments, which are highly uncertain and cannot be predicted.Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more durable than industries and sectors that are more prone to economic cycles. The largest five industries in our investment portfolio as of March 31, 2020 are Healthcare Providers and Services, Software, Interactive Media and Services, Healthcare Technology, and IT Services. As of March 31, 2020, 3.1% of our investment portfolio at fair value is in Hotels, Restaurants and Leisure, Textiles, Apparel and Luxury Goods, Oil, Gas and Consumable Fuels, Airlines, and Multi-line and Specialty Retail industries, industries which may be significantly adversely impacted by the COVID-19 pandemic. Given the unprecedented nature of the COVID-19 exigency and the fiscal and monetary response designed to mitigate strain to businesses and the economy, the operating environment of our portfolio companies is evolving rapidly. Business disruption experienced by our portfolio companies may reduce, over time, the amount of interest and dividend income that we receive from our investments companies and may require us to contribute additional capital to such portfolio companies. We may need to restructure our investments in some portfolio companies, which could result in reduced interest payments from or permanent impairments of our investments, and could result in the restructuring of certain of our investments from income paying investments into non-income paying equity investments. Any such decrease in our net investment income would increase the percentage of our cash flows dedicated to our debt obligations and distribution payments to our stockholders. As a result, we may be required to reduce the future amount of distributions to our stockholders. We continue to closely monitor our investment portfolio in order to be positioned to respond appropriately. In response to the COVID-19 pandemic, Goldman Sachs activated and executed on its business continuity planning (the “BCP”) strategy. Goldman Sachs’ priority has been to safeguard its employees and to ensure continuity of business operations. Goldman Sachs has a central team that manages its COVID-19 response, which is led by its chief administrative officer and chief medical officer. As a result of the execution of Goldman Sachs’ BCP, nearly all of its employees are working remotely. Our systems and infrastructure have continued to support our business operations. We implemented a heightened level of communication across senior management, the rest of our private credit group and our board of directors (the “Board of Directors”). Furthermore, we have proactively engaged with our vendors on a regular basis to ensure they continue to meet our criteria for business continuity. For further information about the risks associated with COVID-19, see “—Item 1A. Risk Factors” in Part II. KEY COMPONENTS OF OPERATIONS Investments Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make. As a BDC, we may not acquire any assets other than “qualifying assets” specified in the Investment Company Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million. Revenues We generate revenues in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) income. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate revenue in the form of commitment, origination, structuring, syndication, exit fees or diligence fees, fees for providing managerial assistance and consulting fees. Portfolio company fees (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) will be paid to us, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, we receive our allocable portion of such fees when invested in the same portfolio company as other Accounts, which other Accounts could receive their allocable portion of such fee. We do not expect to receive material feesfee income as it is not our principal investment strategy. We record contractual prepayment premiums on loans and debt securities as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any. Expenses Our primary operating expenses include the payment of the Management Fee and the Incentive Fee to theour Investment Adviser, legal and professional fees, interest and other debt expenses and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions in accordance with our investment management agreement (as amended and restated as of January 1, 2015,June 15, 2018, the “Investment Management Agreement”) and administration agreement (“Administration Agreement”), including those relating to: our operational and organizational expenses; fees and expenses, including travel expenses, incurred by our Investment Adviser or payable to third parties related to our investments, including, among others, professional fees (including the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments; interest payable on debt, if any, incurred to finance our investments; fees and expenses incurred by us in connection with membership in investment company organizations; the expenses of and fees for registering or qualifying our shares for sale and of maintaining our registration and registering us as a broker or a dealerdealer; fees and expenses associated with calculating our net asset value (“NAV”) (including the costs and expenses of any independent valuation firm); legal, auditing or accounting expenses; 42
taxes or governmental fees; the fees and expenses of our administrator, transfer agent or sub-transfer agent; the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our shares; the fees and expenses of our directors who are not affiliated with our Investment Adviser; the cost of preparing and distributing reports, proxy statements and notices to our stockholders, the SEC and other regulatory authorities; costs of holding stockholder meetings; the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our certificate of incorporation or bylaws insofar as they govern agreements with any such custodian; costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business. We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines. Costs relating to future offerings of securities would be incremental. Leverage Our senior secured revolving credit agreement (as amended, the “Revolving Credit Facility”) with Truist Bank (formerly known as SunTrust Bank,Bank), as administrative agent, and Bank of America, N.A., as syndication agent, and our 4.50% Convertible Notes due 2022 (the “Convertible Notes”), and our 3.75% Notes due 2025 (the “2025 Notes”) allow us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as “leverage” and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. As a BDC, with certain limited exceptions, weWe are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equalsis at least 2 to 1150% after such borrowing. borrowing (if certain requirements are met).
Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus may be subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining an asset coverage ratio of at least 2 to 1,150% (if certain requirements are met), we may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Act’s asset coverage requirement, and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing. PORTFOLIO AND INVESTMENT ACTIVITY As of September 30, 2017 and December 31, 2016, ourOur portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc. of $0.00 million and $0.00 million, respectively)) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | As of | | | | | September 30, 2017 | | | December 31, 2016 | | | | | Amortized
Cost | | | Fair
Value | | | Percentage
of Total
Portfolio at
Fair Value | | | Amortized
Cost | | | Fair
Value | | | Percentage
of Total
Portfolio at
Fair Value | | | | | (in millions) | | | | | | (in millions) | | | | | | First Lien/Senior Secured Debt | | $ | 359.27 | | | $ | 355.73 | | | | 30.2 | % | | $ | 436.90 | | | $ | 421.03 | | | | 36.1 | % | | First Lien/Last-Out Unitranche | | | 303.87 | | | | 274.41 | | | | 23.3 | | | | 329.45 | | | | 310.25 | | | | 26.6 | | | Second Lien/Senior Secured Debt | | | 418.34 | | | | 419.36 | | | | 35.6 | | | | 352.70 | | | | 336.18 | | | | 28.8 | | | Unsecured Debt | | | 3.30 | | | | 3.30 | | | | 0.3 | | | | 3.12 | | | | 3.12 | | | | 0.3 | | | Preferred Stock | | | 11.75 | | | | 12.42 | | | | 1.0 | | | | 11.12 | | | | 11.83 | | | | 1.0 | | | Common Stock | | | 26.13 | | | | 18.36 | | | | 1.5 | | | | 11.63 | | | | 6.49 | | | | 0.5 | | | Investment Funds & Vehicles | | | 94.34 | | | | 95.11 | | | | 8.1 | | | | 77.59 | | | | 78.39 | | | | 6.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Investments | | $ | 1,217.00 | | | $ | 1,178.69 | | | | 100.0 | % | | $ | 1,222.51 | | | $ | 1,167.29 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of | | | | March 31, 2020 | | | December 31, 2019 | | | | Amortized Cost | | | Fair Value | | | Percentage of Total Portfolio at Fair Value | | | Amortized Cost | | | Fair Value | | | Percentage of Total Portfolio at Fair Value | | | | (in millions) | | | | | | | (in millions) | | | | | | First Lien/Senior Secured Debt | | $ | 1,144.91 | | | $ | 1,074.49 | | | | 75.5 | % | | $ | 1,094.89 | | | $ | 1,080.67 | | | | 74.3 | % | First Lien/Last-Out Unitranche | | | 35.30 | | | | 34.18 | | | | 2.4 | | | | 35.31 | | | | 35.28 | | | | 2.4 | | Second Lien/Senior Secured Debt | | | 246.27 | | | | 200.83 | | | | 14.1 | | | | 263.44 | | | | 234.02 | | | | 16.1 | | Unsecured Debt | | | 7.41 | | | | 7.40 | | | | 0.5 | | | | 7.41 | | | | 7.41 | | | | 0.5 | | Preferred Stock | | | 41.66 | | | | 53.82 | | | | 3.8 | | | | 41.66 | | | | 48.76 | | | | 3.4 | | Common Stock | | | 75.44 | | | | 52.03 | | | | 3.7 | | | | 67.14 | | | | 48.11 | | | | 3.3 | | Total Investments | | $ | 1,550.99 | | | $ | 1,422.75 | | | | 100.0 | % | | $ | 1,509.85 | | | $ | 1,454.25 | | | | 100.0 | % |
43
As of September 30, 2017 and December 31, 2016, theThe weighted average yield by asset type onof our total portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.), at amortized cost and fair value, was as follows:
| | | | As of | | | As of | | | | | September 30, 2017 | | | December 31, 2016 | | | March 31, 2020 | | | December 31, 2019 | | | | | Amortized
Cost | | | Fair
Value | | | Amortized
Cost | | | Fair
Value | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | | Weighted Average Yield(1) | | | | | | | | | | | | | | | | | | | | | | | | | | First Lien/Senior Secured Debt(2) | | | 10.8% | | | | 11.5% | | | | 10.0% | | | | 10.6% | | | | 8.1 | % | | | 10.2 | % | | | 8.6 | % | | | 9.1 | % | | First Lien/Last-Out Unitranche(2) (5) | | | 9.9% | | | | 12.2% | | | | 11.3% | | | | 14.2% | | | First Lien/Last-Out Unitranche(2) (3) | | | | 9.3 | | | | 11.3 | | | | 10.0 | | | | 10.0 | | | Second Lien/Senior Secured Debt(2) | | | 10.4% | | | | 10.4% | | | | 10.5% | | | | 11.0% | | | | 9.4 | | | | 13.4 | | | | 9.2 | | | | 11.2 | | | Unsecured Debt(2) | | | 12.0% | | | | 12.0% | | | | 12.0% | | | | 12.0% | | | | 11.7 | | | | 12.5 | | | | 11.7 | | | | 11.7 | | | Preferred Stock(3) | | | –% | | | | –% | | | | 0.5% | | | | 0.5% | | | | Common Stock(3) | | | –% | | | | –% | | | | –% | | | | –% | | | | Investment Funds & Vehicles(4) | | | 12.7% | | | | 12.6% | | | | 14.5% | | | | 14.5% | | | Preferred Stock(4) | | | | — | | | | — | | | | — | | | | — | | Common Stock(4) | | | | — | | | | — | | | | — | | | | — | | | Total Portfolio | | | 10.3% | | | | 11.1% | | | | 10.6% | | | | 11.8% | | | | 7.7 | % | | | 9.9 | % | | | 8.2 | % | | | 8.9 | % |
(1) | | The weighted average yield of our portfolio does not represent the total return to our stockholders. |
(2) | | Computed based on (a) the (a) annual statedactual interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments as of the reporting date, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively. For investmentsvalue. This calculation excludes exit fees that are subject to a LIBOR floor,receivable upon repayment of certain loan investments. |
(3) | The calculation includes incremental yield earned on the yield calculation assumes the greater“last-out” portion of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary.unitranche loan investments. |
(3)(4)
| | Computed based on (a) the (a) stated coupon rate, if any, for each income-producing investment, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.value. |
(4) | | Computed based on the net investment income earned from the Senior Credit Fund for the respective trailing twelve months ended on the measurement date, which may include dividend income and loan origination and structuring fees, divided by our average member’s equity at cost and fair value, adjusted for equity contributions.
|
(5) | | The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments.
|
As of September 30, 2017March 31, 2020, the total portfolio weighted average yield measured at amortized cost and fair value was 10.3%7.7% and 11.1%9.9%, respectively, which was down from 10.6%as compared to 8.2% and 11.8%8.9%, respectively, at December 31, 2016.2019. The decreasechange in weighted average yield at fair value both on the total portfolio level and individual lien type was driven primarily due to placing our First Lien/Last-Out Unitranche investment in Bolttech Mannings, Inc. on non-accrual statusby the increased market volatility, economic disruption, and a decrease in the yield within Investment Funds & Vehicles, which resulted from lower loan origination and structuring fees earnedwider credit spreads resulting from the Senior Credit Fund.recent COVID-19 pandemic. For further discussion of the impact of the COVID-19 pandemic on our portfolio, please see “—Impact of COVID-19 Pandemic.”
The following table presents certain selected information regarding our investment portfolio (excluding our investment in a money market fund, if any, managed by an affiliate of Group Inc.) as of September 30, 2017 and December 31, 2016: | | | | | | | | | | | | As of | | | | | September 30, 2017 | | | December 31, 2016 | | | Number of portfolio companies(1) | | | 51 | | | | 40 | | | Percentage of performing debt bearing a floating rate(2) | | | 96.0% | | | | 92.8% | | | Percentage of performing debt bearing a fixed rate(2)(3) | | | 4.0% | | | | 7.2% | | | Weighted average yield on debt and income producing investments, at amortized cost(4) | | | 11.0% | | | | 11.2% | | | Weighted average yield on debt and income producing investments, at fair value(4) | | | 11.5% | | | | 12.2% | | | Weighted average leverage (net debt/EBITDA)(5) | | | 5.3x | | | | 4.8x | | | Weighted average interest coverage(5) | | | 2.5x | | | | 2.7x | | | Median EBITDA(5)(6) | | $ | 39.50 million | | | $ | 25.02 million | |
| | As of | | | | March 31, 2020 | | | December 31, 2019 | | Number of portfolio companies | | | 107 | | | | | 106 | | Percentage of performing debt bearing a floating rate(1) | | | 98.5 | % | | | | 99.4 | % | Percentage of performing debt bearing a fixed rate(1)(2) | | | 1.5 | % | | | | 0.6 | % | Weighted average yield on debt and income producing investments, at amortized cost(3) | | | 8.5 | % | | | | 9.0 | % | Weighted average yield on debt and income producing investments, at fair value(3) | | | 10.7 | % | | | | 9.6 | % | Weighted average leverage (net debt/EBITDA)(4) | | 5.6x | | | | 5.7x | | Weighted average interest coverage(4) | | 2.6x | | | | 2.4x | | Median EBITDA(4) | $ | 37.83 million | | | $ | 37.64 million | |
(1)(
| | Includes the Senior Credit Fund as a single portfolio company. For details on the portfolio companies held within the Senior Credit Fund, refer to Senior Credit Fund, LLC – Selected Financial Data.1)
|
(2) | | Measured on a fair value basis. Excludes investments, if any, placed on non-accrual. |
(3)(2)
| | Includes income producing preferred stock investments. |
(4)(3)
| | Computed based on (a) the (a) annual statedactual interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments as of the reporting date, divided by (b) the total performing debt and other income producing investments (excluding investments on non-accrual). |
(5)(4
| ) | For a particular portfolio company, EBITDA typically representswe calculate the level of contractual indebtedness net income before of cash (“net interest expense, income tax expense, depreciationdebt”) owed by the portfolio company and amortization. Thecompare that amount to measures of cash flow available to service the net debt. To calculate net debt, we include debt that is both senior and pari passu to EBITDA represents the ratiotranche of debt owned by us but exclude debt that is legally and contractually subordinated in ranking to the debt owned by us. We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual rights of repayment of the tranche of debt owned by us relative to other senior and junior creditors of a portfolio company’s totalcompany. We typically calculate cash flow available for debt (net of cash) and excluding debt subordinated to our investment inservice at a portfolio company to a portfolio company’s EBITDA. The interest coverage ratio representsby taking EBITDA for the ratio of a portfolio company’s EBITDA as a multiple of a portfolio company’s interest expense.trailing twelve month period. Weighted average net debt to EBITDA is weighted based on the fair value of our debt investments including our exposure to underlying debt investments in the Senior Credit Fund and excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue. |
For a particular portfolio company, we also calculate the level of contractual interest expense owed by the portfolio company, and compare that amount to EBITDA (“interest coverage ratio”). We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual interest obligations of the portfolio company. Weighted average interest coverage is weighted based on the fair value of our performing debt investments, including our exposure to underlying debt investments in the SCF and excluding investments where interest coverage may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue. Median EBITDA is based on our debt investments, including our exposure to underlying debt investments in the SCF and excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue. As of September 30, 2017 and December 31, 2016, investments where net debt to EBITDA may not be the appropriate measure of credit risk represented 7.2% and 1.3%, respectively, of total debt investments, including our investment in the SCF, at fair value. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the respective reported end date. Portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount. |
(6) | | In 2017 we have invested in fourteen new portfolio companies for which EBITDA is the appropriate measure of credit risk. These companies had a median EBITDA of $61.45 million which has driven the portfolio’s median EBITDA higher in 2017.
|
Floating rates are primarily London Interbank Offered Rate (“LIBOR”) plus a spread.
44Median EBITDA is based on our debt investments, excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.
Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the reported end date. Statistics of the portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount. As of March 31, 2020 and December 31, 2019, investments where net debt to EBITDA may not be the appropriate measure of credit risk represented 29.2% and 25.1%, of total debt investments. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the respective reported end date. Portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount. Our Investment Adviser monitors our portfolio companies on an ongoing basis. It monitorsbasis the financial trends of each portfolio company to determine if they areit is meeting theirits respective business plansplan and to assess the appropriate course of action for each company. Our Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following: (i) assessment of success in adhering to the portfolio company’s business plan and compliance with covenants; (ii) periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments; (iii) comparisons to our other portfolio companies in the industry, if any; (iv) attendance at and participation in board meetings or presentations by portfolio companies; and (v) review of monthly and quarterly financial statements and financial projections of portfolio companies. As part of the monitoring process, our Investment Adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Investment Adviser grades the credit risk of all investments on a scale of 1 to 4.4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (e.g., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. The grading system for our investments is as follows: Grade 1investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit; Grade 2investments graded 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2;
| • | Grade 3 investments indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and |
Grade 4investments graded 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and an investment grade of 4 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, in most cases, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit.
Our Investment Adviser grades the investments in our portfolio at least quarterly and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, our Investment Adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the composition of our portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) on the 1 to 4 grading scale as of September 30, 2017 and December 31, 2016:scale: | | | | As of | | | As of | | | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2020 | | | December 31, 2019 | | Investment Performance Rating | | Fair Value | | | Percentage
of Total
Portfolio
at Fair
Value | | Fair Value | | | Percentage
of Total
Portfolio
at Fair
Value | | | Fair Value | | | Percentage of Total Portfolio at Fair Value | | | Fair Value | | | Percentage of Total Portfolio at Fair Value | | | | | (in millions) | | | | | (in millions) | | | | | | (in millions) | | | | | | | (in millions) | | | | | | | Grade 1 | | $ | 20.02 | | | | 1.7 | % | | $ | 164.98 | | | | 14.1 | % | | $ | — | | | | 0.0 | % | | $ | 12.17 | | | | 0.8 | % | | Grade 2 | | | 1,051.08 | | | | 89.2 | | | 817.88 | | | | 70.1 | | | | 1,111.63 | | | | 78.1 | | | | 1,366.84 | | | | 94.1 | | | Grade 3 | | | 90.24 | | | | 7.6 | | | 167.60 | | | | 14.4 | | | | 306.13 | | | | 21.5 | | | | 60.04 | | | | 4.1 | | | Grade 4 | | | 17.35 | | | | 1.5 | | | 16.83 | | | | 1.4 | | | | 4.99 | | | | 0.4 | | | | 15.20 | | | | 1.0 | | | | | | | | | | | | | | | | Total Investments | | $ | 1,178.69 | | | | 100.0 | % | | $ | 1,167.29 | | | | 100.0 | % | | $ | 1,422.75 | | | | 100.0 | % | | $ | 1,454.25 | | | | 100.0 | % | | | | | | | | | | | | | | |
The decrease in investments with a grade 3 investment performance rating at September 30, 2017 compared to December 31, 2016 was due to the upgrade of two investments with an aggregate fair value of $51.95 million, due to improved financial performance, and one investment with a fair value of $17.35 million being downgraded to grade 4, due to declining financial performance and also being placed on non-accrual status, partially offset by one investment with a fair value of $10.33 million being downgraded to grade 3, due to declining financial performance. The increase in investments with a grade 2 investment performance rating at September 30, 2017 compared to December 31, 2016 was primarily driven by net investment activity and the aforementioned investment upgrades.
The decrease in investments with a grade 1 investment performance rating at September 30, 2017as of March 31, 2020 compared to December 31, 20162019 was primarily driven bydue to the full exitrepayment of four investments with an aggregate fair value of $164.98 million, partially offset$12.17 million. The increase in investments with a grade 3 investment performance rating as of March 31, 2020 compared to December 31, 2019 was primarily driven by increased market volatility, economic disruption and wider credit spreads resulting from the recent COVID-19 pandemic. Given the unprecedented nature of COVID-19 and the fiscal and monetary response designed to mitigate strain to businesses and the economy, the operating environment of our portfolio companies is evolving rapidly. For further discussion of the impact of the COVID-19 pandemic on our portfolio, please see “—Impact of COVID-19 Pandemic.” The decrease in investments with a grade 4 investment performance rating as of March 31, 2020 compared to December 31, 2019 was primarily driven by the upgrade from grade 2sale of one investment with a fair value of $20.02 million, due to a potential exit. $12.70 million. 45
The following table shows the amortized cost of our performing and non-accrual investments as of September 30, 2017 and December 31, 2016:investments: | | | | As of | | | As of | | | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2020 | | | December 31, 2019 | | | | | Amortized
Cost | | | Percentage
of Total
Portfolio
at
Amortized
Cost | | Amortized
Cost | | | Percentage
of Total
Portfolio
at
Amortized
Cost | | | Amortized Cost | | | Percentage of Total Portfolio at Amortized Cost | | | Amortized Cost | | | Percentage of Total Portfolio at Amortized Cost | | | | | (in millions) | | | | | (in millions) | | | | | | (in millions) | | | | | | | (in millions) | | | | | | | Performing | | $ | 1,176.13 | | | | 96.6 | % | | $ | 1,176.24 | | | | 96.2 | % | | $ | 1,537.34 | | | | 99.1 | % | | $ | 1,480.08 | | | | 98.0 | % | | Non-accrual | | | 40.87 | | | | 3.4 | | | 46.27 | | | | 3.8 | | | | 13.65 | | | | 0.9 | | | | 29.77 | | | | 2.0 | | | | | | | | | | | | | | | | Total Investments | | $ | 1,217.00 | | | | 100.0 | % | | $ | 1,222.51 | | | | 100.0 | % | | $ | 1,550.99 | | | | 100.0 | % | | $ | 1,509.85 | | | | 100.0 | % | | | | | | | | | | | | | | |
Loans or debt securities
Investments are placed on non-accrual status when it is probable that principal, interest or interestdividends will not be collected according to the contractual terms. Accrued interest or dividends generally isare reversed when a loan or debt securityan investment is placed on non-accrual status. Interest or dividend payments received on non-accrual loans or debt securitiesinvestments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securitiesinvestments are restored to accrual status when past due principal and interest isor dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
The following table shows our investment activity for the three months ended September 30, 2017 and 2016 by investment type: | | | | | | | | | | | | For the Three Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | | | (in millions) | | | New investment commitments at cost: | | | | | | | | | | Gross originations | | $ | 254.42 | | | $ | 138.33 | | | Less: Syndications(1) | | | – | | | | – | | | | | | | | | | | | Net amount of new investments committed at cost: | | $ | 254.42 | | | $ | 138.33 | | | Amount of investments committed at cost(2): | | | | | | | | | | First Lien/Senior Secured Debt | | $ | 43.02 | | | $ | 77.99 | | | First Lien/Last-Out Unitranche | | | 11.60 | | | | 5.72 | | | Second Lien/Senior Secured Debt | | | 199.20 | | | | 40.44 | | | Unsecured Debt | | | – | | | | – | | | Preferred Stock | | | 0.60 | | | | 8.04 | | | Common Stock | | | – | | | | – | | | Investment Funds & Vehicles | | | – | | | | 6.14 | | | | | | | | | | | Total | | $ | 254.42 | | | $ | 138.33 | | | | | | | | | | | | Proceeds from investments sold or repaid: | | | | | | | | | | First Lien/Senior Secured Debt | | $ | 46.53 | | | $ | 34.76 | | | First Lien/Last-Out Unitranche | | | 45.49 | | | | 30.41 | | | Second Lien/Senior Secured Debt | | | 98.41 | | | | 43.41 | | | Unsecured Debt | | | – | | | | – | | | Preferred Stock | | | – | | | | – | | | Common Stock | | | – | | | | – | | | Investment Funds & Vehicles | | | – | | | | – | | | | | | | | | | | Total | | $ | 190.43 | | | $ | 108.58 | | | | | | | | | | | Net increase (decrease) in portfolio | | $ | 63.99 | | | $ | 29.75 | | | | | | | | | | | | Number of new investment commitments in new portfolio companies(3) | | | 8 | | | | 1 | | | Total new investment commitment amount in new portfolio companies(3) | | $ | 128.22 | | | $ | 77.99 | | | Average new investment commitment amount in new portfolio companies(3) | | $ | 16.03 | | | $ | 77.99 | | | Number of new investment commitments in existing portfolio companies(3) | | | 3 | | | | 4 | | | Total new investment commitment amount in existing portfolio companies(3) | | $ | 126.21 | | | $ | 60.33 | | | Weighted average remaining term for new investment commitments (in years)(3)(4) | | | 6.3 | | | | 4.8 | | | Percentage of new debt investment commitments at floating interest rates(3) | | | 100.0% | | | | 100.0% | | | Percentage of new debt investment commitments at fixed interest rates(3)(5) | | | –% | | | | –% | | | Weighted average yield on new debt and income producing investment commitments(2) (3) (6) | | | 10.1% | | | | 9.8% | | | Weighted average yield on new investment commitments(2) (3) (7) | | | 10.0% | | | | 8.9% | | | Weighted average yield on debt and income producing investments sold or paid down(8) | | | 10.7% | | | | 10.2% | | | Weighted average yield on investments sold or paid down(9) | | | 10.7% | | | | 10.2% | |
| | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | | | ($ in millions) | | New investments committed at cost: | | | | | | | | | Gross originations | | $ | 81.78 | | | $ | 155.49 | | Less: Syndications(1) | | | — | | | | — | | Net amount of new investments committed at cost: | | $ | 81.78 | | | $ | 155.49 | | Amount of investments committed at cost(2): | | | | | | | | | First Lien/Senior Secured Debt | | $ | 80.73 | | | $ | 126.64 | | First Lien/Last-Out Unitranche | | | — | | | — | | Second Lien/Senior Secured Debt | | | 1.05 | | | | 9.85 | | Unsecured Debt | | | — | | | — | | Preferred Stock | | | — | | | | 19.00 | | Common Stock | | | — | | | — | | Total | | $ | 81.78 | | | $ | 155.49 | | Proceeds from investments sold or repaid(10): | | | | | | | | | First Lien/Senior Secured Debt | | $ | 46.61 | | | $ | 13.13 | | First Lien/Last-Out Unitranche | | | 0.04 | | | | 0.05 | | Second Lien/Senior Secured Debt | | | — | | | | 64.60 | | Unsecured Debt | | | — | | | | — | | Preferred Stock | | | — | | | | — | | Common Stock | | | — | | | — | | Total | | $ | 46.65 | | | $ | 77.78 | | Net increase (decrease) in portfolio | | $ | 35.13 | | | $ | 77.71 | | Number of new portfolio companies with new investment commitments(3) | | | 4 | | | | 7 | | Total new investment commitment amount in new portfolio companies(3) | | $ | 68.99 | | | $ | 101.04 | | Average new investment commitment amount in new portfolio companies(3) | | $ | 17.25 | | | $ | 14.43 | | Number of existing portfolio companies with new investment commitments(3) | | | 3 | | | | 4 | | Total new investment commitment amount in existing portfolio companies(3) | | $ | 12.79 | | | $ | 54.45 | | Weighted average remaining term for new investment commitments (in years)(3)(4) | | | 5.3 | | | | 5.8 | | Percentage of new debt investment commitments at floating interest rates(3)(11) | | | 100.0 | % | | | 100.0 | % | Percentage of new debt investment commitments at fixed interest rates(3)(5)(11) | | | — | % | | — | | Weighted average yield on new debt and income producing investment commitments(2)(3)(6) | | | 8.3 | % | | | 8.8 | % | Weighted average yield on new investment commitments(2)(3)(7) | | | 8.3 | % | | | 7.7 | % | Weighted average yield on debt and income producing investments sold or paid down(8)(10) | | | 6.8 | % | | | 11.0 | % | Weighted average yield on investments sold or paid down(9)(10) | | | 6.8 | % | | | 10.4 | % |
46
(1) | | Only includes syndications that occurred at the initial close of the investment. |
(2) | | Net of capitalized fees, expenses and original issue discount (“OID”). that occurred at the initial close of the investment. |
(3) | | May include positions originated during the period but not held at the reporting date. |
(4) | | Calculated as of the end of the relevant period and the maturity date of the individual investments. |
(5) | | May include preferred stock investments. |
(6) | | Computed based on (a) the (a) annual statedactual interest rate on new debt and income producing investment commitments divided by (b) the total new debt and income producing investment commitments. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes investments that are non-accrual. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBORnon-accrual. The annual actual interest rate used is as of the respective periodquarter end date. The actual interest rate may vary.date when the investment activity occurred. |
(7) | | Computed based on (a) the (a) annual statedactual interest rate on new investment commitments divided by (b) the total new investment commitments (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR The annual actual interest rate used is as of the respective periodquarter end date. The actual interest rate may vary.date when the investment activity occurred. |
(8) | | Computed based on (a) the (a) annual statedactual interest rate on debt and income producing investments sold or paid down, divided by (b) the total debt and income producing investments sold or paid down. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments and investments that are on non-accrual. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary. |
(9) | | Computed based on (a) the (a) annual statedactual interest rate on investments sold or paid down, divided by (b) the total investments sold or paid down (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary. |
(10) | Excludes unfunded commitments that may have expired or otherwise been terminated without receipt of cash proceeds or other consideration. |
(11) | Computed based on amount of investments committed at cost. |
47
RESULTS OF OPERATIONS Our operating results for the three and nine months ended September 30, 2017 and 2016 were as follows: | | | | For the Three Months Ended | | For the Nine Months Ended | | | For the Three Months Ended | | | | | September 30,
2017 | | September 30,
2016 | | September 30,
2017 | | September 30,
2016 | | | March 31, 2020 | | | March 31, 2019 | | | | | ($ in millions) | | | (in millions) | | | Total investment income | | $ | 34.41 | | | $ | 33.95 | | | $ | 102.62 | | | $ | 94.61 | | | $ | 31.97 | | | $ | 36.53 | | | Net expenses | | | (15.08 | ) | | (14.98 | ) | | (40.51 | ) | | (35.80 | ) | | | 13.36 | | | | 13.81 | | | | | | | | | | | | | | | | Net investment income (loss) before taxes | | | 19.33 | | | 18.97 | | | 62.11 | | | 58.81 | | | | Excise tax expense | | | (0.38 | ) | | (0.29 | ) | | (1.12 | ) | | (0.73 | ) | | | | | | | | | | | | | | | | Net investment income (loss) after taxes | | | 18.95 | | | 18.68 | | | 60.99 | | | 58.08 | | | | Net investment income before taxes | | | | 18.61 | | | | 22.72 | | Income tax expense, including excise tax | | | | 0.43 | | | | 0.44 | | Net investment income after taxes | | | | 18.18 | | | | 22.28 | | | Net realized gain (loss) on investments | | | (2.36 | ) | | (21.99 | ) | | (40.63 | ) | | (21.99 | ) | | | (10.14 | ) | | | (24.72 | ) | Net realized gain (loss) on foreign currency transactions | | | | 0.03 | | | | 0.01 | | | Net unrealized appreciation (depreciation) on investments | | | 1.52 | | | 25.97 | | | 16.90 | | | (1.03 | ) | | | (72.65 | ) | | | 3.56 | | | | | | | | | | | | | | | | Net increase in net assets resulting from operations | | $ | 18.11 | | | $ | 22.66 | | | $ | 37.26 | | | $ | 35.06 | | | | | | | | | | | | | | | | | Net unrealized appreciation (depreciation) on foreign currency forward contracts and translations | | | | 0.70 | | | | 0.88 | | Income tax (provision) benefit for realized and unrealized gains | | | | 0.10 | | | | 0.20 | | Net increase (decrease) in net assets resulting from operations | | | $ | (63.78 | ) | | $ | 2.21 | |
Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. As a result, comparisons may not be meaningful. Investment Income
| | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | ($ in millions) | | | Interest | | $ | 28.56 | | | $ | 29.60 | | | $ | 86.86 | | | $ | 85.22 | | | Dividend income | | | 2.35 | | | | 2.47 | | | | 7.27 | | | | 6.57 | | | Payment-in-kind | | | 1.89 | | | | 0.05 | | | | 5.29 | | | | 0.05 | | | Other income | | | 1.61 | | | | 1.83 | | | | 3.20 | | | | 2.78 | | | | | | | | | | | | | | | | | | | Total investment income | | $ | 34.41 | | | $ | 33.95 | | | $ | 102.62 | | | $ | 94.62 | | | | | | | | | | | | | | | | | | |
InterestInvestment Income
| | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | | | (in millions) | | Interest | | $ | 30.48 | | | $ | 32.18 | | Dividend income | | | 0.01 | | | | 2.48 | | Payment-in-kind | | | 1.23 | | | | 1.21 | | Other income | | | 0.25 | | | | 0.66 | | Total investment income | | $ | 31.97 | | | $ | 36.53 | |
Interest Interest income from investments, which includes prepayment premiums and accelerated accretion of upfront loan origination fees and unamortized discounts, decreased from $29.60$32.18 million for the three months ended September 30, 2016March 31, 2019 to $28.56$30.48 million for the three months ended September 30, 2017.March 31, 2020. The decrease is primarily due to a decrease in prepayment premiums, accelerated accretion of upfront loan origination fees and unamortized discounts and exit fees on certain investments. Included in interest for the three months ended September 30, 2017March 31, 2020 and 20162019 is $0.73$0.00 million and $0.43$0.65 million respectively, in prepayment premiums, and $0.70$0.40 million and $0.55$1.04 million respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts. Interest from investments, which includes prepayment premiumsdiscounts, and accelerated accretion of upfront loan origination fees$0.01 million and unamortized discounts, increased from $85.22$0.88 million for the nine months ended September 30, 2016 to $86.86 million for the nine months ended September 30, 2017. Included in interest for the nine months ended September 30, 2017 and 2016 is $2.54 million and $0.70 million, respectively, in prepayment premiums and $4.36 million and $1.11 million, respectively, in accelerated accretion of upfront loan originationexit fees and unamortized discounts.on investments.
Dividend income
Dividend income Dividend income decreased from $2.48 million for the three months ended September 30, 2017March 31, 2019 to $0.01 million for the three months ended March 31, 2020. The decrease was due to the effective liquidation and dissolution of the Senior Credit Fund in May 2019. For additional information see “Senior Credit Fund, LLC” below and Note 4 “Investments” in our consolidated financial statements included in this report. Payment-in-kind PIK income from investments for the three months ended March 31, 2020 remained relatively consistent as compared to the three months ended September 30, 2016.March 31, 2019. DividendOther income increased
Other income decreased from $6.57 million for the nine months ended September 30, 2016 to $7.27 million for the nine months ended September 30, 2017 primarily as a result of increased distributions of $2.60 million from the Senior Credit Fund during the nine months ended September 30, 2017, partially offset by a position that was prepaid in the fourth fiscal quarter of 2016. See “Senior Credit Fund, LLC” below for further detail. 48
Payment-in-kind
Payment-in-kind income from investments increased from $0.05$0.66 million for the three months ended September 30, 2016March 31, 2019 to $1.89$0.25 million for the three months ended September 30, 2017March 31, 2020. The decrease was primarily as a result of an increase in the number of investments earning PIK income during the three months ended September 30, 2017.
PIK income from investments increased from $0.05 million for the nine months ended September 30, 2016due to $5.29 million for the nine months ended September 30, 2017, primarily as a result of an increase in the number of investments earning PIK income during the nine months ended September 30, 2017.
Other income
Other income decreased from $1.83 million for the three months ended September 30, 2016 to $1.61 million for the three months ended September 30, 2017 primarily as a result of the decrease in loan origination fee income earned from the Senior Credit Fund.
Other income increased from $2.78 million for the nine months ended September 30, 2016 to $3.20 million for the nine months ended September 30, 2017 primarily as a result of higher non-recurring amendment and syndication fees, partially offset by a decrease in loan origination fee income earnedamendment fees from the Senior Credit Fund.
Expensesour portfolio companies.
| | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | ($ in millions) | | | Interest and other debt expenses | | $ | 4.88 | | | $ | 3.63 | | | $ | 14.24 | | | $ | 9.91 | | | Management fees | | | 4.37 | | | | 4.29 | | | | 13.18 | | | | 12.61 | | | Incentive fees | | | 4.62 | | | | 5.46 | | | | 9.60 | | | | 8.95 | | | Professional fees | | | 0.51 | | | | 0.64 | �� | | | 1.44 | | | | 1.82 | | | Administration, custodian and transfer agent fees | | | 0.22 | | | | 0.21 | | | | 0.61 | | | | 0.65 | | | Directors’ fees | | | 0.18 | | | | 0.26 | | | | 0.52 | | | | 0.74 | | | Other expenses | | | 0.30 | | | | 0.49 | | | | 0.92 | | | | 1.12 | | | | | | | | | | | | | | | | | | | Total expenses | | $ | 15.08 | | | $ | 14.98 | | | $ | 40.51 | | | $ | 35.80 | | | | | | | | | | | | | | | | | | |
Expenses | | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | | | (in millions) | | Interest and other debt expenses | | $ | 8.89 | | | $ | 8.45 | | Management fees | | | 3.67 | | | | 3.54 | | Incentive fees | | | — | | | | 0.49 | | Professional fees | | | 0.71 | | | | 0.64 | | Administration, custodian and transfer agent fees | | | 0.24 | | | | 0.24 | | Directors’ fees | | | 0.14 | | | | 0.11 | | Other expenses | | | 0.37 | | | | 0.34 | | Total Expenses | | $ | 14.02 | | | $ | 13.81 | | Fee waiver | | | (0.66 | ) | | | — | | Net Expenses | | $ | 13.36 | | | $ | 13.81 | |
Interest and other debt expenses Interest and other debt expenses increased from $3.63$8.45 million for the three months ended September 30, 2016March 31, 2019 to $4.88$8.89 million for the three months ended September 30, 2017March 31, 2020. The increase was primarily duedriven by the increase in average daily borrowings from $689.67 million to our issuance of Convertible Notes on October 3, 2016. Included$800.40 million, partially offset by a decrease in the weighted average interest and other debt expenses for the three months ended September 30, 2017 is $1.51 million in interest expense, accretion of OID and amortization of debt issuance costs relatedrate from 4.42% to the Convertible Notes that were issued on October 3, 2016.3.80%. Interest and other debt expenses increased from $9.91 million for the nine months ended September 30, 2016 to $14.24 million for the nine months ended September 30, 2017 primarily due to our issuance of Convertible Notes on October 3, 2016. Included in interest and other debt expenses for the nine months ended September 30, 2017 is $4.53 million in interest expense, accretion of OID and amortization of debt issuance costs related to the Convertible Notes that were issued on October 3, 2016.
Management Fees and Incentive Fees Management Feesfees increased from $4.29$3.54 million for the three months ended September 30, 2016March 31, 2019 to $4.37$3.67 million for the three months ended September 30, 2017 as a result ofMarch 31, 2020. The increase was primarily driven by an increase in gross assets, excluding cash and investments in a money market fund managed by an affiliateor cash equivalents. Our Investment Adviser has voluntarily agreed to permanently waive $0.66 million of Group Inc. Management fees for the three months ended March 31, 2020. Incentive Feesfees decreased from $5.46$0.49 million for the three months ended September 30, 2016March 31, 2019 to $4.62$0.00 million for the three months ended September 30, 2017 asMarch 31, 2020. The decrease was a result of a decreasenet realized losses and unrealized depreciation in the cap on Incentive Fees for the period which is primarily due to an increase in net capital losses on our investments.portfolio. Management Fees increased from $12.61 million for the nine months ended September 30, 2016 to $13.18 million for the nine months ended September 30, 2017 as a result of an increase in gross assets, excluding cash and investments in a money market fund managed by an affiliate of Group Inc. Incentive Fees increased from $8.95 million for the nine months ended September 30, 2016 to $9.60 million for the nine months ended September 30, 2017 as a result of an increase in the cap on Incentive Fees for the period which is primarily due to an increase in pre-incentive fee net investment income.
49
Professional fees and other general and administrative expenses Professional fees and other general and administrative expenses for the three and nine months ended September 30, 2017March 31, 2020 remained relatively consistent as compared to the three and nine months ended September 30, 2016.March 31, 2019. Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation) on Investments The realized gains and losses on fully exited and partially exited portfolio companies during the three and nine months ended September 30, 2017 and 2016 consisted of the following: | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | ($ in millions) | | | Hunter Defense Technologies, Inc. | | $ | – | | | $ | (22.12 | ) | | $ | – | | | $ | (22.12 | ) | | Kawa Solar Holdings Limited | | | (2.49 | ) | | | – | | | | (2.49 | ) | | | – | | | DiscoverOrg, LLC | | | 0.14 | | | | – | | | | 0.14 | | | | – | | | Iracore International Holdings, Inc. | | | – | | | | – | | | | (14.40 | ) | | | – | | | P2 Upstream Acquisition Co. | | | – | | | | – | | | | (0.17 | ) | | | – | | | Washington Inventory Service | | | – | | | | – | | | | (23.71 | ) | | | – | | | Other, net | | | (0.01 | ) | | | 0.13 | | | | – | | | | 0.13 | | | | | | | | | | | | | | | | | | | Net realized gain (loss) | | $ | (2.36 | ) | | $ | (21.99 | ) | | $ | (40.63 | ) | | $ | (22.19 | ) | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | | | (in millions) | | MPI Products LLC | | $ | (5.58 | ) | | $ | — | | Bolttech Mannings, Inc. | | | (4.70 | ) | | | — | | ASC Acquisition Holdings, LLC | | | — | | | | (24.72 | ) | Other, net | | | 0.14 | | | | — | | Net realized gain (loss) | | $ | (10.14 | ) | | $ | (24.72 | ) |
For the ninethree months ended September 30, 2017,March 31, 2020, net realized losses were primarily driven by our investments in two portfolio companies. Effective April 13, 2017, we entered into an exchange agreement with Iracore International Holdings, Inc. whereby the firstIn March 2020, there was a restructure of our second lien debt held by usinvestment in MPI Products LLC (“MPI”), which resulted in a realized loss of $5.58 million. The private equity sponsor that purchased MPI provided it with new capital and we received newly issued second lien debt and non-interest bearing second lien debt. Also in March 2020, our second lien debt investment in Bolttech Mannings, Inc. was exchanged for non-income producing common equity. Asequity, which resulted in a result, $13.62 million of unrealized depreciation was reversed, and we realized a loss of $14.40$4.70 million. In addition, effective June 6, 2017, we fully exited Washington Inventory Service. As a result, $15.03 million of unrealized depreciation was reversed, and we realized a loss of $23.71 million. For the three and nine months ended September 30, 2016,March 31, 2019, net realized losses were primarily driven by Hunter Defense Technologies, Inc. for which, effective June 1, 2016,our investment in ASC Acquisition Holdings, LLC whereby we completed a restructuring whereby theexchanged our first lien/last-out unitranche debt and second lien debt held by us was converted into non-interest bearingfor preferred and common equity. Asequity which resulted in a result, $22.12 million of unrealized depreciation was reversed, and we realized a loss of $22.12$24.72 million. Any changes in fair value are recorded as a change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to “CriticalNote 2 “Significant Accounting Policies – Valuation of Portfolio Investments.”Policies—Investments” in our consolidated financial statements. Net change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2017 and 2016 were as follows: | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | ($ in millions) | | | Change in unrealized appreciation | | $ | 6.41 | | | $ | 39.43 | | | $ | 38.84 | | | $ | 31.73 | | Change in unrealized depreciation | | | (4.89 | ) | | | (13.45 | ) | | | (21.94 | ) | | | (32.76 | ) | | | | | | | | | | | | | | | | | | Net change in unrealized appreciation (depreciation) on investments | | $ | 1.52 | | | $ | 25.98 | | | $ | 16.90 | | | $ | (1.03 | ) | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | | March 31, 2020 | | | March 31, 2019 | | Unrealized appreciation | | $ | 14.98 | | | $ | 19.27 | | Unrealized depreciation | | | (87.63 | ) | | | (15.71 | ) | Net change in unrealized appreciation (depreciation) on investments | | $ | (72.65 | ) | | $ | 3.56 | |
The change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2017 and 2016 consisted of the following: | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | ($ in millions) | | | Portfolio Company: | | | | | | | | | | | | | | | | | | Artesyn Embedded Technologies, Inc. | | $ | 0.75 | | | $ | 0.55 | | | $ | 1.78 | | | $ | (0.55 | ) | | Associations, Inc. | | | 0.09 | | | | (0.20 | ) | | | (0.08 | ) | | | 0.33 | | | Avenue Stores, LLC | | | (0.04 | ) | | | (0.03 | ) | | | (0.11 | ) | | | (0.40 | ) | | Bolttech Mannings, Inc. | | | (0.85 | ) | | | (2.86 | ) | | | (6.86 | ) | | | (6.02 | ) | | CB-HDT Holdings, Inc. | | | 0.81 | | | | 0.90 | | | | 1.25 | | | | 0.90 | | | Conergy Asia Holdings, Ltd. | | | (1.23 | ) | | | – | | | | (1.23 | ) | | | – | | | Data Driven Delivery Systems, LLC | | | – | | | | (0.08 | ) | | | (2.01 | ) | | | (0.21 | ) | | DiscoverOrg, LLC | | | 0.38 | | | | (0.03 | ) | | | 0.52 | | | | (0.06 | ) | | Dispensing Dynamics International | | | – | | | | 0.39 | | | | 0.84 | | | | 0.05 | | | DiversiTech Corporation | | | – | | | | 0.40 | | | | (0.38 | ) | | | 0.42 | | | DuBois Chemicals, Inc. | | | (0.01 | ) | | | – | | | | 0.24 | | | | – | |
| | For the Three Months Ended March 31, 2020 | | | | ($ in millions) | | Portfolio Company: | | | | | MPI Products LLC | | $ | 6.39 | | CB-HDT Holdings, Inc. (dba Hunter Defense Technologies) | | | 5.95 | | Wrike, Inc. | | | 0.91 | | Bolttech Mannings, Inc. | | | 0.82 | | Accuity Delivery Systems, LLC | | | 0.81 | | Zep Inc. | | | (2.40 | ) | Convene 237 Park Avenue, LLC (dba Convene) | | | (3.55 | ) | SMB Shipping Logistics, LLC (dba Worldwide Express) | | | (3.56 | ) | Animal Supply Holdings, LLC | | | (4.22 | ) | Odyssey Logistics & Technology Corporation | | | (5.10 | ) | Other, net(1) | | | (68.70 | ) | Total | | $ | (72.65 | ) |
50
| | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | ($ in millions) | | | Elemica, Inc. | | $ | 0.07 | | | $ | 0.08 | | | $ | 0.10 | | | $ | 0.08 | | | Extraction Oil & Gas Holdings, LLC | | | – | | | | (0.35 | ) | | | – | | | | (0.32 | ) | | Global Tel*Link Corporation | | | (0.04 | ) | | | 3.39 | | | | 0.68 | | | | 9.42 | | | Heligear Acquisition Co. | | | (0.11 | ) | | | (0.19 | ) | | | (0.20 | ) | | | (0.66 | ) | | Highwinds Capital, Inc. | | | – | | | | 0.55 | | | | (1.05 | ) | | | 0.47 | | | Hunter Defense Technologies, Inc. | | | – | | | | 22.12 | | | | – | | | | 0.55 | | | Hutchinson Technology, Inc. | | | – | | | | (0.55 | ) | | | (0.01 | ) | | | (1.17 | ) | | iFly Holdings LLC | | | – | | | | – | | | | – | | | | (0.41 | ) | | IHS Intermediate Inc. | | | (0.01 | ) | | | (0.01 | ) | | | 0.01 | | | | (0.32 | ) | | Infinity Sales Group | | | 0.32 | | | | (0.52 | ) | | | 0.51 | | | | (0.84 | ) | | Integrated Practice Solutions, Inc. | | | – | | | | (0.04 | ) | | | (0.54 | ) | | | 0.63 | | | Iracore International Holdings, Inc. | | | – | | | | (0.06 | ) | | | 13.62 | | | | (3.99 | ) | | Kawa Solar Holdings Limited | | | 2.81 | | | | (0.01 | ) | | | (2.65 | ) | | | 0.05 | | | Legacy Buyer Corp. | | | (0.02 | ) | | | (0.25 | ) | | | 0.39 | | | | (0.31 | ) | | Madison-Kipp Corporation | | | (0.03 | ) | | | (0.03 | ) | | | (0.03 | ) | | | 0.28 | | | Mervin Manufacturing, Inc. | | | (0.01 | ) | | | (0.23 | ) | | | 0.36 | | | | (0.55 | ) | | NTS Communications, Inc. | | | (0.56 | ) | | | 1.40 | | | | (3.48 | ) | | | (3.14 | ) | | Oasis Outsourcing Holdings, Inc. | | | (0.01 | ) | | | 0.14 | | | | (0.01 | ) | | | (0.27 | ) | | P2 Upstream Acquisition Co. | | | (0.02 | ) | | | 0.10 | | | | 0.65 | | | | 0.39 | | | Perfect Commerce, LLC | | | (0.94 | ) | | | 0.33 | | | | (0.87 | ) | | | 0.73 | | | Prairie Provident Resources, Inc. | | | (0.27 | ) | | | (0.94 | ) | | | (1.05 | ) | | | (1.43 | ) | | Pro-Pet, LLC | | | (0.04 | ) | | | (0.03 | ) | | | 0.05 | | | | (0.34 | ) | | Reddy Ice Corporation | | | (0.06 | ) | | | 0.96 | | | | 0.97 | | | | 1.61 | | | Securus Technologies Holdings, Inc. | | | (0.02 | ) | | | 1.33 | | | | 0.65 | | | | 8.36 | | | Senior Credit Fund, LLC | | | 0.29 | | | | 0.74 | | | | (0.03 | ) | | | 1.93 | | | The Merit Distribution Group, LLC | | | (0.03 | ) | | | 0.35 | | | | 0.03 | | | | 0.32 | | | United Road Services, Inc. | | | 0.33 | | | | (0.05 | ) | | | 0.45 | | | | (0.60 | ) | | US Med Acquisition, Inc. | | | (0.32 | ) | | | (0.02 | ) | | | (0.98 | ) | | | (0.07 | ) | | Vexos, Inc. | | | 0.17 | | | | (0.27 | ) | | | 0.31 | | | | (0.23 | ) | | Washington Inventory Service | | | – | | | | (0.98 | ) | | | 15.03 | | | | (5.67 | ) | | Yasso, Inc. | | | (0.08 | ) | | | – | | | | (0.10 | ) | | | – | | | Zep Inc. | | | 0.29 | | | | – | | | | 0.29 | | | | – | | | Other, net(1) | | | (0.09 | ) | | | (0.02 | ) | | | (0.16 | ) | | | 0.01 | | | | | | | | | | | | | | | | | | | Total | | $ | 1.52 | | | $ | 25.98 | | | $ | 16.90 | | | $ | (1.03 | ) | | | | | | | | | | | | | | | | | |
(1) | | For the three and nine months ended September 30, 2017,March 31, 2020, other, net includes gross unrealized appreciation of $0.10 million and $0.11 million respectively, and gross unrealized depreciation of $(0.19) million and $(0.27) million, respectively. For the three and nine months ended September 30, 2016, other, net includes gross unrealized appreciation of $5.70 million and $5.21 million, respectively, and gross unrealized depreciation of $(5.72) million and $(5.20) million, respectively.$(68.81) million. |
Net change in unrealized appreciation (depreciation) in our investments for the ninethree months ended September 30, 2017March 31, 2020 was primarily driven by increased market volatility, economic disruption, and wider credit spreads resulting from the recent COVID-19 pandemic. Given the unprecedented nature of COVID-19 and the fiscal and monetary response designed to mitigate strain to businesses and the economy, the operating environment of our portfolio companies is evolving rapidly. For further discussion of the impact of the COVID-19 pandemic on our portfolio, please see “—Impact of COVID-19 Pandemic.” In addition, the net change in unrealized appreciation (depreciation) was partially offset by the reversal of unrealized depreciation in connection with the aforementioned sale of MPI and the financial improvement of CB-HDT Holdings, Inc.
Valuations of investments are more difficult to determine when a severe economic shock occurs. Recent market conditions, characterized by dislocations of asset prices, higher volatility and reduced price transparency have made it more challenging to determine the fair value of some of our investments. Valuation under the current circumstances has required greater use of judgment. For further information about fair value measurements, see Note 5 “Fair Value Measurement” to our consolidated financial statements included in this report. | | For the Three Months Ended March 31, 2019 | | | | ($ in millions) | | Portfolio Company: | | | | | ASC Acquisition Holdings, LLC | | $ | 14.57 | | Avenue Stores, LLC | | | 0.68 | | Continuum Managed Services LLC - Class B | | | 0.58 | | Accuity Delivery Systems, LLC | | | 0.39 | | Iracore International Holdings, Inc. | | | 0.37 | | Senior Credit Fund, LLC | | | (0.53 | ) | Infinity Sales Group | | | (0.57 | ) | Zep Inc. | | | (0.73 | ) | Other, net(1) | | | (0.89 | ) | CB-HDT Holdings, Inc. | | | (3.45 | ) | Country Fresh Holdings, LLC | | | (6.86 | ) | Total | | $ | 3.56 | |
(1) | For the three months ended March 31, 2019, other, net includes gross unrealized appreciation of $2.68 million and gross unrealized depreciation of $(3.57) million. |
Net change in unrealized appreciation (depreciation) in our investments for the three months ended March 31, 2019 was primarily driven by the reversal of unrealized depreciation in connection with the aforementioned exchange agreement with Iracore InternationalASC Acquisition Holdings, Inc. andLLC., partially offset by the exit of Washington Inventory Service, each as described above, and unrealized depreciation in Bolttech Mannings, Inc.,Country Fresh Holdings, LLC, which was placed on non-accrual status due to continued pressure on the company’s margins and financial underperformance. Net change in unrealized appreciation (depreciation) in our investments for the three and nine months ended September 30, 2016 was primarily due to the impact of a restructure and unrealized appreciation in Global Tel*Link Corporation and Securus Technologies Holdings, Inc. due to a favorable changes in regulation impacting the diversified telecommunication services industry.
SENIOR CREDIT FUND, LLC Overview
The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. We investinvested together with Cal Regents through the Senior Credit Fund. The Senior Credit Fund’s principal purpose iswas to make investments, either directly or indirectly through its wholly owned subsidiary, Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies. Each of us and Cal Regents has a 50% economic ownership in the Senior Credit Fund and each has subscribed to fund $100.00 million. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which we and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. Establishing a quorum for the Senior Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Cal Regents’ representatives. If there are five members present at a meeting, all three representatives of Cal Regents must be present to constitute a quorum. On July 31, 2017, we and Cal Regents, as members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period for the Senior Credit Fund from August 1, 2017 to November 1, 2017. 51
We and Cal Regents are eachwere responsible for sourcing the Senior Credit Fund’s investments. IfOn February 27, 2019, the loan origination and structuring fees earned byboard of managers of the Senior Credit Fund (including directly or indirectly through SPV I or another vehicle) during a period exceedauthorized the Senior Credit Fund’s expenses (excluding interestliquidation and other debt expenses), such excess is paid as a fee to the Member(s) responsible for the originationsubsequent dissolution of the loans pro rata in accordance with the total loan origination and structuring fees earned by the Senior Credit Fund with respectand the pro-rata distribution of its assets and liabilities to the loans originated by such Member.
Selected Financial Data
Asmembers of September 30, 2017 and December 31, 2016, we and Cal Regents had subscribed to fund and contributed the following in the Senior Credit Fund:
| | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | December 31, 2016 | | | | | Subscribed to
fund | | | Contributed | | | Subscribed to
fund | | | Contributed | | | | | ( in millions) | | | ( in millions) | | Company | | $ | 100.00 | | | $ | 94.34 | | | $ | 100.00 | | | $ | 77.59 | | Cal Regents | | | 100.00 | | | | 94.34 | | | | 100.00 | | | | 77.59 | | | | | | | | | | | | | | | | | | | Total | | $ | 200.00 | | | $ | 188.68 | | | $ | 200.00 | | | $ | 155.18 | | | | | | | | | | | | | | | | | | |
As of September 30, 2017 and December 31, 2016, the Senior Credit Fund, had total investments in senior secured debt at fair valuewhich took place on May 8, 2019. After the satisfaction of $471.53 millionall remaining liabilities and $479.53 million, respectively. Asthe distribution of September 30, 2017 and December 31, 2016,remaining assets, the Senior Credit Fund had no investments on non-accrual status. As of September 30, 2017 and December 31, 2016, thewas terminated.
For further details, see Note 4 “Investments– Senior Credit Fund, had an investmentLLC” to our consolidated financial statements included in a money market fund managed by an affiliate of Group Inc. with a total fair value of $4.85 million and $1.94 million, respectively. In addition, the Senior Credit Fund had eight unfunded commitments totaling $13.48 million as of September 30, 2017 and three unfunded commitments totaling $6.30 million as of December 31, 2016. Below is a summary of the Senior Credit Fund’s portfolio (excluding an investment in a money market fund managed by an affiliate of Group Inc.) followed by a listing of the individual loans in the Senior Credit Fund’s portfolio as of September 30, 2017 and December 31, 2016:this report.
| | | | | | | | | | | | As of | | | | | September 30,
2017 | | | December 31,
2016 | | | Number of portfolio companies | | | 34 | | | | 37 | | | Total senior secured debt(1) | | | $490.87 million | | | | $489.66 million | | | Largest loan to a single borrower(1) | | | $24.90 million | | | | $24.62 million | | | Weighted average current interest rate on senior secured debt(2) | | | 7.0% | | | | 6.6% | | | Percentage of performing debt bearing a floating rate(3) | | | 100.0% | | | | 100.0% | | | Percentage of performing debt bearing a fixed rate(3) | | | –% | | | | –% | | | Weighted average leverage (net debt/EBITDA)(4) | | | 4.5x | | | | 3.8x | | | Weighted average interest coverage(4) | | | 2.9x | | | | 3.2x | | | Median EBITDA(4) | | | $43.30 million | | | | $68.70 million | |
| (2) | | Computed as the (a) annual stated interest rate on accruing senior secured debt divided by (b) total senior secured debt at par amount.
|
| (3) | | Measured on a fair value basis.
|
| (4) | | For a particular portfolio company of the Senior Credit Fund, EBITDA typically represents net income before net interest expense, income tax expense, depreciation and amortization. The net debt to EBITDA represents the ratio of a portfolio company’s total debt (net of cash) and excluding debt subordinated to the Senior Credit Fund’s investment in a portfolio company, to a portfolio company’s EBITDA. The interest coverage ratio represents the ratio of a portfolio company’s EBITDA as a multiple of interest expense. Weighted average net debt to EBITDA is weighted based on the fair value of the Senior Credit Fund’s debt investments. Weighted average interest coverage is weighted based on the fair value of the Senior Credit Fund’s performing debt investments. Median EBITDA is based on the Senior Credit Fund’s debt investments. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company of the Senior Credit Fund as of the respective reported end date. Statistics of the Senior Credit Fund’s portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount.
|
52
Senior Credit Fund Portfolio as of September 30, 2017
| | | | | | | | | | | | | | | | | | | | Portfolio Company | | Industry | | Interest | | Maturity | | Par
Amount | | | Cost | | | Fair
Value | | | 1st Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | 3SI Security Systems, Inc.(+++) | | Commercial Services & Supplies | | L + 6.25% (1.00% Floor) | | 06/16/2023 | | $ | 15.00 | | | $ | 14.78 | | | $ | 14.78 | | A Place For Mom, Inc.(+++) | | Diversified Consumer Services | | L + 4.00% (1.00% Floor) | | 08/10/2024 | | | 4.00 | | | | 3.98 | | | | 4.00 | | Ansira Partners, Inc.(+++) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 8.66 | | | | 8.58 | | | | 8.58 | | Ansira Partners, Inc.(+++) (1) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 1.27 | | | | 0.69 | | | | 0.69 | | ASC Acquisition Holdings, LLC(+++) (2) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 10.83 | | | | 10.74 | | | | 10.72 | | ASC Acquisition Holdings, LLC(1) (2) (3) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 3.75 | | | | (0.04 | ) | | | (0.04 | ) | ATX Networks Corp.(+++) | | Communications Equipment | | L + 6.00% (1.00% Floor) | | 06/11/2021 | | | 16.55 | | | | 16.42 | | | | 16.30 | | Badger Sportswear, Inc.(+++) | | Textiles, Apparel & Luxury Goods | | L + 4.50% (1.00% Floor) | | 09/11/2023 | | | 14.85 | | | | 14.72 | | | | 14.77 | | Crowne Group, LLC(+++) | | Auto Components | | L + 9.25% (1.00% Floor) | | 05/26/2021 | | | 16.49 | | | | 16.36 | | | | 16.65 | | CST Buyer Company(++++) | | Diversified Consumer Services | | L + 6.25% (1.00% Floor) | | 03/01/2023 | | | 20.60 | | | | 20.07 | | | | 20.03 | | CST Buyer Company(1) (3) | | Diversified Consumer Services | | L + 6.25% (1.00% Floor) | | 03/01/2023 | | | 1.80 | | | | (0.05 | ) | | | (0.05 | ) | DBRS Limited(+++) | | Capital Markets | | L + 5.25% (1.00% Floor) | | 03/04/2022 | | | 11.70 | | | | 11.62 | | | | 11.58 | | DiscoverOrg, LLC(+) (2) | | Software | | L + 4.50% (1.00% Floor) | | 08/25/2023 | | | 8.00 | | | | 7.96 | | | | 7.92 | | FWR Holding Corporation(++++) | | Hotels, Restaurants & Leisure | | L + 6.00% (1.00% Floor) | | 08/21/2023 | | | 9.10 | | | | 8.88 | | | | 8.88 | | FWR Holding Corporation(+++) (1) | | Hotels, Restaurants & Leisure | | L + 6.00% (1.00% Floor) | | 08/21/2023 | | | 1.18 | | | | 0.29 | | | | 0.29 | | FWR Holding Corporation(1) (3) | | Hotels, Restaurants & Leisure | | L + 6.00% (1.00% Floor) | | 08/21/2019 | | | 2.94 | | | | (0.07 | ) | | | (0.07 | ) | GK Holdings, Inc.(+++) | | IT Services | | L + 6.00% (1.00% Floor) | | 01/20/2021 | | | 17.50 | | | | 17.43 | | | | 16.45 | | HC Group Holdings III, Inc.(+++) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 04/07/2022 | | | 8.82 | | | | 8.79 | | | | 8.89 | | Help/Systems, LLC(+++) | | Software | | L + 4.50% (1.00% Floor) | | 10/08/2021 | | | 17.77 | | | | 17.32 | | | | 17.81 | | Hygiena Borrower LLC(+++) | | Life Sciences Tools & Services | | L + 4.75% (1.00% Floor) | | 08/26/2022 | | | 15.92 | | | | 15.78 | | | | 15.60 | | Hygiena Borrower LLC(1) (3) | | Life Sciences Tools & Services | | L + 4.75% (1.00% Floor) | | 08/26/2022 | | | 1.67 | | | | (0.02 | ) | | | (0.03 | ) | Jill Acquisition LLC(+++) | | Textiles, Apparel & Luxury Goods | | L + 5.00% (1.00% Floor) | | 05/08/2022 | | | 14.04 | | | | 13.95 | | | | 13.91 | | KMG Chemicals, Inc.(+) | | Chemicals | | L + 4.25% (1.00% Floor) | | 06/15/2024 | | | 6.85 | | | | 6.81 | | | | 6.93 | | Lattice Semiconductor Corporation(+) | | Semiconductors & Semiconductor Equipment | | L + 4.25% (1.00% Floor) | | 03/10/2021 | | | 10.77 | | | | 10.63 | | | | 10.83 | | Liquidnet Holdings, Inc.(+) | | Capital Markets | | L + 4.25% (1.00% Floor) | | 07/15/2024 | | | 9.88 | | | | 9.78 | | | | 9.90 | | Loar Group, Inc.(+) | | Aerospace & Defense | | L + 4.75% (1.00% Floor) | | 01/12/2022 | | | 14.13 | | | | 13.81 | | | | 14.06 | | MB Aerospace Holdings Inc.(+) | | Aerospace & Defense | | L + 5.50% (1.00% Floor) | | 12/15/2022 | | | 15.73 | | | | 15.60 | | | | 15.69 | | Netsmart Technologies, Inc.(+++) | | Health Care Technology | | L + 4.50% (1.00% Floor) | | 04/19/2023 | | | 18.79 | | | | 18.74 | | | | 18.98 | | Pomeroy Group LLC(+++++) | | IT Services | | L + 6.00% (1.00% Floor) | | 11/30/2021 | | | 15.80 | | | | 15.41 | | | | 15.24 | | Professional Physical Therapy(+++) | | Health Care Providers & Services | | L + 6.00% (1.00% Floor) | | 12/16/2022 | | | 10.42 | | | | 10.33 | | | | 10.32 | | RealD, Inc.(++) | | Media | | L + 7.50% (1.00% Floor) | | 03/22/2021 | | | 16.70 | | | | 16.57 | | | | 16.58 | | Research Now Group, Inc.(+++) | | Professional Services | | L + 4.50% (1.00% Floor) | | 03/18/2021 | | | 9.43 | | | | 9.34 | | | | 9.39 | | SciQuest, Inc.(+) | | Internet Software & Services | | L + 4.75% (1.00% Floor) | | 07/28/2023 | | | 19.57 | | | | 19.48 | | | | 19.47 | | Smarte Carte, Inc.(+++) | | Air Freight & Logistics | | L + 5.50% (1.00% Floor) | | 08/30/2021 | | | 10.70 | | | | 10.62 | | | | 10.62 | | SMS Systems Maintenance Services, Inc.(+) | | IT Services | | L + 5.00% (1.00% Floor) | | 10/30/2023 | | | 14.89 | | | | 14.82 | | | | 14.48 | | Stackpath, LLC(+++) | | Internet Software & Services | | L + 5.00% (1.00% Floor) | | 02/03/2023 | | | 16.96 | | | | 16.80 | | | | 16.79 | | Tronair Parent Inc.(+++) | | Air Freight & Logistics | | L + 4.75% (1.00% Floor) | | 09/08/2023 | | | 13.86 | | | | 13.74 | | | | 13.72 | | U.S. Acute Care Solutions, LLC(+++) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 05/14/2021 | | | 12.90 | | | | 12.79 | | | | 12.77 | | VRC Companies, LLC(+) | | Commercial Services & Supplies | | L + 6.50% (1.00% Floor) | | 03/31/2023 | | | 19.96 | | | | 19.54 | | | | 19.51 | | VRC Companies, LLC(+++) (1) | | Commercial Services & Supplies | | P + 5.50% | | 03/31/2023 | | | 3.53 | | | | 2.18 | | | | 2.18 | | VRC Companies, LLC(1) | | Commercial Services & Supplies | | L + 6.50% (1.00% Floor) | | 03/31/2022 | | | 1.41 | | | | 0.75 | | | | 0.75 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/Senior Secured Debt | | | | | | | | | | | 445.92 | | | | 445.87 | | | | | | | | | | 1st Lien/First-Out Unitranche | | | | | | | | | | | | | | | | | | | | Infogix, Inc.(+++) | | Software | | L + 5.00% (1.00% Floor) | | 12/31/2021 | | | 9.65 | | | | 9.58 | | | | 9.63 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/First-Out Unitranche | | | | | | | | | | | 9.58 | | | | 9.63 | | | | | | | | | | 2nd Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | DiscoverOrg, LLC(+)(2) | | Software | | L + 8.50% (1.00% Floor) | | 02/23/2024 | | | 10.50 | | | | 10.34 | | | | 10.39 | | | GK Holdings, Inc.(+++) | | IT Services | | L + 10.25% (1.00% Floor) | | 01/20/2022 | | | 6.00 | | | | 5.92 | | | | 5.64 | | | | | | | | | | | | | | | | | | | | | Total 2nd Lien/Senior Secured Debt | | | | | | | | | | | 16.26 | | | | 16.03 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Corporate Debt | | | | | | | | | | | | | 471.76 | | | | 471.53 | | | | | | | | | | | | | | Yield | | | | Shares | | | Cost | | | Fair
Value | | | Investments in Affiliated Money Market Fund | | | | | | | | | | | | | | | | | | Goldman Sachs Financial Square Government Fund - Institutional Shares | | 0.91%(4) | | | | | 4,849,420 | | | $ | 4.85 | | | $ | 4.85 | | | | | | | | | | | | | | | | | | | | | Total Investments in Affiliated Money Market Fund | | | | | | | | | 4.85 | | | | 4.85 | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL INVESTMENTS | | | | | | | | | | | | $ | 476.61 | | | $ | 476.38 | | | | | | | | | | | | | | | | | | | | |
53
(+) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2017 was 1.23%.
|
(++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 2 month LIBOR plus a base rate. The 2 month LIBOR as of September 30, 2017 was 1.27%.
|
(+++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2017 was 1.33%.
|
(++++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 6 month LIBOR plus a base rate. The 6 month LIBOR as of September 30, 2017 was 1.51%.
|
(+++++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 12 month LIBOR plus a base rate. The 12 month LIBOR as of September 30, 2017 was 1.78%.
|
(1) | | Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date, that may expire prior to the maturity date stated.
|
(2) | | We also hold a portion of the 2nd lien/senior secured debt in this portfolio company.
|
(3) | | The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.
|
(4) | | The rate shown is the annualized seven-day yield as of September 30, 2017.
|
L – LIBOR
P – U.S. Prime Rate (4.25% as of September 30, 2017)
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Senior Credit Fund Portfolio as of December 31, 2016
| | | | | | | | | | | | | | | | | | | | Portfolio Company | | Industry | | Interest | | Maturity | | Par
Amount | | | Cost | | | Fair
Value | | | | | | | | | | | (in millions) | | | 1st Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | Affordable Care Holding Corp.(+++) | | Health Care Providers & Services | | L + 4.75% (1.00% Floor) | | 10/22/2022 | | $ | 4.95 | | | $ | 4.86 | | | $ | 4.95 | | | Ansira Partners, Inc.(1) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 8.73 | | | | 8.64 | | | | 8.64 | | | Ansira Partners, Inc.(1)(2) | | Media | | L + 6.50% (1.00% Floor) | | 12/20/2022 | | | 1.27 | | | | – | | | | – | | | ASC Acquisition Holdings, LLC(+++)(3) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 11.25 | | | | 11.14 | | | | 11.14 | | | ASC Acquisition Holdings, LLC(+++)(2)(3) | | Distributors | | L + 7.50% (1.00% Floor) | | 12/15/2021 | | | 3.75 | | | | – | | | | – | | | ATX Networks Corp.(+++) | | Communications Equipment | | L + 6.00% (1.00% Floor) | | 06/11/2021 | | | 16.77 | | | | 16.60 | | | | 16.35 | | | Badger Sportswear, Inc.(+++) | | Textiles, Apparel & Luxury Goods | | L + 4.50% (1.00% Floor) | | 09/11/2023 | | | 14.96 | | | | 14.86 | | | | 14.85 | | | ConvergeOne Holdings Corporation(+++)(4) | | Communications Equipment | | L + 5.38% (1.00% Floor) | | 06/17/2020 | | | 17.40 | | | | 17.26 | | | | 17.31 | | | Crowne Group, LLC(+++) | | Auto Components | | L + 9.25% (1.00% Floor) | | 05/26/2021 | | | 16.87 | | | | 16.72 | | | | 17.04 | | | DBRS Limited(+++) | | Capital Markets | | L + 5.25% (1.00% Floor) | | 03/04/2022 | | | 11.79 | | | | 11.70 | | | | 10.73 | | | DiscoverOrg, LLC(+)(3) | | Software | | L + 4.25% (1.00% Floor) | | 06/02/2020 | | | 7.15 | | | | 7.12 | | | | 7.08 | | | Edgewood Partners Insurance Center(+) | | Insurance | | L + 6.00% (1.00% Floor) | | 03/16/2023 | | | 15.88 | | | | 15.59 | | | | 15.92 | | | Explorer Holdings, Inc.(+++) | | Health Care Technology | | L + 5.00% (1.00% Floor) | | 05/02/2023 | | | 9.95 | | | | 9.85 | | | | 10.02 | | | GK Holdings, Inc.(+++) | | IT Services | | L + 5.50% (1.00% Floor) | | 01/20/2021 | | | 17.64 | | | | 17.56 | | | | 17.46 | | | HC Group Holdings III, Inc.(+++) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 04/07/2022 | | | 8.89 | | | | 8.85 | | | | 8.51 | | | Help/Systems, LLC(+++) | | Software | | L + 5.25% (1.00% Floor) | | 10/08/2021 | | | 17.95 | | | | 17.41 | | | | 17.91 | | | Imagine! Print Solutions, Inc.(+++) | | Commercial Services & Supplies | | L + 6.00% (1.00% Floor) | | 03/30/2022 | | | 4.96 | | | | 4.91 | | | | 5.04 | | | Jill Acquisition LLC(+++) | | Textiles, Apparel & Luxury Goods | | L + 5.00% (1.00% Floor) | | 05/08/2022 | | | 15.81 | | | | 15.70 | | | | 15.75 | | | Lattice Semiconductor Corporation(+++) | | Semiconductors & Semiconductor Equipment | | L + 4.25% (1.00% Floor) | | 03/10/2021 | | | 11.99 | | | | 11.80 | | | | 11.96 | | | Liquidnet Holdings, Inc.(+)(4) | | Capital Markets | | L + 6.75% (1.00% Floor) | | 05/22/2019 | | | 24.62 | | | | 24.34 | | | | 24.43 | | | Loar Group, Inc.(++) | | Aerospace & Defense | | L + 4.75% (1.00% Floor) | | 01/12/2022 | | | 9.93 | | | | 9.68 | | | | 9.88 | | | MB Aerospace Holdings Inc.(+++) | | Aerospace & Defense | | L + 5.50% (1.00% Floor) | | 12/15/2022 | | | 15.85 | | | | 15.71 | | | | 15.77 | | | Mister Car Wash, Inc.(1) | | Automobiles | | L + 4.25% (1.00% Floor) | | 08/20/2021 | | | 6.65 | | | | 6.60 | | | | 6.66 | | | Mister Car Wash, Inc.(1)(2) | | Automobiles | | L + 4.25% (1.00% Floor) | | 08/20/2021 | | | 1.33 | | | | – | | | | 0.01 | | | Netsmart Technologies, Inc.(+++) | | Health Care Technology | | L + 4.50% (1.00% Floor) | | 04/19/2023 | | | 18.94 | | | | 18.88 | | | | 19.00 | | | Oasis Outsourcing Holdings, Inc.(+) | | Diversified Financial Services | | L + 4.75% (1.00% Floor) | | 12/27/2021 | | | 3.98 | | | | 3.97 | | | | 3.99 | | | PGX Holdings, Inc.(+++)(4) | | Professional Services | | L + 5.25% (1.00% Floor) | | 09/29/2020 | | | 13.58 | | | | 13.51 | | | | 13.55 | | | Playcore Wisconsin, Inc.(+++) | | Leisure Equipment & Products | | L + 4.25% (1.00% Floor) | | 05/29/2020 | | | 18.00 | | | | 17.82 | | | | 17.82 | | | Pomeroy Group LLC(++++) | | IT Services | | L + 6.00% (1.00% Floor) | | 11/30/2021 | | | 15.92 | | | | 15.47 | | | | 15.76 | | | Precyse Acquisition Corp.(+) | | Health Care Technology | | L + 5.50% (1.00% Floor) | | 10/20/2022 | | | 7.47 | | | | 7.37 | | | | 7.55 | | | Professional Physical Therapy(+++) | | Health Care Providers & Services | | L + 6.00% (1.00% Floor) | | 12/16/2022 | | | 10.50 | | | | 10.40 | | | | 10.40 | | | RealD, Inc.(++) | | Media | | L + 7.50% (1.00% Floor) | | 03/22/2021 | | | 16.87 | | | | 16.72 | | | | 16.70 | | | Research Now Group, Inc.(+++) | | Professional Services | | L + 4.50% (1.00% Floor) | | 03/18/2021 | | | 9.59 | | | | 9.48 | | | | 9.45 | | | SciQuest, Inc.(++++) | | Internet Software & Services | | L + 4.75% (1.00% Floor) | | 07/28/2023 | | | 13.93 | | | | 13.86 | | | | 13.86 | | | Smarte Carte, Inc.(+++) | | Air Freight & Logistics | | L + 5.50% (1.00% Floor) | | 08/30/2021 | | | 11.21 | | | | 11.11 | | | | 11.10 | | | Tronair Parent Inc.(+++) | | Air Freight & Logistics | | L + 4.75% (1.00% Floor) | | 09/08/2023 | | | 13.86 | | | | 13.76 | | | | 13.72 | | | U.S. Acute Care Solutions, LLC(1) | | Health Care Providers & Services | | L + 5.00% (1.00% Floor) | | 05/14/2021 | | | 13.00 | | | | 12.87 | | | | 12.87 | | | Veresen Midstream Limited Partnership(+++) | | Energy Equipment & Services | | L + 4.25% (1.00% Floor) | | 03/31/2022 | | | 10.81 | | | | 10.61 | | | | 10.87 | | | Zep Inc.(+++) | | Chemicals | | L + 4.00% (1.00% Floor) | | 06/27/2022 | | | 11.90 | | | | 11.88 | | | | 11.96 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/Senior Secured Debt | | | | | | | | | | | 454.61 | | | | 456.01 | | | | | | | | | | 1st Lien/First-Out Unitranche | | | | | | | | | | | | | | | | | | | | Infogix, Inc.(+++) | | Software | | L + 4.75% (1.00% Floor) | | 12/31/2021 | | | 9.76 | | | | 9.68 | | | | 9.66 | | | | | | | | | | | | | | | | | | | | | Total 1st Lien/First-Out Unitranche | | | | | | | | | 9.68 | | | | 9.66 | | | | | | | | | | 2nd Lien/Senior Secured Debt | | | | | | | | | | | | | | | | | | | | DiscoverOrg, LLC(+++)(3) | | Software | | L + 9.00% (1.00% Floor) | | 02/10/2022 | | | 8.00 | | | | 7.86 | | | | 7.86 | | | GK Holdings, Inc.(+++) | | IT Services | | L + 9.50% (1.00% Floor) | | 01/20/2022 | | | 6.00 | | | | 5.90 | | | | 6.00 | | | | | | | | | | | | | | | | | | | | | Total 2nd Lien/Senior Secured Debt | | | | | | | | | | | 13.76 | | | | 13.86 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Corporate Debt | | | | | | | | | | | | $ | 478.05 | | | $ | 479.53 | | | | | | | | | | | | | | | | | | | | |
(+) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 1 month LIBOR plus a base rate. The 1 month LIBOR as of December 31, 2016 was 0.77%.
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(++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 2 month LIBOR plus a base rate. The 2 month LIBOR as of December 31, 2016 was 0.82%.
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(+++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 3 month LIBOR plus a base rate. The 3 month LIBOR as of December 31, 2016 was 1.00%.
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(++++) | | The interest rate on these loans is subject to the greater of a LIBOR floor or 12 month LIBOR plus a base rate. The 12 month LIBOR as of December 31, 2016 was 1.69%.
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(1) | | Position or portion thereof unsettled as of December 31, 2016.
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(2) | | Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date, that may expire prior to the maturity date stated.
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(3) | | We also hold a portion of the 2nd lien/senior secured debt in this portfolio company.
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(4) | | Initial investment was purchased at fair value from us in October 2014.
|
L – LIBOR
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Below is certain summarized balance sheet information for the Senior Credit Fund as of September 30, 2017 and December 31, 2016:
| | | | | | | | | | | | As of | | | | | September 30,
2017 | | | December 31,
2016 | | | | | (in millions) | | | Selected Balance Sheet Information | | | | | | Total investments, at fair value | | $ | 476.38 | | | $ | 481.47 | | | Cash and other assets | | | 29.40 | | | | 10.93 | | | | | | | | | | | Total assets | | $ | 505.78 | | | $ | 492.40 | | | | | | | | | | | | Debt(1) | | $ | 306.59 | | | $ | 300.57 | | | Other liabilities | | | 8.96 | | | | 35.04 | | | | | | | | | | | Total liabilities | | $ | 315.55 | | | $ | 335.61 | | | | | | | | | | | | Members’ equity | | $ | 190.23 | | | $ | 156.79 | | | | | | | | | | | Total liabilities and members’ equity | | $ | 505.78 | | | $ | 492.40 | | | | | | | | | | |
(1) | | Net of deferred financing costs for the SPV I Term Loan Facility (as defined below) as of September 30, 2017 and December 31, 2016, which were in the amount of $2.56 million and $2.68 million, respectively.
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Below is certain summarized Statement of Operations information for the Senior Credit Fund for the three and nine months ended September 30, 2017 and 2016:
| | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30,
2017 | | | September 30,
2016 | | | September 30,
2017 | | | September 30,
2016 | | | | | (in millions) | | | Selected Statement of Operations Information: | | | | | | | | | | | | | | | | | | Total investment income | | $ | 9.54 | | | $ | 6.91 | | | $ | 28.14 | | | $ | 18.22 | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | Interest and other debt expenses | | | 3.48 | | | | 2.31 | | | | 10.13 | | | | 6.58 | | | Excess loan origination and structuring fees | | | 0.35 | | | | 1.11 | | | | 1.10 | | | | 1.71 | | | Professional fees | | | 0.18 | | | | 0.09 | | | | 0.48 | | | | 0.30 | | | Administration and custodian fees | | | 0.10 | | | | 0.08 | | | | 0.30 | | | | 0.24 | | | Other expenses | | | 0.04 | | | | 0.03 | | | | 0.09 | | | | 0.05 | | | | | | | | | | | | | | | | | | | Total expenses | | | 4.15 | | | | 3.62 | | | | 12.10 | | | | 8.88 | | | | | | | | | | | | | | | | | | | Net investment income (loss) | | | 5.39 | | | | 3.29 | | | | 16.04 | | | | 9.34 | | | | | | | | Net realized gain (loss) on investments | | | 0.03 | | | | – | | | | 0.11 | | | | – | | | Net change in unrealized appreciation (depreciation) on investments | | | (0.14 | ) | | | 1.83 | | | | (1.71 | ) | | | 3.82 | | | | | | | | | | | | | | | | | | | Net increase (decrease) in members’ equity | | $ | 5.28 | | | $ | 5.12 | | | $ | 14.44 | | | $ | 13.16 | | | | | | | | | | | | | | | | | | |
Debt
On December 19, 2016, SPV I entered into an amended and restated credit facility (as amended, the “Asset Based Facility”), which, consists of a revolving credit facility (the “SPV I Revolving Credit Facility”), a term loan facility (the “SPV I Term Loan Facility”) and a Class B loan facility (the “SPV I Class B Facility”), with various lenders. For the Asset Based Facility, Natixis, New York Branch (“Natixis”) serves as the facility agent, and State Street Bank and Trust Company serves as the collateral agent. The Asset Based Facility includes a maximum borrowing capacity of $400.00 million. The SPV I Revolving Credit Facility provided for borrowings in an aggregate amount up to $120.00 million on a committed basis as of September 30, 2017. As of September 30, 2017, the SPV I Term Loan Facility consisted of a $240.00 million fully drawn term loan and the SPV I Class B Facility consisted of a $40.00 million fully drawn Class B loan.
As of September 30, 2017 and December 31, 2016, the SPV I’s outstanding borrowings under the Asset Based Facility were $309.15 million, and $303.25 million, respectively. The summary information of the Asset Based Facility for the three and nine months ended September 30, 2017 and 2016 is as follows:
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| | | | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | ($ in millions) | | | Borrowing interest expense | | $ | 3.09 | | | $ | 1.92 | | | $ | 9.05 | | | $ | 4.78 | | | Facility fees | | | 0.20 | | | | 0.15 | | | | 0.51 | | | | 0.60 | | | Amortization of financing costs | | | 0.19 | | | | 0.12 | | | | 0.57 | | | | 0.57 | | | Total | | $ | 3.48 | | | $ | 2.19 | | | $ | 10.13 | | | $ | 5.95 | | | Weighted average interest rate | | | 3.8% | | | | 3.2% | | | | 3.6% | | | | 3.1% | | | Average outstanding balance | | | 324.66 | | | | 237.33 | | | | 334.16 | | | | 202.46 | |
The Senior Credit Fund had entered into a revolving credit facility (the “Subscription Facility”) with Versailles Assets LLC as lender, and with Natixis as the facility agent. The Subscription Facility provided for borrowings in an aggregate amount up to $50.00 million on a committed basis. The Senior Credit Fund’s obligations to Natixis and the lenders were secured by the unfunded subscriptions of us and Cal Regents, proceeds of such subscriptions and certain other assets. On September 30, 2016, the Senior Credit Fund paid in full all loans outstanding and the Subscription Facility was terminated. In connection thereof, the related documents governing the Subscription Facility were also terminated. The summary information of the Subscription Facility for the three and nine months ended September 30, 2017 and 2016 is as follows:
| | | | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | ($ in millions) | | | Borrowing interest expense | | | N/A | | | $ | 0.07 | | | | N/A | | | $ | 0.50 | | | Facility fees | | | N/A | | | | 0.02 | | | | N/A | | | | 0.04 | | | Amortization of financing costs | | | N/A | | | | 0.03 | | | | N/A | | | | 0.09 | | | Total | | | N/A | | | $ | 0.12 | | | | N/A | | | $ | 0.63 | | | Weighted average interest rate | | | N/A | | | | 2.7% | | | | N/A | | | | 2.5% | | | Average outstanding balance | | | N/A | | | $ | 10.72 | | | | N/A | | | $ | 26.87 | |
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The primary use of existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities. We expect to generate cash primarily from the net proceeds of any future offerings of securities, future borrowings and cash flows from operations. To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to our existing credit facilities as discussed below, or issue other senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 2 to 1150% after such borrowing.borrowing (if certain requirements are met). See “—Key Components of Operations—Leverage.” As of September 30, 2017March 31, 2020 and December 31, 2016,2019, our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 2.63 to 1165% and 2.32 to 1, respectively.187%. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions.
We may enter into investment commitments through signed commitment letters which may ultimately become investment transactions in the future. We regularly evaluate and carefully consider our unfunded commitments using GSAM’s proprietary risk management framework for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage. As of September 30, 2017,March 31, 2020, we had cash of approximately $11.97$22.05 million, an increase of $7.40$12.64 million from December 31, 2016.2019. Cash providedused by operating activities for the ninethree months ended September 30, 2017March 31, 2020 was approximately $31.51$104.15 million, primarily driven by a decrease in net assets resulting from operations of $63.78 million, purchases of investments of $99.27 million, and net purchase of investments in an affiliated money market fund of $64.31, offset by proceeds from sales and principal repayments of $50.32 million and proceeds from other operating activities of $72.89 million. Cash provided by financing activities for the year ended December 31, 2019 was approximately $116.81 million, primarily driven by repayments on debt of $408.68 million, distributions paid of $17.47 million and other financing activities of $10.11 million, offset by borrowings on debt of $553.07 million. As of March 31, 2019, we had cash of approximately $5.89 million, a decrease of $0.22 million from December 31, 2018. Cash used by operating activities for the three months ended March 31, 2019 was approximately $27.26 million, primarily driven by an increase in net assets resulting from operations of $37.26$2.22 million, proceeds from sales and principal repayments of $472.44$79.05 million and proceeds from other operating activities of $16.42$17.58 million, offset by purchases of investments of $494.61$126.11 million. Cash usedprovided by financing activities for the ninethree months ended September 30, 2017March 31, 2019 was approximately $24.11$27.06 million, primarily driven by repayments on debt of $460.35$86.00 million, distributions paid of $49.83$17.34 million and other financing activities of $0.85$0.49 million, partially offset by borrowings on debt of $405.35 million and proceeds from the issuance of common stock (net of underwriting and offering costs) of $81.57 million. 57
As of September 30, 2016, we had cash of approximately $14.67 million, a decrease of $8.04 million from December 31, 2015. Cash used by operating activities for the nine months ended September 30, 2016 was approximately $11.47 million, primarily driven by purchases of investments of $219.90 million, partially offset by an increase in net assets resulting from operations of $35.06 million, proceeds from sales and principal repayments of $139.50 million, net purchase of investments in the affiliated money market fund of $10.11 million and proceeds from other operating activities of $23.76 million. Cash provided by financing activities for the nine months ended September 30, 2016 was approximately $3.43 million, primarily driven by proceeds from the borrowings on debt of $195.50 million, partially offset by repayments on debt of $143.25 million, distributions paid of $48.74 million, and other financing activities of $0.08$130.89 million.
To the extent permissible under the risk retention rules and applicable provisions of the 1940Investment Company Act, we may raise capital by securitizing certain of our investments, including through the formation of one or more CLOs or asset based facilities, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. We may also pursue other forms of debt financing, including potentially from the Small Business Administration through a future small business investment company subsidiary (subject to regulatory approvals). Equity Issuances On May 24, 2017, we completed a follow-on offering under our shelf registration statement, issuing 3,250,000 shares of our common stock at a public offering price of $22.50 per share. Net of offering and underwriting costs, we received cash proceeds of $69.65 million.
On May 26, 2017, we sold an additional 487,500 shares of our common stock pursuant to the underwriters’ exercise of the option to purchase additional shares we granted in connection with the aforementioned offering. Net of underwriting costs, we received additional cash proceeds of $10.64 million.
There were no sales of our common stock during the ninethree months ended September 30, 2016.March 31, 2020 and 2019. 10b5-1 Plan
GS & Co. adopted a 10b5-1 plan (the “GS 10b5-1 Plan”) in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, which provided for the purchase by GS & Co. in the open market of up to the lesser of (i) $25.00 million in the aggregate of our common stock and (ii) such amount that would not bring its collective ownership (with Group Inc.) of our common stock over 19.9%. The GS 10b5-1 Plan expired on March 18, 2016. The GS 10b5-1 Plan required GS & Co. to purchase shares of our common stock when the market price per share was below our most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share). The purchase of shares by GS & Co. pursuant to the GS 10b5-1 Plan was intended to satisfy the conditions of Rules 10b5-1 and 10b-18 under the Exchange Act, and was otherwise subject to applicable law. Under the GS 10b5-1 Plan, GS & Co. increased the volume of purchases made anytime the market price per share of our common stock declined below the most recently reported NAV per share, subject to volume restrictions. Purchases of our common stock by GS & Co. under the GS 10b5-1 Plan may have resulted in the price of our common stock being higher than the price that otherwise might have existed in the open market. For the period January 1, 2016 through March 18, 2016, GS & Co. purchased 432,638 shares of our common stock pursuant to the GS 10b5-1 Plan.
Common Stock Repurchase PlanPlans In February 2015,2019, our Board of Directors approved a common stockthe “Company 10b5-1 Plan, which provides for us to repurchase plan (the “Company Repurchase Plan”), which authorized our purchase of up to $35.00$25.00 million of our common stock in the open market during open trading periods. No repurchases were made pursuant to the Company Repurchase Plan which expired on March 18, 2016. In February 2016, our Board of Directors authorized us to repurchase up to $25.00 millionshares of our common stock if the stock trades below the most recently announced NAVnet asset value per share, (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share), from March 18, 2016 to March 18, 2017, subject to certain limitations. In February 2017, the Company’s Board of Directors renewed its authorization of the stock repurchase plan to extend the expiration to March 18, 2018.
In connection with this authorization, we entered into a 10b5-1 plan (the “Company 10b5-1 Plan”). The Company 10b5-1 Plan provides that purchases will be conducted on the open market on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. No purchases will be effected pursuant toUnder the Company 10b5-1 Plan, no purchases will be made if such purchasepurchases would (i) cause the aggregate ownership of our outstanding stock by Group Inc. and GS & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of purchase) or (ii) cause our debt/equity ratioDebt/Equity Ratio to exceed 0.75.the lower of (a) 1.40 or (b) the Maximum Debt/Equity Ratio. In the Company 10b5-1 Plan, “Debt/Equity Ratio” means the sum of debt on the Consolidated Statements of Assets and Liabilities and the total notional value of the Purchaser’s unfunded commitments divided by 85% of total equity, as of the most recent reported financial statement end date, and “Maximum Debt/Equity Ratio” means the sum of debt on the balance sheet and committed uncalled debt divided by net assets, as of the most recent reported financial statement end date. Purchases under our Company 10b5-1 Plan would be conducted on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and other applicable securities laws. The Company 10b5-1 Plan initially took effect on March 18, 2016 (with any purchases to commence after the opening of NYSE trading2019, was temporarily suspended on March 21, 2016), was subsequently renewedDecember 9, 2019 and is scheduled to expireexpired on March 18, 2018. Further, no purchases will be effected during the applicable restricted period under Regulation M as a result of an offering of securities by us or for a period of 60 days after the expiration of any overallotment option included in any common equity offering.2020.
58
Repurchases of our common stock under theour Company 10b5-1 Plan or otherwise may result in the price of our common stock being higher than the price that otherwise might exist in the open market. For the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, we did not repurchase any of our common stock pursuant to the Company 10b5-1 Plan or otherwise. Dividend Reinvestment Plan Concurrent with the IPO, we adoptedWe have a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and GS & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the GS 10b5-1 Plan.
The following table summarizes shares distributed pursuantFor further details, see Note 9 “Net Assets” to the dividend reinvestment plan during the nine months ended September 30, 2017 to stockholders who had not opted out of the dividend reinvestment plan.our consolidated financial statements included in this report.
| | | | | | | | | Date Declared
| | Record Date | | Payment Date | | Shares | | | | | | November 1, 2016 | | December 31, 2016 | | January 17, 2017 | | | 11,124 | | February 22, 2017 | | March 31, 2017 | | April 17, 2017 | | | 11,202 | | May 1, 2017 | | June 30, 2017 | | July 17, 2017 | | | 18,417 | |
The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2016 to stockholders who had not opted out of the dividend reinvestment plan.
| | | | | | | | | Date Declared
| | Record Date | | Payment Date | | Shares | | | | | | November 3, 2015 | | December 31, 2015 | | January 28, 2016 | | | 8,206 | | February 25, 2016 | | March 31, 2016 | | April 15, 2016 | | | 5,555 | | May 3, 2016 | | June 30, 2016 | | July 15, 2016 | | | 8,937 | |
Contractual Obligations We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our Investment Adviser, are equal to (1) a percentage of value of our average gross assets and (2) a two-part Incentive Fee. Under the Administration Agreement, pursuant to which State Street Bank and Trust Company has agreed
to furnish us with the administrative services necessary to conduct our day-to-day operations, we pay our administrator such fees as may be agreed between us and our administrator that we determine are commercially reasonable in our sole discretion. Either party or the stockholders, by a vote of a majority of our outstanding voting securities, may terminate the Investment Management Agreement without penalty on at least 60 days’ written notice to the other party. Either party may terminate the Administration Agreement without penalty upon at least 30 days’ written notice to the other party. The following table shows our contractual obligations as of September 30, 2017:March 31, 2020: | | | | | | | | | | | | Payments Due by Period (in millions) | | | | | Payments Due by Period (Millions) | | | Total | | | Less Than 1 Year | | | 1 – 3 Years | | | 3 – 5 Years | | | More Than 5 Years | | | | | Total | | | Less Than
1 Year | | | 1 – 3 Years | | | 3 – 5 Years | | | More Than
5 Years | | | Convertible Notes | | | $ | 155.00 | | | $ | — | | | $ | 155.00 | | | $ | — | | | $ | — | | 2025 Notes | | | $ | 360.00 | | | $ | — | | | $ | — | | | $ | 360.00 | | | $ | — | | | Revolving Credit Facility | | $ | 332.75 | | | $ | – | | | $ | – | | | $ | 332.75 | | | $ | – | | | $ | 365.57 | | | $ | — | | | $ | — | | | $ | 365.57 | | | $ | — | | | Convertible Notes | | $ | 115.00 | | | $ | – | | | $ | – | | | $ | 115.00 | | | $ | – | | | Revolving Credit Facility | | | € | 33.75 | | | € | — | | | € | — | | | € | 33.75 | | | € | — | |
Euro (“€”) Revolving Credit Facility On September 19, 2013, we entered into thea Revolving Credit Facility with various lenders. Truist Bank (formerly known as SunTrust BankBank) serves as administrative agent and Bank of America N.A. serves as syndication agent. On October 3, 2014, weagent under the Revolving Credit Facility. We amended and restated the Revolving Credit Facility on October 3, 2014, November 3, 2015, December 16, 2016, February 21, 2018, September 17, 2018 and February 25, 2020.
The aggregate committed borrowing amount under the Revolving Credit Facility is $795.00 million. The Revolving Credit Facility includes an uncommitted accordion feature that allows us, under certain circumstances, to among other things: increase the aggregate borrowing amount on a committed basis, increase the total borrowing capacity extend the maturity date, and reduce the applicable margin of borrowings. On January 16, 2015, we exercised the right under the accordion feature and increased the size of the Revolving Credit Facility up to $535.00 million, on a$1,000.00 million. Upon consummation of the Merger, the aggregate committed basis.
On March 27, 2015, we exercised the rightborrowings under the Revolving Credit Facility will be $1,695.00 million and the uncommitted accordion feature and increasedwill allow us to increase the sizeborrowing capacity of the Revolving Credit Facility up to $560.00 million, on a committed basis.$2,250.00 million.
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On November 3, 2015, we amended the Revolving Credit Facility to, among other things:
increase the aggregate borrowing amount to $570.00 million on a committed basis;
increase the total borrowing capacity to a maximum of $1,000.00 million;
extend the final maturity date to November 4, 2020; and
reduce the applicable margin of borrowings with respect to (i) any loan bearing interest at a rate determined by reference to the alternate base rate from 1.25% to 0.75% or 1.00%, subject to borrowing base conditions and (ii) any loan bearing interest at a rate determined by reference to the adjusted LIBOR rate from 2.25% to 1.75% or 2.00%, subject to borrowing base conditions.
On December 16, 2016, we further amended the Revolving Credit Facility to, among other things:
increase aggregate borrowing amount to $605.00 million on a committed basis; and
extend the final maturity date to December 16, 2021.
Borrowings under the Revolving Credit Facility,denominated in USD, including amounts drawn in respect of letters of credit, bear interest (at the Company’sour election) of either LIBOR(i) London InterBank Offered Rate (“LIBOR”) plus a margin of either 1.75% or 1.875%, subject to borrowing base conditions or (ii) an applicable margin or applicable margin plusalternative base rate, which is the higherhighest of 0, the Prime Rate, the Federal Funds Effective Rate plus 0.5% or0.50% and overnight LIBOR plus 1.0%.1.00%, plus either 0.75% or 0.875%, subject to borrowing base conditions. Borrowings denominated in non-USD bear interest of LIBOR plus a margin of either 1.75% or 1.875%, subject to borrowing base conditions. With respect to borrowings denominated in USD, we may elect either LIBOR or an alternative base rate at the time of borrowing, and borrowings may be converted from one rate to another at any time, subject to certain conditions. Interest is payable quarterly in arrears. We pay a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on December 16, 2021.February 25, 2025. TheFor further details, see Note 6 “Debt – Revolving Credit Facility may be guaranteed by certain ofFacility” to our domestic subsidiaries that are formed or acquired by usconsolidated financial statements included in the future (collectively, the “Guarantors”). The Senior Credit Fund is not a Guarantor of the Revolving Credit Facility. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.this report.
Our obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially all of our portfolio of investments and cash, with certain exceptions. The Revolving Credit Facility contains certain customary covenants, including: (i) maintaining a minimum shareholder’s equity of $478.51 million, subject to increase from certain equity sales, (ii) maintaining an asset coverage ratio of at least 2 to 1, (iii) maintaining a minimum liquidity test of at least 10% of the “covered debt amount” during any period when the “adjusted covered debt balance” is greater than 90% of the “adjusted borrowing base,” as such quoted terms are defined in the Revolving Credit Facility and (iv) restrictions on industry concentrations in our investment portfolio. We are in compliance with these covenants.
The Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default.
Convertible Notes On October 3, 2016, we closed an offering of $115.00 million aggregate principal amount of unsecured Convertible Notes, which includesincluded $15.00 million aggregate principal amount issued pursuant to the initial purchasers’ exercise in full of an over-allotment option.option (the “Initial Convertible Notes”). On July 2, 2018, we closed an offering of $40.00 million aggregate additional principal amount (the “Additional Convertible Notes” and, together with the Initial Convertible Notes, the “Convertible Notes”). The Additional Convertible Notes have identical terms, are fungible and are part of the Initial Convertible Notes. The Convertible Notes were issued pursuant to an indenture between us and Wells Fargo Bank (“Wells Fargo”), as Trustee. Wells Fargo Bank and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The Convertible Notes bear interest at a rate of 4.50% per year, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2017. The Convertible Notes will mature on April 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. In certain circumstances, the Convertible Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, based on an initial conversion rate of 40.8397 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $24.49 per share of common stock, subject to customary anti-dilution adjustments and the other terms of the indenture governing the Convertible Notes. The conversion price is approximately 10.0% above the $22.26 per share closing price of our common stock on September 27, 2016.2016 and 16.7% above the $20.99 per share closing price of our common stock on June 26, 2018. We will not have the right to redeem the Convertible Notes prior to maturity.
For further details, see Note 6 “Debt – Convertible Notes” to our consolidated financial statements included in this report. 2025 Notes On February 10, 2020, we closed an offering of $360.00 million aggregate principal amount of unsecured notes. The sale2025 Notes were issued pursuant to an indenture between us and Wells Fargo Bank, as Trustee. Wells Fargo Bank and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The 2025 Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on February 10 and August 10 of each year, commencing on August 10, 2020. The 2025 Notes will mature on February 10, 2025 and may be redeemed in whole or in part at the Convertible Notes generated net proceeds of approximately $110.90 million. We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. Holders may convert their notes at theirCompany’s option at any time prioror from time to time at the close of business on the business day immediately preceding October 1, 2021 only under the following circumstances: (1) during any calendar quarter commencing after December 31, 2016, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after October 1, 2021, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.
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The Convertible Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 470-20,Debt with Conversion and Other Options. Upon conversion of any of the Convertible Notes, we intend to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, we have the option to pay the excess amount in cash or shares of our common stock (or a combination of cash and shares), subject to the requirements of the respective indenture. We have determined that the embedded conversion optionsredemption prices set forth in the Convertible Notes are not requiredIndenture.
For further details, see Note 6 “Debt – 2025 Notes” to be separately accounted for as derivatives under ASC 815,Derivatives and Hedging. At the time of issuance the values of the debt and equity components of the Convertible Notes were approximately 99.4% and 0.6%, respectively. The OID equal to the equity component of the Convertible Notes was recordedour consolidated financial statements included in “paid-in capital in excess of par” in the accompanying Consolidated Statements of Assets and Liabilities. We record interest expense comprised of both stated interest and amortization of the OID. At the time of issuance, the equity component of the Convertible Notes was $0.74 million. Additionally, the issuance costs associated with the Convertible Notes were allocated to the debt and equity components in proportion to the allocation of the values at the time of issuance and accounted for as debt issuance costs and equity issuance costs, respectively.this report.
HEDGING Subject to applicable provisions of the Investment Company Act and applicable Commodity Futures Trading Commission (“CFTC”) regulations, we may enter into hedging transactions in a manner consistent with SEC guidance. To the extent that any of our loans isare denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. TheOur Investment Adviser has claimed no-action relief from CFTC registration and regulation as a commodity pool operator pursuant to a CFTC staff no-action letter (the “BDC CFTC No-Action Letter”)Rule 4.5 with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, the BDC CFTC No-Action LetterRule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio. Moreover, we anticipate entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of the BDC CFTC No-Action Letter. As of September 30, 2017, no hedging arrangements were used.Rule 4.5. OFF-BALANCE SHEET ARRANGEMENTS We may become a party to investment commitments and to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of September 30, 2017,March 31, 2020, we believed that we had adequate financial resources to satisfy our unfunded commitments. As of September 30, 2017 and December 31, 2016, ourOur unfunded commitments to provide funds to portfolio companies were as follows: | | | | As of | | | As of | | | | | September 30,
2017 | | | December 31,
2016 | | | March 31, 2020 | | | December 31, 2019 | | | | | (in millions) | | | (in millions) | | | Unfunded Commitments | | | | | | | | | | | | | | First Lien/Senior Secured Debt | | $ | 14.87 | | | $ | 6.80 | | | $ | 58.96 | | | $ | 84.84 | | | First Lien/Last-Out Unitranche | | | – | | | | – | | | | | | | | | | | Second Lien/Senior Secured Debt | | | | 2.38 | | | | 2.38 | | Total | | $ | 14.87 | | | $ | 6.80 | | | $ | 61.34 | | | $ | 87.22 | | | | | | | | | |
RECENT DEVELOPMENTS On October 31, 2017,May 5, 2020, our Board of Directors declared a quarterly distribution of $0.45 per share payable on January 16, 2018July 15, 2020 to holders of record as of December 29, 2017. On November 1, 2017, we and Cal Regents, as members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period for the Senior Credit Fund from November 1, 2017 to January 2, 2018.June 30, 2020.
CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, For a description of our critical accounting policies, are further described in the notes to the consolidated financial statements. 61
Valuation of Portfolio Investments
As a BDC, we conduct the valuation of our assets, pursuant to which our NAV is determined, at all times consistent with GAAP and the Investment Company Act. Our Board of Directors, with the assistance of our Audit Committee, determines the fair value of our assets within the meaning of the Investment Company Act, on at least a quarterly basis, in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”). Our valuation procedures are described in more detail below.
ASC 820 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. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same—to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.
The three-level hierarchy for fair value measurement is defined as follows:
Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
Level 2—inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.
Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument.
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Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, and the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation.
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:
| (1) | Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser responsible for the portfolio investment;
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| (2) | Our Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to our Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation approaches including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;
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| (3) | The Independent Valuation Advisors’ preliminary valuations are reviewed by our Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ ranges are compared to our Investment Adviser’s valuations to ensure our Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Valuation and Side Pocket Sub-Committee of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment making decision process;
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| (4) | The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;
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| (5) | The Audit Committee of our Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, our Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and
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| (6) | Our Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of our investments in good faith, based on the input of our Investment Adviser, the Independent Valuation Advisors and the Audit Committee.
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Investment Transactions and Related Investment Income
We record our investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method. Dividend income on common equity investments are recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Interest income and dividend income are presented net of withholding tax, if any. Accretion of discounts and amortization of premiums, which are included in interest income and expense, are recorded over the life of the underlying instrument using the effective interest method.
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Fair value generally is based on quoted market prices, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments in securities are measured at fair value as determined by our Investment Adviser and/or by one or more independent third parties.
Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. For additional information, see Note 2 “Significant Accounting Policies” to our consolidated financial statements included in this report.
Non-Accrual Status
Loans or debt securities are placed on non-accrual status when it is probable that principal or interest will not We consider the most significant accounting policies to be collected according to the contractual terms. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, principal and interest payments are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection. As of September 30, 2017, we had two investments on non-accrual status, which represented 3.4% and 1.5% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $0.00 million) at amortized cost and at fair value, respectively. As of December 31, 2016, we had two investments on non-accrual status, which represented 3.8% and 1.4% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $0.00 million) at amortized cost and at fair value, respectively.
Distribution Policy
We intend to pay quarterly distributionsthose related to our stockholders outValuation of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All distributions will be subject to lawfully available funds therefor,Portfolio Investments, Revenue Recognition, Non-Accrual Investments, Distribution Policy, and no assurance can be given that we will be able to declare distributions in future periods.
We have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. To obtain and maintain RIC status, we must, among other things, timely distribute to our stockholders at least 90% of our investment company taxable income for each taxable year. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Stockholders should read carefully any written disclosure regarding a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains.
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if our Board of Directors declares a cash distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have its distribution automatically reinvested in additional shares of our common stock rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and GS & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the GS 10b5-1 Plan.
Federal Income Taxes
As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income for each year. Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. We generally will be required to pay such U.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years.
Taxes.
64ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are subject to financial market risks, most significantly changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. Uncertainty with respect to the economic effects of the COVID-19 outbreak has introduced significant volatility in the financial markets, and the effect of the volatility could materially impact our market risks, including those listed below. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, on a fair value basis, approximately 4.0%1.5% and 7.2%, respectively,0.6% of our performing debt investments bore interest at a fixed rate (including income producing preferred stock investments), and approximately 96.0%98.5% and 92.8%, respectively,99.4% of our performing debt investments bore interest at a floating rate. Our borrowings under theour Revolving Credit Facility bear interest at a floating rate and theour Convertible Notes and our 2025 Notes bear interest at a fixed rate. We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on our September 30, 2017March 31, 2020 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure: | As of September 30, 2017 Basis Point Change | | Interest
Income | | | Interest
Expense | | | Net
Income | | | As of March 31, 2020 Basis Point Change | | | Interest Income | | | Interest Expense | | | Net Income | | | (in millions) | | | | | | | | | | | | | | | | | | | | | | | Up 300 basis points | | $ | 27.33 | | | $ | (9.32) | | | $ | 18.01 | | | $ | 33.82 | | | $ | (11.24 | ) | | $ | 22.58 | | | Up 200 basis points | | | 18.22 | | | | (6.21) | | | | 12.01 | | | | 22.53 | | | | (7.50 | ) | | | 15.03 | | | Up 100 basis points | | | 9.11 | | | | (3.11) | | | | 6.00 | | | | 11.23 | | | | (3.75 | ) | | | 7.48 | | | Up 75 basis points | | | 6.83 | | | | (2.33) | | | | 4.50 | | | | 8.41 | | | | (2.81 | ) | | | 5.60 | | | Up 50 basis points | | | 4.55 | | | | (1.55) | | | | 3.00 | | | | 5.59 | | | | (1.87 | ) | | | 3.72 | | | Up 25 basis points | | | 2.27 | | | | (0.78) | | | | 1.49 | | | | 2.77 | | | | (0.94 | ) | | | 1.83 | | | Down 25 basis points | | | (2.04) | | | | 0.78 | | | | (1.26) | | | | (1.57 | ) | | | 0.94 | | | | (0.63 | ) | | Down 50 basis points | | | (2.51) | | | | 1.55 | | | | (0.96) | | | | (2.83 | ) | | | 1.87 | | | | (0.96 | ) | | Down 75 basis points | | | (2.56) | | | | 2.33 | | | | (0.23) | | | | (3.00 | ) | | | 2.81 | | | | (0.19 | ) | | Down 100 basis points | | | (2.58) | | | | 3.11 | | | | 0.53 | | | | (3.16 | ) | | | 3.72 | | | | 0.56 | | | Down 200 basis points | | | (2.59) | | | | 3.83 | | | | 1.24 | | | | (3.25 | ) | | | 3.72 | | | | 0.47 | | | Down 300 basis points | | | (2.59) | | | | 3.83 | | | | 1.24 | | | | (3.25 | ) | | | 3.72 | | | | 0.47 | |
We may, in the future, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act, applicable CFTC regulations and in a manner consistent with SEC guidance. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in RuleRules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures arewere effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.as of March 31, 2020. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHEROTHER INFORMATION Item 1. Legal Proceedings. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. Item 1A. Risk Factors. An investment in our securities involves a high degree of risk. ThereExcept as set forth below, there have been no material changes to the risk factors previously reported under Item 1A:1A. “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2016,2019, which was filed with the SEC on February 28, 2017.20, 2020. Additional risks and uncertainties not currently known to the Companyus or that itwe currently deemsdeem to be immaterial may materially affect itsour business, financial condition and/or operating results.
Risks Relating to Our Business and Structure Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks. Social, political, economic and other conditions and events will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which the Company and its investments are exposed. In addition, global economies and financial markets are increasingly interconnected, and political, economic and other conditions and events in one country, region, or financial market may adversely impact issuers in a different country, region or financial market. Furthermore, the occurrence of, among other events, natural or man-made disasters, severe weather or geological events, fires, floods, earthquakes, outbreaks of disease (such as COVID-19, avian influenza or H1N1/09), epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts or the occurrence of climate change, also adversely impact our performance from time to time. Such events may result in, and have resulted in, closing borders, securities exchange closures, health screenings, healthcare service delays, quarantines, cancellations, supply chain disruptions, lower consumer demand, market volatility and general uncertainty. Such events could adversely impact our portfolio companies and markets and economies over the short- and long-term, including in ways that cannot necessarily be foreseen. We could be negatively impacted if the value of our portfolio company holdings were harmed by such political or economic conditions or events. Moreover, such negative political and economic conditions and events could disrupt the processes necessary for our operations. This could create widespread business continuity issues for us and our portfolio companies and heightened cybersecurity, information security and operational risks as a result of, among other things, remote work arrangements. For example, in December 2019, COVID-19 emerged in China and has since spread rapidly to other countries, including the United States. This outbreak has led, and for an unknown period of time will continue to lead, to disruptions in local, regional, national and global markets and economies affected thereby. The global impact of the outbreak is rapidly evolving, and many countries have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues. With respect to the U.S. credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following, among other things: (i) government imposition of various forms of shelter-in-place orders and the closing of "non-essential" businesses, resulting in significant disruption to the businesses of many middle-market loan borrowers including supply chains, demand and practical aspects of their operations, as well as furloughs or lay-offs of employees (while such measures are hoped to be temporary, their impact may persist or become permanent); (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by borrowers for amendments, forbearance agreements and waivers of provisions of their credit agreements in order to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility, and liquidity issues; and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems in functioning of the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle market businesses. The COVID-19 outbreak is having, and any future outbreaks could have, an adverse impact on the markets and the economy in general, which could have a material adverse impact on, among other things, the ability of lenders to originate loans, the volume and type of loans originated, and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by us and returns to us, among other things. As of the date of this quarterly report on Form 10-Q, it is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential impact on us and our portfolio companies. Further, even after the pandemic subsides, the U.S. economy, as well as most other major global economies may continue to experience a recession, and we anticipate our business could be materially and adversely affected by a prolonged recession in the U.S. and other major markets. Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and our portfolio companies. In many instances, the impact will be adverse and profound. For example, middle market companies in which we may invest are being significantly impacted by these emerging events and the uncertainty caused by these events. The effects of a public health emergency may materially and adversely impact (i) the value and performance of us and our portfolio companies, (ii) the ability of our borrowers to
continue to meet loan covenants or repay loans provided by us on a timely basis or at all, which may require us to restructure our investments or write down the value of our investments, (iii) our ability to comply with the covenants and other terms of our debt obligations and to repay such obligations, on a timely basis or at all, (iv) our ability to comply with certain regulatory requirements, such as asset coverage requirements under the 1940 Act, (v) our ability maintain our distributions at their current level or to pay them at all or (vi) our ability to source, manage and divest investments and achieve our investment objectives, all of which could result in significant losses to us. We will also be negatively affected if the operations and effectiveness of any of our portfolio companies (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted. Disruptions in the capital markets caused by the COVID-19 pandemic have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity can be expected to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our and our portfolio companies’ operating results and the fair values of our debt and equity investments. The capital markets are currently in a period of disruption and economic uncertainty. Such market conditions have materially and adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on our business and operations. The U.S. capital markets have experienced extreme disruption following the global outbreak of COVID-19. Such disruptions have been evidenced by volatility in global stock markets as a result of, among other things, uncertainty regarding the COVID-19 pandemic and the fluctuating price of commodities such as oil. Despite actions of the U.S. federal government and foreign governments, these events have contributed to worsening general economic conditions that are materially and adversely impacting broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole. These conditions could continue for a prolonged period of time or worsen in the future. Significant changes or volatility in the capital markets may negatively affect the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan to hold an investment to maturity). Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that may not reflect the full impact of the COVID-19 pandemic and measures taken in response thereto. Any public health emergency, including the COVID-19 pandemic or an outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies. Significant changes in the capital markets, such as the disruption in economic activity caused by the COVID-19 pandemic, have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our and our portfolio companies’ operating results and the fair values of our debt and equity investments. Additionally, the recent disruption in economic activity caused by the COVID-19 pandemic has had, and may continue to have, a negative effect on the potential for liquidity events involving our investments. The illiquidity of our investments may make it difficult for us to sell such investments to access capital if required. As a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them to increase our liquidity. An inability on our part to raise incremental capital, and any required sale of all or a portion of our investments as a result, could have a material adverse effect on our business, financial condition or results of operations. Further, current market conditions may make it difficult to raise equity capital, extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital available to us in the future, if available at all, may bear a higher interest rate and may be available only on terms and conditions less favorable than those of our existing debt and such debt may need to be incurred in a rising interest rate environment. If we are unable to raise new debt or refinance our existing debt, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage, and we may be unable to make new commitments or to fund existing commitments to our portfolio companies. Any inability to extend the maturity of or refinance our existing debt, or to obtain new debt, could have a material adverse effect on our business, financial condition or results of operations. We are exposed to risks associated with changes in interest rates. Our debt investments may be based on floating rates, such as LIBOR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments, the value of our securities and our rate of return on invested capital. Currently, most of our floating rate investments are linked to LIBOR and it is unclear how increased regulatory oversight and the future of LIBOR may affect market liquidity and the value of the financial obligations to be held by or issued to us that are linked to LIBOR, or how such changes could affect our investments and transactions and financial condition or results of operations. Central banks and regulators in a number of major jurisdictions (for example, the United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for interbank offered rates (“IBORs”). The U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that it intends not to compel panel banks to
contribute to LIBOR after 2021. The E.U. Benchmarks Regulation imposed conditions under which only compliant benchmarks may be used in new contracts after 2021. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by the U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. In addition, on March 25, 2020, the FCA reaffirmed the central assumption that firms cannot rely on LIBOR being published after the end of 2021. However, the outbreak of COVID-19 may adversely impact the timing of many firms’ transition planning, and we continue to assess the potential impact of the COVID-19 outbreak on our transition plans. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates, whether the COVID-19 outbreak will have further effect on LIBOR transition timelines or plans, or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR or alternative reference rates could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us. In addition, if LIBOR ceases to exist, we may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations. As such, some or all of these credit agreements may bear a lower interest rate, which would adversely impact our financial condition or results of operations. Moreover, if LIBOR ceases to exist, we may need to renegotiate certain terms of our Revolving Credit Facility. If we are unable to do so, amounts drawn under the Revolving Credit Facility may bear interest at a higher rate, which would increase the cost of our borrowings and, in turn, affect our results of operations. Because we have borrowed money, and may issue preferred stock to finance investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds or pay distributions on preferred stock and the rate that our investments yield. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. However, an increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock. In periods of rising interest rates, to the extent we borrow money subject to a floating interest rate, our cost of funds would increase, which could reduce our net investment income. Further, rising interest rates could also adversely affect our performance if such increases cause our borrowing costs to rise at a rate in excess of the rate that our investments yield. Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as a LIBOR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates. If general interest rates rise, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments. A change in the general level of interest rates can be expected to lead to a change in the interest rate we receive on many of our debt investments. Accordingly, a change in the interest rate could make it easier for us to meet or exceed the performance threshold in the Investment Management Agreement and may result in a substantial increase in the amount of incentive fees payable to our Investment Adviser with respect to the portion of the Incentive Fee based on income.
Item 2. UnregisteredUnregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. On November 1, 2017, we and Cal Regents, as members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period for the Senior Credit Fund from November 1, 2017 to January 2, 2018. See Exhibit 10.3 to this Quarterly Report on Form 10-Q.None.
ItemItem 6. Exhibits.
The exhibits filed as part of this Quarterly Reportquarterly report on Form 10-Q are set forth on the Index to Exhibits, which is incorporated herein by reference. 66
INDEX TO EXHIBITS
Exhibit No | | | Description of Exhibits | EXHIBIT
NO.
| | DESCRIPTION OF EXHIBITS
| 1.1 | | Underwriting Agreement, dated February 6, 2020, by and among Goldman Sachs BDC, Inc., Goldman Sachs Asset Management, L.P. and BofA Securities, Inc., as representative of the several underwriters named in Schedule A thereto. (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K (file no. 814-00098), filed on February 11, 2020). | 3.1 | | | 3.1 | | Certificate of Incorporation (incorporated by reference to Exhibit (a) to pre-effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (file no. 333-187642), filed on March 3, 2015). | | | | 3.2 | | Bylaws (incorporated by reference to Exhibit (a)(b) to pre-effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (file no. 333-187642), filed on March 3, 2015). | | | | 10.1 4.1 | | Dividend Reinvestment Plan, amendedIndenture, dated as of August 1, 2017February 10, 2020, relating to the 3.750% Notes due 2025, by and between Goldman Sachs BDC, Inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (file no. 814-00098), filed on February 11, 2020).
| | | | 4.2 | | First Supplemental Indenture, dated as of February 10, 2020, relating to the 3.750% Notes due 2025, by and between Goldman Sachs BDC, Inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (file no. 814-00098), filed on February 11, 2020). | | | | 4.3 | | Form of 3.750% Notes due 2025 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (file no. 814-00098), filed on February 11, 2020). | | | | 10.1 | | Sixth Amendment to Senior Secured Revolving Credit Agreement, dated as of February 25, 2020, among the Company, as Borrower, the lenders party thereto, Truist Bank (as successor by merger to SunTrust Bank), as Administrative Agent and as Collateral Agent and other parties party thereto (incorporated by reference to Exhibit 10.1 to the Company’s QuarterlyCurrent Report on Form 10-Q8-K (file no. 814-00998)814-00098), filed on August 3, 2017)February 28, 2020). | | | 10.2 | | Second Amendment to Senior Credit Fund, LLC Limited Liability Company Agreement, dated as of July 31, 2017 between Goldman Sachs BDC, Inc. and Regents of the University of California (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (file no. 814-00998) filed on August 3, 2017).
| | | | 10.3 | 31.1* | Third amendment to Senior Credit Fund, LLC Limited Liability Company Agreement, dated as of November 1, 2017, between Goldman Sachs BDC, Inc. and Regents of the University of California.
| | | 31.1 | | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002. | | | | 31.231.2* | | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | 32.132.1* | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002. |
*Filed herewith. �� 67
SIGNATURESSIGNATURES
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. | | | | | | | | | | | | | GOLDMAN SACHS BDC, INC. | | | | | Date: November 2, 2017May 11, 2020 | | | | | | /s/ Brendan McGovern | | | | | | | Brendan McGovern Chief Executive Officer and President (Principal Executive Officer) | | | | | Date: November 2, 2017May 11, 2020 | | | | | | /s/ Jonathan Lamm | | | | | | | Jonathan Lamm Chief Financial Officer and Treasurer (Principal Financial Officer) |
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