UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-56189814-01351
STEELE CREEK CAPITAL CORPORATION
| Maryland | 85-1327288 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
210 S. College Street, Suite 1690, Charlotte, North Carolina | 28244 | |
| (Address of principal executive offices) | (Zip Code) |
(704) 343-6011
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of December 23, 2020,May 14, 2021, the registrant had 2,633,227.762,799,856 shares of common stock, $0.001 par value per share, outstanding.
MSC Capital LLCSTEELE CREEK CAPITAL CORPORATION
Table of ContentsTABLE OF CONTENTS
i
MSC Capital LLCPart I. Financial Information
Item 1. Consolidated StatementFinancial Statements
Steele Creek Capital Corporation
Consolidated Statements of Assets and Liabilities
(unaudited)(in thousands, except per share data)
| September 30, 2020 | ||||
| Assets | ||||
| Investments, | ||||
| Non-controlled/non-affiliate company investments, at fair value (amortized cost of $26,383,346) | $ | 26,726,554 | ||
| Cash | 3,682,763 | |||
| Interest receivable | 31,730 | |||
| Receivable for investments sold | 23,240,920 | |||
| Total assets | $ | 53,681,967 | ||
| Liabilities | ||||
| Payable for investments purchased | 29,608,335 | |||
| Accounts payable and accrued expenses | 56,234 | |||
| Total liabilities | 29,664,569 | |||
| Commitments and contingencies (Note 10) | ||||
| Shareholders’ Equity: | ||||
| Common shares, $1,000 par value, 22,828 shares authorized, issued and outstanding as of September 30, 2020 | 22,828,000 | |||
| Paid-in-capital in excess of par value | 530,000 | |||
| Total distributable earnings | 659,398 | |||
| Total shareholders’ equity | $ | 24,017,398 | ||
| Total liabilities and shareholders’ equity | $ | 53,681,967 | ||
| Net asset value per share | $ | 1,052.10 | ||
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statement of Operations
(unaudited)
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statement of Changes in Shareholders’ Equity
(unaudited)
| Common Stock | Paid-in capital in | Distributable | Total | |||||||||||||||||
| Number of shares | Par value | excess of par value | Earnings (Loss) | shareholders’ equity | ||||||||||||||||
| Balances at July 1, 2020 (commencement of operations) | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Net investment income | - | - | - | 102,054 | 102,054 | |||||||||||||||
| Net realized gain on investments | - | - | - | 214,136 | 214,136 | |||||||||||||||
| Net change in unrealized appreciation on investments | - | - | - | 343,208 | 343,208 | |||||||||||||||
| Issuance of common shares | 22,828 | 22,828,000 | 530,000 | - | 23,358,000 | |||||||||||||||
| Balances at September 30, 2020 | 22,828 | $ | 22,828,000 | $ | 530,000 | $ | 659,398 | $ | 24,017,398 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statement of Cash Flows
(unaudited)
| For the period from July 1, 2020 (commencement of operations) through September 30, 2020 | ||||
| Cash flows from operating activities: | ||||
| Net increase in shareholder’s equity resulting from operations | $ | 659,398 | ||
| Adjustments to reconcile net increase in shareholder’s equity resulting from operations to net cash provided by (used in) operating activities | ||||
| Purchase of investments | (69,071,588 | ) | ||
| Proceeds from sales of investments and paydowns | 45,806,471 | |||
| Amortization of premium/accretion of discount, net | (45,811 | ) | ||
| Net realized gain on investments | (214,136 | ) | ||
| Net change in unrealized appreciation on investments | (343,208 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Interest receivable | (31,730 | ) | ||
| Receivable for investments sold | (23,240,920 | ) | ||
| Payable for investments purchased | 29,608,335 | |||
| Accounts payable and accrued expenses | 56,234 | |||
| Net cash used in operating activities | (16,816,955 | ) | ||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of common shares | 20,499,718 | |||
| Net cash provided by financing activities | 20,499,718 | |||
| Net increase in Cash | 3,682,763 | |||
| Cash, beginning of period | - | |||
| Cash, end of period | $ | 3,682,763 | ||
| Supplemental disclosure: | ||||
| Operating activities: | ||||
| Contribution of loan investments | $ | 2,858,282 | ||
| Financing activities: | ||||
| Contribution of loan investments from Members | $ | 2,858,282 | ||
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Schedule of Investments
(unaudited)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Shareholder’s Equity (4) | |||||||||||||||||||
| Non-controlled/Non-Affiliate Investments | |||||||||||||||||||||||||||
| Term Floating Rate Loans - 111.3% of Shareholder’s Equity (4) | |||||||||||||||||||||||||||
| Aerospace & Defense | |||||||||||||||||||||||||||
| Alion Science and Technology Corporation | 7/23/2024 | 4.75 | % | L + 3.75 | % | 1.00 | % | $ | 1,000,000 | $ | 990,156 | $ | 1,004,585 | 4.2 | % | ||||||||||||
| MAG DS Corp | 4/1/2027 | 6.50 | % | L + 5.50 | % | 1.00 | % | 1,000,000 | 950,000 | 955,625 | 4.0 | % | |||||||||||||||
| Milano Acquisition Corporation | 10/1/2027 | 4.75 | % | L + 4.00 | % | 0.75 | % | 1,000,000 | 990,000 | 991,875 | 4.1 | % | |||||||||||||||
| Spirit Aerosystems Inc. | 1/15/2025 | 6.00 | % | L + 5.25 | % | 0.75 | % | 500,000 | 497,500 | 500,000 | 2.1 | % | |||||||||||||||
| Total Aerospace & Defense | 3,427,656 | 3,452,085 | 14.4 | % | |||||||||||||||||||||||
| Automotive | |||||||||||||||||||||||||||
| NN, Inc. | 10/19/2022 | 6.50 | % | L + 5.75 | % | 0.75 | % | 1,640,161 | 1,551,502 | 1,626,539 | 6.8 | % | |||||||||||||||
| Total Automotive | 1,551,502 | 1,626,539 | 6.8 | % | |||||||||||||||||||||||
| Banking, Finance, Insurance & Real Estate | |||||||||||||||||||||||||||
| Broadstreet Partners, Inc. | 1/27/2027 | 4.75 | % | L + 3.75 | % | 1.00 | % | 997,500 | 978,370 | 990,019 | 4.1 | % | |||||||||||||||
| FinCo I LLC | 6/27/2025 | 2.65 | % | L + 2.50 | % | 0.15 | % | 500,000 | 498,750 | 498,230 | 2.1 | % | |||||||||||||||
| Hudson River Trading LLC | 2/18/2027 | 3.14 | % | L + 3.00 | % | 0.14 | % | 997,487 | 985,237 | 977,538 | 4.1 | % | |||||||||||||||
| Ryan Specialty Group LLC | 9/1/2027 | 4.00 | % | L + 3.25 | % | 0.75 | % | 1,000,000 | 985,163 | 992,505 | 4.1 | % | |||||||||||||||
| Total Banking, Finance, Insurance & Real Estate | 3,447,520 | 3,458,292 | 14.4 | % | |||||||||||||||||||||||
| Beverage, Food & Tobacco | |||||||||||||||||||||||||||
| Advantage Sales & Marketing Inc. | 7/23/2021 | 4.25 | % | L + 3.25 | % | 1.00 | % | 1,488,462 | 1,374,913 | 1,465,576 | 6.1 | % | |||||||||||||||
| Total Beverage, Food & Tobacco | 1,374,913 | 1,465,576 | 6.1 | % | |||||||||||||||||||||||
| Chemicals, Plastics, & Rubber | |||||||||||||||||||||||||||
| Aruba Investments, Inc. | 7/7/2025 | 5.25 | % | L + 4.25 | % | 1.00 | % | 1,000,000 | 988,674 | 997,080 | 4.2 | % | |||||||||||||||
| Total Chemicals, Plastics, & Rubber | 988,674 | 997,080 | 4.2 | % | |||||||||||||||||||||||
| Containers, Packaging & Glass | |||||||||||||||||||||||||||
| Canister International Group Inc. | 12/21/2026 | 4.90 | % | L + 4.75 | % | 0.15 | % | 500,000 | 497,500 | 500,000 | 2.1 | % | |||||||||||||||
| Plaze, Inc. | 8/3/2026 | 5.25 | % | L + 4.25 | % | 1.00 | % | 1,000,000 | 985,256 | 987,500 | 4.1 | % | |||||||||||||||
| Pro Mach Group, Inc. | 3/7/2025 | 4.50 | % | L + 3.50 | % | 1.00 | % | 265,031 | (12,785 | ) | 7,951 | 0.0 | % | ||||||||||||||
| Pro Mach Group, Inc. | 3/7/2025 | 4.50 | % | L + 3.50 | % | 1.00 | % | 802,957 | 777,081 | 786,898 | 3.3 | % | |||||||||||||||
| Total Containers, Packaging & Glass | 2,247,052 | 2,282,349 | 9.5 | % | |||||||||||||||||||||||
| Energy: Electricity | |||||||||||||||||||||||||||
| Hamilton Projects Acquiror LLC | 6/17/2027 | 5.75 | % | L + 4.75 | % | 1.00 | % | 997,500 | 977,901 | 996,877 | 4.2 | % | |||||||||||||||
| Total Energy: Electricity | 977,901 | 996,877 | 4.2 | % | |||||||||||||||||||||||
| Energy: Oil & Gas | |||||||||||||||||||||||||||
| ChampionX Holding Inc. | 6/3/2027 | 6.00 | % | L + 5.00 | % | 1.00 | % | 987,500 | 977,653 | 985,031 | 4.1 | % | |||||||||||||||
| Total Energy: Oil & Gas | 977,653 | 985,031 | 4.1 | % | |||||||||||||||||||||||
| Forest Products & Paper | |||||||||||||||||||||||||||
| Neenah, Inc. | 6/30/2027 | 5.00 | % | L + 4.00 | % | 1.00 | % | 997,500 | 978,044 | 997,500 | 4.2 | % | |||||||||||||||
| Total Forest Products & Paper | 978,044 | 997,500 | 4.2 | % | |||||||||||||||||||||||
| Healthcare & Pharmaceuticals | |||||||||||||||||||||||||||
| Global Medical Response, Inc. | 10/2/2025 | 5.75 | % | L + 4.75 | % | 1.00 | % | 500,000 | 490,000 | 489,688 | 2.0 | % | |||||||||||||||
| Lannett Company, Inc. | 11/25/2022 | 6.38 | % | L + 5.38 | % | 1.00 | % | 1,047,721 | 1,037,813 | 1,032,006 | 4.3 | % | |||||||||||||||
| Total Healthcare & Pharmaceuticals | 1,527,813 | 1,521,694 | 6.3 | % | |||||||||||||||||||||||
| High Tech Industries | |||||||||||||||||||||||||||
| Casa Systems, Inc. | 12/20/2023 | 5.00 | % | L + 4.00 | % | 1.00 | % | 481,250 | 455,716 | 458,691 | 1.9 | % | |||||||||||||||
| LogMeIn, Inc. | 8/31/2027 | 4.91 | % | L + 4.75 | % | 0.16 | % | 1,000,000 | 975,207 | 968,440 | 4.0 | % | |||||||||||||||
| Total High Tech Industries | 1,430,923 | 1,427,131 | 5.9 | % | |||||||||||||||||||||||
| Media: Advertising, Printing & Publishing | |||||||||||||||||||||||||||
| Meredith Corporation | 1/31/2025 | 5.25 | % | L + 4.25 | % | 1.00 | % | 997,500 | 959,334 | 986,692 | 4.1 | % | |||||||||||||||
| Total Media: Advertising, Printing & Publishing | 959,334 | 986,692 | 4.1 | % | |||||||||||||||||||||||
| Media: Broadcasting & Subscription | |||||||||||||||||||||||||||
| Univision Communications Inc. | 3/13/2026 | 4.75 | % | L + 3.75 | % | 1.00 | % | 498,750 | 471,921 | 486,862 | 2.0 | % | |||||||||||||||
| Total Media: Broadcasting & Subscription | 471,921 | 486,862 | 2.0 | % | |||||||||||||||||||||||
| Retail | |||||||||||||||||||||||||||
| Michaels Stores, Inc. | 10/1/2027 | 4.25 | % | L + 3.50 | % | 0.75 | % | 1,000,000 | 985,000 | 977,500 | 4.1 | % | |||||||||||||||
| Total Retail | 985,000 | 977,500 | 4.1 | % | |||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investments: | ||||||||
| Non-controlled/non-affiliate company investments, at fair value (amortized cost of $70,248 and $66,956, respectively) | $ | 71,106 | $ | 67,811 | ||||
| Cash | 3,477 | 3,206 | ||||||
| Receivable for investments sold | 56,277 | 28,092 | ||||||
| Prepaid expenses and other assets | 130 | 192 | ||||||
| Interest receivable | 160 | 96 | ||||||
| Total assets | $ | 131,150 | $ | 99,397 | ||||
| Liabilities | ||||||||
| Credit facility | 45,000 | 27,800 | ||||||
| Payable for investments purchased | 55,542 | 42,426 | ||||||
| Management fees payable | 174 | - | ||||||
| Interest payable | 2 | 38 | ||||||
| Incentive fees payable | 44 | - | ||||||
| Accounts payable and accrued expenses | 342 | 349 | ||||||
| Directors’ fees payable | 39 | 19 | ||||||
| Distributions payable | 436 | 425 | ||||||
| Total liabilities | 101,579 | 71,057 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Net Assets: | ||||||||
| Common shares, $0.001 par value, 2,706,393 shares authorized, 2,706,393 and 2,633,228 shares issued and outstanding, respectively | 3 | 3 | ||||||
| Paid-in-capital in excess of par value | 28,932 | 28,049 | ||||||
| Total distributable earnings | 636 | 288 | ||||||
| Total net assets | $ | 29,571 | $ | 28,340 | ||||
| Total liabilities and net assets | $ | 131,150 | $ | 99,397 | ||||
| Net asset value per share | $ | 10.93 | $ | 10.76 | ||||
The accompanying notes are an integral part of these consolidated financial statements
MSCSteele Creek Capital LLCCorporation
Consolidated Statement of Operations
(unaudited)
(in thousands, except per share data)
| Three months ended March 31, 2021 | ||||
| Investment income: | ||||
| Non-controlled/non-affiliate company investments: | ||||
| Interest income | $ | 894 | ||
| Other income | 9 | |||
| Total investment income | 903 | |||
| Expenses: | ||||
| Management fees | 289 | |||
| Interest and debt financing expenses | 238 | |||
| Professional fees | 159 | |||
| Incentive fees | 110 | |||
| Offering costs - paid by Moelis Asset | 60 | |||
| Administration expenses | 38 | |||
| Organizational costs | 36 | |||
| Organizational costs - paid by Moelis Asset | 24 | |||
| Directors’ fees | 20 | |||
| Custody fees | 7 | |||
| Other general and administrative expenses | 49 | |||
| Total expenses | 1,030 | |||
| Less: management fees waived | (115 | ) | ||
| Less: incentive fees waived | (65 | ) | ||
| Net expenses | 850 | |||
| Net investment income | 53 | |||
| Realized and unrealized gain on investments: | ||||
| Net realized gain on non-controlled/non-affiliate company investments | 728 | |||
| Net change in unrealized appreciation on non-controlled/non-affiliate company investments | 3 | |||
| Total net realized and unrealized gain on investments | 731 | |||
| Net increase in net assets resulting from operations | $ | 784 | ||
| Per share data: | ||||
| Net investment income per share - basic and diluted | $ | 0.02 | ||
| Net increase in net assets resulting from operations per share - basic and diluted | $ | 0.30 | ||
| Weighted average shares outstanding - basic and diluted | 2,652 | |||
The accompanying notes are an integral part of these consolidated financial statements
Steele Creek Capital Corporation
Consolidated Statement of Changes in Net Assets
(unaudited)
(in thousands, except per share data)
| Common Stock | Paid-in capital in | Distributable | ||||||||||||||||||
| Number of shares | Par value | excess of par value | Earnings (Loss) | Total net assets | ||||||||||||||||
| Balances at December 31, 2020 | 2,633 | $ | 3 | $ | 28,049 | $ | 288 | $ | 28,340 | |||||||||||
| Net investment gain | - | - | - | 53 | 53 | |||||||||||||||
| Net realized gain on investments | - | - | - | 728 | 728 | |||||||||||||||
| Net change in unrealized appreciation on investments | - | - | - | 3 | 3 | |||||||||||||||
| Issuance of common shares | 73 | - | 800 | - | 800 | |||||||||||||||
| Distributions to stockholders | - | - | - | (436 | ) | (436 | ) | |||||||||||||
| Contribution for organizational and offering costs | - | - | 36 | - | 36 | |||||||||||||||
| Deferred offering costs | - | - | 47 | - | 47 | |||||||||||||||
| Increase in net assets during the period | 73 | - | 883 | 348 | 1,231 | |||||||||||||||
| Balances at March 31, 2021 | 2,706 | $ | 3 | $ | 28,932 | $ | 636 | $ | 29,571 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements
Steele Creek Capital Corporation
Consolidated Statement of Cash Flows
(unaudited)
(in thousands, except per share data)
| Three months ended March 31, 2021 | ||||
| Cash flows from operating activities: | ||||
| Net increase in net assets resulting from operations | $ | 784 | ||
| Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities | ||||
| Purchase of investments | (130,232 | ) | ||
| Proceeds from sales of investments and paydowns | 127,715 | |||
| Payment in-kind interest income | (1 | ) | ||
| Adjustment from Moelis Asset for organizational and offering costs | 36 | |||
| Amortization of premium/accretion of discount, net | (46 | ) | ||
| Net realized gain on investments | (728 | ) | ||
| Net change in unrealized appreciation on investments | (3 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Receivable for investments sold | (28,185 | ) | ||
| Prepaid expenses and other assets | 62 | |||
| Interest receivable | (64 | ) | ||
| Payable for investments purchased | 13,116 | |||
| Management fees payable | 174 | |||
| Interest payable | (36 | ) | ||
| Inventive fees payable | 44 | |||
| Accounts payable and accrued expenses | (7 | ) | ||
| Directors’ fees payable | 20 | |||
| Net cash used in operating activities | (17,351 | ) | ||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of common shares | 800 | |||
| Proceeds from issuance of debt | 17,200 | |||
| Payments of offering costs | 47 | |||
| Stockholder distributions paid | (425 | ) | ||
| Net cash provided by financing activities | 17,622 | |||
| Net increase in Cash | 271 | |||
| Cash, beginning of period | 3,206 | |||
| Cash, end of period | $ | 3,477 | ||
The accompanying notes are an integral part of these consolidated financial statements
Steele Creek Capital Corporation
Consolidated Schedule of Investments
March 31, 2021
(unaudited)
(in thousands, except per share data)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Shareholder’s Equity (4) | |||||||||||||||||||
| Services: Business | |||||||||||||||||||||||||||
| iQor US Inc. | 12/10/2020 | 11.00 | % | L + 10.00 | % | 1.00 | % | 405,725 | 397,651 | 381,382 | 1.6 | % | |||||||||||||||
| Total Services: Business | 397,651 | 381,382 | 1.6 | % | |||||||||||||||||||||||
| Services: Consumer | |||||||||||||||||||||||||||
| Herschend Entertainment Co LLC | 8/25/2025 | 6.75 | % | L + 5.75 | % | 1.00 | % | 500,000 | 480,316 | 482,500 | 2.0 | % | |||||||||||||||
| Smart Start, Inc. | 8/19/2027 | 5.75 | % | L + 4.75 | % | 1.00 | % | 1,000,000 | 990,125 | 1,002,710 | 4.2 | % | |||||||||||||||
| Total Services: Consumer | 1,470,441 | 1,485,210 | 6.2 | % | |||||||||||||||||||||||
| Telecommunications | |||||||||||||||||||||||||||
| Avaya Inc. (5) | 12/15/2024 | 4.40 | % | L + 4.25 | % | 0.15 | % | - | 609 | - | 0.0 | % | |||||||||||||||
| Total Telecommunications | 609 | - | 0.0 | % | |||||||||||||||||||||||
| Transportation: Cargo | |||||||||||||||||||||||||||
| SMB Shipping Logistics, LLC | 2/2/2024 | 5.00 | % | L + 4.00 | % | 1.00 | % | 733,671 | 694,254 | 704,324 | 2.9 | % | |||||||||||||||
| Wabash National Corporation | 9/28/2027 | 4.00 | % | L + 3.25 | % | 0.75 | % | 1,000,000 | 990,000 | 996,250 | 4.1 | % | |||||||||||||||
| Total Transportation: Cargo | 1,684,254 | 1,700,574 | 7.0 | % | |||||||||||||||||||||||
| Transportation: Consumer | |||||||||||||||||||||||||||
| SkyMiles IP Ltd. | 10/20/2027 | 4.75 | % | L + 3.75 | % | 1.00 | % | 1,000,000 | 990,000 | 1,008,575 | 4.2 | % | |||||||||||||||
| Total Transportation: Consumer | 990,000 | 1,008,575 | 4.2 | % | |||||||||||||||||||||||
| Utilities: Electric | |||||||||||||||||||||||||||
| PG&E Corporation | 6/23/2025 | 5.50 | % | L + 4.50 | % | 1.00 | % | 498,750 | 494,485 | 489,605 | 2.0 | % | |||||||||||||||
| Total Utilities: Electric | 494,485 | 489,605 | 2.0 | % | |||||||||||||||||||||||
| Total Term Floating Rate Loans | 26,383,346 | 26,726,554 | 111.3 | % | |||||||||||||||||||||||
| Total Non-controlled/Non-Affiliate Investments | $ | 26,383,346 | $ | 26,726,554 | 111.3 | % | |||||||||||||||||||||
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Assets (4) | ||||||||||||||||||||
| Non-controlled/Non-Affiliate Investments | ||||||||||||||||||||||||||||
| Term Floating Rate Loans - 241.5% of Shareholder’s Equity (4) | ||||||||||||||||||||||||||||
| Aerospace & Defense | ||||||||||||||||||||||||||||
| Amentum Holdings | 1/29/2027 | 5.50 | % | L + 4.75% | 0.75 | % | 1,000 | $ | 981 | $ | 1,005 | 3.4 | % | |||||||||||||||
| Guidehouse | 5/1/2025 | 4.11 | % | L + 4.00% | 0.11 | % | 997 | 993 | 999 | 3.4 | % | |||||||||||||||||
| MAG DS Corp | 4/1/2027 | 6.50 | % | L + 5.50% | 1.00 | % | 995 | 949 | 978 | 3.3 | % | |||||||||||||||||
| Peraton | 2/1/2028 | 4.50 | % | L + 3.75% | 0.75 | % | 362 | 361 | 363 | 1.2 | % | |||||||||||||||||
| Peraton | 2/1/2028 | 4.50 | % | L + 3.75% | 0.75 | % | 638 | (3 | ) | - | 0.0 | % | ||||||||||||||||
| Perspecta | 5/30/2025 | 2.36 | % | L + 2.25% | 0.11 | % | 750 | 750 | 753 | 2.5 | % | |||||||||||||||||
| Spirit Aerosystems Inc. | 1/15/2025 | 6.00 | % | L + 5.25% | 0.75 | % | 499 | 496 | 503 | 1.7 | % | |||||||||||||||||
| Total Aerospace & Defense | 4,527 | 4,601 | 15.5 | % | ||||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||||||
| Autokiniton | 3/30/2024 | 5.36 | % | L + 5.25% | 0.11 | % | 987 | 979 | 989 | 3.3 | % | |||||||||||||||||
| Autokiniton | 4/6/2028 | 5.00 | % | L + 4.50% | 0.50 | % | 1,000 | 997 | 1,004 | 3.4 | % | |||||||||||||||||
| Total Automotive | 1,976 | 1,993 | 6.7 | % | ||||||||||||||||||||||||
| Banking, Finance, Insurance & Real Estate | ||||||||||||||||||||||||||||
| Baldwin Risk Partners | 10/14/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 995 | 981 | 995 | 3.4 | % | |||||||||||||||||
| Broadstreet Partners, Inc. | 1/27/2027 | 4.75 | % | L + 3.75% | 1.00 | % | 993 | 975 | 994 | 3.4 | % | |||||||||||||||||
| Citadel Securities | 2/2/2028 | 2.61 | % | L + 2.50% | 0.11 | % | 1,053 | 1,052 | 1,044 | 3.5 | % | |||||||||||||||||
| DRW Holdings | 3/1/2028 | 3.86 | % | L + 3.75% | 0.11 | % | 1,000 | 995 | 999 | 3.4 | % | |||||||||||||||||
| FinCo I LLC | 6/27/2025 | 2.61 | % | L + 2.50% | 0.11 | % | 498 | 497 | 496 | 1.7 | % | |||||||||||||||||
| Hudson River Trading | 3/20/2028 | 3.14 | % | L + 3.00% | 0.14 | % | 1,000 | 990 | 994 | 3.4 | % | |||||||||||||||||
| Jane Street Group | 1/26/2028 | 2.86 | % | L + 2.75% | 0.11 | % | 997 | 996 | 989 | 3.3 | % | |||||||||||||||||
| Syncapay | 12/10/2027 | 7.50 | % | L + 6.50% | 1.00 | % | 497 | 478 | 497 | 1.7 | % | |||||||||||||||||
| Total Banking, Finance, Insurance & Real Estate | 6,964 | 7,008 | 23.8 | % | ||||||||||||||||||||||||
| Beverage, Food, & Tobacco | ||||||||||||||||||||||||||||
| City Brewing Company | 4/5/2028 | 4.25 | % | L + 3.50% | 0.75 | % | 2,000 | 1,990 | 2,000 | 6.8 | % | |||||||||||||||||
| Hostess Brands | 8/3/2025 | 3.00 | % | L + 2.25% | 0.75 | % | 47 | 47 | 47 | 0.2 | % | |||||||||||||||||
| Total Beverage, Food, & Tobacco | 2,037 | 2,047 | 7.0 | % | ||||||||||||||||||||||||
| Capital Equipment | ||||||||||||||||||||||||||||
| American Trailer World | 3/3/2028 | 4.50 | % | L + 3.75% | 0.75 | % | 500 | 498 | 498 | 1.7 | % | |||||||||||||||||
| Mirion Technologies | 3/6/2026 | 4.20 | % | L + 4.00% | 0.20 | % | 995 | 988 | 998 | 3.4 | % | |||||||||||||||||
| Total Capital Equipment | 1,486 | 1,496 | 5.1 | % | ||||||||||||||||||||||||
| Chemicals, Plastics, & Rubber | ||||||||||||||||||||||||||||
| DuBois Chemicals | 9/30/2026 | 4.61 | % | L + 4.50% | 0.11 | % | 500 | 496 | 499 | 1.7 | % | |||||||||||||||||
| Total Chemicals, Plastics, & Rubber | 496 | 499 | 1.7 | % | ||||||||||||||||||||||||
| Construction & Building | ||||||||||||||||||||||||||||
| APi Group | 10/1/2026 | 2.86 | % | L + 2.75% | 0.11 | % | 998 | 983 | 998 | 3.4 | % | |||||||||||||||||
| Total Construction & Building | 983 | 998 | 3.4 | % | ||||||||||||||||||||||||
| Consumer Goods: Durable | ||||||||||||||||||||||||||||
| Mannington Mills | 8/6/2026 | 4.20 | % | L + 4.00% | 0.20 | % | 440 | 435 | 439 | 1.5 | % | |||||||||||||||||
| Total Consumer Goods: Durable | 435 | 439 | 1.5 | % | ||||||||||||||||||||||||
| Containers, Packaging & Glass | ||||||||||||||||||||||||||||
| Canister International Group Inc. | 12/21/2026 | 4.86 | % | L + 4.75% | 0.11 | % | 497 | 495 | 499 | 1.7 | % | |||||||||||||||||
| Plaze, Inc. | 8/3/2026 | 4.75 | % | L + 3.75% | 1.00 | % | 995 | 981 | 993 | 3.4 | % | |||||||||||||||||
| Pro Mach Group, Inc. | 3/7/2025 | 4.50 | % | L + 3.50% | 1.00 | % | 1,063 | 1,041 | 1,062 | 3.6 | % | |||||||||||||||||
| Proampac PG Borrower | 11/3/2025 | 5.00 | % | L + 4.00% | 1.00 | % | 295 | 293 | 295 | 1.0 | % | |||||||||||||||||
| Sabert Corp | 12/10/2026 | 5.50 | % | L + 4.50% | 1.00 | % | 729 | 724 | 731 | 2.5 | % | |||||||||||||||||
| Total Containers, Packaging & Glass | 3,534 | 3,580 | 12.2 | % | ||||||||||||||||||||||||
| Energy: Electricity | ||||||||||||||||||||||||||||
| Astoria Energy | 12/10/2027 | 4.50 | % | L + 3.50% | 1.00 | % | 995 | 990 | 997 | 3.4 | % | |||||||||||||||||
| Hamilton Projects Acquiror LLC | 6/17/2027 | 5.75 | % | L + 4.75% | 1.00 | % | 993 | 973 | 998 | 3.4 | % | |||||||||||||||||
| Total Energy: Electricity | 1,963 | 1,995 | 6.8 | % | ||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||||||
| ChampionX Holding Inc. | 6/3/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 963 | 954 | 982 | 3.3 | % | |||||||||||||||||
| Total Energy: Oil & Gas | 954 | 982 | 3.3 | % | ||||||||||||||||||||||||
Steele Creek Capital Corporation
Consolidated Schedule of Investments (continued)
March 31, 2021
(unaudited)
(in thousands, except per share data)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Assets (4) | ||||||||||||||||||||
| Forest Products & Paper | ||||||||||||||||||||||||||||
| Neenah, Inc. | 6/30/2027 | 5.00 | % | L + 4.00% | 1.00 | % | 992 | $ | 973 | $ | 995 | 3.4 | % | |||||||||||||||
| Neenah, Inc. | 4/6/2028 | 3.50 | % | L + 3.00% | 0.50 | % | 1,000 | 995 | 1,000 | 3.4 | % | |||||||||||||||||
| Schweitzer-Mauduit | 1/27/2028 | 4.50 | % | L + 3.75% | 0.75 | % | 1,000 | 990 | 999 | 3.4 | % | |||||||||||||||||
| Total Forest Products & Paper | 2,958 | 2,994 | 10.2 | % | ||||||||||||||||||||||||
| Healthcare & Pharmaceuticals | ||||||||||||||||||||||||||||
| CCRR Parent | 3/6/2028 | 5.00 | % | L + 4.25% | 0.75 | % | 1,000 | 995 | 1,003 | 3.4 | % | |||||||||||||||||
| FC Compassus | 12/31/2026 | 5.00 | % | L + 4.25% | 0.75 | % | 997 | 995 | 1,003 | 3.4 | % | |||||||||||||||||
| Global Medical Response, Inc. | 10/2/2025 | 5.75 | % | L + 4.75% | 1.00 | % | 499 | 490 | 498 | 1.7 | % | |||||||||||||||||
| Golden State Medical Supply | 6/21/2026 | 5.50 | % | L + 4.75% | 0.75 | % | 995 | 986 | 997 | 3.4 | % | |||||||||||||||||
| HAH Group Holding | 10/29/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 112 | (2 | ) | 1 | 0.0 | % | ||||||||||||||||
| HAH Group Holding | 10/29/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 888 | 875 | 892 | 3.0 | % | |||||||||||||||||
| ICH US Intermediate | 12/24/2026 | 6.75 | % | L + 5.75% | 1.00 | % | 1,227 | 1,229 | 1,230 | 4.2 | % | |||||||||||||||||
| Lannett Company, Inc. | 11/25/2022 | 6.38 | % | L + 5.38% | 1.00 | % | 1,011 | 1,006 | 971 | 3.3 | % | |||||||||||||||||
| Onex TSG | 2/28/2028 | 5.50 | % | L + 4.75% | 0.75 | % | 1,000 | 980 | 991 | 3.4 | % | |||||||||||||||||
| SCP Eye Care | 3/16/2028 | 5.25 | % | L + 4.50% | 0.75 | % | 852 | 850 | 853 | 2.9 | % | |||||||||||||||||
| SPC Eye Care | 3/16/2028 | 5.25 | % | L + 4.50% | 0.75 | % | 148 | - | - | 0.0 | % | |||||||||||||||||
| TTF Holdings | 3/31/2028 | 5.00 | % | L + 4.25% | 0.75 | % | 750 | 744 | 748 | 2.5 | % | |||||||||||||||||
| Total Healthcare & Pharmaceuticals | 9,148 | 9,187 | 31.2 | % | ||||||||||||||||||||||||
| High Tech Industries | ||||||||||||||||||||||||||||
| Casa Systems, Inc. | 12/20/2023 | 5.00 | % | L + 4.00% | 1.00 | % | 479 | 457 | 478 | 1.6 | % | |||||||||||||||||
| Flexera Software | 3/3/2028 | 4.50 | % | L + 3.75% | 0.75 | % | 997 | 995 | 1,001 | 3.4 | % | |||||||||||||||||
| Hyland Software | 7/1/2024 | 4.25 | % | L + 3.50% | 0.75 | % | 1,000 | 993 | 1,001 | 3.4 | % | |||||||||||||||||
| LogMeIn, Inc. | 8/31/2027 | 4.85 | % | L + 4.75% | 0.10 | % | 998 | 975 | 996 | 3.4 | % | |||||||||||||||||
| PointClickCare Technologies | 12/29/2027 | 3.75 | % | L + 3.00% | 0.75 | % | 1,000 | 995 | 1,001 | 3.4 | % | |||||||||||||||||
| Riverbed Technology | 12/31/2025 | 7.00 | % | L + 6.00% | 1.00 | % | 500 | 493 | 481 | 1.6 | % | |||||||||||||||||
| Syncsort | 8/16/2024 | 5.50 | % | L + 4.75% | 0.75 | % | 499 | 498 | 499 | 1.7 | % | |||||||||||||||||
| Ultra Clean | 8/27/2025 | 3.86 | % | L + 3.75% | 0.11 | % | 500 | 498 | 502 | 1.7 | % | |||||||||||||||||
| Verifone | 8/20/2025 | 4.18 | % | L + 4.00% | 0.18 | % | 997 | 980 | 976 | 3.3 | % | |||||||||||||||||
| Watlow Electric Manufacturing | 3/2/2028 | 4.50 | % | L + 4.00% | 0.50 | % | 550 | 547 | 550 | 1.9 | % | |||||||||||||||||
| Total High Tech Industries | 7,431 | 7,485 | 25.4 | % | ||||||||||||||||||||||||
| Hotel, Gaming & Leisure | ||||||||||||||||||||||||||||
| Sabre GLBL | 12/17/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 748 | 741 | 757 | 2.6 | % | |||||||||||||||||
| Total Hotel, Gaming & Leisure | 741 | 757 | 2.6 | % | ||||||||||||||||||||||||
| Media: Advertising, Printing & Publishing | ||||||||||||||||||||||||||||
| Meredith Corporation | 1/31/2025 | 5.25 | % | L + 4.25% | 1.00 | % | 993 | 956 | 1,011 | 3.4 | % | |||||||||||||||||
| Thryv | 3/1/2026 | 9.50 | % | L + 8.50% | 1.00 | % | 500 | 485 | 502 | 1.7 | % | |||||||||||||||||
| Total Media: Advertising, Printing & Publishing | 1,441 | 1,513 | 5.1 | % | ||||||||||||||||||||||||
| Media: Broadcasting & Subscription | ||||||||||||||||||||||||||||
| Terrier Media | 12/17/2026 | 3.61 | % | L + 3.50% | 0.11 | % | 995 | 976 | 987 | 3.3 | % | |||||||||||||||||
| Univision Communications Inc. | 3/13/2025 | 4.75 | % | L + 3.75% | 1.00 | % | 491 | 465 | 491 | 1.7 | % | |||||||||||||||||
| Total Media: Broadcasting & Subscription | 1,441 | 1,478 | 5.0 | % | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||||
| EG Group | 3/11/2026 | 4.75 | % | L + 4.25% | 0.50 | % | 1,000 | 991 | 991 | 3.4 | % | |||||||||||||||||
| Great Outdoors Group | 3/6/2028 | 5.00 | % | L + 4.25% | 0.75 | % | 997 | 993 | 1,000 | 3.4 | % | |||||||||||||||||
| Rent-A-Center | 2/17/2028 | 4.75 | % | L + 4.00% | 0.75 | % | 591 | 589 | 596 | 2.0 | % | |||||||||||||||||
| Vestcom | 12/19/2023 | 4.75 | % | L + 3.75% | 1.00 | % | 997 | 993 | 995 | 3.4 | % | |||||||||||||||||
| Total Retail | 3,566 | 3,582 | 12.2 | % | ||||||||||||||||||||||||
| Services: Business | ||||||||||||||||||||||||||||
| Ahead DB Holdings | 10/18/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 1,000 | 962 | 1,003 | 3.4 | % | |||||||||||||||||
| Mermaid Bidco | 12/22/2027 | 5.00 | % | L + 4.25% | 0.75 | % | 500 | 498 | 501 | 1.7 | % | |||||||||||||||||
| Nexus Buyer | 11/9/2026 | 3.86 | % | L + 3.75% | 0.11 | % | 995 | 986 | 992 | 3.4 | % | |||||||||||||||||
| Nielsen Consumer | 3/6/2028 | 4.10 | % | L + 4.00% | 0.10 | % | 500 | 498 | 499 | 1.7 | % | |||||||||||||||||
| Pitney Bowes | 3/17/2028 | 4.11 | % | L + 4.00% | 0.11 | % | 1,000 | 990 | 1,000 | 3.4 | % | |||||||||||||||||
| Project Angel | 5/30/2025 | 5.00 | % | L + 4.00% | 1.00 | % | 499 | 494 | 499 | 1.7 | % | |||||||||||||||||
| Rocket Software | 11/28/2025 | 4.36 | % | L + 4.25% | 0.11 | % | 497 | 492 | 497 | 1.7 | % | |||||||||||||||||
| Virtusa | 2/11/2028 | 5.00 | % | L + 4.25% | 0.75 | % | 1,000 | 985 | 1,003 | 3.4 | % | |||||||||||||||||
| Total Services: Business | 5,905 | 5,994 | 20.4 | % | ||||||||||||||||||||||||
| Services: Consumer | ||||||||||||||||||||||||||||
| Herschend Entertainment Co LLC | 8/25/2025 | 6.75 | % | L + 5.75% | 1.00 | % | 498 | 480 | 509 | 1.7 | % | |||||||||||||||||
| Red Ventures | 11/8/2024 | 4.25 | % | L + 3.50% | 0.75 | % | 997 | 979 | 999 | 3.4 | % | |||||||||||||||||
| Smart Start, Inc. | 8/19/2027 | 5.75 | % | L + 4.75% | 1.00 | % | 995 | 985 | 1,001 | 3.4 | % | |||||||||||||||||
| Total Services: Consumer | 2,444 | 2,509 | 8.5 | % | ||||||||||||||||||||||||
Steele Creek Capital Corporation
Consolidated Schedule of Investments (continued)
March 31, 2021
(unaudited)
(in thousands, except per share data)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Assets (4) | ||||||||||||||||||||||
| Telecommunications | ||||||||||||||||||||||||||||||
| Avaya | 12/15/2027 | 4.36 | % | L + 4.25% | 0.11 | % | 850 | $ | 838 | $ | 852 | 2.9 | % | |||||||||||||||||
| CCI Buyer | 12/17/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 1,000 | 990 | 1,003 | 3.4 | % | |||||||||||||||||||
| GTT Communications | 12/28/2021 | 6.00 | % | L + 5.00% | 1.00 | % | 569 | 569 | 581 | 2.0 | % | |||||||||||||||||||
| Mavenir | 5/8/2025 | 7.00 | % | L + 6.00% | 1.00 | % | 995 | 993 | 997 | 3.4 | % | |||||||||||||||||||
| Syniverse Holdings | 3/9/2023 | 6.00 | % | L + 5.00% | 1.00 | % | 499 | 490 | 493 | 1.7 | % | |||||||||||||||||||
| Total Telecommunications | 3,880 | 3,926 | 13.4 | % | ||||||||||||||||||||||||||
| Transportation: Cargo | ||||||||||||||||||||||||||||||
| Daseke | 3/9/2028 | 4.75 | % | L + 4.00% | 0.75 | % | 1,000 | 995 | 1,003 | 3.4 | % | |||||||||||||||||||
| Kenan Advantage Group | 3/24/2026 | 4.50 | % | L + 3.75% | 0.75 | % | 817 | 813 | 814 | 2.8 | % | |||||||||||||||||||
| PS Holdco | 3/13/2025 | 5.75 | % | L + 4.75% | 1.00 | % | 449 | 428 | 452 | 1.5 | % | |||||||||||||||||||
| Total Transportation: Cargo | 2,236 | 2,269 | 7.7 | % | ||||||||||||||||||||||||||
| Transportation: Consumer | ||||||||||||||||||||||||||||||
| AAdvantage Loyalty | 4/20/2028 | 5.50 | % | L + 4.75% | 0.75 | % | 1,000 | 990 | 1,026 | 3.4 | % | |||||||||||||||||||
| Avolon | 12/1/2027 | 3.25 | % | L + 2.50% | 0.75 | % | 998 | 988 | 999 | 3.4 | % | |||||||||||||||||||
| Railworks | 12/14/2027 | 6.50 | % | L + 5.50% | 1.00 | % | 461 | 454 | 465 | 1.6 | % | |||||||||||||||||||
| Total Transportation: Consumer | 2,432 | 2,490 | 8.4 | % | ||||||||||||||||||||||||||
| Utilities: Electric | ||||||||||||||||||||||||||||||
| PG&E Corporation | 6/23/2025 | 3.50 | % | L + 3.00% | 0.50 | % | 496 | 493 | 496 | 1.7 | % | |||||||||||||||||||
| Total Utilities: Electric | 493 | 496 | 1.7 | % | ||||||||||||||||||||||||||
| Wholesale | ||||||||||||||||||||||||||||||
| United Natural Foods | 10/22/2025 | 3.61 | % | L + 3.50% | 0.11 | % | 788 | 777 | 788 | 2.7 | % | |||||||||||||||||||
| Total Wholesale | 777 | 788 | 2.7 | % | ||||||||||||||||||||||||||
| Total Term Floating Rate Loans | 70,248 | 71,106 | 241.5 | % | ||||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||
| Total Non-controlled/Non-Affiliate Investments | $ | 70,248 | $ | 71,106 | 241.5 | % | ||||||||||||||||||||||||
| (1) | All investments are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940 (the “1940 Act”). The provisions of the 1940 Act classify investments based on the level of control that the Company maintains in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when the Company owns 25% or less of the portfolio company’s voting securities and “controlled” when the Company owns more than 25% of the portfolio company’s voting securities. The provisions of the 1940 Act also classify investments further based on the level of ownership that the Company maintains in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as “non-affiliated” when the Company owns less than 5% of a portfolio company’s voting securities and “affiliated” when the Company owns 5% or more of a portfolio company’s voting securities. |
| (2) | Unless otherwise indicated, issuers of debt held by the Company are domiciled in the United States. |
| (3) | The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) which reset monthly or quarterly. For each such investment, the Fund has provided the spread over LIBOR and the current contractual interest rate in effect at |
| (4) | Percentages are based on net |
The accompanying notes are an integral part of these consolidated financial statements
Steele Creek Capital Corporation
Consolidated Schedule of Investments
As of December 31, 2020
(in thousands, except per share data)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Assets (4) | ||||||||||||||||||||||
| Non-controlled/Non-Affiliate Investments | ||||||||||||||||||||||||||||||
| Term Floating Rate Loans - 239.3% of Net Assets (4) | ||||||||||||||||||||||||||||||
| Aerospace & Defense | ||||||||||||||||||||||||||||||
| Alion Science and Technology Corporation | 7/23/2024 | 4.75 | % | L + 3.75% | 1.00 | % | 998 | $ | 988 | $ | 1,004 | 3.5 | % | |||||||||||||||||
| Amentum Holdings | 1/29/2027 | 5.50 | % | L + 4.75% | 0.75 | % | 1,000 | 980 | 1,010 | 3.6 | % | |||||||||||||||||||
| Guidehouse | 5/1/2025 | 4.65 | % | L + 4.50% | 0.15 | % | 997 | 992 | 999 | 3.5 | % | |||||||||||||||||||
| MAG DS Corp | 4/1/2027 | 6.50 | % | L + 5.50% | 1.00 | % | 998 | 949 | 955 | 3.4 | % | |||||||||||||||||||
| Milano Acquisition Corporation | 10/1/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 1,000 | 990 | 1,002 | 3.5 | % | |||||||||||||||||||
| Spirit Aerosystems Inc. | 1/15/2025 | 6.00 | % | L + 5.25% | 0.75 | % | 500 | 497 | 506 | 1.8 | % | |||||||||||||||||||
| Total Aerospace & Defense | 5,396 | 5,476 | 19.3 | % | ||||||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||||||||
| Autokiniton | 3/30/2024 | 5.40 | % | L + 5.25% | 0.15 | % | 994 | 984 | 984 | 3.5 | % | |||||||||||||||||||
| NN, Inc. | 10/19/2022 | 6.50 | % | L + 5.75% | 0.75 | % | 1,150 | 1,138 | 1,147 | 4.0 | % | |||||||||||||||||||
| Total Automotive | 2,122 | 2,131 | 7.5 | % | ||||||||||||||||||||||||||
| Banking, Finance, Insurance & Real Estate | ||||||||||||||||||||||||||||||
| Asurion | 12/23/2026 | 3.40 | % | L + 3.25% | 0.15 | % | 500 | 494 | 496 | 1.8 | % | |||||||||||||||||||
| Baldwin Risk Partners | 10/14/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 998 | 983 | 999 | 3.5 | % | |||||||||||||||||||
| Broadstreet Partners, Inc. | 1/27/2027 | 4.75 | % | L + 3.75% | 1.00 | % | 995 | 977 | 996 | 3.5 | % | |||||||||||||||||||
| Citadel Securities | 2/27/2026 | 2.90 | % | L + 2.75% | 0.15 | % | 997 | 991 | 1,000 | 3.5 | % | |||||||||||||||||||
| FinCo I LLC | 6/27/2025 | 2.65 | % | L + 2.50% | 0.15 | % | 499 | 498 | 499 | 1.8 | % | |||||||||||||||||||
| Hudson River Trading LLC | 2/18/2027 | 3.15 | % | L + 3.00% | 0.15 | % | 995 | 983 | 998 | 3.5 | % | |||||||||||||||||||
| Ryan Specialty Group LLC | 9/1/2027 | 4.00 | % | L + 3.25% | 0.75 | % | 997 | 983 | 997 | 3.5 | % | |||||||||||||||||||
| Syncapay | 12/10/2027 | 6.75 | % | L + 5.75% | 1.00 | % | 500 | 480 | 486 | 1.7 | % | |||||||||||||||||||
| Total Banking, Finance, Insurance & Real Estate | 6,389 | 6,471 | 22.8 | % | ||||||||||||||||||||||||||
| Capital Equipment | ||||||||||||||||||||||||||||||
| Mirion Technologies | 3/6/2026 | 4.27 | % | L + 4.00% | 0.27 | % | 997 | 990 | 998 | 3.5 | % | |||||||||||||||||||
| Total Capital Equipment | 990 | 998 | 3.5 | % | ||||||||||||||||||||||||||
| Construction & Building | ||||||||||||||||||||||||||||||
| APi Group | 10/1/2026 | 2.90 | % | L + 2.75% | 0.15 | % | 1,000 | 985 | 1,001 | 3.5 | % | |||||||||||||||||||
| MI Windows and Doors | 12/18/2027 | 4.50 | % | L + 3.75% | 0.75 | % | 1,000 | 995 | 1,004 | 3.5 | % | |||||||||||||||||||
| Total Construction & Building | 1,980 | 2,005 | 7.0 | % | ||||||||||||||||||||||||||
| Consumer Goods: Durable | ||||||||||||||||||||||||||||||
| Mannington Mills | 8/6/2026 | 4.25 | % | L + 4.00% | 0.25 | % | 441 | 436 | 438 | 1.5 | % | |||||||||||||||||||
| Total Consumer Goods: Durable | 436 | 438 | 1.5 | % | ||||||||||||||||||||||||||
| Containers, Packaging & Glass | ||||||||||||||||||||||||||||||
| Canister International Group Inc. | 12/21/2026 | 4.90 | % | L + 4.75% | 0.15 | % | 499 | 496 | 497 | 1.8 | % | |||||||||||||||||||
| Charter NEX | 12/1/2027 | 5.00 | % | L + 4.25% | 0.75 | % | 1,000 | 990 | 1,006 | 3.5 | % | |||||||||||||||||||
| Flex Acquisition | 12/29/2023 | 4.00 | % | L + 3.00% | 1.00 | % | 988 | 978 | 985 | 3.5 | % | |||||||||||||||||||
| Plaze, Inc. | 8/3/2026 | 5.25 | % | L + 4.25% | 1.00 | % | 998 | 983 | 994 | 3.5 | % | |||||||||||||||||||
| Pro Mach Group, Inc. | 3/7/2025 | 4.50 | % | L + 3.50% | 1.00 | % | 801 | 776 | 792 | 2.8 | % | |||||||||||||||||||
| Pro Mach Group, Inc. | 3/7/2025 | 4.50 | % | L + 3.50% | 1.00 | % | 265 | (13 | ) | 10 | 0.0 | % | ||||||||||||||||||
| Proampac PG Borrower | 11/3/2025 | 5.00 | % | L + 4.00% | 1.00 | % | 1,000 | 990 | 999 | 3.5 | % | |||||||||||||||||||
| Reynolds Group Holdings | 2/5/2026 | 3.40 | % | L + 3.25% | 0.15 | % | 1,000 | 990 | 994 | 3.5 | % | |||||||||||||||||||
| Sabert Corp | 12/10/2026 | 5.50 | % | L + 4.50% | 1.00 | % | 729 | 723 | 729 | 2.6 | % | |||||||||||||||||||
| Total Containers, Packaging & Glass | 6,913 | 7,006 | 24.7 | % | ||||||||||||||||||||||||||
| Energy: Electricity | ||||||||||||||||||||||||||||||
| Astoria Energy | 12/10/2027 | 4.50 | % | L + 3.50% | 1.00 | % | 1,000 | 995 | 996 | 3.5 | % | |||||||||||||||||||
| Exgen Renewables | 12/15/2027 | 3.75 | % | L + 2.75% | 1.00 | % | 500 | 498 | 501 | 1.8 | % | |||||||||||||||||||
| Hamilton Projects Acquiror LLC | 6/17/2027 | 5.75 | % | L + 4.75% | 1.00 | % | 995 | 975 | 1,000 | 3.5 | % | |||||||||||||||||||
| Total Energy: Electricity | 2,468 | 2,497 | 8.8 | % | ||||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||||||||
| ChampionX Holding Inc. | 6/3/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 975 | 966 | 992 | 3.5 | % | |||||||||||||||||||
| Total Energy: Oil & Gas | 966 | 992 | 3.5 | % | ||||||||||||||||||||||||||
| Environmental Industries | ||||||||||||||||||||||||||||||
| Granite Acquisition | 9/19/2022 | 4.75 | % | L + 3.75% | 1.00 | % | 748 | 744 | 752 | 2.7 | % | |||||||||||||||||||
| Total Environmental Industries | 744 | 752 | 2.7 | % | ||||||||||||||||||||||||||
| Forest Products & Paper | ||||||||||||||||||||||||||||||
| Neenah, Inc. | 6/30/2027 | 5.00 | % | L + 4.00% | 1.00 | % | 995 | 976 | 998 | 3.5 | % | |||||||||||||||||||
| Total Forest Products & Paper | 976 | 998 | 3.5 | % | ||||||||||||||||||||||||||
| Healthcare & Pharmaceuticals | ||||||||||||||||||||||||||||||
| ADMI | 12/23/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 750 | 746 | 752 | 2.7 | % | |||||||||||||||||||
| Agiliti Health | 1/4/2026 | 3.50 | % | L + 2.75% | 0.75 | % | 750 | 743 | 750 | 2.6 | % | |||||||||||||||||||
| Amneal Pharmaceuticals | 5/4/2025 | 3.69 | % | L + 3.50% | 0.19 | % | 625 | 607 | 610 | 2.2 | % | |||||||||||||||||||
| Global Medical Response, Inc. | 10/2/2025 | 5.75 | % | L + 4.75% | 1.00 | % | 500 | 490 | 498 | 1.8 | % | |||||||||||||||||||
| Golden State Medical Supply | 6/21/2026 | 5.50 | % | L + 4.75% | 0.75 | % | 997 | 988 | 992 | 3.5 | % | |||||||||||||||||||
| HAH Group Holding | 10/29/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 112 | (2 | ) | - | 0.0 | % | ||||||||||||||||||
| HAH Group Holding | 10/29/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 888 | 875 | 884 | 3.1 | % | |||||||||||||||||||
Steele Creek Capital Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2020
(in thousands, except per share data)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Assets (4) | ||||||||||||||||||||||
| Healthcare & Pharmaceuticals (continued) | ||||||||||||||||||||||||||||||
| ICH US Intermediate | 12/24/2026 | 6.75 | % | L + 5.75% | 1.00 | % | 494 | $ | 491 | $ | 494 | 1.7 | % | |||||||||||||||||
| Lannett Company, Inc. | 11/25/2022 | 6.38 | % | L + 5.38% | 1.00 | % | 1,029 | 1,021 | 1,016 | 3.6 | % | |||||||||||||||||||
| National Mentor Holdings | 3/9/2026 | 4.51 | % | L + 4.25% | 0.26 | % | 954 | 949 | 954 | 3.4 | % | |||||||||||||||||||
| National Mentor Holdings | 3/9/2026 | 4.51 | % | L + 4.25% | 0.26 | % | 44 | 43 | 44 | 0.2 | % | |||||||||||||||||||
| Owens & Minor | 4/30/2025 | 4.65 | % | L + 4.50% | 0.15 | % | 997 | 989 | 997 | 3.5 | % | |||||||||||||||||||
| Phoenix Guarantor | 3/5/2026 | 4.25 | % | L + 3.75% | 0.50 | % | 750 | 743 | 751 | 2.6 | % | |||||||||||||||||||
| Revspring | 10/11/2025 | 4.40 | % | L + 4.25% | 0.15 | % | 997 | 978 | 978 | 3.5 | % | |||||||||||||||||||
| Total Healthcare & Pharmaceuticals | 9,661 | 9,720 | 34.4 | % | ||||||||||||||||||||||||||
| High Tech Industries | ||||||||||||||||||||||||||||||
| Casa Systems, Inc. | 12/20/2023 | 5.00 | % | L + 4.00% | 1.00 | % | 480 | 456 | 470 | 1.7 | % | |||||||||||||||||||
| Cloudera | 12/22/2027 | 3.25 | % | L + 2.50% | 0.75 | % | 500 | 498 | 500 | 1.8 | % | |||||||||||||||||||
| Flexera Software | 1/26/2028 | 4.50 | % | L + 3.75% | 0.75 | % | 1,000 | 998 | 1,001 | 3.5 | % | |||||||||||||||||||
| LogMeIn, Inc. | 8/31/2027 | 4.90 | % | L + 4.75% | 0.15 | % | 1,000 | 976 | 999 | 3.5 | % | |||||||||||||||||||
| PointClickCare Technologies | 12/29/2027 | 3.75 | % | L + 3.00% | 0.75 | % | 1,000 | 995 | 1,000 | 3.5 | % | |||||||||||||||||||
| Total High Tech Industries | 3,923 | 3,970 | 14.0 | % | ||||||||||||||||||||||||||
| Hotel, Gaming & Leisure | ||||||||||||||||||||||||||||||
| Sabre GLBL | 12/17/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 750 | 743 | 753 | 2.7 | % | |||||||||||||||||||
| Total Hotel, Gaming & Leisure | 743 | 753 | 2.7 | % | ||||||||||||||||||||||||||
| Media: Advertising, Printing & Publishing | ||||||||||||||||||||||||||||||
| Meredith Corporation | 1/31/2025 | 5.25 | % | L + 4.25% | 1.00 | % | 995 | 958 | 1,003 | 3.5 | % | |||||||||||||||||||
| Total Media: Advertising, Printing & Publishing | 958 | 1,003 | 3.5 | % | ||||||||||||||||||||||||||
| Media: Broadcasting & Subscription | ||||||||||||||||||||||||||||||
| Ion Media Networks | 12/18/2024 | 3.19 | % | L + 3.00% | 0.19 | % | 1,435 | 1,426 | 1,435 | 5.1 | % | |||||||||||||||||||
| Terrier Media Buyer | 12/17/2026 | 4.40 | % | L + 4.25% | 0.15 | % | 997 | 978 | 1,001 | 3.5 | % | |||||||||||||||||||
| Univision Communications Inc. | 3/13/2026 | 4.75 | % | L + 3.75% | 1.00 | % | 498 | 471 | 500 | 1.8 | % | |||||||||||||||||||
| Total Media: Broadcasting & Subscription | 2,875 | 2,936 | 10.4 | % | ||||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||||||
| Michaels Stores, Inc. | 10/1/2027 | 4.25 | % | L + 3.50% | 0.75 | % | 998 | 983 | 993 | 3.5 | % | |||||||||||||||||||
| Total Retail | 983 | 993 | 3.5 | % | ||||||||||||||||||||||||||
| Services: Business | ||||||||||||||||||||||||||||||
| Ahead DB Holdings | 10/18/2027 | 6.00 | % | L + 5.00% | 1.00 | % | 1,000 | 960 | 986 | 3.5 | % | |||||||||||||||||||
| Mermaid Bidco | 12/22/2027 | 5.00 | % | L + 4.25% | 0.75 | % | 500 | 498 | 501 | 1.8 | % | |||||||||||||||||||
| Nexus Buyer | 11/9/2026 | 3.90 | % | L + 3.75% | 0.15 | % | 997 | 988 | 992 | 3.5 | % | |||||||||||||||||||
| Pitney Bowes | 1/7/2025 | 5.65 | % | L + 5.50% | 0.15 | % | 740 | 740 | 737 | 2.6 | % | |||||||||||||||||||
| Project Angel | 5/30/2025 | 5.00 | % | L + 4.00% | 1.00 | % | 748 | 741 | 742 | 2.6 | % | |||||||||||||||||||
| Rocket Software | 11/28/2025 | 4.40 | % | L + 4.25% | 0.15 | % | 499 | 492 | 496 | 1.8 | % | |||||||||||||||||||
| Virtusa | 12/9/2027 | 5.00 | % | L + 4.25% | 0.75 | % | 1,000 | 985 | 996 | 3.5 | % | |||||||||||||||||||
| VM Consolidated | 2/28/2025 | 3.39 | % | L + 3.25% | 0.14 | % | 997 | 979 | 990 | 3.5 | % | |||||||||||||||||||
| Total Services: Business | 6,383 | 6,440 | 22.8 | % | ||||||||||||||||||||||||||
| Services: Consumer | ||||||||||||||||||||||||||||||
| Herschend Entertainment Co LLC | 8/25/2025 | 6.75 | % | L + 5.75% | 1.00 | % | 499 | 480 | 506 | 1.8 | % | |||||||||||||||||||
| Red Ventures | 11/8/2024 | 4.25 | % | L + 3.50% | 0.75 | % | 1,000 | 981 | 995 | 3.5 | % | |||||||||||||||||||
| Smart Start, Inc. | 8/19/2027 | 5.75 | % | L + 4.75% | 1.00 | % | 998 | 988 | 1,001 | 3.5 | % | |||||||||||||||||||
| St. George’s University | 7/17/2025 | 3.40 | % | L + 3.25% | 0.15 | % | 496 | 491 | 491 | 1.7 | % | |||||||||||||||||||
| Total Services: Consumer | 2,940 | 2,993 | 10.5 | % | ||||||||||||||||||||||||||
| Telecommunications | ||||||||||||||||||||||||||||||
| Avaya | 12/15/2027 | 4.41 | % | L + 4.25% | 0.16 | % | 850 | 838 | 852 | 3.0 | % | |||||||||||||||||||
| CCI Buyer | 12/17/2027 | 4.75 | % | L + 4.00% | 0.75 | % | 1,000 | 990 | 1,001 | 3.5 | % | |||||||||||||||||||
| Mavenir | 5/8/2025 | 7.00 | % | L + 6.00% | 1.00 | % | 997 | 995 | 996 | 3.5 | % | |||||||||||||||||||
| Vertiv Group | 3/2/2027 | 3.15 | % | L + 3.00% | 0.15 | % | 997 | 980 | 993 | 3.5 | % | |||||||||||||||||||
| Total Telecommunications | 3,803 | 3,842 | 13.5 | % | ||||||||||||||||||||||||||
Steele Creek Capital Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2020
(in thousands, except per share data)
| Description (1) (2) | Maturity | Interest Rate (3) | Basis Point Spread Above Index (3) | Interest Rate Floor / Base Rate (3) | Par Amount | Amortized Cost | Fair Value | % of Net Assets (4) | ||||||||||||||||||||||
| Transportation: Cargo | ||||||||||||||||||||||||||||||
| Daseke | 2/27/2024 | 6.00 | % | L + 5.00% | 1.00 | % | 499 | $ | 497 | $ | 496 | 1.8 | % | |||||||||||||||||
| PS Holdco | 3/13/2025 | 5.75 | % | L + 4.75% | 1.00 | % | 450 | 428 | 441 | 1.6 | % | |||||||||||||||||||
| SMB Shipping Logistics, LLC | 2/2/2024 | 5.00 | % | L + 4.00% | 1.00 | % | 732 | 694 | 725 | 2.6 | % | |||||||||||||||||||
| Wabash National Corporation | 9/28/2027 | 4.00 | % | L + 3.25% | 0.75 | % | 926 | 916 | 923 | 3.3 | % | |||||||||||||||||||
| Total Transportation: Cargo | 2,535 | 2,585 | 9.3 | % | ||||||||||||||||||||||||||
| Transportation: Consumer | ||||||||||||||||||||||||||||||
| Avolon | 12/1/2027 | 3.25 | % | L + 2.50% | 0.75 | % | 1,000 | 990 | 1,002 | 3.5 | % | |||||||||||||||||||
| Railworks | 12/14/2027 | 6.50 | % | L + 5.50% | 1.00 | % | 500 | 493 | 504 | 1.8 | % | |||||||||||||||||||
| Total Transportation: Consumer | 1,483 | 1,506 | 5.3 | % | ||||||||||||||||||||||||||
| Utilities: Electric | ||||||||||||||||||||||||||||||
| PG&E Corporation | 6/23/2025 | 5.50 | % | L + 4.50% | 1.00 | % | 498 | 494 | 504 | 1.8 | % | |||||||||||||||||||
| Total Utilities: Electric | 494 | 504 | 1.8 | % | ||||||||||||||||||||||||||
| Wholesale | ||||||||||||||||||||||||||||||
| United Natural Foods | 10/22/2025 | 4.40 | % | L + 4.25% | 0.15 | % | 806 | 795 | 802 | 2.8 | % | |||||||||||||||||||
| Total Wholesale | 795 | 802 | 2.8 | % | ||||||||||||||||||||||||||
| Total Term Floating Rate Loans | 66,956 | 67,811 | 239.3 | % | ||||||||||||||||||||||||||
| Total Non-controlled/Non-Affiliate Investments | $ | 66,956 | $ | 67,811 | 239.3 | % | ||||||||||||||||||||||||
| (1) | All investments are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940 (the “1940 Act”). The provisions of the 1940 Act classify investments based on the level of control that the Company maintains in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when the Company owns 25% or less of the portfolio company’s voting securities and “controlled” when the Company owns more than 25% of the portfolio company’s voting securities. The provisions of the 1940 Act also classify investments further based on the level of ownership that the Company maintains in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as “non-affiliated” when the Company owns less than 5% of a portfolio company’s voting securities and “affiliated” when the Company owns 5% or more of a portfolio company’s voting securities. |
| (2) | Unless otherwise indicated, issuers of debt held by the Company are domiciled in the United States. |
| (3) | The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) which reset monthly or quarterly. For each such investment, the Fund has provided the spread over LIBOR and the current contractual interest rate in effect at December 31, 2020. As of December 31, 2020, rates for 1M L, 3M L and 6M L are 0.14%, 0.24%, and 0.26% respectively. |
| (4) | Percentages are based on net assets of $28,340 as of December 31, 2020. |
The accompanying notes are an integral part of these consolidated financial statements
MSCSteele Creek Capital LLCCorporation
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)(unaudited)
Through September 30, 2020(in thousands, except share and per share data)
1. ORGANIZATION
MSCSteele Creek Capital LLC,Corporation (which is referred to as the “Company”, “we”, “us” and “our”) was originally organized pursuant to theas MSC Capital LLC as a Delaware Limited Liability Company Act (the “LLC Act”) by filing a Certificate of Formation in the Office of the Secretary of State of the State of Delawarelimited liability company on June 3, 2020. We operate under the Amended and Restated Limited Liability Agreement ofThe Company commenced operations as MSC Capital LLC on July 1, 2020. On October 7, 2020, MSC Capital LLC converted to a Maryland corporation. We are a closed-end externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “Agreement”“1940 Act”). Capitalized terms used in these notes without definition shall have meaningsThe Company will elect for federal income tax purposes to be treated as defined ina regulated investment company (“RIC”) under the Agreement.Internal Revenue Code of 1986, as amended (the “Code”).
In September 2020, we formed a wholly-owned special purpose financing vehicle, Steele Creek Funding I, LLC, a Delaware limited liability company.
The Company intends to elect to be treated as a business development companySteele Creek Investment Management LLC (the “Investment Advisor” or “Administrator”) is our investment adviser and an affiliate of Moelis Asset Management LP (“BDC”Moelis Asset”) under. We entered into an Investment Advisory Agreement with the Investment Company ActAdvisor who, subject to the supervision of 1940, as amendedour board of directors (the “1940 Act”“Board”). Please see Footnote 12 Subsequent Events, for additional information on, manages the BDC election.
The Company shall have perpetual existence unless sooner dissolvedday-to-day operations and wound up pursuantprovides investment advisory services to Section 17 of the Agreement, or by the entry of a decree of judicial dissolution under Section 18-802 of the LLC Act.
Company. The Company has no paid employees and is managed by Steele Creekthe Investment Management LLCAdvisor has entered into an agreement (the “Manager”“Custody Agreement”) to delegate certain administrative and custody functions to US Bank (the “Custodian”). The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and neither the Members nor any other person or entity shall be obligated personally for any such debt, obligation or liability of the Company.
The Company is a financial services company that primarily invests in syndicated corporate bank loans, bonds, other debt securities, and structured products. The investment objective is to generate high current income by investing primarily in fixed income instruments, including broadly syndicated bank loans, structured products, mezzanine financings and senior secured bonds.
All adjustments, in the opinion of management, necessary to fair statement of the results for the interim periods presented have been made.
The term “shares” herein refers to membership interest in the Company prior to conversion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting –- The consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services-Investment Companies. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated. Interim financialFinancial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2020.
Use of Estimates - The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the ManagerInvestment Advisor to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from such estimates included in the consolidated financial statements.
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
Securities Transactions - Securities transactions are recorded on the trade date. The trade date for loans purchased in the “primary market” and for loans and other investments purchased in the “secondary market” is the date on which the transaction is entered. Cost is determined based on consideration given, adjusted for amortization of original issuance discounts (“OID”), market discounts and premiums.
Investment Income- - For debt investments, we record interest income on the accrual basis to the extent that such amounts are expected to be collected. Where applicable, OID and purchased discounts and premiums are accreted into interest income using the effective interest method. Loan origination fees are deferred and accreted into interest income using the effective interest method. We record prepayment premiums on loans and other investments as interest income when such amounts are received. We stop accruing interest on investments when it is determined that interest is no longer collectible. As of September 30, 2020,For the three months ended March 31, 2021, there were no loans in non-accrual status.
Expenses - Expenses include management fees, incentive fees, administrator fees, custody fees, legal fees, audit and tax service expenses, third-party valuation fees and other general and administrative expenses. Expenses are recognized on an accrual basis.
Organizational and offering costs - Organizational costs include costs relating to the formation and incorporation of the business and are expensed as incurred. Offering costs include legal fees and other costs pertaining to the registration statement and the private placement memorandum. Offering costs are deferred and amortized over a period of twelve months.
Realized Gain or Loss and Unrealized Gain or Loss - Realized gain or loss from an investment is recorded at the time of disposition and calculated using the weighted average cost method. Unrealized gain or loss reflects the changes in fair value of investments as determined in compliance with the Manager’sInvestment Advisor’s valuation policy.
Cash - The Company maintains its cash in a bank account, which, at times, may exceed federally insured limits. As of September 30,March 31, 2021 and December 31, 2020, the Company’sour cash balance exceeded federally insured limits. The ManagerInvestment Advisor continuously monitors the performance of the bank where the account is held in order to manage any risk associated with such account.
Earnings per share - - The Company calculates earnings per share by dividing the net increase in shareholders’ equitynet assets resulting from operations by the weighted average shares for the period.
Paid-in-capital in Excess of Par Value - - The Company records the proceeds from the sale of its shares on a net basis to capital stock and paid-in capital in excess of par value, excluding all offering costs.
Fair Value of Financial Instruments - – Assets and liabilities which qualify as financial instruments under relevant authoritative guidance are carried at fair value or contractual amounts approximating fair value.
Investment Classification - As required by the 1940 Act, investments are classified by level of control. “Control Investments” are defined as investments in portfolio companies that we are deemed to control, as defined in the 1940 Act. “Affiliate Investments” are investments in those companies that are affiliated companies, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. Generally, under the 1940 Act, we are deemed to control a company in which we have invested if we own more than 25% of the voting securities of such company. We are deemed to be an affiliate of a company if we own 5% or more of the voting securities of such company. As of March 31, 2021 and December 31, 2020, all of our investments were Non-Control/Non-Affiliate investments.
Valuation of Investments - The Company records its financial instrumentsWe value our investments in accordance with the 1940 Act and ASC Topic 820 —- Fair Value Measurement, (“ASC Topic 820”). as determined in good faith by our Board. ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Investments are reflected on the Consolidated Statement of Assets and Liabilities at fair value, with changes in unrealized gains and losses resulting from changes in fair value reflected in the accompanying Consolidated Statement of Operations as “net change in unrealized appreciation on non-controlled/non-affiliate company investments.” Fair value is the amount 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 (i.e., the exit price). Publicly-traded investments in active markets are reported at the market closing price.
Investment transactions are recorded on a trade date basis (for publicly-traded investments and securities traded through dealer markets) or upon closing of the transaction (for private investments). The cost of an investment includes all costs incurred by the Company as part of the purchase of such investment. The difference between the initially recognized cost and the subsequent fair value measurement of an investment is reflected as “net change in unrealized appreciation on non-controlled/non-affiliate company investments.”investments” in the Consolidated Statement of Operations.
MSC Capital LLC
NotesIn March 2021, the UK Financial Conduct Authority (“FCA”), which oversees the global benchmarks, confirmed that most LIBOR tenors will end on December 31, 2021. This announcement includes the LIBOR benchmarks in pound sterling, euro, Japanese yen, Swiss franc and certain US dollar benchmarks. Several US dollar benchmarks will be extended to June 20, 2023 including the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
overnight, one-, three-, six-, and twelve-month US LIBOR rates. Due to the uncertainty relating to London Interbank Offered Rate (“LIBOR”), we are monitoring potential changes that may adversely affect the market for LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-rate debt securities.
The Company values itsWe value our investments in accordance with the Manager’sInvestment Advisor’s valuation policy. Valuations are prepared and approved by the valuation committee on a monthly basis.
Transfers of investments between different levels of the fair value hierarchy are recorded at the end of the period. For the three months ended March 31, 2021, there were no transfers between levels.
Income Taxes - No provision–For the three months ended March 31, 2021, we have complied with the requirements of Subchapter M of the Code and expect to be treated as a RIC for federal income tax purposes. In this regard, we account for income taxes has been madeusing the asset and liability method prescribed by ASC 740, Income Taxes, or (“ASC 740”). Under this method, income taxes are provided for amounts currently payable and for amounts deferred as tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Based upon our qualification and election to be treated as a RIC for federal income tax purposes, we typically do not incur any material federal income taxes. However, we may choose to retain a portion of our calendar year income, which may result in the accompanying consolidated financial statements, asimposition of an excise tax.
We recognize the Members are individually responsible for reporting income or losseffect of a tax position in our Consolidated Financial Statements in accordance with ASC 740 when it is more likely than not, based on their respective share of the Company’s revenues and expenses for income tax purposes. The Company files U.S. Federal and state and local tax returns.
Based on its analysis, the Manager has determinedtechnical merits, that the Company doesposition will be sustained upon examination by the applicable tax authority. Tax positions not have any materiallyconsidered to satisfy the “more-likely-than-not” threshold would be recorded as a tax expense or benefit. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other operating expenses in the financial statements. There were no tax accruals relating to uncertain tax positions that require recognition and measurement in the Company’s consolidated financial statements.
The Manager will continue to review the relevant authoritative guidance as such relatesno amounts accrued for any related interest or penalties with respect to the period presented herein. The Company’s consolidated financial statements and conclusions reacheddeterminations regarding uncertain tax positions, whichASC 740 may be subject to review and adjustment at a later date based on ongoing analysesupon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. ToAlthough the extent thatCompany files both federal and state income tax returns, the Manager’s assessment of the conclusions reached regarding uncertainCompany’s major tax positions changes, such changejurisdiction is federal.
Because federal income tax regulations differ from GAAP, distributions in estimate willaccordance with tax regulations may differ from net investment income and net realized gains recognized for financial reporting purposes. Differences between tax regulations and GAAP may be recordedpermanent or temporary. Permanent differences are reclassified among capital accounts in the periodConsolidated 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 which such determinationthe future.
The 2020 tax year for the Company is made. The Company’s policy isnot yet closed and remains subject to recognizeexamination by U.S. Federal, state and local tax related interest and penalties, if any, as income tax expense. For the period July 1, 2020 (commencement of operations) through September 30, 2020, no such amounts were recognized.authorities.
Administration Agreement Recent Accounting Pronouncements- The Manager has entered into an agreement (the “Administration Agreement”) to delegate certain administrative and custody functions to US Bank (the “Administrator”).
3. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU No. 2020-04 is elective and effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting ASU No. 2020-04.
In August 2020, the U.S. Securities and Exchange Commission (“SEC”) issued Final Rule Release No. 33-10825 and No.34-89670, collectively referred to as ‘Modernization of Regulation S-X Items 101, 103 and 105’. These rules amend certain SEC disclosure requirements to improve disclosure for investors and to simplify compliance for registrants, including new requirements for human capital disclosures and a summary of risk factors. The final rules are effective for all filings on or after November 9, 2020. The Company is evaluating the impact of adopting the Final Rule on our consolidated financial statements.
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1 02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The new definition of “significant subsidiary” under Rule 1-02(w)(2) of Regulation S-X, which is tailored to investment companies, (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary.” The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. The Company is evaluatingadopted the impactSEC rule 2a-5 related to the Good Faith Determination of adopting the Final Rule on ourFair Value for these consolidated financial statements.
3. AGREEMENTS AND RELATED PARTY TRANSACTIONS
Investment Advisory Agreement
Pursuant to the investment advisory agreement between the Company and the Investment Advisor (the “Investment Advisory Agreement”), we have agreed to pay a fee for investment advisory and management services consisting of two components, a base management fee and an incentive fee. The cost of both the base management fee and the incentive fee will ultimately be borne by our stockholders.
Our Investment Advisor has agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by us, for any quarter where net investment income plus net realized capital gains is not sufficient to maintain a targeted annual distribution payment on shares of common stock outstanding on the relevant payment dates of 6.0% based on our net asset value per share.
Base Management Fee
The base management fee is calculated at a maximum annual rate of 1.0% of the average of the weighted average (based on the number of shares outstanding each day in the quarter) of our gross assets (including uninvested cash and cash equivalents) at the end of each of the two most recently completed calendar quarters. For our first quarter, the base management fee was calculated based on the average of our gross assets as of such quarter-end. The base management fee for any partial quarter is pro-rated based on the number of days actually elapsed in that quarter relative to the total number of days in such quarter.
Gross management fees for the three months ended March 31, 2021 were $289 thousand. The Company elected to waive a portion of the management fee and charged management fees on investments rather than gross assets. Net management fees for the three months ended March 31, 2021 were $174 thousand.
Incentive Fee
The Incentive Fee will consist of an income-based component and a capital gains component.
The portion of the incentive fee based on income is determined and paid quarterly in arrears commencing with the first calendar quarter following the Company’s election to be regulated as a BDC, and equals 15% of the pre-incentive fee net investment income in excess of a 1.5% quarterly (or 6% annually) “hurdle rate.” There are no catch-up provisions applicable to income based incentive fees under the Investment Advisory Agreement.
Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial and consulting fees or other fees the Company receives from portfolio companies) that the Company accrues, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement (the “Administration Agreement”) we have entered into with the Administrator, and any interest expense and dividends paid on any issued and outstanding indebtedness or preferred stock, respectively, but excluding, for avoidance of doubt, the income-based incentive fee accrued under GAAP). Pre-incentive fee net investment income also includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. The Investment Advisor is not under any obligation to reimburse the Company for any part of the income-based incentive fees it received that was based on accrued interest that the Company never actually received. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment income in excess of the Hurdle rate for a quarter, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses.
The portion of the incentive fee based on capital-gains is payable at the end of each calendar year in arrears, equals 15% of cumulative realized capital gains from the date of the Company’s election to be regulated as a BDC to the end of each calendar year, less cumulative net realized capital losses and unrealized capital depreciation. We will accrue, but will not pay, a capital gains incentive fee with respect to unrealized appreciation.
In determining the capital gains incentive fee payable to the Investment Advisor, we calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since our inception. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to our portfolio of investments.
For the three months ended March 31, 2021, the Company waived a portion of the capital Incentive Fee to pay the 6% priority dividend. Gross capital Incentive Fees were $110 thousand and after the waiver the net capital Incentive Fee was $45 thousand.
Administration Agreement
The Administration Agreement provides that the Administrator will furnish us with office facilities and equipment and will provide us with clerical, bookkeeping, recordkeeping and other administrative services at such facilities. Under the Administration Agreement, the Administrator will perform, or oversee the performance of, our required administrative services, which will include being responsible for the financial and other records that we are required to maintain and preparing reports to our stockholders and reports and other materials filed with the SEC. In addition, the Administrator will assist us in determining and publishing our net asset value, oversee the preparation and filing of our tax returns and the printing and dissemination of reports and other materials to our stockholders, and generally oversee the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, the Administrator will also provide managerial assistance on our behalf to those portfolio companies that have accepted our offer to provide such assistance.
Under the Administration Agreement, we will reimburse the Administrator based upon our allocable portion (subject to the review and approval of our Board) of the Administrator’s overhead (including rent) in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer, and any of their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment. In addition, if requested to provide significant managerial assistance to our portfolio companies, the Administrator will be paid an additional amount based on the services provided, which shall not exceed the amount we receive from such portfolio companies for providing this assistance. The Administration Agreement will have an initial term of two years and may be renewed with the approval of our Board. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. To the extent that the Administrator outsources any of its functions, we will pay the fees associated with such functions on a direct basis without any incremental profit to the Administrator.
Related Party Transactions
During the period July 1, 2020 through December 31, 2020, affiliates of the Company contributed $21.5 million of cash and $2.9 million of assets to the Company in exchange for equity in the Company. Assets contributed to the Company were contributed at fair value in accordance with FASB No.116, Accounting for Contributions Received and Contributions Made. As of March 31, 2021, affiliates owned approximately 88% of the Company representing approximately $25.9 million of the Company’s net assets. As of December 31, 2020, affiliates owned approximately 88% of the Company representing approximately $25.0 million of the Company’s net assets.
For the three months ended March 31, 2021, Moelis Asset, parent of the Investment Advisor contributed approximately $36 thousand to pay organizational and offering costs incurred by the Company related to the formation of the entity. Moelis Asset will incur these expenses and they will not be charged back to the Company.
Separate from the contributions made above, the Company may, from time to time, purchase investments from, or sell investments to affiliates of our Investment Advisor at fair value on the trade date. For the three months ended March 31, 2021 and the period July 1, 2020 (commencement of operations) to December 31, 2020, there were no purchases of investments from or sales of investments to affiliates of our Investment Advisor.
Prior to the MSC Capital LLC’s conversion to a corporation and election to be treated as a BDC, it did not pay the Investment Advisor for the services it provided to MSC Capital LLC. Similarly, the affiliated directors and officers of the Company did not receive compensation from the Company. Upon conversion, the Company began accruing director’s compensation for the three independent directors in accordance with the governing documents. For the three months ended March 31, 2021, the Company incurred $20 thousand in director fee expense.
4. INVESTMENTS
Fair Value Measurements
We value our investments on a monthly basis at fair value in accordance with the 1940 Act and ASC Topic 820, which defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Due to the uncertainty inherent in the valuation process, estimates of fair value may differ significantly from the values that would have been used had a ready market for our investments existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on the investments to be different than the valuations currently assigned.
Investments for which observable market prices in active markets do not exist are reported at fair value, as determined by the ManagerInvestment Advisor using the best information available. The amount determined to be fair value may incorporate the Manager’sInvestment Advisor’s own assumptions (including assumptions that the ManagerInvestment Advisor believes market participants would use in valuing the investment, and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability).
The fair values assigned to the Company’sour investments are based upon available information and do not necessarily represent amounts which might ultimately be realized. Due to the absence of readily determinable fair values and the inherent uncertainty of valuations, the estimated fair values may differ significantly from values that would have been used had a ready market for the securities existed, and the differences could be material.
The guidance establishes a framework for measuring fair value, and requires enhanced disclosures about fair value measurements. The fair value hierarchy prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1 – Quoted prices (unadjusted) are available in active markets for identical investments that the Company has the ability to access as of the reporting date. The type of investments which would generally be included in Level 1 include listed equity securities and listed derivatives. The Company, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. This may include valuations based on executed trades, broker quotations that constitute an executable price, and alternative pricing sources supported by observable inputs which, in each case, are either directly or indirectly observable for the asset in connection with market data at the measurement date.
Level 3 – Pricing inputs are unobservable for the investments and include situations where there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Manager.Investment Advisor. In certain cases, investments classified within Level 3 may include securities for which we have obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on.
The valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs. Our loans are predominately valued based on evaluated prices from a nationally recognized independent pricing service or from third-party brokers who make markets in such debt investments. When possible, we make inquiries of third-party pricing sources to understand their use of significant inputs and assumptions. We review the third-party fair value estimates and perform procedures to validate their reasonableness, including an analysis of the range and dispersion of third-party estimates, frequency of pricing updates, comparison of recent trade activity for similar securities, and review for consistency with market conditions observed as of the measurement date.
There may be instances when independent or third-party pricing sources are not available, or cases where we believe that the third-party pricing sources do not provide sufficient evidence to support a market participant’s view of the fair value of the debt investment being valued. These instances may result from an investment in a less liquid loan such as a middle market loan, a mezzanine loan or unitranche loan, or a loan to a company that has become financially distressed. In these instances, we may estimate the fair value based on a combination of a market yield valuation methodology and evaluated pricing discussed above, or solely based on a market yield valuation methodology. Under the market yield valuation methodology, we estimate the fair value based on a discounted cash flow technique. For these loans, the unobservable inputs used in the market yield valuation methodology to measure fair value reflect management’s best estimate of assumptions that would be used by market participants when pricing the investment in a hypothetical transaction, including estimated remaining life, current market yield and interest rate spreads of similar loans and securities as of the measurement date. We will estimate the remaining life based on market data for the average life of similar loans. However, if we have information that the loan is expected to be repaid in the near term, we would use an estimated remaining life based on the expected repayment date. The average life to be used to estimate the fair value of our loans may be shorter than the legal maturity of the loans since many loans are prepaid prior to the maturity date. The interest rate spreads used to estimate the fair value of our loans is based on current interest rate spreads of similar loans. If there is a significant deterioration of the credit quality of a loan, we may consider other factors that a hypothetical market participant would use to estimate fair value, including the proceeds that would be received in a liquidation analysis.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of observable input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgement, and considers factors specific to the investment.
The following fair value hierarchy table sets forth our investments by level as of September 30,March 31, 2021:
| March 31, 2021 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Term Loans | $ | 71,106 | $ | - | $ | 71,106 | $ | - | ||||||||
| Total Investments | $ | 71,106 | $ | - | $ | 71,106 | $ | - | ||||||||
The following fair value hierarchy table sets forth our investments by level as of December 31, 2020:
| September 30, 2020 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Term Loans | $ | 26,726,554 | $ | - | $ | 26,726,554 | $ | - | ||||||||
| Total Investments | $ | 26,726,554 | $ | - | $ | 26,726,554 | $ | - | ||||||||
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
| December 31, 2020 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Term Loans | $ | 67,811 | $ | - | $ | 67,811 | $ | - | ||||||||
| Total Investments | $ | 67,811 | $ | - | $ | 67,811 | $ | - | ||||||||
Due to the uncertainty relating to London Interbank Offered Rate (“LIBOR”), we are monitoring potential changes that may adversely affect the market for and the valuation of LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-rate debt securities.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the period July 1, 2020 (commencement of operations) through September 30, 2020:share:
| For the period July 1, 2020 (commencement of operations) through September 30, 2020 | ||||
| Numerator - net earnings | $ | 659,398 | ||
| Denominator - weighted average shares | 15,681 | |||
| Net earnings per share | $ | 42.05 | ||
| For the three months ended March 31, 2021 | ||||
| Numerator - net earnings | $ | 784 | ||
| Denominator - weighted average shares | 2,652 | |||
| Net earnings per share | $ | 0.30 | ||
6. INCOME TAXESNET ASSETS
The Company is a pass-through entity. Accordingly, no federal income taxes are assessed at the Company level. Federal income tax law and regulations require the partners to report their allocable share of the Company’s taxable income or loss in their respective tax returns. Certain state and local tax authorities levy taxes on the Company based on its income.
The Company accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” rates in effect for the year in which the differences are expected to reverse. Such cumulative net tax effects on temporary differences are reflected on the Company’s special purpose combined financial allowance when the Company believes that it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
ASC 740 prescribes a two-step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the consolidated financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. For the tax period July 1, 2020 (commencement of operations) to September 30, 2020, no unrecognized tax benefit was recorded. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. The Company reports income tax-related interest and penalties, if applicable, as a component of income tax expense. For the period ended September 30, 2020, no such amount was recorded.
7. RELATED PARTY TRANSACTIONS
All three Members of the Company are related parties of the Manager. During the period July 1, 2020 (commencement of operations) through September 30,2020, the Members contributed $20,499,718 of cash and $2,858,282 of assets to the Company in exchange for equity in the Company. Assets contributed to the Company were contributed at fair value in accordance with Financial Accounting Standards No.116, Accounting for Contributions Received and Contributions Made.
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
Separate from the contributions made above, the Company may, from time to time, purchase investments from, or sell investments to affiliates of our Manager at fair value on the trade date. During the period ended July 1, 2020 (commencement of operations), to September 30, 2020, there were no purchases of investments from or sales of investments to affiliates of our Manager.
Prior to the Company’s conversion to a corporation and election to be treated as a BDC, the Company did not pay the Manager for the services it provided to the Company. Similarly, the affiliated directors and officers of the Company did not receive compensation from the Company.
8. SHAREHOLDERS’ EQUITY
The Members are affiliates of the Company. For the period from July 1, 2020 (commencement of operations) through September 30,October 6, 2020, the CompanyMSC Capital LLC issued 22,828 shares at a par value of $1,000.00 per share. The Manager has 1 managementOn October 7, 2020, as part of the conversion, each MSC Capital LLC share was exchanged for one hundred shares in the Company with a par value of $0.001. On December 1, 2020, we issued and does not receive any economics.sold 350,440 shares of the Company’s common stock, par value $0.001 per share, for an aggregate offering price of $3.8 million. The issuance of shares of the Company’s common stock was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
During the three months ended March 31, 2021, the Company also issued 73,165 shares, with an aggregate value of $0.8 million.
As of December 31, 2020, the Company issued 2,633,228 shares at a par value of $0.001 per share. As of March 31, 2021, the registrant had 2,706,393 shares of common stock, $0.001 par value per share, outstanding.
9. ALLOCATION OF PROFITS AND LOSSES7. CREDIT FACILITY
Members are issued sharesOn October 13, 2020, Funding I entered into a two-year secured revolving Credit Agreement with BNP Paribas (“BNP”) as lender and administrative agent (the “BNP Credit Facility”) providing a maximum of $45.0 million (“Maximum Facility Amount”) to Funding I. During the Credit Facility’s revolving period (earlier of the Companytermination by the Manager that represent their limited liability company interestsborrower or twelve month anniversary of the closing date), it bears interest at London Interbank Offered Rate, or LIBOR, plus 175 basis points. The Company created a wholly owned subsidiary, Funding I, which it will use to hold the Company’s investments, and a first priority continuing security interest in, to and under each investment, all underlying investments and underlying assets has been granted to BNP to be used as collateral for the Company. ProfitsBNP Credit Facility. The Company began transferring investments into Steele Creek Funding I, LLC in October 2020.
Funding I is required to pay an administrative agent fee equal to $25 thousand per annum and losses are allocated on a pro-rata basisstructuring fee equal to all Members based0.25% of the Maximum Facility Amount paid on the numbertwelve month anniversary of shares held by each memberthe closing date. Additionally, an unused fee is payable quarterly in proportionarrears in an amount equal to 0.70% on the actual daily unused amount greater than 20% of the Maximum Facility Amount under the BNP Credit Facility from April 13, 2021 to the aggregate number of all outstanding sharesend of the Company.revolving period.
As of March 31, 2021 and December 31, 2020, there was $45.0 million and $27.8 million outstanding, respectively, and $0.0 million and $17.2 million available, respectively, to be drawn under the BNP Credit Facility. As of March 31, 2021 and December 31, 2020, the BNP Credit Facility had a fair value of $45.0 million and $27.8 million, respectively and a weighted average interest rate of 1.97% and 1.99%, respectively. The fair value of the BNP Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions and is measured with Level 2 inputs. As of March 31, 2021 and December 31, 2020, Funding I was in compliance with all covenants of the BNP Credit Facility.
For the three months ended March 31, 2021, we incurred interest expense of $0.2 million on the BNP Credit Facility. The average debt outstanding for the three months ended March 31, 2021 was $36.2 million.
10.8. COMMITMENTS AND CONTINGENCIES
Commitments to extend credit include loan proceeds we are obligated to advance, such as delayed draws. Commitments generally have fixed expiration dates or other termination clauses. Unrealized gains or losses associated with unfunded commitments are recorded in the consolidated financial statements and reflected as an adjustment to the fair value of the related security in the Consolidated Schedule of Investments. The par amount of the unfunded commitments is not recognized by the Company until the commitment becomes funded. As of September 30,March 31, 2021 and December 31, 2020, the Company had unfunded commitments of $265,031.$0.3 million and $0.4 million, respectively.
In the ordinary course of business, we may be a party to certain legal proceedings, including actions brought against us and others with respect to investment transactions. The outcomes of any such legal proceedings are uncertain and, as a result of these proceedings, the values of the investments to which they relate could decrease. We were not subject to any litigation against us as of September 30, 2020.March 31, 2021. The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and neither the Members nor any other person or entity shall be obligated personally for any such debt, obligation or liability of the Company.
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
11.9. FINANCIAL HIGHLIGHTS
The following financial highlights for the period July 1, 2020 (commencement of operations) through September 30, 2020three months ended March 31, 2021 are calculated for the Membersshareholders as a whole.
| For the period from July 1, 2020 (commencement of operations) through September 30, 2020 | ||||
| Per share data: | ||||
| Net asset value at beginning of period | $ | - | ||
| Net investment income (1) | 6.51 | |||
| Net realized gain (1) | 13.66 | |||
| Net change in unrealized appreciation (1) | 21.88 | |||
| Net increase in net assets resulting from operations (1) | 42.05 | |||
| Issuance of common shares | 1,000.00 | |||
| Other (2) | 10.05 | |||
| Net asset value at end of period | $ | 1,052.10 | ||
| Net assets at end of period | $ | 24,017,398 | ||
| Shares outstanding at end of period | 22,828 | |||
| Total return (3) | 5.21 | % | ||
| Ratio/Supplemental data: | ||||
| Ratio of net expenses to average net assets (4) | 2.91 | % | ||
| Ratio of net investment income to average net assets (4) | 2.46 | % | ||
| Portfolio turnover (5) | 216.46 | % | ||
| March 31, 2021 | ||||
| Per share data: | ||||
| Net asset value at beginning of period | $ | 10.76 | ||
| Net investment income (1) | 0.02 | |||
| Net realized gain (1) | 0.28 | |||
| Net change in unrealized appreciation (1) | 0.00 | (2) | ||
| Net increase in net assets resulting from operations (1) | 0.30 | |||
| Stockholder distributions from income (3) | (0.16 | ) | ||
| Issuance of common shares | 0.01 | |||
| Other (6) | 0.02 | |||
| Net asset value at end of period | $ | 10.93 | ||
| Net assets at end of period | $ | 29,571 | ||
| Shares outstanding at end of period | 2,706,393 | |||
| Total return (3) | 3.06 | % | ||
| Ratio/Supplemental data: | ||||
| Ratio of net expenses excluding waivers to average net assets (4) | 12.00 | % | ||
| Ratio of net expenses including waivers to average net assets (4) | 11.37 | % | ||
| Ratio of net investment income to average net assets (4) | 1.27 | % | ||
| Portfolio turnover (5) | 183.87 | % | ||
| (1) | The per share data was derived by using the weighted average shares outstanding during the period. |
| (2) | |
| (3) | Total return is calculated as the change in net asset value (“NAV”) per share during the period, plus distributions per share, if any, divided by the beginning NAV per share. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at the quarter end NAV per share preceding the distribution. Return calculations are not annualized. |
| (4) | Ratios are annualized. |
| (5) | Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value for the periods reported. Ratio is not annualized. |
| (6) | Includes the impact of different amounts used in calculating per share data as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of a period end or transaction date. |
MSC Capital LLC
Notes to the Consolidated Financial Statements (Unaudited)
For the period July 1, 2020 (commencement of operations)
Through September 30, 2020
12.10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of issuance of these consolidated financial statements and has determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the consolidated financial statements other than those disclosed below.
On October 7, 2020, the Company converted to a Maryland corporation, named Steele Creek Capital Corporation. On that date, the Company elected to be regulated as a BDC under the 1940 Act. The Company will elect for federal income tax purposes to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company will be externally managed by Steele Creek Investment Management LLC (the “Advisor”). The Company entered into an investment advisory agreement (the “Advisory Agreement”) with the Advisor and will compensate the Advisor for its services with a fee that consists of two components: a management fee and an incentive fee. In connection with the conversion, 22,828 of the Company’s $1,000.00 par value shares were converted into 2,282,787.33 of the Company’s $0.001 par value common stock.
On October 13, 2020, the Company entered into a Credit Agreement with BNP Paribas (“BNP”) as lender and administrative agent (the “Credit Facility”) providing a maximum of $45,000,000 to the borrower. During the Credit Facility’s revolving period, it bears interest at London Interbank Offered Rate, or LIBOR, plus 200 basis points. The Company created a wholly owned subsidiary, Steele Creek Capital Funding I, LLC, which it will use to hold the Company’s investments, and a first priority continuing security interest in, to and under each investment, all underlying investments and underlying assets has been granted to the BNP to be used as collateral for the Credit Facility. The Company began transferring investments into Steele Creek Funding I, LLC in October.
On December 1, 2020,April 5, 2021, the Company issued and sold 350,443.4348,062 shares of its common stock to certain investors for an aggregate offering price of $3,750,000.$0.5 million. Additionally, on April 16, 2021, the Company issued and sold 45,400 shares of its common stock to certain investors for an aggregate offering price of $0.5 million The sale of its common stock was made pursuant to subscription agreements between the Company and the investor. Theinvestors and the issuance of the common stock was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
The transmission of COVID-19 and efforts to contain its spread have resulted in, among other things, border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and customer activity, lower consumer demand for goods and services, event cancellations and restrictions, service cancellations, reductions and other changes, significant challenges in healthcare service preparation and delivery, and prolonged quarantines, as well as general concern and uncertainty. The impact of the COVID-19 outbreak could negatively affect the global economy, the economies of individual countries, and the financial performance of individual issuers, sectors, industries, asset classes, and markets in significant and unforeseen ways. The COVID-19 pandemic and its effects may last for an extended period of time, and in either case could result in significant market volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates, and a substantial economic downturn or recession. The foregoing could disrupt the operations of the Company and its service providers, adversely affect the value and liquidity of the Company’s investments, and negatively impact the Company’s performance and your investment in the Company.
The global impact of the pandemic has been rapidly evolving and may negatively impact the performance of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Except as otherwise specified, references to “we,” “us,” “our,” or the “Company” refer to MSC Capital LLC prior to the Conversion (as defined herein), and Steele Creek Capital Corporation on and after the Conversion.
Forward-Looking Statements
Some of the statements in this report constitute forward-looking statements that involve substantial known and unknown risks, uncertainties and other factors. Undue reliance should not be placed on such statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our company, our current and prospective portfolio investments, our industry, our beliefs and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially and these statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including:
| ● | uncertainties associated with the coronavirus (“COVID-19”) pandemic, including the negative effect that the COVID-19 pandemic is having and is expected to have on the credit markets and the negative effect that the COVID-19 pandemic could have on our business; |
| ● | our future operating results; |
| ● | our business prospects and the prospects of our portfolio companies; |
| ● | the impact of investments that we expect to make; |
| ● | changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets; |
| ● | the ability of the Steele Creek Investment Management LLC (the |
| ● | the ability of the Investment Advisor and its affiliates to attract and retain highly talented professionals; |
| ● | risk associated with possible disruptions in our operations or the economy generally; |
| ● | the timing of cash flows, if any, from the operations of the companies in which we invest; |
| ● | the adequacy of our cash resources and working |
| ● | the ability of the companies in which we invest to achieve their objectives; |
| ● | the dependence of our future success on the general economy and its effect on the industries in which we invest; |
| ● | our ability to |
| ● | the use of borrowed money to finance a portion of our investments; |
| ● | the adequacy, availability and pricing of our financing sources and working capital; |
| ● | actual or potential conflicts of interest with the Investment Advisor and its affiliates; |
| ● | our contractual arrangements and relationships with third parties; |
| ● | our expected financings and investments; |
| ● | the economic downturn, interest rate volatility, loss of key personnel, and the illiquid nature of our investments; and |
| ● | the risks, uncertainties and other factors we identify under “Item 1A. Risk Factors” and elsewhere in this quarterly report on Form 10-Q. |
We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file with the U.S. Securities and Exchange Commission (“SEC”) in the future, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of the assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In particular, statements herein about the effects of the COVID-19 pandemic on our business, results, financial position, and liquidity may constitute forward-looking statements and are subject to the risk that the actual impact may differ, possibly materially, from what is currently estimated. In addition, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled “Item 1A. Risk Factors” and elsewhere in this report. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Moreover, we assume no duty and do not undertake to update the forward-looking statements.
Overview
We were organized as a Delaware limited liability company pursuant to the Delaware Limited Liability Company Act (the “LLC Act”) by filing a Certificate of Formation in the Office of the Secretary of State of the State of Delaware on June 3, 2020. We operate under the Amended and Restated Limited Liability Agreement of MSC Capital LLC (the “Agreement”).
The Company intends to elect to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Company shall have perpetual existence unless sooner dissolved pursuant to Section 17 of the Agreement, or by the entry of a decree of judicial dissolution under Section 18-802 of the LLC Act.
The Company has no paid employees and is managed by Steele Creek Investment Management LLC (the “Manager”). The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and neither the Members nor any other person or entity shall be obligated personally for any such debt, obligation or liability of the Company.
The Company isare a financial services company that primarily invests in syndicated corporate bank loans, bonds, other debt securities, and structured products. TheWe are a newly formed externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC and intends to elect to be treated for U.S. federal income tax purposes, and to qualify annually thereafter, as a RIC under the Code. We were formed on June 3, 2020 as a Delaware limited liability company under the name MSC Capital LLC. MSC Capital LLC was formed by Steele Creek Investment Management LLC, Moelis Asset and two affiliates. On October 7, 2020, MSC Capital LLC converted to a Maryland corporation (the “Conversion”), named Steele Creek Capital Corporation. On September 3, 2020, we formed a wholly-owned consolidated special purpose financing vehicle, Steele Creek Capital Funding I, LLC, a Delaware limited liability company.
Our investment objective is to generate high current income by investing primarily in fixed income instruments, including broadly syndicated bank loans, structured products, mezzanine financings and senior secured bonds. We intend to provide moderate liquidity to our shareholders by offering a quarterly share repurchase program beginning with the calendar quarter ending on September 30, 2021. Broadly syndicated loans are generally more liquid than directly originated investments and may provide more attractive financing terms than less liquid assets. Mezzanine financings are generally unrated or below investment grade rated investments that have greater credit and liquidity risk than more highly rated debt obligations. Moreover, mezzanine financings are generally unsecured and subordinate to other obligations of the obligor and are subject to many of the same risks as those associated with high-yield debt securities.
Revenues
We plan to generate revenue primarily in the form of interest and fee income on debt investments we hold and capital gains, if any, on investments. We generally expect our debt investments to bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on debt securities is generally payable quarterly or semi-annually. In some instances, we expect to receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we may receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments is expected to fluctuate significantly from period to period. Our portfolio activity is also expected to reflect the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.
Expenses
Our primary operating expenses will include the payment of fees to theour Investment Advisor under the investment advisory agreement between the Company and the Advisor (the “Advisory Agreement”),Investment Advisory Agreement, our allocable portion of overhead and rental expenses under the Administration Agreement and other operating costs described below. We will bear all other out-of-pocket costs and expenses of our operations and transactions, including:
| ● | our initial organization costs incurred prior to the commencement of our operations; |
| ● | operating costs incurred prior to the commencement of our operations; |
| ● | the cost of calculating our net asset value, including the cost of any third-party valuation services; |
| ● | the cost of effecting sales and repurchases of shares of our common stock and other securities, including in connection with the Private Offering; |
| ● | distribution and shareholder servicing fees payable to our dealer manager and financial intermediaries; |
| ● | fees payable to third parties relating to making investments, including our Investment Advisor’s or its affiliates’ travel expenses, research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments; |
| ● | interest expense and other costs associated with our indebtedness; |
| ● | transfer agent and custodial fees; |
| ● | out-of-pocket fees and expenses associated with marketing efforts; |
| ● | federal and state registration fees and any stock exchange listing fees; |
| ● | U.S. federal, state and local taxes; |
| ● | Independent Directors’ fees and expenses; |
| ● | brokerage commissions and markups; |
| ● | fidelity bond, directors’ and officers’ liability insurance and other insurance premiums; |
| ● | direct costs, such as printing, mailing, long distance telephone and staff; |
| ● | fees and expenses associated with independent audits and outside legal costs; |
| ● | costs associated with our reporting and compliance obligations under the 1940 Act and other applicable U.S. federal and state securities laws; and |
| ● | other expenses incurred by the Administrator or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion (subject to the review and approval of our Board) of overhead, including rental expenses |
From time to time, the Administrator or its affiliates may pay third-party providers of goods or services. We will reimburse the Administrator or such affiliates thereof for any such amounts paid on our behalf under the Administration Agreement. All of the foregoing expenses will ultimately be borne by our stockholders.
Our Investment Advisor is authorized to determine the broker to be used for each portfolio transaction. In selecting brokers to execute transactions, the Investment Advisor need not solicit competitive bids and does not have an obligation to seek the lowest available commission cost. In selecting brokers, the Investment Advisor may or may not negotiate “execution only” commission rates and thus we may be deemed to be paying for other services provided by the broker that are included in the commission rate. In negotiating commission rates, the Investment Advisor will take into account the financial stability and reputation of the broker and the brokerage, research and other services provided to us, the Investment Advisor and other customers of the Investment Advisor and its affiliates by such broker, even though we may not, in any particular instance, be the direct or indirect beneficiaries of the research or other services provided and the management fee payable to the Investment Advisor is not reduced because it receives such services. In addition, the Investment Advisor may direct commissions to certain brokers that on the foregoing basis may furnish other services to us, the Investment Advisor and other customers of the Investment Advisor and its affiliates, such as telephone lines, news and quotation equipment, electronic office equipment, account record keeping and clerical services, trading software, financial publications and economic consulting services. As a result of the brokerage practices described above, the levels of commission paid, and prices paid or received by us in portfolio transactions may be less favorable than in portfolio transactions effected on a best price and execution basis.
Compensation Paid to the Dealer Manager and Participating Financial Intermediaries
The Company has engaged S2K Financial LLC as dealer manager to assist with the placement of the Company’s shares (“Dealer Manager”). Investors will pay a maximum upfront sales load of up to 5.5% of the Company’s net asset value per share for combined upfront selling commissions and dealer manager fees. Investors will pay a maximum upfront selling commission of 3.0% and a maximum dealer manager fee of 2.5%. The purchase price paid by an investor will be the Company’s net asset value per share plus all upfront selling commissions and dealer manager fees. All or a portion of selling commissions and dealer manager fees may be reduced or eliminated in connection with certain categories of sales such as, without limitation, sales through investment advisers or sales to our affiliates.
The Company will pay to the Dealer Manager a shareholder servicing fee (“Shareholder Servicing Fee”) at a maximum annual rate equal to 0.0% of the Company’s net assets up to $28.2 million and of 1.0% of the Company’s net assets over $28.2 million. The Shareholder Servicing Fee will be payable on a monthly basis. With respect to each share sold, the Shareholder Servicing Fee will be paid until the third anniversary of the applicable month of purchase. All or a portion of which may be reallowed by the Dealer Manager to participating Financial Intermediaries. The purpose of the Shareholder Servicing Fee is to reimburse our Dealer Manager for costs incurred by selected Financial Intermediaries and investment representatives for providing ongoing shareholder services. The Shareholder Servicing Fee is paid pursuant to a Servicing Plan adopted by the Board, including a majority of the Independent Directors and who have no direct or indirect financial interest in the operation of the Servicing Plan or in any agreements entered into in connection therewith. The Servicing Plan will remain in effect for so long as such continuance is reapproved annually by the Board. We estimate the organization and offering expenses to be paid by us will be $1.5 million, which equals 1% of the gross offering proceeds if we sell $150 million of shares in the initial 12 month period of the Private Offering following the initial filing date of our Form 10.
The Investment Advisor or its affiliates, in Investment Advisor’s discretion and from their own resources, will pay additional compensation to our Dealer Manager in connection with the sale and servicing of shares (“Additional Compensation”). In return for the Additional Compensation, the Company may receive certain marketing advantages. Our Dealer Manager may reallow all or a portion of the Additional Compensation to participating Financial Intermediaries. The Additional Compensation will not be paid by our shareholders.
Current Market Conditions
SinceThe syndicated bank loan market alongside other risk assets experienced strong gains in the first portfolio investments were committed toquarter of 2021, led by continued optimism about the economic recovery from the pandemic and a conducive technical backdrop. Issuers and arrangers capitalized on the favorable market conditions with a full slate of repricing, M&A and LBO transactions. Upgrades outpaced downgrades by the rating agencies and default activity decelerated in the beginning of July 2020, we have seen improving market conditions as fiscal and monetary stimulus alongside business re-openings have driven a fast-paced recovery in risk assets. As the duration of the COVID-19 pandemic remains uncertain and could continue to cause disruption in the global economy and financial markets, broadly syndicated loans have largely been bifurcated between issuers with operations significantly diminished by governmental restrictions and those with operations continuing to function. Furthermore, issuers of scale critical to their supply chain that are currently experiencing significant operational disruption are still having success accessing liquidity from the credit markets in many cases.
With a favorable technical backdrop, the broadly syndicated loan market was receptive to opportunistic activity in the 3rd quarter of 2020, which led to an array of new issue transactions including leveraged buyouts, strategic acquisitions, refinancing’s and dividend recapitalizations. However, a spike in COVID-19 cases that forces a significant portion of the U.S. into a lockdown or the absence of a smooth transition of presidential power could lead to increased volatility and greatly diminish capital markets activity. This possible outcome may result in additional portfolio investments being sourced predominantly in the secondary market.quarter.
While market volatility can impact portfolio investment valuations, our institutional credit facility does not include a mark-to-market covenant. Access to the credit facility will be available as long as eligibility covenants are maintained.
To safeguard the health of our employees and to ensure continuity of our business operations on behalf of our investors, the Company and its advisor have maintained a remote work environment that has not incurred any disruption to the portfolio management, trading, research or operations and accounting functions of the Company. company.
COVID-19 Developments
The transmission of COVID-19 and efforts to contain its spread have resulted in, among other things, border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and customer activity, lower consumer demand for goods and services, event cancellations and restrictions, service cancellations, reductions and other changes, significant challenges in healthcare service preparation and delivery, and prolonged quarantines, as well as general concern and uncertainty. The impact of the COVID-19 outbreak could negatively affect the global economy, the economies of individual countries, and the financial performance of individual issuers, sectors, industries, asset classes, and markets in significant and unforeseen ways. The COVID-19 pandemic and its effects may last for an extended period of time, and in either case could result in significant market volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates, and a substantial economic downturn or recession. The foregoing could disrupt the operations of the Company and its service providers, adversely affect the value and liquidity of the Company’s investments, and negatively impact the Company’s performance and your investment in the Company.
LIBOR Developments
On July 27, 2017, the Financial Conduct Authority (“FCA”) announced that it would phase out the London Interbank Offered Rate (“LIBOR”) as a benchmark by the end of 2021 and the FCA has indicated that market participants should not rely on LIBOR being available after 2021. As an alternative to LIBOR, for example, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and our existing financial instruments which reference LIBOR. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR, or any changes announced with respect to such reforms, may result in a sudden or prolonged increase or decrease in the reported LIBOR rates and the value of LIBOR-based loans and securities, including those of other issuers we or our funds currently own or may in the future own. It remains uncertain how such changes would be implemented and the effects such changes would have on us, issuers of instruments in which we invest and financial markets generally.
The expected discontinuation of LIBOR could have a significant impact on our business. The dollar amount of our outstanding debt investments and borrowings that are linked to LIBOR with maturity dates after the anticipated discontinuation date of 2021 is material. We anticipate significant operational challenges for the transition away from LIBOR including, but not limited to, amending existing loan agreements with borrowers on investments that may have not been modified with fallback language and adding effective fallback language to new agreements in the event that LIBOR is discontinued before maturity. Beyond these challenges, we anticipate there may be additional risks to our current processes and information systems that will need to be identified and evaluated by us. Due to the uncertainty of the replacement for LIBOR, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us and could have a material adverse effect on our business, financial condition, and results of operations.
Portfolio and Investment Activity
As of September 30, 2020,March 31, 2021, our portfolio had a fair market value of $26,726,554,approximately $71.1 million, a cost basis of $26,383,346approximately $70.2 million and was comprised of leveraged loans, measured at fair value (the “Loan Portfolio”). The Loan Portfoliovalue. Our loan portfolio consisted of 3289 portfolio companies in 1925 industries. The following table depicts a summary of the portfolio as of September 30, 2020:March 31, 2021 (in thousands):
| Investments | ||||
| Cost | $ | 70,248 | ||
| Cumulative Net Unrealized Appreciation | 858 | |||
| Fair Value | $ | 71,106 | ||
| Yield at Cost | 4.93 | % | ||
As of September 30,December 31, 2020, our portfolio had a fair market value of approximately $67.8 million, a cost basis of approximately $67.0 million and was comprised of leveraged loans, measured at fair value. Our loan portfolio consisted of 84 portfolio companies in 24 industries. The following table depicts a summary of the portfolio as of December 31, 2020 (in thousands):
| Investments | ||||
| Cost | $ | 66,956 | ||
| Cumulative Net Unrealized Appreciation | 855 | |||
| Fair Value | $ | 67,811 | ||
| Yield at Cost | 4.82 | % | ||
As of March 31, 2021, 100.0% of the investments in the portfolio bore interest at floating rates, with 73.6% of our loan portfolio (at fair value) and 73.4% of our loan portfolio (at cost) having an interest rate floor above 0.0%. The composition of our floating rate loan portfolio by interest rate floor as of March 31, 2021 was as follows (in thousands):
| March 31, 2021 | |||||||||||||||||
| Interest Rate Floor | Fair Value | % of Floating Rate Portfolio | Cost | % of Floating Rate Portfolio | |||||||||||||
| 0.00 | % | $ | 18,785 | 26.42 | % | $ | 18,658 | 26.56 | % | ||||||||
| 0.50 | % | 4,041 | 5.68 | % | 4,024 | 5.73 | % | ||||||||||
| 0.75 | % | 25,208 | 35.45 | % | 24,933 | 35.49 | % | ||||||||||
| 1.00 | % | 23,072 | 32.45 | % | 22,633 | 32.22 | % | ||||||||||
| $ | 71,106 | 100.00 | % | $ | 70,248 | 100.00 | % | ||||||||||
As of December 31, 2020, 100.0% of the investments in the portfolio bore interest at floating rates, with 89.0%67.1% of our loan portfolio (at fair value) and 88.8%67.0% of our loan portfolio (at cost) having an interest rate floor.floor above 0.0%. The composition of our floating rate loan portfolio by interest rate floor as of September 30,December 31, 2020 was as follows:follows (in thousands):
| September 30, 2020 | ||||||||||||||||
| Fair Value | % of Floating Rate Portfolio | Cost | % of Floating Rate Portfolio | |||||||||||||
| 0.00% | 2,944,208 | 11.02 | % | 2,957,303 | 11.21 | % | ||||||||||
| 0.75% | 6,084,669 | 22.77 | % | 5,999,164 | 22.74 | % | ||||||||||
| 1.00% | 17,697,677 | 66.22 | % | 17,426,878 | 66.05 | % | ||||||||||
| 26,726,554 | 100.00 | % | 26,383,346 | 100.00 | % | |||||||||||
| December 31, 2020 | |||||||||||||||||
| Interest Rate Floor | Fair Value | % of Floating Rate Portfolio | Cost | % of Floating Rate Portfolio | |||||||||||||
| 0.00 | % | $ | 22,275 | 32.85 | % | $ | 22,088 | 32.99 | % | ||||||||
| 0.50 | % | 751 | 1.11 | % | 743 | 1.11 | % | ||||||||||
| 0.75 | % | 19,830 | 29.24 | % | 19,610 | 29.29 | % | ||||||||||
| 1.00 | % | 24,955 | 36.80 | % | 24,515 | 36.61 | % | ||||||||||
| $ | 67,811 | 100.00 | % | $ | 66,956 | 100.00 | % | ||||||||||
The portfolio is actively managed, with a turnover ratio of 216.46%183.87% for the period July 1, 2020 (commencement of operations) through September 30, 2020. During the period July 1, 2020 (commencement of operations) through September 30, 2020, Loan Portfoliothree months ended March 31, 2021, our loan portfolio rotation was reflective of the active management style, which seeks to optimize the portfolio based on current market conditions by rotating into positions that have better relative values. We do not expect to maintain this level of turnover ratio as this level is inflated due to the ramping of the portfolio. However, this high level does provide an indication of the liquidity in our portfolio and the leverage loan market. The average yield during period July 1, 2020 (commencement of operations) through September 30, 2020the three months ended March 31, 2021 on the investment was 5.30%4.87%. The following tables depict the portfolio activity for the period July 1, 2020 (commencement of operations) through September 30, 2020:three months ended March 31, 2021 (in thousands):
| Investments | Investments | |||||||
| Fair Value, Beginning | $ | - | $ | 67,811 | ||||
| Investment contributions | 2,858,282 | |||||||
| Purchases | 69,071,588 | 130,232 | ||||||
| Sales and Repayments | (45,806,471 | ) | (127,715 | ) | ||||
| Payment in-kind interest income | 1 | |||||||
| Non-cash income accrual | 45,811 | 46 | ||||||
| Net realized gains (losses) | 214,136 | |||||||
| Net realized gains | 728 | |||||||
| Net unrealized appreciation | 343,208 | 3 | ||||||
| Fair Value, Ending | $ | 26,726,554 | $ | 71,106 | ||||
| Investments | ||||
| Portfolio Companies, Beginning | ||||
| Purchases (new) | ||||
| Purchases (add-on to existing) | ||||
| Complete exit | ( | ) | ||
| Portfolio Companies, Ending | ||||
The portfolio was diversified across both issuers and industries with the average exposure to an individual obligor in our Loanloan portfolio of $0.8 million at fair value, or 3.1%1.1% of the total portfolio, as of September 30,the three months ended March 31, 2021. The following table shows the Loan portfolio composition by industry grouping at fair value as a percentage of total loans as of March 31, 2021:
| As of March 31, 2021 | ||||
| Healthcare & Pharmaceuticals | 12.9 | % | ||
| High Tech Industries | 10.6 | % | ||
| Banking, Finance, Insurance & Real Estate | 9.9 | % | ||
| Services: Business | 8.4 | % | ||
| Aerospace & Defense | 6.5 | % | ||
| Telecommunications | 5.5 | % | ||
| Retail | 5.0 | % | ||
| Containers, Packaging & Glass | 5.0 | % | ||
| Forest Products & Paper | 4.2 | % | ||
| Services: Consumer | 3.5 | % | ||
| Transportation: Consumer | 3.5 | % | ||
| Transportation: Cargo | 3.2 | % | ||
| Beverage, Food, & Tobacco | 2.9 | % | ||
| Energy: Electricity | 2.8 | % | ||
| Automotive | 2.8 | % | ||
| Media: Advertising, Printing & Publishing | 2.1 | % | ||
| Capital Equipment | 2.1 | % | ||
| Media: Broadcasting & Subscription | 2.1 | % | ||
| Construction & Building | 1.4 | % | ||
| Energy: Oil & Gas | 1.4 | % | ||
| Wholesale | 1.1 | % | ||
| Hotel, Gaming & Leisure | 1.1 | % | ||
| Chemicals, Plastics, & Rubber | 0.7 | % | ||
| Utilities: Electric | 0.7 | % | ||
| Consumer goods: Durable | 0.6 | % | ||
| 100.0 | % | |||
The portfolio was diversified across both issuers and industries with the average exposure to an individual obligor in our loan portfolio of $0.8 million at fair value, or 1.2% of the total portfolio, as of December 31, 2020. The following table shows the Loan portfolio composition by industry grouping at fair value as a percentage of total Loansloans as of September 30,December 31, 2020:
| As of 2020 | ||||
| Healthcare & Pharmaceuticals | 14.3 | % | ||
| Containers, Packaging & Glass | 10.3 | % | ||
| Banking, Finance, Insurance & Real Estate | % | |||
| Services: Business | 9.5 | % | ||
| Aerospace & Defense | % | |||
| % | ||||
| 5.7 | % | |||
| Services: Consumer | % | |||
| % | ||||
| Transportation: | 3.8 | |||
| % | ||||
| Energy: Electricity | 3.7 | % | ||
| Automotive | 3.1 | % | ||
| Construction & Building | 3.0 | % | ||
| Transportation: Consumer | 2.2 | % | ||
| Media: Advertising, Printing & Publishing | % | |||
| Forest Products & Paper | 1.5 | % | ||
| Capital Equipment | 1.5 | % | ||
| Retail | 1.5 | % | ||
| Energy: Oil & Gas | % | |||
| % | ||||
| Hotel, Gaming & Leisure | 1.1 | % | ||
| Environmental Industries | 1.1 | % | ||
| Utilities: Electric | % | |||
| % | ||||
| 100.0 | % | |||
Results of Operations
Operating results for the period July 1, 2020 (commencement of operations) through September 30, 2020 were as follows:follows (in thousands):
| For the three months ended March 31, 2021 | ||||
| Investment income: | ||||
| Interest income | $ | 894 | ||
| Other income | 9 | |||
| Total investment income | 903 | |||
| Expenses: | ||||
| Management fees | 289 | |||
| Interest and debt financing expenses | 238 | |||
| Professional fees | 159 | |||
| Incentive fees | 110 | |||
| Offering costs – paid by Moelis Asset | 60 | |||
| Administration expenses | 38 | |||
| Organizational costs | 36 | |||
| Organizational costs – paid by Moelis Asset | 24 | |||
| Directors’ fees | 20 | |||
| Custody fees | 7 | |||
| Other general and administrative expenses | 49 | |||
| Total expenses | 1,030 | |||
| Less: management fees waived | (115 | ) | ||
| Less: incentive fees waived | (65 | ) | ||
| Net expenses | 850 | |||
| Net investment income | 53 | |||
| Net realized gain on investments | 728 | |||
| Net unrealized appreciation on investments | 3 | |||
| Net realized and unrealized gain on investments | 731 | |||
| Net increase in net assets | $ | 784 | ||
Investment Income
Investment income of $222,442approximately $0.9 million is recorded on the accrual basis to the extent that such amounts are expected to be collected. Where applicable, OID and purchased discounts and premiums are accreted into interest income using the effective interest method. Loan origination fees are deferred and accreted into interest income using the effective interest method. We record prepayment premiums on loans and other investments as interest income when such amounts are received.
Total Expenses
Total expenses of $120,388approximately $1.0 million include administrator fees, custody fees, legal fees,management, incentive, audit and tax servicepreparation fees, organizational costs, offering costs, interest and debt financing costs, directors’ fees, administration expenses third-party valuation fees and other general and administrative expenses. Expenses are recognized on an accrual basis. Moelis Asset, parent of the Investment Advisor paid approximately $36 thousand of organizational and offering costs incurred by the Company related to the formation of the entity, Moelis Asset will incur these expenses and they will not be charged back to the Company. The Investment Advisor waived $0.2 million of management and incentive fees. The actions taken by Moelis Asset and the Investment Advisor effectively reduced total expenses incurred by the Company of approximately $1.0 million to approximately $0.8 million.
Net Realized Gain on Investments
Sales and repayments of investments during the period July 1, 2020 (commencement of operations) through September 30, 2020three months ended March 31, 2021 totaled $45,806,471approximately $127.7 million resulting in net realized gains of $214,136.approximately $0.7 million.
Net Unrealized Appreciation on Investments
Unrealized appreciation of $343,208during the three month ended March 31, 2021 totaled approximately $3 thousand reflects the changes in fair value of investments as determined in compliance with the Manager’sInvestment Advisor’s valuation policy.
Taxes
The Company isWe intend to elect to be treated, and intend to qualify annually to maintain our election to be treated, as a pass-through entity. Accordingly, noRIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain annual source-of-income and quarterly asset diversification requirements. We also must annually distribute dividends for U.S. federal income taxes are assessedtax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of the Company level. Federalsum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, or investment company taxable income, determined without regard to any deduction for dividends paid.
Although not required for us to maintain our RIC tax status, in order to avoid the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute dividends for U.S. federal income tax lawpurposes to our stockholders in respect of each calendar year of an amount at least equal to the Excise tax Avoidance Requirement.
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized gain recognized for financial reporting purposes. Differences between tax regulations requireand GAAP may be permanent or temporary. Permanent differences are reclassified among capital accounts in the partnersConsolidated Financial Statements to reportreflect their allocable shareappropriate tax character. Temporary differences arise when certain items of the Company’s taxable income, expense, gain or loss are recognized at some time in their respectivethe future.
We have formed and expect to continue to form certain taxable subsidiaries, including the Taxable Subsidiary, which are taxed as corporations. These taxable subsidiaries allow us to hold equity securities of certain portfolio companies treated as pass-through entities for U.S. federal income tax returns. Certain state and local tax authorities levy taxes onpurposes while facilitating our ability to qualify as a RIC under the Company based on its income.Code.
Financial Condition, Liquidity and Capital Resources
We intend to generate cash primarily from the net proceeds of any offering of shares of our common stock and from cash flows from interest and fees earned from our investments and principal repayments and proceeds from sales of our investments. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities, including before we have fully invested the proceeds of the Private Offering. Our primary use of cash will beis investments in portfolio companies, payments of our expenses and payment of cash distributions to our stockholders.
Capital Contributions
DuringFor the period from July 1, 2020 (Commencement of Operations) through September 30, 2020,three months ended March 31, 2021, the Company issued and sold 22,82873,165 shares of Common Stock with a par value of $0.001 per share for an aggregate offering price of $0.8 million. The sale of its common stock was made pursuant to subscription agreements between the Company and the investors, and the issuance of the common stock was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
Our shares of common stock constitute illiquid investments for which represented limited liability company intereststhere is not, and will likely not be, a secondary market at any time prior to a public offering and listing of our shares on a national securities exchange. There can be no guarantee that we will conduct a public offering and list our shares on a national securities exchange. Investment in the Company is suitable only for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in an investment in the Company.
We intend to provide moderate liquidity to our shareholders by offering a quarterly share repurchase program beginning with the calendar quarter ending on September 30, 2021.
As of March 31, 2021, the Company issued 2,706,393 shares of Common Stock.
Borrowings
On October 13, 2020, we entered into a $45.0 million credit facility with BNP Paribas as lender and administrative agent. During the BNP Credit Facility’s revolving period, it bears interest at London Interbank Offered Rate, or LIBOR, plus 175 basis points. The BNP Credit Facility is secured by all of the assets held by Steele Creek Capital Funding I. We believe that our capital resources will provide us with the flexibility to take advantage of market opportunities when they arise. For the three months ended March 31, 2021, we had an aggregate purchase priceaverage of $23,358,000.$36.2 million outstanding under the BNP Credit Facility. For the period October 13, 2020 through December 31, 2020, we had an average of $8.6 million outstanding under the BNP Credit Facility.
Distribution Policy
To the extent that we have income available, we intend to distribute quarterly dividends to our stockholders. Our quarterly dividends, if any, will be determined by our Board. Any dividends to our stockholders will be declared out of assets legally available for distribution.
We intend for the Company to elect to be treated, and intend to qualify annually thereafter, as a RIC under the Code. To obtain and maintain RIC tax treatment, among other things, we must distribute dividends to our stockholders in respect of each taxable year of an amount at least equal to 90% of the sum of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses (“investment company taxable income”), determined without regard to any deduction for dividends paid. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute dividends to our stockholders in respect of each calendar year of an amount at least equal to the sum of: (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for such calendar year; (2) 98.2% of our capital gains in excess of capital losses (“capital gain net income”), adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of such calendar year; and (3) any net ordinary income and capital gain net income for preceding years that were not distributed during such years and on which we previously paid no U.S. federal income tax.
We currently intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to you. If this happens, you will be treated for U.S. federal income tax purposes as if you had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, you would be eligible to claim a tax credit equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. We cannot assure you that we will achieve results that will permit us to pay any cash distributions, and if we issue senior securities, we will be prohibited from making distributions if doing so would cause us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if such distributions are limited by the terms of any of our borrowings.
Asset Coverage
In accordance with the 1940 Act, the Company has historically only been allowed to borrow amounts such that its “asset coverage,” as defined in the 1940 Act, is at least 200% after such borrowing, permitting the Company to borrow up to one dollar for investment purposes for every one dollar of investor equity. “Asset coverage” generally refers to a company’s total assets, less all liabilities and indebtedness not represented by “senior securities,” as defined in the 1940 Act, divided by total senior securities representing indebtedness and, if applicable, preferred stock. “Senior securities” for this purpose includes borrowings from banks or other lenders, debt securities and preferred stock.
On March 23, 2018, the SBCAA was signed into law. The SBCAA, among other things, modifies the applicable provisions of the 1940 Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150% subject to certain approval, time and disclosure requirements (including either stockholder approval or approval of a majority of the directors who are not interested persons of the BDC and who have no financial interest in the proposal). On October 5, 2020, the Board and the Members of MSC Capital LLC voted to approve the adoption of the reduced asset coverage ratio.
As of March 31, 2021 and December 31, 2020, the Company had total senior securities of $45.0 million and $27.8 million, respectively, consisting of borrowings under the Credit Facility, and had asset coverage ratios of 165.7% and 201.9%, respectively. For a discussion of certain risks associated with the reduction of the required minimum asset coverage ratio applicable to the Company, see “Risk Factors — Risks Related to Our Business and Structure — The SBCAA allows us to incur additional leverage, which may increase the risk of investing with us.”
Critical Accounting Policies
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods covered by such consolidated financial statements. The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946, Financial Services-Investment Companies Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. The Company will reevaluate its estimates on an ongoing basis. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future consolidated financial statements.
Valuation Procedures
Under procedures established by our Board and in accordance with the 1940 Act, we will value investments for which market quotations are readily available at such market quotations. Assets listed on an exchange will be valued at their last sales prices as reported to the consolidated quotation service at 4:00 P.M. eastern time on the date of determination. If no such sales of such securities occurred, such securities will be valued at the mean between the last available bid and ask prices as reported by an independent, third party pricing service on the date of determination. Debt and equity securities that are not publicly traded or whose market prices are not readily available will be valued at fair value, subject at all times to the oversight and approval of our Board. Such determination of fair values may involve subjective judgments and estimates, although we will also engage independent valuation providers to review the valuation of each portfolio investment that constitutes a material portion of our portfolio and that does not have a readily available market quotation at least once annually. With respect to unquoted securities, our Investment Advisor, together with our independent valuation advisors, and subject at all times to the oversight and approval of our Board, will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. We intend to retain one or more independent providers of financial advisory services to assist the Investment Advisor and the Board by performing certain limited third-party valuation services. We may appoint additional or different third-party valuation firms in the future.
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs with respect to a fair-valued portfolio company or comparable company, our Board will use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by our Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had readily available market quotations existed for such investments, and the differences could be material.
FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820820”) specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. ASC 820 also provides guidance regarding a fair value hierarchy, which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level of information used in the valuation. In accordance with ASC 820, these inputs are summarized in the three levels listed below.
Level 1—Valuations are based on quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2—Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly and model-based valuation techniques for which all significant inputs are observable.
Level 3—Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models incorporating significant unobservable inputs, such as discounted cash flow models and other similar valuations techniques. The valuation of Level 3 assets and liabilities generally requires significant management judgment due to the inability to observe inputs to valuation.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of observable input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and it considers factors specific to the investment.
With respect to investments for which market quotations are not readily available, our Investment Advisor will undertake a multi-step valuation process each quarter, as described below:
| ● | Investments for which no such market prices are available or reliable will be preliminarily valued at such value as the Investment Advisor may reasonably determine, which may include third party valuations; |
| ● | The audit committee of our Board (the “Audit Committee”) will then review these preliminary valuations; |
| ● | At least once annually, the valuation for each portfolio investment that constitutes a material portion of our portfolio and that does not have a readily available market quotation will be reviewed by an independent valuation firm; and |
| ● | Our Board will then discuss valuations and determine the fair value of each investment in our portfolio in good faith, based on the input of our Investment Advisor, the respective independent valuation firms and the Audit Committee. |
Investment Transactions, Realized/Unrealized Gains or Losses, and Income Recognition
Investment transactions are recorded on a trade date basis (for publicly-traded investments and securities traded through dealer markets) or upon closing of the transaction (for private investments). The cost of an investment includes all costs incurred by the Company as part of the purchase of such investment. The difference between the initially recognized cost and the subsequent fair value measurement of an investment is reflected as “net change in unrealized appreciation on non-controlled/non-affiliate company investments” on the Consolidated Statement of Operations.
Realized gain or loss from an investment is recorded at the time of disposition and calculated using the weighted average cost method. Unrealized gain or loss reflects the changes in fair value of investments as determined in compliance with the Investment Advisor’s valuation policy.
Interest income, adjusted for amortization of market premium and accretion of market discount, is recorded on an accrual basis to the extent that we expect to collect such amounts. Interest income on debt instruments is accrued and recognized for those issuers who are currently paying in full or expected to pay in full. For those issuers who are in default or expected to default, interest is not accrued and is only recognized when received. Interest income and expense include discounts accreted and premiums amortized on certain debt instruments as determined in good faith by the Adviser and calculated using the effective interest method. Loan origination fees, original issue discounts and market discounts or premiums are capitalized as part of the underlying cost of the investments and accreted or amortized over the life of the investment as interest income.
Management and Incentive Fees
We will accrue for the base management fee and incentive fee that consists of an income-based component and a capital gains component. The accrual for incentive fee includes the recognition of incentive fee on unrealized capital gains, even though such incentive fee is neither earned nor payable to the Adviser until the gains are both realized and in excess of unrealized depreciation on investments. The amount of capital gains incentive fee expense related to the hypothetical liquidation of the portfolio (and assuming no other changes in realized or unrealized gains and losses) would only become payable to the Adviser in the event of a complete liquidation of the Company’s portfolio as of period end and the termination of the Advisory Agreement on such date. Also, it should be noted that the capital gains incentive fee expense fluctuates with the Company’s overall investment results.
Expenses
For the three months ended March 31, 2021, the Company incurred expenses of approximately $1.0 million primarily related to management fees, incentive fees, interest and debt financing expenses, organization expenses, professional fees, directors’ fees, offering costs and administration and custodian fees.
Federal Income Taxes
We have elected to be treated, and to qualify annually, as a RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes at least 90% of its net ordinary income and net short-term capital gains in excess of its net long-term capital losses, if any, to its stockholders. We intend to distribute sufficient dividends to maintain our RIC status each year and we do not anticipate paying any material federal income taxes in the future.
Investment Income
For debt investments, we record interest income on the accrual basis to the extent that such amounts are expected to be collected. OID and purchased discounts and premiums are accreted/amortized into interest income using the effective interest method, where applicable. Loan origination fees are deferred and accreted into interest income using the effective interest method. We record prepayment premiums on loans and other investments as interest income when such amounts are received. We stop accruing interest on investments when it is determined that interest is no longer collectible. As of September 30, 2020,March 31, 2021, we had no loans on non-accrual status.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the identified cost basis method for financial reporting.
Contractual Obligations
Commitments to extend credit include loan proceeds we are obligated to advance, such as delayed draws. Commitments generally have fixed expiration dates or other termination clauses. The par amount of the unfunded commitments is not recognized by the Company until the commitment becomes funded. As of September 30,March 31, 2021 the Company had unfunded commitments of $0.3 million. As of December 31, 2020 we did not have any obligations for the repaymentCompany had unfunded commitments of $0.4 million.
The following table reflects information pertaining to our principal debt outstanding. On October 13, 2020, we entered intooutstanding under the Credit Facility. See “Recent Developments” below.Facility:
| Debt Outstanding as of March 31, 2021 | Weighted average debt outstanding for the three months ended March 31, 2021 | Debt Outstanding as of December 31, 2020 | Weighted average debt outstanding for the period October 13, 2020 through December 31, 2020 | |||||||||||||
| Credit Facility | $ | 45,000 | $ | 36,234 | $ | 27,800 | $ | 8,624 | ||||||||
Off-Balance Sheet Arrangements
Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not expect to have any off-balance sheet financings or liabilities. These instruments include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. At September 30,As of ended March 31, 2021, we had a total of $0.3 million in outstanding commitments comprised of investments with commitments to fund revolving loans that had not been fully drawn or term loans with additional commitments not yet funded. As of December 31, 2020, we had a total of $265,031$0.4 million in outstanding commitments comprised of an investments with commitments to fund revolving loans that had not been fully drawn or term loans with additional commitments not yet funded.
Related Party Transactions
All three Members of the Company are related parties of the Manager. During the period July 1, 2020 (commencementthrough December 31, 2020, affiliates of operations) through September 30,2020, the MembersCompany contributed $20,499,718$21.5 million of cash and $2,858,282$2.9 million of assets to the Company in exchange for equity in the Company. Assets contributed to the Company were contributed at fair value in accordance with Financial Accounting Standards No.116, Board (“FASB”) No. 116, Accounting for Contributions Received and Contributions Made.Made. As of March 31, 2021, affiliates owned approximately 88% of the Company representing approximately $25.9 million of the Company’s net assets. As of December 31, 2020, affiliates owned approximately 88% of the Company representing approximately $25.0 million of the Company’s net assets.
For the three months ended March 31, 2021, Moelis Asset, parent of the Investment Advisor contributed approximately $36 thousand to pay organizational and offering costs incurred by the Company related to the formation of the entity. Moelis Asset will incur these expenses and they will not be charged back to the Company.
Separate from the contributions made above, the Company may, from time to time, purchase investments from, or sell investments to affiliates of our ManagerInvestment Advisor at fair value on the trade date. DuringFor the three months ended March 31, 2021 and the period ended July 1, 2020 (commencement of operations), to September 30,December 31, 2020, there were no purchases of investments from or sales of investments to affiliates of our Manager.Investment Advisor.
Prior to the Company’sMSC Capital LLC’s conversion to a corporation and election to be treated as a BDC, the Companyit did not pay the ManagerInvestment Advisor for the services it provided to the Company.MSC Capital LLC. Similarly, the affiliated directors and officers of the Company did not receive compensation from the Company. Upon conversion, the Company began accruing director’s compensation for the three independent directors in accordance with the governing documents. For the three months ended March 31, 2021, the Company incurred $20 thousand in director fee expense.
Organizational and Offering Expenses
For the three months ended March 31, 2021, the Company incurred $0.1 million of organizational and offering costs. Organizational costs are expensed as incurred and offering cost are amortized over a 12 month period. Moelis Asset, parent of the Investment Advisor, paid approximately $35 thousand of organizational and offering costs incurred by the Company related to the formation of the entity. Moelis Asset incurred these expenses and they will not be charged back to the Company.
Investment Advisory Agreement
We have entered into the Investment Advisory Agreement with the Investor Advisor, an affiliate of Moelis Asset, which was approved by our Board and our sole stockholder for a two-year term, under which the Investment Advisor, subject to the overall supervision of our Board manages the day-to-day operations of, and provides investment advisory services to us. The base management fee is calculated at a maximum annual rate of 1.0% of the average of the weighted average (based on the number of shares outstanding each day in the quarter) of our gross assets (including uninvested cash and cash equivalents) at the end of each of the two most recently completed calendar quarters. The Company elected to waive a portion of the management fee and charged management fees on investments rather than gross assets. Net management fees for the three months ended March 31, 2021 were $174 thousand. The Investment Advisor has agreed to a 6.0% priority dividend to shareholders before receiving a fee for the services it provides to the Company.
Administration Agreement
We have entered into the Administration Agreement with the Administrator, pursuant to which the Administrator provides us with office space, office services and equipment and other administrative services.
Recent Developments
On October 7, 2020,Management has evaluated subsequent events through the Company converteddate of issuance of these financial statements and has determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, a Maryland corporation, named Steele Creek Capital Corporation. On that date,or disclosure in, the Company elected to be regulated as a BDC under the 1940 Act. The Company will elect for federal income tax purposes to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company will be externally managed by Steele Creek Investment Management LLC (the “Advisor”). The Company entered into an investment advisory agreement (the “Advisory Agreement”) with the Advisor and will compensate the Advisor for its services with a fee that consists of two components: a management fee and an incentive fee. In connection with the conversion, the shares of the Company converted into an aggregate amount of 2,282,787.33 shares of the Company’s common stock.financial statements other than those disclosed below.
On October 13, 2020, the Company entered into a Credit Agreement with BNP Paribas (“BNP”) as lender and administrative agent (the “Credit Facility”) providing a maximum of $45,000,000 to the borrower. During the Credit Facility’s revolving period, it bears interest at London Interbank Offered Rate, or LIBOR, plus 200 basis points. The Company created a wholly owned subsidiary, Steele Creek Capital Funding I, LLC, which it will use to hold the Company’s investments, and a first priority continuing security interest in, to and under each investment, all underlying investments and underlying assets has been granted to the BNP to be used as collateral for the Credit Facility. The Company began transferring investments into Steele Creek Funding I, LLC in October.
On December 1, 2020,April 5, 2021, the Company issued and sold 350,443.4348,062 shares of its common stock to certain investors for an aggregate offering price of $3,750,000.$0.5 million. Additionally, on April 16, 2021, the Company issued and sold 45,400 shares of its common stock to certain investors for an aggregate offering price of $0.5 million. The sale of its common stock was made pursuant to subscription agreements between the Company and the investor. Theinvestors, and the issuance of the common stock was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.We are subject to financial market risks, including 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, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
As of March 31, 2021, 100% of our loan portfolio bore interest at floating rates with 73.6% (at fair value) having an interest rate floor between 0.50% and 1.00%. The floating rate loans are usually based on a LIBOR (or an alternative risk-free floating interest rate index) rate and typically have durations ranging from one to six months, after which they reset to current market interest rates. Floating rate investments subject to a floor generally reset to the current market index after one to nine months if the index exceeds the floor. For positions with an interest rate floor, we do not benefit from increases in interest rates until such rates exceed the floor and thereafter benefit from market rates above any such floor.
Assuming that the consolidated statement of assets and liabilities as of the three months ended March 31, 2021 was to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates:
| Basis Point Changes | Interest Income | Interest Expense | Net Income | |||||||||
| Up 300 basis points | $ | 7,330 | $ | (1,339 | ) | $ | 5,991 | |||||
| Up 200 basis points | 4,411 | (889 | ) | 3.522 | ||||||||
| Up 100 basis points | 1,492 | (439 | ) | 1,053 | ||||||||
| (1) | A decline in interest rates would not have a material impact on our consolidated financial statements. |
Although management believes that this measure is indicative of our sensitivity to interest rates, it does not reflect any potential impact to the fair value of our investments as a result of changes to interest rates, nor does it adjust for potential changes in the credit market, credit quality, size and composition of the assets in our consolidated statement of assets and liabilities and other business developments that could affect the net increase/(decrease) in net assets resulting from operations or net investment income. Accordingly, no assurances can be given that actual results would not differ materially from those shown above.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2020,March 31, 2021, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
Changes in Internal Control over Financial Reporting
There have been no changes in our “internal control over financial reporting” (as defined in Rule 13a 15(f) of the Exchange Act) that occurred during our quarter ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. 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.
Investing in our common stock involves a number of significant risks. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in ItemPart I, “Item 1A. Risk Factors of Amendment No. 2 toFactors” in our Registration StatementAnnual Report on Form 1010-K for the fiscal year ended December 31, 2020 (the “Annual Report on Form 10-K”), which was filed with the SEC on November 24, 2020.could materially affect our business, financial condition and/or operating results. The risks described in our registration statementAnnual Report on Form 1010-K are not the only risks we face. Additional risks and uncertainties that are not presentlycurrently known to us or not presently deemed material by usthat we currently deem to be immaterial also may also materially and adversely affect our business, financial condition and/or operating results. ThereOther than the risk factors below, during the three months ended March 31, 2021, there have been no material changes during the period from July 1, 2020 (Commencement of Operations) to September 30, 2020 to the risk factors discussedset forth in Item 1A. Risk Factors of Amendment No. 2 to our Registration StatementAnnual Report on Form 10.10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In conjunction with our formation, certain affiliates of our Advisor contributed assets to us in exchange for limited liability company membership interests of the Company. As of September 30, 2020, the value of the initial portfolio was approximately $24.0 million. The membership interests were sold in reliance upon the available exemptions from registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended. None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
Item 6. Exhibits, Consolidated Financial Statement Schedules
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Exhibit Index
| * | Filed herewith |
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.
| Steele Creek Capital Corporation | ||
| Date: | /s/ Glenn Duffy | |
| Name: | Glenn Duffy | |
| Title: | Chief Executive Officer, Chief Investment Officer, and President | |
(Principal Executive Officer) | ||
| Date: | /s/ Douglas Applegate Jr. | |
| Name: | Douglas Applegate Jr. | |
| Title: | Chief Financial Officer | |
(Principal Financial and Accounting Officer) | ||
30
40