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MSC Capital

Filed: 12 Nov 21, 5:09pm

 

 

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, 2021

 

OR

 

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

 

Commission File Number: 814-01351

 

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, 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 filerAccelerated filer
Non-accelerated filerSmaller 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 November 12, 2021, the registrant had 4,240,708 shares of common stock, $0.001 par value per share, outstanding. 

 

 

 

 

 

 

STEELE CREEK CAPITAL CORPORATION

 

TABLE OF CONTENTS

 

   Page
PART I. FINANCIAL INFORMATION 1
    
Item 1.Consolidated Financial Statements 1
    
 Consolidated Statements of Assets and Liabilities as of September 30, 2021 (unaudited) and December 31, 2020 1
    
 Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and the Period July 1, 2020 (Commencement of Operations) through September 30, 2020 (unaudited) 2
    
 Consolidated Statements of Changes in Net Assets for the three and nine months ended  September 30, 2021 and the Period July 1, 2020 (Commencement of Operations) through September 30, 2020 (unaudited) 3
    
 Consolidated Statement of Cash Flows for the nine months ended September 30, 2021 and the Period July 1, 2020 (Commencement of Operations) through September 30, 2020 (unaudited) 4
    
 Consolidated Schedules of Investments as of September 30, 2021 (unaudited) and December 31, 2020 5
    
 Notes to Consolidated Financial Statements (unaudited) 13
    
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
    
Item 3.Quantitative and Qualitative Disclosures About Market Risk 41
    
Item 4.Controls and Procedures 42
    
PART II. OTHER INFORMATION 43
    
Item 1.Legal Proceedings 43
    
Item 1A.Risk Factors 43
    
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 43
    
Item 3.Defaults Upon Senior Securities 43
    
Item 4.Mine Safety Disclosures 43
    
Item 5.Other Information 43
    
Item 6.Exhibits 44
    
Signatures  45

  

i

 

 

Part I. Financial Information

Item 1. Consolidated Financial Statements

 

Steele Creek Capital Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)

 

  September 30,
2021
  December 31,
2020
 
  (unaudited)    
Assets      
Investments:      
Non-controlled/non-affiliate company investments, at fair value (amortized cost of $107,169 and $66,956, respectively) $107,943  $67,811 
Cash  4,148   3,206 
Receivable for investments sold  105,168   28,092 
Prepaid expenses and other assets  133   192 
Interest receivable  325   96 
Total assets $217,717  $99,397 
         
Liabilities        
Credit facility  67,350   27,800 
Payable for investments purchased  104,419   42,426 
Management fees payable  274   - 
Interest payable  114   38 
Incentive fees payable  271   - 
Accounts payable and accrued expenses  530   349 
Directors' fees payable  20   19 
Distributions payable  653   425 
Total liabilities  173,631   71,057 
         
Commitments and contingencies (Note 8)        
         
Net Assets:        
Common shares, $0.001 par value, 4,001,831 shares authorized, 4,001,831 and 2,633,228 shares issued and outstanding, respectively $4  $3 
Paid-in-capital in excess of par value  43,208   28,049 
Total distributable earnings  874   288 
Total net assets $44,086  $28,340 
         
Total liabilities and net assets $217,717  $99,397 
         
Net asset value per share $11.02  $10.76 

 

The accompanying notes are an integral part of these consolidated financial statements

  

1

 

  

Steele Creek Capital Corporation

Consolidated Statement of Operations

(unaudited)

(in thousands, except per share data)

 

  Three months ended September 30,
2021
  Nine months ended September 30,
2021
  For the period from July 1, 2020 (commencement of operations) through September 30,
2020
 
          
Investment income:         
Non-controlled/non-affiliate company investments:         
Interest income $1,280  $3,074  $211 
Other income  -   14   11 
Total investment income  1,280   3,088   222 
             
Expenses:            
Management fees  533   1,272   - 
Interest and debt financing expenses  339   850   - 
Professional fees  103   401   106 
Incentive fees  66   271   - 
Offering costs - paid by Moelis Asset  12   111   - 
Administration expenses  38   113   3 
Directors’ fees  18   60   - 
Custody fees  8   23   8 
Organizational costs  -   37   - 
Organizational costs - paid by Moelis Asset  -   24   - 
Other general and administrative expenses  130   184   3 
Total expenses  1,247   3,346   120 
Less: management fees waived  (259)  (590)  - 
Incentive fees waiver reversal  135   -   - 
Net expenses  1,123   2,756   120 
Net investment income  157   332   102 
             
Realized and unrealized gain on investments:            
Net realized gain on non-controlled/non-affiliate company investments  562   1,887   214 
Net change in unrealized (depreciation) appreciation on non-controlled/non-affiliate company investments  (121)  (81)  343 
             
Total net realized and unrealized gain on investments  441   1,806   557 
             
Net increase in net assets resulting from operations $598  $2,138  $659 
             
Per share data:            
Net investment income per share - basic and diluted $0.04  $0.10  $0.06 
Net increase in net assets resulting from operations per share - basic and diluted $0.15  $0.66  $0.42 
Weighted average shares outstanding - basic and diluted  3,929   3,225   1,568 

 

The accompanying notes are an integral part of these consolidated financial statements

  

2

 

 

Steele Creek Capital Corporation

Consolidated Statements of Changes in Net Assets

(unaudited)

(in thousands, except per share data)

 

  The three months ended September 30,
2021
  The nine months ended September 30,
2021
  For the period from July 1, 2020 (commencement of operations) through September 30,
2020
 
Operations         
Net investment income $157  $332  $102 
Net realized gains on investments  562   1,887   214 
Net change in unrealized gains on investments  (121)  (81)  343 
Net increase in net assets resulting from operations  598   2,138   659 
             
Distributions to Stockholders            
Distributions of realized income  (652)  (1,552)  - 
             
Capital Share Transactions            
Issuance of common shares  2,419   15,026   23,358 
             
Organizational and offering costs            
Contributions for organizational and offering costs  -   36   - 
Deferred offering costs  13   98   - 
   13   134   - 
             
Net Assets            
Net increase in net assets during the period  2,378   15,746   24,017 
Net assets at beginning of period  41,708   28,340   - 
Net assets at end of period $44,086  $44,086  $24,017 
             
Capital Share Activity            
Issuance of common shares  220   1,369   2,283 
Shares issued and outstanding at beginning of period  3,782   2,633   - 
Shares issued and outstanding at end of period  4,002   4,002   2,283 

 

The accompanying notes are an integral part of these consolidated financial statements

   

3

 

  

Steele Creek Capital Corporation

Consolidated Statement of Cash Flows

(unaudited)

(in thousands, except per share data)

 

  Nine months ended
September 30,
2021
  For the period from July 1, 2020
(commencement of operations) through
September 30,
2020
 
       
Cash flows from operating activities:      
Net increase in net assets resulting from operations $2,138  $659 
         
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities        
Purchase of investments  (467,840)  (69,071)
Proceeds from sales of investments and paydowns  429,632   45,807 
Payment in-kind interest income  (6)  - 
Adjustment from Moelis Asset for organizational and offering costs  36   - 
Amortization of premium/accretion of discount, net  (112)  (46)
Net realized gain on investments  (1,887)  (214)
Net change in unrealized appreciation on investments  81   (343)
Changes in operating assets and liabilities:        
Receivable for investments sold  (77,076)  (23,241)
Prepaid expenses and other assets  60   - 
Interest receivable  (229)  (32)
Payable for investments purchased  61,993   29,608 
Management fees payable  274   - 
Interest payable  76   - 
Inventive fees payable  271   - 
Accounts payable and accrued expenses  182   56 
Directors’ fees payable  1   - 
Net cash used in operating activities  (52,406)  (16,817)
         
Cash flows from financing activities:        
Proceeds from issuance of common shares  15,026   20,500 
Proceeds from issuance of debt  39,550   - 
Payments of offering costs  98   - 
Stockholder distributions paid  (1,326)  - 
Net cash provided by financing activities  53,348   20,500 
         
Net increase in Cash  942   3,683 
Cash, beginning of period  3,206   - 
Cash, end of period $4,148  $3,683 

 

The accompanying notes are an integral part of these consolidated financial statements

  

4

 

  

STEELE CREEK CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 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) 
Non-controlled/Non-Affiliate Investments                 
Term Floating Rate Loans - 266.0% of Shareholder’s Equity (4)               
Aerospace & Defense                       
Amentum Holdings  2/1/2027   5.50% L + 4.75%  0.75%  995  $978  $1,005   2.3%
HDT Holdco, Inc.  6/30/2027   6.25% L + 5.50%  0.75%  987   959   978   2.2%
MAG DS Corp  4/1/2027   6.50% L + 5.50%  1.00%  973   930   907   2.1%
Peraton  2/1/2028   4.50% L + 3.75%  0.75%  995   990   997   2.3%
Spirit Aerosystems Inc.  1/15/2025   6.00% L + 5.25%  0.75%  496   494   500   1.1%
Total Aerospace & Defense                    4,351   4,387   10.0%
                               
Automotive                              
Autokiniton  4/6/2028   5.00% L + 4.50%  0.50%  997   995   999   2.3%
Total Automotive                    995   999   2.3%
                               
Banking, Finance, Insurance & Real Estate                              
Asurion, LLC (fka Asurion Corporation)  7/30/2027   3.33% L + 3.25%  0.08%  1,494   1,480   1,474   3.3%
Broadstreet Partners, Inc.  1/27/2027   3.33% L + 3.25%  0.08%  820   815   812   1.8%
DRW Holdings  2/24/2028   3.83% L + 3.75%  0.08%  902   898   900   2.1%
FinCo I LLC  6/27/2025   2.58% L + 2.50%  0.08%  495   494   494   1.1%
Hudson River Trading  3/20/2028   3.08% L + 3.00%  0.08%  884   876   880   2.0%
HIG Finance 2 Limited  11/12/2027   4.00% L + 3.25%  0.75%  1,492   1,493   1,493   3.4%
Jane Street Group  1/26/2028   2.83% L + 2.75%  0.08%  997   988   989   2.3%
LendingTree  8/24/2028   4.75% L + 4.00%  0.75%  1,500   (15)  2   0.0%
Syncapay  12/10/2027   7.50% L + 6.50%  1.00%  491   473   493   1.1%
Resolute Investment Managers  4/30/2024   5.25% L + 4.25%  1.00%  714   709   718   1.6%
Russell Investments US Institutional Holdco, Inc.  5/30/2025   4.50% L + 3.50%  1.00%  1,000   991   1,003   2.3%
Ryan Specialty Group LLC  9/1/2027   3.75% L + 3.00%  0.75%  497   500   499   1.1%
Total Banking, Finance, Insurance & Real Estate                    9,702   9,757   22.1%
                               
Beverage, Food, & Tobacco                              
K-Mac Holdings Corp.  7/31/2028   4.00% L + 3.50%  0.50%  1,000   995   996   2.3%
Total Beverage, Food, & Tobacco                    995   996   2.3%
                               
Capital Equipment                              
American Trailer World  3/3/2028   4.50% L + 3.75%  0.75%  997   998   994   2.2%
DMT Solutions  7/2/2024   8.50% L + 7.50%  1.00%  739   741   734   1.7%
Energy Acquisition LP (aka Electrical Components International)  6/26/2025   4.35% L + 4.25%  0.10%  1,172   1,155   1,165   2.6%
Mirion Technologies  3/6/2026   4.15% L + 4.00%  0.15%  992   983   993   2.3%
Total Capital Equipment                    3,877   3,886   8.8%
                               
Chemicals, Plastics, & Rubber                              
Orion Engineered  9/22/2028   2.75% L + 2.25%  0.50%  1,000   995   1,001   2.3%
Sparta U.S. HoldCo LLC  4/28/2028   4.25% L + 3.50%  0.75%  500   498   502   1.1%
Total Chemicals, Plastics, & Rubber                    1,493   1,503   3.4%
                               
Construction & Building                              
Janus International Group, LLC  2/12/2025   4.25% L + 3.25%  1.00%  900   900   900   2.0%
QUIKRETE Holdings, Inc.  2/21/2028   3.19% L + 3.00%  0.19%  1,500   1,489   1,497   3.4%
Total Construction & Building                    2,389   2,397   5.4%
                               
Consumer Goods: Durable                              
Mannington Mills, Inc.  8/6/2026   3.90% L + 3.75%  0.15%  437   437   437   1.0%
Total Consumer Goods: Durable                    437   437   1.0%
                               
Consumer Goods: Non-Durable                              
Conair Holdings LLC  5/17/2028   4.25% L + 3.75%  0.50%  750   746   751   1.7%
Total Consumer Goods: Non-Durable                    746   751   1.7%

  

5

 

 

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) 
Containers, Packaging & Glass                    
Canister International Group Inc.  12/21/2026   4.83% L + 4.75%  0.08%  495   493   496   1.1%
Engineered Machinery  5/22/2028   4.50% L + 3.75%  0.75%  1,000   995   1,001   2.3%
Logoplaste Parent S.A.R.L. (5)  4/21/2028   4.75% L + 4.25%  0.50%  106   105   106   0.2%
Plaze, Inc.  8/3/2026   4.50% L + 3.75%  0.75%  990   977   990   2.2%
Ring Container Technologies  8/12/2028   4.25% L + 3.75%  0.50%  1,000   998   1,002   2.3%
Sabert Corp  11/26/2026   5.50% L + 4.50%  1.00%  725   720   728   1.7%
Technimark LLC  6/30/2028   4.25% L + 3.75%  0.50%  499   496   498   1.1%
Valcour Packaging  9/29/2028   4.25% L + 3.75%  0.50%  1,000   995   1,001   2.3%
Total Containers, Packaging & Glass                    5,779   5,822   13.2%
                               
Energy: Electricity                              
Astoria Energy  12/10/2027   4.50% L + 3.50%  1.00%  986   981   990   2.2%
Hamilton Projects Acquiror LLC  6/17/2027   5.75% L + 4.75%  1.00%  987   968   993   2.3%
Total Energy: Electricity                    1,949   1,983   4.5%
                               
Energy: Oil & Gas                              
AL NGPL Holdings, LLC  4/14/2028   4.75% L + 3.75%  1.00%  750   756   754   1.7%
CQP Holdco LP (aka BIP-V CHIN)  6/5/2028   4.25% L + 3.75%  0.50%  1,247   1,241   1,245   2.8%
ChampionX Holding Inc.  6/3/2026   6.00% L + 5.00%  1.00%  937   930   956   2.2%
Lucid Energy Group II Borrower, LLC  2/18/2025   4.00% L + 3.00%  1.00%  497   495   493   1.1%
Navitas Midstream Midland Basin, LLC  12/13/2024   4.75% L + 4.00%  0.75%  996   996   997   2.3%
Prairie ECI Acquiror LP  3/11/2026   4.83% L + 4.75%  0.08%  500   489   484   1.1%
Total Energy: Oil & Gas                    4,907   4,929   11.2%
                               
Forest Products & Paper                              
Schweitzer-Mauduit  4/28/2028   4.50% L + 3.75%  0.75%  997   988   999   2.3%
Total Forest Products & Paper                    988   999   2.3%
                               
Healthcare & Pharmaceuticals                              
Alvogen Pharma  12/29/2023   6.25% L + 5.25%  1.00%  987   953   956   2.2%
ANI Pharmaceuticals, Inc.  5/24/2027   6.75% L + 6.00%  0.75%  1,000   986   1,006   2.3%
Aveanna Healthcare LLC  6/30/2028   4.25% L + 3.75%  0.50%  94   94   94   0.2%
Aveanna Healthcare LLC  6/30/2028   4.25% L + 3.75%  0.50%  406   404   406   0.9%
Bayou Intermediate II, LLC  5/15/2028   5.25% L + 4.50%  0.75%  1,000   995   1,004   2.3%
CCRR Parent  3/6/2028   5.00% L + 4.25%  0.75%  995   990   999   2.3%
Confluent Health  6/24/2026   5.08% L + 5.00%  0.08%  997   998   1,000   2.3%
FC Compassus  12/31/2026   5.00% L + 4.25%  0.75%  992   990   995   2.2%
Global Medical Response, Inc.  9/24/2025   5.75% L + 4.75%  1.00%  496   488   499   1.1%
Golden State Medical Supply  6/22/2026   5.50% L + 4.75%  0.75%  995   986   995   2.2%
HAH Group Holding  10/22/2027   6.00% L + 5.00%  1.00%  112   111   112   0.2%
HAH Group Holding  10/20/2027   6.00% L + 5.00%  1.00%  883   872   886   2.0%
Mozart Debt Merger  9/29/2028   3.75% L + 3.25%  0.50%  750   746   749   1.7%
Onex TSG  2/28/2028   5.50% L + 4.75%  0.75%  998   979   1,007   2.3%
Revspring  10/3/2025   4.40% L + 4.25%  0.15%  517   514   516   1.2%
SCP Eye Care  3/16/2028   5.25% L + 4.50%  0.75%  148   -   -   0.0%
SCP Eye Care  3/16/2028   5.25% L + 4.50%  0.75%  850   848   851   1.9%
Signify Health, LLC  6/16/2028   3.75% L + 3.25%  0.50%  1,000   995   997   2.3%
TTF Holdings  3/31/2028   5.00% L + 4.25%  0.75%  701   696   702   1.6%
US Anesthesia  9/22/2028   4.75% L + 4.25%  0.50%  1,000   995   1,003   2.3%
Western Dental Services  8/11/2028   5.25% L + 4.50%  0.75%  139   39   39   0.1%
Western Dental Services  8/11/2028   5.25% L + 4.50%  0.75%  1,361   1,354   1,363   3.1%
Zotec Partners, LLC  2/14/2024   4.75% L + 3.75%  1.00%  497   499   498   1.1%
Total Healthcare & Pharmaceuticals                    16,532   16,677   37.8%

  

6

 

 

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) 
High Tech Industries                       
Connectwise 9/25/2028  4.00 L + 3.50% 0.50 % 1,000  995  999  2.3
Flexera Software 3/3/2028  4.50 % L + 3.75% 0.75 % 993  990  995  2.2
Ingram Micro Inc. 6/30/2028   4.00% L + 3.50%  0.50%  997   988   1,001   2.3%
LogMeIn, Inc. 8/31/2027   4.83% L + 4.75%  0.08%  993   971   993   2.3%
Tenable Holdings, Inc. 7/7/2028   3.25% L + 2.75%  0.50%  1,000   998   1,001   2.3%
UKG Inc. 5/4/2026   4.00% L + 3.25%  0.75%  497   499   499   1.1%
Ultra Clean 8/27/2025   3.83% L + 3.75%  0.08%  451   449   452   1.0%
Verifone 8/20/2025   4.13% L + 4.00%  0.13%  1,491   1,472   1,464   3.3%
Vision Solutions, Inc. (Precisely Software Incorporated) 4/24/2028   5.00% L + 4.25%  0.75%  1,500   1,493   1,500   3.4%
Watlow Electric Manufacturing 3/2/2028   4.50% L + 4.00%  0.50%  348   347   350   0.8%
Total High Tech Industries                   9,202   9,254   21.0%
                              
Hotel, Gaming & Leisure                             
Herschend Entertainment Co LLC 8/28/2028   4.25% L + 3.75%  0.50%  1,000   990   1,001   2.3%
Sabre GLBL 12/17/2027   4.00% L + 3.50%  0.50%  278   277   277   0.6%
Sabre GLBL 12/17/2027   4.00% L + 3.50%  0.50%  443   442   441   1.0%
United Airlines, Inc. 4/21/2028   4.50% L + 3.75%  0.75%  995   990   1,004   2.3%
Total Hotel, Gaming & Leisure                   2,699   2,723   6.2%
                              
Media: Advertising, Printing & Publishing                             
MediaOcean 8/28/2025   4.08% L + 4.00%  0.08%  997   995   1,000   2.3%
Thryv Holdings Inc 3/2/2026   9.50% L + 8.50%  1.00%  412   401   420   0.9%
Total Media: Advertising, Printing & Publishing                   1,396   1,420   3.2%
                              
Media: Broadcasting & Subscription                             
The E.W. Scripps Company 1/7/2028   3.75% L + 3.00%  0.75%  464   465   465   1.1%
LCPR Loan Financing LLC 10/16/2028   3.83% L + 3.75%  0.08%  500   502   501   1.1%
Total Media: Broadcasting & Subscription                   967   966   2.2%
                              
Metals & Mining                             
U.S. Silica Company 5/1/2025   5.00% L + 4.00%  1.00%  497   477   488   1.1%
Total Metals & Mining                   477   488   1.1%
                              
Retail                             
Apro, LLC (aka United Pacific) 11/14/2026   4.50% L + 3.75%  0.75%  1,343   1,334   1,347   3.0%
EG Group (6) 3/31/2026   4.75% L + 4.25%  0.50%  997   988   998   2.3%
Great Outdoors Group 3/6/2028   5.00% L + 4.25%  0.75%  993   988   997   2.3%
Rent-A-Center 2/17/2028   3.75% L + 3.25%  0.50%  589   589   591   1.3%
Total Retail                   3,899   3,933   8.9%
                              
Services: Business                             
Access CIG, LLC 2/27/2025   3.83% L + 3.75%  0.08%  497   496   496   1.1%
Ahead DB Holdings, LLC 10/18/2027   4.50% L + 3.75%  0.75%  998   998   1,003   2.3%
Artera Services, LLC 3/6/2025   4.50% L + 3.50%  1.00%  997   988   994   2.2%
DTI Holdco 10/2/2023   5.75% L + 4.75%  1.00%  1,193   1,170   1,181   2.7%
GI Consilio Parent LLC 5/12/2028   4.50% L + 4.00%  0.50%  517   512   515   1.2%
Nielsen Consumer 3/6/2028   4.08% L + 4.00%  0.08%  498   495   499   1.1%
Mermaid Bidco 12/22/2027   4.50% L + 3.75%  0.75%  999   995   1,000   2.3%
Phoenix Services International LLC 3/3/2025   4.75% L + 3.75%  1.00%  995   991   989   2.2%
Pitney Bowes 3/17/2028   4.10% L + 4.00%  0.10%  995   986   998   2.3%
Presidio Holdings Inc. 2/1/2027   3.60% L + 3.50%  0.10%  1,007   1,008   1,008   2.3%
Rocket Software, Inc. 11/28/2025   4.75% L + 4.25%  0.50%  109   107   109   0.2%
Rocket Software, Inc. 11/28/2025   4.33% L + 4.25%  0.08%  386   382   383   0.9%
Sedgwick Claims Management Services, Inc. (Lightning Cayman Merger Sub, Ltd.) 12/31/2025   3.33% L + 3.25%  0.08%  995   987   988   2.2%
Sitel Worldwide 8/28/2028   4.25% L + 3.75%  0.50%  1,500   1,493   1,504   3.4%
Tempo Acquisition 8/31/2028   3.50% L + 3.00%  0.50%  1,000   998   1,002   2.3%
Total Services: Business                   12,606   12,669   28.7%

 

7

 

 

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) 
Services: Consumer                        
Cimpress plc  5/17/2028   4.00%  L + 3.50%   0.50%  997   988   1,000   2.3%
St. George’s University Scholastic Services LLC  6/29/2028   3.75%  L + 3.25%   0.50%  625   622   625   1.4%
ThoughtWorks, Inc.  3/24/2028   3.75%  L + 3.25%   0.50%  428   429   428   1.0%
WW International, Inc.  4/13/2028   4.00%  L + 3.50%   0.50%  998   993   998   2.2%
Total Services: Consumer                      3,032   3,051   6.9%
                                 
Telecommunications                                
Avaya  12/15/2027   4.33%  L + 4.25%   0.08%  850   839   852   1.9%
CCI Buyer  12/17/2027   4.75%  L + 4.00%   0.75%  995   986   999   2.3%
ConvergeOne Holdings, Corp.  1/4/2026   5.08%  L + 5.00%   0.08%  1,492   1,467   1,488   3.4%
Mavenir Systems  8/18/2028   5.25%  L + 4.75%   0.50%  1,500   1,485   1,506   3.4%
Plantronics, Inc.  7/2/2025   2.58%  L + 2.50%   0.08%  1,000   987   979   2.2%
Syniverse Holdings  3/11/2024   10.00%  L + 9.00%   1.00%  1,250   1,252   1,252   2.8%
Syniverse Holdings  3/11/2023   6.00%  L + 5.00%   1.00%  496   490   497   1.1%
Zacapa S.A R.L. (5)  7/2/2025   4.70%  L + 4.50%   0.20%  995   993   1,002   2.3%
Zayo Group Holdings, Inc.  3/9/2027   3.08%  L + 3.00%   0.08%  1,000   995   992   2.3%
Total Telecommunications                      9,494   9,567   21.7%
                                 
Transportation: Cargo                                
Carriage Purchaser  10/31/2028   5.00%  L + 4.25%   0.75%  1,000   995   1,000   2.3%
Daseke  3/9/2028   4.75%  L + 4.00%   0.75%  995   990   997   2.3%
Kenan Advantage Group  9/1/2027   8.00%  L + 7.25%   0.75%  1,000   980   994   2.2%
Wabash National Corporation  9/28/2027   4.00%  L + 3.25%   0.75%  879   882   880   2.0%
WWEX UNI TopCo Holdings  7/26/2028   5.00%  L + 4.25%   0.75%  1,500   1,485   1,507   3.4%
Total Transportation: Cargo                      5,332   5,378   12.2%
                                 
Transportation: Consumer                                
Air Canada (7)  8/11/2028   4.25%  L + 3.50%   0.75%  1,500   1,485   1,508   3.5%
First Student Bidco  7/21/2028   3.50%  L + 3.00%   0.50%  365   363   364   0.8%
First Student Bidco  7/21/2028   3.50%  L + 3.00%   0.50%  135   134   134   0.3%
Railworks  12/14/2027   6.50%  L + 5.50%   1.00%  449   442   453   1.0%
Total Transportation: Consumer                      2,424   2,459   5.6%
                                 
Utilities: Electric                                
PG&E Corporation  6/23/2025   3.50%  L + 3.00%   0.50%  494   491   487   1.1%
Total Utilities: Electric                      491   487   1.1%
                                 
Total Term Floating Rate Loans                      107,159   107,918   244.8%
                                 
Equity Securities - 0.1% of Shareholder’s Equity (4)                                
Banking, Finance, Insurance & Real Estate                                
Alliance Healthcare Services, Inc. (warrant to purchase up to 1.7% of the equity)  -   -   -   -   -   10   25   0.1%
Total Banking, Finance, Insurance & Real Estate                      10   25   0.1%
Total Equity Securities                      10   25   0.1%
Total Non-controlled/Non-Affiliate Investments                     $107,169  $107,943   244.9%

 

   

(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 September 30, 2021. As of September 30, 2021, rates for 1M L, 2M L, 3M L and 6M L are 0.08%, 0.11%, 0.13%, and 0.16% respectively.
(4)Percentages are based on net assets of $44,086 as of September 30, 2021.
(5)This loan is a Luxembourg company.
(6)

This loan is a United Kingdom company.

(7)

This loan is a Canadian company.

 

The accompanying notes are an integral part of these consolidated financial statements

 

8

 

  

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/NonAffiliate Investments                 
Term Floating Rate Loans - 239.3% of Shareholder’s Equity (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%

  

9

 

  

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) 
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%
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%

   

10

 

 

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)
 
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%

 

11

 

 

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

 

12

 

 

Steele Creek Capital Corporation

Notes to the Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

 

1. ORGANIZATION

 

Steele Creek Capital Corporation (which is referred to as the “Company”, “we”, “us” and “our”) was originally organized as MSC Capital LLC as a Delaware limited liability company on June 3, 2020. The 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 “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”).

 

In September 2020, we formed a wholly-owned special purpose financing vehicle, Steele Creek Funding I, LLC (“Funding I”), a Delaware limited liability company.

 

Steele Creek Investment Management LLC (the “Investment Advisor” or “Administrator”) is our investment adviser and an affiliate of Moelis Asset Management LP (“Moelis Asset”). We entered into an Investment Advisory Agreement with the Investment Advisor who, subject to the supervision of our board of directors (the “Board”), manages the day-to-day operations and provides investment advisory services to the Company. The Company has no paid employees and the Investment Advisor has entered into an agreement (the “Custody Agreement”) to delegate certain administrative and custody functions to US Bank (the “Custodian”).

 

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.

 

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. Financial statements are prepared in accordance with GAAP for 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 period presented, have been included.

 

Use of Estimates - The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Investment 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.

 

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.

 

13

 

 

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. For the three and nine months ended September 30, 2021, there were no loans in non-accrual status. For the period the Company was an LLC, July 1, 2020 (commencement of operations) through September 30, 2020, 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 Investment 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, 2021 and December 31, 2020, our cash balance exceeded federally insured limits. The Investment 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 net 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 September 30, 2021 and December 31, 2020, all of our investments were Non-Control/Non-Affiliate investments.

 

Valuation of Investments - We value our investments in accordance with the 1940 Act and ASC Topic 820 – Fair Value Measurement and Disclosures, (“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” in the Consolidated Statement of Operations.

 

14

 

 

In 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 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. 

 

We value our investments in accordance with the Investment 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 and nine months ended September 30, 2021, there were no transfers between levels. For the period the Company was an LLC, July 1, 2020 (commencement of operations) through September 30, 2020, there were no transfers between levels.

 

Income Taxes - For the three and nine months ended September 30, 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 using the asset and liability method prescribed by ASC Topic 740 – Income Taxes (“ASC Topic 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 imposition of an excise tax.

  

We recognize the effect of a tax position in our Consolidated Financial Statements in accordance with ASC Topic 740 when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by the applicable tax authority. Tax positions not considered 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 and no amounts accrued for any related interest or penalties with respect to the period presented herein. The Company’s determinations regarding ASC Topic 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although the Company files both federal and state income tax returns, the Company’s major tax jurisdiction is federal.

 

Because federal income tax regulations differ from GAAP, distributions in accordance 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 permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial Statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

 

The 2020 tax year for the Company is not yet closed and remains subject to examination by U.S. Federal, state and local tax authorities.

 

Recent Accounting Pronouncements

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance is effective upon issuance and generally may be elected over time through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through September 30, 2021, but will continue to evaluate the possible adoption (including potential impact) of any such expedients or exceptions during the effective period as circumstances evolve.  

 

15

 

 

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 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 valuation per share and has agreed to waive all or a portion of the base management and income incentive fee, (quarterly) and the capital incentive fee (annually) where net investment income plus net realized capital gains is not sufficient to maintain the targeted annual distribution payment. The Advisor’s fees will be calculated in accordance with the Investment Advisory Agreement once the annual distribution payment has been earned with realized income.

 

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 each the quarter, the base management fee is 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 and nine months ended September 30, 2021 were $0.5 million and $1.3 million, respectively. Net management fees for the three and nine months ended September 30, 2021 were $0.3 million and $0.7 million. The Company did not charge a management fee for the period the Company was an LLC, July 1, 2020 (commencement of operations) through September 30, 2020. The Company elected to waive a portion of the management fee and charged management fees on investments rather than gross assets.

 

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.

  

16

 

 

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. Also, it should be noted that while we accrue the capital incentive fee quarterly, the expense will fluctuate with the Company’s overall investment results and the expense will be finalized at year end.

 

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.

 

Capital incentive fees for the three and nine months ended September 30, 2021 were $201 thousand and $271 thousand, respectively. The fee for the three months ended September 30,2021 consists of $66 thousand earned in the current period and $135 thousand of fees originally waived in the first six months of the year. The Company’s performance through September 30, 2021 produced returns that are sufficient for the advisor to charge a full capital incentive fee for the nine months ended September 30,2021. The Company did not charge a capital incentive fee for the period the Company was an LLC, July 1, 2020 (commencement of operations) through September 30, 2020.

 

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.

 

17

 

 

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 September 30, 2021, affiliates owned approximately 58% of the Company representing approximately $25.5 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 September 30, 2021, Moelis Asset, parent of the Investment Advisor did not make a contribution to the Company. For the nine months ended September 30, 2021, Moelis Asset contributed $36 thousand to pay organizational and offering costs incurred by the Company related to the formation of the entity, respectively. 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 and nine months ended September 30, 2021 there were no purchases of investments from or sales of investments to affiliates of our Investment Advisor. For the period 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 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 directors’ compensation for the three independent directors in accordance with the governing documents. For the three and nine months ended September 30, 2021, the Company incurred $18 thousand and $60 thousand in directors’ fees expense, respectively. For the period July 1, 2020 (commencement of operations) to September 30, 2020, the Company did not incur a directors’ fees expense. On August 13, 2021, the Board agreed to make investments rather than gross assets the basis for their fee to be more in line with the waivers implemented for management fees.

  

The Company carries employment practices liability, directors and officers and errors and omission insurance. For the best interests of the Company, these policies are joint liability policies with Moelis Asset and its affiliates.

 

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 Investment Advisor using the best information available. The amount determined to be fair value may incorporate the Investment Advisor’s own assumptions (including assumptions that the Investment 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 our 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.

 

18

 

 

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.

 

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 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.

 

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The following fair value hierarchy table sets forth our investments by level as of September 30, 2021:

 

  September 30, 2021 
  Total  Level 1  Level 2  Level 3 
Term Loans $107,918  $   -  $107,918  $    - 
Warrants  25   -   25   - 
Total Investments $107,943  $-  $107,943  $- 

 

 The following fair value hierarchy table sets forth our investments by level as of December 31, 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
three months
ended
September 30,
2021
  Period
July 1,
2020
(commencement
of operations) to
September 30,
2020
 
Numerator - net earnings $598  $659 
Denominator - weighted average shares  3,929   1,568 
Net earnings per share $0.15  $0.42 

 

  For the
nine months
ended
September 30,
2021
 
Numerator - net earnings $2,138 
Denominator - weighted average shares  3,225 
Net earnings per share $0.66 

 

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6. NET ASSETS

 

The Company has been actively fundraising since its inception. For the period from July 1, 2020 (commencement of operations) through October 6, 2020, MSC Capital LLC issued 22,828 shares at a par value of $1,000.00 per share. On 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. The table below summarizes the capital that the Company has raised and the shares issued to investors from our July 1, 2020 inception through September 30, 2021.

 

Date Closed Capital
Raised
(in thousands)
  Shares
Issued
 
July 1, 2020 $7,358   735,800 
August 1, 2020  10,000   972,924 
September 1, 2020  6,000   574,064 
Balance at September 30, 2020  23,358   2,282,788 
December 1, 2020  3,750   350,440 
Balance at December 31, 2020  27,108   2,633,228 
March 4, 2021  600   54,898 
March 19, 2021  200   18,268 
Balance at March 31, 2021  27,908   2,706,394 
April 5, 2021  525   48,062 
April 16, 2021  500   45,400 
June 4, 2021  10,692   974,744 
June 18, 2021  84   7,616 
Balance at June 30, 2021  39,709   3,782,216 
July 1, 2021  365   33,155 
July 16, 2021  649   58,735 
August 6, 2021  730   66,097 
August 19, 2021  500   45,818 
September 3, 2021  124   11,263 
September 17, 2021  50   4,547 
Balance at September 30, 2021 $42,127   4,001,831 

 

During the three and nine months ended September 30, 2021, the Company also issued 219,616 shares and 1,368,603 shares, with an aggregate value of $2.4 million and $15.0 million, respectively. During the period July 1, 2020 (commencement of operations) to September 30, 2020, the Company also issued 2,282,787 shares, with an aggregate value of $23.4 million. 

 

As of September 30, 2021, the Company had 4,001,831shares of common stock, $0.001 par value per share, outstanding. As of December 31, 2020, the Company issued 2,633,228 shares at a par value of $0.001 per share, outstanding.

 

7. CREDIT FACILITY

 

On 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 termination by the borrower 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 BNP Credit Facility. The Company began transferring investments into Steele Creek Funding I, LLC in October 2020.

 

On April 29, 2021, Funding I executed an amendment to the BNP Credit Facility. The amendment solidified the LIBOR transition to Secured Overnight Financing Rate (“SOFR”) for the planned discontinuation of LIBOR. The amendment also increased the Individual Lender Maximum Facility Amount from $45.0 million to $80.0 million.

 

Funding I is required to pay an administrative agent fee equal to $25 thousand per annum and a structuring fee equal to 0.25% of the Maximum Facility Amount paid on the twelve month anniversary of the closing date. Additionally, an unused fee is payable quarterly in arrears 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 end of the revolving period.

 

As of September 30, 2021 and December 31, 2020, there was $67.4 million and $27.8 million outstanding, respectively, and $3.0 million and $17.2 million available, respectively, to be drawn under the BNP Credit Facility. As of September 30, 2021 and December 31, 2020, the BNP Credit Facility had a fair value of $67.4 million and $27.8 million, respectively and a weighted average interest rate of 1.87% 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 September 30, 2021 and December 31, 2020, Funding I was in compliance with all covenants of the BNP Credit Facility.

 

For the three and nine months ended September 30, 2021, we incurred interest expense of $0.3 million and $0.8 million on the BNP Credit Facility, respectively. The average debt outstanding for the three and nine months ended September 30, 2021 was $57.4 million and $47.8 million, respectively. 

 

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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, 2021 and December 31, 2020, the Company had unfunded commitments of $1.7 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, 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.

 

9. FINANCIAL HIGHLIGHTS

 

The following financial highlights are calculated for the shareholders as a whole.

 

  Nine months
ended
September 30,
2021
  Period
July 1,
2020
(commencement
of operations) to
September 30,
2020
 
Per share data:      
Net asset value at beginning of period $10.76  $- 
Net investment income (1)  0.10   0.06 
Net realized gain (1)  0.58   0.13 
Net change in unrealized (depreciation) appreciation (1)  (0.02)  0.23 
Net increase in net assets resulting from operations (1)  0.66   0.42 
Stockholder distributions from income (2)  (0.50)  - 
Issuance of common shares  -   10.00 
Other (3)  0.10   0.10 
Net asset value at end of period $11.02  $10.52 
         
Net assets at end of period $44,086  $24,017 
Shares outstanding at end of period  4,001,831   2,282,788 
Total return (2)  7.18%  5.21%
         
Ratio/Supplemental data:        
Ratio of net expenses excluding waivers and reversals to average net assets (4)  11.98%  2.91%
Ratio of net expenses including waivers and reversals to average net assets (4)  10.33%  2.91%
Ratio of net investment income to average net assets (4)  1.16%  2.46%
         
Portfolio turnover (5)  480.3%  216.5%

 

(1)The per share data was derived by using the weighted average shares outstanding during the period.
(2)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.
(3)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.
(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.

 

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10. SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through the date 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, or disclosure in, the financial statements other than those disclosed below.

 

On October 1, 2021, the Company issued and sold 2,269 shares of its common stock to certain investors for an aggregate offering price of $25 thousand. 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.

 

On October 12, 2021, the Company paid the third quarter dividend of $0.1657 per share. The dividend was declared on August 13, 2021 and paid to holders of record as of August 18, 2021.

 

On October 15, 2021, the Company issued and sold 140,154 shares of its common stock to certain investors for an aggregate offering price of $1.6 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.

 

On October 28, 2021, the Company amended the Credit Agreement between Steele Creek Capital Funding I, LLC, BNP Paribas, and the Company as dated October 13, 2013 (the "Agreement"). Material amendments to the Agreement include the revolving period being extended 36 months, from 12 months to 48 months and the interest rate being reduced from LIBOR plus 175 basis points to LIBOR plus 140 basis points. The advance rate was increased from 67.5% to 70% and expanded to include a triple C bucket with a 60% advance rate. Updates were made to allow for more flexibility to move capital out of the facility subject to certain covenants. Except as described above, all other terms and provisions of the Agreement remain in full force and effect. 

 

On November 5, 2021, the Company issued and sold 96,455 shares of its common stock to certain investors for an aggregate offering price of $1.1 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.

 

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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 “Investment Advisor”) to locate suitable investments for us and to monitor and administer our investments;

 

 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 capital;

 

 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 maintain our qualification as a BDC and as a RIC under the Code;

 

 the use of borrowed money to finance a portion of our investments;

 

 the adequacy, availability and pricing of our financing sources and working capital;

 

24

 

 

 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 are a financial services company that primarily invests in syndicated corporate bank loans, bonds, other debt securities, and structured products. We are an 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 provide moderate liquidity to our shareholders by offering a quarterly share repurchase program. As of September 30, 2021, no shares have been tendered through the share repurchase program. 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.

 

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Revenues

 

We 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 include the payment of fees to our Investment Advisor under the Investment Advisory Agreement, our allocable portion of overhead and rental expenses under the Administration Agreement and other operating costs described below. We 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;

 

26

 

 

 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. Through September 30, 2021, we have paid $0.8 million in organizational and offering costs on 4,001,831 shares.

 

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.

 

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Current Market Conditions

 

Despite concerns around the COVID-19 delta variant and inflation, the institutional loan market performed quite well in the third quarter. The loan market remained very active as M&A transactions fueled loan volume, which was met with strong demand from CLOs and retail funds to a lesser extent.  The average bid price of the Credit Suisse Leveraged Loan Index advanced 46 basis points during the quarter to 98.42, as the favorable technical backdrop persisted.  Rating agency upgrades continued to outnumber downgrades in the quarter, and the default environment remained benign with the trailing twelve month default rate falling to 1.1% according to Fitch ratings.  Given the aforementioned market dynamics, the rates for financings backed by broadly syndicated bank loans have improved year-to-date for borrowers. This can be recognized by the reduced rate for the credit facility utilized by Steele Creek Capital that was recently refinanced and extended.

 

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. 

 

Portfolio and Investment Activity

 

As of September 30, 2021, our portfolio had a fair market value of approximately $107.9 million, a cost basis of approximately $107.1 million and was comprised of leveraged loans and equity securities, measured at fair value. Our loan portfolio consisted of 131 investments in 26 industries. The following table depicts a summary of the portfolio as of September 30, 2021 (in thousands):

 

  Investments 
Cost $107,169 
Cumulative Net Unrealized Appreciation  774 
Fair Value $107,943 
Yield at Cost  4.78%

 

As of 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 investments 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%

 

28

 

 

As of September 30, 2021, 100.0% of the term loan investments in the portfolio bore interest at floating rates, with 76.6% of our loan portfolio (at fair value) and 76.5% 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 September 30, 2021, was as follows (in thousands): 

 

   September 30, 2021 
Interest Rate Floor  Fair Value  % of Floating
Rate Portfolio
  Cost  % of Floating
Rate Portfolio
 
 0.00% $25,240   23.39% $25,138   23.46%
 0.50%  26,179   24.26%  26,029   24.29%
 0.75%  37,605   34.85%  37,264   34.77%
 1.00%  18,894   17.50%  18,728   17.48%
             $107,918   100.00% $107,159   100.00%

 

As of December 31, 2020, 100.0% of the investments in the portfolio bore interest at floating rates, with 67.1% of our loan portfolio (at fair value) and 67.0% 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 December 31, 2020 was as follows (in thousands):

 

   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 480.3% for the nine months ended September 30, 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 and fundraising. However, this high level does provide an indication of the liquidity in our portfolio and the leverage loan market. The average yield for the nine months ended September 30, 2021 on the investment was 4.75%. The following tables depict the portfolio activity (in thousands):

 

  Three months
ended
September 30,
2021
  Period
July 1,
2020
(commencement of
operations) to
September 30,
2020
 
Fair Value, Beginning $110,970  $- 
Investment contributions  -   2,858 
Purchases  155,537   69,072 
Sales and Repayments  (159,041)  (45,806)
Payment in-kind interest income  2   - 
Non-cash income accrual  34   46 
Net realized gains  562   214 
Net unrealized (depreciation) appreciation  (121)  343 
Fair Value, Ending $107,943  $26,727 

  

  Nine months
ended
September 30,
2021
 
Fair Value, Beginning $67,811 
Purchases  467,840 
Sales and Repayments  (429,632)
Payment in-kind interest income  6 
Non-cash income accrual  112 
Net realized gains  1,887 
Net unrealized (depreciation) appreciation  (81)
Fair Value, Ending $107,943 

 

29

 

  

  Three months
ended
September 30,
2021
  Period July 1, 2020
(commencement of
operations)
to September 30,
2020
 
Investments, Beginning  137   - 
Investment contributions  -   3 
Purchases (new)  113   57 
Purchases (add-on to existing)  8   1 
Complete exit  (119)  (29)
Investments, Ending  131   31 

 

  Nine months
ended
September 30,
2021
 
Investments, Beginning  84 
Purchases (new)  340 
Purchases (add-on to existing)  36 
Complete exit  (293)
Investments, Ending  131 

 

The portfolio was diversified across both issuers and industries with the average investment exposure in our loan portfolio of $0.8 million at fair value, or 0.8% of the total portfolio, as of the nine months ended September 30, 2021. The following table shows the Loan portfolio composition by industry grouping at fair value as a percentage of total loans as of September 30, 2021:

 

Industry % of Fair Value
Rounded as of
September 30,
2021
 
Healthcare & Pharmaceuticals  15.5%
Services: Business  11.7%
Banking, Finance, Insurance & Real Estate  9.1%
Telecommunications  8.9%
High Tech Industries  8.6%
Containers, Packaging & Glass  5.4%
Transportation: Cargo  5.0%
Energy: Oil & Gas  4.6%
Aerospace & Defense  4.1%
Retail  3.6%
Capital Equipment  3.6%
Services: Consumer  2.8%
Hotel, Gaming & Leisure  2.4%
Transportation: Consumer  2.3%
Construction & Building  2.2%
Energy: Electricity  1.8%
Chemicals, Plastics, & Rubber  1.4%
Media: Advertising, Printing & Publishing  1.3%
Forest Products & Paper  0.9%
Automotive  0.9%
Beverage, Food & Tobacco  0.9%
Media: Broadcasting & Subscription  0.9%
Consumer goods: Non-durable  0.7%
Metals & Mining  0.5%
Utilities: Electric  0.5%
Consumer goods: Durable  0.4%
   100.0%

 

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The portfolio was diversified across both issuers and industries with the average investment exposure 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 loans as of December 31, 2020:

 

  As of
December 31,
2020
 
Healthcare & Pharmaceuticals  14.3%
Containers, Packaging & Glass  10.3%
Banking, Finance, Insurance & Real Estate  9.5%
Services: Business  9.5%
Aerospace & Defense  8.1%
High Tech Industries  5.9%
Telecommunications  5.7%
Services: Consumer  4.4%
Media: Broadcasting & Subscription  4.3%
Transportation: Cargo  3.8%
Energy: Electricity  3.7%
Automotive  3.1%
Construction & Building  3.0%
Transportation: Consumer  2.2%
Media: Advertising, Printing & Publishing  1.5%
Forest Products & Paper  1.5%
Capital Equipment  1.5%
Retail  1.5%
Energy: Oil & Gas  1.5%
Wholesale  1.2%
Hotel, Gaming & Leisure  1.1%
Environmental Industries  1.1%
Utilities: Electric  0.7%
Consumer goods: Durable  0.6%
   100.0%

 

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Results of Operations

 

Operating results were as follows (in thousands):

 

  For the
Three months
ended
September 30,
2021
  

Period
July 1,
2020

(commencement of

operations) to
September 30,
2020

 
Investment income:      
Interest income $1,280  $211 
Other income  -   11 
Total investment income  1,280   222 
         
Expenses:        
         
Management fees  533   - 
Interest and debt financing expenses  339   - 
Professional fees  103   106 
Incentive fees  66   - 
Offering costs – paid by Moelis Asset  12   - 
Administration expenses  38   3 
Directors’ fees  18   - 
Custody fees  8   8 
Other general and administrative expenses  130   3 
Total expenses  1,247   120 
Less: management fees waived  (259)  - 
Incentive fee waiver reversal  135   - 
Net expenses  1,123   120 
Net investment income  157   102 
Net realized gain on investments  562   214 
Net unrealized (depreciation) appreciation on investments  (121)  343 
Net realized and unrealized gain on investments  441   557 
Net increase in net assets $598  $659 

 

32

 

 

  For the
Nine months
ended
September 30,
2021
 
Investment income:   
Interest income $3,074 
Other income  14 
Total investment income  3,088 
     
Expenses:    
     
Management fees  1,272 
Interest and debt financing expenses  850 
Professional fees  401 
Incentive fees  271 
Offering costs – paid by Moelis Asset  111 
Administration expenses  113 
Organizational costs  37 
Organizational costs – paid by Moelis Asset  24 
Directors’ fees  60 
Custody fees  23 
Other general and administrative expenses  184 
Total expenses  3,346 
Less: management fees waived  (590)
Less: incentive fees waived  - 
Net expenses  2,756 
Net investment income  332 
Net realized gain on investments  1,887 
Net unrealized (depreciation) appreciation on investments  (81)
Net realized and unrealized gain on investments  1,806 
Net increase in net assets $2,138 

 

Investment Income

 

Investment income for the three and nine months ended September 30, 2021 of approximately $1.3 million and $3.1 million is recorded on the accrual basis to the extent that such amounts are expected to be collected. Investment income for the period July 1, 2020 (commencement of operations) to September 30, 2020 of approximately $0.2 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 for the three and nine months ended September 30, 2021 of approximately $1.2 million and $3.3 million, respectively, include management, incentive, audit and tax preparation fees, organizational costs, offering costs, interest and debt financing costs, directors’ fees, administration expenses and other general and administrative expenses. Total expenses for the period July 1, 2020 (commencement of operations) to September 30, 2020 of approximately $0.1 million include 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. Moelis Asset, parent of the Investment Advisor paid approximately zero and $36 thousand for the three and nine months ended September 30, 2021, respectively, 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.  

 

For the three and nine months ended September 20, 2021, the Investment Advisor waived $0.3 million and $0.6 million of management fees. The Company did not charge a management fee or incentive fee for the period the Company was an LLC, July 1, 2020 (commencement of operations) through September 30, 2020.

 

33

 

 

Net Realized Gain on Investments

 

Sales and repayments of investments during the three and nine months ended September 30, 2021 totaled approximately $159.0 million and $429.6 million resulting in net realized gains of approximately $0.6 million and $1.9 million, respectively. Sales and repayments of investments during the period July 1, 2020 (commencement of operations) through September 30, 2020 totaled $45.8 million resulting in net realized gains of $0.2 million.

 

Net Unrealized Appreciation on Investments

 

Unrealized depreciation during the three and nine months ended September 30, 2021 totaled approximately $121 thousand and $81 thousand, respectively, reflects the changes in fair value of investments as determined in compliance with the Investment Advisor’s valuation policy. Unrealized appreciation during the period July 1, 2020 (commencement of operations) through September 30, 2020 totaled approximately $0.3 million reflects the changes in fair value of investments as determined in compliance with the Investment Advisor’s valuation policy.

 

Taxes

 

We intend to elect to be treated, and intend to qualify annually to maintain our election to be treated, as a RIC 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 tax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of the sum 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 purposes 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 and GAAP may be permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial Statements to reflect their appropriate tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the 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 purposes while facilitating our ability to qualify as a RIC under the Code.

 

Financial Condition, Liquidity and Capital Resources

 

We 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 is investments in portfolio companies, payments of our expenses and payment of cash distributions to our stockholders.

 

Capital Contributions

 

For the three and nine months ended September 30, 2021, the Company issued and sold 219,616 shares and 1,368,603 shares of Common Stock with a par value of $0.001 per share for an aggregate offering price of $2.4 million and $15.0 million, respectively. For the period July 1, 2020 (commencement of operations) through September 30, 2020, the Company issued and sold 2,828,787 shares of Common Stock with a par value of $0.001 per share for an aggregate offering price of $23.4 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 there 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.

 

34

 

 

We provide moderate liquidity to our shareholders by offering a quarterly share repurchase program. As of September 30, 2021, no shares have been tendered through the share repurchase program.

 

As of September 30, 2021, the Company issued 4,001,831 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 and nine months ended September 30, 2021, we had an average of $57.4 million and $47.8 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.

 

On April 29, 2021, Funding I executed an amendment to the BNP Credit Facility. The amendment solidified the LIBOR transition to Secured Overnight Financing Rate (“SOFR”) for the planned discontinuation of LIBOR. The amendment also increased the Individual Lender Maximum Facility Amount from $45.0 million to $80.0 million.

 

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.

 

35

 

 

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 September 30, 2021 and December 31, 2020, the Company had total senior securities of $67.4 million and $27.8 million, respectively, consisting of borrowings under the Credit Facility, and had asset coverage ratios of 165.5% 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

 

Valuation Procedures

 

Under procedures established by our Board and in accordance with the 1940 Act, we 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.

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 – Fair Value Measurements and Disclosures (“ASC Topic 820”) specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. ASC Topic 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 Topic 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.

 

36

 

 

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

 

The base management fee and the income-based incentive fees are expensed each quarter and payable in arrears. Additionally, we accrue a capital gains-based incentive fee quarterly that is paid annually in arrears. The accrual for the capital 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 while we accrue the capital incentive fee quarterly, the expense will fluctuate with the Company’s overall investment results and the expense will be finalized at year end.

  

37

 

 

Expenses

 

For the three and nine months ended September 30, 2021, the Company incurred expenses of approximately $1.2 million and $3.3 million, respectively, 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. For the period July 1, 2020 (commencement of operations) through September 30, 2020, the Company incurred expenses of approximately $0.1 million, primarily related to professional fees, custodian fees and other general and administration 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, 2021 and September 30, 2020, 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, 2021 and December 31, 2020 the Company had unfunded commitments of $1.7 million and $0.4 million, respectively.

 

38

 

 

The following table reflects information pertaining to our principal debt outstanding under the Credit Facility:

 

  Debt
Outstanding
as of
September 30,
2021
  Weighted
average debt
outstanding for the
nine months
ended
September 30,
2021
  Debt
Outstanding
as of
December 31,
2020
  Weighted
average debt
outstanding for
the period
October 13,
2020
through
December 31,
2020
 
Credit Facility $67,350  $47,764  $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. As of September 30, 2021, we had a total of $1.7 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 $0.4 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.

 

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 September 30, 2021, affiliates owned approximately 58% of the Company representing approximately $25.5 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 September 30, 2021, Moelis Asset, parent of the Investment Advisor did not make a contribution to the Company. For the nine months ended September 30, 2021, Moelis Asset contributed $36 thousand to pay organizational and offering costs incurred by the Company related to the formation of the entity, respectively. 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 and nine months ended September 30, 2021, there were no purchases of investments from or sales of investments to affiliates of our Investment Advisor. For the period 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 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 directors’ compensation for the three independent directors in accordance with the governing documents. For the three and nine months ended September 30, 2021, the Company incurred $18 thousand and $60 thousand in directors’ fees expense, respectively. For the period July 1, 2020 (commencement of operations) to September 30, 2020, the Company did not incur a directors’ fees expense. On August 13, 2021, the Board agreed to make investments rather than gross assets the basis for their fee to be more inline with the waivers implemented for management fees.

  

The Company carries employment practices liability, directors and officers and errors and omission insurance. For the best interests of the Company, these policies are joint liability policies with Moelis Asset and its affiliates.

  

Organizational and Offering Expenses

 

For the three and nine months ended September 30, 2021, the Company incurred $12 thousand and $172 thousand of organizational and offering costs, respectively. 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 $12 thousand and $135 thousand of organizational and offering costs incurred by the Company related to the formation of the entity, respectively. Moelis Asset incurred these expenses and they will not be charged back to the Company.

 

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Investment Advisory Agreement

 

We have entered into the Investment Advisory Agreement with the Investment 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. Net management fees for the three and nine months ended September 30, 2021 were $274 thousand and $682 thousand, respectively. The Company elected to waive a portion of the management fee and charged management fees on investments rather than gross assets. The Company did not charge a management fee for the period the Company was an LLC, July 1, 2020 (commencement of operations) through September 30, 2020. 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

 

Management has evaluated subsequent events through the date 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, or disclosure in, the financial statements other than those disclosed below.

 

On October 1, 2021, the Company issued and sold 2,269 shares of its common stock to certain investors for an aggregate offering price of $25 thousand. 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.

 

On October 12, 2021, the Company paid the third quarter dividend of $0.1657 per share. The dividend was declared on August 13, 2021 and paid to holders of record as of August 18, 2021.

 

On October 15, 2021, the Company issued and sold 140,154 shares of its common stock to certain investors for an aggregate offering price of $1.6 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

 

On October 28, 2021, the Company amended the Credit Agreement between Steele Creek Capital Funding I, LLC, BNP Paribas, and the Company as dated October 13, 2013 (the "Agreement"). Material amendments to the Agreement include the revolving period being extended 36 months, from 12 months to 48 months and the interest rate being reduced from LIBOR plus 175 basis points to LIBOR plus 140 basis points. The advance rate was increased from 67.5% to 70% and expanded to include a triple C bucket with a 60% advance rate. Updates were made to allow for more flexibility to move capital out of the facility subject to certain covenants. Except as described above, all other terms and provisions of the Agreement remain in full force and effect. 

 

On November 5, 2021, the Company issued and sold 96,455 shares of its common stock to certain investors for an aggregate offering price of $1.1 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.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are subject to financial market risks, including changes in interest rates. 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 September 30, 2021, 100% of our loan portfolio bore interest at floating rates with 76.6 % (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 and nine months ended September 30, 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:

 

  For the nine months ended
September 30, 2021
 
Basis Point Changes Interest
Income
  Interest
Expense
  Net
Income
 
Up 300 basis points $3,698  $(2,021) $1,677 
Up 200 basis points  2,230   (1,347)  883 
Up 100 basis points  763   (674)  89 

 

 

(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.

 

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Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of September 30, 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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report on Form 10-K”), which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than the risk factors below, during the three months ended September 30, 2021, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Default Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits, Financial Statement Schedules

 

Exhibit Index

 

3.1 Form of Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Registrant’s Amendment No. 1 to Registration Statement on Form 10 (File No. 000-56189) filed on November 9, 2020).
   
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to Registrant’s Amendment No. 1 to Registration Statement on Form 10 (File No. 000-56189) filed on November 9, 2020).
   
10.1* Second Amendment to the Credit Agreement with BNP Paribas
   
31.1* Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2* Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

*Filed herewith

 

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SIGNATURES

 

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

 

 Steele Creek Capital Corporation
  
Date: November 12, 2021/s/ Glenn Duffy
 Name: Glenn Duffy
 Title:Chief Executive Officer,
Chief Investment Officer, and President
(Principal Executive Officer)
  
Date: November 12, 2021/s/ Douglas Applegate Jr.
 Name: Douglas Applegate Jr.
 Title:Chief Financial Officer
(Principal Financial and Accounting Officer)

 

 

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